Q3 2021 Federal Signal Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the Federal Signal Corporation third quarter 2021 earnings conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
To join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call do my signal I'm afraid so by pressing star runs zero I would like now to turn the conference over to Mr. Ian Hudson Chief Financial Officer. Please go ahead.
Yes.
Good morning.
Oh third quarter conference call.
I'm Ian Hudson, The company's Chief Financial Officer also with me on the call today is Jennifer Sherman, our President and Chief Executive Officer.
Some presentation slides today 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 clicking on the investor call icon and signing into the webcast. We have also posted the slide presentation and the earnings release under the investors tab on our web site.
Before we begin I'd like to remind you that some of our comments made today may contain forward looking statements that are subject to the safe Harbor language found in today's news release and in federal Signal's filings with the Securities and Exchange Commission.
These documents are available on our website.
Our presentation also contains some measures that are not in accordance with U S. Generally accepted accounting principles.
In our earnings release and filings we reconcile these non-GAAP measures to GAAP measures in.
In addition, we will file our Form 10-Q later today.
I'm going to begin today by providing some detail on our third quarter results before turning the call over to Jennifer to provide an update on our performance current market conditions recent acquisition activity and our outlook for the remainder of the year. After our prepared comments, Jennifer and I will address your questions.
Consolidated third quarter financial results are provided in today's earnings release in summary, our businesses, we're able to deliver meaningful year over year improvement in net sales and earnings and an adjusted EBITDA margin at the high end of our target range. Despite the effects of higher material costs and widespread supply chain disruption.
Consolidated net sales for the quarter with $298 million up $19 million or 7% compared to last year consolidated operating income for the quarter was $34 $3 million up $300000 or 1% compared to last year Consol.
Consolidated adjusted EBITDA for the quarter was $47 4 million up $1.5 million or 3% compared to last year.
That translates to a margin of 15, 9% in Q3 this year compared to 16, 4% last year.
Net income for the quarter was $29 2 million up $3 9 million or 15% from last year.
That equates to GAAP earnings for the quarter of 47 per share up 15% from 41 per share last year.
On an adjusted basis EPS for the quarter was 48 per share an improvement of 14% compared to 42 cents per share last year.
So that is our GAAP EPS and adjusted EPS for the third quarter of this year included benefits from a tax planning strategy executed during the quarter, which resulted in approximately $3 3 million more in discrete tax benefits being recognized in Q3 this year compared to Q3 of last year.
In the aggregate these highest tax benefits represented approximately <unk> of our year over year EPS improvement.
Border intake for the quarter was again outstanding with orders of $350 million, representing an increase of $85 million or 32% compared to last year.
Consolidated backlog at the end of the quarter set another new company record of $497 million that represents an increase of $183 million or 60% from the end of last year.
In terms of our group results Esg's net sales for the quarter were $249 million up $18 million or 8% compared to last year.
Operating income for the quarter was $38 million compared to $33 million last year.
Esg's adjusted EBITDA for the quarter was $42 7 million compared to $43 $9 million last year that translates to an adjusted EBITDA margin of 17, 1% in Q3, this year compared to 19% last year.
ESG reported total orders of $292 million in Q3 of this year, an improvement of $72 million or 33% compared to last year.
SSG net sales for the quarter was $49 million this year up 1% compared to last year.
<unk> operating income for the quarter was $7 6 million up from $7 $4 million last year, while its adjusted EBITDA for the quarter was $8 5 million up from $8 $2 million last year that translates to an adjusted EBITDA margin for the quarter of 17, 3% up 50 basis points from last year.
Yeah.
Ssg's orders for the quarter were $58 million up $13 million or 27% compared to last year.
Corporate operating expenses for the quarter with $4 1 million compared to $6 $4 million last year.
Turning now to the consolidated income statement, where despite the year over year sales increase gross profit decreased by $1 $7 million.
Holiday to gross margin for the quarter was 23, 8% compared to 25, 9% last year with steel and other commodity costs, continuing to increase and chassis constraints delaying certain shipments out of our backlog, we experienced a slight unfavorable price cost headwind of around $5 million during the <unk>.
Quarter about $2 million higher than we had previously anticipated.
With the various pricing actions, we have taken including repricing of our backlog at a number of businesses. We are expecting to see improvement beginning in the fourth quarter with more price realization expected as up.
Backlog turns.
As a percentage of sales selling engineering general and administrative expenses for the quarter were down 160 basis points from Q3 last year.
Other items affecting the quarterly results include a $200000 increase in acquisition related expenses of $200000 increase in other income and a $100000 reduction in interest expense.
Tax expense for the quarter decreased by $3 $3 million largely due to the recognition of the tax planning benefits that I just mentioned our.
