Q2 2022 Federal Signal Corp Earnings Call
Thank you for standing by this is the conference operator welcome to the Federal Signal Corporation second quarter 2022 earnings Conference call.
As a reminder, all participants are in a listen only mode and the conference is being recorded.
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I would now like to turn the conference over to Ian Hudson Chief Financial Officer. Please go ahead.
Good morning, and welcome to Federal Signal's second 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.
We refer to 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 addition, we will file our Form 10-Q later today.
Okay.
I'm going to begin today by providing some detail on our second quarter results before turning the call over to Jennifer to provide her perspective on our performance market conditions and our outlook for the remainder of 2022.
After our prepared comments, Jennifer and I will address your questions.
Consolidated second quarter financial results provided in today's earnings release.
In summary, our financial results for the quarter was strong with double digit improvement in sales and operating income improvement in margins and continued momentum in demand.
<unk> net sales for the quarter with $367 million.
Up $32 million or 10% compared to last year.
Consolidated operating income for the quarter was $46 2 million up $7 $7 million or 20% compared to last year.
Consolidated adjusted EBITDA for the quarter was $58 2 million.
Up $6 3 million or 12% compared to last year.
That translates to a margin of 15, 9% in Q2, this year up 40 basis points compared to last year.
GAAP EPS for the quarter was <unk> 55 per share up 15% compared to last year.
On an adjusted basis EPS for the quarter was 53 per share up 6% compared to last year.
Order intake for the quarter was again outstanding with orders of $413 million, representing an increase of $53 million or 15% compared to Q2 last year.
Backlog at the end of the quarter was $795 million. Another all time high for the company and an increase of $358 million or <unk>, 82% compared to Q2 last year.
In terms of our group results Esg's net sales for the quarter were $306 million, an increase of $25 million.
Or 9% compared to last year.
<unk> operating income for the quarter was $39 $1 million of $600000 or 2% compared to last year.
Esg's adjusted EBITDA for the quarter was $51 $6 million up $1 million or 2% compared to last year.
That translates to an adjusted EBITDA margin for the quarter of 16, 8% compared to 18% last year.
Esg's orders for the quarter were $352 million, an improvement of $52 million or 17% compared to last year.
Turning now to SSG, who reported net sales of $60 million in Q2, this year, an improvement of $7 million or 13% compared to last year.
Ssg's operating income for the quarter was $10 3 million up.
Up to $5 million or 32% compared to last year.
Ssg's adjusted EBITDA for the quarter was $11 4 million up $2 7 million or 31%.
That translates to an adjusted EBITDA margin for the quarter of 18, 9% up 260 basis points compared to Q2 last year.
Ssg's orders for the quarter was $62 million up 1% compared to last year.
Corporate operating expenses for the quarter with $3 2 million compared to $7 8 million in Q2 last year.
The reduction in corporate expenses was partly driven by a favorable year over year variance of $2 $4 million associated with changes in mark to market adjustment of postretirement reserves.
These market based adjustments benefited our earnings in Q2 this year by approximately <unk> <unk> per share.
Unfavorable in Q2 last year.
Corporate expenses in Q2. This year also included an acquisition related benefit of approximately $2 million relating to a post closing adjustment that was.
<unk> during the quarter.
Turning now to the consolidated income statement, where the increase in sales contributed to an improvement in gross profit of $8 2 million or 10%.
Consolidated gross margin for the quarter was 24, 5% up 10 basis points compared to last year.
The improvement in gross margin was achieved despite a 30 basis point headwind, resulting from an increase in the mix of chassis that we supply. These chassis carry very low margins, but allow us to better manage our production schedules and serve our customers.
As a percentage of sales, our selling engineering general and administrative expenses for the quarter were down 50 basis points from Q2 last year.
During the quarter, we recorded a $1 $7 million benefit from acquisition related activity.
That's a $300000 of expense last year with the majority of the year over year change driven by the receipt of the post closing adjustment I just referenced.
Items affecting the quarterly results include a $400000 increase in amortization expense and an $800000 increase in interest expense.
With recent increases in interest rate. We currently expect an EPS headwind of <unk> <unk> in the second half of the year compared to our prior outlook.
That assumes no significant change in debt levels.
Tax expense for the quarter was up $3 $1 million largely due to higher pretax income levels and a $1 $5 million reduction in excess tax benefits from stock compensation activity in comparison to Q2 last year.
