Q3 2023 Federal Signal Corp Earnings Call
Good morning, and welcome to the Federal Signal Corporation, what each forty-three third quarter earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Felix Motion, Vice President corporate strategy and Investor Relations. Please go ahead.
Good morning, and welcome to Federal Signal's third quarter 2023 conference call Unseal expulsion, the company's vice President of corporate strategy and Investor Relations also with me on the call today is Jennifer Sherman, our President and Chief Executive Officer, and Ian Hudson, Our Chief Financial Officer.
We will refer to some presentation slides today as well as to the earnings news release, which we issued this morning. The slides can be followed online like going to our website federal signal dot com clicking on the investor call icon and signing into the webcast. We've also posted the slide presentation and the earnings release under the Investor tab on our website.
Before we begin I'd like to remind you that some of our comments made today may contain forward looking statements that are subject to the safe Harbor language found in today's news release and in federal 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 you.
Generally accepted accounting principles.
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.
Ian is 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 updated margin targets and our outlook for the remainder of the year. After our prepared comments, we will open the lines up for questions with that I would now like to turn the call over to Ian.
Yeah.
Thank you Felix our consolidated third quarter financial results are provided in today's earnings release in summary, our third quarter results were outstanding and we reported New company Records for quarterly net sales and adjusted EPS.
220 basis point year over year increase in EBITDA margin and 18% increase in orders and significant improvement in cash generation with cash conversion of 110%.
Consolidated net sales for the quarter with $446 million, a quarterly record and an increase of $100 million.
Or 29% compared to last year.
Organic revenue growth for the quarter was $80 million or 23%.
<unk> operating income for the quarter was $62 5 million up $23 million or 58% compared to last year.
Consolidated adjusted EBITDA for the quarter was $78 5 million up $25 million or 47% compared to last year that translates to a margin of 17, 6% in Q3. This year up from 15, 4% last year.
Net income for the quarter was $43 $3 million up $11.5 million or 36% from last year.
That equates to GAAP EPS for the quarter of 71 per share up 19 cents per share or 37% from last year.
On an adjusted basis EPS for the quarter was <unk> 71 per share an improvement of 18 cents per share or 34% compared to last year.
Order order intake for the quarter was again strong with orders of $450 million, representing an increase of $68 million or 18% compared to Q3 last year.
Backlog at the end of the quarter was again slightly in excess of the $1 billion, Mark and an increase of $192 million or 22% compared to Q3 last year.
In terms of our group results Esg's net sales for the quarter were $373 million, an increase of $88 million or 31% compared to last year.
Esg's operating income for the quarter was $57 $2 million up $23 $3 million or 69% compared to last year.
<unk> adjusted EBITDA for the quarter was $72 million of $25 5 million or 55% compared to last year.
That translates to an adjusted EBITDA margin of 19, 3% in Q3 this year up 300 basis points from Q3 last year.
ESG reported total orders of $375 million in Q3, this year, an improvement of $53 million or 17% compared to last year.
S. S. <unk> net sales for the quarter was $73 million this year up $12 million or 19% compared to last year.
<unk> operating income for the quarter was $13 7 million up $3 $2 million or 30% from last year.
Ssg's adjusted EBITDA for the quarter was $14 $6 million up $3 1 million or 27% from last year.
The adjusted EBITDA margin for SSG for the quarter was 19, 9% up 120 basis points from Q3 last year.
Orders for the quarter was $75 million up $15 million or 24% compared to last year.
Corporate operating expenses for the quarter were $8 $4 million compared to $4 $9 million last year.
Turning now to the consolidated income statement, where the increase in sales contributed to a $34 9 million dollar improvement in gross profit Consol.
Consolidated gross margin for the quarter was 26, 4% up 250 basis points compared to last year.
As a percentage of sales, our selling engineering general and administrative expenses for the quarter were down 20 basis points from Q3 last year.
Other items affecting the quarterly results include an 800000 dollar increase in amortization expense of $300000 increase in acquisition related expenses, a 200000 dollar increase in other expense and a $2 $4 million increase in interest expense.
Tax expense for the quarter was $13 $8 million compared to $4 $9 million last year with the increase primarily due to higher pretax income levels and the recognition of fewer discrete tax benefits in the current year quarter compared to the prior year.