Our effective tax rate for the quarter was 12, 8% compared to 23, 1% last year at this time, we expect our full year effective tax rate to be approximately 18%.
On an overall GAAP basis, we therefore around 47 per share in Q3, this year compared with 41 cents per share in Q3 last year.
To facilitate earnings comparisons, we typically adjust our GAAP earnings per share for unusual items recorded in the current or prior year quarters in the current year quarter, we made adjustments to GAAP earnings per share to exclude acquisition related expenses and purchase.
On this basis, our adjusted earnings for the quarter with 48 per share compared with 42 per share last year.
Looking now at cash flow, where we generated $16 million of cash from operations during the quarter up 8% from Q3 last year.
That brings the year to date operating cash generation to $55 million.
Towards the end of the quarter, we increased our borrowings in anticipation of the ground Force acquisition, which we completed in early October for an initial payment of $43 million.
We ended the quarter with $164 million of net debt and availability under our credit facility of $240 million. Our current net debt leverage ratio remains low.
With our financial position remaining strong we have significant flexibility to pursue strategic acquisitions invest in organic growth initiatives and return cash to stockholders through dividends and opportunistic share repurchases on.
On that note, we paid dividends of $5 $5 million during the quarter, reflecting a dividend of <unk> <unk> per share and we recently announced a similar dividend for the fourth quarter. We also funded share repurchases of $3 $2 million during the quarter at an average price of $38 40 for.
That concludes my comments and I would now like to turn the call over to Jennifer.
Thank you Ian our teams again delivered growth in both the top and bottom line, while achieving adjusted EBITDA margins towards the high end of our target range. Despite well documented widespread supply chain disruption and a very challenging commodity cost environment, we entered the quarter with delivery.
Data from our chassis suppliers that positioned us well to satisfy our sales and delivery expectations for the second half of the year.
Thanks, mainly to the proactive efforts of our purchasing and engineering teams and the temporary shutdown of our production facility in Streator, Illinois for a two week period around the fourth of July holiday. Following the suspension of chassis production at one of our suppliers, we had not experience any significant chassis supply constraints through the end of July.
However, as the quarter progressed, we began to experience significant delays in delivery dates from most of our chassis OEM partners with deliveries pushed out weeks or months with little notice in many circumstances, we received a week's notice of the delay.
Beyond chassis, we are experiencing some other supply chain tightness ranging from pumps to electronic components, but for the most part we have to date been able to navigate through the difficulty, but it remains a challenging situation.
Jesse delivery delays are significantly disrupting our production schedules and hampering our ability to maximize production efficiencies and deliver products to our customers.
The team has worked tirelessly to mitigate the impact of this short term disruption by continuously adjusting production schedules and an effort to satisfy record customer demand, but we are not operating at our usual level of efficiency.
While the teams have performed admirably, we estimate the delays in chassis deliveries and various other parts shortages along with the constant production schedule adjustments caused an adverse topline impact of approximately $30 million during the quarter importantly, none of these orders are lost or canceled but this.
Shipment timing out of our backlog has been pushed out to reflect the revised chassis delivery dates.
As we did last year with the pandemic. So far this year, our businesses have been able to navigate.
Through a variety of supply chain related issues and deliver an EBITDA margin of almost 16% demonstrating that as a company. We are more resilient than in the past and we continue to believe that at this level of margin performance, we would ranked within the top decile of our specialty vehicle peers.
Performance at these levels during turbulent times is both a real testament to the efforts of our teams and the successful diversification of our revenue streams and end market exposures that has taken place over the last several years through a combination of organic growth initiatives and M&A.
As it was in Q2, our aftermarkets business was again, an area of strength, providing a favorable shift in mix during a seasonally strong third quarter overall, our aftermarket revenues in Q3, this year were up $12 million or 18% over last year growing to represent a higher share.
Esg's revenues for the quarter at around 30%.
Rental activity and demand for used equipment continues to be strong with rental income in Q3 up 29% year over year and used equipment sales exceeding $10 million for the third successive quarter as we approach. The winter months, we expect that rental activity may be seasonally down in comparison to the.
Peak periods of Q2, and Q3, but we expect used equipment demand to remain strong given the current tightness in the supply chain and longer lead time.
Demand for our product offering continues to be as strong as ever as demonstrated by our outstanding third quarter order intake of $350 million contributing to another record backlog, reflecting strength across our end markets. This settlement has been widely shared by our customers and dealer partners. It seems to be further.
Politifact by the economic stimulus package, which passed earlier this year and that package approximately 350 billion was earmarked for state local and territorial governments for a variety of purposes, including the maintenance of essential infrastructure, such as sewer systems and St.
As a provider of equipment used for these essential services like store cleaning and street sweeping we stand to benefit meaningfully from any additional aid that may be provided to state and local sources for these purposes.
