L.B. Foster Company (FSTR) Q3 2019 Earnings Report, Transcript and Summary

Greetings. Welcome to L.B. Foster Company Third Quarter 2019 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Judith Balog, Investor Relations Manager. Ms. Balog you may begin.

Thank you. Good evening, ladies and gentlemen. Thank you for joining us for L.B. Foster Company's earnings conference call to review the company's third quarter 2019 operating results, and 2019 fourth quarter and full year outlook. My name is Judy Balog and I am the Investor Relations Manager of L.B. Foster. Hosting the call today is Mr. Robert Bauer, L.B. Foster's President and CEO. Also on the call is, Mr. James Maloney, L.B. Foster's Chief Financial Officer. In addition to our press release, we have a third quarter presentation on our website under the Investor Relations tab for those who have online access. This evening, Jim will review the company's third quarter and year-to-date financial results and discuss fourth quarter and full year outlook. Afterward, Bob will review the company's third quarter and year-to-date performance, and provide an update on significant business issues and market developments. We will then open the session for questions. During today's call, our commentary and responses to your questions may contain forward-looking statements, including items such as the company's outlook for our businesses and markets, cash flows, margins, operating costs, capital expenditures, and other key business metrics, issues and projections. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from statements we make today. These forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise or publicly release the results of any revisions to these statements in light of new information, except as required by securities laws. All participants are encouraged to refer to L.B. Foster's annual report on Form 10-K for the year ended December 31, 2018 as updated by subsequent items filed with the Securities and Exchange Commission for additional information regarding risk factors that may affect our results. In addition to the results provided in accordance with the United States, generally accepted accounting principles, our commentary includes non-GAAP earnings before interest, tax, depreciation and amortization or EBITDA statements. Non-GAAP adjusted EBITDA and non-GAAP net debt. A reconciliation of net income to non-GAAP EBITDA and adjusted EBITDA and a reconciliation of total debt to net debt have been included within the company's 8-K filing. Statements referring to EBITDA, adjusted EBITDA and net debt are considered non-GAAP measures and while they are not intended to replace the presentation of our financial results in accordance with GAAP the company believes that the presentation of these measures provides additional meaningful information for investors to facilitate the comparison of past, present and forecasted operating results. Our accompanying earnings presentation reconciles these non-GAAP measures to the corresponding GAAP measure. With that, we will commence our financial review discussion. And I'll turn it over to Jim.

