Good day, and welcome to L.B. Foster's Third Quarter of 2023 Earnings Call. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this call is being recorded. I would now like to turn the call over to Stephanie Schmidt, the company's Investor Relations Manager. You may begin.

Thank you, operator. Good morning, everyone, and welcome to L.B. Foster's Third Quarter of 2023 Earnings Call. My name is Stephanie Schmidt, the company's Investor Relations Manager. Our President and CEO, John Castle; and our Chief Financial Officer, Bill Thalman, will be presenting our third quarter operating results, market outlook and business development this morning. We'll start the call with John providing his perspective on the company's third quarter performance. Bill will then review the company's third quarter financial results. John will provide perspective on market developments and company outlook in his closing comments. We will then open the session up for questions. Today's slide presentation, along with our earnings release and financial disclosures were posted on our website this morning and can be accessed on our Investor Relations page at lbfoster.com. Our comments this morning will follow the slides in the earnings presentation. Some statements we are making are forward-looking and represent our current view of our markets and business 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. For more detailed risks, uncertainties and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and presentation. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures and reconciliation tables provided within today's earnings release and within our accompanying earnings presentation carefully as you consider these metrics. So with that, let me turn the call over to John.

Thanks, Stephanie, and hello, everyone. Thanks for joining us today for our third quarter earnings call. As you can see on Slide 5 of our presentation materials, the improved growth and profitability profile of our business driven by strategic transformation, continued to gain momentum during the third quarter. You'll recall that we previously announced the exit of the Bridge Grid deck product line, which is included within our Steel Products & Measurement segment. The costs associated with the product line exit in the quarter were $4.1 million, which included an update and the expected value of certain commercial projects being completed as we wind down the product line. In addition, we recorded a $900,000 provision for bad debt expense associated with the customer in the U.K. who filed for administrative protection. Adjusting for these nonroutine items, we reported a 12.6% organic sales growth and adjusted EBITDA of $10.6 million, which was up 14.2% year-over-year. Gross margins continue to expand in the quarter with adjusted gross margins of 21.2%, improving 40 basis points year-over-year. On a year-to-date basis, adjusted gross margins were up 250 basis points versus last year, highlighting the significant progress we have made improving the profitability profile of our business. I am pleased to report that cash flow generation was particularly strong in the third quarter, with cash flow from operations of $18.6 million, representing the highest level achieved since the third quarter of 2019. The cash generated was used to reduce borrowings on our revolving credit facility with net debt being reduced by $16.9 million. As a result of our lower borrowings, we finished the quarter with a gross leverage ratio for our credit facility at 2x. This is down from the 2.5x we reported in last quarter and more significantly down from the 3.3x we reported…

Thanks, John. Good morning, everyone. I'll begin my comments covering the consolidated highlights of our third quarter on Slide 7. As always, the schedules in the appendix provide more detailed information on our financial results, including non-GAAP measures Stephanie referenced in her opening. As John mentioned in his opening remarks, there are a couple of items that we called out in our adjusted results for the quarter as compared to last year. During the third quarter, we announced the exit of the Bridge deck product line. A change in the expected value of certain commercial projects associated with the product line resulted in a $2 million reduction in sales and $3.1 million reduction in gross margins in the quarter. This adjustment was in addition to approximately $1.1 million in other cash and noncash expenses associated with exit activities, resulting in a total impact of approximately $4.1 million on profitability in the quarter. In addition, we recorded a $900,000 provision for a potentially uncollectible amount due from a customer who filed for administrative protection in the U.K. during the quarter. As a reminder, net sales and gross profit in last year's third quarter included a $4 million adverse impact from the settlement of certain long-term commercial contracts related to the multiyear Crossrail project in the U.K. Noting the impact of our portfolio moves, the current quarter includes a full quarter of results for the VanHusco acquisition, which was completed on August 12 last year. Offsetting this higher inorganic revenue was the impact of track components, Chemtech and ties businesses that were divested over the last 12 months. On a GAAP basis, third quarter sales were $145.3 million, up $15.3 million or 11.8% over last year. Adjusting net sales for the items above resulted in an organic sales increase of 12.6%, coupled…

Thanks, Bill. Please refer to Slide 19 for an overview of our key business and market drivers, underpinning our outlook. We remain optimistic longer-term prospects for growth in Rail Technologies and rail infrastructure markets, particularly given the increasing emphasis on rail safety, fuel savings, operating efficiency and on-time deliveries here in U.S. and Canada. It's important to highlight that our U.K. business is experiencing a particularly challenging market with weaker demand levels and ongoing liquidity disruptions with some customers. As you would expect, we are working with our local team will focus on immediate mitigation actions to reduce costs and limit investment, which could help us provide and may change some flexibility as market conditions improve. Here back in the U.S., the exit of the grid deck product line should allow for more focused effort to grow our bridge forms product line, which is seeing a boost in demand from the broader infrastructure spending programs. Also, the protective coatings business continues to see increased demand from the traditional pipeline investment projects in addition to developing alternative applications in play. And finally, the precast concrete opportunities remain robust across the portfolio. We continue to expand our market reach enabled by the addition of VanHooseCo Company, of which we're just beginning to realize the potential growth of our combined organizations. In summary, despite the near-term challenges we face in the U.K., we believe our overall prospects for profitable growth remains strong in light of the infrastructure investment super cycle we expect for years to come. During our second quarter update, I unveiled our rebranded company tagline as innovating to solve global infrastructure challenges, along with the refinement to our near-term goals in 2025. You'll find this on Slide #20. Despite short-term challenges that I previously mentioned in the U.K., we remain confident in our outlook for growth and profitability in line with our near-term goals. I will also add, we expect our progress to begin to accelerate due to 3 key factors. First, we anticipate above-average growth in Rail Technologies and Precast Concrete. Second, continued focus and execution by our management team on profitability initiatives across the portfolio. And third, we will begin to see expense leverage of SG&A against the anticipated organic revenue and margin increases. In closing, our team has made substantial progress transforming L.B. Foster over the past 2 years, and we are definitely energized by the results we're achieving. I believe we're well prepared to execute on our next phase of transformation and look forward to sharing our accomplishments as we wrap up 2023 and continue momentum into next year. Thank you for your time and continuing interest in L.B. Foster. And I'll turn it back to the operator for the Q&A session.

