Federal Signal Corporation

and welcome to the Federal Signal Corporation third quarter earnings 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 Boshin, Vice President of Corporate Strategy and Investor Relations. Thank you. You may begin.

Good morning, and welcome to Federal Signal's third quarter 2025 conference call. I'm Felix Boschen, 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 10-Q later today. Ian will start today by providing details on our third quarter financial results. Jennifer will then provide her perspective on our performance, provide an update on our multi-year growth initiatives, and update our guidance for 2025. 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 17% year-over-year net sales growth, double-digit operating income improvement, a 130 basis points increase in adjusted EBITDA margin, and a record third quarter order intake. Consolidated net sales for the quarter were $555 million, an increase of $81 million, or 17% compared to last year. Organic net sales growth for the quarter was $51 million, or 11%. Consolidated operating income for the quarter was $94 million, up $18.1 million, or 24% compared to last year. Consolidated adjusted EBITDA for the quarter was $116.2 million, up $23.2 million, or 25% compared to last year. That translates to a margin of 20.9% in Q3 this year, up 130 basis points compared to last year. Gap diluted EPS for the quarter was $1.11 per share, up $0.24 per share, or 28% from last year. On an adjusted basis, EPS for the quarter was $1.14 per share, up $0.26 per share, or 30% from last year. Border intake was again strong in the quarter at $467 million, an increase of $41 million, or 10% compared to last year. Backlog at the end of the quarter stood at $992 million, down 4% compared to Q3 last year. In terms of our group results, ESG's net sales for the quarter were $466 million, an increase of $67 million, or 17% compared to last year. ESG's operating income for the quarter was $85.3 million, up $13.8 million, or 19% compared to last year. ESG's adjusted EBITDA for the quarter was $104.9 million, up $17.7 million, or 20% compared to last year. That translates to a margin of 22.5% in Q3 this year, up 60 basis points compared to last year. ESG reported total orders of $371 million in Q3 this year, an increase of $18 million, or 5% compared to last year. SSG's net sales for the quarter were $90 million this year, up $14 million, or 18% compared to last year. SSG's operating income for the quarter was $21.9 million, up $5.1 million or 30% from last year. SSG's adjusted EBITDA for the quarter was $22.9 million, up $5.1 million or 29% from last year. That translates to a margin for the quarter of 25.6%, an increase of 220 basis points compared to last year. SSG's orders for the quarter were $96 million, up $23 million, or 31% in comparison to order intake in Q3 last year. Corporate operating expenses for the quarter were $13.2 million, compared to $12.4 million last year, with the increase primarily due to higher acquisition and integration-related expenses. Turning now to the consolidated income statement, where the increase in sales contributed to a $21.1 million improvement in gross profit. Consolidated gross margin for the quarter was 29.1% compared to 29.6% in Q3 last year. As a percentage of net sales, our selling, engineering, general, and administrative expenses for the quarter were down 160 basis points from Q3 last year. Other items affecting the quarterly results included a $1 million increase in acquisition and integration-related costs, a $700,000 increase in amortization expense, a $400,000 increase in other expenses, and a $200,000 reduction in interest expense. Tax expense for the quarter was $22.4 million, up $3.7 million from the prior year, with the increase primarily due to higher pre-tax income levels. Our effective tax rate for the quarter was 24.8% compared to 25.8% last year. At this time, we expect our fourth quarter effective tax rate to be between 25% and 26%, excluding any discrete items. On an overall gap basis, we therefore earned $1.11 per share in Q3 this year, compared with 87 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 quarter, we made adjustments to gap earnings per share to exclude acquisition-related expenses and purchase accounting expense effects. On this basis, our adjusted earnings for the quarter were $1.14 per share compared with $0.88 per share last year. Looking now at cash flow, we generated $61 million of cash from operations during the quarter, bringing our year-to-date operating cash generation to $158 million, an increase of $17 million, or 12%, compared to the first nine months of last year. With the improved cash flow, we paid down approximately $55 million of debt during the quarter, ending the quarter with $159 million of net debt and availability under our previous credit facility, of $570 million. Our current net debt leverage ratio remains low. Yesterday, we executed a new five-year $1.5 billion credit facility, replacing the $800 million credit facility that was previously in place. The new credit facility increases our revolver to $1.1 billion and also includes a $400 million term loan facility which is expected to be drawn down upon completion of the new way acquisition. The new credit facility provides greater financial flexibility to invest in internal growth initiatives and pursue additional strategic acquisitions across our ESG and SSG groups. The terms of our new facility are more favorable to the company, reflecting our strong cash flow and balance sheet. This marks another important milestone for the company as we continue to execute on our strategic long-term growth objectives. We also remain committed to investing in organic growth initiatives and returning 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 dividend for the fourth quarter. That concludes my comments, and I would now like to turn the call over to Jennifer.

