Q1 2021 Federal Signal Corp Earnings Call
Greetings and welcome to Federal Signal Corporation first quarter earnings Conference call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
And I'd like to turn the conference over to your host today, Mr. Ian Hudson Chief Financial Officer. Thank you Sir you may begin.
Good morning, and welcome to the federal signal the first quarter of 2021 conference call I am Ian Hudson, The company's Chief Financial Officer also with me on the call today is Jennifer Sherman, our President and Chief Executive Officer.
And we're focused on presentation slides per day as well as to the earnings news release, which we issued this morning. The slides can be followed online by going to our website federal signal Dot com.
On the Investor call icon and signing into the webcast.
<unk> 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 and subject to the safe Harbor language found in today's news release and in Federal Signal's filings with the Securities and Exchange Commission.
Documents are available on our website.
Our presentation also contains some measures that are not in accordance with U S. Generally accepted accounting principles and all.
Our earnings release and filings we reconcile these non-GAAP measures to GAAP measures. In addition, we will file on form 10-Q later today.
I'm going to begin today by providing some detail on our first quarter results before turning the call over to Jennifer to provide her perspective on current market conditions, our progress against strategic initiatives and our outlook for the remainder of the year.
After our prepared comments, Jennifer and I will address your questions on <unk>.
Holiday This third quarter financial results provided in today's earnings release and.
In summary, we delivered another strong quarter with record orders and operating results exceeding our expectations. Despite ongoing pandemic related disruptions.
We also had to navigate through the February ice storms, and the south which caused us to temporarily close on facilities, and Texas, Alabama and Mississippi.
And we did not experience any significant damage, but we did lose several days of production.
Despite these challenges and the teams are covered well with both groups delivering adjusted EBITDA margins at or above levels achieved in the first quarter of last year.
And that fee is even more impressive given the strength of the prior year quarter, which included record production at our largest facility and minimal impact from the pandemic.
Turning now to the numbers were consolidated net sales for the quarter were $279 million.
Compared to $286 million last year.
Consolidated operating income for the quarter was $27 8 million.
Compared to $32 3 million last year.
Validate and adjusted EBITDA for the quarter was $41 2 million compared.
Compared to $43 $9 million last year.
And that translates to a margin of 14, 8% and Q1 this year compared to 15, 3% last year.
Net income for the quarter was $22 2 million compared to $23 $4 million last year that equates to GAAP EPS for the quarter of 36 per share compared to 38 cents per share last year.
On a net adjusted basis EPS for the quarter was 38, a share compared to 39 cents per share last year.
Order and takes the quarter with outstanding with orders of $384 million represented representing our highest quarterly orders on record and an increase of $80 million or 26% compared to Q on last year.
Consolidated backlog at the end of the quarter also set a new company record at $410 million that represents an increase of $9 million compared to Q on last year, and an increase of $106 million or 35% from the end of 2020.
In terms of our group results DSD and net sales for the quarter were $228 million.
Compared to $233 million last year.
Esg's operating income for the quarter was $27 1 million compared.
Compared to $29 $4 million last year.
Esg's adjusted EBITDA for the quarter was $39 3 million compared.
Compared to $40 million and the prior year.
That translates to an adjusted EBITDA margin of 17, 2% in line with last year.
ESG reported orders of $324 million and Q1, this year and improvement of $87 million or 37% compared to last year.
Ssg's net sales for the quarter were $51 million this year compared to $53 million last year.
Operating income for the quarter was $7 2 million compared.
Compared to $7 $4 million last year.
<unk> adjusted EBITDA for the quarter was consistent with the prior year.
Around $8 $2 million, while its adjusted EBITDA margin for the quarter improved to 16, 2% up 80 basis points from Q1 last year.
Ssg's orders for the quarter was $60 million compared to $66 million dossier.
Corporate operating expenses for the quarter was $6 5 million up from $4 $5 million last year.
The increase was primarily due to an unfavorable year over year variance of $2 6 million associated with changes in mark to market adjustments of post retirement reserves. These market based adjustments benefited our earnings in Q on last year by approximately <unk> <unk> per share but were unfavorable in Q1 this year.
Turning now to the consolidated income statement, where the decrease in sales contributed to a $6 million reduction and gross profit.
Consolidated gross margin for the quarter was 24, 7% compared to 26, 1% last year.
As a percentage of sales, our selling engineering general and administrative expenses for the quarter were down 20 basis points from Q on last year. Despite the unfavorable not not bearings I just mentioned.
Other items affecting the quarterly results include a $700000 increase and other income and a $400000 decrease and interest expense tax expense for the quarter was down $2 $2 million largely due to lower pre tax income levels and higher excess tax benefits from stock compensation activity on.
Our effective tax rate for the quarter was 18, 4% compared to 23, 5% last year.
The lower tax rate in Q1, and this year was in line with our expectations. After we had included and estimates of excess tax benefits. At this time, we continue to expect our full year effective tax rate to be approximately 24%.
On an overall GAAP basis, we therefore and 36 a share and Q1 this year compared with 38 cents per share and Q1 last year.
To facilitate earnings comparisons, we typically adjust our GAAP earnings per share for unusual items recorded in the current or prior year quarters.
And the current year quarter, and we made adjustments to GAAP earnings per share to exclude acquisition related expenses Corona virus related expenses and purchase accounting expense effects on this basis, our adjusted earnings for the quarter was <unk> 38 per share compared with 39, a share last year.
Looking now at cash flow, where we generated $26 million of cash from operations during the quarter and improvement of $21 million over Q1 last year.