Our effective tax rate for the quarter was 24, 2% compared to 13, 4% last year at this time, we expect our full year effective tax rate to be approximately 24%, excluding any additional discrete items on.
On an overall GAAP basis, we therefore around 71 cents per share in Q3, this year compared with 52 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 on this basis, our adjusted earnings for the quarter was <unk> 71 per share comp.
<unk> with 53 per share last year.
Looking now at cash flow, we generated $48 million of cash from operations during the quarter, an increase of $38 million from last year with the increase primarily due to working capital improvements and higher net net income.
That brings our year to date operating cash generation to $91 million, an increase of 191% compared to the first nine months of last year.
With the improved cash flow, we paid down approximately $40 million of debt during Q3, ending the quarter with $325 million of net debt and availability under our credit facility of $425 million.
Our current net debt leverage remains low.
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.
On that note, we paid dividends of $6 $1 million during the quarter, reflecting a dividend of 10 cents per share and we recently announced a similar dividend for the fourth quarter.
We also funded $4 $3 million of share repurchases during the quarter.
That concludes my comments and I would now like to turn the call over to Jennifer. Thank you Ian I would like to begin by welcoming Felix to our team. We are proud to report another record setting quarter of profitability and sales across the enterprise.
Strong results in both operating groups within our environmental solutions group and improving supply chain supported higher production levels and with increased sales volumes and contributions from our recent acquisitions robust aftermarket demand and strong price realization, we're able to deliver a 31%.
Year over year, net sales increase and a 69% increase in operating income compared to last year.
As mentioned on our last call supply chain fluidity remained a constrained during the third quarter as there continued to be pockets of component shortages and medium duty chassis availability constraints that have particularly impacted our dump truck body business. However, we are encouraged by the ongoing production improvements.
Across our business units with our two largest manufacturing facilities, leading the charge with third quarter production at our streator and allergen facilities up a COVID-19% year over year in fact, despite the supply chain fluidity September marked elegance highest average daily build.
Rates since February of 2020, I'd trend that has continued into October.
We are pleased that the U a W was able to reach a tentative agreement with the Detroit automakers in recent days and as such we currently expect a nominal adverse impact on our businesses for the remainder of 2023.
For some perspective, our business units with UAW exposure to UAW source chassis includes certain of our dump truck businesses, which use lighter weight chassis and our domestic public safety business within SSG. As a reminder, we had previously anticipated some temporary moderation in orders within our domestic.
Public safety business during the fourth quarter with Ford scheduling a police vehicle model year changeover in Q4 bigger.
Bigger picture, we continue to believe that our large scale capacity expansion completed in recent years, including our 40% capacity expansion at our Baxter true back facility in Streator, Illinois position us exceptionally well to absorb incremental volumes as supply chain continued to improve.
In what is typically a seasonally strong quarter. Our aftermarkets revenues were also up 19% over last year with particular strength in part sales and used equipment demand aftermarket revenue represented approximately 26% of ESG revenue in the quarter. In addition to strong organic.
Roes are recent acquisitions also contributed with trackless. Our most recent acquisition completed continuing its strong start acquisitions added approximately $20 million to our top line during the quarter, our safety and security systems Group again delivered impressive results during the quarter with 19%.
Top line growth and an adjusted EBITDA margin of 19, 9% towards the upper end of our recently raised SSG margin target range, and a 120 basis point improvement compared to last year.
As mentioned on our last call. We are beginning to see the benefits associated with our investments in SSG, including the addition of a third printed circuit Board line, a multimillion dollar investment to increase production volumes are public safety equipment, achieving cost savings and reduced reliance on offshore suppliers.
The new production line became operational during the third quarter and we expect to see further benefits into next year.
Lastly, we are particularly pleased with our cash conversion in the quarter, having generated $48 million of cash from operations.
Operations, representing 110% of net income on an annual basis, we continue to target, 100% cash conversion levels, which when coupled with more normalized capital expenditures and the $30 million range going forward should result in substantial free cash flow generation. She.
Now to current market conditions, where demand for our product offerings remains exceptionally strong with our third quarter intake of $450 million, reflecting ongoing strength across our end markets. As we've talked about previously there are several macroeconomic tailwind contributing to the strong demand. We are currently experiencing.