Thank you, Ian. We reported another strong quarter of results, which included third quarter records across consolidated net sales, adjusted EPS, and adjusted EBITDA margin, thanks to outstanding contributions from both of our groups. Within our environmental solutions group, we delivered 17% year-over-year net sales growth and a 20% increase in adjusted EBITDA, with higher production levels, strong demand for our aftermarket offerings, proactive management of price-cost dynamics, and contributions from recent acquisitions representing meaningful year-over-year contributors. In what is typically a seasonally strong quarter, ESG's adjusted EBITDA margin expanded by 60 basis points year-over-year to 22.5%, a new third quarter record, and performance in the upper half of our recently raised ESG margin target range of 18 to 24%. Driven by continued strong order levels and an extensive pipeline of internal market share expansion initiatives, we remain focused on building more trucks across our family of specialty vehicle businesses. These efforts to improve our throughput at our two largest ESG facilities contributed to double digit percentage increases in revenue across our safe digging trucks, sewer cleaners, and street sweeper product lines. From a capacity perspective, our access to labor remains good, supply chains are largely stable, and our large-scale capacity expansions that we completed between 2019 and 2022 position us well to profitably absorb incremental volumes into our existing footprint. Additionally, within our CAPEX outlook this year, we are investing in several productivity enhancing projects, including planned automation initiatives at select facilities, including our dump truck body plant in Rugby, North Dakota, and the additional incremental warehouse space at our SSG facility in University Park, Illinois. These growth initiatives will further improve our throughput efficiency within our existing facility footprint and set the foundation for future organic growth. For perspective, approximately 50% of our annual CapEx is focused on various growth initiatives, with the other half focused on maintenance CapEx. Within our product lines, we saw strong organic revenue growth across our metal extraction support equipment, dump truck bodies, and industrial vacuum trucks as our team continued to execute on various strategic growth initiatives within our industrial end markets, including geographic expansion and sales channel optimization. Shifting to aftermarkets, where demand remains strong for the quarter, aftermarkets revenue were up 14% year over year, primarily driven by higher demand for aftermarket parts, increased service activity, and rental income growth. Our teams are working to accelerate the growth of our parts businesses on numerous fronts, including the further integration of recent acquisitions such as hog and trackless across our aftermarket facility footprint and increasing parts capture within our existing population base. Lastly, our most recent acquisitions also contributed positively to top-line results in the quarter, with hog contributing approximately $20 million of net sales and Standard adding approximately $10 million of incremental net sales. Shifting to our safety and security systems group, the team delivered another impressive quarter with 18% top-line growth, a 29% increase in adjusted EBITDA, and a 220 basis point improvement in adjusted EBITDA margin. This improvement was primarily driven by volume growth within our public safety and warning system businesses proactive price cost management, and realization of certain cost savings. On that note, we successfully installed a fourth printed circuit board manufacturing line at our University Park facility in Illinois in this quarter. This addition marks the fourth PCB line installation since 2022, which allows our teams to insource certain componentry previously sourced from Asia while providing financial and operational benefits in the form of cost savings, product quality improvements, and expanded available capacity. We expect to realize incremental benefits from this fourth edition in 2026 and beyond as we scale production. Lastly, we are pleased with our cash conversion in the quarter, having generated $61 million of cash from operations, representing 90% of net income. On an annual basis, we continue to target 100% cash conversion levels providing dry powder for organic and inorganic capital deployment opportunities. Shifting now to current market conditions, demand for our products and service offerings remains healthy with our third quarter order intake of 467 million representing a 10% year-over-year increase and the highest ever third quarter order intake on record for Federal Signal. As Ian indicated, our backlog declined by 4% on a year-over-year basis. As expected, approximately 85% of this decline was driven by lower orders for third-party refuse trucks, mostly in Canada. As we move forward and transition our refuse truck offerings from the third-party supplier to New Way over time, we expect our existing third-party refuse backlogs to decline in coming quarters as we deliver these third-party trucks in backlog but stop taking new orders for these third-party trucks. Additionally, we are pleased that our various throughput initiatives have improved lead times and slightly reduced backlog for a certain extended product line. Looking ahead, consistent with our typical seasonal patterns, we are expecting orders within our environmental solution group to increase both on a year-over-year basis and on a sequential basis in the fourth quarter. To provide more detail on the composition of orders in the quarter, we are seeing particularly strong demand for our publicly funded safety and security products, both in North America and in Europe, including a major police contract win in Spain. In total, SSG orders increased 31% year-over-year driven by strength and demand for public safety equipment and warning systems. Within SSG, we continue to target surgical opportunities to gain market share across several U.S. law enforcement agencies and are seeing success with this particular strategy. While SSG is typically not a backlog-driven business, SSG's backlog