Federal Signal Corporation

Greetings. Welcome to the Federal Signal Corporation's second quarter earnings 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 during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Felix Boeschen, Vice President, Corporate Strategies and Investor Relations. Thank you, Felix. You may begin.

Good morning, and welcome to Federal Signal's second quarter 2026 conference call. I'm Felix Boeschen, 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 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 with more detail on our second quarter financial results. Jennifer will then provide her perspective on our performance, current market conditions, and go over our increased guidance for 2026 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 seasonably strong period, our businesses were able to deliver 19% year-over-year net sales growth, 21% operating income improvement, an 18% increase in orders, gross margin expansion, and a 60 basis point improvement in adjusted EBITDA margin during the record-setting second quarter. Consolidated net sales for the quarter was $670 million, an increase of $106 million, or 19% compared to last year. Organic sales growth for the quarter was $31 million, or 6%. Consolidated operating income for the quarter was $118.2 million, up $20.5 million, or 21% compared to last year. consolidated adjusted EBITDA for the quarter was $144.4 million, up $26.2 million, or 22% compared to last year. That translates to a margin of 21.5% in Q2 this year, up 60 basis points compared to last year. GAAP diluted EPS for the quarter was $1.40 per share, up $0.24 per share, or 21% compared to last year. on an adjusted basis, EPS for the quarter was $1.42 per share, an increase of 25 cents per share or 21% from last year. Customer demand remained strong during the quarter with orders of $637 million representing an increase of $97 million or 18% compared to last year. Backlog at the end of the quarter was $1 billion compared to $1.08 billion last year. In terms of our group results, ESG's net sales for the quarter were $578 million up $97 million or 20% compared to last year. ESG's operating income for the quarter was $113.9 million of $22 million or 24% compared to last year. ESG's adjusted EBITDA for the quarter was $138.3 million of $27.5 million or 25% compared to last year. That translates to an adjusted EBITDA margin for the quarter of 23.9%, an improvement of 80 basis points compared to last year. ESG reported total orders of $548 million in Q2 this year, an increase of $107 million or 24% compared to last year. SSG's net sales for the quarter were $93 million this year, up $8 million, or 10%. SSG's operating income for the quarter was $22.1 million, up $600,000, or 3% compared to last year. SSG's adjusted EBITDA for the quarter was $23.2 million, up $600,000, or 3%. That translates to an adjusted EBITDA margin for the quarter of 25.1% compared to 26.9% last year. SSG's orders for the quarter were $89 million compared to $99 million last year. Corporate operating expenses for the quarter were $17.8 million compared to $15.7 million last year, with the increase primarily due to higher post-retirement expenses and increased medical costs. Turning now to the consolidated income statement, where the increase in net sales contributed to a $34.2 million improvement in gross profit. Consolidated gross margin for the quarter was 30.4%, a 40 basis point increase over last year. As a percentage of our net sales, our selling, engineering, general, and administrative expenses for the quarter were down 10 basis points from Q2 last year. Other items affecting the quarterly results include a $2.1 million increase in amortization expense, a $200,000 increase in acquisition-related expenses, and a $2.5 million increase in interest expense. Tax expense for the quarter was $25.3 million compared to $22 million in Q2 last year with the increase primarily due to the effects of higher pre-tax income levels partially offset by a $1.1 million increase in excess tax benefits associated with stock-based compensation activity. Our effective tax rate for Q2 this year was 22.7% and the Board of Directors. Thank you. for unusual items recorded in the current or prior quarters. In the current and prior quarters, we made adjustments to GAAP earnings per share to exclude acquisition-related expenses and purchase accounting expense effects. On this basis, our adjusted earnings for the quarter were $1.42 per share compared with $1.17 per share last year. Looking now at cash flow, we generated $113 million of cash from operations during the quarter, an increase of $53 million or 89% from Q2 last year. That brings the total cash generated from operations in the first half of this year to $214 million, an increase of 122% over the first half of last year. During the quarter, we paid down approximately $97 million of debt ending the period with $391 million of net debt and availability under our credit facility of $1.04 billion. 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, pay down debt, and return cash to stockholders through dividends and opportunistic share repurchases. On that note, we paid dividends of $9.1 million during the quarter, reflecting a dividend of 15 cents per share, and we recently announced a similar 15 cents per share dividend for the third quarter. That concludes my comments, and I would now like to turn the call over to Jennifer.