As a result of our effective tax rate for the quarter was 24, 9% compared to 21, 2% last year, representing a year over year EPS headwind of about <unk>.
At this time, we continue to expect our full year effective tax rate to be approximately 25%.
On an overall GAAP basis, we therefore around 55 per share in Q2, this year compared to <unk> 48 per share in Q2 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 benefits on this basis. Our adjusted earnings for the quarter were <unk> 53 per share compared with 50 per share last year.
Looking now at cash flow, we generated $15 million of cash from operations during the quarter, representing an increase of 16% over Q2 last year, despite incremental investments in chassis and other raw materials.
We ended the quarter with $296 million of net debt and availability under our credit facility.
$166 million, our current net debt leverage ratio remains low and essentially unchanged from Q1.
With our financial position remains strong we have significant flexibility to invest in organic growth initiatives pursue strategic acquisitions and return cash to stockholders through dividends and opportunistic share repurchases.
On that note, we paid dividends of $5 4 million during the quarter, reflecting a dividend of <unk> <unk> per share and we recently announced a similar dividend for the third quarter.
We also funded $2 $5 million of share repurchases during the quarter, bringing the total share repurchases. So far this year to approximately $16 million.
That concludes my comments and I will now like to turn the call over to Jennifer.
Thank you Ian our business were again able to deliver strong operational performance during the quarter. Despite the ongoing challenges associated with the current supply chain environment, where shortages of hydraulic components pump cylinders and certain electrical components continued to make production challenging.
I'm continuously impressed by the creative and nimble solutions our teams identify a response to these supply chain challenges.
For example, our teams have secured alternative suppliers purchased certain buffer inventory start to in source or re engineered products, where possible and modified production schedules based on component availability.
Despite the challenges we faced during the quarter. Our teams were successful in delivering double digit top line growth gross margin improvement and a consolidated EBITDA margin, which was at the high end of our target range and up 40 basis points compared to last year.
We continue to see increased demand for rental parts and used equipment sales with the current tightness in the supply chain and extended lead times for new equipment deliveries in the first half of this year, our aftermarket revenues totaled $161 million, a 12% improvement over last year.
With additional benefits from our pricing actions and contributions from our recent acquisitions, our environmental solutions group reported a $25 million year over year sales increase.
Although inflationary pressure persists, our second quarter results included the effects of improved price cost realization, both sequentially and on a year over year basis with the improvement most notable within our dump truck and trailer businesses. We currently expect margins in the second half of the year.
<unk> to be higher than the first half of the year as more of our higher priced backlog shifts.
Our safety and security systems group had an outstanding quarter with double digit top line improvement and 170 basis point increase in gross margin largely due to increased sales volume and higher price realization.
With our efforts to expand our supply base and execution of our epi principles to in source production of certain materials component availability for these products has improved in recent months, which resulted in an increase in shipments compared to last year, most notably within our public safety businesses.
Operationally, we benefited from limited Corona virus related disruption during the quarter, although corona virus related absences were relatively low during the second quarter. We are continuing to monitor case levels associated with emerging variants.
Other highlights of the quarter included the publication of our latest sustainability report demonstrating our ongoing commitment to environmental social and governance initiatives.
In the report we highlight the ways in which we make a difference to our customers our communities and our environment. We know that is a global manufacturer of critical infrastructure and safety products. We have the responsibility to do the right thing operate sustainably with a long term fact based view on issues regarding the.
<unk> society in corporate governance, and positively impact our employees customers partners and stakeholders at large these efforts also position us well in the communities in which we operate and serve as a differentiating factor in our ability to attract labor at most of our facilities.
Turning now to market conditions, where demand for our products and aftermarket offerings remains unprecedented.
The order momentum has been across the board with year to date orders from both municipal and industrial customers each up around 20% year over year on the municipal front recent discussions with several of our dealer partners.
So this positive sentiment with many seeing robust demand across virtually all product lines.
The 350 billion American Rescue Plan Act, which is earmarked funding for state local and territorial governments for a variety of purposes, including the maintenance of essential infrastructure, such as sewer systems and street sweeping is continuing to benefit our municipal markets across the country.
For example, we are seeing incremental order strength, beginning with smaller municipalities purchasing both new and used street sweeping and sewer cleaning equipment in several states, where the equipment purchases are directly attributed to this public funding source.