<unk> and our sales team and dealer partners remain optimistic about future demand levels within our government markets. We are continuing to see the benefits from the American rescue plan, which in 2021 earmarked 350 billion for state local and territorial governments for a variety of purposes, including the maintenance.
The central infrastructure, such as sewer systems and streets.
In the third quarter public revenue orders were up 8% compared to last year, primarily driven by robust demand for sewer cleaners Street sweepers, and our suite of SSG products.
Within our safety and security systems group, our European Public safety business bomber also continues to execute on its pipeline and the team booked a sizable municipal output order in Spain during the quarter.
Strength in our commercial industrial end markets was even more pronounced in the quarter with orders rising 25% year over year, primarily on the back of increased demand for safe digging equipment and dump truck bodies. The strength was broad based across our commercial businesses, but orders for safe digging equipment led the charge as always.
This rose a substantial 33% compared to last year.
Recall, we continue to believe that rising adoption of safe digging excavation methods and the United States remains an important tailwind for our business in the coming years. This coupled with a proliferation of use cases for hydro excavation and rising demand from the bipartisan infrastructure Bill leaves us and our dealer partners.
<unk> optimistic regarding future demand more broadly we believe the 550 billion bipartisan infrastructure bill to be a substantial multi year demand opportunity for many of our federal signal products and we are encouraged to see more than 60 billion in awards funding and it further.
60 billion of announced funding spanning more than 30000 total projects with this unprecedented demand lead times for certain products remains extended and consequently, we may see some lumpiness in ESG order trends as we move forward, which may impact comparability from quarter to quarter.
All in all we remain focused on increasing production levels to build more trucks as we aim to reduce current backlog and lead times, while continuing to maintain a healthy order intake.
Our teams also remain laser focused on new product development, including electrification initiatives across our family of vehicles, while electrification across our end markets remains in its infancy, and we largely expect adoption to be gradual we are pleased to announce several E V orders in the quarter within our street sweeping busy.
<unk>, including orders for both our fully electric room bear sweepers, and our hybrid Pelican sweepers, all of which are earmarked for delivery next year. We also remain excited about several other ongoing electrification projects in the pipeline above all we believe our broader growth strategy is working.
Spike rising macro and geopolitical uncertainty in the world. Our strategic initiatives include aftermarket growth new product development and diligence 80, 20 processes are all visible in our recent results and should continue to drive incremental benefits going forward as we see increased production output.
In addition to organic growth, we also see an array of external levers, including an active M&A pipeline and opportunities to drive future efficiency gains from recently completed acquisitions.
In fact, we believe the recent acquisitions of ground force in 2021 and tow hall in 2022 to be an excellent example of our ongoing M&A growth strategy recall, both acquisitions marked our entrance into the mineral in matter of battle extraction support equipment market, which we believe stands to benefit.
Several multiyear tailwind, including electrification of vehicles and other global Green initiatives not only do we believe ground force in Tahoe will serve as important flat forms of growth in this arena for federal signal, but we also believe we are on track to recognize over $3 million of synergies on approximately 75 million.
Dollars of annual revenue this year already similar to our other acquisition synergies span across both revenues and costs with major opportunities across distribution parts optimization, which represents about 30% of ground force until Haas sales and material cost reduction initiatives and.
In short we are pleased with the Swift integration progress at both ground force in Tahoe is an example of our disciplined M&A strategy and we meaning we remain encouraged by an active M&A pipeline.
Shortly after I became CEO, we implemented a set of strategic objectives with the associated EBITDA margin targets for our groups in the company overall in setting these targets our intention was to operate within the ranges on an annual basis, given the inherent seasonality in some of our businesses through any busy.
And this cycle these margin target ranges for them, the guidepost, which we operate our businesses. We have also aligned our compensation practices with these calls I am proud to say that our teams have operated annually within or above these ranges without exception since 2017.
Including through the pandemic.
As we look to the future we are committed to continuing to improve and build on the successful strategies. We have in place we remain committed to operational excellence driving organic growth and value added M&A. There are number of building blocks that we've been working on that give us confidence that we'll be able to continue to.
To drive shareholder value as we take the next step in our continuous journey of improvement specifically the codification of our federal signal operating system, which includes our 80 20 programs and lean initiatives the significant investments in our facilities in recent years to add capacity and facilitate optimization.
