# FOSTER L B CO (FSTR) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from FOSTER L B CO's 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/352825/000035282524000076/fstr-20231231.htm Accession: 0000352825-24-000076 Filing date: 2024-03-06 Report date: 2023-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/FSTR/ All MD&A years: /company/FSTR/mda/ Previous year: /company/FSTR/mda/fy2022/ (FY 2022) Next year: /company/FSTR/mda/fy2024/ (FY 2024) ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except share data unless otherwise noted) Our Business L.B. Foster Company is innovating to solve global infrastructure challenges. Our technology innovations enable safety, improve information flow, keep things moving, monitor conditions, and enhance environments, improving the lives of people who rely on us to keep our world moving. We enjoy a market-leading reputation for high-quality, high-performance engineering solutions in rail and infrastructure. The Company is organized and operates in two reporting segments: Rail, Technologies, and Services (“Rail”) and Infrastructure Solutions (“Infrastructure”). Our financial statements presented herein are prepared using accounting principles generally accepted in the United States of America (“US GAAP”). Throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”), we refer to measures used by management to evaluate performance. We also refer to a number of financial measures that are not defined under US GAAP, including organic sales growth, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), adjusted EBITDA, and net debt. The explanation at the end of the MD&A provides the definition of these non-GAAP financial measures. A reconciliation of each non-GAAP financial measure to its most directly comparable respective US GAAP financial measure is presented below. 2023 Developments During 2023, the Company: •Produced net sales of $543,744, an increase of $46,247, or 9.3%, over 2022, reflective of organic sales growth of 11.7% and growth due to acquisitions of 4.0%, which was partially offset by a 6.4% reduction due to divestitures; •Reported gross profit margin of 20.7% for the year, a 270-basis point improvement over prior year; •Continued its strategic transformation with the divestitures of the Chemtec and Ties businesses; •Generated net cash flow from operations in 2023 of $37,376; •Reduced net debt during 2023 by $36,284 to $52,713; •Reported adjusted EBITDA of $31,775; an increase of 31.4% compared to the prior year; •Announced that its Board of Directors has authorized the repurchase of up to $15,000 of its common stock through February 2026 and repurchased 134,208 shares of the Company’s stock, or 1.2% of its outstanding shares, at a cost of $2,310. [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2023","","2022"],["Adjusted EBITDA Reconciliation"],["Net income (loss), as reported","","$","1,299","","","$","(45,677)"],["Interest expense - net","","5,528","","","3,340"],["Income tax (benefit) expense","","(355)","","","36,681"],["Depreciation expense","","9,949","","","8,635"],["Amortization expense","","5,314","","","6,144"],["Total EBITDA","","$","21,735","","","$","9,123"],["Loss (gain) on divestitures","","3,074","","","(22)"],["Acquisition and divestiture costs","","\u2014","","","2,235"],["Commercial contract settlement","","\u2014","","","3,956"],["Insurance proceeds","","\u2014","","","(790)"],["VanHooseCo inventory adjustment to fair value amortization","","\u2014","","","1,135"],["VanHooseCo contingent consideration","","(26)","","","526"],["Bridge grid deck exit impact","","4,454","","","\u2014"],["Impairment expense","","\u2014","","","8,016"],["Bad debt provision","","1,862","","","\u2014"],["Restructuring costs","","676","","","\u2014"],["Adjusted EBITDA","","$","31,775","","","$","24,179"]] [[/GREPCENT_TABLE]] 20 Table of Contents [[GREPCENT_TABLE]] [["","","","","December 31,"],["","","","","","","2023","","2022"],["Net Debt Reconciliation"],["Total debt","","","","","","$","55,273","","","$","91,879"],["Less: cash and cash equivalents","","","","","","(2,560)","","","(2,882)"],["Net debt","","","","","","$","52,713","","","$","88,997"],["Change in Consolidated Sales","","","","","","Year Ended December 31,","","Percent Change"],["2022 net sales, as reported","","","","","","$","497,497"],["Decrease due to divestitures","","","","","","(31,995)","","","(6.4)","%"],["Increase due to acquisitions","","","","","","19,834","","","4.0","%"],["Change due to organic sales","","","","","","58,408","","","11.7","%"],["2023 net sales, as reported","","","","","","$","543,744","","","9.3","%"],["Total sales change, 2022 vs 2023","","","","","","$","46,247","","","9.3","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Change in Rail Sales","","","","","","Year Ended December 31,","","Percent Change"],["2022 net sales, as reported","","","","","","$","300,592"],["Decrease due to divestitures","","","","","","(15,976)","","","(5.3)","%"],["Increase due to acquisitions","","","","","","1,504","","","0.5","%"],["Change due to organic sales","","","","","","26,040","","","8.7","%"],["2023 net sales, as reported","","","","","","$","312,160","","","3.8","%"],["Total sales change, 2022 vs 2023","","","","","","$","11,568","","","3.8","%"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Change in Infrastructure Sales","","","","","","Year Ended December 31,","","Percent Change"],["2022 net sales, as reported","","","","","","$","196,905"],["Decrease due to divestitures","","","","","","(16,019)","","","(8.1)","%"],["Increase due to acquisitions","","","","","","18,330","","","9.3","%"],["Change due to organic sales","","","","","","32,368","","","16.4","%"],["2023 net sales, as reported","","","","","","$","231,584","","","17.6","%"],["Total sales change, 2022 vs 2023","","","","","","$","34,679","","","17.6","%"]] [[/GREPCENT_TABLE]] Acquisitions, Divestitures and Product Line Exit On June 21, 2022 and August 12, 