With the second 170 billion tranche expected to be distributed later this year, including multi year appropriation and spending deadline, we expect to see a prolonged meaningful tailwind from the stimulus package on the industrial side demand remains high, particularly for our safe digging products with orders in the.
First half up $26 million or 69% year over year during.
During the quarter, we saw strong demand for our trailer products, but some softer orders for dump trucks associated with some tightness in customer.
Chassis supply we remain bullish on the potential impact of the one two trillion infrastructure Bill, which has 550 billion for new investments in roads bridges power water and broadband infrastructure public transport and airports are equipment sales and rentals of material.
Following road marketing street, sweeping sewer cleaning safe digging and industrial cleaning equipment stand to benefit from this investment as our equipment is integral to the process of improving and expanding this infrastructure.
Given that these funds have not yet been distributed we have not yet seen any impact to date in our orders, although we continue to monitor the developments closely.
I now want to take a few minutes on some of our growth initiatives, starting with an update on new product development initiatives. Our R&D teams remain committed to providing solutions to solve our customers' problems by incorporating state of the art technology enhancements into developing new products with a focus on features and functionality.
Our solutions aimed to simplify ease of operation and training reduce operating costs and maximize asset utilization. A recent example of this approach is the launch of the bruun Badger a compact highly maneuverable Street sweeper manufactured by <unk> sweeper and launching our Broome Badger, we have developed a new <unk>.
<unk> that replaces a product, which we previously sourced from a third party with an innovative street sweeper, which incorporates multiple enhancements based on extensive customer feedback.
Of growing importance to the needs of our customer this new product does not require that the operator habit commercial driver's license.
<unk> can be more challenging to obtain due in part to the legalization of marijuana that has occurred in many states.
Internally and externally the product launch has truly been a collaborative effort and we look forward to growing our share in the marketplace.
We also continue our efforts to enhance our <unk> safety product offerings with the recent introduction of the AP acts acts of heavy duty vacuum excavator Dubai designed for the toughest of condition.
Its innovative design, the AP X X maximizes legal payload and aims to make customers' time on the job more profitable, while providing operators with high levels of comfort and protection from the elements to support productivity in cold climates.
Other recent examples include reducing operating costs by developing single engine platform solutions for our street sweeping sewer cleaning and road, marking businesses and reducing equipment downtime and troubleshooting by offering onboard diagnostics and the control systems of our sewer cleaners and safe digging trucks.
We continue to identify ways to integrate electrification into our suite of products and offer solutions to our customers on their path towards reducing their carbon footprint and improving air quality without compromising performance.
We continue to collaborate with multiple chassis Oems and have recently taken delivery of our first fully electric chassis and plan to begin field testing in all electric truck mounted sweeper later this year and.
In addition, we are experiencing high demand from our dealer network for demonstrations of our plug in hybrid electric products, specifically, the <unk> and the three wheel Pelican.
Our aftermarket business has grown to represent approximately 30% of Esg's revenues and we see additional opportunities to grow that business by expanding into new geographies, we believe to be underserved in connection with those expansion efforts. This year, we have acquired certain distribution rights from dealers and <unk>.
<unk>, Montana, and Wyoming by establishing a presence in these territories for a relatively low investment we expect to increase sales of our products and grow our parts service and rental revenues.
On the M&A front, we are making good progress integrating our recent acquisitions ground force <unk> and we're pleased with their contributions in the second quarter.
Our deal pipeline remains very active and we continue to expect M&A to be an important part of our future growth.
With our investments in new product development, the potential for M&A or recently completed capacity expansions at several facilities.
Relatively good access to labor and multiyear tailwind from recent economic stimulus and infrastructure deflation, we are well positioned for long term growth.
Turning now to our outlook for the rest of the year, so momentum in demand for our products and our aftermarket offerings that we have seen in recent quarters continued in the second quarter with a 15% year over year improvement contributing to another record backlog.
Although we expect the volatile supply chain environment to continue we are encouraged with how our teams have navigated through these challenges so far this year.
Notwithstanding the EPS headwind in the second half of the year associated with higher interest expense with our performance in the first half of the year, our record backlog and current expectations of component availability, we are raising the midpoint of our full year adjusted EPS outlook by establishing a new range of one.
Dollars 85 to $2 updated from the previous range of $1 80 to $2. At this time I think we're ready for questions operator.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
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To withdraw your question. Please press Star then two who will now pause for a moment as callers join the queue.