Thank you, Ian. We are proud of our second quarter financial results, which included new second quarter records across net sales, adjusted EBITDA, adjusted EPS, and orders. thanks to outstanding contributions from both of our groups. These results underscore the resilience and durability of our business model, the momentum behind our growth initiatives, and the unwavering commitment of our teams. Over the last several years, we have continued to diversify our revenue streams and market exposure to different funding sources. As a result of these efforts, we have strengthened the core of our business while muting cyclicality and driving growth over a prolonged period. Within our environmental solutions group, we delivered 20% year-over-year net sales growth, a 25% increase in adjusted EBITDA, and an 80 basis point improvement in adjusted EBITDA margin. Growth in our aftermarket business leveraging the power of our platform to drive internal margin initiatives and proactive price cost management for all meaningful organic contributors. Acquisitions also contributed approximately 75 million of net sales during the quarter with Newey and Mega driving notable increases in sales of refuse trucks and mineral extraction support equipment. Organic net sales growth was also broad based across several of our ESG vehicle categories, including vacuum trucks, dump truck bodies, and other specialty equipment. From a capacity perspective, the combination of large scale capacity expansions that we completed between 2019 and 2022, good access to labor, and continued investments in several productivity enhancing projects positioned us well to absorb more volume into our existing footprint. Consistent with prior years, in 2026, we expect approximately half of our annual capital expenditures to be focused on various growth initiatives, with the other half focused on maintenance investments. Shifting to aftermarket, demand for our aftermarket offerings remains strong, aided by contributions from recent acquisitions. For the quarter, aftermarket revenue increased 24% year over year, primarily driven by higher demand for aftermarket parts, higher used equipment sales, and rental income growth. We are experiencing strong rental demand as rental income grew by 16% year over year, led by growth in our safe digging and combination sewer cleaners. As a reminder, our aftermarket ecosystem Spanning Parts and Service, Rental, Rent to Own, and Used Equipment Offerings further unlocks previously underserved customer cohorts for Federal Signal. Our teams are diligently focused on driving more parts revenue across the enterprise. This is a multifaceted approach. First, our Build More Parts initiative, whereby we are vertically integrating certain parts production, remains in early innings. We are investing in manufacturing capacity dedicated to this initiative in the second half of the year. Second, as our addressable install base of vehicles has grown, we are expanding our geographic footprint of aftermarket parts and service locations to better serve our customers and capture more parts opportunities. For perspective, since 2019, we have added approximately 20 service centers and we see additional footprint expansion opportunities. Third, as we integrate acquisitions, this aftermarket ecosystem becomes a powerful flywheel. As part of these plans, our teams are currently pursuing aftermarket growth opportunities across trackless, new way and mega. In the aggregate, aftermarket represented approximately 25% of ESG revenue in Q2 this year. shifting to our safety and security systems group where the team delivered another quarter of solid results with 10% top line growth, a 3% increase in adjusted EBITDA and an adjusted EBITDA margin of 25.1% toward the midpoint of our recently raised target range of 22 to 28%. This performance was primarily driven by a combination of volume increases across our public safety and industrial signaling product verticals, proactive price cost management and realization of certain cost savings somewhat offset by mixed headwinds. Lastly, we had another outstanding quarter of cash generation with 113 million of operating cash flow representing cash conversion of 131% of net income. On an annual basis, we continue to target 100% cash conversion. Before I comment on current market conditions, I would like to provide some additional context around our end market exposure. As referenced earlier, when I first became CEO in 2016, one of our main objectives was to reduce the cyclicality of earnings streams by decreasing our reliance on any single funding mechanism, economic end market, or customer cohorts. The result is a substantially more durable revenue profile today compared to 10 years ago, including less reliance on traditional municipal budgets, a significantly larger aftermarket presence, and increased exposure to various niche industrial markets, such as road marking, metal extraction support, hydro excavation, and dump trucks. We have also strategically diversified funding mechanisms within our publicly funded verticals. These funding sources include water taxes, Canadian provincial and local budgets, law enforcement and police budgets, trash collection fees, airports, U.S. state budgets, military and European local and federal exposure. To provide some perspective on this, while little more than half of our revenue base is tied to some sort of publicly funded mechanism, the largest publicly funded source, U.S. water taxes impacts less than 15% of our total net sales. Shifting now to current market conditions. On an underlying basis, excluding the impact of third-party Labrie refuse orders received in Q2 last year, our orders this quarter increased by 103 million or 19% year-over-year with healthy demand across both our safety and security systems group and our environmental solutions group. Within our environmental solutions group, orders were up 24% year-over-year, including high single-digit organic growth. Within product lines, we experienced strength in organic demand for vacuum trucks, led by strong increases in orders for safe digging trucks, dump truck bodies and trailers, and aftermarket