Q4 2019 Earnings Call
[music].
Greetings and welcome to the Federal Signal Corporation fourth quarter quarter earnings Conference call. At this time, all participants are any 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 under telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host CFO in Hudson. Please go ahead Sir.
Good morning, and welcome to Federal Signal's fourth quarter 2019 conference call I'm in Hudson, The company's Chief Financial Officer.
Also with me on the call today's Jennifer Sherman, our President and Chief Executive Officer.
We 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 web site federal signal dotcom clicking on the investor call icon and signing into the webcast.
We've also posted a slide presentation and the earnings release under the Investor tab on our website.
Before I turn the call over to Jennifer I'd like to remind you. The some of those comments made today may contain forward looking statement. The list 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.
A 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-K later today.
Jennifer is going to start today with her perspective on our performance and then I will provide some more detail on our fourth quarter and full year financial results.
Jennifer will then go over our outlook for 2020 before we open the line for any questions with that I would now like to turn the call ever to Jennifer.
Thank you again I'd like to kick things off by addressing some of the uncertainty that we've seen in global markets in recent years and how we manage through these challenging times as I reflect back over the last four years since I became CEO. One thing that stands out to me is the manner in which our businesses have.
Formed when faced with a series of complex challenges delivering financial results that are outstanding in both absolute terms and in comparison to our specialty vehicle peers. Since 2016, our net sales and adjusted EPS have grown it a CAGR of 20% and 39.
Percent respectively.
Internally, we for referred to this quality is correct that special Blender perseverance and resilient and I'm extremely proud of how our teams have demonstrated grid and navigating through the unpredictability that we've seen from time to time in today's dynamic global environment, yet at the same time.
Maintaining a relentless focus on profitable long term growth.
For example, while many companies were adversely affected by the imposition of tariffs in 2018, our teams proactive approach to pricing and procurement largely neutralize the impact of higher material costs.
With unemployment levels. Many companies have recently had difficulties recruiting new employees at our largest manufacturing facility is treated Illinois, we added more than 100 employees in 2019, and we continue to get at least five quality applicants for every open position.
This rate of success does not happen by chance over the years, we have worked tirelessly to develop strong connections within the local community through our charitable efforts and the educational programs and attractive benefits that we make available to our employees.
And when other specialty vehicle companies experienced shortages in the supply of chassis. Our vehicle based businesses were and we'll continue to be relatively unaffected because of their effective management of the supply chain and proactive approach to pre buying certain inventory.
So as I think about 2020 I expect there will continue to be obstacles ahead of us, but I feel confident that with the teams proven track record of anticipating issues and proactively implementing responses, including the application of our 80 20 or Eni principles we are.
In addition to rise to the challenge.
Overall 2019 was another outstanding year for federal signal with our businesses reported record annual revenues and earnings on a consolidated basis, we reported a 12% increase in net sales and a 21% increase in adjusted EBITDA at a margin of 15.7.
In percent.
That represented improvement of 110 basis points from last year and performance towards the high end of our target range.
This outstanding operating performance contributed to a 27% increase in our adjusted EPS compared to the previous record set in 2018.
Among the many highlights of the year was the completion of the acquisition of the Mark Wright lines equipment company or are out as a reminder, morale is a leading us manufacturer of truck mounted and ride on road, marking equipment. The acquisition also included the operations of high Mark traffic services.
A wholly owned subsidiary of MRL, which provides road marking application in line removal services.
Since closing the transaction in July our collective teams have been focused on integration efforts, while we recognize that theres more work ahead. We're pleased with the progress made so far I recently attended Morales largest trade show and was impressed with the team's commitment to innovation as evidenced by the number of new.
Equipment features that we had on display as well as the level of customer engagement, we have Aspen pleased with Morales financial performance today with the acquisition contributing approximately three cents to our full year EPS in 2019.
During the year, we further strengthened our balance sheet upsizing, our rep Valving credit facility for another five years, our strong cash flow generation also supported investments inorganic growth initiatives acquisition related activity ongoing debt repayment on cash returns to shareholders entering 2020.
