Federal Signal Corporation

Greetings and welcome to the Federal Signal Corporation's second 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 Bochen, Vice President, Corporate Strategy, Investor Relations. Thank you, Felix. You may begin.

Good morning, and welcome to Federal Signal's second quarter 2024 conference call. I'm Felix Bochen, 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, federalsignal.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 10Q later today. Ian will start today by providing details on our second quarter financial results. Jennifer will then provide her perspective on our performance, an update on our multi-year growth outlook, and our updated guidance 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 second 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 organic net sales and earnings growth, gross margin expansion, and a 280 basis point improvement in EBITDA margin. Consolidated net sales for the quarter were $490 million, a record high for the company and an increase of $48 million or 11% compared to last year. All of the growth this quarter was organic. Consolidated operating income for the quarter was $81.1 million, up $21.7 million or 37% compared to last year. Consolidated adjusted EBITDA for the quarter was $97.7 million, up $22.2 million, or 29% compared to last year. That translates to a margin of 19.9% in Q2 this year, up from 16.1% in Q2 last year. Gap EPS for the quarter was $0.99 per share, up $0.33 per share, or 50% from last year. On an adjusted basis, EPS for the quarter was $0.95 per share, up $0.28 per share, or 42% from last year. Order intake for the quarter was again strong, with second quarter orders of $473 million contributing to a backlog of $1.08 billion at the end of the quarter, an increase of $73 million, or 7% compared to Q2 last year. In terms of our group results, ESG's net sales for the quarter were $409 million, up $36 million, or 10% compared to last year. ESG's operating income for the quarter was $72.9 million, up $16.7 million, or 30% compared to last year. ESG's adjusted EBITDA for the quarter was $88.2 million, up $17.5 million, or 25% compared to last year. That translates to an adjusted EBITDA margin for the quarter of 21.6%, an improvement of 260 basis points compared to last year, and performance towards the upper end of our current target range. ESG reported total orders of $396 million in Q2 this year, compared to $409 million last year. SSG's net sales for the quarter were $82 million this year, up $12 million, or 18%. SSG's operating income for the quarter was $18.3 million, up $4.2 million, or 30% compared to last year. SSG's adjusted EBITDA for the quarter was $19.3 million, up $4.1 million, or 27%. That translates to a margin of 23.7% above SSG's current target range and up 180 basis points compared to last year. SSG's orders for the quarter were $77 million, an increase of $5 million, or 7%, compared to last year. Corporate operating expenses for the quarter were $10.1 million, down from $10.9 million last year. Turning now to the consolidated income statement, where the increase in sales contributed to a $26.7 million improvement in gross profit. Consolidated gross margin for the quarter was 29.4%, a 290 basis point increase over last year. As a percentage of sales, our selling, engineering, general, and administrative expenses for the quarter were down 20 basis points from Q2 last year. Other items affecting the quarterly results include a $200,000 increase in acquisition-related expenses, a $100,000 reduction in amortization expense, a $700,000 decrease in other expense, and a $2.4 million reduction in interest expense. Tax expense for the quarter was $16.7 million, up $4.3 million from the prior year. Our effective tax rate in Q2 this year was 21.5% compared to 23.5% last year, with the reduction primarily due to a $2.6 million discrete tax benefit recognized in connection with the amendment of certain state tax returns to claim a worthless stock deduction. At this time, we expect our effective tax rate for the remaining half of the year to be between 25% and 26%, excluding any additional discrete tax benefits. On an overall gap basis, we therefore earned $0.99 per share in Q2 this year, compared with $0.66 per share in Q2 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 quarter, we made adjustments to gap earnings per share to exclude acquisition-related expenses and the discrete tax benefits I previously mentioned. On this basis, our adjusted earnings for the quarter were $0.95 per share compared with $0.67 per share last year. Looking now at cash flow, we generated $41 million of cash from operations during the quarter, an increase of $5 million from Q2 last year. That brings the total cash generated from operations in the first half of this year to $72 million, an increase of 67% over the first half of last year. We ended the quarter with $207 million of net debt and availability under our credit facility of $533 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 $7.4 million during the quarter, reflecting a dividend of 12 cents per share, and we recently announced a similar dividend for the third quarter. That concludes my comments, and I would now like to turn the call over to Jennifer.