at the end of September includes approximately $20 million earmarked for delivery in 2026. Within industrial end markets, orders were led by improved demand for our safe-diving trucks compared to last year. Long term, we continue to see secular tailwinds from increased adoption of hydro excavation within the United States, and we believe we are well positioned to capitalize on that secular trend. In summary, demand for our products remains strong. and our backlog for certain products provides excellent visibility well into 2026. Our teams are focused on executing on our growth initiatives, maintaining a healthy order intake, and increasing production. I now want to provide an update on a number of multi-year strategic initiatives that support our through the cycle target of double digit top line growth. Recall over the long term, We expect a fairly balanced contribution between organic and inorganic growth as part of those targets. First, we are pleased with the initial performance of the hog technologies acquisition, which we closed in February of this year. The team has been an excellent cultural addition to the Federal Signal family, and we are excited to more fully integrate hog next year financially. both HOG's year-to-date revenue and margin contribution have exceeded our initial estimates, primarily driven by operational throughput improvements, strong demand within HOG's airport vertical, and strong aftermarket parts growth. Consequently, we now expect HOG to contribute between $60 and $65 million of net sales in 2025, up from our previous estimate of $50 to $55 million. As we head into next year, we've identified incremental synergy opportunities that we plan to execute in 2026, spanning operational efficiencies, including procurement, go-to-market strategy optimization across our various road marking and line removal brands, more efficiently utilizing our North American aftermarket footprint, and the usage of HOG's unique customer education technology across other federal signal products. As such, We see Hogg well positioned to further expand its margins next year as we capitalize on more synergies. Second, we continue to invest in scaling our internal centers of excellence, which combined with our scale within the niche specialty vehicle verticals we play in help form what we internally refer to as the power of the platform. These centers of excellence span several categories such as sourcing, supply chain optimization, our federal single operational system, sales channel alignment, dealer development, aftermarket support, data analytics, and new product development, and we are aimed at elevating our customer experience across our family of specialty vehicle brands. The power of this platform and execution on our strategic initiatives are important components of our long-term growth algorithms as we look to drive organic growth in excess of end market growth rates. As we look ahead to 2026, we see particular opportunities to further accelerate growth through sales channel optimization and our dealer development efforts with particular geographic white space opportunities across our track list, switch and go, and ox body brands. We have also identified opportunities to optimize our presence in previously underserved territories for our safe digging trucks. Third, we are highly energized to accelerate our existing build more parts initiative in coming years, whereby we are vertically integrating certain parts production in order to drive increased recurring revenue streams, higher aftermarket share, and margin expansion over time. While still in early stages with less than 10 million in annual net sales, we are expecting another double digit percentage increase in net sales resulting from this initiative this year, predominantly comprised of certain street sweepers, vacuum truck, and dump truck body parts. Going forward, we see additional opportunities to expand this initiative across our other specialty vehicle categories and believe our entrance into the refuse space will present an additional untapped parts market opportunity. Importantly, given the essential nature of our products, associated high utilization levels through business cycles, and stable aftermarket parts and service needs of our customer, the continued growth in the aftermarket business remains an important strategic pillar in our efforts to mute cyclicality. Lastly, we continue to expect the acquisition of Newey to close in the fourth quarter of this year, pending regulatory approval. As we indicated at the time of the announcement, We expect our pro forma leverage to be less than 1.5 times its time of closing, leaving sufficient flexibility for additional capital deployment toward M&A. Consistent with our long-term growth framework and stated M&A criteria, we are actively reviewing potential opportunities both in our ESG and SSG groups. Turning now to our outlook for the rest of the year. Demand for our products and our aftermarket offerings remains high. with our order intake this quarter contributing to a backlog which provides us with excellent visibility for further net sales and profit growth in 2026. With our third quarter performance, our current backlog, and continued execution against our strategic initiatives, we are raising our full-year adjusted EPS outlook to a new range of $4.09 to $4.17, from the prior range of $3.92 to $4.10. We are also increasing our full-year net sales outlook to a new range of $2.1 billion to $2.14 billion from the previous range between $2.07 billion to $2.13 billion. This outlook reflects our view of continued healthy demand for our new equipment, parts, and aftermarket services For clarification, this outlook does not include any contribution from the pending acquisition of New Way. Lastly, we are maintaining our CapEx outlook of $40 to $50 million for the year. In closing, given that this is our last earnings call of this year, as I sit here today, I believe we are well positioned to achieve another record year in 2026 with the traction of our strategic initiatives, new product development pipeline, throughput improvements we have achieved this year, and M&A opportunities. At this time, I think we're ready for questions. Operator?

