L.B. Foster Company - Earnings Call - Q3 2025

Executive Summary

• Q3 revenue of $138.3M grew 0.6% YoY but declined vs Q2; gross margin improved sequentially to 22.5%; diluted EPS was $0.40 (vs $3.27 last year, which benefited from a $30M tax valuation allowance).
• Results were below S&P Global consensus: revenue $138.3M vs $154.4M*, EPS $0.40 vs $0.62*, and adjusted EBITDA $11.4M vs $14.6M*; the shortfall reflected lower rail volume timing and weaker Infrastructure mix, including Florida precast start-up costs.
• Cash generation was a standout: $29.2M operating cash flow and $26.4M FCF, enabling $22.9M debt reduction, $4.7M buybacks (184K shares), and leverage down to 1.6x.
• Guidance narrowed: FY25 net sales $535–$545M (from $535–$555M) and adjusted EBITDA $40–$42M (from $40–$44M); FCF $15–$20M (from $15–$25M). Management anticipates a strong Q4 with ~25% sales growth and ~115% adjusted EBITDA growth vs Q3.
• Catalysts: potential stock reaction to the miss vs consensus and narrowed guidance; offset by robust cash generation, lower leverage, and a 58% YoY increase in Rail backlog supporting Q4 acceleration.

What Went Well and What Went Wrong

What Went Well

• Robust cash generation and de‑leveraging: $29.2M operating cash flow, $26.4M FCF; total debt cut by $22.9M to $58.7M and gross leverage to 1.6x.
• Rail demand recovery building into Q4: Rail orders +64% YoY; Rail backlog +58% YoY to $140.2M, with a large multi‑year UK TS&S order; management expects Q4 sales growth ~25% with both segments contributing.
• Cost discipline: SG&A down 9.1% YoY and SG&A as % of sales improved to 16.0% as containment measures took hold. CEO: “containment measures reducing the SG&A percentage of sales to 16.0% for the quarter”.

What Went Wrong

• Consensus miss and mix pressure: Revenue $138.3M vs $154.4M*, EPS $0.40 vs $0.62*, and adjusted EBITDA $11.4M vs $14.6M*; margins pressured by lower rail volumes and unfavorable mix in Infrastructure (Precast) including ~$0.6M Florida start-up costs.
• Infrastructure margin compression: Segment gross margin fell 260 bps YoY to 22.0% on Precast mix and higher manufacturing costs; segment operating income down 18.8% YoY.
• UK headwinds persisted in TS&S, pressuring mix; management cited UK weakness offset by a new multi‑year UK award, but noted margin drag in TS&S this quarter.

Transcript

Speaker 2

Good day, and welcome to L.B. Foster's third quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Ms. Lisa Durante, Director of Financial Reporting and Investor Relations. Please go ahead.

Speaker 1

Thank you, Operator. Good morning, everyone, and welcome to L.B. Foster's third quarter of 2025 earnings call. My name is Lisa Durante, the company's Director of Financial Reporting and Investor Relations. Our President and CEO, John Kasel, and our Chief Financial Officer, Bill Thalman, will be presenting our third quarter operating results, market outlook, and business developments this morning. We'll start the call with John providing his perspective on the company's third quarter performance. Bill will then review the company's third quarter financial results. John will provide perspective on market developments and company outlook in his closing comments. We will then open up the session for questions. Today's slide presentation, along with our earnings release and financial disclosures, were posted on our website this morning and can be accessed on our investor relations page at lbfoster.com. Our comments this morning will follow the slides in the earnings presentation.

Some statements we are making are forward-looking and represent our current view of our markets and business today. These forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise or publicly release the results of any revisions to these statements in light of new information except as required by securities law. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and presentation. We will also discuss non-GAAP financial metrics and encourage you to carefully read our disclosures and reconciliation tables provided within today's earnings release and presentation as you consider these metrics. With that, let me turn the call over to John.

Speaker 3

Thanks, Lisa. Hello, everyone. Thanks for joining us today for our third quarter earnings call. I'll begin with slide five, covering key drivers of our results for the quarter. We continue the favorable trend in the third quarter, posting modest sales growth. For the second consecutive quarter, with sales up 0.6% over last year. Like the second quarter, the growth was achieved in the infrastructure segment, with sales up 4.4%, led by a 12.7% increase in steel products. Rail revenues, on the other hand, remained soft, declining 2.2% from last year due to continued planned downsizing of our U.K. business and timing of rail distribution sales. It's important to note that these results included positive revenue gain in our rail growth area, starting with a 9% increase in friction management and an approximately 135% increase in total track monitoring.