2022, the Company acquired the stock of Skratch for $7,402, and acquired the operating assets of VanHooseCo for $52,146, net of cash acquired at closing, respectively. Skratch has been included in the Company’s Technology Services and Solutions business unit within the Rail segment and VanHooseCo has been included within the Precast Concrete Products business unit within the Infrastructure segment. Skratch and VanHooseCo’s net sales were $4,624 and $33,742, respectively, for the year ended December 31, 2023, and $2,975 and $17,788, respectively, for the year ended December 31, 2022. On August 1, 2022, the Company divested the assets of its Track Components division for $7,795, subject to indemnification obligations and working capital adjustments, generating a $467 loss on sale, recorded in “Other expense (income) - net” for the year ended December 31, 2022. The Track Components division was included in the Rail Products business unit within the Rail segment. The Track Components division’s net sales were $9,244 for the year ended December 31, 2022. On March 30, 2023, the Company sold substantially all the operating assets of its Chemtec business for $5,344 in proceeds, subject to final working capital adjustments, generating a $2,065 loss on sale, recorded in “Other expense (income) - net” for the year ended December 31, 2023. The Chemtec business was reported in the Steel Products business unit within the Infrastructure segment. Chemtec’s net sales for the year ended December 31, 2023 and December 31, 2022 were $9,259 and $21,119, respectively. 21 Table of Contents On June 30, 2023, the Company sold substantially all the operating assets of the Ties business, located in Spokane, WA, for $2,362 in proceeds, subject to final working capital adjustments, generating a $1,009 loss on the sale, which was recorded in “Other expense (income) - net” for the year ended December 31, 2023. The Ties business was reported in the Rail Products business unit within the Rail segment. Net sales for Ties for the year ended December 31, 2023 and December 31, 2022 were $2,130 and $11,622, respectively. On August 30, 2023, the Company announced the discontinuation of its Bridge Products grid deck product line (“Bridge Exit”) which was reported in the Steel Products business unit within the Infrastructure segment. The Bedford, PA based operations supporting the product line expects to complete any remaining customer obligations in 2024. For the years ended December 31, 2023 and 2022, the product line had $6,146 and $15,120 in sales, respectively. The decision to exit the bridge grid deck product line is a result of a weak bridge grid deck market condition and outlook due to customer adoption of newer technologies replacing the grid deck solution. During 2023, the Company incurred $1,403 of exit costs recorded in “Other expense (income) - net,” which included $474 in inventory write-downs, $667 in personnel related expenses, and $262 in other exit costs. The Company expects to incur an additional $184 of personnel expenses associated with the exit through 2024. During 2023 the Company also recorded a $1,977 reduction in net sales and a $3,051 reduction in gross profit stemming from changes in expected value of certain commercial projects associated with the exit of the bridge grid deck product line. On November 17, 2023, the Company acquired the operating assets of Cougar Mountain Precast, LLC (“Cougar”), located in Caldwell, Idaho, which is a licensed manufacturer of Redi-Rock and natural concrete products for $1,644, subject to hold back payments, to be paid over the next twelve months or utilized to satisfy post-close working capital adjustments or indemnity claims. Cougar has been included in the Precast Concrete Products business unit within the Infrastructure segment. Full Year Results Comparison Results of Operations [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","Change"],["","","2023","","2022","","","","2023 vs. 2022"],["Net sales","","$","543,744","","","$","497,497","","","","","$","46,247"],["Gross profit","","112,810","","","89,611","","","","","23,199"],["Gross profit margin","","20.7","%","","18.0","%","","","","270","bps"],["Expenses:"],["Selling and administrative expenses","","$","97,358","","","$","82,657","","","","","$","14,701"],["Selling and administrative expenses as a percent of sales","","17.9","%","","16.6","%","","","","130","bps"],["Amortization expense","","5,314","","","6,144","","","","","(830)"],["Goodwill and long-lived assets impairment charges (Note 5)","","\u2014","","","8,016","","","","","(8,016)"],["Operating profit (loss)","","10,138","","","(7,206)","","","","","17,344"],["Operating profit (loss) margin","","1.9","%","","(1.4)","%","","","","330","bps"],["Interest expense - net","","5,528","","","3,340","","","","","2,188"],["Other expense (income) - net","","3,666","","","(1,550)","","","","","5,216"],["Income (loss) before income taxes","","944","","","(8,996)","","","","","9,940"],["Income tax (benefit) expense","","(355)","","","36,681","","","","","(37,036)"],["Net income (loss)","","$","1,299","","","$","(45,677)","","","","","$","46,976"],["Diluted earnings (loss) per common share","","$","0.13","","","$","(4.25)","","","","","$","4.38"]] [[/GREPCENT_TABLE]] Fiscal 2023 Compared to Fiscal 2022 — Company Analysis Net sales of $543,744 for the year ended December 31, 2023 increased by $46,247, or 9.3%, over the prior year. The increase in sales is due to organic sales growth of 11.7% and a 4.0%, or $19,834, increase from the acquisitions of Skratch and VanHooseCo, partially offset by a 6.4%, or $31,995, decline in sales due to the divestitures of Track Components, Chemtec, and Ties. Net sales for the year ended December 31, 2023 included a $1,977 reduction stemming from changes in expected value of certain commercial projects associated with the Bridge Exit within the Infrastructure segment. Net sales for the year ended December 31, 2022 included a $3,956 