The first question is from Mike <unk> with D. A Davidson. Please go ahead.
Good morning, guys can you hear me, Okay, Hey, good morning, everybody Okay.
Yeah right.
Hey quickly first I had a quick housekeeping question here for you.
Can you give us a little more detail on the post closing adjustment that you outlined a couple of times during your comments.
Was that an earn out that was not earned and was that a cash inflow of just not sure a little bit about what went on there.
Yes, so Mike it was for the related to the <unk> acquisition and it was a post closing adjustment about.
It was a debt like item.
We worked through it with with.
The other side and ended up receiving.
$2 million of cash did come in during the quarter So that was.
But the accounting rules because it was outside of the the year window for purchase accounting it flows through the P&L.
And so that flows through the accounting.
The acquisition related benefit line on our P&L and so we've excluded that out from our adjusted EPS and our adjusted EBITDA, but that's that's the accounting rules required us to take that through the P&L this quarter.
Got it got it. Thank you I also want to discuss quickly the safety and security products.
Results in the quarter looks really strong and.
It gets a little bit more detail.
Somebody has outperformed in the quarter that made it such a great result.
Sure.
It's really across all of our major product lines.
Dave.
<unk> invested heavily in new product development at those businesses, particularly in our.
Public safety systems business.
And they were able to had a very strong <unk> six in.
In particular.
And they were able to ship a number of major.
Projects to customers.
We've seen a lot of the benefits from 80 20 initiatives that have taken place with.
In that business unit.
And we're encouraged by the improvement.
Great.
Here I wanted to ask about the heavy truck chassis availability.
Comments during the prepared remarks.
And we've been hearing some possibility of improving yesterday from one of the major class eight truck producers the seeing some fewer red tariff charges et cetera can you give me an update on maybe how you're bearing more recently is how things are looking.
Q3 here for heavy truck chassis available. Thank you.
Sure sure. So it's kind of a tale of two cities. So I'll start with Tbi and our Tbi businesses, we do not supply the chassis are customer supplied the chassis.
And.
That has been a more challenging situation because.
Often there isn't a named customer so we haven't seen the chassis improvements that we were hoping if we do see GIC improvements that would be upside for that particular business for our factor Elgin MRO businesses.
We have we're on allocation.
But in general we're receiving the chassis that have been allocated to us.
That has not been a challenged during Q2 as it was for example in Q4 of last year.
To be clear, we'd like a whole lot more chassis than we're getting.
But at this point in time.
At least receiving what they told us they were going to spend.
Got it that's perfect I'll pass it along thank you so much.
Thank you.
The next question is from fuel exposure with Raymond James. Please go ahead.
Good morning, everybody.
Hey.
Thank you for taking the time.
Hoping to actually follow up on the chassis availability procurement strategy.
And I think you mentioned, a 30 basis point headwind relative to you procuring chassis has been running those through the P&L.
I guess my question is broadly do you think that's going to continue into the second half and into 2023 is that may be a permanent shift in how you procure chassis.
Just any color on that would be super helpful.
You'll see the drag that we referenced the 30 basis point drag that's year over year. So so in fact, when you think of our EBITDA in Q2, the drag was was actually 80 basis points.
For the quarter it was <unk>.
<unk> hundred 60 <unk>.
Q2 last year. So that's the that's what we talked about the year over year impact.
I think for the next certainly for the next several quarters. While we are in the current situation I think what we are strategically trying to do is make sure that we can serve some of our customers right and if that is struggling to find chassis and.
And we have access to chassis I think thats something we want to we want to work with our customers to assist them in that regard so.
In the current environment. It may continue but long term I think we would likely revert back to more of a 50 50 split that we've historically seen yes, just to add a little more color to that in our production schedules as you can imagine our facilities are dynamic and constantly changing to reflect the realities of each month.
Supply chain challenges, including chassis.
So in a situation, where we own the chassis and we have to move the production schedule around it gives us a lot more flexibility, we're not waiting on somebody not someone else to deliver the chassis.
In general the customers would prefer to buy the chassis if they could because there is a cost savings.
And this environment, though it's different so yes. It will continue through this year, but I think our supply chain normalizes, we'll see customers revert back to wanting to purchase their own chassis.
Okay, Okay Super helpful color.
And then I wanted to follow up on the aftermarket business. Obviously, another very strong quarter, you mentioned, specifically opening some new locations and I think Colorado, Wyoming and Montana.