The success of our new product development initiatives the growth of our aftermarket business the opportunity to improve margins from a reversion to the norm in the mix of chassis supply and the continuous improvement in our M&A and Grand product.
Earlier this year, we raised the EBITDA margin targets for our safety and security systems group to a range of 17% to 21% from the previous range of 15% to 18% today building on the success that our teams have driven we are raising our EBITDA margin targets for our environmental solutions group to a new range.
<unk> of 17% to 22% from the previous range of 15% to 18%. Our teams are laser focused and energized on these new EBITDA margin ranges as we enter the next phase of our growth.
We will also benefit over the next several years from the public funds available to purchase our equipment from the American Rescue Plan Act and the infrastructure Bill as a result of increasing the margin targets for ESG. We are also increasing our consolidated EBITDA margin targets to a new range of 14% to 20% from the previous <unk>.
<unk> of 12% to 16%.
Turning now to our outlook for the rest of the year demand for our products and our aftermarket offerings remains high we continually to successfully execute against our strategic initiatives and with our third quarter performance, our current backlog and improving supply chain conditions, we are raising our full year adjusted E. P.
<unk> outlook to a new range of $2.44 to $2.52 from the previous range of $2 30 to.
To $2.46. We are also increasing the low end of our full year net sales outlook range by 30 million, establishing a new range of 1.68 billion to $1 72 billion. At this time I think we're ready for questions operator.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad if.
If you were using a speakerphone please pick up your handset before pressing the keys.
If at any time your question, there's been a dress and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
The first question comes from Steve <unk>.
<unk> with Keybanc capital markets. Please go ahead.
Steve.
Hi, Good morning, this is actually Jake or more on for Steve today.
Jacob Thanks.
Thanks for taking my questions first just backlog and order numbers seem to be sort of rolling over a normalizing at some of the other larger machinery names out there yeah. Your pipeline just continues to grow. So my question is really how far can this go I think it's safe to assume that there'll be cyclicality over the long term, but what appears to be a pretty successful strategy seems to be growing federal signal.
Under a structurally larger company so when your orders and backlog to eventually start to quote unquote normalize what do you think that new baseline looks like.
Yeah, I think Jacob one of the things that we mentioned in our prepared remarks is as the lead times currently and we have a big focus right now on trying to reduce those lead times.
And you know that's not that's a function really of increasing output and our supply chain has improved we've seen that in improving our supply chain has helped us to increase production to get more units out and that that's been achieved during the third quarter I think we talked about the production levels at our two largest.
Facilities within ESG were up 20% year over year.
So we want to reduce those lead times and backlog, while maintaining that healthy order intake and really you know the order intake that we saw during the quarter. We were really pleased with it. It was a it was up 18% year over year with about 450 million level. So I think you know that.
That's what we're looking at right now with one eye to the future with the potential for the infrastructure build that we talked about we want to be in a position to to deliver the units to our customers at a faster rate.
And the lead times currently and so that's really the big the big focus of ours is to reduce some of those lead times with the potential that we see.
Over the next several years from the infrastructure Bill and I guess I'd add there as we see the chassis situation normalize for our T. B I businesses, we think there's pent up demand and so we think that will benefit from that also in the upcoming years and we've really positioned.
Ourselves to be.
Able to deliver quickly and efficiently.
<unk> with some of the 80 20 improvement initiatives, we've done in particular in those businesses.
Understood that's helpful and Jennifer I'm glad you brought up the chassis because that was my second question. If we could look past this availability issue that I'm sure you're pretty tired of talking about what changes do you have plan to ensure that there's pretty significant governor to growth doesn't throttle production in the future.
Yeah, a couple of things one is as we've talked about this in the past where chassis agnostic.
So we'll build on anybody's chassis and they think it's important to remember the nature of what we do you know if you look at we are the value add component of what we contribute is significant so we're not talking about for our Elgin factor in road straight business, we're not talking about.
Tens of thousands of chassis, it's a finite number.
We have seen a pretty dramatic improvement in the class eight chassis availability and we expect that to continue.
With respect to the dump truck business, we have diversified our chassis base them quite a bit since we've owned T. G I.
And we've had some new product development initiatives <unk> been focused on new class new chassis.