reduction from the settlement of certain long-term commercial contracts related to the multi-year Crossrail project (“Crossrail Settlement”) in the Company’s Technology Services and Solutions business in the United Kingdom. This settlement reduced both sales and gross profit in 2022. Gross profit increased by $23,199, or 25.9%, and gross profit margin expanded by 270 basis points to 20.7%. The improvement in gross profit is due primarily to the portfolio changes that are a part of the Company’s strategic transformation, as well as uplift from increased sales volumes, product mix, and pricing. In 2023, gross profit was also impacted by a reduction in profitability of $3,051 22 Table of Contents due to the Bridge Exit. In 2022, gross profit was negatively impacted by a $1,135 purchase accounting adjustment related to the VanHooseCo acquired inventory along with the $3,956 reduction from the Crossrail Settlement. Selling and administrative expenses increased by $14,701, or 17.8%, over the prior year. The increase was primarily attributable $1,608 of increased costs associated with portfolio changes, higher personnel expenses including variable incentive costs that will rest in 2024, UK restructuring costs of $676 and a bad debt provision charge of $1,862 due to a customer in the United Kingdom who filed for administrative protection. Selling and administrative expenses as a percentage of net sales increased to 17.9% from 16.6% due to the increased spending. Interest expense increased by $2,188, or 65.5%, due to higher outstanding debt, on average, throughout the year as well as the higher interest rate environment in 2023. Despite higher average debt levels throughout 2023, the Company’s outstanding debt balance decreased to $55,273 as of December 31, 2023, compared to $91,879 as of December 31, 2022. The proceeds of $5,344 and $2,362 from the divestiture of Chemtec and Ties, respectively, as well as stronger operating cash flows in 2023, were used to drive the decrease in debt. Other expense for the year ended December 31, 2023 was $3,666 and was primarily attributable to a $3,074 loss on the divestitures of Ties and Chemtec and $1,403 of exit costs incurred related to the Bridge Exit. Other income for the year ended December 31, 2022 included pre-tax income of $489 from the 2021 sale of the Piling Products division, $790 in insurance proceeds, and $325 received to recover costs associated with environmental cleanup activities partially offset by a $467 loss related to the sale of the Track Components business. The Company’s effective income tax rate for 2023 was (37.6)%, compared to (407.7)% in the prior year period. The Company's effective income tax rate differed from the federal statutory rate of 21% primarily due to the realization of domestic tax benefits previously offset by a valuation allowance. Such tax benefits were offset by an increase in the Company’s valuation allowance against its deferred tax assets in the UK and other foreign jurisdictions. For further discussion on the valuation allowance, refer to Note 14 of the Notes to the Consolidated Financial Statements. Net income for the year ended December 31, 2023 was $1,299, or $0.13 per diluted share, compared to net loss for the 2022 year of $45,677, or $4.25 per diluted share. Net loss in 2022 was impacted by a $37,895 expense related to the increase in the Company’s valuation allowance against deferred tax assets, as well as non-cash impairment charges of $8,016. Results of Operations — Segment Analysis Rail, Technologies, and Services [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","Change","","","","Percent Change"],["","","2023","","2022","","","","2023 vs. 2022","","","","2023 vs. 2022"],["Net sales","","$","312,160","","","$","300,592","","","","","$","11,568","","","","","3.8","%"],["Gross profit","","$","64,689","","","$","59,499","","","","","$","5,190","","","","","8.7","%"],["Gross profit margin","","20.7","%","","19.8","%","","","","90","bps","","","","4.7","%"],["Segment operating profit","","$","11,940","","","$","11,454","","","","","$","486","","","","","4.2","%"],["Segment operating profit margin","","3.8","%","","3.8","%","","","","0","bps","","","","0.4","%"]] [[/GREPCENT_TABLE]] Rail segment sales increased by $11,568, or 3.8%, over the prior year. The increase was due to higher organic sales of $26,040 or 8.7%, which includes the impact of the 2022 Crossrail Settlement. The acquisition of Skratch resulted in higher sales of $1,504, or 0.5% and the divestiture of the Track Components and Ties businesses reduced sales by $15,976, or 5.3%. Rail Products sales increased $3,238 driven by increased volumes partially offset by the Track Components and Ties divestitures. Global Friction Management volumes resulted in a sales increase of $9,135. Technology Services and Solutions sales decreased $805 due to continued weak commercial conditions in the UK, partially offset by $1,504 in higher sales from the Skratch acquisition and the Crossrail Settlement in impact 2022. Segment gross profit increased by $5,190, or 8.7%, compared to the prior year. Higher volumes in Rail Products and the Crossrail Settlement impact recorded in 2022 resulted in gross profit increasing $6,530. Improved Global Friction Management volumes resulted in increased gross profit of $3,393. Technology Services and Solutions gross profit declined by $4,733 due to weaker commercial conditions in the UK. The net impact of acquisitions and divestitures reduced gross profit in 2023 by $1,752. The Rail segment gross profit margin increased by 90 basis points from the prior year due to improved volumes and pricing in Rail Products and Global Friction Management and the portfolio changes made; the acquired Skratch business reported higher margins than the divested Track Components and Ties businesses and higher margins realized in Rail Products. Such improvements were partially offset by declines in margins in the Technology Services and Solutions business unit driven by weak commercial conditions in the UK. Segment operating profit increased by $486, or 4.2%, compared to the prior year. The increase was driven by the improvement in gross profit, which was partially offset by increased personnel costs as well as a 2023 bad debt provision charge of $1,862 due to a customer in the UK who filed for administrative protection and $676 in restructuring expense associated with the UK operations. 