offerings. Lastly, our backlog stood at $1 billion at the end of the first quarter, down approximately $80 million, or 8% year-over-year, with $75 million of this reduction associated with the planned decline in third-party Labrie refuse backlog, which was discontinued in the fourth quarter of 2025. At the end of the quarter, our third-party Labrie refuse truck backlog stood at approximately $44 million. As a reminder, Net sales of our backlog intensive products represented approximately 45% of net sales last year. With that said, given the size of our backlog, we continue to enjoy strong forward visibility for our backlog driven product line. In fact, while we are making progress, lead times for certain of our products remain elevated compared to our target levels. As I reflect on our performance through the first half of 2026, I am most pleased with the early financial benefits we are starting to realize from the collective power of the growth platform that we have built over the past decade. The power of this platform spanning several key centers of excellence, including procurement, our federal signal operational system, supply chain optimization, aftermarket, dealer development, sales channel alignment, data analytics, and new product development underpins my confidence in our ability to achieve continued earnings growth in 2027 and beyond. Going forward, it is our intent to further invest in scaling these centers of excellence, which will support both our M&A integration engine and unlock incremental margin expansion opportunities across the enterprise that we have identified. We expect to incur additional expenses in the second half of this year as we scale these centers of excellence. Simply put, as we contemplate the next phase of growth at Federal Signal, this platform is what will allow our teams to pursue more strategic market share and operational improvement initiatives at a faster pace each year, driving an increasingly unique customer value proposition and an increasingly idiosyncratic earnings growth opportunity through various economic conditions. As a reminder, through cycles we target annual low double digit top line growth split roughly evenly between inorganic and organic growth. At the same time, we are committed to growing profitably and have implemented associated EBITDA margin targets for our group that we've increased several times over the past years. A couple of highlights. Starting with margins. As I just noted, we are excited by a number of initiatives that we believe will drive further margin expansion as we begin to leverage the power of our platform more deliberately. We've identified four categories of expansion opportunities over a multi-year timeframe. First, the continued growth of our aftermarket business, which carries an attractive margin profile. Through cycles, we expect aftermarket revenue to grow slightly faster than the overall company. Second, execution on several operational initiatives. Some of the largest untapped categories we have identified are focused on optimizing our procurement spend across our specialty vehicle verticals and scaling our 80-20 processes as we internalize our federal signal operating system across the broader enterprise. Third, driving increased volumes through our expanded footprint while investing in select automation opportunities and fourth, the successful execution and integration of acquisitions. Over a multi-year timeframe, all four of these categories, aftermarket, operational initiatives, leveraging our capacity and M&A will be important contributors to margin expansion. On that note, in early July, we completed the acquisition of Western Technology, a manufacturer of proprietary portable explosion protected lighting solutions for niche end markets such as industrial processing, petrochemical, or aerospace. We see strong synergy opportunities as Western will expand our industrial signaling product portfolio, allowing our teams to utilize our existing sales channel and manufacturing operation. Going forward, we see further opportunities to grow SSG through strategic M&A. We have also been pleased with the integration progress our teams are making at Newway and Mega. We are still in the early stages of our multi-year integration plans, but so far, both acquisitions have exceeded our internal margin and profit contribution expectations in the first half of 2026. Recall, in September of last year, when we announced the new way transaction, we outlined 15 to 20 million of annual synergies to be achieved by the end of 2028, with synergies split roughly even between costs and revenues. At this time, we are pleased to share that we are tracking ahead in the realization of our cost synergy targets and we continue to identify incremental opportunities. The early successes of both of these integrations is a testament to our best in class record of achieving or exceeding our targeted synergies and the vast majority of the 17 acquisitions we have completed during my tenure as CEO. With each acquisition, we continue to learn and improve. And I want to acknowledge the outstanding efforts of our teams whose collective accomplishments have created significant shareholder value. Looking ahead, there's more to come. We are energized by an active M&A pipeline as we continue to evaluate strategic opportunities across both of our operating groups. Turning now to our outlook for the remainder of 2026. With our record-setting second quarter performance, our current backlog, and continued execution against our strategic and operational initiatives, we are raising our full year adjusted EPS outlook to a new range of $5.12 to $5.30 from the prior range of $4.80 to $5.05. We are also raising our full year net sales outlook to a new range of between 2.58 billion and 2.67 billion from the prior range of 2.57 billion to 2.66 billion. Lastly, we are reaffirming our CapEx outlook of between 45 million and 55 million for the year. With that, we are ready to open the line for questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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 keys. One moment please while we poll for questions.