Any our debt net debt leverage ratio remains at a very comfortable level.
Our order intake in the fourth quarter set a new record for the company, resulting in a backlog entering 2020 that was that an unprecedented level. The continued strength in demand is reflective of continued traction on the strategic initiatives. We have put in place over the last couple of years.
With the combination of our organic growth initiatives and acquisitions, we're making great progress in diversifying our rental streams and end market.
As part of our aftermarket strategies within SSG, we've established a unified platform led by the talented team that joined US with the Joe Johnson acquisition in 2016.
With our footprint of service centers strategically positioned across North America, we have over 20 locations from which we can effectively serve our customers by selling parts and providing equipment rental or service offerings. Our efforts in this area are paying off with SGS app.
Aftermarket revenues up 13% year over year.
The integration of additional vehicle based acquisitions as part of this aftermarket platform represents a meaningful growth opportunity and we are currently in the early stages of adding Morales product and service offerings to this structure.
We also continue to see strong demand for our range of safety seeking trucks with orders in 2019, increasing by $29 million or 28% from last year. This success is the result of the investments we've made in new product development in channels.
As you May recall, we launched true back our dedicated brand of safe digging vehicles at the beginning of 2019. Since then we've expanded our suite of safety seeking offerings through new product introductions, including the launch of the true VAT Coyote, a compact hydro excavator for utility municipal and comp.
Charter customers, which maximizes payload and productivity, while complying with regional weight regulations.
Another milestone in 2019 with the Finalization of our distribution strategy for Trivex, which included assessing each territory and identifying the best partner for the applicable region. In most cases, we teamed with current members of our dealer network, whereas in other areas, we entered new partnerships optimization.
One of our distribution channels will remain an area of focus in 2020.
At our facility in Streeter, Illinois, where we manufacture both sewer cleaners and safety Kleen trucks, we're continuing our efforts to increase production and reduce currently times during the year unit production at the Streeter facility increased by 15% compared to last year as the result of our build.
More trucks or be AMTI initiative, we're making progress with the expansion of facility, which will not only add capacity to build additional units, but will also provide extra space to test new products and allow us to optimize production flexibility over the long term.
In 2019, we successfully executed this flexible manufacturing model by producing over 50 units at our solution Center in Leeds, Alabama.
As we move forward, we're diligently working on several ways to differentiate ourselves by improving the digital experience of our customers. We have made investments in technology and established a team dedicated to the support of these initiatives, which include the launch of a revamped used equipment marketplace and the X.
Duration of an E commerce platform.
Within SSG the teams did a great job navigating through the Ford model year change, which impacted the availability of new vehicles in the us during 2019.
With the introduction of a series of new products, we've been able to further penetrate overseas markets and secure orders from several new municipal customers in the U.S.
We saw an 11% increase in the sales of industrial signaling equipment with most of the improvement the result of expanding into new global markets, optimizing our sales channel and enhancing our market our marketing efforts.
These factors contributed to SSG, improving its adjusted EBITDA margin by 190 basis points on a year over year basis to an impressive 18.3% with the improvement largely resulting from our pricing actions improved sales mix and ongoing execution of our 80 20 for Eni initiative.
Yes.
Based on its consistent performance, we increased SSG target range during the year.
Overall, the redesign of our new product innovation process that we introduced several years ago continues to gain momentum we estimate that new product introductions represented approximately 75 million of our organic revenue growth in 2019.
Introducing products with more environmentally friendly features or technology is a key consideration and the overall value proposition to our customers. For example, our range of vacuum or hydro excavation trucks are designed to be safe not only to the operators, but to the general public in that the use of the.
Technology avoids the potential for striking gas lines severing cables are damaging other grout other underground infrastructure. Our sewer cleaners include options such as a rapid deployment boom and water recycling technology, both of which provide operating efficiencies and environmental benefits.
Can we have recently designed built and tested a plug in hybrid electric sweeper that is now being evaluated by customers.
These are just a few examples and to further document our ongoing commitment to environmental social and governance initiatives. We're planning to publish our inaugural sustainability report later this year looking forward, we intend to maintain our focus on new product development and other growth initiatives and our pursuit of value added.
