Good afternoon, everyone, and thank you for joining the Sidoti & Company September 2026 Small-Cap Virtual Conference. My name is Julio Romero, and I cover building products, industrials, and engineering and construction at Sidoti & Company. We are really pleased to be able to host L.B. Foster. Their ticker is FSTR. With us today is William Thalman, Executive Vice President and Chief Operating Officer, Sean Reilly, Senior Vice President and Chief Financial Officer, and Daniel Swick, Lead Financial Reporting. The format of this is going to be a presentation followed by Q&A towards the very end. If you do have any questions for L.B. Foster's management team, feel free to type them into the Q&A section at the bottom of your screen. Happy to ask on your behalf if time permits. With that, Bill, Sean, Daniel, thank you so much for being here, and the floor is yours.
Thanks, Julio, and good afternoon, everyone. Thanks again for joining today's call. Look forward to giving you an update on progress that we have made as a company over the last several years, and most importantly, continued progress in 2026 as well as what we expect to see in the future related to our strategy and the execution that we have been able to accomplish. My name is Bill Thalman. I am Chief Operating Officer of the company. Been with the company a little over five years. Primary responsibility was the CFO for a large portion of that time and was recently promoted to the Chief Operating Officer back in early June. Sean Reilly, who is with us here today, was promoted to the Chief Financial Officer. We will take you through the materials today and then have some Q&A at the end.
On slide four, you can see we have been around for close to 125 years, based out of Pittsburgh. We are largely a North American based company. We do have some exposure outside of the U.S. and Canada, but largely North American based. About 1,200 employees around the world. We are an infrastructure solutions provider. We provide technology services, solutions that are primarily geared towards the rail industry and civil construction markets. We have two segments that we operate the business in. The rail segment is a little bit bigger than infrastructure. Both have been growing nicely over the last several years, and the profitability improvement profile of those two segments is really what is the most prevalent improvement that we have seen as a result of our strategy. We will get into that a bit more here in a few slides. Next slide, Dan. After that, please.
Yeah, the two segments you can see margin profiles are similar, a little lower in the rail segment. The rail business has a fairly large distribution element for the business. It is about $150 million or just shy of half of that, just shy of half the size of the rail segment. So that drags the margins down a little bit. Infrastructure is a little higher than that, primarily from our Precast Concrete business. Overall, both of the segments have enjoyed nice margin improvements over the last three to five years, largely as a result of our strategy. Next slide, please, Dan. These are the three product business units within our rail segment. Rail Products, Friction Management, and TS&S. You can see on the right-hand side of that chart the sales values of each of those product units and the margin profiles.
This will become a bit more important as we go into the materials today. We really do view these elements of the portfolio as interrelated drivers of our performance, with some elements providing cash for investment in other components of the portfolio that we want to drive more growth in, and they all play an important role in our overall strategy and how it is being executed. We will cover a bit more of that when we get into the platforms of the business going forward. Next slide, please, Daniel. We thought it is important to lay out a bit more on our addressable market for Rail Products. As you can imagine, that is track. It is insulated rail joints, fasteners, product lines that are used largely in rail maintenance. It is about a $450 million addressable market for us, and we have got about 42% share.
Over the last couple of years, you can see on the slide section in the middle of the slide, the growth rate for that part of the business has been a little bit low relative to what we believe the long-term growth rate is. The long-term growth rate for this product line is about a GDP type level, about 2%-3%, we would say. But because of government funding constraints in place in early 2025, we saw a period of softer demand in our Rail Products business line, particularly the rail distribution product line. That has improved from where we were in 2025, and we would expect us to return to that more normalized growth level, in 2026, and we have had some good success so far here in 2026 in Rail Products in terms of returning to growth.
On the rail technology side, you can see that market growth rates are a little higher in expectation. These are longer sales cycle product lines. They take a bit of time for the customers to buy in terms of the opportunity that the technology presents itself. But you can see in terms of our success, we have been nearly three times or slightly over three times the growth rate, expected growth rate, for these product lines in the last three to five years, three years in this case. It is largely because of the progress that we made in our Friction Management business. I will talk a bit about that here in a few minutes. Next slide. The infrastructure solutions segment, we have two elements of the portfolio there. The Precast Concrete business, you can see it is $170 million or so.
It has been growing nicely over the last five years. Some of that is organic, some inorganic. That is one of our key growth platforms, and given the investment in infrastructure and civil project works here in the U.S., that is a product line that has been doing quite well. You can see the margin profile of that product line is higher overall and higher than the overall average that we have for the company. So it has been accretive to our profitability profile as that product line has grown. The steel products product line, there are three primary product lines within that product group. There is bridge forms, coated pipe for oil and gas distribution, and there is also threaded water well pipe in that part of the business as well.