Thank you, Judy. Thank you all for joining us today. I'm going to cover the third quarter and year-to-date financials along with providing a fourth quarter and full year outlook. I'd like to begin my discussion with net sales. The third quarter 2019 net sales declined from the second quarter to $154 million compared to $167 million in the prior year. Year-to-date, net sales were $506 million compared to $462 million, an increase of $43 million or 9.4%. Starting with the Construction segment, sales increased from the prior year quarter by $6 million or 13.6%. The increase was supported by each division within the segment with Piling Products increasing 3.6%, Fabricated Bridge increasing 17.8% and Precast Concrete Products with an increase of 25.4%. Year-to-date sales increased $27 million or 24.2%, with Piling Products increasing 26.8%, Fabricated Bridge increasing 23.3% and Precast Concrete Products increasing 21.4%. The increase was driven by the strong backlog as we entered into 2019. In the Rail segment, sales decreased by $17 million or 19.8% from the prior year quarter. The decline in sales was driven by the timing of transit projects in the Crossrail volume. For the first nine months of 2019, the Rail segment sales increased $6 million or 2.6%. Our year-to-date Rail products business saw a sales increase of 9.9%, mainly due to demand for new rail and insulated joint products and also expanding transit projects. Our year-to-date Rail technology sales partially offset the segment increase with a 7.6% decline in sales. This decline was primarily due to European transit market as activity levels on the Crossrail began to decline as we approach the completion of that project. The Tubular and Energy Services sales decreased $2 million or 4.1% in the third quarter when compared to the prior year quarter, due to weakness in served upstream market. Year-to-date sales increased $10 million or 8.7%, driven by growth in our Protective Coatings and Measurement Systems business unit, where sales increased 20.1%. This increase was partially offset by a reduction in Test Inspection and Threading Services sales of 8.4%. Now looking at gross profit. During Q3 consolidated gross profit decreased $4 million or 11.5% over the prior year quarter to $28 million. Gross profit margin of 17.9% was a reduction of 80 basis points from the prior year quarter. Gross profit for the first nine months increased $7 million or 8.6% over the prior year period totaling $94 million with each of the three reporting segments contributing to the increase. Year-to-date gross profit margin was reduced slightly to 18.6%, a reduction of 10 basis points. The Rail segment gross profit decreased 11.8% in the third quarter, due to lower shipments of new rail and declines in services provided for the London Crossrail that had been anticipated as the project approaches completion. The nine months period gross profit however was 6.5% above prior year 9-month period. This increase was driven by increased sales volumes for our domestic Rail Products business unit. Also contributing to the growth, was a gross profit margin increase of 70 basis points, which was primarily attributable to our Allegheny Rail and domestic transit products. Our Construction segment gross profit saw a 5.7% improvement over the prior year quarter and a 16.1% improvement over the nine-month period due to significant sales growth for the segment. The segment's gross profit margin decreased by 100 basis points. The decrease primarily resulted from the dilutive impact of a greater sales contribution by our lower-margin distribution products. The Tubular and Energy Services' gross profit decreased 22% over the prior year quarter due to weakness in the upstream markets we serve. Year-to-date the segment reported a 7.2% increase over the prior year period, driven by our Protective Coatings and Measurement Systems business. Conversely gross profit margin year-to-date decreased 40 basis points compared to the prior year, primarily due to Test Inspection and Threading Services volume. Moving on to our expenses. Our consolidated selling and administrative expenses increased $600,000 or 2.8% to $22 million in the third quarter and our nine months SG&A expenses increased by $1.5 million or 2.4% to $67 million in 2019 mainly due to supporting the $43 million of sales growth during the year. As a percent of sales, this resulted in a decline of 90 basis points compared to the prior year. Net interest expense was reduced $200,000 or 16.7% for the third quarter and $800,000 or 16.2% for the first nine months when compared to the prior year. The company's income tax expense for the first nine months of 2019 was $2 million with an effective tax rate of 12.7%. Our effective tax rate includes a 9.2% benefit related to the realization of U.S. deferred tax assets that were previously offset by valuation allowance. Our third quarter 2019 net income was $3 million or $0.29 per diluted share compared to $6 million or $0.61 per diluted share last year. Year-to-date, net income was $16 million or $1.53 per diluted share compared to $10 million or $0.95 per diluted share in the prior year. This represents an approximate 60% increase in earnings. EBITDA totaled $9 million in third quarter of 2019, a decrease of $4 million compared to last year. Year-to-date EBITDA totaled $36 million, a $6 million improvement over the prior year. As a percentage of sales nine-month EBITDA was 7.1% a 60 basis point improvement over the prior year period. Turning to the balance sheet. Our trade working capital decreased $14 million compared to June 30, 2019 due to the decline of accounts receivable of $14 million and inventory of $6 million. Accounts payable and deferred revenue decreased $5 million during the third quarter of 2019 as compared to June 30, 2019. As we expected as a result of continued profits and the reduction of our working capital, our net debt decreased $21 million in the current quarter. Now moving on to our cash flow activity. Our cash provided from operating activities in the third quarter of 2019 was $23 million compared to $15 million in 2018. The $8 million increase in operating cash flow was primarily related to continued profits and reduction in trade working capital in the second half of the year as we discussed this on our Q2 earnings call. During the third quarter of 2019, our investing activities included capital expenditures of $1 million which was flat when compared to the prior year quarter. The current year expenditures relate to plan expansion and automation integration programs within Tubular and Energy Services segment. We anticipate our 2019 capital expenditures to range between $8 million and $11 million and we plan on continued focus on programs that are targeted at growth and improved operational efficiencies. I will provide some commentary on our new orders and backlog activity next. As we've said in the past, our quarterly order activity varies quarter-over-quarter due to the timing of customer projects, especially when we have a larger order in any given quarter. We believe it is better to evaluate our order activity for a longer period than just three months. For that reason, we have been providing you with information on our quarter and trailing 12-month order activity. Our third quarter 2019 new orders were $144 million, a decrease of 22.5% compared to the last year's third quarter. For the trailing 12-month ended September 30, 2019 new orders were $627 million, a 5.7% decrease over the prior trailing 12-month period. The primary decrease in orders for the quarter and the trailing 12-month period is the large Port Everglades project booked in our Construction segment in 2018 third quarter. The Tubular segment new orders for Q3 decreased 24% from the prior year quarter. This was driven by softened activity in upstream market, we serve when compared to the prior year quarter. For the trailing 12-month period orders increased 9.9%. Construction segment new orders decreased 38.7% and 18.4% for the Q3 and the trailing 12-month period respectively. As previously mentioned the Port Everglades project was booked in the prior year third quarter and an order of that magnitude has not been booked in 2019. The third quarter orders for Rail segment decreased 3% and 4.8% for the Q3 and the trailing 12-month period respectively. This decline was more significantly felt in our North American and European transit activity. Backlog stood at $194 million at the end of the third quarter, a reduction of $58 million or 22.9% from the prior year backlog of $252 million. Bob will discuss in much greater detail, dynamics of our order and backlog activity. So I will move on to our fourth quarter and full year outlook next. Typically our fourth quarter sales are below third quarter as certain segments of the Rail and Construction markets complete seasonal projects. However, with a starting backlog of $194 million we are forecasting fourth quarter sales to be above the third quarter and in a range of $155 million to $170 million and we anticipate another quarter with gross profit margins in excess of 18%. This is expected to result in full year 2019 sales in the range of $660 million to $675 million up at least 5% from the prior year sales of $627 million. This volume is expected to bring our full year 2019 EBITDA to exceed $45 million, an increase from the prior year adjusted EBITDA of $41 million. As discussed, we expect our sales and profitability to be better than the third quarter and we expect to generate free cash flow in the fourth quarter to continue to strengthen our balance sheet. That concludes my comments on the third quarter of 2019. With that I will now turn it over to Bob for his business review.