We ended the quarter with $168 million of net debt and availability under our credit facility of $217 million.
Our current net debt leverage ratio remains low even after funding the acquisition of <unk> during the quarter for approximately $53 million.
Our strong financial position allows us to continue to invest and organic growth initiatives and pursue strategic acquisitions like our SW.
At the same time, we remain committed to pursuing.
Strategic acquisitions, and returning cash to stockholders through dividends and opportunistic share repurchases on that note, we paid dividends of $5 5 million during the quarter, reflecting an increased dividend of <unk> <unk> per share and we recently announced a similar dividend for the second quarter.
That concludes my comments and I would now like to turn the call over to Jennifer.
Thank you Ian it's been over a year now since the pandemic began and while there have been many challenges along the way it remaining.
And how our teams have responded modifying our work practices to keep employees safe exercising flexibility and handling uncertain market conditions, and finding new ways to serve our customers.
Please continue.
And we did experience some ongoing COVID-19 related disruptions, but conditions are improving our company wide efforts to raise awareness about vaccines assist eligible employees and gaining access to vaccines and encourage participation levels are paying off and we are pleased to report that our domestic employee vaccine.
Nation rates are ahead of the National average in fact, and Illinois, where we have three of our largest facilities and the corporate office over 60% of our employees are now fully vaccinated.
With that we have seen an uptick in our sales resources traveling reinforcing our customer centric value proposition and contributing to greater order intake as.
As in the last two quarters, we again saw improved demand for our products with our first quarter order intake setting a new record for the company suppressed surpassing the previous high by over $50 million, our first quarter orders reflect strength and most of our end markets and growing confidence and a post pandemic.
Recovery, which seems to be further solidified by recent economic stimulus that sentiment seems to be shared widely by our dealer partners and customers across most of our businesses.
Demand for sewer cleaners remained strong with first quarter orders up 30% year over year and almost double the amount recorded last quarter safe digging is also continuing to gain acceptance over the last couple of years approximately 70% of our sewer cleaner orders have included and optional safe digging.
Package, which allows us to are cleaner.
And so be used for hydro a vacuum excavation purposes, we saw similar trends this quarter with customer appreciation for the safety and efficiency benefits of safe digging gaining momentum.
At MRO, our road, marking and line removal business first quarter orders were the highest quarterly level since we acquired the business and 2019 and with its plant expansion now complete we are well positioned to benefit from potential infrastructure investments our road, marking services business Highmark also one and eight.
Striping contract during the quarter.
Since the fourth quarter of last year. We've also seen an uptick in our industrial end markets with improved orders for our guzzler and jetstream products heading into the spring cleaning season. In addition, our dump body and trailer businesses reported strong organic order growth of 28% across our end markets achieve.
The record backlog.
While our backlog is at a record high there are a few factors that may limit us from realizing the full benefits from the operating leverage that we typically experience with backlog at these levels.
The first factor that many of you will be aware of is the impact of the global semiconductor shortage on chassis availability, we started to see some supply tightness late last year and our teams were proactive and in securing additional chassis and recommending to our customers and dealer partners that they do the same for those orders.
They supply the chassis as a reminder, that is about 50% of the time for our ESG businesses, excluding <unk>, where the customer almost always supplies the chassis.
We were recently notified by one of our chassis suppliers that they are temporarily suspending production on certain chassis for up to 90 days and light of the semi conductor shortage.
The issue primarily impacts our sewer cleaners safe digging trucks and certain street sweeper models. The situation remains fluid and the teams have been working hard to mitigate the impact of this short term disruption.
Based on the data we have received we expect the situation will be resolved during the third quarter with production expected to ramp back quickly thereafter.
Because we do not rely on any one single chassis manufacturer and with the proactive actions. We took we have been able to pivot quickly to minimize the financial impact.
For example, at Allergan and our team was able to adjust production schedules. So that we build a higher concentration of the three will pelican sweepers during the period of the expected impact as a reminder for that product line, we actually manufacture the chassis ourselves at.
And our streator facility, where we make sewer cleaners and safe digging trucks, we have had an ongoing effort to secure additional chassis from other manufacturers. However, because of lead times on certain chassis Theres a period of approximately two weeks, where we have a shortage at Baxter with the goal of.
Optimizing efficiency. The teams have worked diligently to manage the schedule. So that this brief pause will occur over the July 4th holiday.
With the additional chassis supply that we have secured we are expecting a ramp up and production thereafter.
Like most companies we are also experiencing rising commodity costs.
Our teams have done and the past, we took proactive matches, such as locking and pricing and securing availability of steel based on forecasted needs. Our teams are working diligently to mitigate the impacts of rising commodity costs by implementing price increases and surcharges where possible.
As it relates to labor availability and our ongoing commitment to environmental social and governance continues to benefit our company and vast men and our employee differentiates us and our ability to attract labor at the majority of our facilities.
I now want to take a few minutes to provide an update on our strategic growth initiatives, we remain bullish about safe digging prospects and with noted industrial and market recoveries and infrastructure spend optimism throughout the channel.
We are confident safe digging trends will continue to improve on.
Our true Vac safe digging product client portfolio includes a complete range of truck mounted safe digging equipment with applications across a number of end markets. We were pleased to see that truth that product demonstrations for the quarter were up 70% from last year.
And as I just mentioned these education efforts are also having a positive impact on sewer cleaner demand with the inclusion of the optional safe digging package, turning our sewer cleaners into a multi purpose vehicle.
We also continue to make progress with our aftermarket initiative with aftermarkets revenue for the quarter, improving by 6% and representing a higher share of Esg's revenues for the quarter at around 27%.
