Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sales increased by 6% due to the net impact of M&A activities.
- Adjusted gross margins improved by 40 to 60 basis points.
- Trailing 12 months adjusted EBITDA is up 64%, translating to a 37.9% adjusted EBITDA leverage on net sales growth.
- Restructuring in the UK is expected to generate annual run rate savings of $4.5 million.
- Strong performance in the precast concrete segment, particularly benefiting from the Great American Outdoors Act.
Negative Points
- Net sales for the quarter were down 4.9% in total, driven primarily by weakness in the rail segment.
- Gross profit was down $1.7 million with margins nearly flat at 21.7%.
- Selling, general, and administrative costs increased by $0.4 million due to corporate legal provisions and professional service costs.
- Net income for the quarter was down 19.4% compared to the prior year quarter.
- Adjusted EBITDA for the quarter was down 23.8% due to lower gross profit and higher professional service costs.
Q & A Highlights
Q: You've seen some softness in demand from rail and coatings and steel. How should we think about this going into the third and fourth quarters? Do you see a rebound there?
A: Absolutely. We also get impacted by weather in the first half. We expect quite a bit of volume moving through our facilities in the second half of the year. (John Kasel, President, CEO)
Q: What were the main drivers for the revised free cash flow guidance to breakeven from the previous $12 million to $18 million?
A: The restructuring will consume some cash, and the timing of business in the rail segment will push volume to the latter part of the year, resulting in a higher working capital requirement. We expect strong cash flow in the second half of the year. (William Thalman, CFO)
Q: With the restructuring program, how much will it reduce SG&A, or do you have any quantifiable numbers?
A: The restructuring will result in annual run rate savings of $4.5 million. It’s about taking money and focusing on growth, transforming the company into a technology innovation company. (John Kasel, President, CEO)
Q: Does the revised free cash flow guidance mean you expect to end the year with higher accounts receivable?
A: Yes, we expect strong Q4 revenue, which will drive accounts receivable up. (John Kasel, President, CEO)
Q: Could you comment on whether the rail technologies business continues to mix up margin?
A: We feel good about our strategy pivoting to TTM and condition monitoring. The headwinds are specific to our rail distribution and ERP work. We expect strong growth in the second half. (John Kasel, President, CEO)
Q: Is the restructuring program mainly to remove stranded costs or to get ready for potentially lower demand?
A: It’s about getting better, streamlining the organization, and focusing on growth. Removing stranded costs is part of it, but it’s also about redeploying resources to the front of the house. (John Kasel, President, CEO)
Q: Is there any change that will affect your ability to serve higher demand or meet growth?
A: If we didn’t do what we did, I would not be as bullish on the aspirational goals. We need to invest in the future and continue to bring profitability to the company. (John Kasel, President, CEO)
Q: Can you expand on the legal expense in this quarter? Is it a one-time issue?
A: We have an ongoing matter that we’re working through. It was about an $800,000 expense in the quarter. There could be additional amounts in the future, but we can’t predict the exact timing. (William Thalman, CFO)
Q: Is the improvement in the UK business sustainable?
A: The UK has had a tough stretch, but the new leadership is doing a tremendous job. It may not be an area of huge growth, but it’s a large technology innovation center for us. (John Kasel, President, CEO)
Q: Is the softness in domestic rail more of a timing issue from your customers?
A: Yes, the work is coming. We expect a stronger second half of the year. Railroads need to continue to invest in the type of products we provide. (John Kasel, President, CEO)
Q: What about steel products? What will it take to turn that around?
A: The threading business is doing well, and we have new market entries. The bridge forms business is operating at a high level, and we have a lot of bidding activities and opportunities. (John Kasel, President, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
