Q1 2024 Federal Signal Corporation Earnings Call
Operator: Greetings and welcome to the Federal Signal Corporation First Quarter Earnings Conference Call. At this time, all participants are in a listening mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Felix Boeschen, Vice President, Corporate Strategy and Investor Relations. Thank you, sir. You may begin.
Greetings and welcome to the Federal Signal Corporation first quarter earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Felix Ocean, Vice President corporate strategy and Investor Relations. Thank you Sir you may begin.
Felix Boeschen: Good morning, and welcome to Federal Signal's first quarter 2024 conference call. I'm Felix Boeschen, the company's Vice President of Corporate Strategy and Investor Relations.
Felix Boeschen: Good morning, and welcome to Federal Signal's first quarter 2024 conference call I'm feel expulsion, the company's vice president of corporate strategy and Investor Relations.
Felix Boeschen: 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 release which we issued this morning. The slides can be followed online by going to our website federalsignal.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.
Felix Boeschen: With me on the call today is Jennifer Sherman, our President and Chief Executive Officer, and Ian Hudson Chief Financial Officer.
We will refer to some presentation slides today as well as to the earnings release, which we issued this morning. The slides can be followed online by going to our 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.
Felix Boeschen: 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.
Felix Boeschen: 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.
Felix Boeschen: 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, Ian will start today by providing details on our first quarter fine.
Felix Boeschen: 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. Ian will start today by providing details on our first quarter financial results. Jennifer will then provide her perspective on our performance, provide an update on our multi-year strategic initiatives, and our revised outlook for 2024. After our prepared comments, we will open the line for any questions. With that, I would now like to turn the call over to Ian.
Actual results Jennifer will then provide her perspective on our performance provide an update on our multi year strategic initiatives and our revised outlook for 2024. After our prepared comments, we will open the line for any questions with that I would now like to turn the call over to Ian.
Ian A. Hudson: Our consolidated first quarter financial results are provided in today's earnings release. In summary, we delivered strong financial results for the quarter with double-digit year-over-year net sales and earnings growth, gross margin expansion, a 250 basis point improvement in EBITDA margin, and new records in orders and back-up. Consolidated net sales for the quarter were $425 million, up $39 million, or 10% compared to last year. Organic sales growth for the quarter was $28 million, or 7%.
Felix.
Ian A. Hudson: Consolidated first quarter financial results are provided in today's earnings release in summary, we delivered strong financial results for the quarter with double digit year over year net sales and earnings growth gross margin expansion, a 250 basis points improvement in EBITDA margin and new records in orders and backlog.
Ian A. Hudson: Consolidated net sales for the quarter with $425 million up $39 million or 10% compared to last year.
Ian A. Hudson: Gannett sales growth for the quarter was $28 million or 7%.
Ian A. Hudson: Consolidated operating income for the quarter was $54.3 million, up $14.8 million, or 37 percent compared to last year. Consolidated Adjusted EBITDA for the quarter was $70.6 million, up $16.1 million, or 30% compared to last year. That translates to a margin of 16.6% in Q1 this year, up 250 basis points compared to last year. Gap EPS for the quarter was $0.84 per share, up $0.39 per share, or 87% from last year. On an adjusted basis, EPS for the quarter was $0.64 per share, up $0.18 per share, or 39% from last year. Order intake for the quarter was outstanding, and we again reported record orders in the first quarter, surpassing the previous high which was set in Q2 last year.
Ian A. Hudson: Consolidated operating income for the quarter was $54 $3 million up $14 $8 million or 37% compared to last year.
Ian A. Hudson: <unk> adjusted EBITDA for the quarter was $76 million up $16 1 million or 30% compared to last year that translates to a margin of 16, 6% in Q1, this year up 250 basis points compared to last year.
Ian A. Hudson: GAAP EPS for the quarter was 84 cents per share up 39 cents per share or 87% from last year.
Ian A. Hudson: On an adjusted basis EPS for the quarter was 64 cents per share up <unk> 18 per share or 39% from last year.
Ian A. Hudson: Order rate order intake for the quarter was outstanding and we again reported record orders in the first quarter, surpassing the previous high which was set in Q2 last year in total orders in Q1, this year with $503 million, an increase of $28 million or 6% compared to Q1 last year.
Ian A. Hudson: In total, orders in Q1 this year were $503 million, an increase of $28 million, or 6% compared to Q1 last year. Backlog at the end of the quarter was $1.1 billion, another all-time high for the company, and an increase of $132 million, or 14% compared to Q1 last year. In terms of our group results, ESG's net sales for the quarter were $354 million, up $35.0 million, or 11% compared to last year, despite the effects of a third-party component supply issue that delayed the timing of approximately $13 million of unit shipments at our largest facility.