Jennifer I was hoping you could maybe expand on that sort of what you think the impact might be over the next couple of years rationale and if you could talk about how the rental fleet, maybe maybe plays into that.
Yeah. So those particular territories were underserved.
It creates an opportunity for us.
Not only for Elgin and <unk>, but also for those products that we sell direct.
So that would include our Caldolor product line, our MRM product line.
And others.
We believe that as we move forward, we're going to be able to.
Duplicate the success that our JJ team has had.
In terms of growing new equipment parts service rental and frankly be able to better serve our customers there.
Okay and then just my last one you talked about the American rescue plan in the second half of those funds have yet to be released so it sounds like a lot of that would be incremental.
Maybe curious if you could talk about sort of municipal demand in general and.
And if you could maybe talk about the sales cycle, how long it takes for them really trying to figure out is out of that first tranche. How much is already in the backlog versus what might still be on the call if that makes sense.
Yeah, absolutely so depending on the product line the sales process can take up to.
A year.
It often goes through a public bid process and it depends if they buy off of state contract that exists or otherwise. So we haven't seen a lot of it in our backlog. It's just as talking to our dealers anecdotally piece. The funds that are available is opening up new customers that frankly in many situations couldnt afford our equipment.
Or it allows an existing customer to augment their fleet with additional equipment.
To date, we haven't seen a lot in the backlog.
More to come as we move forward and it works its way through these.
In most situations public bid processes.
Okay.
I'll stop there I appreciate the time today.
Thank you.
The next question comes from Walter Liptak with Seaport. Please go ahead.
Good morning, good morning, guys and great quarter.
He just said.
As a follow on to the last one.
And regarding the road Bill.
He brought up and come into that the money is not flowing yet I wonder if you could give us any insight into what you think the timing might be.
One of the things that is different this time as your own <unk>.
What are they saying about what's in the bill and maybe the timing of when that money is going to flow.
So with respect to the infrastructure Bill that was passed late last year the appropriations schedules.
We're still working out the details.
We do believe however, as we noted in our prepared comments that.
Almost every one of our product lines and the ESG and our ESG businesses is positively impact.
Truck business, our road striping business sewer cleaning street sweeping.
So we're very encouraged and excited about the opportunities.
And <unk>.
Given the capacity expansions that we've made in a relatively good access to labor if we get some relief from supply chain.
We will be in <unk>.
Excellent position to respond to that incremental demand.
Okay great.
You guys pointed out the orders in ESG, the $352 million roughly that look really good.
And called out a few things I wonder if you could.
Maybe a little bit more slowly go into some of the details of the mix of products and I think I heard you say that the safe digging products.
Growth.
69% I'm not sure if I heard that right.
What were those numbers.
And where are you seeing the same thing in demand.
Yes, so well so the biggest drivers of the the order improvement would be.
The four large categories I would say sweepers were up 50% year over year, that's about 20% sorry $20 million improvement.
Aftermarket was up 10% safe digging in the quarter was up 46% for.
For the first half of the year, that's where the 69% that we cited in the first half DSO safe digging orders first half they were up 69%.
And then we saw in Q2, we saw some really strong.
Growth in orders for our trailer products. So those were up about $17 million year over year, and that's a growth rate in excess of 150% so those for cash.
Categories of product line with the main drivers of the improvement that we saw in Q2 year over year.
There are also some other.
Positive.
Metrics that we look at for example, <unk> demos were up 10%.
Year over year in Q2.
Okay that sounds great I Wonder if you could just comment on the pricing.
The new orders.
Is there enough pricing in there to capture the inflation.
<unk> seen.
And the backlog if I recall last couple of quarters, there were still some.
Some backlog.
Had been repriced or maybe have not been repriced I wonder if you could just.
Refresh us on the pricing that you think you got in the backlog.
Yes, well, it's something obviously, we are looking at very closely.
We saw sequential improvement in price cost in Q2, we had a favorable impact on a year over year basis of about $4 million.
As we move forward, we're continuing to expect favorable year over year impacts.
But the situation continues to evolve and obviously, we're watching it closely.
I think Jennifer mentioned in her prepared remarks that we're expecting to see.
Second half margins to improve over the first half of the year.
And we're still expecting the second half of this year to be up over the second half of last year. So.
We expect strong margin performance for the year.
And improved price realization as we move forward.