Turning to profitability for the quarter, adjusted EBITDA was down $1 million with lower margins in both rail and infrastructure, partially offset by lower SG&A expenses. Speaking of SG&A, we remained focused on our strategic execution to leverage our cost base, with containment measures reducing the SG&A percentage of sales to 16% for the quarter. Net income also declined year over year to $4.4 million, compared to $35.9 million last year. As a reminder, our improving profitability allowed us to release a $30 million tax valuation allowance in last year's third quarter. The major highlight of the quarter was our exceptionally strong cash generation, with cash provided by operations totaling $29.2 million. These funds were used primarily to lower our net debt to $55.3 million at quarter end, with gross leverage improving to 1.6 times compared to 1.9 times last year.

In line with our capital allocation priorities, we also repurchased approximately 184,000 shares of our stock, representing about 1.7% of outstanding shares. Finally, the increased level of orders and backlog in the quarter sets us up for a strong finish to the year in Q4. The trailing 12-month book-to-bill ratio remained positive at 1.08 to 1, and the backlog at quarter end stood at $247.4 million, up $38.4 million, or 18.4%, over last year. The elevated backlog is expected to translate into Q4 sales growth of approximately 25%, with both segments expected to make gains. I'll revisit our financial guidance to cover the market outlook after Bill runs through the financial details for the quarter. Over to you, Bill.

Speaker 0

Thanks, John, and good morning, everyone. I'll begin my comments on slide seven, covering the consolidated results for the quarter. Reconciliations for non-GAAP information and other financial details are included in the appendix of the presentation. Net sales grew 0.6% year over year, driven by 4.4% growth in infrastructure, with steel products up 12.7%. Rail segment sales remained softer, down 2.2% versus last year. Gross profit was down $1.7 million, with the decline due to the lower rail sales volumes, coupled with unfavorable sales mix and higher manufacturing costs within infrastructure. The gross margin was 22.5%, down 130 basis points compared to last year's high point in the third quarter. We remained focused on what we can control in the short term, with containment measures reducing SG&A costs to $2.2 million compared to last year. The SG&A percentage of sales improved 170 basis points to 16%.

Adjusted EBITDA was $11.4 million, down 7.9% versus last year, with the decline driven by lower margins, partially offset by lower SG&A, both adjusted for restructuring and legal costs incurred last year. Cash provided by operating activities in the quarter was $29.2 million, favorable $4.4 million versus last year due to lower working capital needs in the rail segment. Third quarter orders were up 19.6% year over year, with a favorable trailing 12-month book-to-bill ratio of 1.08 to 1. The backlog improved 18.4% year over year, with the increase realized in the rail segment, which was up 58.2%. I'll cover segment-specific performance for the quarter and the favorable developments in orders and backlog later in the presentation. Slide eight provides a reminder of our typical business seasonality and the related financial profile by quarter. Normally, sales and profitability are strongest in the second and third quarters.

However, 2025 phasing is skewed a bit due primarily to timing of rail distribution orders, with deliveries deferred to the fourth quarter. As a result, combined Q2 and Q3 sales and profitability as a percentage of the full year are lower than we would typically see with the expected sales shift through the fourth quarter. We're in the cash generation period of our year, and as evidenced by the exceptional operating cash flow in Q3. We expect this favorable trend to continue in Q4. Over the next couple of slides, I'll cover our segment-specific performance in the quarter, starting with rail on slide nine. Third quarter revenues were $77.8 million, down 2.2% due to order delivery timing primarily in rail distribution, coupled with lower demand and revenues in the U.K. Rail product sales were down 5.9% due to softer rail distribution and transit product demand in the quarter.