We continue to closely monitor rental fleet utilization and remain disciplined and making decisions about the size and composition of our fleet.
As part of that process, we have seen healthy used equipment sales in recent months and an uptick and rentals. We are monitoring the current COVID-19 situation in Canada, with Ontario, and many other provinces being subject to some of the most extreme stay at home measures since the start of the pandemic, while we have not.
<unk> and a significant financial impact to date, we may see some impact in our Canadian markets over the next few months, which is typically a seasonally strong period for equipment rentals and part sales.
On the organic growth, but we have several new product launches and the pipeline a few of which I'll touch on today within ESG Street Sweeper electrification remain remains a key area of investment we have previously talked about our first orders for our hybrid electric Brougham Bear Street Sweeper, which are currently expected to ship later.
This year. This hybrid model uses both battery energy and either <unk> or diesel power for sweeping with performance designed to meet or exceed current sweeper performance.
The hybrid brewed and bear is now being demonstrated by our dealer channel primarily on the West Coast and then moving to the South East and the feedback to date has been encouraging and.
In addition development of a hybrid version of our most popular line of Street sweepers. The polygon is underway the plug and hybrid electric Pelican sweepers assembled and undergoing testing the product demonstrations planned for the second half of this year.
Within our dump body and trailer product portfolios and we're also realizing benefits from new product introductions during the quarter products launched over the last year equated to organic growth of about 4%.
Within SSG based on the nature of its product portfolio and our innovation pipeline typically includes a higher volume of new product introductions and enhancements that while individually may not have a significant financial impact collectively aggregate to meaningful organic growth for example, we launched <unk>.
Duction of our micro <unk> during the quarter. The micro pulse is a low profile high performance led lighting product for both first responders and work truck vehicles.
The line includes production of both new product models and those that were previously outsourced.
In sourcing and this line, which Leverages Adam made and laser technology is estimated to improve the related margins and drive annual savings of over $1 million. In addition, we are currently on track to launch a low cost light power and the second quarter.
In addition to these organic growth initiatives M&A will continue to contribute meaningfully to our future growth during the quarter. We completed the acquisition of <unk>, a leading manufacturer of dump bodies and a customer up fitter of truck equipment and trailers and the acquisition provides considerable opportunity for long term value create.
<unk> through the application of our 80 20 improvement principal organic growth initiatives and additional bolt on acquisitions last week, we held and initial 80 20 improvement training session and <unk> W, which was well received by the teams integration is well underway and while it is still early days.
<unk> was off to a solid start in the first quarter.
Our M&A pipeline has been active to say the least and it's been exciting to be back on the road visiting potential targets as Ian noted in his comments, our financial position and liquidity are strong, enabling us to pursue strategic acquisitions and there are a number of M&A opportunities. Our teams are currently reviewing.
We have also continued to make significant investments and our existing plans to add capacity to support our long term growth and to gain operational efficiencies through automation.
As we continue to optimize our manufacturing footprint, we are evaluating our long term strategy with respect to our Elgin and University Park production facilities and Illinois. Both properties are currently leased at above market rates with lease terms ending in 2023, we are currently looking at opportunities and on.
Alternative facilities and the surrounding areas as we proactively plan for a potential move.
The American rescue plan COVID-19 relief package includes approximately one nine trillion of economic stimulus with approximately $350 billion going to state local and territorial governments with the goal of keeping frontline workers employed distributing the vaccine increasing testing reopening schools and and.
Essential services we.
We're actively educating our dealer channel about the stimulus program and have distributed the latest estimate allocation of the $350 billion of state and local government support by jurisdiction to our dealer channel and to share with its customer base.
And as a provider of equipment for used for essential services like sewer cleaning and street sweeping federal signal stands to benefit meaningfully from additional aid may be provided the state and local sources for these purposes.
As was evident with our first quarter order intake our dealer partners remain optimistic about market conditions, and 2021, noting that both corporate and sales tax collections appear to have held up better than originally anticipated, which should add stability to the revenue sources we.
We expect that our long term infrastructure Bill will provide visibility for project planning and could see capital equipment demand increases in areas, such as roads bridges, and broadband clean energy and public transportation and buildup. We anticipate that this would provide benefits for the majority of our product offerings, including.
Equipment sales and rentals of dump trucks, and trailers safe digging trucks road, marking equipment sewer cleaners and street sweepers.
We have positioned federal signal in a manner and which we fully participate in the post pandemic recovery by increasing capacity within our facilities, reducing lead times to a level, where we can better respond to customer needs and investing in new product development and gaining market share.
Turning now to our outlook for the rest of the year orders. Thus far this year have exceeded our expectations fueled by a combination of new product launches ongoing execution against our strategic initiatives and strong recovery and our end markets with certain chassis manufacturers temporarily impacted by the global semi.
Conductor shortage, we are currently incurring some short term production challenges at our largest facility.
Our teams are working diligently to navigate through this disruption as they have and the past when faced with similar situations.
After factoring in.
Impact expected over the next couple of months at this time, we are maintaining our adjusted EPS outlook for the year of $1 73 to $1 85.
With our recently compete completed capacity expansion and several facilities, we are well positioned once the current chassis uncertainty eases demand for our products is at an all time high with the recent federal stimulus and the possibility of infrastructure investment offering potential for further momentum, which we have not factored into our <unk>.
Current outlook at this time I think we're ready for questions operator.
Thank you.
At this time, we will conduct a question answer session. If you would like to ask a question. Please press star one on your telephone keypad.