Acquisitions.
Over the last four years, we've completed four acquisitions, all of which would have been within the specialty vehicle space, while growing our specialty vehicle offerings will remain our primary focus. We are also open to considering smaller acquisitions to expand the product lines in geographic reach of our safety and security systems.
Our deal pipeline continues to be active and with our healthy cash flow generation and enhanced financial position, we have significant flexibility to pursue additional strategic acquisition candidate.
Taking these factors into account, we remain committed to delivering a long term shareholder value by growing our topline at a CAGR in the high single digit while maintaining our EBITDA margin performance within our target ranges and generating strong cash flow I'll now turn the call back in to go over the numbers.
Thank you Jennifer.
Our financial results for the fourth quarter and full year of 2019 of provided in todays earnings release overall fourth quarter results represent a strong finish to an excellent year.
Before I talk about a fourth quarter, let me highlight some of our full year results consolidated net sales for the year were approximately $1.22 billion, an increase of $132 million or 12% compared to last year.
Operating income for the year was $147.1 million, an increase of $25.6 million or 21%.
Consolidated adjusted EBITDA for the year was $191.3 million up $32.7 million or 21%.
With both of our groups reporting double digit improvement.
On a consolidated basis adjusted EBITDA margin for the year was 15.7% up 110 basis points from last year and towards the high end of our target range.
Earnings for the year equated to $1.76 cents per share an increase of 23 cents per share or 15% from last year.
On an on an adjusted basis, we reported full year earnings of $1.79 cents per share, which is up 38 cents or 27% compared to last year.
Total orders for the year were approximately $1.27 billion, an increase of $96 million over 8% from last year.
For the rest of my comments I will focus mostly on comparisons of the fourth quarter of 2019 to the fourth quarter of 2018.
Consolidated net sales for the quarter with $314 million, an increase of $35 million or 12% from last year.
Consolidated operating income in Q4, this year was $36.4 million up $3 million or 9% from last year.
Consolidated adjusted EBITDA for the quarter was $48.5 million up $5.9 million or 14% from last year that translates to a margin of 15.4% towards the high end of our target range and up an up 20 basis points from last year.
Income from continuing operations was $29.7 million in Q4, this year compared to $32.2 million last year. When we recognized an 8.6 million dollar benefit associated with a tax planning strategy in Spain.
That equates to GAAP earnings of 48 cents per share compared to 53 cents per share in Q4 last year.
On an adjusted basis, our earnings in Q4, this year with 48 cents per share an improvement of 10 cents per share or 26% compared to last year.
As Jennifer just mentioned our order intake for Q4 this year set a new record for the company with a $333 million of orders received representing an increase of $35 million or 12% from Q4 last year.
On the back of this improvement we ended the year with a record consolidated backlog of $387 million, which was up $49 million for 15% compared to last year.
Now turning to our group results.
Within SSG fourth quarter sales were $252.2 million up $34.9 million or 16% compared to last year. The revenue growth was largely driven by increases in shipments of street sweepers safe digging drugs and dump truck bodies as well as a 17 million dollar contribution from memory.
Now.
DSG is operating income for the quarter was $33 million up $6.1 million or 23% from last year.
Adjusted EBITDA for the quarter was $43.8 million, an improvement of $8.5 million or 24% from last year.
That translates to an adjusted EBITDA margin of 17.4% in Q4, this year up 120 basis points from last year.
Yes, she's fourth quarter orders were again strong at $271 million, an increase of $31.3 million or 13% from last year.
Ssds results for the fourth quarter of this year essentially matched its outstanding fourth quarter of last year.
Sales and operating income would largely unchanged at $62.2 million and $11.8 million respectively.
Ssds adjusts adjusted EBITDA for the quarter was $12.6 million up from $12.5 million a year ago and its adjusted EBITDA margin. In Q4. This year was again impressive at 20.3% exceeding the high end of its target range and up 20 basis points from last year.
Corporate expenses for the quarter were $8.4 million compared to $5.3 million a year ago with approximately $1.7 million of the year over year increase really resulting from changes in fair value adjustments to certain reserves. These market based adjustments benefited earnings in Q4 last year.