Technology services and solution sales were also down 5.3%, including the decline in the U.K. business. Within TS&S, our total track monitoring sales were up 135.1%. Also, global friction management sales were up 9% as this growth platform continues to perform well. Rail margins of 22.8% were down 40 basis points, driven primarily by softer sales volumes as well as the weakness in the U.K. Rail orders increased 63.9% versus last year, with all business units improving. Most notably, rail products orders were up $9.6 million, while TS&S orders were up $25 million, with a large multi-year order awarded in our U.K. business. Rail backlog levels increased $51.6 million versus last year, led by rail products up $34.5 million, or 59.9%, which supports our growth expectations for rail in Q4. Turning to infrastructure solutions on slide 10, net sales increased $2.5 million, or 4.4%.

The improvement was realized in steel products, with sales up $1.9 million on improved protective coating and threaded volumes. Precast sales were also up 1.4% over last year. Despite the sales growth, gross profit declined $1 million, with margins down 260 basis points to 22%. The decline was due to unfavorable sales mix and higher production costs in the precast business, including $0.6 million of higher startup costs at our new Florida facility. Infrastructure net orders declined $14.9 million due primarily to the cancellation of the $19 million Summit Protective Coatings order in steel products. Solid gains in precast concrete partially offset the impact. Infrastructure backlog totaling $107.2 million is down $13.2 million from last year due to order cancellations. Shippable backlog for infrastructure is up approximately $6 million over last year's comparable level, adjusting for the order cancellation.

Next, I'll cover some of the key takeaways from our year-to-date results on slide 11. Net sales for the year-to-date period were down 5.7% due to lower sales volumes in rail, which were down 16.1%, driven by timing of demand for rail products, coupled with the reductions in the U.K. Infrastructure sales were up 11% on stronger precast concrete volumes. Year-to-date gross profit reflects the impact of lower rail sales volumes, with the results down $7.3 million and margins of 21.6%, down 60 basis points. Selling, general, and administrative costs decreased $6.6 million from the prior year, with lower personnel, professional service, and legal costs as the primary drivers. Adjusted EBITDA was $25.4 million for the year-to-date period, down $0.9 million, or 3.5%, from the prior year, despite the more pronounced decline in sales.

I'll mention here that the effective tax rate continues to be elevated due to our not recognizing a tax benefit on U.K. pre-tax losses. We made some progress reducing this impact in the quarter, and we expect a lesser impact in future quarters with an improved outlook for the U.K., coupled with overall improving profitability. Of course, the higher rate is not reflective of our cash tax requirements, which remain low at approximately $2 million for 2025 due to available net operating losses. Cash flow provided by operations was $13.4 million, favorable $15.1 million compared to last year on lower working capital needs within rail, with the growth deferred to the fourth quarter. Orders were up 10.1%, with both segments realizing increases on improving demand. I'll next cover liquidity and leverage metrics on slide 12.

The chart reflects net debt levels of $55.3 million, down $10.1 million compared to last year, and down $22.9 million during the quarter. The gross leverage ratio improved to 1.6 times at quarter end. We've demonstrated our ability to manage our leverage levels through trophy conditions and remain prudent in our overall capital allocation approach. Our capital-light business model translates into significant cash generation, and we continue to deploy these funds along our priorities, which I'll now cover on slide 13. Maintaining our financial flexibility with reasonable debt and leverage levels remains our top priority. Depending on working capital cycles, leverage typically cycles up to a high point around 2.5 times before declining toward our longer-term goal of 1.0-1.5 times. We manage our leverage while also returning capital to shareholders through our stock buyback program, which is also a high priority.

We've repurchased approximately 461,000 shares thus far this year, representing approximately 4.3% of outstanding shares. We have $32 million remaining on our authorization through February of 2028. Since the inception of our repurchase program back in early 2023, we've repurchased approximately 896,000 shares, representing just over 8% of the outstanding shares. We also continue to invest CapEx at a rate of approximately 2% of sales to maintain our facilities, drive operating efficiency, and bolster our growth platforms. Lastly, as part of our continuous strategic planning and portfolio management process, we routinely evaluate potential tuck-in acquisitions that would complement our current portfolio, primarily in the precast concrete space. In summary, we have multiple levers available to drive shareholder value, and we remain prudent in our approach. My closing comments will refer to slides 14 and 15, covering orders, revenues, and backlog trends by segment.

