FSTR

• Leadership and Organizational Updates:

  • Multiple leadership transitions and promotions were announced, effective June 1, 2026: Sean Reilly promoted to CFO, Bill Thalman appointed COO, Jason Boland appointed to succeed retiring SVP Greg Lippard, with additional internal promotions for other key leadership roles.
  • Greg Lippard announced planned retirement at the end of 2026 after a decades-long career with the company.
  • Management emphasized a commitment to internal talent development, highlighting that all recent promotions came from within the firm.

• Quarterly and Year-to-Date Operational Performance:

  • Q2 2026 consolidated net sales were $138.6 million, a 3.5% YoY decline driven by rail product order timing. Gross margins improved 80 basis points to 22.3% due to favorable business mix.
  • Q2 adjusted EBITDA was $11.7 million, a 4.7% YoY decline driven by higher personnel and incentive compensation costs tied to strong year-to-date performance. Year-to-date adjusted EBITDA grew 19.6% YoY to $26.8 million.
  • Q2 operating cash flow reached $17.9 million, the highest Q2 cash generation since 2017 and a $7.5 million YoY improvement, driven by lower working capital requirements.
  • Net debt was reduced by $35.2 million (45.5%) YoY to $42.2 million, cutting the gross leverage ratio in half to 1.0x, well within the company's targeted 1.0x-1.5x range.

• Strategic and Capital Allocation Priorities:

  • Completed a strategic shift in the UK, exiting non-core product lines within two engineering businesses for $2.6 million in total exit costs.
  • Maintaining debt leverage within the targeted range remains the top capital allocation priority, followed by organic growth investments, share repurchases, and complementary acquisitions.
  • 2026 capital spending is targeted at ~2.7% of sales, focused on organic growth initiatives in the precast concrete business.
  • $28.7 million remains available for share repurchases over the next two years; no repurchases were completed in Q2.
  • Acquisition strategy prioritizes targets that complement the existing portfolio, with a primary focus on the precast concrete market.

• End Market Demand Conditions:

  • U.S. rail infrastructure demand remains supported by active federal funding programs, with a large portion of CRISI grant funding still available to support future project growth.
  • Infrastructure end markets remain favorable: domestic energy market strength supports protective coating businesses, and robust civil construction activity drives ongoing demand for precast concrete products.
  • Broader macroeconomic and geopolitical volatility has not had a material impact on customer demand to date.

• Full-year 2026 financial guidance is reaffirmed, with no upward or downward revision from prior guidance ranges.
• Full-year free cash flow guidance is maintained at $15 million to $25 million, with a midpoint of $20 million. The majority of full-year free cash flow is expected to be generated in the second half of 2026, following just under $1 million of free cash flow generated year-to-date.
• Capital spending is still expected to total approximately 2.7% of full-year 2026 sales, equaling ~$15 million at the guidance midpoint.
• Management expects 2026 sales and adjusted EBITDA to follow historical seasonal patterns, with concentration of activity in the second and third quarters aligned with the typical construction season.
• Even with expected seasonal working capital increases that may raise debt levels in the second half, management expects the gross leverage ratio to remain within the targeted 1.0x to 1.5x range.

1. Rail Segment: Q2 2026 net sales were $72 million, a 5.2% year-over-year decline driven by order timing in rail products. This decline was partially offset by 18.1% sales growth in global friction management and 66.9% sales growth in technology services and solutions (driven by UK short-term project work). Rail segment margins improved 70 basis points to 20.6% despite $1 million in product line exit costs, due to favorable sales mix. Year-to-date 2026 rail sales grew 12.9% YoY, with 27.4% growth in global friction management and 46.7% growth in technology services and solutions. Rail orders were down 1.9% YoY overall, but global friction management orders grew 27.8% and technology services orders grew 126.4%. Rail backlog increased 8.2% YoY. This segment contributed approximately 52% of consolidated Q2 net sales.

2. Infrastructure Solutions Segment: Q2 2026 net sales decreased 1.5% YoY to $66.6 million. Steel product sales declined $2 million due to lower volumes in the threaded water well product line, partially offset by a $0.9 million sales increase in precast concrete. Segment gross profit increased $0.3 million YoY, with margins improving 80 basis points to 24.1% driven by favorable sales mix and manufacturing efficiency. Infrastructure orders increased 4% YoY ($2.5 million) driven by improved intake in protective coating businesses, partially offset by a 15.4% ($7.4 million) decline in precast concrete orders. Infrastructure backlog was $104.7 million at quarter end, a $34.5 million YoY decline, of which $19 million came from the canceled Summit Pipeline coating order and $16 million from lower precast order activity. As of July 2026, infrastructure backlog had increased 10% from June levels. Year-to-date 2026 infrastructure sales grew 1.4% YoY, led by 7.8% growth in precast concrete. This segment contributed approximately 48% of consolidated Q2 net sales.

• Quarterly sales and order results are inherently variable due to the project-based nature of the company's end markets, with order timing and lumpiness causing significant quarter-to-quarter fluctuations in results and backlog levels.
• Higher-than-expected personnel and incentive compensation costs negatively impacted Q2 2026 adjusted EBITDA, even as the cost increase reflected strong year-to-date performance.
• Precast concrete order activity has been softer than the prior year, leading to a decline in infrastructure segment backlog, though backlog recovered 10% in July 2026 after the end of the quarter.
• The consolidated trailing 12-month book-to-bill ratio was 0.96x, below prior year levels, driven by a 0.85x ratio in the infrastructure segment, though the rail segment maintained a healthy 1.03x ratio.
• The broader geopolitical and macroeconomic environment remains dynamic, presenting potential uncertainty that could impact future demand, though no material impact has been observed to date.

Q: The backlog grew materially quarter-over-quarter driven by rail on a large UK order; can you size this order and share its revenue recognition timeline?

A: The large UK rail order totals approximately 15 million pounds, with revenue recognition spread over a multi-year timeline of a couple of years. The company also noted that overall bidding activity is the strongest it has been in recent years, and order momentum continued into July 2026 for a strong Q3 start.

Q: What percentage of the current backlog will be converted to revenue in the second half of 2026, and how much visibility does backlog give for full-year guidance?

A: Management estimates at least 80% of the current backlog will be executed and recognized in 2026, between the third and fourth quarters. The existing backlog already positions the company to hit full-year guidance midpoint, with additional incoming orders expected to fill out the remainder of the year.

Q: Given the strong Q2 operating cash flow, what are the expectations for operating and free cash flow in the second half of 2026?

A: Full-year free cash flow guidance is maintained at a $15 million to $25 million range (midpoint $20 million), with the vast majority of this full-year free cash flow expected to be generated in the second half. Capital spending remains on track to hit the prior target of ~2.7% of full-year sales, or ~$15 million at the guidance midpoint.

Q: Can you provide an update on the commercialization progress of the Rockfall monitoring product line in the rail technology segment?

A: Two Rockfall monitoring pilot installations are currently up and running (one in Canada, one on the U.S. West Coast) and both are performing very well. Customers plan to expand commercial deployment of the product this year, but the largest volume growth tranche for the product line is now expected to occur in 2027.