Our first question is from Steve Barger at KeyBank Capital Markets.

Please proceed with your question.

Thanks. Good morning, Steve. Good morning. Yeah, that was a lot. Really appreciate the commentary about diversity of funding mechanisms. Just because visibility into that has been a big investor topic for the past month or two. Overall, how would you characterize funding across those different sources and just visibility for the back half and into next year?

Yeah, thank you, Steve. As I mentioned in my prepared remarks, we've been very purposeful in terms of diversification of those funding sources really with the objective of creating a very resilient and durable business model. So as we look across that and we say plus or minus 55-ish percent comes from public revenue, and as I talked about in my prepared remarks, the largest portion of that would be water taxes, which is less than 15%. Within that public revenue, there's also Canada, which is an important end market for us. There's also the European market. There's a little piece of the U.S. and military portion of that. And then there's a little piece of refuse fees in there. But there's also, we get a lot of questions about the municipal piece. and probably the way to think about it is the way that we think about how do we categorize our businesses. So you think about the other specialty equipment category where our pure play municipal business resides. That other special equipment category is about 25% of our overall business. Within that category, you've got refuse, which is the largest portion in that category. you have our metal extraction business, you've got our road marking and high pressure water blasting business, and you have our Elgin Street Sweeper businesses. And those three businesses, each one of them is kind of mid to high single digit percentage of our overall net sales. So we get a lot of questions about the municipal exposure. and our truly only pure play municipal exposure would be street sweepers. And those budgets have been holding. They're funded primarily through property taxes and sales taxes. And when you look at the external data, it continues to grow consistent with GDP type rates and although our street sweeper orders were down in Q2, there were other parts of that other specialty equipment that were strong. So our metal extraction orders were up, our road marking and jet streams were solid and our refuse orders were slightly above where we had planned. We talked about last September that we thought in 2026 that refuse market would be down. but overall we feel very good about those diversification of funding sources and then the outlook going forward. The last thing I would say is 45% of our business is backlog driven and that gives us pretty good visibility and that billion dollars of backlog sets us up for a good second half and a strong beginning to 2027.

Really comprehensive answer. I appreciate that. And I guess just to recap, if I look at that in aggregate, the funding mechanisms look secure as you go into the back half and next year.

Yeah. Perfect.

And then you talked about investing in aftermarket capacity, which obviously makes sense as that approach is 25% of ESG revenue. What dollar level are you investing toward? and as you've grown that business, what's the incremental return on capital for those aftermarket investments?

Yeah, I think Steve, you know, we've maintained the capex guide of 45 to 55 million for the year. So we're not talking about significant capex to in terms of these investments that we're making. they're relatively modest investments that we're making to mainly existing facilities just primarily to drive the build more parts initiative so in terms of you know the increment I think Jennifer mentioned in her prepared remarks the margin on the aftermarket business is it's more attractive if the Delta isn't quite as significant as you may see in some other industries for a couple of reasons primarily we command some pretty good margins on our existing equipment sales as well but it is a slightly more attractive return and as we go forward that's one of the things that we think about when we see the opportunity to drive further margin expansion is just the continued growth of that aftermarket business. So the returns are attractive certainly when you look at the relatively low level of investment in the facility that we're referring to here.