Thank you Jim and hello everyone. This is a challenging quarter to explain all the moving parts which is why Jim covered both third quarter and year-to-date results in more detail this time. As we felt it was necessary to help you understand our current performance. This quarter is a good example of our business can fluctuate from one quarter to the next and why our focus is always more on how the year is progressing. We're continuing to have a good year and the nine-month year-to-date results are very favorable to prior year, despite the fact that we expected third quarter sales and profit to be above what we've reported. Last quarter, I discussed the second half outlook, which was expected to reflect typical seasonality trends including declining sales and backlog through the end of the year. As order patterns changed with timing of key projects and some pockets of weakness emerged, we're now expecting fourth quarter sales to exceed the third quarter. More importantly, we're now expecting fourth quarter operating profit to exceed third quarter operating profit. This is partly driven by the fact that our third quarter pretax profit included a number of expenses that are not expected to repeat in the fourth quarter. I'm going to cover more on the fourth quarter outlook later. Our year-to-date performance beginning with the sales increase of 9.4% has put us in a position to have a good year. This is in part due to the success we've been having for the past year that drove record-level backlog to begin the year. As the year progressed, we have experienced slowing demand in a few markets and the shift of projects outward in the later periods. This has led the third quarter sales to decline by 7.7%, while still achieving year-to-date sales growth of 9.4%. So to help explain the dynamics of orders and sales, I'm going to put things into three buckets. The first is the influence that two substantial projects are having on prior year comparable orders and sales the London Crossrail project and Florida's Port Everglades project are the two projects. Second bucket consists of customers and markets that are experiencing delays including capital projects that are being shifted further out into the future. And the third bucket is the pockets of weakness in upstream energy and U.S. freight rail markets. In this case, demand for our products and services has softened. But let me begin with the first category. The Crossrail and Port Everglades projects are having a significant impact on year-over-year comparisons for the third quarter and year-to-date results. The Port Everglades project is the $28 million project booked last year in Q3 for a cruise ship terminal project in Florida. The shipments of piling for the phase we originally secured is now complete. Sales have been recognized in every quarter since they began in Q4 of last year. And this has caused total pilings sales in Q3 to be up 3.6%. However, total piling orders account for 68% of the total consolidated company order decline in the third quarter. This project has also had an unfavorable impact on third quarter operating results as expenses that have been considered, an investment to win future marine orders with the same contractor were recognized. And I am happy to report that we have secured additional work from that customer recently. The second project is London's Crossrail project, which we have been discussing for more than two years as our European business has grown substantially by providing services for telecommunication systems and automation solutions related to London's new transit rail stations. These are state-of-the-art passenger information, security and monitoring systems that grew to be a substantial portion of our European rail business volume. This project is headed toward its conclusion as the last few stations are nearing completion. As we work on the remaining stations, we are looking forward to the next group of investments that include high-speed rail projects in the U.K. and increases in funding for the UK's network rail systems. We believe our service team is uniquely positioned to win a portion of these projects. The second bucket involves the impact from transit rail and midstream energy markets both of which have solid underlying long-term demand at the moment, but are dealing with timing of new projects and some delays for new construction. Excluding the Crossrail project, the transit rail market has been fairly strong in recent quarters as expansion projects to address demand in congested cities is driving investment. This is a big factor in the 10% year-to-date growth in Rail Products. However, this is not a market where business is steady every quarter. It's driven by large capital spending and often encounters delays due to public funding issues. We're still optimistic about this market long-term, although the market environment from time to time does give rise to fluctuating volume from one year to the next and one quarter to the next. Similar characteristics are encountered with midstream pipeline projects. There is significant demand for greater takeaway capacity to support production growth in key basins across the United States. Our backlog for coated line pipe and Measurement Systems has been strong over the last 12 months from orders that tend to come in large amounts and can take many months to ship. It's not uncommon to have quarterly sequential order declines or increases. For the quarter, our two divisions serving mostly midstream applications had declining order sales and backlog. However, on a year-to-date basis both orders and sales have increased. There is widespread agreement among industry experts that pipeline capacity is needed to support rising production