Okay, great. Okay. Thank you very much.
Thank you.
The next question is from Chris Moore with CJS Securities. Please go ahead.
Good morning, Chris Good morning, guys. Good morning, Thanks for taking a couple of questions just maybe a follow up on that on that that backlog pricing. So.
I know historically you can't reprice.
Price government backlog.
We're hearing that there had been some exceptions to that in Q2 was was that your experience or.
No.
Yes, we were able we went back and for some of our product lines.
Through a combination of surcharges and repricing, we did reprice some of our municipal backlog.
Just to reflect the reality of the marketplace that we're living in right now.
Makes sense.
In terms of the.
The revenue guide.
Maybe just talk a little bit about the mix of volume versus price at the midpoint of guidance.
Yes, I think Chris it would be.
Generally similar to what we've seen so far this year our price realization during Q2 was about 6% to 7%.
So I think when you look at our year over year.
Topline growth that we've guided I think on the organic side, we obviously have the acquisition's contributions, but then.
Organic piece I think is going to be a fairly even split between price and volume.
Got it.
And just maybe more big picture, obviously, they are interrelated, but.
Would concern you more meaningful further increase in interest rates or a modest recession.
Yeah.
Well, we don't really like either one of them, but I think that what but I'll respond to each one each in terms of meaningful increase in interest rates.
I think what differentiates federal signal.
Is kind of given the amount of government funding that's available.
As we move forward, we continue to believe that will be a multiyear tailwind.
The other issue is how our products are funded particularly.
Our largest single product line is sewer cleaners and those are primarily funded to water taxes. So we don't see for that particular.
<unk> product line for example, the type of.
Ups and downs that you might see through others.
The other issue is if you look at our performance through the.
Pandemic.
Which was a different set of facts.
We are a pretty we've got a pretty resilient nice mix.
Available the other issue that we hear from some of our customers is they're having problems attracting labor.
And attracting labor is going to be very important to success of the infrastructure Bill.
And if there was a recession, perhaps there is some loosening of that labor market.
And that loosening of the labor market.
Drive more demand of our products from those federal funds.
So with respect to interest rate increases.
Right now we.
We believe that our equipment is essential.
And again that federal funding I think is going to be an important differentiator.
As we move forward.
And finally.
Nobody likes to execute in a down cycle, but I'm very proud of the teams and the processes that we haven't put in place if we need to execute in a down cycle, we will and I think that we.
The proof is in the pudding and during the pandemic, we executed very well and we will continue to do so.
Got it very helpful. I will leave it there thanks guys.
Thank you.
The next question is from Greg Burns with Sidoti <unk> Company. Please go ahead.
Good morning, Greg Good morning, good morning.
How much of the debt is variable.
So we have we have an interest rate swap.
Fixed is about $75 million of our debt.
The rest will be variable.
Okay.
It seems like Youre doing a good job of improving your production capacity.
But when we look at.
The backlog and the demand and orders are you seeing if supply wasn't a constraint how.
How much additional revenue could you support.
In a quarter like how about how much production capacity is.
As I'm sitting idle right now.
Depending on the facility anywhere from 20% to 40%.
And that's really driven by the investments that we made beginning in 202019 through 2021 period.
As we talked about we expanded factor pretty meaningful $25 million expansion of our largest plant.
We expanded lake Crystal expanded rugby we explained to tomorrow that we've made we made some investments in our Leeds facility in Alabama.
So all of those expansions.
We have the backlog were in a relatively good position on labor.
We need some relief for supply chain.
Okay.
And then I guess.
Sure.
Think we're incredibly well positioned as this incremental how orders come in from various federal bills that we've cited.
Yes, okay.
Then the typically the business has a little bit of quarterly seasonality.
But with the backlog do you have do you expect that to be.
Kind of smoother you just.
Whatever you could how much share you could produce demand like should the seasonality.
For a little while until the backlog normalizes be less muted or more muted specifically.
Typically because of rentals and where we primarily rent.
Q2, and Q3 are stronger quarters for our aftermarket group.
But as it relates to Greg to the kind of in your equipment sales.
Right that should be fairly even with the backlogs. We have there isn't much weather doesn't play much of a factor there and less.
Some dramatic whether that prevent some shipments towards the end of the quarter or something to that effect, but but you are right on the new equipment sales it should be fairly evenly spread.
Provided the supply chain holds.
Okay, Great alright, thank you.