23 Table of Contents During 2023, new orders within the Rail segment decreased by 4.7% compared to the prior year. The decrease in new orders was attributable to the divestitures of the Ties and Track Components businesses declining new orders by $2,089 and $8,224, respectively, and the Rail Distribution business declining in new orders by $26,597 compared to the prior year. The decline was partially offset by increases in the Global Friction Management and Technology Services and Solutions business units which included the Skratch acquisition increase of $2,735. Segment backlog decreased by 19.8% compared to the prior year, ending 2023 at $84,418. The decrease is attributed to Rail Distribution business reducing backlog by $29,717 from the prior year which was impacted by the timing of larger orders. Infrastructure Solutions [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","Change","","","","Percent Change"],["","","2023","","2022","","","","2023 vs. 2022","","","","2023 vs. 2022"],["Net sales","","$","231,584","","","$","196,905","","","","","$","34,679","","","","","17.6","%"],["Gross profit","","$","48,121","","","$","30,112","","","","","$","18,009","","","","","59.8","%"],["Gross profit margin","","20.8","%","","15.3","%","","","","550","bps","","","","35.9","%"],["Segment operating profit (loss)","","$","9,988","","","$","(9,132)","","","","","$","19,120","","","","","209.4","%"],["Segment operating profit (loss) margin","","4.3","%","","(4.6)","%","","","","895","bps","","","","193.0","%"]] [[/GREPCENT_TABLE]] The Infrastructure segment sales increased by $34,679, or 17.6%, compared to the prior year. The increase was due to organic sales of $32,368 or 16.4% and includes a $1,977 reduction in 2023 sales stemming from changes in expected value of certain commercial projects associated with the Bridge Exit. The acquisition of VanHooseCo contributed $18,330, or 9.3%, of the increase in sales year over year offset by the divestiture of Chemtec, which drove a sales decline of $16,019, or 8.1%. Strong organic sales were driven by the Precast Concrete Products business unit as well as the Protective Pipe Coatings line of business. The Infrastructure segment gross profit increased by $18,009, or 59.8%, compared to the prior year. The improvement in gross profit dollars is due to higher volumes and improved pricing in the legacy business and the net impact of acquisitions and divestitures which increased gross profit dollars in 2023 by $3,627. Gross profit in 2023 was negatively impacted by an adjustment of $3,051 due to changes in expected value of certain commercial projects associated with the Bridge Exit. In 2022, gross profit included an unfavorable adjustment of $1,135 related to the purchase accounting of acquired inventory related to VanHooseCo. Gross profit margins of 20.8% increased 550 basis points over last year, driven by more favorable margins associated with portfolio changes, as well as higher overall sales volumes and gains from pricing initiatives. The segment profit of $9,988 increased by $19,120 over the prior year. Segment profit in 2022 was negatively impacted by a goodwill impairment charge of $3,011 in the Fabricated Bridge business and a $5,005 impairment charge for intangible assets related to the Chemtec business. The other drivers of the increase in segment profit are the increase in gross profit, which was partially offset by higher selling and administrative expenses including the net impact of acquisitions and divestitures which increased selling and administrative costs by $1,628. During 2023, the Infrastructure segment had a decrease in new orders and backlog of $8,117, or 3.4%, and $37,648, or 22.5%, respectively, compared to the prior year period. The divestiture of Chemtec during the first quarter of 2023 resulted in a reduction of new orders and backlog of $33,234 and $20,928, respectively, from the prior year period. Orders in the Precast business, including the acquisition of VanHooseCo, partially offset the decline in new orders from the Chemtec divestiture. Backlog was also impacted by $8,094 due to the Bridge Exit. Corporate [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","Change","","","","Percent Change"],["","","2023","","2022","","","","2023 vs. 2022","","","","2023 vs. 2022"],["Corporate expense and other unallocated charges","","$","11,790","","","$","9,528","","","","","$","2,262","","","","","23.7","%"]] [[/GREPCENT_TABLE]] Unallocated corporate expenses increased in 2023 compared with 2022 primarily due to higher compensation including variable compensation costs that will reset in 2024 and higher interest expense. Liquidity and Capital Resources The Company’s principal sources of liquidity are its existing cash and cash equivalents, cash generated by operations, and the available capacity under its revolving credit facility, which provides for a total commitment of up to $130,000, of which $72,133 was available for borrowing as of December 31, 2023, subject to covenant restrictions. The Company’s primary needs for liquidity relate to working capital requirements for operations, capital expenditures, debt service obligations, payments related to the Union Pacific Railroad Settlement, tax obligations, outstanding purchase obligations, acquisitions, and to support the share repurchase program. The Company’s total debt, including finance leases, was $55,273 and $91,879 as of December 31, 2023 and December 31, 2022, respectively, and was primarily comprised of borrowings under its revolving credit facility. 