I guess what I would say about steel products is it is an important part of the portfolio and the returns profile, and it is one where we have seen some improvement in the Protective Coatings pipe portion of the business after several years of softness after COVID, and for a four-year period of time. But recently we have seen an uptick in demand with the renewed interest and investment in energy capabilities here in the U.S. So we think there is opportunity for the coated pipe business to return to a better level here in the near future. Next slide. Circling back to Precast Concrete, thinking about the addressable market, our CXT Precast Concrete Buildings, which is a primary component of that business, it is about $90 million in revenue out of the $170 million that I mentioned earlier.
It has been growing nicely over the last three to five years with some of the national park investment in the U.S. The other thing that is attractive, it is a site-built facility. Sorry, it is a modular-built facility that is built within our operating locations. So when those units are produced, we ship them to the site, and it is installed at the site within a couple, three days.
It is operational, and it is able to be utilized once the utilities are hooked up. So this is a nice element of the value proposition for this product line. It is able to be operational very quickly. You do not need labor to bring in to do site-built construction, which is a significant headwind for many of the markets today. So we are currently about 14% of the market. We have a very high percentage of what I would call the in-factory modular-built segment.
When you include the site-built element of the market, we have a significant opportunity to grow here. The last thing I would say on the Precast Concrete product side, that is other Precast Concrete products, forms, different components that are used in civil construction markets, manholes, pipes, box culverts, and so on. We are basically a very small component of a very large market. We have nice market share positions within our regional markets that we participate. But when you look at the opportunity overall, we are relatively small, and we have opportunities to grow at a faster pace because of that as well. Next slide. I mentioned earlier that we have our two different platforms how we think about the portfolio, the returns platforms and the growth platforms. This was established back in 2021.
It gives us a view of the market and our portfolio and our opportunities to grow by pooling cash from the returns profile, our returns platforms, and investing that cash in our growth platforms, and primarily within Friction Management, our Total Track Monitoring technologies. So both of those product groups are our Rail Products part of the portfolio. Then we also have our Precast Concrete business. Next slide, Daniel. You can see on this chart the benefits of what has transpired over the last three to five years in terms of executing that strategy, pooling cash from the returns platforms, and investing it into the growth platforms. You can see the growth rates that we have been able to achieve in Friction Management and Total Track Monitoring and in Precast Concrete. Now, the Precast Concrete number, that is 138% growth over about four to five years.
There was an acquisition in there, about a $40 million acquisition of our business in Tennessee. We are also growing nicely on an organic basis as well, and we are making further investments in Precast Concrete to be able to grow organically because of the market opportunity that we are able to see. The whole strategy has worked really well to drive growth in our most profitable product lines and change the profitability profile of the company, and we still believe there is more room for growth. I will pause there, turn it over to Sean, and Sean can cover the financials for the company. Sean?
Thank you, Bill, and good afternoon, everyone. I am Sean Reilly, I am the CFO for L.B. Foster, and today we are going to start with our Q2 highlights. Before we jump into it, I do want to articulate that our business can experience variability on a quarter-to-quarter basis, and much of this is tied to the project-based nature and end markets that we serve. For Q2, our sales were $138.6 million. It was a decrease year-over-year of $5 million. However, when we take a look at year-to-date, our sales have increased 7.6%, or over $18 million in the first half of 2026. Our gross margin in Q2 expanded by 80 basis points, and that was driven by favorable mix. Our SG&A was higher in Q2 year-over-year, and this is primarily a result of employment cost, and specifically $1.1 million in variable incentive compensation.
Our adjusted EBITDA was down $575,000, but when we take a look at our year-to-date results, it is up 19.6%, or $2.8 million. Operating cash flow in the quarter was $17.9 million, and this is a record since 2017. We are very pleased with the operating cash flow. Historically in this business, Q1 and Q2 are uses of cash, and in Q3 and Q4 is where cash gets generated, but we saw significant strong cash in Q2. I will talk about our net debt and leverage on a future slide, but backlog. I do want to talk about backlog for a second. Our backlog for the quarter ended at $246 million, and that is down year-over-year by 8.8%. The majority of that decline, though, is associated with the $19 million order in our Protective Coatings business that was canceled in Q3 of the prior year.
Moving on to the next slide. Over the course of the past few years, we went through a strategic transformation, and what that has done is it resulted in approximately seven businesses and product lines being exited since 2021. The benefit of that is our growth profit expanded from 16.8% to 21.4%, showing the improvement in the business from a profitability perspective by removing the commoditized businesses and lower margin products that we had in our portfolio. Moving on to the next slide. This enhances and also articulates the benefits of our strategy. If you just take a look at the adjusted EBITDA. In 2021, our EBITDA as a percentage of sales was 3.6%. For 2026, on a TTM basis, it is 7.5%, an expansion of approximately 390 basis points, and our EBITDA dollars effectively doubled.