Conversations with our dealer channels suggests that the first 175 billion tranche started to be distributed by the Treasury in may with the second tranche expected next year.
This is supported by the ongoing strength of U S municipal orders, which were up 50% for both the quarter and year to date period, with notably strong demand for street sweepers and sewer cleaners. In fact, so far this year our U S municipal orders for street sweepers are up $46 million or 84% over.
Last year, whilst sewer cleaner orders are up $45 million or 64% over the same period.
We are also seeing strong municipal demand within SSG with most of its order improvement this quarter, resulting from higher demand for public safety equipment in both domestic and international markets.
Within our industrial end market. We've also seen a 50% year over year improvement in domestic orders the improvement has been almost across the board, but notably for our true vac safe digging trucks and for our guzzler industrial vacuum loaders, which collectively were up $45 million or 87% year over year.
Simply put supply chains cannot keep pace with the momentum and demand that we are currently seeing in almost all of our end market.
I would now like to spend a minute on our acquisition of ground force worldwide, which we completed in early October ground forces headquartered in post falls, Idaho and is a leading manufacturer of specialty material handling vehicles that support the extraction of model with its current product portfolio, including.
Fuel and lube trucks water trucks dump bodies and rock Spreaders ground Force also supports the recurring aftermarket needs of its customers to parts and service offerings.
The acquisition further bolsters, our position as an industry, leading diversified industrial manufacturer of specialty vehicles for maintenance and infrastructure markets with leading brands a premium value, adding products and a strong supporting aftermarket platform over the last 12 months ground force generated revenues of approximate.
$34 million with an EBITA margin within our group target range.
The acquisition augments, our current materials hauling portfolio by adding a range of specialty vehicles that support the extraction of model demand for which is expected to benefit from vehicle electrification and other green initiatives.
The transaction is also expected to provide opportunity for long term value creation through operational improvement and organic growth initiatives. While also providing a platform for further acquisitions in this space. Although it has only been one month. We are encouraged by the strong order to me on the ground for 15 for its products.
This morning, we also announced the signing of a definitive agreement to acquire the assets and operations of diced industry Dice is the parent company of switch and go and box fabricating both of which are located in Pennsylvania like ground forced at MRO. This was another proprietary deal on.
Your line, our strong reputation in the industry.
Through its switching go business dice designs manufactures and sells interchangeable truck body systems for class three to seven vehicles in the work truck industry, depending on the application. This interchangeable system allows for the use of multiple bodies in a single chassis, helping customers to optimize.
Their asset utilization and providing the potential to reduce their carbon footprint.
Foot print.
<unk> designs manufactures and sells a full line of waste hauling products, including front and rear loading containers and specialty roll off containers over the last 12 months Dise just generated revenues of approximately $41 million with a double digit EBITDA margin the dice to acquisition represents another attractive product line.
Extension.
Spans our presence into new end markets, such as tree care in moist Holly with many common partners within our existing distribution channels. The acquisition creates an attractive opportunity to develop and deliver innovative new products and solutions to our customers and optimize the distribution of our product we.
Both acquisitions will be accretive within the first year the acquisitions reiterate our expectation that M&A will continue to contribute meaningfully to our future growth.
Turning now to our outlook for the rest of the year, we continue to see strong momentum in our markets as evidenced by the 50% improvement in both U S municipal and industrial orders so far this year.
With a record backlog demand for our products is outpacing the current capacity of our supply chain.
When we raised our guidance last quarter, we assumed no significant delays in deliveries from our chassis suppliers. However, during the quarter such delays were more prevalent than we had anticipated, causing increased disruption to our production schedules.
We expect that the volatile supply chain environment will continue for the rest of the year and therefore, we are adjusting our full year adjusted EPS outlook to a new range of $1 68 to $1 78, the size of our range is reflective of the highly volatile environment in which we are currently operating but warming.
At that level it would represent the company's second best year ever in terms of EPS.
Our new outlook range also excludes the impact of a one time noncash pretax pension settlement charge of approximately $11 million, which we expect to incur in the fourth quarter in connection with the defined benefit pension a new activation project.
We remain encouraged by the long term opportunities for all of our businesses, which would be further bolstered by the infrastructure legislation recently passed by Congress. We are already starting to see the benefits from the economic stimulus packages, which started to be made available to municipalities earlier this year and we also.
Back to infrastructure built with 550 billion in new spending we could see capital equipment demand increase to support infrastructure investments in areas such as roads bridges electrification broadband clean energy and water and public transportation build out we are a leading manufacturer of specialty infrastructure.
Trucks are in maintenance equipment, and anticipate increased demand 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, while also benefiting our new acquisitions ground forced and diced with our recent capacity expansions.
We are well positioned to respond once the current supply chain constraints improve over.