And finally, we've made an effort on kind of building on that new product development point to diversify continue to diversify our chassis base them on other chassis as we move forward and a good example would be at our Elgin business. We've introduced a new product line and it's on an as usual chassis.
Which is new for us so it's something that's top of mind for us and we've done a pretty good job of maneuvering through the last couple of years.
You know, we expect to see it improve going forward.
And then finally I would say you know our dealers and customers have played an important role in all of this in terms of they've also been able to procure chassis. So as we move forward.
It's a multi pronged solution.
But I think we're in a pretty good place.
Understood. Thank you very much thanks.
Thanks Jacob.
The next question comes from Chris Moore with CJS Securities. Please go ahead.
Chris Good morning, congratulations well.
It is a good morning.
That's right.
Maybe just real quick with the great growth in Q3, roughly how does that breakdown between price and volume and then I'm just trying to understand obviously growth's been terrific last couple of years, what a more normalized mix would be between volume and price moving forward.
Yes, a question so for the quarter. If you if you look at the the topline growth of 100 million. So that's a 29% year over year increase in the organic component of that was about $18 million or about 23% and so then that would break down between volume was about 16% of the organic growth.
And then price was about 4% and then chassis was about 3%. So that those are the three major components of that organic growth going forward.
You know that the price is probably in the you know typically is in the 2% to 3% range and then obviously the volumes with the backlogs that we have over the you know we'd expect that to be certainly higher as we go into 'twenty four as we look to increase that production as I just talked about so we would expect that.
On the volume as we look to 'twenty four the volume will be probably the biggest part of that organic growth.
Got it very helpful. Maybe you talked a little bit on the EV side. So Ford is postponing like something like 12 billion in E V factory building, including a pan of planned a fad.
Battery factory in Kentucky. The reasons, you know given where just unwillingness of customers to pay extra for the for their electric vehicles. Just wondering if that has any carryover impact into the E vs. That you believe ultimately are going to be a meaningful component of revenue.
Any any sense to this point in time customers have wanted to to pay much more for you know electric sweeper and I know, it's still early and just just wondering any thoughts there.
Sure.
So is it kind of referenced in my prepared remarks, you know, we our assumption that adoption is going to be slow. We think it's critical that we have products available.
We're committed to helping particularly our governmental customers.
Meet the ESG goals that they've established and our products can be part of that solution.
With respect to chassis availability and we have very deliberately.
<unk> strategy of working with a number of different EV chassis manufacturers.
So we've got initiatives across the our suite of products.
With multiple different providers.
And we believe that that gives us the opportunity to test different solutions.
It gives us flexibility as we move forward with respect to customers' willingness to pay for electric vehicles.
Our feedback has been there is great interests, we've done a lot of demos.
And many of our customers are looking for additional government assistance in terms of the funding of that of those vehicles.
Got it that's very helpful. I will leave it there I really appreciate it thanks crashes.
The next question comes from Mike Slutzky with D. A Davidson. Please go ahead.
Good morning.
Morning, Mike.
One results with you on that comment about anything just made so in two months in California on January 1st you know no. Two actual car can be sold is not easy, but there's a there are some very strong restrictions.
About selling ice vehicles anymore in California, I'm curious if.
You have the.
You have the contacts with the dealerships with the Oems in California.
Providing evs from that point forward or you're a little bit worried about any disruption and deliveries within that state starting in the first quarter or maybe the first couple of quarters of 'twenty 'twenty four is that market adjusts to the new the new regulation reality over there.
Yeah. So this has been something that's been top of mind for both us and our dealers in California.
We have a cross functional team that's led by our Chief operating Officer, Mark Weber, and we've met with the various chassis Oems so.
You know, we've got E V products available to offer.
In California.
And it's not a coincidence that the orders that I referenced earlier.
Early in the call some of those are from California.
So you know we think we're very well positioned to respond to this and continue to plan on working with those chassis Oems.
To present, a compliant product so.
Okay.
Alright, thank you for that.
Well I'm also follow up on the margin targets that look right or ESG.
Is what's in your backlog now is that is that a positive mix.
I guess you coming out of the gate at a at a higher at the higher half of the of that range, but out of the gate 'twenty 'twenty four.
So he's got a lot of a 'twenty or other things to kind of implement to get yourself to the higher end of the range at a very early stage here yeah.