Thank you. We'll now be conducting a question and answer session. In the interest of time, we ask that you please limit yourselves to one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please while we poll for your questions. Our first question comes from the line of Ross Barenbleck with William Blair. Please proceed with your question.

Good morning, Ross. Good morning, guys. Good morning. Thanks for taking the question. Just the level settlement orders really quick. What was the M&A contribution from Hogg and Standard at ESG in the quarter?

Yeah, so Hogg added, I think it was about $20 million in the quarter, and Standard was about $10.

Okay. And then the SSG, any FX to call out there, or is that just all organic?

It's all organic, right? The FX was very nominal there.

Okay. All right. And then maybe just to, you know, dig in a little bit on the refuse trucks. I didn't fully appreciate that you guys were going to stop taking orders for the third party within your network. Can you just help us kind of, you know, frame the backlog contribution from that and then, you know, kind of expectations or margin lift going forward as, you know, those kind of step away and hopefully a new way fills it in?

So, you know, we're transitioning from a third-party organization refuse manufacturer to New Way. We've stopped taking orders. I guess I'll reiterate that 85% of the year-over-year backlog reduction was driven by the decline of third-party refuse backlog, which we expect this dynamic to kind of continue in subsequent quarters as we work through the transition. from the third party refuse OEM to New Way. The other thing I would add is it could take well into 2026 for us to do this, and this should be margin accretive over time.

Yeah, that's what I'm trying to get at, I guess, is just we should expect somewhere in the range of that 85% number over the next three quarters impacting orders as well.

You know, it'll vary quarter to quarter, but we would expect that it would take, you know, the next 12 months to deliver the trucks that are currently in BACLAB.

All right. Very helpful. Thank you. All back in queue.

Thank you.

Thank you. Our next question comes from the line of Chris Moore with CJS Securities. Please proceed with your question. Good morning, Chris.

Hey. Good morning. Thanks for taking a couple. So maybe just stay with Newey for a second. I know that you guys in Newey share a number of exclusive dealers. Now that you've made the announcement, just wondering kind of what you're hearing from the dealer channel. You know, is there any potential negative from the combination or just, you know, kind of big picture what you're hearing at this stage?

Yeah, you know, the feedback has been overwhelmingly positive. As you stated, Federal Signal does share some dealers with New Way, but there's also a group of dealers that we don't share, and we're really excited to welcome those dealers to the Federal Signal family, and we think collectively this gives us a lot of opportunity going forward. So, you know, really overwhelmingly positive reaction from existing dealer channel and the new dealer channel.

Got it. Perfect. And maybe just one follow-up on new ways. So we're talking about, you know, 40 to 45 cents accretive to EPS in fiscal 28. 26 is roughly flat. Just trying to get a sense, is that, will it be backloaded as the integration happens or, you know, is, you know, reasonable to expect that that 27 will share a reasonable portion of that 40% to 45% secretion.

