L.B. Foster's Q3 2025: Contradictions Emerge on Government Shutdown Impact, Sales Growth Sustainability, Rail Products Sales & Backlog Growth, Rail Products Orders & Backlog, and Total Track Monitoring Growth

Date of Call: November 3, 2025

Financials Results

• Revenue: Net sales grew 0.6% year-over-year (consolidated net sales amount not disclosed)
• Gross Margin: 22.5%, down 130 basis points year-over-year

Guidance:

• Q4 sales expected to grow approximately 25% year-over-year, supported by elevated backlog.
• Q4 adjusted EBITDA at the midpoint expected to be up ~115% year-over-year.
• 2025 guidance implies adjusted EBITDA margin well above the 8% target for the last three quarters of 2025.
• 2025 free cash flow midpoint of $17.5M (slightly lower than prior outlook due to rail delivery deferrals).
• Key risks called out: federal government shutdown, adverse weather, and customer delivery delays.

Business Commentary:

* Sales and Revenue Growth: - L.B. Foster reported a 0.6% increase in sales for Q3 2025, marking the second consecutive quarter of modest growth. - The growth was driven primarily by the Infrastructure segment, with steel products sales up 12.7%, while Rail revenues declined 2.2% due to planned downsizing and timing of rail distribution sales.

• Cash Flow and Debt Reduction:
• The company's cash provided by operations totaled $29.2 million in Q3, allowing for a significant reduction in net debt to $55.3 million.

• This strong cash generation was used to lower net debt and improve the gross leverage ratio to 1.6x.

• Backlog and Order Growth:

• L.B. Foster's trailing 12-month book-to-bill ratio remained positive at 1.08:1, with a significant increase in the backlog to $247.4 million, up 18.4% year-over-year.

• This growth was primarily driven by improved demand in the Rail segment, including a large multiyear order in the U.K., positioning the company for a strong Q4.

• Strategic Growth Platforms:

• The company's strategic growth platforms, including Total Track Monitoring (up 135.1%), Friction Management (up 9%), and Precast Concrete (up 1.4%), contributed significantly to revenue growth.
• These platforms have shown strong performance due to increased demand for safety and efficiency solutions, and recent acquisitions are expected to further enhance future growth.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted "exceptionally strong cash generation" ($29.2M operating cash flow), backlog up 18.4% to $247.4M, and stated at midpoint Q4 adjusted EBITDA is expected to be up 115% on ~25% sales growth, repeatedly noting they "have the backlog and manufacturing capacity to deliver."

Q&A:

• Question from Julio Romero (Sidoti & Company, LLC): Can you talk about your guidance and hitting the implied fourth quarter sales and EBITDA guide? Does that embed assumptions about the government shutdown ending or other funding impacts to your customers?
  Response: No immediate material impact observed from the shutdown; funding is flowing now, backlog and supply‑chain partners are in place, and management is confident they have the work and capacity to drive a very strong Q4 and meet guidance near-term.

• Question from Julio Romero (Sidoti & Company, LLC): Worst‑case if the shutdown continues into 2026 — are you still confident in hitting the sales and EBITDA guide?
  Response: Management would not speculate on 2026; they reiterated current momentum and strong bidding activity and expect momentum to carry into Q1.

• Question from Julio Romero (Sidoti & Company, LLC): Total track monitoring sales were up 135% year‑over‑year — what drove that growth and is it sustainable?
  Response: Growth driven by adoption of the Wild condition‑monitoring product, strong friction management performance and precast strength; management views all three as strategic growth platforms and expects continued positive performance.

• Question from Julio Romero (Sidoti & Company, LLC): Does the pushout in rail imply free cash flow will be more heavily weighted into early 2026?
  Response: Yes — rail distribution deferrals will shift working capital and payables into next year, affecting the timing of free cash flow into early 2026.

• Question from Liam Burke (B. Riley Securities, Inc., Research Division): How much margin offset did you get from total track management and friction management?
  Response: There was some offset but not significant: friction management margins were flat year‑over‑year, total track monitoring provided mix lift, while U.K. weakness reduced overall rail margin gains.

• Question from Liam Burke (B. Riley Securities, Inc., Research Division): How is the acquisition pipeline for precast looking?
  Response: An active M&A process is underway focused on precast, particularly in the southern U.S.; management is also prioritizing organic ramp‑up at recently commissioned Florida and Tennessee facilities.

• Question from Unknown Analyst (GAMCO): Given you tweaked the guidance to the lower end of the prior range, is that because some rail products are pushing into 2026 or are parts of the business tracking lower for 2025?
  Response: Management attributed the change to realistic production capacity constraints — operating centers are at capacity — and they're being conservative about what can be delivered by year‑end.

• Question from Unknown Analyst (GAMCO): What will come through in early 2026 that might not have come through in 2025?
  Response: Management expects a stronger start to 2026 driven by robust quoting activity; they are also tightly managing SG&A to offset margin pressure from distribution timing.