Yeah, just to add a little bit of color to that, you know, the team is, I was with the team at their off-site up in Canada last month and the team has identified some geographic expansion opportunities and, you know, we will be opening up some new offices, again, very low capex. Number two is, in my prepared remarks, I talked a lot about build more parts and that's an area we will be investing and we see a lot of growth potential and then, you know, again, we really like the durability and resilience of this aftermarket segment. And, you know, we manufacture work trucks and they need parts and they need service and, you know, rental income was up year over year, used equipment sales were up. You know, this continues to be a very important part of the Federal Signal family.

Understood. Thank you for all the detail.

Thank you.

Our next question is from Ross Sparenbleck with William Blair. Please proceed with your question. Hey, good morning, guys.

Good morning, Ross.

Hey, it looks like some strong order growth in the quarter. I believe organic ESG orders look like they're up around 9%, although you noted that street sweepers were down in the second quarter. When we think about the Mooney Channel overall, can you just give a sense of what you know, the inventory channels look like. Do you think it's kind of balanced? Was there potentially some pre-buy into stocking now?

Yeah.

Or just any other dynamics you need?

Yeah, so, you know, we didn't see a lot of pre-buy this quarter and we haven't built in pre-buys for the rest of the year in terms of our projections. you know we continue to monitor the EPA regulations understanding that they're not finalized and you know if something does change there it could potentially be upside. With respect to refuse you know as we announced when we announced a transaction last year we expected that refuse would be down this year and that's what we built into our valuation model and the price that we paid. And right now, Refuse is on the order side is operating slightly ahead of our model. And as I mentioned on the call, with respect to integration and some of the cost synergies, we've realized some of those earlier than we anticipated. With respect to inventory in the channel, Many of our specialty vehicle categories don't really carry a lot of channel inventory. So we feel really good about what we're seeing right now. And again, kind of building what I said earlier, after markets represented about 25% of ESG's revenue this quarter. And we saw very strong performance there. They were up 24% year over year. and each of those, you know, rentals was up, used equipment was up and parts was up. So again, as we look at kind of those different end markets and the different pieces, we feel really good and that's what led to, you know, the significant increase in our guidance for the second half of the year.

Okay, that's helpful. So the expectation then is, you know, Chassis disruption that started to alleviate in 2024. I mean, that's in the rear view and, you know, potentially going into the next year, we'll have smoother comps and just kind of a normal GDP plus type of activity in the channel. Okay.

Based on what we know today, the answer is yes.

Okay. That's helpful. And then just on the margin side, you know, nice lift in the EPS guide. Some interest there, but SG&A is stepping up. So maybe just some of the parts there. Higher SG&A in the second half potentially. Maybe what type of incrementals we should be underwriting. And I get the sense of the confidence here is coming from just the progress making on the aftermarket side.

Yeah, I think a couple of things, Ross. I think, you know, obviously the momentum that we're seeing on the aftermarket side of the business and also some of the traction we're seeing on the integration of the acquisitions, both Mega and New Way are tracking slightly ahead of where we thought they would be. So that has... some margin upside for the year. I think when we went into the year, we were expecting those acquisitions to be slightly dilutive, but I think where we sit today, we actually think that that dilution is not going to be there. So I think if you look at the guide for the year, that would imply that we're expecting margin improvement on a year-over-year basis. So yeah, the investments that we refer to, they are in the second half of the year, but not overly material in the sense that when you look at the context of the raise for the rest of the year that's implied in the guide.

Okay. So on the SG&A side, the expectation is that as a percentage of sales, they should be stepping down year-over-year in the back half?

I think more of the upside is probably in the gross margin area. as opposed to SG&A. I mean, we're not adding significant costs from an SG&A standpoint. They're really not relatively nominal investments that we're referring to. So most of the uplift, I think, would be on the gross margin front.

Yeah, we are adding some people, though, to drive some of the longer-term benefits that I identified, I think, with respect to the power of the platform.

All right. Well, nice quarter, guys.

Thank you. I'll pass it along.

Thank you, Russ. Our next question is from Tin Thien with Raymond James. Please proceed with your question.