The consolidated book-to-bill ratio for the trailing 12 months improved sequentially to a favorable 1.08-1, led by growth in orders in rail. The rail segment ratio improved to 1.18-1 compared to 1.06-1 at the end of the second quarter, driven by the increase in order rates over the last year. The infrastructure ratio declined to 0.94-1 due primarily to the Summit order cancellation in steel products in Q3. Finally, on slide 15, it's clear that the greatest improvement in our backlog was achieved in our rail segment with a 58.2% increase year over year. I'll again highlight that the gains were realized across the segment, with rail products up 59.9%, friction management up 28.7%, and TS&S up 77.7%, including the multi-year orders secured in the U.K. business.

While the infrastructure backlog was down 10.9% due to the longer-term order cancellations, current demand levels remain improved for both precast products and steel products business units. This positions us well for a strong finish to 2025. Thanks for the time this morning. I'll now hand it back to John for his closing remarks. John? Thanks, Bill. I'll begin my closing remarks covering current market developments on slide 17. First, I'll address a couple of macro headline topics: tariffs and the federal government shutdown. As previously mentioned, our supply chains are primarily sourced from within the United States, with some minor exceptions from certain electronics and other components sourced outside the U.S. As a result, tariffs have not had a significant impact on product costs or our ability to secure the materials needed to serve our customers. With respect to the recent U.S.

federal government shutdown, at the moment, we're not seeing significant adverse impacts on business activity. Of course, federal funding programs support several of our business lines. So we're monitoring project and delivery timelines for potential delays, which could have an adverse impact on Q4. As Bill mentioned during his review of orders and backlog, we've seen improved demand levels broadly across the rail business. The federal funding support began to release back in the second quarter, translating into improved rail order rates and backlog levels. The timing of orders and deliveries primarily in the Rail Products pushed the expected growth in rail to Q4. But we have the backlog in place to deliver the expected growth. More to come on this topic in a minute.

Rail friction management sales are up 12.3% year-to-date, and backlog is up 28.7%, reflecting the increased demand for these solutions that improved safety and operating ratios for our customers. And outside North America, the multi-year order secured for our U.K. business is a positive sign that prospects for improvement in our demand in this market are trending in a favorable direction, albeit at depressed levels currently. Turning to the infrastructure segment, our precast backlog remains solid at nearly $86 million, up 4.9% over last year. Precast has also benefited from government funding programs and highway and civil construction projects that are supporting demand levels in our key regional markets. We previously mentioned the commissioning of our precast facility in Central Florida. While demand levels are soft in this market now, we remain bullish in the long-term prospects for EnviroCast wall system solutions.

Turning to steel products, third-quarter sales were up 13% overall. But their overall business mix improved substantially with the recovery of our pipeline coatings business, which was up 77% over last year. With the renewed interest in energy investment in the U.S., we believe we are in a favorable recovery trend for this product line, and we expect growth rates to expand further in the fourth quarter. In summary, drivers of improving demand in our key end markets remain intact, as evidenced by our backlog, which we expect to deliver a strong finish to 2025, which I'll now cover starting on slide 18. Our updated guidance for 2025 anticipates extraordinary fourth-quarter growth and profitability expansion. At the midpoint, fourth-quarter adjusted EBITDA is expected to be up 115% on 25% sales growth. We have two major areas that support this position.

First, in the third quarter, sales only grew modestly despite a $20 million higher backlog at the start of the quarter. This was due primarily to order delivery timing for the rail distribution product line. Second, the backlog at the start of Q4 is up $38 million versus last year, compared to a $32 million sales increase expected at our midpoint of our guidance. Simply said, we have the backlog available and manufacturing capacity to deliver the expected sales growth contemplated in our guidance. Of course, adverse weather conditions and unforeseen customer delays can always impact deliveries. The federal government shutdown and turmoil in Washington raises the risk of unforeseen disruptions, including those caused by funding delays. We remain optimistic about a strong fourth quarter for both segments.

The 2025 financial guidance reflected on slide 19 represents a solid sales growth with substantial profitability and cash flow expansion compared to where we were in 2021 when we kicked off our strategic reset. While we're falling short of the 2025 sales goals we set for ourselves, we are striking distance of the EBITDA margins despite the weak rail demand at the start of 2025. In fact, the revised guidance implies that adjusted EBITDA margins would be well above the 8% target for the last three quarters of 2025. While the free cash flow outlook is slightly lower than our previous guidance due to the deferral of rail deliveries to the fourth quarter, the $17.5 million midpoint represents a 6% yield at today's stock price. In conclusion, I'm very proud of the L.B. Foster team and what we have accomplished in a short period of time.