The next question comes from Marco Rodriguez with Stonegate capital markets. Please go ahead.
Good morning, Mark Good morning, everyone. Good morning, Thanks for taking my questions.
I don't know if I missed this but on your growth rates for revenue orders and backlog did you break down what was the organic portion of that.
Yes, so on the order front.
Of the 15% order improvement about 9% was organic and then.
With a fairly even split between volume and price and then the acquisitions would be about 6% on.
On revenue.
The acquisitions added about 2025 $26 million of revenue growth.
Got it very helpful.
And then in terms of just coming back to the supply chain issues that I think we've covered the chassis situation pretty pretty well, but last quarter. You guys were talking about just other sort of parts were also kind of causing some issues. When it came to manufacturing efficiencies and things can you kind of give us an update on that.
Part of the supply chain.
Yes, there hasnt been a lot of change we continue to see shortages of hydraulic components.
Pump.
Lenders and certain electrical components and that's created.
Pretty fluid production schedules.
At our facilities.
We're constantly changing the production schedule to reflect the reality of each month's supply chain challenges.
I would note our ESG group is about the same our SSG group has seen some improvement.
There's still room to comfortable.
Sure sure.
And then in the.
Presentation on your website you do talk about some automation initiatives can you maybe describe a little bit more.
What youre thinking about in terms of automating and then how should we be thinking about this as it relates to.
Any sort of capex spend or P&L spend and timing.
Yes, I think thats Marco some of the investments, we're making in things like robotic welding machines at certain locations.
Really to improve efficiencies.
That's typically something that we always consider as part of our 80 20.
Approach.
I'd say from a capex standpoint outside of the University Park facility purchase that was in Q1.
She is going to result in our capex for the year looking higher than typical years. Our typical run rate on capex is $25 million to $30 million that would contemplate.
Investments of the nature, we just talked about many of our facilities, we would consider investing in.
Machinery, either improves our production processes, so that would be contemplated in that $25 million to $30 million.
Got it.
And last quick question, just kind of following up on some other questions on pricing adjustments.
I understand that everyone.
<unk> is operating in an environment, where prices are continually going up and people are.
Pretty much.
<unk> to that back and it's been a little bit easier perhaps.
For yourself and others to push through those pricing adjustments from just kind of curious if you are maybe starting to see any sort of pushback any sort of changes in sentiment as it relates to that.
Yes.
In general now, there's very high demand for our equipment.
And when you've been relatively successful passing on surcharges and price increases.
Excellent great. Thanks, a lot for your time guys I really appreciate it.
Thank you.
As a reminder, if you wish to ask a question. Please press Star then one on your telephone keypad.
Question is a follow up from Walt Liptak with Seaport. Please go ahead.
Okay.
Hi, Thanks, just wanted to ask a follow up I think it was on mikes question about.
SSG and you called out some <unk>.
Larger projects system that helped the quarter I just want to confirm that that's what you said and then.
Have those orders continued to come in if I recall those are a little bit lumpy.
I wonder if there's a trend there.
Yes, most of the improvement was actually driven by a public safety equipment. So both here in the U S as well as over in our pharma business in Spain. So the majority of the improvement.
We still are on the top line was driven by those businesses, what Jennifer mentioned was.
Even with that said there was improvement with our other product lines systems as well as the industrial signaling equipment. So the growth was across the board, but driven the systems improvement was to your point.
A couple of larger larger projects switch.
We typically see.
But I don't think what we saw this quarter was anything out of the ordinary in terms of historical patents that we've seen.
So the backlog for that business is still it's still pretty solid and I think youll see the backlog for that entire business that SSG is about.
Almost double what it was at the same point of last year. So we've seen some really really good interest and demand for our products within asset within all of SSG.
Okay, great. 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.
In closing I would like to reiterate that we are confident in the long term prospects for our businesses in our markets. Our foundation is strong and we are focused on delivering profitable long term growth to the execution of our strategic initiatives demand for our products is at an all time high with federal stimulus.
And infrastructure legislation offering potential for further multi year momentum.
I would also like to thank all of our employees the special shout out to our purchasing engineering and operations teams at our businesses for their commitment creativity and dedication addressing this challenging supply chain environment. In addition, I would like to express our thanks to our stockholders distributors dealers and customers.
For their continued support thank you for joining us today, and we'll talk to you soon.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating have a pleasant day.
Okay.
Okay.
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