24 Table of Contents The following table reflects available funding capacity as of December 31, 2023: [[GREPCENT_TABLE]] [["","","December 31, 2023"],["Cash and cash equivalents","","","","$","2,560"],["Credit agreement:"],["Total availability under the credit agreement","","$","130,000"],["Outstanding borrowings on revolving credit facility","","(55,060)"],["Letters of credit outstanding","","(2,807)"],["Net availability under the revolving credit facility","","","","72,133"],["Total available funding capacity","","","","$","74,693"]] [[/GREPCENT_TABLE]] As of December 31, 2023 and December 31, 2022 we were in compliance with all covenants of the Credit Agreement and have $74,693 available funding capacity as of December 31, 2023. The Company’s cash flows are impacted from period to period by fluctuations in working capital, as well as its overall profitability. While the Company places an emphasis on working capital management in its operations, factors such as its contract mix, commercial terms, days sales outstanding (“DSO”), and market conditions as well as seasonality may impact its working capital. The Company regularly assesses its receivables and contract assets for collectability and realization, and provides allowances for credit losses where appropriate. The Company believes that its reserves for credit losses are appropriate as of December 31, 2023, but adverse changes in the economic environment and adverse financial conditions of its customers may impact certain of its customers’ ability to access capital and compensate the Company for its products and services, as well as impact demand for its products and services. The change in cash and cash equivalents for the years ended December 31, 2023 and 2022 were as follows: [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2023","","2022"],["Net cash provided by (used in) operating activities","","$","37,376","","","$","(10,576)"],["Net cash provided by (used in) investing activities","","2,066","","","(56,418)"],["Net cash (used in) provided by financing activities","","(39,296)","","","60,240"],["Effect of exchange rate changes on cash and cash equivalents","","(468)","","","(736)"],["Net decrease in cash and cash equivalents","","$","(322)","","","$","(7,490)"]] [[/GREPCENT_TABLE]] Cash Flows from Operating Activities During the year ended December 31, 2023, net cash provided by operating activities was $37,376, compared to a use of $10,576 during the prior year. During 2023, cash flow provided by operating activities consisted of net income and non-cash items amounting to $21,453 and changes in certain assets and liabilities netting to a cash inflow of $15,923. In 2022, working capital and other assets and liabilities were a use of $25,822. Both periods include payments of $8,000 for the Union Pacific Railroad Concrete Tie Settlement. The Company’s calculation of DSO was 43 days as of December 31, 2023 compared to 48 days as of December 31, 2022. Cash Flows from Investing Activities For the year ended December 31, 2023, the Company had capital expenditures of $4,933, a $2,700 decrease from 2022. The expenditures for the year ended December 31, 2023 were primarily related to general plant and operational improvements throughout the Company, as well as organic growth initiatives. Expenditures for the year ended December 31, 2022 related to plant expansions within our Infrastructure segment, including those related to the second VanHooseCo operating location, implementations of the Company’s ERP system, and general plant and operational improvements throughout the Company. In 2023, the Company received cash proceeds of $7,706 from the sale of its Ties and Chemtec businesses. In 2022 the Company received cash proceeds of $8,800 primarily from the sale of its Track Components business. Cash used for investing activities for the year ended December 31, 2022 included cash paid of $57,852 for the acquisitions of VanHooseCo and Skratch. Cash Flows from Financing Activities The Company decreased its outstanding debt by $37,260 during the year ended December 31, 2023, primarily due to the proceeds from divestitures and improved operating cash flows. During the year ended December 31, 2022, the Company increased outstanding debt by $60,832, primarily from the borrowings used to fund the acquisitions of Skratch and VanHooseCo. During the year ended December 31, 2022, the Company paid financing fees of $182 related to its Credit Agreement (as defined below). For the year ended December 31, 2023 the Company repurchased 134,208 shares of its stock for $2,310 associated with the Company’s Board of Directors authorizing the purchase of up to $15,000 of the Company’s common stock through February of 2026. For the years ended December 31, 2023 and 2022, the Company also repurchased 24,886 and 27,636 shares of its stock, respectively, for $315 and $410 from employees to pay their withholding taxes in connection with the vesting of stock awards. 25 Table of Contents Financial Condition The Company generated $37,376 from cash flows from operations during 2023, which was utilized to pay down debt, fund capital expenditures and repurchase shares. As of December 31, 2023, the Company had $2,560 in cash and cash equivalents and $72,133 of availability under its revolving credit facility, subject to covenant restrictions. Principal uses of cash in recent years have been to fund operations, including capital expenditures, repurchase shares and service indebtedness. The Company views its short and long-term liquidity as being dependent on its results of operations, changes in working capital, and borrowing capacity. Non-domestic cash balances of $2,192 are held in various locations throughout the world. Should management determine that the cash balances of its foreign subsidiaries exceed its projected working capital needs, excess funds may be repatriated and subject to additional income taxes. On August 13, 