By approximately two cents per share will but were unfavorable in Q4 this year.
Looking now at the consolidated income statement, where the increase in sales contributed to a 9.5 million dollar improvement in gross profit.
Consolidated gross margin improved to 25.9% the quarter of 10 basis points from last year.
As a percentage of sales are selling engineering general and administrative expenses for the quarter were up 50 basis points from Q4 last year largely due to the increase in corporate expenses that I just mentioned.
Other items affecting the quarterly results include a 400000 dollar increase in acquisition related expenses and a 300000 dollar decrease in interest expense.
In Q4. This year, we recognized income tax expense of $4.8 million largely due to the increase in pre tax income levels, which was partially offset by the recognition of approximately $3 million of discrete tax benefits, primarily due to the resolution of state tax audits and stock compensation activity.
Collectively these items added about five cents to our fourth quarter EPS.
During the quarter. We also released to $800000 a valuation allowance that had previously being recorded against state deferred tax assets.
In Q4 last year, we recognized an income tax benefit of $1 million, primarily due to the recognition of the Spanish tax planning benefit that I mentioned earlier, partially offset by additional tax expense on higher income.
Excluding the release of the state tax valuation allowance, our effective tax rate for the full year of 2019 was 22.4%.
That rates included benefits from releases of tax reserves resolutions of tax audits and stock compensation activity.
Absent any similar benefits. We currently expect that our tax rate will revert to a more typical range of between 25% and 26% in 2020.
That is the same range as we end had anticipated entering 2019.
The normalization of our tax rate in 2020 will represent a year over year EPS headwind of up to nine cents.
On an overall GAAP basis, we therefore and 48 cents per share in Q4, this year compared with 53 cents per share in Q4 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 and purchase accounting expense effects. We also typically exclude special tax items like the state tax valuation allowance release in the current year and the tax planning benefit last year.
On this basis, our adjusted earnings in Q4, this year with 48 cents a share up 26% compared with 38 cents per share in Q4 last year.
Switching now to our cash flow, which was very strong in the fourth quarter, we generated $44.8 million of operating cash flow in the quarter more than double the amount generated in Q4 last year.
That brings the total amount of operating cash flow in 2000 $19 million to $103 million, an 11% improvement compared to last year.
The improved cash flow facilitated a 30 million dollar debt reduction in the quarter as well as continued strategic investments in new machinery and equipment and all got other organic growth initiatives like the expansion of our manufacturing facilities in street to Illinois, and rugby North Dakota.
At the end of the year, we had around $269 million of availability under our credit facility with the option to increase that by an additional $250 million for acquisitions.
Our strong financial position allows us to continue to invest in organic growth initiatives like ongoing new product development and facility expansions in 2020, we're anticipating that our capex, including investments associated with ongoing plant expansions will be in the range of $30 million that.
$35 million.
At the same time, we remain committed to pursuing strategic acquisitions and funding cash returns to shareholders on that note. We paid a dividend of eight cents per share during the fourth quarter amounting to $4.8 million and we recently announced a similar dividend for the first quarter of 2020.
That concludes my comments and I would now like to turn the call back to Jennifer.
We entered 2020 with a record backlog that is 15% higher than a year ago. In addition conditions in most of our end markets remain healthy as demonstrated by our record fourth quarter order intake and we continue to gain traction with our strategic initiatives.
While SGS backlog provides us decent visibility into the first half 2020 lead times for certain products, particularly sewer cleaners and safe digging trucks remained extended with the expansion of our Streeter facility. We have taken steps to reduce those lead times, we expect to start seeing benefits from increased product.
And in the second half of the year.
Within our industrial markets, we continue to be bullish about our prospects with respect to our safety initiative and our monitoring further developments on the regulatory front closely.
The number of used equipment units available auction continues to be at normal levels supporting healthy used equipment demand in the market. During 2009 team that has helped us with the flow of sales out of an into the fleet of our rental partners.
Utilization levels for the major product lines within our own rental fleet continued to exceed our target levels, but we have seen some normalization in the last two months.