Good morning, Tim. Good morning. Good morning. The question is on aftermarket and thinking about the initiatives you're putting in place to expand that and obviously real nice growth in the quarter. I think in the past we've talked about maybe a long-term target of that part of the portfolio getting to 30-ish percent of ESG revenues. And I recognize that year to year there can be fluctuations depending on where those OEM volumes are coming in and how that impacts the overall kind of percentage. But as you've now integrated NewWay and you think about some of these company-specific initiatives, are you still thinking about that as kind of a realistic target and any sort of I know a timeline is hard to put on it, but is 30% of segment revenue still a kind of achievable target to put out there?

Yeah, I think I have a couple things to add to that. One is, you know, as I stated in my prepared remarks, we expect after markets to grow faster than the company. You know, my objective is I want to grow both the numerator and the denominator. and a couple critical things that are going to contribute to the growth of aftermarket. One, it's going to be somewhat dependent on what acquisitions we do. New Way, as we talked about when we purchased the company, we're two full quarters in, but parts are about 11% of their overall revenue, so we see some upside as we move forward, and that's an important step Synergy that the teams are working on. Many of our businesses right now are running at 30% on the part side. But there's no structural reason why it can't be 30%. And as I mentioned earlier, a lot of it's going to depend on the M&A and the mix of the businesses that we buy. But we are fully committed to growing after markets. Again, what I talk about internally all the time is the durability and resilience of our business model. And, you know, after markets is an important part of that.

Got it. Okay. And let me just make sure I got what Ian was going through. So the net income guy goes up, I don't know, $17, $18 million on a pretty marginal change in revenue. Is it the traction, the growth in aftermarket and some of the M&A changes integration performing better than expected. Are those kind of the two big drivers?

Yeah, Tim, there's a lot of pieces, as you can probably imagine. But if you think about the big ticket items, you know, the growth in the aftermarket business and then the traction on the recent acquisitions, I think Jennifer mentioned that we're tracking ahead of the cost synergies that we originally kind of communicated at the time of the new A transaction. So those would be kind of the two bigger pieces.

I think some of the operational improvements that our teams are working on, and again, what I think is important to understand here is it's not any one thing. We have a number of initiatives, and we don't need every single one of them to hit. We just need enough of them to hit. And so as we looked at the second half of the year, and we looked at where we stand, we have a lot of confidence of our teams to execute on those initiatives and set us up for a strong 2027. Got it.

Thank you very much.

Our next question is from Walt Liptak with Seaport Research. Please proceed with your question.

Good morning, Walt.

Good morning, guys. Hey, great quarter. I'd like to ask one from 50,000 feet. So you've been beating your EPS numbers and raising guidance so far this year, and the orders this quarter looked really good. So when you think about how your year is progressing, is it execution on the Build More Trucks initiative that's resulting in the EPS upside, or is it something else?

You know, one of the things about Federal Signal is that you know we're not overly reliant on any one initiative as I mentioned earlier we've got a number of different initiatives so you know in this quarter and for the rest of the year it's you know strong year-over-year growth and aftermarket they're up 24% you know strong performance by the acquisitions strong performance by our Mineral Extraction Group, solid performance by the Roadmarking Group, strong performance by the Vacuum Truck Group, SSG had another solid quarter, our TBI businesses had a very solid quarter. I go through all that detail to say, you know, we've got just broad-based strength and that's really what gave us confidence in terms of the guidance raised for the second half of the year. We're very focused on 2027 and what do we need to do to continue to drive these many initiatives across Federal Signal in order to continue to build both the resiliency and durability of this business model, the diversification around the end market of the business model, and set us up for not only a strong second half of the year, but a strong 27.

Okay, that sounds great. So kind of along those lines, you know, you provided sales and EPS guidance range that's fairly broad. What's, and maybe this is an Ian Hudson question, what's the difference between sort of the high end of the sales and EPS guidance and the low end? What's assumed in the low end?

Yeah, I think in the low end, what we talked about, you know, we still have 45 million of third party refuse trucks to deliver. You know, we don't necessarily control the timing of when those those come to us. So that would probably be something that if that didn't materialize, that would kind of lead us towards the lower end of the revenue guide. on the flip side, I think, you know, the continued momentum and some of the strategic initiatives would probably take us towards the upper end. So those are probably the variables on the top line guide.