2021, the Company entered into the Fourth Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement modifies the prior revolving credit facility, as amended, to provide more favorable terms to the Company and extends the maturity date from April 30, 2024 to August 13, 2026. The Credit Agreement provides for a five-year, revolving credit facility that permits aggregate borrowings of the Borrowers up to $130,000 with a sublimit of the equivalent of $25,000 US dollars that is available to the Canadian and United Kingdom borrowers in the aggregate. The Credit Agreement’s incremental loan feature permits the Company to increase the available commitments under the facility by up to an additional $50,000 subject to the Company’s receipt of increased commitments from existing or new lenders and the satisfaction of certain conditions. On August 12, 2022, the Company entered into a second amendment to its Credit Agreement (the “Second Amendment”) to obtain approval for the VanHooseCo acquisition and temporarily modify certain financial covenants to accommodate the transaction. The Second Amendment permitted the Company to acquire the operating assets of VanHooseCo and modified the Maximum Gross Leverage Ratio covenant through June 30, 2023 to accommodate the transaction. The Second Amendment also added an additional tier to the pricing grid and provided for the conversion from LIBOR-based to SOFR-based borrowings. For a discussion of the terms and availability of the credit agreement, please refer to Note 10 of the Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K. As of December 31, 2023, the Company was in compliance with the covenants in the Credit Agreement. To reduce the impact of interest rate changes on outstanding variable-rate debt, the Company amended and entered into SOFR-based interest rate swaps with notional values totaling $20,000 and $20,000 effective August 12, 2022 and August 31, 2022, respectively, at which point they effectively converted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contract. Prior to the 2022 forward interest rate swaps, the Company had $50,000 of interest rate swaps that were accounted for on a mark-to-market basis. During February 2022, the $50,000 tranche of interest rate swaps expired. As of December 31, 2023 and December 31, 2022 the swap asset was $1,225 and $1,930, respectively. On June 30, 2023, the Company sold substantially all the operating assets of the Ties business, located in Spokane, WA, for $2,362 in proceeds, subject to final working capital adjustments. The Ties business was reported in the Rail Products business unit within the Rail segment. On March 30, 2023, the Company sold substantially all the operating assets of its Chemtec business, for $5,344 in proceeds, subject to final working capital adjustments. The Chemtec business was reported in the Steel Products business unit within the Infrastructure segment. On August 1, 2022, the Company divested the assets of its rail spikes and anchors Track Components business located in St-Jean-sur-Richelieu, Quebec, Canada. Cash proceeds from the transaction were $7,795, subject to indemnification obligations and working capital adjustments, resulting in a pre-tax loss of $3,074. The Track Components business was reported in the Rail Products business unit within the Rail segment. The Company believes that the combination of its cash and cash equivalents, cash generated from operations, and the capacity under its revolving credit facility will provide sufficient liquidity to provide the flexibility to operate the business in a prudent manner, continue to service outstanding debt, repurchase shares and to selectively pursue accretive acquisitions to further the Company’s strategic initiatives. Backlog Although backlog is not necessarily indicative of future operating results, the following table provides the backlog by business segment: [[GREPCENT_TABLE]] [["","","December 31,"],["","","2023","","2022"],["Rail, Technologies, and Services","","$","84,418","","","$","105,241"],["Infrastructure Solutions","","129,362","","","167,010"],["Total backlog","","$","213,780","","","$","272,251"]] [[/GREPCENT_TABLE]] While a considerable portion of the Company’s business is backlog driven, certain businesses, including the Global Friction Management business unit, are not driven by backlog and therefore have insignificant levels of backlog throughout the year. Backlog decreased $58,471 compared to the prior year due to $31,270 from businesses that were divested and a discontinued product line. The remaining decline is associated with the timing of large orders for the Rail Distribution business. 26 Table of Contents Critical Accounting Estimates The accompanying consolidated financial statements have been prepared in conformity with US GAAP. The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities. The following critical accounting estimates, which are reviewed by the Company’s Audit Committee of the Board of Directors, are those management believes are the most critical to understand and evaluate our financial condition and results and require subjective or complex judgements. Actual results could differ from those estimates. For a summary of the Company’s significant accounting policies, see Part II, Item 8, Financial Statements and Supplementary Data, Note 1 to the Consolidated Financial Statements, which is incorporated by reference into this Item 7. Income Taxes - The recognition of deferred tax assets requires management to make judgments regarding the future realization of these assets. As prescribed by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes,” valuation allowances must be provided for those deferred tax assets for which it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. This guidance requires management to evaluate positive and negative evidence regarding the recoverability of deferred tax assets. The determination of whether the positive evidence outweighs the