• Question from Unknown Analyst (GAMCO): The multiyear order in the U.K. — how does that contrast with the portions of the U.K. business you're deemphasizing?
  Response: The six‑year U.K. order provides multi‑year stability and supports their condition‑monitoring/TTM strategy; they are being selective in U.K. work to focus on profitable, payable projects.

• Question from Unknown Analyst (GAMCO): Regarding the Summit order cancellation, what were the circumstances and duration?
  Response: Customer (AIPCO/Summit) canceled the long‑standing order after it sat on backlog for multiple years; the order was removed from the quarter and may be rebid or resurrected in future.

• Question from Unknown Analyst (GAMCO): Prior to cancellation, when was the Summit order expected to be delivered?
  Response: Management hoped delivery would occur this year or into next year but noted uncertainty; emphasized they have ample alternative work to fill capacity.

Contradiction Point 1

Impact of Government Shutdown

It involves differing expectations regarding the impact of a government shutdown, which could affect the company's revenue and operations, impacting investor confidence.

Does your guidance for meeting the implied fourth quarter sales and EBITDA targets include assumptions about the timing of the government shutdown ending or other customer funding impacts? - Julio Romero(Sidoti & Company)

2025Q3: We are not seeing significant impacts from the current 30-day government shutdown. Funding is flowing, and orders are strong. We are hopeful the shutdown won't extend into next year but have contingency plans in place. - John Kasel(CEO)

What factors could drive the high and low ends of your 2025 sales and EBITDA guidance ranges? - Julio Romero(Sidoti & Company)

2024Q4: We are here today with operating results that are strong, particularly given the current government shutdown, which has certainly affected our results this last quarter. - John Kasel(CEO)

Contradiction Point 2

Sustainability of Sales Growth

It involves differing perspectives on the sustainability of sales growth, which is crucial for investor expectations and strategic planning.

What are the drivers of the 135% year-over-year sales growth in total track monitoring, and how sustainable is this growth? - Julio Romero(Sidoti & Company)

2025Q3: Sales growth is driven by all three growth platforms: condition monitoring, friction management, and precast. We're seeing strong adoption of our technologies and increased demand from customers, which supports sustainability. - John Kasel(CEO)

What factors could drive the high and low ends of your 2025 sales and EBITDA guidance? - Julio Romero(Sidoti & Company)

2024Q4: As we look forward to 2025 and consider the long-term strategy, we recognize that the significant growth that we've seen over the past few years in the infrastructure and protective coatings businesses is likely to moderate. - John Kasel(CEO)

Contradiction Point 3

Rail Products Sales and Backlog Growth

It highlights differing perspectives on the sales and backlog growth of the Rail Products segment, which is crucial for revenue forecasting and investor expectations.

Can you clarify how you plan to meet the implied Q4 sales and EBITDA guidance? - Julio Romero(Sidoti & Company, LLC)

2025Q3: Rail Products was down 34% year-over-year due to the deferral of several orders into Q4, but up 25% versus Q2. - John Kasel(CEO)

Can you explain the backlog growth mix in Rail for this quarter? - Julio Romero(Sidoti & Company, LLC)

2025Q1: Rail Products was up about 22% on a year-over-year basis, driven by the infrastructure demand. - John Kasel(CEO)

Contradiction Point 4

Rail Products Orders and Backlog

It involves inconsistencies in the reported backlog and orders for the Rail Products segment, which impacts revenue projections and investor confidence.

Will you meet the implied guidance for Q4 sales and EBITDA? - Julio Romero(Sidoti & Company, LLC)

2025Q3: We have a robust backlog of rail products orders, which are up 33% year-over-year. - John Kasel(CEO)

What is the composition of the Rail backlog growth this quarter? - Julio Romero(Sidoti & Company, LLC)

2025Q1: Orders were up 35% on a year-over-year basis. Backlog was up 22% on a year-over-year basis. - John Kasel(CEO)

Contradiction Point 5

Growth in Total Track Monitoring

It reflects inconsistencies in the reported growth drivers and platforms for the Total Track Monitoring segment, affecting strategic focus and product development.

What are the drivers of the 135% year-over-year sales growth in total track monitoring, and how sustainable is this growth? - Julio Romero(Sidoti & Company, LLC)

2025Q3: Sales growth is driven by all three growth platforms: condition monitoring, friction management, and precast. We're seeing strong adoption of our technologies and increased demand from customers, which supports sustainability. - John Kasel(CEO)

Can you discuss how the 10%-18% second-half sales growth guidance will be distributed across your two business segments and how this growth will unfold in Q3 and Q4? - Julio Alberto Romero(Sidoti & Company)

2025Q2: We have seen meaningful improvement in the backlog for Rail Technologies, and Friction Management has returned to strong growth. Coatings had a solid quarter with orders up 52% year-over-year. - John Kasel(CEO)