Over the last several years, we have transformed our end market exposure and implemented our revenue diversification strategy that has enabled us to adjust as needed to market conditions with an ongoing focus on 80 20 principles federal signal has become a more resilient business delivering a consistent level of EBITDA.
Margin above many of our peers.
As Ian noted in his comments, our financial position liquidity, our strong enabling us to pursue strategic acquisitions like crown forests and died our current M&A pipeline continues to be very active.
While we continue to make progress on our vehicle electrification roadmap and will soon be initiating customer trials and demonstrations of our hybrid three wheel Pelican sweeper. We've also solidified an agreement with a development partner for the hybrid system integrated into our plug in hybrid Brune, Brad our electrification roadmap.
Also includes all electric versions of our truck mounted sweepers, and we are collaborating with more than one chance to L. A M. On designs that will provide an compromised performance for our customers. We anticipate field trials began in 2022, our ongoing commitment to environmental social and governance.
There's also position us well in the communities in which we operate and is a differentiating factor in our ability to attract labor at most of our facilities.
Recently, we took a survey and then our three largest facilities, which compromise comprise almost half of our U S. Hourly workforce. We currently have approximately 20 hourly job openings out of almost a thousand position.
That note, we recently issued our second annual sustainability report, which highlights many of our accomplishments in this area, including our project 85 initiatives to increase vaccination rates across the organization. Although we continue to make progress on this initiative, we still are experiencing some COVID-19 related disruptions at certain facilities.
Ladies.
At this time I think we're ready for questions operator.
We would now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone analogy your request.
If you are using a speakerphone please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then two we will pause for a moment as callers join the queue.
That's the first question is from Steve Barker of Keybanc capital markets. Please go ahead.
Thanks, Good morning, Steve.
I'm going to.
I'm going to start with the near term.
Look if I just look back at the last few years revenues generally similar plus or minus <unk> <unk>.
Relative to <unk> will that be the same this year or just help me balance the record backlog versus the reduced guidance around the supply chain issues.
Yeah, I think Steve you know the.
The trends that we typically see in the fourth quarter Brian.
After market is typically stronger in Q3.
With us where the weather related factors that can that can slow down a little bit in Q4.
As we look at kind of revenue in Q4 on a year over year basis, I think we are expecting some improvement over last year.
But you know the the wildcard is the the chassis delivery dates and yeah. We believe we're in a good position with respect to the commitment base, we've got from the from the suppliers.
So that's the one variable that we can't really control.
If we've learned anything through Q.
Q3.
That you know until we have the chassis on hand.
Those dates are fluid at Bath.
Yeah, no I totally understandable.
We probably shouldn't you know and you said year over year improvement, but we probably shouldnt be thinking a big sequential improvement just based on the current environment.
I think Thats fair Steve.
Okay and then just same question on an EBIT will that'd be down sequentially or can you drive some improvement.
In this environment or are the input costs and just kind of just general inefficiencies going to make that tough.
I think the environment makes it tough to get sequential improvement I think the one area, where we are seeing some signs of improvement is on the price cost headwind, we had a headwind of about 5 million Bucks in Q3, we're expecting that gap to narrow in a in the fourth quarter as we.
Kind of we've taken a number of actions on on the pricing of our backlog and as more of that shifts out that's when we start to realize more price. So we'll start to see that improve.
In Q4, albeit with some you know we were still expecting a headwind of in the range of two to 3 million Bucks in Q4 before that starts to really normalize as we enter 'twenty two.
That would and then there's just the general inefficiencies as Jennifer described some of the shortages are in not only chassis, but some of the other components make running our production facility and not production schedules or the constant changes it makes it fairly inefficient.
Yeah.
Well I guess on a happier note as well with a record backlog is that all slated to be delivered next year, assuming you can get all the parts that you need.
Yes, yes.
Yes.
And <unk> was your best revenue quarter ever with all the capacity additions and now the M&A. What do you think quarterly revenue can run at efficiently can can you be over $3 $53 60 on a sustainable basis for corn I think.
You have the seasonality aspects of the business, Steve with Q2, and Q3 typically the strongest with.
With respect to the aftermarket side of the business.
We also have the two acquisitions.
That will we'll factor in so I think all of that taken into consideration I think the answer would be yes, we would expect that.
Great I have more questions, but ill jump in line, let someone else go.
Thanks, Steve Thank you.
Okay.
The next question comes from Chris Moore with a C. J S Securities. Please go ahead.
Hey, good morning, guys. Thanks for taking a couple of questions for me.
Good morning, and maybe go back to a sore subject so chassis shortage.
Maybe talk a little bit about the root cause there I mean is it chassis manufacturers just in the same position as other industrials, where their supply chain is backed up is there something more structural there or just trying to understand a little bit better.