With more rental units available in the market we've seen an increase in the return of units. During what is typically a seasonally slow period for rentals and that has impacted utilization in comparison to the unusually high levels. We saw at the same time last year when customers returning rental quit.
For longer periods because of more limited availability.
Overall, our rental income in 2019 was up more than 10% on a year over year basis, and we continue to believe rentals are a key strategic initiative for the company.
Within our dump truck business industry data on new housing starts to the generally positive outlook for 2020, and we've seen an uptick in demand over the last few months with TB API reporting year over year order growth of 20% in the fourth quarter.
On the municipal front, our us markets remain healthy overall with continued strong demand for sewer cleaners within public safety markets. We are hopeful that the lingering effects from the Ford model you change will be substantially resolved and SSG will continue to target market share gains through new product introductions and geographic.
Terrific expansion.
With the upcoming presidential election, and general global economic uncertainty much of which is outside our control we have less visibility into the second half of next this year at this time.
Along with many other companies we are watching this situation with respect to the outbreak of the Corona virus.
To add some context for federal signal, we have no manufacturing operations in Asia, and the amount of materials that we sourced directly from the region is less than $10 million.
With the limited amount of direct purchases current inventory levels and the potential to find alternative suppliers. We do not expect any direct impact to be significant based on what we know today.
However, theres a little more uncertainty with respect to the indirect impact that any extended disruptions supply chain may have on our ability to procure materials from our domestic suppliers, who may procure subculture ponant from the region. We will continue to monitor events as they evolve.
As we mentioned earlier the application of our 80 20 or each I principle was a contributing factor to the margin improvement at SSG in 2019 IAI is.
And will remain a critical part of our culture and we continue to educate our people on its principles.
And finally, our financial position entering 2020 is very strong with low debt leverage in ample liquidity, allowing us to remain true to our capital allocation priorities.
Turning now to our outlook.
Although seasonal effects typically results in our first quarter earnings being lower than subsequent quarters, we are anticipating year over year growth with earnings in the first quarter of 2020 expected to represent a similar percentage of our full year outlook as in 2019.
For the full year, we're projecting projecting topline growth and double digit improvement in pre tax earnings over a record 2019.
In addition, the normalization of our 2020 tax rate to a range of 25% to 26% will represent a year over year EPS headwind of up to nine cents with that we expect adjusted EPS for the year to be within a range of $1.84 and a $1.94.
This would represent year over year growth of between three and 8% over a record 2019, despite the EPS headwind from the normalization of our tax rate in 2020 that we mentioned earlier with that we are ready to open the lines for questions operator.
Thank you will not have jokingly question answer session.
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One moment, please what we pull for questions.
Our first question today is coming from Walter Liptak from Seaport. Your line is Alex.
Good morning Wall, Hi, Good morning, Hi, good morning, guys.
Good solid anterior especially on the orders.
I want to ask about.
The challenges that are out there.
From the uncertainty.
So far in 2020 have you seen any changes in the order pattern from where they were in the fourth quarter.
It is based on what we've seen in January Walton, though Weve January was a very strong order month. So we haven't seen anything today that would indicate any meaningful change.
Yes, I open the call with comments about the teams.
And our success navigating through difficult challenges over the last four years.
And.
There are a number of factors out there some of them outside our control.
And our teams are working diligently in terms of putting plans in place.
And I feel very confident that we will do a good job maneuvering through.
Whatever challenges that might be out there that we need to face.
Okay, great and if I could ask one about.
About pricing and price cost.
Turning to want to know allows any material costs have subsided, but how're you doing on.
Pricing in 2020 did you raise prices.
How do you look at or how do you see.
The price cost situation.
Several of our businesses.
Have annual price increases that take effect in January onest, it really depends business to business and we haven't seen a lot of pushback.
With respect to those price increases.
You know again, Walt as you know.
We're very focused on the application of our 80 20 principle.
And as we do evaluations of product lines.
Those theres certain product lines that as we.
Assess the need forum that we will increase prices.
On to respond to current market conditions.
Okay, Great and I get speaking of 80 20.