volume and the current capacity is insufficient to deal with the anticipated growth. In support of this need, we were very pleased to have secured an order this month for Protective Coatings valued at approximately $20 million that has provided a significant boost to October backlog. The third and final bucket are pockets of weakness. In the upstream energy market, energy tubular services have softened as a result of cutbacks in new rig deployments, tariffs and quotas that are hurting our volume from foreign pipe sources, and other supply chain pressures from users cutting costs by asking for fewer services. This market was viewed just a year ago as a potential growth area as U.S. developers forecasted production growth from shale regions that would far exceed prior volumes. The U.S. is exporting oil and natural gas liquids at volumes never seen before, yet the market is struggling and companies in the space are still consolidating or struggling to achieve positive cash flow. With well economics-driving decisions, it's critical to be focused on the most profitable locations. We are continuing to reorganize operations to address this need by expanding service offerings in the Permian region. We are adjusting operations in the Rockies to react to shifting demand into Wyoming, and we are continuing to add services in strategic locations where demand is the greatest. Unfortunately, volume of foreign-made pipe coming into our Texas facilities has declined. Lower imports on foreign oil country tubular goods have made our Texas operations less profitable putting additional stress on a business that still hasn't fully recovered from the last downturn. We are continuing to prioritize efforts to improve profit in this division including new business from domestic pipe sources. In the meantime the Tubular and Energy segment as a whole has increased segment profit on a year-to-date basis and has the highest segment profit margins among our reporting units. The United States freight rail market is the other pocket of weakness. The U.S. freight rail carriers have reported declining commodity carload volume in recent quarters. Most industry news and public company statements refer to general economic slowdown, difficult conditions in agriculture, continued softness in coal, and lower intermodal shipments. The freight market is about 40% of our Rail segment sales and does contribute to a sizable portion of new rail shipments. So, the impact on our results from this sector was not widespread and was largely contained a new rail shipments in the third quarter. On a year-to-date basis, new rail shipments have increased and helped drive the 10% year-to-date growth in Rail Products. I'm going to turn to operating performance now and make just a few comments here. Gross profit has followed the similar pattern as sales with third quarter gross profit declining while the year-to-date results still look pretty good. We're particularly pleased with the year-to-date gross margin improvement of 70 basis points in the Rail segment driven by our Rail Product divisions. There were a number of other divisions in the Construction and Tubular segments reporting gross margin improvement but the cost related to Port Everglades and the weak energy market provided enough of a drag on margins to keep the two segments from improving. The non-recurring expenses I mentioned were more impactful to the third quarter, where the 80 basis point decline in year-over-year third quarter gross margins is valued at about $1.2 million. We incurred expenses in Q3 related to customer investments and reserves for potential disputes that we don't expect to repeat. These expenses exceeded $1.2 million in the third quarter. Although the third quarter performance was lower than expected, our nine-month results still look very good overall with a 20% EBITDA improvement and a 63% net income improvement over prior year. So, I'm going to wrap-up with fourth quarter and full year outlook. The starting backlog of $194 million has provided some support for the changing sales forecast whereby fourth quarter sales are now expected to exceed the third quarter. I am happy report we just secured $40 million in three large projects in October; one of which was the $20 million project for Protective Coatings I just mentioned. The other $20 million is one of those delayed transit orders we've been speaking about as well as a smaller piling project from the engineering and construction firm that gave us the Port Everglades project. As Jim mentioned, our fourth quarter sales are forecast to range between $155 million and $170 million, and we recognize the potential for deliveries to change as shipments towards year-end sometimes are affected by weather. We've taken into consideration, our primary concern around the energy market, our forecast for EBITDA to exceed the third quarter level which was $8.6 million has some upside potential. We'll be striving to beat that number in order to deliver full year EBITDA that exceeds $45 million and would be a significant improvement over 2018. I thought our operating cash flow in Q3 was very good. As expected working capital was a significant contributor to the performance and we expect to generate free cash flow in the fourth quarter that will provide funds to reduce debt further at year-end. So our balance sheet has continued to strengthen. I expect that we'll end the year having made further progress on reducing our net debt-to-EBITDA ratio and the company is in a good position to fund our key growth initiatives and other strategic actions intended to drive value. So all-in there with my comments and return it back to the operator so that we can take any questions that anyone might have.