It really comes down to the microchip issue.
And it is they're waiting on certain chips.
We are encouraged by the public statements that the various supply chain. There are various OEM chassis manufacturers have made in connection with their earnings call.
And you know that they believe that the worst.
Is behind them, we have yet to see that.
But.
You know as we go into 'twenty two.
We're hopeful that the public statements they've made we will benefit from because we clearly have the demand what comes down to it is you know basically supply chain and I would say the vast majority of it its been chassis. The teams have done an excellent job in terms of working through other issue.
There have been other issues, but we've worked through the majority of them.
But we need to get the supply we need to get this chassis situation stabilized.
In order to kind of build the record backlog that.
That we have.
Got it and do the chassis manufacturers do they give you you know kind of.
A 22 outlook that they're looking at at this point in time or how much visibility do they have behind you now.
Beyond this quarter.
That's all you can talk to.
They give us.
Information regarding 22.
And what we've been able to do is take that information and as you know we've encouraged our dealers also procured chassis.
And in some situations the end customers to procure cat chassis.
And you know we're optimistic about that initiative because if our dealers are successful and end customers are successful and particularly municipalities usually have pretty good cloud with a local chassis manufacturers to get those chassis.
You know, we're anticipating that we'll be in a better position in 2022, Yeah, and I think Chris the other thing that gives us comfort is that we're not.
Exclusive 21 chassis supply we we use many different types of chassis, we can build on any really any chat type of chassis and so we're.
We're not reliant on any one sole provider. So I take that that is helpful and also.
Absent the Tbi business, where the customer always provides the chassis. We are about a 50 50 split in terms of when we provide the chassis or when the customer provides the chassis. So in terms of how.
We look forward and procure sufficient chassis to two to ship the backlog, we're working as Jennifer said without dealers with our customers and with our own suppliers.
Maximize the availability for next year. The teams have also done a really nice job of qualifying new chassis.
But historically, we haven't used.
To help supplement the amount of chassis that.
That will have available in 2022.
Got it just last one for me any sense that there is much I know order orders have been great any sense theres much order acceleration by customers do they factor in the long now.
Now we've taken a look at that and our sense is no.
Because a couple of things one is the number of named units.
Number two is many times, particularly on the municipal side of our business. It goes it goes through a public bid process.
We are starting as I mentioned in my comment to see the benefits of the initial stimulus package and we expect the infrastructure legislation.
Once signed by the president to provide a meaningful long term stimulant for orders over the next several years.
Got it I appreciate it I'll jump back in line.
Thanks, Chris.
The next question comes from Sal expression, all with Raymond James. Please go ahead.
Hey morning morning, Jennifer again.
Good morning, Hey, I was hoping to go back to a capacity question.
As we think about maybe the next couple of years, you, obviously talked about stimulus package flowing we now got infrastructure Bill It doesn't seem like demand is the problem and I know you guys have expanded your physical footprint quite a bit over the last couple of years.
There are there any projects on the horizon or do we think we need to expand capacity more to kind of stay up with the man I'm just trying to kind of think about the next two or three maybe four years Holistically Jennifer.
Yeah, Great question, so just to kind of.
I'll remind everybody we completed this year it was delayed in part because of the pandemic the.
The ability to increase capacity, 40% at our largest facility that manufactures sewer cleaners and hydro excavators in Streator, Illinois. In addition to that we've done capacity expansions at our road marking business.
At two of our dump truck businesses, one and like Crystal, Minnesota in one and rugby North Dakota.
In addition to that we significantly expanded capacity at one of our service centers.
So as we move forward, we believe that.
We're in very good shape to support this increased demand.
The other thing you know I have to do a shout out to the teams.
If you look at our access to labor you know understanding it can be a challenge from time to time at certain companies, but overall we're.
We're doing pretty well and we've just got a great team and I think that you know our local management teams do a super job.
Working with our hourly teams.
And I believe we're really well positioned to support the additional order that we expect to see.
In part due to the infrastructure Bill.
Okay. That's helpful and then and I appreciate the comments on the 5 million dollar price cost headwind that go into two to three and four Q. How shall we think about early one H 'twenty two from that perspective and I. Just wanted to understand is is the vast majority of that headwind in the dump truck book.
Yeah, that's correct Phil.
Most of that is in the dump truck really with the the impact of the increase in the cost of steel.
So that's it it's mainly being felt in the dump truck side of things as.
As we enter kind of the first quarter of next year, we'll we'd expect I think what we're expecting is it to be somewhat neutral and then maybe even start to turn a little bit as we go forward.
Okay got it and then just my last one aftermarket has obviously been super strong this year.
And specifically rental it looks like it's firing on all cylinders.