And from home indicate your line is and the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and it may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for our first question.
Our first question comes from Steve Barger with Keybanc. Please proceed with your question.
Hey, good morning, everybody. This is Ken Newman on for Steve.
Good morning, Ken.
Good morning.
So I guess the first question here will be on a on the chassis production.
And obviously I think we all understand that's on that supply chains are tight and pretty much across all of industrials and especially with the.
And the chip shortages going around.
And you just kind of help us quantify the impact of chassis production on on guidance on the maintained guidance. So one.
How do we think about the lead times for those supply constrained chassis. I think you said 90 days for certain types, but how do we translate that into.
Whether it's a revenue or margin impact relative to the full year guidance.
Yes, I think there's a couple of things to keep in mind.
And one of the things that Mark did with our teams and it has really benefited US beginning late last year early this year, we started to order additional chassis.
And one again, we're chassis agnostic.
So we've got a lot of different options to choose from.
And we were recently notified that on one of our chassis suppliers is shutting down for up to 90 days.
And although that was disappointing to here, we are and a pretty good position because of the work that we had done late last year and beginning of this year in terms of ordering additional chassis. Our teams responded by when we got this news we were able to go out and leverage both our dealer partners and the relationships that we.
Half with.
Various chassis dealers to order additional chassis.
On in terms of the impact it's really a short term situation at Baxter and typically we have a shut down between the Christmas and new year's holiday they've moved that shutdown Ford we're doing our physical inventory during that time period, but there will be a brief pause over the fourth of July.
Weak that.
We will.
Be shut down.
And we our goal is to optimize our efficiency and then we feel like we're in a really good position once we come on that fourth of July holiday.
That will be able to ramp up pretty quickly.
Ian.
And again, Ken in terms of.
And it will have both a revenue impact as you said as well as.
The earnings impact that flows through but I think as Jennifer mentioned.
And it's fairly limited at this point that two week period late second quarter and early third quarter. So we've we've done a great job and securing chassis for the balance of the year.
It really is limited that one location and we talked about because the teams have done a nice job.
And our sweeper facility.
And then pivoting to change the schedule and so that we're doing producing more of the three way Alec and lines and Thats, the one where we actually produce the chassis. So.
I think it's really just a testament to the flexibility of the teams that we've been able to really minimize the financial impact.
And I guess, the only thing I'd add is.
You might have read that a lot of the chassis OEM to sold out for the year.
And I think we're in a good competitive position because of the work that we did late last year and early this year and we have our orders and so we can secure those chassis that we need for 2021 and ramp production back up so although it was a challenging set of facts.
We are and about our position and most centers to respond to them.
So is it fair to assume that the entire backlog as of the end of first quarter is expected to deliver in 2021, none of those are for 2022 delivery.
It really depends on the product line.
Dumped dump trucks and trailers would be delivered in 2021.
It depends on some of the sewer cleaners.
Could be could extend into 2022 and there is a continuum.
Depending on the various product lines.
Right.
And for my follow up.
It seems that you had really solid orders and the quarter.
Obviously, I think everybody is trying to.
Kind of navigate their way around the top supply chain tightness do you have any sense of whether or not your customers are pulling forward orders and order to get ahead of some of those supply chain issues.
Bob.
Would you expect or maybe just give a little bit of commentary in terms of what order inquiries are like quarter to date.
Sure.
Couple of things.
We're always looking at kind of order pull forward, we didn't see that here.
So the answer to your question is no.
Another encouraging fact is that our April orders remained strong.
Yes kind of I'd say, when we see pull forward Ken is typically somewhat limited to certain product lines the strength and the orders that we've seen really was almost and all of our end markets for the majority of our product lines. So.
It wasn't limited to any one single product line. It was strength almost across the board. We said, it's a really nice traction that I talked about in my prepared remarks on some of our organic growth initiatives, particularly in our dump truck and trailer business.
Right Yep.
And one more if I could squeeze it in.
Regarding your M&A pipeline I know youre talking about on the pipeline remaining active it seems like you've got a lot of dry powder here in terms of availability and liquidity can you just talk about.
And the opportunities in terms of deal sizes and multiples and.
And again, just kind of remind us on how youre thinking about the best returns for realized relative to potential targets across the portfolio.
Yes, a couple of things.
And.
Our pipeline is about as full as it's ever been.
So that's encouraging.
Particularly because we have a.
Very detailed roadmap in terms of what we're interested in buying and we work those relationships and we're starting to see as we come out of this pandemic.
On that.
And that hard work has benefited us.
In terms of deal size everything from a small product line acquisition two on.
On.
Transformational type deals, we're always looking at a number of different opportunities.
And on multiples, we've seen as everybody has a third.
And multiples are going up on.
Again, we believe that given the position we're in.
There are a lot of synergy opportunities for us to fill out our product portfolio.
We talked about and the first quarter.
Oh, SW closed and transaction.
We've done some training already on <unk> and.
We're very encouraged by what we've seen thus far and again, we will we will continue to be disciplined acquirers.
And we need to know.
And we look at a number of different factors, but we need to make sure that we always talk about.
Does this make sense and how does this bring value to federal signal shareholders. So we're very.
And encouraged and energized by what's in our pipeline.
Great. Thanks, I'll jump back in queue.
Thanks Scott.
Our next question comes from Mike Sulewski with Colliers Securities. Please proceed with your question.
Good morning, everyone, Hey, how are you doing.
Great.
Okay I wanted to quickly follow up on one of the earlier questions. Just asked about the pull forward and Costco pull forward of orders and it sounded like cash supply was not it was not a reason for folks to order more during the quarter.