This is the benefit of moving away from the commoditized products, and this is a result from a financial performance of those decisions. Moving on to the next slide. Net debt. We ended the quarter with $42 million in net debt, and that's down significantly from this time last year, where it was $77 million. Our gross leverage ratio is 1 time. Our target is 1- 1.5 times, so we are well within that range. We have over $107 million of funding capacity available to us, and we have a capital-light business model. What that means is the cash flow that can be generated from this business over the last three years have averaged $28 million. We have $71 million of federal NOLs, which results in minimal cash taxes paid, approximately $2 million in cash taxes paid on an annual basis.
We do have a share repurchase program in place. Year to date, we have only purchased shares back as people exercised equity. However, since 2023, we have purchased 9.3% of our outstanding shares. Moving on to the next slide, I'll talk a little bit about our capital allocation priorities. Debt reduction is the first one, and once again, we are at 1 -1 .5 times is our range, and we're well within that range, giving us an opportunity to do anything from additional capital expenditures or potential acquisitions. We have $28.7 million remaining under our share repurchase program, and that is available for us to return capital to our shareholders. Growth capital expenditures. We historically have spent 2%-2.5% of our sales on capital. This year, we're spending 2.7%, a little bit higher.
The majority of that incremental spend, which is approximately $5 million, is going to growth initiatives, primarily in our Precast Concrete markets. Finally, acquisitions. We continue to evaluate potential opportunities from an acquisition perspective for businesses that would add to our portfolio and would be accretive to our business. With that, I'll turn it back over to Bill.
Thanks, Sean. I'll wrap up here in about five minutes to leave some time for Q&A, and I'll start with market and business outlook. 2025 was a bit of a challenging year for us because of some of the headwinds in market demand in a handful of product lines that are larger in terms of sales volume, so Rail Products and the rail distribution element of the business was a bit weaker in 2025. That's behind us at this point. The growth rates and the market funding that's there, supporting rail projects, the funding levels are healthy, and projects are moving forward at what we would call a normal demand pace. As Sean had mentioned earlier, our U.K. business had had some challenging periods of time over the last several years.
We're seeing the benefits of some of the work that we've done in the U.K., benefiting from some longer-term projects that were added to the order book last year, as well as some short-term project work that we're able to execute this year. We're seeing nice growth in the U.K. and feel good about where they are currently with their performance. As you can imagine, there's a significant amount of investment for civil projects related to data centers and water management and road construction. Our Precast Concrete portfolio is benefiting from that level of investment as well. As I mentioned earlier, the renaissance of domestic energy investment and the positive influence that is being seen in the pipeline business should help our Protective Coatings business over the longer term. We feel good about the markets that we serve and where we're currently participating.
This is an important slide and something to keep in the back of your mind when you're thinking about government programs and how they support the markets. There's a program out there called CRISI Grants. You can see the acronym is Consolidated Rail Infrastructure and Safety Improvement. This is a program that's been around for years. It was augmented by the IIJA Act a few years ago to add additional funding to the investment needs for infrastructure, rail infrastructure improvement and hardening those rail networks. You can see the metrics there. The funding levels have increased about five times compared to where they were in the previous five years over the last five years. Another important point is the funding has been there, but the actual obligation or the flowing of the money, let's say, has not fully transpired since that funding has been earmarked by Congress.
We still think there's a pretty significant tailwind coming from that appropriated funds. We would expect the government to continue to look for ways to fund the railroads, given the strategic importance and the national security importance of those railroads for our economy and our nation. Next slide. Then further on to the funding element of this story. The funding from the government to support civil construction projects has continued to be strong. The funding levels are still there. IIJA money still has yet to be spent, and so we expect that to remain and continue to be a tailwind for the civil construction markets, and in particular, our Precast business going forward. We have a solid investment thesis for L.B. Foster. This hasn't changed.
We've got a lot of the heavy portfolio work behind us at this point, and you can see the improvement in the profitability has come with that. We feel like the growth drivers are in place for organic growth. On top of that, we have the opportunity for inorganic additions to the portfolio. We have strong cash generation, as Sean pointed out. We expect that to continue even though we are investing a bit more in capital to drive growth in our Precast business. We have a very disciplined approach to capital allocation, with multiple levers at our disposal. We feel good about the ability to allocate that capital to drive value for shareholders going on into the future.
I will wrap up with the last slide to simply say that we are very proud of the progress that we have made since we launched our strategic transformation in 2021. You can see the metrics there, very modest sales growth, but significant improvement in EBITDA. Cash flow generation has been really, really strong each year. Our guidance for 2026 reflects more progress. We feel like the trailing 12-month metrics that we have for sales and for EBITDA are in our guidance range. We also feel like there is prospects for further growth in the back half of the year, as reflected within our guidance. It is a great time to be looking at L.B. Foster. Appreciate your time listening to our pitch today, and we will take it to Julio for any questions you might have. Julio?