Ian A. Hudson: Backlog at the end of the quarter was $1 1 billion. Another all time high for the company and an increase of $132 million or 14% compared to Q1 last year.
Ian A. Hudson: In terms of our group results Esg's net sales for the quarter were $354 million up 35 point.
Ian A. Hudson: <unk> million dollars.
Ian A. Hudson: Or 11% compared to last year. Despite the effects of a third party component supply issue that delayed the timing of approximately $13 million of unit shipments at our largest facility.
Ian A. Hudson: ESG's operating income for the quarter was $51.7 million, up $14.1 million, or 38% compared to last year. ESG's adjusted EBITDA for the quarter was $66.5 million, up $15.3 million, or 30% compared to last year. That translates to an adjusted EBITDA margin for the quarter of 18.8%, an improvement of 270 basis points compared to last year. ESG reported total orders of $428 million in Q1 this year, an increase of $32 million, or 8% compared to last year.
Ian A. Hudson: Esg's operating income for the quarter was $51 $7 million up $14 1 million or 38% compared to last year.
Ian A. Hudson: Esg's adjusted EBITDA for the quarter was $66 5 million up $15 3 million or 30% compared to last year.
Ian A. Hudson: That translates to an adjusted EBITDA margin for the quarter of 18, 8% an improvement of 270 basis points compared to last year.
Ian A. Hudson: ESG reported total orders of $428 million in Q1, this year, an increase of $32 million or 8% compared to last year.
Ian A. Hudson: SSG's net sales for the quarter were $71 million this year, up $4 million, or 6%. SSG's operating income for the quarter was $13.8 million, up $1.7 million, or 14% compared to last year. SSG's adjusted EBITDA for the quarter was $14.8 million, up $1.6 million, or 12%. That translates to a margin of 20.9%, towards the upper end of SSG's target range and up 110 basis points compared to last year. SSG's orders for the quarter were $75 million, compared to $79 million in Q1 last year.
Ian A. Hudson: SSG net sales for the quarter was $71 million this year up $4 million or 6%.
Ian A. Hudson: <unk> operating income for the quarter was $13 8 million up $1 7 million or 14% compared to last year.
Ian A. Hudson: <unk> adjusted EBITDA for the quarter was $14 8 million up $1 6 million or 12%.
Ian A. Hudson: That translates to a margin of 29% towards the upper end of Ssg's target range and up 110 basis points compared to last year.
Ian A. Hudson: Ssg's orders for the quarter was $75 million compared.
Ian A. Hudson: Compared to $79 million in Q1 last year.
Ian A. Hudson: Corporate operating expenses for the quarter were $11.2 million compared to $10.2 million last year, with the increase primarily due to higher stock compensation and incentive-based compensation expense, partially offset by a benefit from an insurance recovery of approximately $2 million. Turning now to the Consolidated Income Statement, where the increase in sales contributed to a $20.2 million improvement in gross profit. Consolidated gross margin for the quarter was 27.3%, a 240 basis point increase over last year.
Ian A. Hudson: Corporate operating expenses for the quarter were $11 2 million compared to $10 $2 million last year with the increase primarily due to higher stock compensation and incentive based compensation expense, partially offset by a benefit from an insurance recovery of approximately $2 million.
Ian A. Hudson: Turning now to the consolidated income statement, where the increase in sales contributed to a $22 million improvement in gross profit.
Ian A. Hudson: Consolidated gross margin for the quarter was 27, 3%, a 240 basis point increase over last year.
Ian A. Hudson: As a percentage of sales, our selling engineering general and administrative expenses for the quarter were essentially unchanged from Q1 last year other items.
Ian A. Hudson: As a percentage of sales, our selling, engineering, general, and administrative expenses for the quarter were essentially unchanged from Q1 last year. Other items affecting the quarterly results include a $200,000 increase in acquisition-related expenses, a $100,000 increase in other expenses, and a $1.5 million reduction in interest expense. During Q1 this year, we also recorded a $13 million discrete tax benefit after the Joint Committee on Taxation approved the company's tax refund claim, resulting from the execution of a multi-year tax planning strategy. We expect to receive the cash refund during the second quarter.
Ian A. Hudson: Affecting the quarterly results include a $200000 increase in acquisition related expenses at $100000 increase in other expense and a $1 $5 million reduction in interest expense.
Ian A. Hudson: During Q1. This year, we also recorded a $13 million discrete tax benefit after the joint committee on taxation approved the company's tax refund claim resulting from the execution of our multiyear tax planning strategy.
Ian A. Hudson: We expect to receive a cash refund during the second quarter.
Ian A. Hudson: Including this benefit and the recognition of $800000 in excess tax benefits associated with stock compensation activity. We recognized an income tax benefit of $700000 in the current year quarter compared to income tax expense of $7 3 million in the prior year quarter.