Try again.
And the curve, but was there any order pull forward from people who are concerned about getting their prices increased on them.
Or was that not much of an issue either.
We didn't hear a lot of that back from our sales channel and our price increase because of the rising commodity costs on the.
Price increases and have taken somewhat of a irregular pattern this year.
Compared to a more kind of stable commodity market.
So that has and we haven't received a lot of that feedback on.
The feedback has really been around.
A couple of things one is as we've talked about before.
Salespeople have been out.
For starting during.
During the pandemic last year when it was safe they start to get back out and we believed that we were able to capture some additional market share as a result of that.
Number two is just talking to our dealers that confidence is pretty high on particularly.
Particularly around some of the stimulus funds that have been available.
And number three is we've seen kind of our used equipment sales increase and our rental utilization numbers continued uptick.
So it's really been across the board and I would be remiss, if I didn't talk about new product development and the impact that that's had on some of our businesses.
Particularly our tbi dump truck and trailer business.
Got it.
And maybe on the key focusing on cash supply, but I wanted to ask this one as well.
How often are your customers or your end users to changing brands.
There's going to be one brand and that's now available from potentially a couple of months here did you get from some of the Rfps for a certain model or if you can just switched whenever you feel like it.
On the municipal side, it's more challenging to change the chassis brand because it has gone through and many times.
Bid process on the industrial side, there is more flexibility, but another fact that differentiates federal signal vis vis some of our competitors is our rental fleet.
First thing is on that particular chassis and are the Canadian market chassis has not been impacted thus far.
And so we've got quite a bit of flexibility there in terms of production scheduling where we can sub in some of those unit.
So and and dash out much more flexibility on the industrial side non.
Beside that given our rental fleet.
And is the strong presence, we have and Canada, we've got a lot of different levers to pull and response to this.
Got it and just throw one more and they're here I really wanted to dig a little deeper on the safety and security business.
In the quarter you improved your margins, even though sales were down and Thats.
Sometimes par for the course, which is great great work, there, but I'm curious if you give us a little more color on kind of curious as to how you were able to make that happen. This particular time.
Yeah, Yeah, Mike.
And that business mix can be a factor from time and time, because you have some of the largest systems businesses. They can have a different margin profile and some of the public safety equipment for example.
But I think one of the things we've done a really nice job there is on a 'twenty down at that location.
It is.
This cost structure of that facility is that the more you can drive that through to the top line.
It has more pull through effect because it's the overhead is just limited to one primary location for the most part I think one of the other things that we talked about was the insourcing work that we've done Jennifer talked about the micro pulse, which is a particular product line that we launched and.
During the first quarter and that's that's a product that we typically outsourced and the past and we moved that in house.
And really.
And some some nice margin improvement, resulting from that in the quarter and I think as we move forward and Thats one of the other areas that we expect.
From an 80 20 standpoint, we always go through the processes does it make more sense for us to produce at vs versus sourcing and externally so thats one area.
So just on a nice job on.
Excellent. Thanks, so much and I'll hop back on queue.
Thanks, Brian.
Thank you. Our next question comes from feed expulsion with Raymond James. Please proceed with your question.
Morning, Hey, good morning, everyone.
Good morning, Hey, I was curious if we could talk about that.
Dump trailer business or a dump truck business a little bit more just just first to start I think you mentioned orders were up 28% and the quarter.
Wanted to double check does that include the acquisition of <unk> or is that kind of and organic apples to apples number we should be thinking about.
Yes, that's taking out the impact of <unk> Felix and <unk>.
And in our orders this year that includes the <unk> numbers, but the the rate Jennifer quoted that cost it out so that's really the organic growth rate.
Okay Awesome and then if you could broadly talk about what youre hearing from end customers and that business.
And then similarly, I know, we've talked about supply chain issues quite a bit on this call.
But curious if you could touch on the overall lead times, specifically and that book of the business right now.
Yeah. So a couple of things one is as you know we acquired that business and mid 2017.
One of the first things on the teams did is took a look at.
How do we.
Implement the kind of some of the best practices that federal signal had developed on new product development and it's really just.
Fantastic management team and so we took some of the best federal signal and develop and that particular management team and really started to look at.
Accelerating new product development and we gave some examples on my prepared remarks net.
Starting to benefit us and we will continue to do so going forward.
Second issues and capacity. So we've made some pretty significant capacity and fast men in the dump truck businesses and our late Crystal facility.
And at our rugby facility.
And we also opened up fitting center and high point North Carolina.
And now we're looking at our.
<unk> W facility, and how do we leverage that facility and the group of businesses in.
In addition to our operating facility that just opened and Tempe, Arizona.
Again, it gives the team.
And opportunity to optimize production at those various on facilities and we've got more capacity now.
So.
It's always exciting when you sit and Theres a theory and then you execute.
And the performance is really surpassed my expectations in terms of what they've been able to do.
With respect to lead times they have extended.
But given the capacity expansions that we've made and the automation investments that we've made under our ownership.
And right now we're at a point, where we still believe that we're very competitive and marketplace.
Okay, and then I guess my bigger picture question as it relates to Tbi and and <unk> can you help us unpack the margin profile a little bit.
So I always thought of <unk> as being a very high margin business understand this year, you have a slew of supply chain headwinds going on and and obviously commodity cost pressures.
But knowing that it is maybe a quicker lead time business does it feel like you're able to pass on price adequately there and then overall.
I know its Dolby is coming off the plus 2020 COVID-19 levels.