The safety group did a great job with profitability.
200, almost 200 basis points of margin improvement.
You are at the top of the range now where where do you think you can get to margins are there plans in place for 2022 law further improve safety margins.
Yes, I think well if you go back to the thing was the second quarter of 19 that we actually increased the high end of the target arrange for that business and that was really because we've seen something of a step change in the business.
In terms of the impact the new part of development has had on that business and we've talked also about the the expansion of the distribution channels, we're doing more business now globally.
Within certain of our product lines within SSG. So we felt confident that we were we will be able to.
Consistently perform within those target ranges and that's really why we increased it.
The fourth quarter is.
If you look back at last year. It was also really really strong I think our EBITDA margin in Q4 velocity was also in excess of 20% to the core the fourth quarter tends to have some.
Some seasonal strength to within that business.
Typically really on the system size, where we could get some large orders for systems that we were able to ship before the end of the so that's that's really what drives the on the seasonal strength in SSG in the fourth quarter.
Okay great.
Okay. Thanks, I'll get back in Q.
Thanks.
Thank you next question is coming from Steve Barger from Keybanc capital markets. Your line is allies.
Good morning fee as Dave.
Hey, good morning, guys, it's actually Ken Newman on for Steve.
Again I can't.
Good morning.
Curious.
I appreciate the color on the $75 million organic revenue coming from new products in the year or in the quarter.
Curious.
How should we think about.
Contributions from new product development in 2020, that's contemplated within guidance, maybe any color in terms of the total addressable market.
Whether that's grown or changed for your new safety initiatives.
Crossed the business.
Yeah.
Well start with safe, taking either we have adjusted ahead.
Total accessible market estimate over.
Couple of years. It continues to go up and Thats really because we're educating prod customers about the values of safety digging.
With demonstrations and for we continue to track demonstrations those are an important indicator because in certain circumstances. This.
Type of equipment replaces backhoes and shovels.
I think the other thing that's very important that could have a meaningful impact.
On on the sizes addressable market would be increased regulation and we're encouraged by what we've seen during 2019, possibly three additional states.
Adopted legislation recognizing safe digging is the best practice.
We've also in the past several you're seeing osha adopt regulation that acknowledges safe digging is the best practice. So we expect that mark ticket to continue to grow.
With respect to other new product development.
We continue to keep that we target high single digit growth half of that coming from acquisitions in the other half coming from organic growth initiatives.
And we've got more ideas in the pipeline.
As we move forward. The teams are very energetic about this and what's really exciting to see is we started this journey several years ago. We've had some good wins and it's really changed the culture of the organization.
About new product development. These are exciting teams to work on.
And we feel really good about the pipeline that we have in place for those projects.
Thats really great color.
I just want to switch over to the M&A pipeline I know you'd mentioned, maybe more higher preference for smaller bolt on deals out of DSG as we kind of thinking about the candidates within that business has any change to how you look at.
What are the parameters you look for an acquisition.
Are these candidates.
Thats in the pipeline today are they immediately accretive to the business or margins.
Yes, let me just clarify can you know with respect to.
SG, we're open and looking at acquisitions in everything from $50 million to couple hundred million dollars. So the pipeline is we're looking at a number of different sizes and we're very committed to our disciplined acquisition criteria.
Area.
Specialty vehicles particular focus on work trucks.
Is an area of focused on the aftermarket is also something that we think has a lot of opportunity and we're continuing to expand our platform, but my comments on the call about asset Gee, we're really on to indicate that we're very pleased with the performance and the stability that mark.
Levers leadership has brought to that organization and we believe that now that they're in the position to we're looking at some bolt on type acquisitions that would be smaller.
We're SSG and we wanted to let Sean know about this kind of exciting new development in our M&A strategy, but keep in mind. The primary focus is really going to be in the sea area and can I would add just on the kind of the financial filters that we look at it really hasn't been any change in.
Those were still looking for businesses.
Over time can operate within those target ranges that we have.
And they may not at the time, we buy them they may not be performing within those ranges, but after we apply retail principles to those businesses, we would expect them to pay performing within that range. So that's that's one of the main filters as we due diligence on an acquisition, that's where we look for you and I guess I'll add a little bit more color commentary in terms of.