Yeah, I think Chris will probably give more color on that when we close the acquisition. But I think generally speaking, we have a synergy target number out there that we're going to be working with the teams on. And I think those will... kind of be more gradual as opposed to straight out the gates. I think it's going to be more gradual with them being fully realized really by the end of that 2028.

What I'm really encouraged by is the teams are working together with respect to post-closing initiatives. And there's a lot of energy and commitment to the plan. And as soon as we get regulatory approval and close, You know, I think that we'll be in a position to hit the ground running.

Perfect. I'll leave it there. Appreciate it, guys.

Thank you. Our next question comes from the line of Mike Shulsky with DA Davidson. Please proceed with your question.

Thank you and good morning.

Good morning.

Can you let me give us a little more commentary on the current federal government shutdown? I know that a lot of what you sell to, you know, local state agencies, but there is some support, obviously, that the federal government supplies to those agencies. I'm curious whether you've seen any changes to funding or any delays with any orders or just any kind of issues that the local players have been mentioning, given what's been going on over in Washington, D.C.

Yeah. So, as we previously discussed, last year we did about $10 million of direct business with the federal government. That was really a military, comprised of two things, a military contract for one of our dump body businesses, and then some military installations for one of our SSG businesses. So we don't expect any kind of meaningful disruption from the federal government shutdowns. and our SSG orders are strong in Q3, and we haven't heard anything that we believe would change that.

So as far as federal government supporting state and local budgets, that you haven't seen any kind of disruption or changes in the funding and the actual flow of cash so far?

Yeah, as you know, kind of the biggest single source of funding for us is water taxes and then with respect to on the local level there is some you know certain funding in terms of municipal sales tax for our street sweeper for example and certain trackless products Canada's important end market Europe is important end market for our publicly funded side of the business so given that diversification and our lack of direct sales and the funding sources that we rely upon, we wouldn't expect any meaningful impact.

Okay, great. Secondly, I wanted to ask a little bit about the broader environment for a new way. I'm a little out of breath this morning. It's because another large waste truck company just announced that they also announced a merger. I'm curious whether – I don't know if you've had a chance to look at it yet. I just – Just saw it myself for the first time a couple hours ago. But I'm curious whether you think, you know, one of the other players having some more cost energies being taken out kind of makes the pricing environment a little sharper going forward, maybe after that merger has been integrated over the next 12 months or so.

Yeah, so the only area that we would compete with respect to the Terex Rav merger, as you noted, would be garbage trucks. You know, we continue to believe that Newey is extremely well positioned with its ASL product line and the Canadian opportunity through our JGE team and frankly the strength of its municipal channel. So, you know, we believe our view hasn't changed at all since we announced the acquisition and, you know, we continue to be excited and energized by the New Way team and the opportunities they had.

Super. Thank you so much. I'll pass it along.

Thank you. Thank you. Once again, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Steve Barger with KeyBank Capital Markets. Please proceed with your question. Hey, good morning. Good morning, Steve.

I know it's early for 2026 comments, but I do get a lot of questions about ESG going forward. If we just take new way out of the conversation, do you think existing backlog and end market strength should allow you to keep the growth momentum going in core ESG? Meaning, you know, everything in the portfolio right now, can you continue to drive solid top line growth?

Yeah, I mean, you know, I believe we're extremely well positioned to achieve another record year in 2026, and it's going to be a combination of execution on the strategic initiatives, you know, continued throughput improvements, our new product development pipeline, and, you know, we've got, you know, good visibility for through a backlog for about half of our businesses. I'm encouraged by the throughput improvements that our sewer cleaning team and our street sweeping team have achieved. And our road marking business, as I talked about in my prepared comments, has a number of opportunities that we're going to be executing on in 2026. Our mineral extraction business, as I talked about in my prepared remarks, had a strong quarter, and we expect that to continue. So when I look at both the combination of the organic growth initiatives and the M&A opportunities, I feel like we're set up to achieve another record year in 2026.

Yeah, I get it. I mean, a record year seems like a lock even excluding new way, but I guess the question is, Do you feel like some of the mid to high single digit organic growth momentum that you've had is still achievable just given the conditions, the backlog, the initiatives that you have?

We remain committed to our long-term growth algorithm in terms of low double digit revenue growth split equally between M&A and our organization. organic growth initiatives, and we'll update this in February.