[Operator Instructions]. Our first question comes from Alex Rygiel with B. Riley Securities.

So a nice quarter there. Are you starting to see any benefits from federal spending in bidding opportunities?

Yes. We don't necessarily -- we didn't see it in the $100 million we talked about in the bookings for the quarter. However, we were very pleased with the October results that we saw in bookings, which is in line with what we were saying how we're going to finish the year. Activities is -- bidding activity is very strong right now. So it's been years, Alex, since we talked about this money being out there, and we're starting to see it now flow through the state and government.

For sure. And then sort of kind of on that topic, Book-to-bill in the quarter was a bit soft. You obviously referenced some seasonality there. You have some divestitures. Anything kind of more broadly than that, that might have affected the third quarter, appreciating that October was strong heading against the fourth quarter.

Yes. Well, first of all, Q2 was fantastic for us. Of course, we're looking over the period of time, which was favorable over the last 12 months. And as I mentioned, October was strong too heading into the fourth quarter. I went back and looked at it over the last couple of years, and we're flat basically on a year-over-year basis. But if you look over a 2-year period, we're 6.7% up on our backlog and 17% over a 3-year period. So, it's choppy. We're construction, but we're really starting to see a lot of activity starting to come through. So we're feeling very good about our prospects in '24 and beyond.

The other thing I might highlight, Alex, is that the backlog margin profitability is much better than what the higher balance would have been in the past because of the divestiture work and the accretion that the acquisitions bring to the portfolio.

That's right.

And then I know it's a little early to kind of think about 2024 and guidance and all of that. But any sort of maybe broader kind of comments as it relates to organic growth expectations for 2024? Are you thinking low single digit? Do you think at high single digit, low double digit, especially given the strength this year?

Well, let's put it this way. First of all, we put our guidance or your aspirational goals in 2025. We're not backing off of those. So '24 is really a stepping stone to make that happen. And if you look at our 2x leverage right now, we've got a lot of opportunities now to take some of that cash that we generate specifically in this quarter and plow it into some really specific programs we have, organic programs that we're very, very pleased with. So you'll see more of that coming in the Rail Technologies and precast side. But next year will be a transition to our aspirational goals in 2025. We'll leave you with that.

Our next question comes from Chris Sakai with Singular Research. Chris.

Yes. Can you talk about new orders for the quarter? It seems -- was this seasonality that it was -- they were down? And how are things looking for the next quarter?

Yes. Well, thanks for the question. Thanks for joining us again today. We are -- it's choppy. We do a lot of large bids, as you know, Chris. So sometimes they hit the magical quarter. Sometimes they extend into the next quarter, and that's kind of what we're seeing right now. So we're off to a strong start in Q4. October came in in a very nice shape it really lines up well to finish the year. So we don't get too worked up about what happens in the specific quarter. We're more looking at the activity we're seeing and make sure that we're getting those jobs that we think we should get. And as Bill just mentioned, we're really focused on profitability of the company. That portfolio changes that we made were significant. So the fact that we took some backlog out $29.6 million of backlog. Now those are very low-margin type work and really consumed a lot of management time as well as working capital. So the work we're getting now much more in line with our strategy, our technology innovation changes we're making and become a global company. So we feel pretty good about our situation where we're at today, and more importantly, where we're heading into '24 and beyond.

[Operator Instructions]. Our next question comes from John Blair with Ascent Wealth Advisors. [Technical Difficulty]. [Operator Instructions]. I am not showing any further questions. I would like to turn the call over to John Kasel for any further remarks.

Thanks, Michelle. Really appreciate it. Thanks for joining us today for our third quarter earnings. I guess, how we leave this meeting today is we're really excited about our cash generation for the quarter. This is something the company has been working on now. We hit a number that we haven't seen since 2019. And I think it really gives the shareholders as well as investors feeling a case to where we were at once before. And our focus is continuing to do that, focus on our gross leverage ratio down to 2x right now. That's -- we're feeling very good about that as well as the opportunities we see here in the short term as well as heading into next year. So thanks for your time again. And more importantly, thanks for your interest in L.B. Foster, and take care, everybody. We'll talk to you after the close of the year. Bye-bye.

Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.