Talked on the call about the morale Apple acquisition and integration.
This management team is every time, we do a new acquisition, we're getting better at it I'm really pleased with the performance of the acquisitions.
That we've done over the during my tenure as CEO and acquisitions will continue to play a meaningful part in our growth story going forward and we think theres a lot of opportunity out there.
That's great color.
Last one for me and I'll jump back into queue I, just wanted to kind of hit back on waltz prior questions.
Maybe more on the consolidated side you are at the top end of your consolidated EBIT margin target for the year.
Has there been any thought to increase those margin targets is in the near term uncertainty really make it harder for you to achieve those kinds of levels.
Given maybe some some more moderation in demand.
When you weigh that against.
Progress in your 80 20 initiatives.
Yes, I think it out in referenced the fact that we did increase the SSG margin in 2019, and what we want to see is continued strong performance at that high end to that range before we would make.
Any type of adjustment.
And as we.
Moved through 2020 were continued to focus on operating our businesses.
Within those ranges.
Got it thanks.
Thank you next questions come from Chris more from CGS. Your line is now was hey, good morning, CRAD graduates morning, yet maybe Jeffrey just talk a little bit more about one of the things you touched on on your.
2020 initiatives the further optimization of distribution and just maybe some more details there.
Yes, I mean, we have an outstanding dealer network.
For our municipal product.
This year, we introduced in 2019, we introduced the tree backline.
And we.
We did an assessment of each of the dealers in the territory to optimize distribution.
That particular product.
And in the majority of cases, we partnered with our existing dealers. There were some examples that we partnered with entities outside of our dealer work and we were very fortunate because of the attractive growth opportunities for the true back line to identify.
In particular, one strong partner in the Colorado, Oklahoma area that were.
Just signed up and we continue to do that assessment and make sure that we're optimizing our channel. So we can best serve our customers.
Yes.
Got it thank you.
You you talked about you know kind of from where you sit today that conditions in most end markets remain favorable could you perhaps talk about those where things are or a little less favorable at this point.
No we talked previously on a call about our TB business.
For our trailer business, we continue to monitor the class eight chassis situation, it's a small part of that business.
It's one that we've seen the orders can be lumpy through different quarters, and we're learning more about that business. So that would be one that we we continue to monitor.
On the SSG side of our business.
We are confident that were through the forward model year changeover.
But that's an area where.
I actually the proof is in the putting I want to see those cars at a regular.
Sustainable rate. So that's another area, we're continuing to monitor as we move forward.
Got it.
Last question for me just on the street or expansion beyond just.
More capacity can you talk a little bit more about what that brings to the flexibility et cetera.
Sure sure. So I was down there a couple of weeks ago.
And visiting with the teams and really impressed with the progress that we've made and we expect to see the benefits in the second half the year.
It's kind of like having a garage this empty because all of a sudden now we've got lots and lots of ideas in terms of even beyond our original ideas of what we can do.
We're looking at as possible on the space as possible Ariad too.
If we were to buy a small product line.
That type of acquisition, we can possibly folded into the streeter facility with respect to new product development, particularly in adjacent areas. It gives us the manufacturing footprint that we need to.
Pursue.
That type of area.
As we look at some of these we talked a lot of out in this is a focus we really believe that differentiates our products in the environmental features on our products.
On.
The testing is absolutely critical so as we move forward me that we're also looking at it as a on training center.
For not only vactor, but for our customers and other federal signal locations. So lot of excitement and really what we're I'm encouraged is our ability to attract people. We hired the people we need for the expansion during 2019, because we've been training them. So as the facility goes online expand.
And goes online they are ready to go so we hired over 100 people and we're still getting five qualified applicants and it's a real credit to the team down there and the relationships that they've developed at I believe it's three local high school, where our welding supervisors are in the schools.
Training people, we don't think equipment to the people in a very strong connections and it is a.
Preferred place to work in the area and something that we're all very proud of.
Todd is helpful as good stuff.
Back in line, but I appreciate it.