At this time, we’ll be conducting a question-and-answer session [Operator Instructions] Our first question is from Chris Van Horn, FBR, FBR. Please proceed with your question.

Good afternoon. Thanks for taking my call.

Thank you, Chris.

I just wanted to start with a gross profit and make sure I heard you correctly. It sounds like there were some one-time items exceeding $1.2 million. So if you adjust for those one-time items, we have a gross profit that's more in the 18% level. And I just want to confirm that that's the right way to think about it?

That is the message we were trying to send. We didn't actually want to restate it ourselves since we don't want to restate numbers too much in this. But essentially, yes, there were $1.2 million of extraordinary items that we don't expect to recur.

Okay. Got it. And then if I look at -- I look out heading through this quarter and into 2020 well majority of your margin opportunity come from your product mix. Do you see it coming from a higher volume? Combination of both?

You're asking with regard to 2020 volume?

Just in regard to margin expansion opportunities, do you see the opportunity for margins to move higher based on your product mix or an overall increase in volumes or a combination of both? Is there any other factors that we should think about?

Well, I don't think at this point in time, we'd probably forecast that there would be significant expansion due to product mix. That one you can probably I’d say rule out. When that does happen what is usually occurring is that our new rail and our piling shipments are changing, because those two businesses with their distribution models have the gross margins well below the company average, but I wouldn't forecast something for those two product lines that are significantly different from the rest of the business. So I don't think it's going to be a mix issue. It will -- so we're not forecasting at this point in time what the coming quarters are going to look like, but margin expansion opportunities, which is where I think you're coming from they're going to be more related to volume and cost reductions than they would be mix.

Perfect. Exactly what I was asking. Okay. And so could you give us a sense -- I think you mentioned you have $190 million in backlog, is there a difference in timing based on the projects that are in there? I mean, there probably is a difference in timing, but could you get into a little bit detail of is there a broad difference in timing of some of the awards in backlog and any sort of sense of how those might roll out?

Yeah. I wouldn't describe the timing to be substantially different from the timing profile that we had when our backlog was kind of at a peak level this time last year when it was at $250 million. We always have orders in Protective Coatings part of our business, they go to pipeline construction, and that backlog some orders can run for a year. That's probably the one that is the longest when you take a look at our backlog. Some of the measurement systems that we have, those could be backlog that could run out six to eight months. But most -- everything else we have particularly in the Rail segment and in the construction area, other than that Port Everglades project, which was a $28 million piling project and took us a year to complete most of the timing for the rest of the business in those two segments and the profile of that hasn't really changed compared to the way it normally looks.