Yeah, I think Mike for first of all of these are multi year target similar when we introduce them. In 2017, you know I think we've been operating as we talked about on the call. We've been operating above 14%, which is the midpoint of the prior range consistently for over five years now including during the pandemic.
If you look at this year, so far our EBITA margin as is year to date was 16, 4% and that's despite a seasonally soft Q1 as we typically see we had a strong Q3.
Our record level from a margin standpoint, but you know Q3 is typically strong from an EBITDA margin standpoint, with the strength of off the market.
But with all of that said in Q3, we won we won by any means firing on all cylinders. We still there was still some supply chain disruption at our largest facility. So we think there is room to grow and we feel that now was the right time to increase the targets realizing the conditions aren't.
And the optimal so so yeah. We think 80 20 is gonna be a piece, we think there's going to be meaningful impacts from increased operating leverage as we as we increased production with the capacity expansions.
There's some additional contributions from the recently acquired businesses, which can add some accretion to the margin and also we think about the growth of the aftermarket business and so those are the primary factors that we.
We think you know gave us the confidence to raise those margin targets. Yeah. The one thing I would add too is kind of a more normalized mm bye.
Buying patterns with respect to our chassis supply as we talked about earlier on the call and then I would also add as we as I mentioned earlier, we believe that it's chassis has become more available there's pent up demand in our dump truck businesses.
Okay. Okay I appreciate the discussion I'll pass it along thank you. Thank you.
The next question comes from Greg Burns with Sidoti and company. Please go ahead.
Good morning, Greg.
You mentioned the improvement in unit.
Unit production rates at some of your.
Your facilities, how how far below.
Like full full production capacity are you like how much more room is there to improve the close rates of <unk>.
Production, a street or maybe some of these other facilities.
Quite a bit.
You know as we've talked about before we did a 40% capacity expansion. It's reader we bought the building at Elgin, we're doing a number of them.
Activity improvement initiatives, a number of 80 20 initiatives at our Elgin facility.
You know, we're very focused on what we call P. M T build more trucks.
And we believe that you know given the backlogs we have.
There's a lot of opportunity to improve going forward and it's one of the.
Foundation pieces that we relied upon in terms of our decision to increase the EBITDA margin targets.
Okay, and then in terms of the the strong order growth that youre seeing around safe digging.
Is that just a function of the market becoming.
More aware of of the those types of solutions or is there any specific.
Demand driver are driving the order patterns this quarter.
It's a number of things one is I think the number of use cases continues to increase.
And that's encouraging.
We continue to focus on product demos.
Our dealers have done a really nice job of educating the market about that.
And again you know we look at it's not a coincidence that our largest install base.
Is in Ontario, Canada, where it's mandated in some applications.
And in the U S 19 States plus Osha I've recognized it as a best practice.
But we believe that we're still in very early adoption phase in the U S.
And we think a combination of regulation increased use cases insurance and.
Some of the government funding, it's gonna be available over the next several years that this will be will continue to see some really nice growth for hydro excavation product line.
Alright, great. Thank you.
The next question comes from Dave storms with Stonegate capital markets. Please go ahead.
Good morning, Dave Good morning. Good morning, This is John J and stepping in for Dave.
So you touched on the 80 20 initiatives.
Call. It two to hear about the cost savings can you talk about which of those are structural which ones are more temporary discretionary.
Yeah, I think one of the critical initiatives, we have in 2023 at Federal Signal Corporation is we've hired a dedicated resource we have a cross functional team and we're codifying the federal signal operating model, which includes our 80 20 initiatives our theory of constraints and our.
Lean initiatives.
So we're really excited about kind of this next phase and our continuous improvement journey and it is one of the factors as we looked at raising those margin targets.
You know that we're gonna look on an annual basis through the cycle. It was an important catalyst.
We think for kind of future efficiency going forward.
Yeah.
Alright, Thank you very helpful.
Yeah.
Thanks, Joe.
This concludes our question and answer session I would like to turn the conference back over to Jennifer Sherman for any closing remarks.
Thank you in closing as we entered this Thanksgiving season, I want to spend a moment to thank our dedicated employees loyal customers and dealers and distributors collectively we remain committed to continuing to improve shareholder value. Thank you for joining us today and we'll talk to you soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Okay.
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