I'm curious if you could comment maybe on your expectations for 2022 from a fleet addition perspective do you feel you have enough capacity or should we think about that ramping up I'm just trying to kind of understand how much that business can grow into into 2022 looking at your balance sheet.
Yeah, I think that that's exactly right Alex as we look forward with.
With the prospects from the infrastructure Bill and the economic stimulus package, we continue to expect rental to be really important to.
Not only for us, but also again, we have a number of strong rental partners.
So we expect to see some good activity with those rent upon us we've had some pretty good.
From used equipment sales out of the fleet. This year, just with some of the long lead times and the chassis constraints. We've we've seen some really nice demand for used equipment I think year to date were up about $10 million about 38% year over year.
On the used side. So so there is a need to replenish their fleet and then and then grow it and we factored that into our plans for 'twenty. Two we also will be adding some new products that haven't been traditionally in the fleet, particularly our road marking equipment.
Excited about that initiative.
Okay got it I appreciate it I'll stop there.
Okay.
Okay.
The next question comes from Michael Slutsky with D. A Davidson. Please go ahead.
Good morning, Hi, there Mark.
This is David on for Rob or Mike This morning.
I have a question about have any customers expressed concern about their budgets for new equipment, giving the higher prices for fuel labor costs and other costs.
It's a question that we asked frequently and the answer is generally no. We have I mean, nobody likes higher prices.
But we've been very successful in terms of doing a number of price increases across the vast majority of our businesses. Some of our businesses have had multiple price increases this year and.
People understand the dynamics.
Of the economy that we're living in right now.
It seemed very little cancellations.
That's very helpful. And then my last question.
Question on the dice to acquisition is this a regional company with the business, mostly near the Pennsylvania area or is it already a coast to coast business and how do you envision expanding the dealer footprint for their products.
Yeah. Thank you for asking that question, we're really excited about this acquisition.
Their product, they're switching go product.
You can think about it as a system that allows you to use one chassis and multiple different types of bodies on that one chassis and they've been growing regionally primarily east coast right now and we believe won we have capacity at other locations to build this.
Product.
In addition to that we believe that our relationship with our distribution partners.
We can also grow product, so very exciting opportunity and our team is headed out there this afternoon to.
Meet.
Our new employees and we think this is going to be an important growth engine going forward.
Yeah.
Awesome. Thank you very much.
Okay.
The next question comes from Greg Burns with side, Audi and company. Please go ahead.
Good morning, Greg Good morning.
Just had a question about the oil and gas market I know you've diversified a lot since the last time oil was.
These levels, but can you just remind us maybe how big oil and gas is a.
In terms of revenue currently and maybe what it was at the peak in Q O seven Oh wait.
Yeah sure.
You know it was $90 million ish at the peak.
It dropped down to $30 million the products that we have that target that end market, our hydro excavation equipment or jet stream equipment, and we have certain of our SSG equipment that targets that market.
Again, you know it is upside for us and we look at it that we can channel into that market. So as oil prices increase we think it creates opportunity for the company.
I think Greg for the most part.
The rental activity some of that is that equipment is used in the oil industry and with the growth that we've seen in rental and also used equipment sales on the aftermarket side some of that is likely.
Being used in the oil patches.
We've also seen as Jennifer mentioned in her comments on the industrial side orders for both our safe digging trucks as well as the industrial vacuum loaders. They are up year to date in excess of 80%. So really good demand for those products and they can be used in many different industrial.
Australia applications, but they would include oil and gas as well.
Okay and then.
Since you mentioned the same thing and I know.
You've invested a lot in that initiative and there's been a lot of kind of customer education going on in terms of the benefits of that and I would assume with the infrastructure build is going to be a lot of.
Potential applications for safe digging equipment. So do you have any specific initiatives to target those opportunities leverage kind of the.
The.
Market education, you've been doing over the last couple of years to stimulate demand for those products.
Yes, absolutely you know we continue to rely very heavily on demos.
We found that participation regional trade shows is important and.
We continue to develop our utility channel.
Which is critical.
We believe that the investment that the government is making in broadband internet.
<unk> will be an important catalyst for growth for that product line.
The other thing I would add is as we go into 2022.
I'm excited about some of the new product development initiatives.
That will be announcing relating to our safe digging line of products more to come.
Okay, great. Thank you.
The next question comes from Marco Rodriguez with Stonegate capital markets. Please go ahead.
Good morning, Good morning, good morning, and thanks for taking my questions.
I kind of wanted to follow up on on part of the last question, but just kind of broad perspective of marquee and the infrastructure build that.
Obviously going to be a positive tailwind for you guys I'm just kind of wondering if you have any sort of new marketing initiatives or activities that you might be launching or helping your distribution partners launch.
Gather or grab more share of that infrastructure spend that's coming or do you believe that perhaps your brand awareness, it's been a pretty good point right now.
