Federal Signal Corporation

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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Felix Bochen, Vice President, Corporate Strategy and Investor Relations. Please go ahead.

Good morning and welcome to Federal Signal second quarter 2025 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 I turn the call over to Ian, 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 Signal's 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 US 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 with more detail on our second quarter financial results. Jennifer will then provide her perspective on our performance, our revised margin targets, and go over our increased guidance for 2025 before we 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, in what is typically a seasonally strong period, our businesses were able to deliver 15% -over-year net sales growth, 20% operating income improvement, gross margin expansion, a 100 basis point improvement in adjusted EBITDA margin, and continued momentum in orders during a record-setting second quarter. Consolidated net sales for the quarter were $565 million, an increase of $74 million, or 15% compared to last year. Organic sales growth for the quarter was $42 million, or 9%. Consolidated operating income for the quarter was $97.7 million, up $16.6 million, or 20% compared to last year. Consolidated adjusted EBITDA for the quarter was $118.2 million, up $20.5 million, or 21% compared to last year. That translates to a margin of .9% in Q2 this year, up 100 basis points compared to last year. Gap diluted EPS for the quarter was $1.16 per share, up 17 cents per share, or 17% compared to last year. On an adjusted basis, EPS for the quarter was $1.17 per share, an increase of 22 cents per share, or 23% from last year. Customer demand remained strong during the quarter with orders of $540 million, representing an increase of $67 million, or 14% compared to last year. Backlog at the end of the quarter was $1.08 billion, an increase of $4 million compared to Q2 last year. In terms of our group results, ESG's net sales for the quarter were $481 million, up $72 million, or 18% compared to last year. ESG's operating income for the quarter was $91.9 million, up $19 million, or 26% compared to last year. ESG's adjusted EBITDA for the quarter was $110.8 million, up $22.6 million, or 26% compared to last year. That translates to an adjusted EBITDA margin for the quarter of 23.1%, an improvement of 150 basis points compared to last year. ESG reported total orders of $441 million in Q2 this year, an increase of $45 million, or 11% compared to last year. ESG's net sales for the quarter were $84 million this year, up $3 million, or 3% compared to last year. ESG's operating income for the quarter was $21.5 million, up $3.2 million, or 17% compared to last year. ESG's adjusted EBITDA for the quarter was $22.6 million, up $3.3 million, or 17%. That translates to a margin for the quarter of 26.9%, up 320 basis points compared to last year. ESG's orders for the quarter were $99 million, up $22 million, or 28% from last year. Corporate operating expenses for the quarter were $15.7 million, compared to $10.1 million last year, with the increase primarily due to higher post-retirement expenses and increased stock compensation costs. Turning now to the consolidated income statement where the increase in net sales contributed to a $25.6 million improvement in gross profit. Consolidated gross margin for the quarter was 30%, a 60 basis point increase over last year. As a percentage of net sales are selling, engineering, general, and administrative expenses for the quarter, we're down 10 basis points from Q2 last year. Other items affecting the quarterly results include a $700,000 increase in amortization expense, a $300,000 reduction in acquisition-related expenses, a $400,000 increase in other expense, and a $300,000 increase in interest expense. Tax expense for the quarter was $22 million, compared to $16.7 million in Q2 last year, with the increase primarily due to the effects of higher pre-tax income and the non-recurrence of a $2.6 million discreet tax benefit recognized in the prior quarter, partially offset by a $700,000 increase in excess tax benefits associated with stock-based compensation activity. Our effective tax rate for Q2 this year was 23.6%, compared to .5% in Q2 last year. At this time, we're expecting our full year effective tax rate to be between 24% and 25%, excluding additional discreet tax benefits. On an overall gap basis, we therefore earned $1.16 for share in Q2 this year, compared with 99 cents for share in Q2 last year. To facilitate earnings comparisons, we typically adjust our gap earnings for share for unusual items recorded in the current or prior quarters. In the current and prior quarters, we made adjustments to gap earnings for share to exclude acquisition-related expenses, purchase accounting expense effects, and certain special tax items where applicable. On this basis, our adjusted earnings for the quarter were $1.17 per share, compared with 95 cents per share last year. Looking now at cash flow, we generated $60 million of cash from operations during the quarter, an increase of $19 million, or 47% from Q2 last year. That brings the total cash generated from operations in the first half of this year to $96 million, an increase of 34% over the first half of last year. We ended the quarter with $204 million of net debt, and availability under our credit facility of $515 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 $8.5 million during the quarter, reflecting a dividend of 14 cents per share, and we recently announced a similar 14 cents per share dividend for the third quarter. During the quarter, we also repurchased approximately $20 million of shares, buying back around 280,000 shares at an average price of $71.16 per share. That concludes my comments, and I would now like to turn the call over to Jennifer.