Thank you Eric.
Thank you as a reminder, newstar one to be please and the question Q.
Next question is coming from Greg Burns from Sidoti and company. Your line is our lives.
On a Greg good morning, good morning.
So.
Listen to your.
When you guide for next year I guess.
Is there anything.
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For quantitative guideposts, you could put on the award.
That means by you expect growth something similar to 19.
Yes, because I know your full year of bar bright line in their bookings is there any.
Since and maybe what you mean by.
For the top line in 2020.
Yes, Greg we don't typically guide to revenue front for really for a couple of reasons and one of them is probably.
The application of right over 80 20 principles because.
Over the last few years, there have been certain product lines. All that we we've maybe with the margin profile hasn't necessarily been as attractive as like that Weve may maybe walked away from or if we if in those situations, where weve been able to get the margin to improve we've actually given away some of the.
The topline because we walked away from those product lines. So that's that's really the reason that we don't guide to the topline because.
You know, we're very focused on on the on performing within those EBITDA margin targets.
Okay. Thanks.
So.
Going back to the other streeter expansion.
I mean, maybe I was.
I misunderstood the timing of it but I thought it was supposed to be online sometime and maybe the first quarter or maybe it was the first half of year. So maybe it is still on track.
As it is it on track to come on line the extent of capacity from where you thought it would be maybe.
A few quarters ago, when you announced the expansion and.
Well once it is online how much added capacity does that expansion great. Thanks.
Yes, so we were delayed from our original announcement due to the wet weather that occurred in Illinois in the spring of 2019.
And we updated you all about that situation.
So that created a eight to 12 week delay.
But.
Since then we've been on target. So originally we announced the expansion I think we talked about kind of ended the first half of the year. So that's been pushed into the.
Third quarter, but that's no different than what we talked about in last couple of calls.
We're starting to move into this space over the next couple of weeks.
The vast majority of equipment is there we have the people hired it's really exciting.
We've got a program in place now where in the schools, we're having signing days for Vactor similar to what they do for college athletes to come work at the facility. So lot a great energy in the community around this expansion and the opportunities that creates.
We've talked about the capacity. The addition in terms of capacity as being 30% to 40%, but that's over time to because.
We are first project and first focus will be on reducing lead time.
For our sewer cleaning and safety ageing line.
As I mentioned earlier on it will support some of our new product development initiatives and some of the additional testing requirements.
Of these kinds of trucks.
Okay, Great and then.
Steve taking I know you've kind of revamped the channel and is this a little bit of.
Evangelical element to this you have to educate the markets. So how you feel going to 2020 are you seeing maybe.
More more trials or higher conversion rates as the channel now more up to speed, where you might see even to pick up from the nice growth you saw a 19.
Still about kind of your position going into 2020 based on some of the groundwork you laid in 2019. Thanks.
Yeah I mean.
Our orders and 19 were up 28%. So it was a good year I think it's absolutely critical I'm.
Distribution is critical and the launch of the true Vac brand and the strong distributors that we have been place is critical to success.
We have been.
Very focused on building out our product line.
Safe digging trucks.
We introduced the Coyote it was down at our trade show last week at the wet show.
And demonstrations as we talked about the important I think where the step change comes is increased regulation.
It is these trucks are mandated for example, in Ontario, Canada, and certain applications and the what we've seen in terms of the progress.
Of regulation in the U.S.
Has been pretty dramatically over the last three years as that continues.
I think thats going to drive a lot of the additional.
Okay. Thank you.
Thank you we reach of our question and answer session. Other to turn the floor back over to Jennifer Sherman for any further closing comments.
In closing I'd like to reiterate that we're confident in the long term prospects for our businesses in our markets. Our teams are performing at a very high level and remain focused on delivering high quality results. We remain committed to investing in our businesses in our people to generate sustained long term success for our shareholders.
Our foundation is strong and we're focused on delivering profitable long term growth to the execution of our strategic initiatives, we would like to express our thanks to our stockholders employees distributors dealers and customers for their continued support. Thank you for joining us today, and we will talk to next quarter.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day to thank you for your participation today.
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