Okay, got it. And if I look at your $155 million to $170 million guidance, thank you for offering that. If I look at that range, it sounds like the puts and takes between $155 million and $170 million, it could be due to a variety of reasons whether it's timing, whether it's -- it could be -- I think you mentioned a little bit of weather possibilities. Is there anything else to think about of the difference between the $155 million and $170 million?

That's largely on the low end and a bit of our conservative side would be the weakness in the energy market. That's probably the market that has us most concerned from a weakness standpoint. And that's not one of our most sizable businesses but it's the area that from a market standpoint would have the most risk with weather traditionally that will affect our Precast Concrete buildings. And that's usually significant shipments as we go into the end of the year. Sometimes there are some rail projects that get affected by it, but that is -- that's largely I think where the risk normally comes from, we can't really point to much else.

Okay. And then last for me from looking at your end markets and your product lines, competitive landscape seems pretty limited depending on what you're looking at. But have you seen a rise in a -- from a competitive standpoint when booking these orders? Or is it the way it's been over the past year?

Yeah. I don't think there's been a rise. We compete in very competitive markets. I can't point to any real new competitors. Part of what you may be probing at is that sometimes when markets get a little bit weak, people tend to fight a little bit harder for what business there is out there. I can't say that I can give you any examples along those lines either. When contracts come up for bid particularly in our Rail segment, which has a number of multiyear contracts that we have on our product lines, there's always a fair amount of competitive tension at that time. But again I don't think I could describe it as any more intense right now than I would have described it one or two years ago. So I think the environment pretty much is similar to what we've had in the past and we've got enough competitors in every segment we compete in. So think of it as very similar to what we've had in the past.

Okay, great. Thank you so much for the time.

Yeah. Thank you.

[Operator Instructions] Our next question is from Brett Kearney, Gabelli Funds. Please proceed with your question.

Hi, guys thanks for taking my questions.

Yeah. Thank you, Brett.

Just wanted to ask if you could provide, I guess anymore qualitative color, what you're hearing transit business -- I'm sorry the Rail business side. I guess both latest indications as some of your customers on the freight rail side are looking into 2020, I guess taking into consideration some of the volumes on carloads that you referenced. And then on the transit of rail side as well. It sounds like at this point you alluded to municipalities securing funding. I guess, just any color, you could provide on what you're hearing seeing there, activity levels and the funnel projects you're tracking on the transit side as well?

Yeah. I'll start with the freight piece. That's a difficult one to answer today. We all know a little bit more around the January time frame, which is a time when the U.S. freight rail carriers typically release projects that they wind up telling the market about at certain conferences that we participate in with them. They don't actually always project dollars of spend but they give us directionally where it looks like it's going to go and they talk about certain specific programs that are going to be funded. So it's difficult for me to project right now, how you'll see the volume for 2020 in comparison to 2019 for both the maintenance and the capital side of what we participate in. And as I said a little while back that's about 40% of our rail volume. So it's important to us, it's not the majority of what we do. But transit is an equal side or about an equal amount. It's a little bit more than 40% as well and then industrial and other applications is the balance. So transit has been a really strong area for us. In the last 12 to 18 months, we booked a number of projects, backlog increased substantially, as we exited 2018 and into 2019. So we had quite a few projects in the pipeline, and we found the period here more recently where some of the new ones haven't yet been started, so that's one of the significant impacts on our order bookings, but our outlook for transit has not really changed. We think the market for transit in North America and in Europe, where we participate are going to continue to be good long-term markets to compete in. There will be projects that move around over the course of 2020. And there again, I can't give you directionally where we think that's going to go exactly. One of the areas we're keeping our eye on that is somewhat unpredictable will be the spending in the U.K. and whether or not the issues that they're wrestling with in the U.K. and their economy, how that might affect network rail, investments next year. But we do know for sure that we will see some volume decline in the London Crossrail project and we're eagerly working on things in the across the whole U.K. to try to replace that volume. So that will be one of our headwinds, but I do think that we might see some more volume out of U.K.'s network rail. But I think we have to get past Brexit and a few other things going on to really know whether or not that's going to be a good year.

