Federal Signal Corporation

Greetings and welcome to the Federal Signal Corp First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Ian Hudson, Chief Financial Officer. Please proceed, sir.

Good morning, and welcome to Federal Signal's first quarter 2020 conference call. I'm Ian Hudson, the company's chief financial officer. Also with me on the call today is Jennifer Sherman, our president and chief executive officer. We'll refer to some presentation slides today, as well as to the earnings news release which we issued this morning. The slides can be followed online by going to our website, federalsignal.com, clicking on the investor call icon, and signing into the webcast. We have also posted the slide presentation and the earnings release under the Investor tab on our website. Before I turn the call over to Jennifer, I'd like to remind you that some of our comments made today may contain forward-looking statements that are subject to the Safe Harbor language found in today's news release and in Federal Signals filings with the Securities and Exchange Commission. These documents are available on our website. Our presentation also contains some measures that are not in accordance with U.S. generally accepted accounting principles. In our earnings release and filings, we reconcile these non-GAAP measures to GAAP measures. In addition, we will file our Form 10-Q later today. Jennifer is going to kick things off today with some introductory comments. I will then give some more details on our first quarter financial results before turning the call back to Jennifer to discuss the impact of the coronavirus pandemic on current operations and its effect on our outlook for the rest of the year. After that, we will open the line for any questions. With that, I would now like to turn the call over to Jennifer.