But help us understand what this acceleration and the and dump trailer business could mean to overall ESG margins I guess as my bigger picture question.
Yes, I think Phil it's obviously.
And with businesses within ESG, and we talk about that day.
EBITDA margin target of 15% to 18%.
Which we think for a specialty vehicle company, that's a pretty attractive margin profile. We have also talked about <unk>.
Taking those up once we get through this pandemic.
I would say within the portfolio of television businesses, we have.
The margin profile, probably varies I mean, we're talking a little bit about different sizes of dump trucks.
Cross the portfolio.
As we've talked about I think on a year and cole <unk> right now is.
Is not currently operating within that range, but one of the filters that we apply when we look at acquisitions is asking ourselves.
Even if they're not currently operating within those ranges do they have the ability to get within that range.
Once we apply our 80 20 principles and.
Explore some of the synergy opportunities that so.
Oh, SW isn't there right now and but I think we feel like over the course and the next two to three years as opportunities together.
And I think that will then be the area, whereas we look at TVA as a platform for growth.
Looking at some of these companies sharing best practices across the across the businesses sharing buying practices and things of that nature. We think that's where that's going to be some potential for margin improvement, which will be one of the factors we take into account when we come up with it out with our revised margin target.
Okay.
I'd add within net Tbi group and <unk>.
Ian mentioned you know we have there's a range depending on both mix.
<unk> orders and otherwise, but we've got them <unk>.
<unk> high performing EBITDA margin businesses within that product portfolio.
Got it very helpful I'll leave it there.
Thanks. Our next question comes from Walter Liptak with Seaport Global. Please proceed with your question.
Good morning Walt.
Congratulations on a nice quarter.
One day, so I think the big question here and it's been covered which is the question about pent up demand.
So and.
It doesn't sound like there was.
I guess my question first is you.
You had to.
And the order growth on.
One or two things is it just.
The selling and the opening or was it some sort of.
It doesn't sound like it was a pre buy.
And you think that this is sustainable or.
Or do you think that this is something where we saw a big slug of orders that were pent up and then now we're going to see things taper off.
And we've been encouraged because of the strong order trend has continued in April.
It's been kind of across the board too is something else thats encouraging we've seen some nice traction on NPD.
But there is always seasonality and our businesses.
It can vary quarter to quarter.
But.
And I think.
What I notice and tried to address this again and my prepared remarks is that we did not slow down on our NPD investments during 2020 independent dynamic.
We're really seeing some of the benefits of that.
As we work our way through 2021.
Sure.
Yeah.
Yes.
I think I think the other thing I would add and Jennifer mentioned it.
The safe digging.
Gave some statistics about the percentage of our sewer cleaners.
Now include includes the hydro low vacuum excavation package.
That's where.
Where we've been out doing demonstrations and demos are up 70% year over year that is having some some nice pull through if you will on the sewer cleaners, and that's about 70% of our sewer cleaners over the course of the last two years have been sold with this hydro excavation package. So not only do we have.
And true back line of products, where you can use those purely from the safe digging.
Also have sewer cleaners now that have the optionality.
To perform that function as well so the continued strength in and us.
Sewer cleaner demand.
It is encouraging really and is it kind of tangential.
Tangential to the efforts that we're having on the <unk> side.
Yeah, that's great yeah, it's good to see the true back orders.
Picking up again, because I think those were hit pretty hard during the pandemic.
Yeah.
I guess another question would be going back to the chassis shortages and your.
Your inventory your own pre buy of chassis are you seeing a competitive advantage.
And you guys are good at anticipating demand and and getting your <unk>.
And your chassis slots.
Do you think you've been beat up the competitors with your chip you availability.
Yes.
Okay.
Yes, I think while we were very proactive I would say certainly towards the end of last year, we saw some of this and.
We started taking actions at that point.
We've worked with our dealers and kind of shed.
Knowledge with and to say, we're going out and trying to secure additional supply encouraging them to do the same I think we had a question earlier about do we work with.
And customers to see if they would be agreeable to switching out the chassis and we certainly the teams are all over that so.
And I think.
I think yes, I would echo Jennifer statement that it does give us a competitive advantage because I think.
Here today, and and knowing kind of the efforts of the team and.
How are they have mitigated the potential impact I think they've just done an outstanding job.
Okay.
And the economy opens back up and these infrastructure projects move forward and speaking to one of our dealers yesterday and she is explain to me how important it is to have equipment available.
On both for rentals used equipment, and new sales and we've been able to respond to that demand.
I think the other thing from a competitive standpoint, and we have we.
We also have at our rental fleet.
B a temporary solution that we can offer to our customers and the event that they are unable to get the chassis. So having the range of product offerings, we have because as.
It has helped us during this time.
Okay. That's great. Yeah. There was another question that you had about their rental fleet.
And it sounds like you didn't take up guidance, despite the strong orders because of <unk>.
Concerned about deliveries from the back half of the year, but is it possible that the rental fleet could offset.
All or most of.
Any sort of chassis related production slow downs, yes.
Yes, well just just to be clear on the first part of your comment I think.
Concern it from out from the chassis supply situation is really limited to.
Late second quarter early third quarter around that around that July 4th holiday.
And we're expecting production to ramp back up.
And as we go forward.
The chassis that we have been able to secure.
And and what we're being told by the chassis Oems about how they're going to reopen again. So I just wanted to make make that point clear on the rental side.
The equation.
We have seen an uptick and rental demand in April.
And one of the things. We mentioned we are monitoring is just the situation up in Canada with the shutdown and Ontario in particular does that.
And that.