Absolutely. Thank you, Bill, Sean, and Daniel for the rundown. I will kick it off here with some Q&A. You talked about it a bit in the prepared remarks, but, can you talk about how demand is trending in the infrastructure solution segment, particularly in the Precast Concrete business unit within that segment? That was something that was $105 million at 2Q, and I think you noted on the 2Q call that it was up about 10% in July. Just curious if you have seen that strength from July kind of continue, carry into August, September, and how you see that demand shaping up.
Yeah. Julio, I will take it, and Sean, if you have any other color. As Sean mentioned, project work will drive that backlog to a large degree. Our backlog in Precast Concrete was lower in more recent months, but I would say it was somewhat elevated because we had a very large building backlog about a year and a half ago. So we burned off a significant piece of that backlog.
What is transpiring now is, in addition to the improvement that Sean mentioned going into the month of July or through the month of July, in terms of the improvement in orders, what we are also seeing is we are growing our Precast Concrete products element and that Precast Concrete products element of the product line will turn much quicker. As you can imagine, that project work, you build a building, it is going to be over a longer period of time.
We will receive the order and it will stay in the backlog longer. That Precast Concrete product offering, it is going to turn very quickly, and so you are going to see a lot more book and bill in the Precast Concrete business going forward because of that, relatively speaking. So we will keep a close eye on backlog. We feel pretty good about where it is today.
Got you. That's really helpful because I believe the lower order activity and the quicker turn piece was well weighed on the 2Q backlog, if I can recall. So you're saying as you invest in the products portion of the Precast Concrete business unit, that should improve going forward?
Well, what it'll be is the volume will uptick, but by the same token, relative to the previous backlog, the backlog will turn much quicker. So we can achieve a greater level of sales with a lower backlog with the Precast Concrete product line as opposed to buildings. Buildings is longer.
That makes sense and helps kind of delineate the difference between the two kind of subunits there. Back to the buildings piece, can you walk through how you see the CXT Precast Concrete Buildings piece participating in the site build market, and how that differs from the historical Precast Concrete markets that you've served or targeted to serve?
Participates in which market?
In the site built market.
Site built. Oh, okay. Yes. Over the past several years, there's been a constraining of labor markets, and I think we broke it down. We have $90 million in revenue. It's a $200 million market for modular in-plant construction. So we have close to 50% share of that market. Okay? But there's $400 million that is site built. Site built is where you've got a customer who has a need. They're looking for labor to do cinder block construction of a restroom. Labor market is very constrained. It takes a long time to get one of those built, and there's a value proposition, particularly in the context of a larger project or a larger investment that's being made at a particular location, where they have certainty about where and when that building that we would produce is going to be ready to be installed.
When you think about project management and these projects that are trying to be executed over a timeframe, one of the most important things that's necessary is to be ready when they need you. And we have the ability to do that with our site built solution as opposed to, sorry, with our in-plant solution, as opposed to a site built solution where there's too many variables that could impact whether or not that unit is ready or not. So we feel there's a value proposition there, and we've seen nice growth over the last several years because of it.
Got it. Maybe just stated another way, it's still modular buildings you're doing in a factory, but they'll be shipped. You'll participate more within a larger site build project. It wouldn't be components of a building.
No. No, no. We would produce one single building. Yes.
Understood. The European distribution press release you guys put out was interesting last week, strengthened partnership with the global logistics provider, and as I understand it, that helps remove some of the logistical challenges you previously faced serving European customers out of the U.K., and now you'll be serving them out of Germany. Can you just walk us through what the partnership changes for you operationally and help us kind of level set what mainland Europe looks like as a market for you today versus what it could be?
Yeah. Today we have about $10 million of our Friction Management business that's transacted in the U.K. and largely in the U.K. And we're currently working with obtaining accreditation with Deutsche Bahn. We've said that publicly in the past. And we're actually at InnoTrans this week working on that accreditation. We feel really good about it, and this new partnership will be a way for us to access that market with production that is not in country, at least at the moment. But we have our capabilities in Vancouver, in the U.S., and in the U.K. where we can service that market through a distribution partner to help us penetrate mainland Europe, first through Germany. That's the game plan.
Excellent. We're about a minute over, so if I could squeeze this in, how would you have investors that are looking for ideas heading into 2027 consider the L.B. Foster value prop?
Yeah. What I would say is we've seen great success with the execution of our strategy, and we're going to continue to stay the course. We feel like there's opportunities for us to continue to grow. We're focused on top line growth now and dropping that top line growth to a greater profitability improvement at a faster pace with the overall strategy of growing and investing in our growth platforms, and we still feel like there's room to grow. It's a great time to look at L.B. Foster.
Bill, Sean, Daniel, thanks so much for taking the time.
Oh, thank you. Take care.
Thanks, William.