Federal Signal Corporation

Greetings and welcome to the Federal Signal Corporation first quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Felix Ocean, Vice President, Corporate Strategy and Investor Relations. Thank you, sir. You may begin.

Good morning, and welcome to Federal Signal's first quarter 2024 conference call. I'm Felix Boshun, the company's Vice President of Corporate Strategy and Investor Relations. Also with me on the call today is Jennifer Sherman, our President and Chief Executive Officer, and Ian Hudson, our Chief Financial Officer. We will refer to some presentation slides today, as well as to the earnings release which we issued this morning. The slides can be followed online by going to our website, federal signal.com, clicking on the investor call icon and signing into the webcast. We've also posted the slide presentation and the earnings release under the investor tab on our website. Before we begin, 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. Ian will start today by providing details on our first quarter financial results. Jennifer will then provide her perspective on our performance, provide an update on our multiyear strategic initiatives, and our revised outlook for 2024. After our prepared comments, we will open the line for any questions. With that, I would now like to turn the call over to Ian.

Thank you, Felix. Our consolidated first quarter financial results are provided in today's earnings release. In summary, we delivered strong financial results for the quarter with double-digit year-over-year net sales and earnings growth, gross margin expansion, a 250 basis point improvement in EBITDA margin, and new records in orders and backlogs. Consolidated net sales for the quarter were $425 million, up $39 million, or 10% compared to last year. Organic sales growth for the quarter was $28 million, or 7%. Consolidated operating income for the quarter was $54.3 million, up $14.8 million, or 37% compared to last year. Consolidated adjusted EBITDA for the quarter was $70.6 million, up $16.1 million or 30% compared to last year. That translates to a margin of 16.6% in Q1 this year, up 250 basis points compared to last year. Gap EPS for the quarter was 84 cents per share, up 39 cents per share or 87% from last year. On an adjusted basis, EPS for the quarter was 64 cents per share, up 18 cents per share, or 39% from last year. Order intake for the quarter was outstanding, and we again reported record orders in the first quarter, surpassing the previous high which was set in Q2 last year. In total, orders in Q1 this year were $503 million, an increase of $28 million, or 6%, compared to Q1 last year. Backlog at the end of the quarter was $1.1 billion, another all-time high for the company, and an increase of $132 million, or 14% compared to Q1 last year. In terms of our group results, ESG's net sales for the quarter were $354 million, up $35.0 million, or 11% compared to last year, despite the effects of a third-party component supply issue that delayed the timing of approximately $13 million of unit shipments at our largest facility. ESG's operating income for the quarter was $51.7 million, up $14.1 million, or 38% compared to last year. ESG's adjusted EBITDA for the quarter was $66.5 million, up $15.3 million, or 30% compared to last year. That translates to an adjusted EBITDA margin for the quarter of 18.8%, an improvement of 270 basis points compared to last year. ESG reported total orders of $428 million in Q1 this year, an increase of $32 million, or 8% compared to last year. SSG's net sales for the quarter were $71 million this year, up $4 million, or 6%. SSG's operating income for the quarter was $13.8 million, up $1.7 million, or 14% compared to last year. SSG's adjusted EBITDA for the quarter was $14.8 million, up $1.6 million, or 12%. That translates to a margin of 20.9% towards the upper end of SSG's target range and up 110 basis points compared to last year. SSG's orders for the quarter were $75 million, compared to $79 million in Q1 last year. Corporate operating expenses for the quarter were $11.2 million compared to $10.2 million last year, with the increase primarily due to higher stock compensation and incentive-based compensation expense, partially offset by a benefit from an insurance recovery of approximately $2 million. Turning now to the consolidated income statement, where the increase in sales contributed to a $20.2 million improvement in gross profit. Consolidated gross margin for the quarter was 27.3%, a 240 basis point increase over last year. As a percentage of sales, our selling, engineering, general, and administrative expenses for the quarter were essentially unchanged from Q1 last year. Other items affecting the quarterly results include a $200,000 increase in acquisition-related expenses, a $100,000 increase in other expense, and a $1.5 million reduction in interest expense. During Q1 this year, we also recorded a $13 million discrete tax benefit after the Joint Committee on Taxation approved the company's tax refund claim, resulting from the execution of a multi-year tax planning strategy. We expect to receive the cash refund during the second quarter. Including this benefit and the recognition of $800,000 in excess tax benefits associated with stock compensation activity, we recognize an income tax benefit of $700,000 in the current year quarter compared to income tax expense of $7.3 million in the prior year quarter. Our effective tax rate for Q1 this year was a benefit of 1.4%, including the $13 million tax benefit, an expense of approximately 24% without it. That compares to an effective tax rate of 21% in Q1 last year. At this time, we expect our effective tax rate for the remaining three quarters of 2024 to be between 25% and 26%, excluding any additional discrete tax benefits. On an overall gap basis, we therefore earned 84 cents per share in Q1 this year, compared with 45 cents per share in Q1 last year. To facilitate earnings comparisons, we typically adjust our gap earnings per share for unusual items recorded in the current or prior quarters. In the current year quarters, we made adjustments to gap earnings per share to exclude acquisition-related expenses and the $13 million tax benefit I previously mentioned. On this basis, our adjusted earnings for the quarter were $0.64 per share compared with $0.46 per share last year. Looking now at cash flow, we generated $31 million of cash from operations during the quarter, an increase of $24 million from Q1 last year. We ended the quarter with $223 million of net debt and availability under our credit facility of $516 million. Our current net debt leverage ratio remains low. With our financial position remaining strong, we have significant flexibility to invest in organic growth initiatives, pursue strategic acquisitions, and return cash to stockholders through dividends and opportunistic share repurchases. On that note, we paid dividends of $7.3 million during the quarter, reflecting an increased dividend of 12 cents per share, and we recently announced a similar dividend for the second quarter. That concludes my comments, and I would now like to turn the call over to Jennifer.