Let me assure you, we are all focused on delivering a strong finish to 2025 and carrying positive momentum into next year. Thank you for your time and continuing interest in L.B. Foster. I'll turn it back to the operator for the Q&A session. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. One moment while we compile the Q&A roster. Our first question will come from the line of Julio Romero with Sidoti. Your line is open. Thanks. Hey, good morning, John and Bill. Thanks for taking questions. Morning, Julio. Hey, Julio. Wanted to start on the guidance. Can you maybe talk about your guidance in hitting the implied fourth-quarter sales and EBITDA guide?

Does that embed any assumptions with regards to the ongoing government shutdown ending by a certain time or any other assumptions about funding impacts to your customers? Thanks, Julio. Thanks for the question. As I mentioned in the script and the presentation, the actual government shutdown, which is going on today, it's going on now for, I guess, over 30 days. We are not seeing any immediate impacts, significant impacts from that at all. Much of the funding that's out there is ready to roll. The good news is it's flowing. Now, if this continues into end of the fourth quarter into next year, it's a different story. The good news for us is we got plenty of work. If you look at our book-to-bill ratio of 1.8 to 1, where we're standing, the orders that we've picked up moving into Q4.

We're sitting in really good shape related to having activity. More importantly, we have our supply chain that's locked in with us. Our partners at SIPCO, SDI, to name a few, are also ready to drive what needs to happen and get this product out in the marketplace moving into Q4. It's going to be a big quarter, Julio. In fact, it'll be the largest quarter we've seen since pre-COVID. We're excited about it. We feel that we're blessed to be in a position like that today. We would like to have seen more things happen in Q3, but that's not the way the year has rolled together. As I have shared with you in the market, it was really about H1 versus H2. The second half of the year was going to be strong for us, and it will be strong before the year is over.

We're sitting in good shape here first week of November to hit these guidance as we laid out in the presentation today. Excellent. Good news to hear that some of that funding is flowing already. I guess maybe just asking another way, worst-case scenario, it does go on through 2026. I mean, do you still have confidence in hitting the sales and EBITDA guide even in that scenario with respect to the impact to your customers? Yeah. As far as 2026, I really can't talk about that. I don't know. I do know that we're sitting in really good shape right now, and the bidding activity is as strong as we've seen for the entire year. I really can't comment on 2026. I will tell you, I think the momentum that we have right now will continue into Q1, though. Gotcha. Okay. It'll take into Q1. Perfect.

Then wanted to turn to total track monitoring. It was really impressive to see the sales growth of 135% year over year. Implies a pretty nice number. There, can you help us unpack the drivers of that sales growth and help us think about the sustainability of total track monitoring sales going forward? Yeah. It's all three of our strategic growth platforms, right? You mentioned TTM, which is condition monitoring, the impact that we're having through moving our wild product in the marketplace, the conversions between our three, as well as the adoption of what we're doing related to the wilds and the acceptance by the customer has been fantastic. FM has had a fantastic quarter as well. In fact, they're pulling together. They'll have the best year that we've seen. So another huge strategic growth initiative for us where the customer is really looking for that product.

And then precast, our third leg of our growth and strategic focus. Really had a strong quarter, building a backlog, and we're going to have a fantastic finish to the year. Our buildings part of that is going to have an exceptional year, probably the best year we've seen since we've owned that business line. So all three of them are performing very well. This is really the tale of rail products and movement from Q1 to really Q4 as it relates to the deferral and starting the year with DOGE and moving the projects, the government-type projects and the funding type for transit authorities and other freight lines into Q4. The good news is it's here, and it's happening this year, and we feel very good about where we're sitting right now. We're very blessed, as I mentioned earlier. Yeah, absolutely. It's been a dynamic year for sure. Absolutely.