Got it. Yep, that's fair. And you do also have a really nice track record of margin expansion and ESG over the past few years. You've talked about 26 being an investment year for New Way specifically when that closes. Can you just talk about how you think about the pace of margin expansion going forward, or maybe what Does it change the algorithm for incremental margin when you think about factoring new way in, whether it's to ESG or on a consolidated basis?

Yeah, I think, Steve, obviously we have ESG margin targets that are really kind of long-term through-the-cycle margin targets. And I think when we talked about the new way opportunity a couple of weeks back, we talked about, you know, the need to make some investments, you know, in the business. So I think, you know, I still think there's a lot of opportunity in the other areas, particularly if you think about the leverage we can get from increasing production at some of our main facilities, larger facilities, I should say, where we have capacity, the growth in the aftermarket business, which is slightly more attractive from a margin profile. So there can be some various puts and takes as we, you know, in 26. But I think long term, we're still committed to that, you know, that 18 to 24% margin target for the business.

And, you know, you know as well, you can imagine that we have extremely detailed plans. And so, you know, we look, you know, we've got a 26, 27, and 28 year plan for each of those years. You know, we would expect, as you implied, that New Way would be margin dilutive in 2026. But we feel very confident in our ability, given the synergy opportunities that exist, both on the cost and the revenue side, that this business long term will run within the EBITDA target margin ranges that we've given. And we spent a lot of time studying this. And if anything, I'm more encouraged by the planning and work that the teams are doing now for post-closing.

I really appreciate the detail. Thank you. Thank you.

Thank you. Our next question comes from the line of Greg Burns with Sidoti & Company. Please proceed with your question.

Good morning. Good morning, Greg. On the – now the Build More Parts initiative you mentioned, What percent of your parts are currently insourced, or I guess reflecting that kind of 10 million of sales that you called out?

Very small. There's a lot of untapped opportunity here, particularly with the addition of the refuse business. You're our only group that doesn't have to go get orders. You've got enough internal orders to last your lifetime.

Is there like a goal in terms of kind of what percent of your parts business you'd like to kind of vertically integrate? And what kind of margin uplift is there relative to outsourcing it?

Yeah. We're still in early stages. I'm encouraged by the progress that the teams have made. We believe that as we move forward, build more parts, can be multiples bigger over time, and particularly with the refuse opportunity. And, you know, I guess I'll say in kind of typical federal signal fashion, we pilot something, we get good at it, and then we start to accelerate. I think we're closing, finishing our pilot phase, and it's, again, a credit to that team, and we're really looking, as we moved into 26, and 27 for opportunities to accelerate that initiative.

Okay. And could you just give us maybe a little bit more color on where the lead times stand relative to maybe some of your larger product lines, what your expectations are for next year given some of the initiatives you have in place, and do you expect to be able to bring your backlog down next year?

Yeah. you know, just reminding you the impact that the transition from the third party refuse manufacturer will have during 2026. With respect to lead times, right now sewer cleaners are running around 11 months. Our three-wheel sweepers, we've made great progress and credit to the team, are running in that five to six month range, which is where we'd like. And then our four-wheel sweepers, We still have some work to do. They're running 12 to 18 months. And it really varies. You know, road marking equipment we'd want, again, in that five to six months with some stock available. So it depends on the particular product line. But my expectation is that we would continue to reduce lead times for sewer cleaners and for our four-wheel sweepers.

Okay. And then I guess...

Excluding the impact of the third-party refuse trucks, do you think production rates will increase next year to where you will start to bring down the core backlog? I know it's going to depend on order input rates and all that, but just based on what you're seeing now and what you have planned in terms of maybe capacity or production expansion initiatives, do you think that's the case?

I think, Greg, obviously we've talked for a number of quarters now about wanting to increase production, you know, to leverage the capacity that's available to us. So I think that the goal is to, you know, to keep working those lead times down, specifically as it relates to 26. I think we'll come back in February with the guide to 26.

Okay. All right. Great. Thank you.

Thank you. We have reached the end of our question and answer session. I'd like to turn the call back over to Jennifer Sherman for any closing remarks.

In closing, as we enter this Thanksgiving season, I want to take a moment to thank our dedicated employees and loyal customers and dealers and distributors. Thank you for joining us today, and we will talk to you soon.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.