Well first of all there's always opportunity for improvement, but you know last year, we talked about our reclaiming.
Tomorrow, together initiative and as part of that initiative, we invested an acceleration of our digital marketing efforts.
And the teams have done a really nice job with that and.
Both in terms of the amount of material that's available the accessibility of that material and the ability to.
Train our end customers easier we put for example, beginning this year there are QR codes on every sewer cleaner that we produce that provide training opportunities at various points on the product.
So we believe that that initiative is going to be critical in terms of reaching and customers and educating them about the values of our product and we also believe that we're in a unique position because we have a between us and our dealer partners, we have a complete portfolio of product offering.
What meaning whether you want new used rental.
We're able to satisfy that customer demand, which is often mixed and again. We're also working in terms of developing products that don't require a C D L license, which.
Which is important particularly with some of the marijuana laws that have been passed on and we think we're incredibly well positioned.
We've got the products, we've got the capacity and we've got the talented people to build the product.
So a lot of opportunity for us going forward.
Excellent very helpful and maybe this question is a little bit early but.
The <unk> acquisition, you mentioned double digit EBITDA margins. So she's a fair for me to assume that that's below perhaps your your target ranges and then if you can maybe talk.
Talk about how you kind of see some of those synergies you mentioned unfolding over the next 12 to 18 months.
Yeah, I think it's that's too.
Currently on a TTM, it's below our target range, but we think that is.
Enough room for improvement so we can get it within our target range. It's it's it's similar to some of the other acquisitions that we've done in the last couple of years.
We do believe there are a number of synergies, particularly as Jennifer mentioned about pushing the product through the channel and expanding production into some of our other facilities. So we think there is that there's room for for improvement of the margin, but also gaining some benefits on the synergy side.
And again, what I'd add there too is.
You know I'm, a real credit to our teams and the reputations that they have developed in the industry. This is the second example, this year off of proprietary deal.
And I'm really pleased to welcome the dice team members to federal signal.
Excellent.
And then last quick question for me corporate expenses had kind of a meaningful decline sequentially and year over year were there any sort of a one time items that drove that or can you talk about what was going on in that quarter.
Yeah, no nothing I mean in terms of the year over year change. It was almost a it was a timing impact of some changes in our stock comp and incentive based comp, but on a full year. If you look at the year to date I think it was fairly even about $18 6 million I think we were down maybe 200000 year over year. So.
It was a bigger change in the quarter than it was on a year to date basis.
Thank you guys I appreciate your time.
Thanks Micah.
The next question comes from Walter Liptak with Seaport. Please go ahead.
Hi, good morning, guys.
'twenty one.
I wanted to ask one for in he gave us that a 5 million dollar price cost headwind number.
And I think you said in your prepared remarks that there was 30 million of revenue that shifted out.
And there was also supply chain disruptions to the factory is near people.
You know can you take a stab at kind of quantifying what the inefficiencies were during the quarter for the timing of shipments and other supply chain problems.
Yeah, I mean, well the $30 million was really you know as we as Jennifer mentioned entering the quarter we.
We had those firm commitment dates from the suppliers and those delays we believe.
Caused an adverse impact on the top line of about $30 million.
Of what we did ship.
The $5 million price cost headwind.
You know it was was was the impact of what was shipped so that theres no real overlap with a $30 million.
As it relates to inefficiencies, that's a bit harder for us to actually quantify albeit it at it was you know it is obviously, it's embedded within the gross margin decline that we saw so it's hard to put an exact pinpoint number on just the general inefficiency because.
Is it safe to say that we are certainly not offering a normal level of efficiency. We have when we have backlogs at this level.
We can produce the equipment efficiently, but when you're constantly adjusting the production schedule.
It has an adverse impact.
Okay, great, Yeah, and recognized how difficult it is to get in chassis, how how how what.
What are you telling your customers you know like what's the lead times at this point on getting.
Getting a truck delivered yeah.
And understanding that there's a lot of different trucks that you make.
You know I Wonder if you if there's like a ballpark of it used to be three months now its six months something like that.
Yeah, some of it depends on whether the customer can obtain the chassis in some situations.
The customer is able to a chain of chassis and got it to US and then we can ship it relatively quickly.
And for many of our businesses were not even taking orders if they don't have an identified chassis.
So.
In other situations. It can vary from you know a couple of months to six months.
But we are a critical part of our strategy in 'twenty two is to educate our dealer network and are somewhat in some situations our end customers about the need for them to procure chassis directly and.
And we think that will mitigate.
Some of the chassis disruption that we've experienced in Q3 and will experience in Q4.
Okay great.
Yes.
When you when you look at this chassis situation.
You know it.
Are you keeping up with your costs with the competitors are the lead times any different between yours and competitive products.