Thank you, Ian. These are not normal times, and I'm going to start this call in an untraditional manner with the conclusion. The conclusion is federal signal is well positioned to weather the storm, and we will continue to grow and thrive in the long run. Our portfolio of businesses include many market-leading brands with solid fundamentals. We have a strong financial position, a history of robust cash flow generation, a culture of winning, a clearly defined strategy, and an experienced team with a proven track record of anticipating issues and proactively implementing responses. The coronavirus has not changed any of these factors. We had a great first quarter. We expect the second quarter will be tough. And at this time, the rest of the year remains uncertain. We have record backlogs that will allow us to both adjust and optimize our production schedules to serve our customers. We have also created several new offensive strategies with our Reclaiming Tomorrow Together initiative that will create opportunities for new products and potential for acquisitions. We have outstanding people, ample liquidity, quality businesses, and we have acted swiftly and decisively to keep our employees safe. I'd like to start by giving my profound thanks to each of our employees for their commitment over the past several weeks. The coronavirus pandemic has impacted almost every aspect of our daily lives. One of the stark realities of this pandemic is that virtually all participants in our highly integrated economy, including our employees, our customers, our dealers, our suppliers, and our investors are facing economic challenges and personal uncertainties that are not of their own making and over which they have limited control. Despite these unprecedented challenges, I've been so proud of the positive attitude and adaptability that I've seen from our employees. As a company, Our mission statement has never been more relevant. Our products move material, clean infrastructure, and protect the communities where we work and live. Our businesses are considered to be essential in supporting critical infrastructure needs and public safety. During this global pandemic, the prospect of clogged sewer lines potentially containing the virus that causes COVID-19 or worse, a backup in sewage waste into our environment is something we need to avoid. The various stay-at-home orders issued around the country are placing dramatically higher demand on community wastewater, sewer, and stormwater systems, and we play an essential role in providing parts, service, and equipment to support our municipalities, governments, and utilities in their efforts. Cleaning, the central function of many of our products, has never been more essential. We also provide first responders with critical equipment and upfitting services both domestically and throughout the world. While certain of our operations have been affected by temporary facility closures, either due to government issue mandates or other COVID-19 related issues, our facilities have so far remained substantially operational during the pandemic. The outstanding results that we were able to deliver in exceptionally difficult circumstances during the first quarter were a testament to the quality of our businesses the commitment of our employees, and the agility of our teams. On a consolidated basis, our net sales were up 4% compared to last year and our operating income improved by 25%. Our adjusted EBITDA margin for the first quarter was 15.3% towards the higher end of our target range and up 220 basis points from last year. We also reported a 2% improvement in orders, contributing to a record backlog at the end of the quarter. Our first quarter performance was even more notable given that we started to see some of the negative impacts from the coronavirus pandemic in mid-March. Since the outbreak of the pandemic, a critical area of focus has been the health and safety of our employees, and I'd like to take a minute to talk about some of the things that we've been doing with that in mind. Towards the end of February, when the first cases were reported in the U.S., we began proactively securing cleaning supplies, and developing plans to protect the safety and well-being of employees at each of our facilities. We also formed an internal COVID task force led by our Chief Operating Officer, Mark Weber, and established centralized protocols for addressing coronavirus-related issues. We were proactive in implementing enhanced health and safety measures across the organization, establishing remote working arrangements where possible, and increasing the frequency of communications to reinforce health and safety guidelines. We have a daily 5 o'clock pulse call with our executive leadership team to discuss ongoing developments and share best practices on how we can continuously improve our support of employees, suppliers, dealers, and customers during this pandemic. We end each call with one team member presenting their positive thought for the day. Candidly, some days have been easier than others. Honest, accurate, and frequent communication is one of the guiding principles we continue to operate under. We have implemented many new business practices, including split shifts at certain locations, providing protective masks for our employees, and modifying our production processes in ways that allow us to adhere to social distancing guidelines. We put controls in place to limit the number of visitors to our facilities, and consequently, we put our vector expansion project on hold in March. With additional measures in place, we have recently restarted some of the construction at VACTR on a reduced schedule, but the completion of this project is expected to be delayed another quarter. We've also modified our employee attendance policies and provided employees with additional paid time off in order to encourage those who were sick, had health concerns, or were otherwise adversely impacted by the pandemic to remain at home. And while we recognize that there is an element of good fortune, we strongly believe that the actions we have taken have helped protect our workforce with only a handful of employees having contracted the virus. Thankfully, all those individuals have since recovered and currently no one is hospitalized. To me, this is the most important fact that I will share in this call today. Going forward, the health and safety of our employees will remain a key priority of our teams. It is also extremely important to all of us at Federal Signal that we do our part in the communities in which we work and live to assist in the overall COVID response efforts. In these uncertain times, protecting the safety and well-being of the public seems more important than ever. On that note, we recently launched a website dedicated to cleaning and sanitizing efforts in response to the coronavirus outbreak. In launching this website, we are reminding new and existing customers, dealers, and end users that the installed base of products manufactured by our environmental solutions group can be used in efforts to clean and sanitize outdoor public areas such as recreational spaces, parks, and museums. In addition, these products can be used to sanitize other vehicles like buses or rail cars, as well as cleaning bridges, train stations, and any other outdoor areas. We have already seen our equipment used in ways that we had not imagined before the outbreak of the pandemic. For example, our sewer cleaners are now being modified to use heating and disinfecting solutions to sanitize shopping carts at grocery stores and to clean outdoor areas that homeless people frequent in Los Angeles. Talented team members at our University Park facility also pivoted quickly to design and manufacture protective face shields for our first responder customers and our own employees to use. This team has ramped up production to build approximately 800 units per day. The first shipments were recently delivered to the City of Chicago Police Department, followed by deliveries to each of our manufacturing facilities for our employees to use. We expect to assemble approximately 5,000 units initially with the ability to increase that as needed. As many of you know, demand for food assistance is unfortunately rising at an extraordinary rate. The combination of need, scarcity, and anxiety surrounding food is unprecedented. Due to this increase in demand, a $1.4 billion shortfall is predicted in the next six months alone. Help is greatly needed. At Federal Signal, we are doing our part by supporting local food banks. We are also identifying other ways in which we can support those in need. I'm extremely proud of the part that we are playing in responding to this pandemic. I'll now turn the call back over to Ian to go over the numbers.