The last one for me would just be on the free cash flow guidance. Does the push out in the rail side imply you may see a more heavily weighted first half 2026 free cash flow than you usually do from a seasonal perspective? Yeah, for sure. And, well, first of all, thanks for mentioning it because we're pretty pleased with the cash generation in the quarter. The $29.2 million is really indicative of what L.B. Foster has done. If you look at the past few years, this is what we do, and we generate cash. So I know the shareholders are excited about that. More importantly, we're excited about it. This is something we really focus on. But with the rail deferrals and rail distribution specifically moving to the fourth quarter, we will see some movements in working capital and payables moving to next year.

So we'll have some impact on that. Great. Thanks very much, guys. Thanks, Julio. One moment for our next question. And that will come from the line of Liam Burke with B. Riley. Your line is open. Thank you. Good morning, John. Good morning, Bill. Hi, Liam. John or Bill, you saw nice growth in total track management and friction management. You talked about that in the earlier discussion. Your margins got hit by unprofitable product mix with contribution from U.K. and volume, which is what it is. But how much offset in profit margin did you get from total track management and friction management? Was it measurable? So, yeah, I think it was. But, I mean, well, but not measurable. I mean, there's a piece of it that I think Bill can bring you into the details with. But, I mean, overall.

Bill, you want to add a little color in on that one? Yeah. Hi, Liam. Yeah. The overall profitability in the quarter for the rail segment. The margins in rail products, even though the sales were down, margins were up a tick in rail products because of the sales mix and some of the overall pricing initiatives and things that we have within rail products. Friction management volume was up, but the profitability was flat year over year at a margin level. That is due to sales mix. Again, we feel really good about the progress that was made, especially in the first half for friction management. For this particular quarter, it was flat on a year-over-year basis. On a combined basis, TS&S, there was a deterioration in the margins because of the U.K.

We did get a bit of an offset within the total track monitoring portion because we had solid sales growth in total track monitoring. That is a product line that contributes on the overall favorable mix for margins within rail. We got some lift there. I would say that overall, it was a bit of an offset, but not a significant offset. As we mentioned, the big impact was the decline that we realized within the U.K. business because of their challenges over there. Great. Thank you, Bill. Your acquisition emphasis was on precast concrete. How has that potential or opportunity pipeline looked on potential precast acquisitions? We have a process. We have an actual group of people that are looking at those things. We are specifically looking at precast, as you mentioned. We are specifically looking in the South Southeast part of the U.S.

We are also very focused on getting our Tennessee wrapped up to the volumes we want to see and our Florida, as I mentioned in the script. We are done commissioning. We are building product, and we are starting to see a nice flow of production orders rolling through there now. We are keeping in mind what is going on related to precast, maybe opportunities for us into 2026 and beyond related to maybe some quizzical growth. Our organic opportunities, Liam, as I mentioned to you in the past, are something that we are feeling very good about for a period of time here. We want to make sure we perform on those as well. Great. Thank you, John. Thank you, Bill. Thanks, Liam. Thank you. As a reminder, if you would like to ask a question, please press star 11.

Our next question will come from the line of Justin Bergner with Gabelli Funds. Your line is open. Good morning, John. Good morning, Bill. Hi, Justin. A lot of moving pieces this quarter. I guess maybe to start, I understand the pushback, particularly in rail products from the second and third quarter to the fourth quarter. Given that your sales guide and corresponding EBITDA guide is kind of tweaked to the lower end of the prior range, is that because some of the rail products is pushing beyond 2025 into 2026, or are there certain parts of the business. That are tracking a little bit lower for the full year 2025 than you expected according to your?

I think it's more about what we have or capacity, and we're just being realistic to what we feel we'll get out in the marketplace and turn into revenue for us by the end of the year. Our activity, if you look across the board. Justin, sorry. We got plenty of work. I mean, all of our operating centers are at capacity right now. I think we're just trying to be realistic to what we can do and hit the expectations. Okay. Gotcha. So if you can't get back to your initial sales guide level at the midpoint because you're kind of trying to get product out the door capacity, what will sort of come through in the early part of 2026 that might not have come through in 2025? First of all, on the revenue side, keep in mind we're really getting after SG&A too, right?

We may not necessarily get to the guidance that we had originally on the revenue side, but we're managing our cost. We're managing our cost very effectively. Because with more rail distribution, that will have some pressure on our margins. We're being very mindful of what we have right now. We feel we're going to have some very nice leverage with that additional sales that we're seeing going into Q4 with the 25% sales growth. As far as what's going to happen in 2026, I'm looking for a much better start to next year than what we saw this year with all the turmoil that we had in Washington. Like I said earlier to Julio, we're busy quoting. There's a lot of projects that are on the radar right now.

