Federal Signal Corporation

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, Felix Boshun, Vice President, Corporate Strategy and Investor Relations. Please go ahead.

Good morning, and welcome to Federal Signal's third 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, 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 third quarter financial results. Jennifer will then provide her perspective on our performance, an update on our internal initiatives, and provide an update on our 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 third quarter financial results are provided in today's earnings release. In summary, we delivered strong financial results for the quarter with 6% year-over-year organic net sales growth, double-digit earnings improvement, gross margin expansion, and a 200 basis point increase in adjusted EBITDA margin. Consolidated net sales for the quarter were $474 million, an increase of $28 million, or 6% compared to last year. All of the growth this quarter was organic. Consolidated operating income for the quarter was $75.9 million, up $13.4 million, or 21% compared to last year. Consolidated adjusted EBITDA for the quarter was $93 million, up $14.5 million, or 18% compared to last year. That translates to a margin of 19.6% in Q3 this year, up 200 basis points compared to last year. Gap diluted EPS for the quarter was 87 cents per share, up 16 cents per share, or 23% from last year. On an adjusted basis, EPS for the quarter was 88 cents per share, up 17 cents per share, or 24% from last year. Order intake for the quarter was again strong, with third quarter orders of $426 million contributing to a backlog of $1.03 billion at the end of the quarter, an increase of $27 million or 3% compared to Q3 last year. In terms of our group results, ESG's net sales for the quarter were $398 million, an increase of $25 million or 7% compared to last year. ESG's operating income for the quarter was $71.5 million, up $14.3 million or 25% compared to last year. ESG's adjusted EBITDA for the quarter was $87.2 million, up $15.2 million, or 21% compared to last year. That translates to an adjusted EBITDA margin of 21.9% in Q3 this year, up 260 basis points compared to last year, and performance at the upper end of our current target range. ESG reported total orders of $353 million in Q3 this year, compared to $375 million last year. SSG's net sales for the quarter were $76 million this year, up $3 million, or 4% compared to last year. SSG's operating income for the quarter was $16.8 million, up $3.1 million, or 23% from last year. SSG's adjusted EBITDA for the quarter was $17.8 million, up $3.2 million, or 22% from last year. That translates to an adjusted EBITDA margin for the quarter of 23.4%, an increase of 350 basis points compared to last year. SSG's orders for the quarter were $73 million, down 3% in comparison to order intake in Q3 last year, which included a $7 million fleet order from a customer in Europe. Corporate operating expenses for the quarter were $12.4 million compared to $8.4 million last year, with about half of the year-over-year variance resulting from unfavorable changes in fair value adjustments of post-retirement reserves. Turning now to the consolidated income statement, where the increase in sales contributed to a $22.7 million improvement in gross profit. Consolidated gross margin for the quarter was 29.6%, up 320 basis points compared to last year, as a percentage of net sales of selling, engineering, general, and administrative expenses for the quarter were up 140 basis points from Q3 last year. Other items affecting the quarterly results included a $2.1 million reduction in interest expense associated with lower average debt levels. Tax expense for the quarter was $18.7 million, up $4.9 million from the prior year, with the increase primarily due to higher pre-tax income levels. Our effective tax rate for the quarter was 25.8% compared to 24.2% last year. At this time, we expect our fourth quarter effective tax rate to be approximately 26%, excluding any discrete items. On an overall gap basis, we therefore earned 87 cents per share in Q3 this year, compared with 71 cents per share in Q3 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. On this basis, our adjusted earnings for the quarter were 88 cents per share, compared with 71 cents per share last year. Looking now at cash flow, we generated $69 million of cash from operations during the quarter, an increase of $21 million from last year, primarily due to higher net income and working capital improvements. That brings our year-to-date operating cash generation to $141 million, an increase of 55% compared to the first nine months of last year. With the improved cash flow, we paid down approximately $25 million of debt during the quarter, ending the quarter with $158 million of net debt, an availability under our credit facility of $557 million. Our current net debt leverage remains low, even after taking into account our recently announced acquisition of standard equipment. 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 a dividend of 12 cents per share, and we recently announced a similar dividend for the fourth quarter. We also funded $4.4 million of share repurchases during the quarter. That concludes my comments, and I would now like to turn the call over to Jennifer.