Okay, great. And then maybe the last one for me, I wanted to ask about, you kind of commented that the new way business is ahead of expectations, I think, on some of those new orders that you were thinking were going to decline. Why do you think that is? Is it because you're integrating new way into your dealer channel? What's going on there?

Yeah. When we did our extensive diligence on this transaction last year, one of the issues we identified is access inventory and system, not just a new way across the refuse industry. And so our expectation is that the refuse industry was going to be down in 2026. And so when we built our model and our valuation, that's what we reflected. And I think, frankly, listening to other OEMs, that's turned out to be accurate. So from a revenue standpoint, we're kind of spot on our model. From an order standpoint, we're slightly ahead. We identified that $15 to $20 million of synergies that we expected to achieve by the end of 2028. And on the cost side, we've achieved some of that earlier than we anticipated. We've identified a number of opportunities. So we're running ahead of our plan right now. We're only two quarters into this. But I'm really pleased with the kind of strength of our integration team. And I would add that on the mega side, the teams are doing a super job. We were just out at Ground Force earlier this week for our board meeting. and we had a great conversation with that team. And again, it really is a testament to the integration successes that we've had during my tenure as CEO. So more to come, very early days, but I'm pleased with our progress.

Okay, great. And maybe just a final, final one for me. The acquisition that you announced, could you provide us with more details What's the name of it? How big are the revenues? Is there going to be accretion?

It's Western Technologies. It's very small. You know, it's the first acquisition that SSG did. You know, we're not expecting anything material in 2026. More to come as we move forward, but it's small.

Okay, great.

Thank you.

Thanks, Will. Thank you.

Our next question is from Chris Moore with CGS Securities. Please proceed with your question.

Good morning, Chris.

Good morning, guys. Just a quick, the 6% organic growth, just a, maybe I missed it, just a rough breakdown on price and volume there.

Yeah, so price, Chris, was about three, three and a half of that. And then the volume in chassis would be the rest.

Got it. I know you've already talked a lot about new way. So it sounds like you're ahead of plan on the cost side. And as you said, it's still early in the mix. I know you were talking about 28 is where you really would see the full benefits and that 40 to 45% of accretion in 28. So I think what I'm hearing is 28 is still the year where you see the full benefits. It's just perhaps the curve to get there is a little bit quicker, a little bit steeper earlier than you anticipated. Is that fair?

I think that's correct. Chris, if you think about the earlier achievement of some of the cost synergies, I think the revenue synergies are probably more gradual. as we get through 28, as we look to, you know, one of the initiatives is to the expansion really in growth into Canada. That's something that will likely take some time as we build up that channel. So the revenue synergies will likely be kind of more gradual through that timeframe, but we're, yeah, we're slightly ahead on the cost side.

We're very pleased with the progress to date, understanding that we're only two full quarters in.

Got it. Okay. and maybe my last one. It just feels like you can't talk to any company these days without at least referencing AI. Are you spending any dollars there? Is there any obvious role for it within your ecosystem?

Absolutely. You know, during this quarter, we actually added an individual to our leadership team who's leading our efforts. We've been working on a number of projects over the last couple of years that Felix has led and I'm going to let him walk you through them quickly.

Yeah, Chris, absolutely. I mean, I think we're in the earlier innings, but we've identified a number of interesting opportunities. And again, when you kind of think about, you know, the power of the platform we've talked about, you know, data analytics is one of those core benefits that we're starting to build out. So a little bit early in terms of sizing it. But over time, we think it'll be additive to some of our organic revenue growth initiatives.

Got it. I appreciate it, guys. I will leave it there.

Thank you, Chris.

Our next question is from Mike Cholesky with DA Davidson. Please proceed with your question.

Good morning, Mike. Hi, guys. This is Linda. I'm for Mike. Hi, Linda. Hi, Jennifer. So question, I want to follow up on the new weight commentary about the orders. So we've heard commentary from the other two waste truck companies the last few days that they seem to say different things. And so basically, I want to know what's driving the difference between what you're seeing and what's some other positive and negative commentary that is elsewhere in the industry. Is it product mix, customer exposure? If you could give me some more color, that would be helpful. Yeah.