negative evidence and quantification of the valuation allowance requires management to make estimates and judgments of future financial results. The Company evaluates all tax positions taken on its federal, state, and foreign tax filings to determine if the position is more likely than not to be sustained upon examination. For positions that meet the more likely than not to be sustained criteria, the largest amount of benefit to be realized upon ultimate settlement is determined on a cumulative probability basis. A previously recognized tax position is derecognized when it is subsequently determined that a tax position no longer meets the more likely than not threshold to be sustained. The evaluation of the sustainability of a tax position and the expected tax benefit is based on judgment, historical experience, and other assumptions. Actual results could differ from those estimates upon subsequent resolution of identified matters. The Company’s income tax rate is significantly affected by the tax rate on global operations. In addition to local country tax laws and regulations, this rate depends on the extent earnings are indefinitely reinvested outside of the US Indefinite reinvestment is determined by management’s judgment about and intentions concerning the future operations of the Company. There have been no material changes in the underlying assumptions and estimates used in these calculations in the relevant period. Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 14 which is incorporated by reference into this Item 7, for additional information regarding the Company’s deferred tax assets. The Company’s ability to realize these tax benefits may affect the Company’s reported income tax expense and net income. Revenue Recognition - Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 1 and Note 4 which is incorporated by reference into this Item 7, for a complete discussion of our revenue recognition policies. The Company derives revenue from products and services provided under long-term agreements with its customers. The Company’s performance obligations under long-term agreements with its customers are generally satisfied over time. Revenue under these long-term agreements is generally recognized over time either using an input measure based upon the proportion of actual costs incurred to estimated total project costs or an input measure based upon actual labor costs as a percentage of estimated total labor costs, depending upon which measure the Company believes best depicts the Company’s performance to date under the terms of the contract. Accounting for these long-term agreements involves the use of various techniques to estimate total revenues and costs. The Company estimates profit on these long-term agreements as the difference between total estimated revenues and expected costs to complete a contract and recognizes that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events that may span several years. These assumptions include, among other things, labor productivity, cost and availability of materials, and timing of project execution. The nature of these long-term agreements may give rise to several types of variable considerations, such as discounts and claims. Contract estimates may include additional revenue for submitted contract modifications, including at times unapproved change orders, if there exists an enforceable right to the modification, the amount can be reasonably estimated, and its realization is probable. These estimates are based on historical collection experience, anticipated performance, and the Company’s best judgment at that time. These amounts are generally included in the contract’s transaction price and are allocated over the remaining performance obligations. As a result of management’s reviews of contract-related estimates the Company makes adjustments to contract estimates that impact our revenue and profit totals. Changes in estimates are primarily attributed to updated considerations, including economic conditions and historic contract patterns resulting in anticipated revenue from existing contracts. Goodwill - We evaluate goodwill for impairment annually during the fourth quarter, or whenever events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. When evaluating for impairment the Company may first consider qualitative factors to assess whether there are indicators that it is more likely than not that the fair value of a reporting unit may not exceed its carrying amount. If we do not perform a qualitative assessment, or if we determine that it is more like than not that the fair value of the reporting unit does not exceed its carrying value, we perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying value, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss equal to the excess amount up to the goodwill balance is recorded as an impairment to goodwill of the reporting unit. The Company uses a combination of a discounted cash flow method and a market approach to determine the fair values of the reporting units. 27 Table of Contents A number of significant assumptions and estimates are involved in the estimation of the fair value of reporting units, including the identification of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, which may drive changes to revenue growth, EBITDA contribution, and market participant assumptions. The estimated fair value of a reporting unit is sensitive to changes in assumptions, including forecasted future operating cash flows, weighted-average cost of capital, terminal growth rates, and industry multiples. The Company considers historical experience and available information at the time the fair values of its reporting units are estimated. The Company believes the estimates and assumptions used in estimating the fair value of its reporting units are reasonable and appropriate; however, different assumptions and estimates could materially impact the estimated fair value of its reporting