That's not something we've heard in many situations ours are better but in general we believe that we're at least equal and in many situations.
Okay great.
And it's great to see the the M&A deals happening.
Congratulations on that are you know.
You know with the supply chain issues, how would you factor in factoring that in.
When youre doing valuations because you know I guess, we don't really know when this is going to come to an end.
That creates volatility around your own EBITDAR.
Also around the companies that you're acquiring how are you.
You are how are you working that into the price.
Yeah, I mean, there's a considerable earn out here. So that's part of how we're addressing that issue. We're also looking as part of the diligence very carefully at steel.
And what their assumptions are but again you know if you look at the performance of die over the last 12 months they've.
They've grown and their EBITDA margin has been as we talked about kind of low single digits.
And you know, we paid a reasonable multiple compared to kind of what's going on in the market right now.
And we believe that there's opportunity for improvement.
Going forward.
Particularly if you think about it's a pretty cool product switching go product.
And we believe through our dealer and other distribution channels theres an opportunity to grow it.
Across both the U S and Canada.
Yes, it looks very innovative.
How is the deal pipeline and looking at this point are you are you comfortable doing more acquisitions.
Yes, and the deal pipeline is full.
Acquisitions will continue do a key part of our growth going forward.
Okay, great. Thank you.
The next question is a follow up from Steve Barger with Keybanc capital markets. Please go ahead.
Thanks, Steve.
You know you've as you advertise you've been acquisitive in niche businesses over the past few years nice diversified but naturally it makes modeling tougher for us on the outside are you thinking about increasing guidance transparency for revenue just to give investors a better benchmark to think about plans versus outcomes.
Yeah.
Thinking about it.
[laughter], Okay, how long do you think that process will be.
[laughter], we understand what you're saying it and the issue is that every time, we buy something and changes though.
Right.
Yeah.
No.
But I will say, we're very excited about the acquisitions the multiples, we paid and the opportunities that they present for federal signal.
I agree I think it's a great strategy I just think it you know it has the potential to introduce a lot of volatility to consensus numbers, just because of our inability to really triangulate on what this increasingly diverse portfolio is going to do.
Fair point.
If I look back over maybe five years your free cash flow margin is running around 7%.
With you getting more acquisitive can you talk about capex intensity for the three deals you've done this deal what free cash flow. It looks like for those companies are they additive to free cash flow margin or will it take a while for them to get there to where the portfolio is.
I think Steve yet when we looked at the ground force would be kind of in line with our free cash flow profile dice.
Just maybe a tick below but we expect with some of the improvements and as we push this product through the channel and expand it we think there'll be somewhat in line, but I don't think there's a huge disparity between the profiles of the two businesses and offering a free cash flow profile.
The capex requirements Capex requirements are relatively low.
So we shouldnt expect to see a big step up in Capex next year or anything just based on.
Whatever M&A.
M&A activity, you're undertaking no not relating to these businesses the one.
Item on the Capex side of things that's.
Is on our radar screen as is some facilities, we have leases that are expiring at certain facilities. So we're looking at some of those in terms of whether it's kind of a lease versus buy decision for us a couple of those locations.
Got it that may call that capex to be slightly up more abnormal.
Yeah.
If that eventuality.
Understood.
And then you know you're you've been taking these discrete tax actions or strategies, which has moved the tax rate around this year is that permanently changing the tax rate or how should we model that for 'twenty, two and 'twenty three just broadly speaking.
Yeah, it's not.
Not necessarily a permanent.
Change it it does allow it so the benefit was more in terms of just where now believe we're going to be able to use some of the tax assets that previously we didn't so it's almost like the release of our allowance for doubtful accounts.
So it's an asset that we now believe we will be able to use.
As we go forward, we would expect the tax rate to be absent any changes in the corporate tax rate I think our typical run rate is in the 25% range. That's.
That's what we expected entering the year so.
That's all kind of a normal absent any of these discrete items.
And assuming no change with excellence.
Well these discreet items run into next year or should we just think 25% is the right way to model I would say it's Mike.
This would be kind of as we look at next year it will be a headwind with the reset of the tax rate to about 25% rate.
Got it okay. Thanks.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to Jennifer Sherman for any closing remarks.
Thank you in closing I'd like to reiterate that we are confident in the long term opportunities for our businesses and the prospects for our recent acquisitions our portfolio of businesses includes many market leading brands with solid fundamentals. Our foundation is strong and we are focused on delivering profit.
Long term growth through the execution of our strategic initiatives I'd like to give a public. Thank you to all of our employees for their commitment creativity and dedication addressing this challenging supply chain environment. We'd also like to express our thanks to our stockholders distributors dealers and customers for their continued support.
Thank you for joining us today, we'll talk to you soon.
Okay.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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