So I think I need to start to go back to September when we announced the acquisition. We were very clear based on our research that we thought that the industry was going to be down overall. The refuse truck industry would be down in 2026 because we thought there was kind of excess inventory in the system as lead time started to reduce. So we built our model, we anticipated it and built our model for the transaction around the with the assumption that the industry was going to be down in 2026. So, you know, what I said is, look, our revenue, we're kind of spot on our model and our orders, which we said, you know, we believe the industry would be down. We're slightly ahead. of where we thought we were going to be from an order standpoint. I'd be remiss if I didn't give a shout out to our team who said, listen, we think this industry is going to be down and we built a model around that and we're tracking right in accordance with that model and we anticipate as we move forward as we get tractions on our dealer development initiative, our Canadian initiative, some of our NPD that we're investing in other things that we'll have share grain and we'll continue to grow. So very pleased with kind of where we are, understanding that we're only two quarters in. very helpful.

And yeah, I also want to follow up on the commentary on the municipal budget situation. So you mentioned that there are mixed order activity this quarter. Do you expect the same trends going into the second half and 2027 as well? Or do you expect things to change?

Yeah, I guess, you know, what I want to point out is of that, you know, 55% that comes from public funds. Our only pure play U.S. municipal business is street sweepers. And as I talked about earlier in my remarks, it's mid to high single digits for overall revenue. And as we look at the fundamentals of the funding mechanisms for local municipalities for our products, which would be sales tax and property taxes, they continue to remain steady. But we have worked very diligently and been successful in diversification of those public revenue sources. So we're exposed to water taxes, we're exposed to refuse collection fees, police budgets, the Canadian provincial and federal governments, some of the US governments, state governments. So it is a really nice mixture are funding sources with our only kind of pure play U.S. municipal piece being Street Sweepers, which is a relatively small portion of Federal Signals overall revenues.

Got it. My last question, could you discuss the corporate costs for the quarter? I think they were up a little over $2 million from the prior year, and yeah, I would like to get some work out on that.

Yeah, so you're right, Linda, they were up year over year. The biggest drivers, the two main drivers are just higher post-retirement expenses, and then we also saw some increased medical costs on a year-over-year basis.

Got it. Yeah, thank you for your time. Thank you, Linda.

Our next question is from Greg Burns at Sidoti & Co. Please proceed with your question. Good morning, Greg.

Morning. Morning. The decline in the SSG margin, what was the driver there, I guess maybe relative to the mix?

Yeah, it was mostly mixed, Greg. It was just certain shipments to – we had a larger shipment that went to some customers. There was some on the system side that were just – on a year-over-year basis, it was just a slightly diluted from a margin standpoint, but still the 25 – I was just going to ask another question around

the Western Acquisition. I know most of your acquisition activities obviously happened on the ESG side of the business. This is the first on the SSG side. Obviously very small, but I just wanted to kind of understand the broader opportunity for SSG to leverage M&A, kind of that platform model that you've used on the ESG model. What's the opportunities there and how might Western inform how you're looking at the opportunity on that side of the business?

Yeah, there's a number, this is a very fragmented industry, and there are a number of opportunities to leverage audible and visual technologies for different end markets. The other area, so we are looking at several acquisitions, both here in the U.S. and outside the U.S. We also, in addition to that, you know, police is the largest piece of SSG. And as we look at kind of upfitting in police cars, there's some ancillary equipment that would be very attractive. Again, it really falls in that same category as ESG, these niche end markets where there's some type of pretty significant motor barrier to entry around certifications or operating in hazardous environments. So we're pleased by the first acquisition the team has done. We got a number of other ones in the pipeline that we're working on and excited about the outlook on the M&A side for both SSG and ESG.

Okay, great.

Thank you.

Thank you.

We have reached the end of the question and answer session. I'd like to turn the floor back over to Jennifer Sherman, President and Chief Executive Officer for closing comments.

In closing, I would like to note that during the quarter, we published our latest annual sustainability report, which is available on our website. The report highlights our progress against our emission reduction goals, our new targets, and our ongoing community engagement efforts. It is our people that define the unique culture at Federal Signal, and we remain committed to investing in the local communities in which we operate. We would also like to express our thanks to our stockholders, distributors, dealers and customers for their continued support. Thank you for joining us today and we'll talk to you soon.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.