Federal Signal Corporation

Welcome to the Federal Signal Corporation third 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 of Strategy and Investor Relations. Thank you, Felix. You may begin.

Good morning, and welcome to Federal Signal's third 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 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, provide an update on our multi-year growth initiatives, and reflect on our updated guidance for 2026. 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 18% year-over-year net sales growth, 19% operating income improvement, a 33% increase in orders, and a 50 basis point improvement in adjusted EBITDA margin during a record-setting third quarter. Consolidated net sales for the quarter were $656 million, an increase of $101 million or 18% compared to last year. Consolidated operating income for the quarter was $111.4 million, up $17.4 million or 19% compared to last year. Consolidated adjusted EBITDA for the quarter was $140.4 million, up $24.2 million or 21% compared to last year. that translates to a margin of 21.4% in Q3 this year of 50 basis points compared to last year. GAAP diluted EPS for the quarter was $1.29 per share of $0.18 per share or 16% from last year. On an adjusted basis, EPS for the quarter was $1.34 per share of $0.20 per share or 18% from last year. Order intake was again strong with Q3 orders of $620 million, representing an increase of $153 million or 33% compared to last year. Backlog at the end of the quarter stood at $967 million. In terms of our group results, ESG's net sales for the quarter were $564 million, an increase of $98 million or 21% compared to last year. ESG's operating income for the quarter was $101.4 million, up $16.1 million or 19% compared to last year. ESG's adjusted EBITDA for the quarter was $126.4 million, up $21.5 million or 20% compared to last year. That translates to an adjusted EBITDA margin of 22.4% in Q3 this year compared to 22.5% in Q3 last year. ESG reported total orders of $530 million in Q3 this year, an increase of $159 million or 43% compared to last year. SSG's net sales for the quarter were $92 million this year, up $2 million or 2% compared to last year. SSG's operating income for the quarter was $22.8 million up $900,000 or 4% from last year. SSG's adjusted EBITDA for the quarter was $23.9 million, up $1 million or 4% from last year. That translates to an adjusted EBITDA margin for the quarter of 26.1%, an increase of 50 basis points compared to last year. SSG's orders for the quarter were $90 million, up 2% sequentially, but down 6% compared to Q3 last year. Corporate operating expenses for the quarter were $12.8 million compared to $13.2 million last year. Turning now to the consolidated income statement where the increase in sales contributed to a $27.7 million improvement in gross profit. Consolidated gross margin for the quarter was 28.9% compared to 29.1% in Q3 last year. as a percentage of net sales are selling, engineering, general, and administrative expenses for the quarter were down 50 basis points from Q3 last year. Other items affecting the quarterly results included a $2.3 million increase in amortization expense, a $400,000 reduction in acquisition and integration related expenses, a $2.5 million increase in interest expense, and a $300,000 increase in other expense. Tax expense for the quarter was $25.5 million, up $3.1 million from the prior year, with the increase primarily due to higher pre-tax income levels. Our effective tax rate for the quarter was 24.3% compared to 24.8% last year. At this time, we expect our fourth quarter effective tax rate to be approximately 25%, excluding any discrete tax items. on an overall GAAP basis, we therefore earned $1.29 per diluted share in Q3 this year, compared with $1.11 per share in Q3 last year. To facilitate earnings comparisons, we typically adjust our GAAP earnings per share for unusual items recorded in the current or prior quarters. In the current year quarter, we made adjustments to GAAP earnings per share to exclude acquisition-related expenses, charges associated with previously discontinued operations, and purchase accounting expense effects. On this basis, our adjusted earnings for the quarter were $1.34 per share compared with $1.14 per share last year. Looking now at cash flow, we generated $91 million of cash from operations during the quarter, an increase of $30 million or 50% from Q3 last year. That brings the total cash generated from operations in the first nine months of this year to $306 million an increase of 94% over the same time period last year. The increase in cash generation is primarily due to higher net income levels and working capital management, including a meaningful benefit from Newey. During the quarter, we completed the acquisition of Western Technology for approximately $9 million and paid approximately $13 million to finalize the purchase price closing adjustments related to the Newey acquisition. We also paid down around $34 million of debt, ending the quarter with $347 million of net debt and availability under our credit facility of $1.04 billion. Our current net debt leverage remains low, even after accounting for the acquisition of Global Vacuum Systems, which we completed yesterday for an initial payment of approximately $29 million. With our financial position remaining strong, We have significant flexibility to invest in organic growth initiatives, pursue additional strategic acquisitions, and return cash to stockholders through dividends and opportunistic share repurchases. On that note, we paid dividends of $9.2 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 fourth quarter. During the quarter, we also repurchased approximately $5 million of shares, buying back around 44,000 shares at an average price of approximately $114 per share. That concludes my comments, and I would now like to turn the call back to Jennifer.