units and the resulting determinations about goodwill impairment. This could materially impact the Company’s Consolidated Statements of Operations and Consolidated Balance Sheets. There have been no material changes in the underlying assumptions and estimates used in these calculations in the relevant period. Future estimates may differ materially from current estimates and assumptions. Additional information concerning the impairments is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 5 to the Consolidated Financial Statements included herein, which is incorporated by reference into this Item 7. Intangible Assets and Long-Lived Assets - The Company tests intangible assets and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable. Recoverability of assets is determined by comparing the estimated undiscounted future cash flows of the asset or asset group to their carrying amount. If the carrying value of the assets exceeds their estimated undiscounted future cash flows, an impairment loss would be determined as the difference between the fair value of the assets and its carrying value. Typically, the fair value of the assets would be determined using a discounted cash flow model which would be sensitive to judgments of what constitutes an asset group and certain assumptions such as estimated future financial performance, discount rates, and other assumptions that marketplace participants would use in their estimates of fair value. There have been no material changes in the underlying assumptions and estimates used in these calculations in the relevant period. The accounting estimate related to asset impairments is highly susceptible to change from period to period because it requires management to make assumptions about the existence of impairment indicators and cash flows over future years. These assumptions impact the amount of an impairment, which could materially adversely impact the Consolidated Statements of Operations. Additional information concerning the impairments is set forth in Part II, Item 8, Financial Statements and Supplementary Data, Note 5 to the Consolidated Financial Statements included herein, which is incorporated by reference into this Item 7. Non-GAAP Financial Measures In accordance with SEC rules, the Company provides descriptions of the non-GAAP financial measures included in this Annual Report and reconciliations to the most closely related GAAP financial measures. The Company believes that these measures provide useful perspective on underlying business trends and results and a supplemental measure of year-over-year results. The non-GAAP financial measures described below are used by management in making operating decisions, allocating financial resources and for business strategy purposes and may, therefore, also be useful to investors as they are a view of our business results through the eyes of management. These non-GAAP financial measures are not intended to be considered by the user in place of the related GAAP financial measure, but rather as supplemental information to our business results. These non-GAAP financial measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “organic sales” refer to sales calculated in accordance with GAAP, adjusted to exclude divestiture or acquisition-related sales. Management evaluates the Company’s sales performance based on organic sales growth. Organic sales growth is a non-GAAP financial measure of sales growth (which is the most directly comparable GAAP measure), adjusted to exclude the effects of acquisitions and divestitures from year-over-year comparisons. The Company believes this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis. The Company reports organic sales growth at the consolidated and segment levels. EBITDA is a non-GAAP financial measure that has been used in discussing the financial performance of the business for the years ended December 31, 2023 and 2022. EBITDA is a financial metric utilized by management to evaluate the Company’s performance on a comparable basis. The Company believes that EBITDA is useful to investors as a supplemental way to evaluate the ongoing operations of the Company’s business as many investors utilize EBITDA to enhance their ability to compare historical periods as it adjusts for the impact of financing methods, tax law and strategy changes, and depreciation and amortization. In addition, EBITDA is a financial measurement that management and the Company’s Board of Directors use in their financial and operational decision-making and in the determination of certain compensation programs. Adjusted EBITDA includes certain adjustments to EBITDA. In 2023, the Company made adjustments to exclude the loss on divestitures, VanHooseCo contingent consideration adjustments, the impact of the discontinuation of the bridge grid deck product line, and bad debt provision for a customer that filed for administrative protection in the UK. In 2022, the Company made adjustments to exclude acquisition and divestiture related costs, VanHooseCo acquisition-related inventory step-up amortization and contingent consideration expense, the gain from insurance proceeds, the Crossrail project settlement amount, impairment charges, and the loss (gain) on the sale of the Track Components and Piling Products businesses, respectively. 28 Table of Contents The Company views net debt, which is total debt less cash and cash equivalents, as an important metric of the operational and financial health of the organization and useful to investors as an indicator of our ability to incur additional debt and to service our existing debt. Non-GAAP financial measures are not a substitute for GAAP financial results and should only be considered in conjunction with the Company’s financial information that is presented in accordance with GAAP. Quantitative reconciliations of EBITDA, adjusted EBITDA, organic sales growth, and net debt to the non-GAAP financial measures are presented in this Item 7.