That is typically a strong market for us from and after market standpoint from a rental standpoint. So that's one area that we're monitoring but as you said during that timeframe could we offer on rentals or used equipment sales because they benefit potentially yes.
The other thing to note, though is that we also one of the advantages we have is between us and our dealer rental partners, we have the ability to redeploy that equipment and candidates to other regions, if we need to.
Okay.
Okay. Good point.
And then Jennifer you mentioned.
And the discussion about M&A that there could be something transformational.
I wonder if.
You could tell us a little bit about what transformational means is it transformational because of size or is it transformational because of the type of product.
On the <unk>.
And you can be acquiring and an M&A deal.
Yeah, just I want to make sure I and clear here.
And what the question on responding to is what types of acquisitions are and the pipeline and at any one point in time.
And we're always looking at a number of different opportunities everything from $10 million type product line acquisitions to large transformational type deals. So that's something that's an ongoing exercise at the company rather than anything specific.
And so.
That's really what and how I was responding to that particular question.
And that majority of our acquisitions I think will fall into that.
$50 $100 million type range.
Similar to morale and OE stuff here.
And from H transformational would be could be something like the tbi type deal, where we make a meaningful investment into a new product category.
So that's a good example of something that we're very proud of the work that's been done.
And we've seen the results.
For federal signal shareholders.
Okay got it alright, thank you.
And.
Our next question comes from Chris Moore with CJS Securities. Please proceed.
Good morning, Beth good morning.
Just on the record orders, 26% year over year.
Can you talk a little bit about the mix between price and volume on that.
Okay.
Yes.
Mostly volume Chris I mean, we have in that number we have <unk>.
It is and that number so there's about $25 million of orders from from the acquisition.
Price and it can range anywhere from in a typical year can be anywhere from 1% to 4% across depending on the business.
But most of this is really volume driven and as I said earlier it really is.
Across the board.
As we go through kind of the different product lines dump trucks are up as Jennifer mentioned and access of <unk> <unk>.
Sewer cleaners are up 30%.
Aftermarket demand is up and excess of 20%. So it isn't one any one single product line its really is across the board.
Got it and that's.
Helpful.
And thinking about steel obviously rapid increase does it sounds like it was more of a headache and anything for you guys and and the first quarter you had talked about some on steady price increases. So just trying to get a sense in terms of how you view the balance now between kind of raising prices to protect margin.
And the current demand.
Yeah, I think the teams.
You have pretty good visibility on.
With respect to steel.
It's about we do about $45 million and direct steel purchases and so we lock in pricing and so the teams can react, particularly the tbi team.
Can react pretty quickly.
I think the other issue right now for us and for many companies as it is critical that you secure availability so.
We have done secured the necessary steel.
On to produce tobacco hug and.
And that spans cigna.
Significant effort.
Got it.
Most of my others were answered I will leave it there I appreciate it guys.
Q.
Our next question comes from Greg Burns with Sidoti and company. Please proceed.
Good morning, Greg.
In terms of the.
And the safe digging opportunity it sounds like.
Is there any more market exception and acceptance so there's more traction and the market. So can you just talk about.
And what are you hearing from customers.
Demand Youre seeing is it picking up because theres more on.
Understanding of.
What it is is it government mandates like what's what's driving.
The demand there.
Yeah I think.
It's really bad and grassroots effort to educate.
Customers about both the safety benefits and the efficiency benefits on one.
One of the reasons that we give you the data.
And on demonstrations is because we found that that is an important kind of leading indicator.
If somebody's interest in that.
Again on the.
Where we are in Chicago last night on the western suburbs and a good portion of them didn't have any type of internet access, which is even more critical today than it might've been a couple of years ago because of construction crew cut of fiber line, so that type of incident and.
And in many situations will lead customers to on want to better understand what the alternatives are we.
We also believe as we move forward with the infrastructure investments that are being made by the government right now.
Particularly and cuts on the broadband work.
And that will also benefit.
Sales and safe taking products, we continue to monitor legislation.
And and legislation right now it said it best practice stage, but that is something that increases awareness.
Among our customer base.
Okay, and when you talked about the outfitting of the sewer cleaners with the safe digging package, what what would that do to the.
Typically they like the MSRP of.
From a sewer cleaner, adding that package.
And I asked that very question two on the other day, so I could better understand it and there is so much.
<unk> features and functionality that you can and cannot be anything from it varies pretty significantly. So theres small things that you can do that are on that.
And you know 10 to 20000 range and then theres much larger types of packages that tend to be closer to 70 to $100000 range. So it really depends on the type of package that you are.
Okay, and then 70% attach rate do you.
Do you think.
Sustainable or do you foresee like sewing.
That much seating equipment into the sewer cleaner.
Yes and.
It's been at that level, Greg we went back about the loss over the last couple of years, it's been on that level and it was similar and in Q1.
Okay.
And then.
Just lastly, I might have missed it but on the tbi side, and just where the customers are bringing them on the chassis.
And any issues there with the customers having availability.
Chassis availability.
Today, and it's been pretty minimal.
Yeah Okay.
Okay. Thank you.
Our next question comes from Marco Rodriguez with Stonegate capital. Please proceed.
Good morning, everybody. Thank good morning, and thank you for taking my questions.
Most have actually been asked and answered, but just one real quick one here for you I know, it's still a little bit early.
And you made some positive comments on the USW acquisition closing, it and and results looks to be pretty good but can you kind of just give us a little bit of and update on the integration efforts there.
Sure a couple of things one is as we evaluate acquisitions one of the things that's key to US is to have an experienced management team.