Okay. Terrific. Thank you. That's very helpful. Just one other follow-up. Appreciate the outlook the guidance you provided on the quarter remainder of the year. Is that just a function of, I guess some of the orders that I guess kind of got pushed out and you've gotten thus far in October? Or do you kind of intent to provide either quarterly or annual kind of outlook on a continuing basis going forward?

Yeah. Right now, we're not planning to provide it on a regular basis. One of the things that motivated us to do that this time is that last quarter on the call, we suggested that the – what the second half outlook might be like, and I indicated that we would probably see sales in the fourth quarter would be below the third quarter. And that was, because we thought we'd see typical seasonality and then things changed through the quarter. Given that, plus the profit that we had as well in Q3, we thought that that might be an indication to the investment community of what the fourth quarter might look like. We thought that – those comments along with third quarter performance might cause people to be way off if you will in the fourth quarter. And given the fact that, we're approaching the end of the year, we made the decision to provide that guidance to try to help people understand what's going on, on our business. And I guess, I'll go back to what I said at the outset of my comments that really were quite a few moving parts this quarter and even on a year-to-date basis where the year-over-year comps depending on whether you're looking at orders and sales and by what segment that were pretty significant. So, we try to do our best to be transparent, and give you as much information as we can. But I would tell you that, we're not changing the company philosophy, just now to provide guidance for the year and every quarter when we go into next year. We'll make that call every quarter, but I would tell you right now don't anticipate a change yet.

Okay. Terrific. And if I could just sneak one last one in. You all have done a good job continuing to strengthen the balance sheet, with net leverage now around 1.2 times. You noted that, your intention to continue to improve that in the fourth quarter as well, I know it's early, but any thoughts on I guess potential use of capital deployment as we look into 2020 from some of the cash flow you might be able to generate next year?

Yeah. This is Jim. As you can imagine, we want to strengthen our balance sheet and continue to do that to be able to look at other opportunities, such as internal investments, like we talked about with capital spend and looking at those types of initiatives. We're also always looking for good opportunities in the – in our adjacent markets to do an acquisition. Nothing really on the table at this point, but we always want to have that in hand the funds to be able to do something like that. Does that clarify your question?

Sure. Yes. Yeah. That's very helpful. Thank you guys very much.

Yeah. Thank you, Brett.

Our next question is from David Wright, Henry Investment Trust. Please proceed with your question.

Hi, good afternoon. I wanted to ask a question about Precast. In the last couple of quarters, you've highlighted concrete building sales as being up and I wondered why do you think that is? Why are you selling more of those?

Well if you -- are you specifically asking about Precast buildings or the entire Precast division?

No, no. Just about the buildings. It's just such kind of a plan broader or trying to -- could we infer anything about the general economy, municipal spending etcetera because you're selling more of these things?

Okay. All right. Yes because I know in prior comments, we're usually talking more about the division than actual buildings because from time to time, the number of buildings that we ship can certainly change. Well let me start with the fact that, we have been doing I think a good job of penetrating the Northeast part of the country. We acquired a business down in Waverly, West Virginia back in the 2014 timeframe. And so, it's been with us for a while, but we have been integrating new and different buildings into that business since that period of time and that -- we were really -- we had no location in the Northeast prior to that. So that location and the fact that we have brought the CXT building designs into that location has continued to allow us to grow substantially in that location and that's going very well for us. I cannot point to specifically certain municipality spending or budgets that are related to parks and recreation and those sorts of things that are really driving buildings. We continue to expand the product line, we continue to look for applications and lots of different utility applications, but some sort of market force that's driving that, I wouldn't tell you is a substantial of change. But I would also add that we're picking up business on other Precast products too. Our Texas facility is doing a terrific job. And from time to time, we might comment on -- it might sound like buildings, but we're commenting on the whole business but the growth in that division has been terrific and fairly steady for us. But part of that is because we're adding other non-building product lines as well.

Okay. That was my question. I appreciate the answer. Thank you.

Yes. Thank you.

We have reached the end of the question-and-answer session and I will now turn the call back over to Bob Bauer for closing remarks.

All right. Well, thank you everyone. I appreciate the interest and the question and we'll look forward to catching up with you as we wrap up the year next time we talk. So thank you very much. Good night.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.