Even though we have a government shutdown, everybody's pretty excited about, I think, the opportunities that's out in front of us. Okay. Maybe just a couple of questions on the order book. The multi-year order in the U.K., how does that contrast with the business that you're de-emphasizing? Just a little more color there. Good question. First of all, U.K., we keep talking about that. We got a good group that's really focused on simplifying the business. Being able to perform in the market conditions that are presented to us today, which are very challenging. We're continuing to just right-size the business. They're really focused on what it is that we do and how we can add value and make sure that we get paid. We have a very good operating team that's really focused on that today.

We're very selective in the orders that we're accepting and we're going after. This is one of the orders that has been a good business for us in the past. It's been where we're treated a little different. We're looked at a little different. We're higher in the pecking order, if you will, as far as performing and getting paid. And it's a six-year deal. It brings some stability to our business over there. Because at the end of the day, that business is very important to us. That's our technology for our rail side. The acquisition of 2&2 Plus that we made back in 2015. That is where we bring our condition monitoring and a big piece of our TTM is through that business over there, as well as our expansion plans that we have in Western Europe.

It's very exciting for us taking friction management and other products that we have into that part of the geography. An order like this just helps give us some stability. Not just next year, but for many years to come for us to be able to continue to perform. Also take that technology innovation and keep bringing that into North America. Okay. Thank you. Last question. Sure, Justin. The cancellation, how longer-term was that? Kind of what were the circumstances around that? You're talking about the summit order? Yeah, the summit order. Yeah. We didn't cancel it. Our customer canceled it. We're in line quarter of. A SIPCO, right? I was just out there meeting with the people that run that operation. It's pretty exciting what's going on there right now.

In fact, our entire quoting business, when you look at what's going on there, as well as our operation in Texas. That's been on the books for multiple years. It's been on the backlog for SIPCO as well for multiple years. It came to a point in time where that thing probably has to be completely rebid because it's been sitting on their books. SIPCO basically is going back to the people at the summit. They're taking off their books. They notified us. Then when they notified us, we took it off at the quarter. It still may be out there. It may be resurrected. It may come back to a SIPCO. Keep in mind, we're not the sales arm, right? We get the orders. SIPCO gets the orders, and we're tolling inline quarter for them. As they move the orders in and out, we have to move accordingly.

That's what happened with that order. Okay. Prior to it being canceled, how far back were you kind of budgeting it to be delivered? Back or forward? When was it going to be delivered? I don't understand. Yeah. We were hopeful it would continue at some point this year and the next year. We had plenty of work and plenty of work for the SIPCO. We just keep it out there in front of us. Great. Thank you for the clarity there. Thanks. Thanks, Justin. Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. John Kasel for any closing remarks. Thank you, Sheree. Thank you, everybody, for joining us today. Thanks for your.

I think the balance of the year is really something that we're looking at as an opportunity as well as excitement here at our company. Hopefully, you have appreciation of that. A lot of times when we head into a Q4, it's about winding down the year. The year ends basically in November, and you don't have a lot going on. This is different. It's exciting for us. It's one of the things that we're really trying to transform the company is moving from just a construction materials company to an innovation technology company. We believe by continuing to drive that strategy, our quarters will start filling up and look different. The seasonality will continue to change. We're hopeful that Q4 is representative of that. It's something that will continue to next year. We won't have those big tail offs at the end of the year.

I find this to be encouraging, what we're doing, what our strategy is working. We're going to pull together, if you look at our guidance, a very good year, year over year. More importantly, our team here at L.B. Foster, all the way up to our board of directors, is laser-focused on making this happen. We're doing it safely. To give an example, the rail business had no recordable injuries in quarter three. I think that's just tremendous that we're really focused on getting work out, but we're doing it the right way and really driving the right culture. That's sustainable for all shareholders because it's not about just the profits today. It's about the journey to profitability to the future. I think we do that extremely well. Thanks again for your time today. We look forward to catching up with you next year.

Happy holiday season to you and your families. Take care. Be safe. This concludes today's program. Thank you all for participating. You may now disconnect.