And JJ Noma, who leads that business is we're very pleased on that as part of the federal signal family.
Bob fines, who runs our <unk> business is very much involved and the integration of the business.
He has been out there a couple of times.
And Mark myself have all been out there.
<unk>.
I feel like we're developing a pretty good playbook.
And we've done a number of successful acquisitions over the last five years and like anything you get better at each one you do and so.
We understand the importance of 80 20.
And Bob and Jay and the teams had a working session on last week.
Which very positive feedback, so where we're putting in the building blocks.
During 2021 to capture the to improve the EBITDA margin performance.
And capture the synergies that we talked about when we did the deal but.
Please.
And it's early days, but we're pleased and we're off to a strong start.
I didn't understood and last one from me I just wanted to make sure I heard this correctly and just kind of the impact of the winter storms on results for the quarter. It sounded like it was minimal if anything on.
And on resolved, but we lost production for a couple of day so.
Think what were trying to indicate is although there is no structural damage.
Our results reflected the fact, which were very strong and reflect the fact that we loss production and several of our southern facilities four days and in one situation for almost a week.
So it was a despite that.
Type comment.
I see so is there a is there a way that you can quantify the impact to the quarter's results.
And I think if you look at the gross margin.
It's a factor in.
The lower gross margin quarter, Theres and a couple of other things that.
And Q1 last year, we had record production and our largest facility and minimal impact from the pandemic. When you look at gross margin. We have some obviously some unfavorable absorption impact because we werent producing full and for that period of time.
So that's probably why you see a low but it wasn't.
Material and and.
And any sense, but it was a it was a headwind to gross margin for the quarter.
Got it thanks, a lot guys I really appreciate the time.
Thank you.
Our next question is a follow up from Steve Barger with Keybanc. Please proceed.
Hey, Thank you this is Karen.
Thanks, and just one quick follow up here I wanted to touch back on the rental comments that you've made.
Obviously, I think God I totally get the whole idea around co.
COVID-19 impacts in Canada, but I would think that a tighter supply chain is probably a net tailwind for fleet dynamics right, so for and freaking rental rates or fleet utilization.
And.
As well as for used equipment prices that you sell out of the fleet. So can you just give us a little bit of color in terms of how youre thinking about forward moves and rental rates utilization and.
And what's being sold out of the fleet this year versus being built for fleet growth.
Yes, it's suddenly and can we monitor very closely we look at both on a product line basis, and so geographically we look at the time and financial utilization and then we use that process. It's a monthly process, where we make decisions about how much to add to the fleet and whether we accelerate sales out of the fleet. So that's been.
And ongoing process.
What we have.
<unk> seen and I would say over the course of the last couple of quarters, we've seen an increase and the sales of.
Used equipment in the sense of the age of the equipment that really assets that we have.
Probably north of three to four years old I would say so.
And selling more of the older units out of the fleet.
Predominantly safe digging equipment, we've been selling out of the fleet and some of that might be just to gain access to customers that because of the price dynamics, we wouldn't have.
And we wouldn't have had access to and so I think the strategy is working and the having the aftermarket business is giving us access to customers. We wouldn't have had in the past. So I think that process that we've implemented.
It's been really beneficial so used equipment sales were up in the quarter.
Parts were up and the quarter aftermarket revenues and total grew I think to about 27% of Esg's revenues for the quarter that was up from 24% last year. So we are seeing that.
Action continue.
And so as you say it is nice to have alternate product offerings that we can give to our customers and the event that there is some supply chain tightness yeah. A couple of other facts I think they are important as one as we had the ability obviously to move that fleet as needed to respond to demand, but number two is the chassis.
That is preferred and that fleet the Western Star chassis has not been impacted to date by the semiconductor shortage. So again that gives us the ability and flexi.
Flexibility with respect to the production scheduling and also the ability to respond and because we have those chassis available.
Yes.
If I think about just longer term the ability to grow that part of the business right.
Does that require a significant amount of capex or how do you think about <unk>.
Growing fleet versus growing branches to kind of.
Proved your geographic footprint.
Longer term to help improve the.
The adoption of rental across all your businesses.
We're fortunate because we have a number of strong rental partners.
And through our true Vac dealer on network. So we work with those partners to them.
And make sure that we've got geographic coverage, where we need it.
And that's something that we'll continue to do so.
We will also continue in those areas, where we don't have a strong true vac partner.
We will grow our fleet as necessary to respond to customer demand. So I think we're in a pretty good position because of the strength of those partnerships.
And also our ability to grow where there could be unmet customer demand.
I.
Thanks for the time.
Thank you.
Another follow up from Walter Liptak with Seaport Global Please proceed.
Alright, Thanks, Hey, Thanks for taking this one on.
Follow on to the last one and talking about rental and Youre kind of alluding to how you use other rental partners potentially for some of your products are you selling yet and is this the safe digging machines or any other machines to the large rental companies.
No and we have no no and we have no intention.
And doing so right now we're very we have a number of great rental partners and there. This is a highly specialized piece of equipment and they're responding very well to rental demand.
Okay got it alright, thank you.
Okay.
At this time I would like to turn the call back over to MS. Jennifer Sherman for closing comments.
Thank you and closing I would like to reiterate that we are confident and the long term prospects for our businesses and our markets. Our foundation is strong and we are focused on delivering profitable long term growth through the execution of our strategic initiatives, we would like to express our thanks to our shareholders employees.
Distributors dealers and customers for their continued support thank you for joining us today and we'll talk to you soon.
Thank you may disconnect your lines at this time and thank you for your participation and have a great day.