Ian A. Hudson: Our effective tax rate for Q1. This year was a benefit of one 4%, including the $13 million tax benefit and expense of approximately 24% without it.
Ian A. Hudson: Including this benefit and the recognition of $800,000 in excess tax benefits associated with stock compensation activity, we recognize an income tax benefit of $700,000 in the current year quarter, compared to income tax expense of $7.3 million in the prior year quarter. Our effective tax rate for Q1 this year was a benefit of 1.4%, including the $13 million tax benefit, an expense of approximately 24% without it. That compares to an effective tax rate of 21% in Q1 last year. At this time, we expect our effective tax rate for the remaining three quarters of 2024 to be between 25% and 26%, excluding any additional discrete tax benefits.
Ian A. Hudson: That compares to an effective tax rate of 21% in Q1 last year.
Ian A. Hudson: At this time, we expect our effective tax rate for the remaining three quarters of 2024 to be between 25% and 26% excluding any additional discrete tax benefit.
Ian A. Hudson: On an overall GAAP basis, we therefore around 84 a share in Q1 this year compared with 45 per share in Q1 last year.
Ian A. Hudson: 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 quarters, we made adjustments to GAAP earnings per share to exclude acquisition related expenses and a $13 million tax benefit I previously mentioned.
Ian A. Hudson: On this basis, our adjusted earnings for the quarter with 64 cents per share compared with 46 cents per share last year.
Ian A. Hudson: Looking now at cash flow, we generated $31 million of cash from operations during the quarter, an increase of $24 million from Q1 last year we.
Ian A. Hudson: We ended the quarter with $223 million of net debt and availability under our credit facility of $516 million.
Ian A. Hudson: Our current net debt leverage ratio 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.
Ian A. Hudson: On an overall basis, we therefore earned $0.84 per share in Q1 this year, compared with $0.45 per share in Q1 last year. To facilitate earnings comparisons, we typically adjust our GAAP earnings per share for unusual items recorded in the current or prior quarters. In the current year's quarters, we made adjustments to GAAP earnings per share to exclude acquisition-related expenses and the $13 million tax benefit I previously mentioned. On this basis, our adjusted earnings for the quarter were $0.64 per share compared with $0.46 per share last year.
Ian A. Hudson: On that note, we paid dividends of $7 3 million during the quarter, reflecting an increased dividend of <unk> 12 per share and we recently announced a similar dividend for the second quarter.
Ian A. Hudson: That concludes my comments and I would now like to turn the call over to Jennifer.
Jennifer L. Sherman: Thank you Ian our first quarter results represent a strong start to the year as our teams set forth set first quarter performance records across many metrics, including net sales and adjusted EPS, while orders in backlog again rose to new all time highs the strength of the sales growth.
Ian A. Hudson: Looking now at cash flow, we generated $31 million of cash from operations during the quarter, an increase of $24 million from Q1 last year. We ended the quarter with $223 million of net debt and availability under our credit facility of $516 million. Our current net debt leverage ratio remains low. With our financial position remaining strong, we have significant flexibility to invest in organic growth initiatives, pursue strategic acquisitions, and return cash to stockholders through dividends and opportunistic share repurchase.
Jennifer L. Sherman: <unk> expansion during Q1 reinforce the underlying themes and strategies, we have previously discussed.
Jennifer L. Sherman: Within our environmental solutions group, we're able to deliver 11% year over year net sales growth and a 30% increase in adjusted EBITDA strong aftermarket demand continued price realization contributions from our recent acquisitions and increases in production at several business.
Jennifer L. Sherman: These were meaningful contributors to this year over year growth, which was achieved despite an isolated third party component supply issue that we experienced in March at our St or manufacturing facility.
Ian A. Hudson: On that note, we paid dividends of $7.3 million during the quarter, reflecting an increased dividend of $0.12 per share, and we recently announced a similar dividend for the second quarter. That concludes my comments, and I would now like to turn the call over to Jennifer. Thank you, Ian.
Jennifer L. Sherman: We have previously discussed our objective to increase production levels at this facility in an effort to reduce lead times and on that note. We started this year strong with unit production over the first two months of the year up 12% year over year.
Jennifer L. Sherman: Thank you, Ian. Our first quarter results represent a strong start to the year, as our team set first quarter performance records across many metrics, including net sales and adjusted EPS, while orders and backlog again rose to new all-time highs. The strength of the sales growth and margin expansion during Q1 reinforced the underlying themes and strategies we have previously discussed. For example, within our Environmental Solutions Group, we were able to deliver 11% year-over-year net sales growth and a 30% increase in adjusted EBITDA.
Jennifer L. Sherman: Upon encountering this issue in March we shifted some of our production to prioritize customer deliveries at the expense of units destined for our own rental fleet, which resulted in fewer rental fleet additions in Q1 than we had originally anticipated.
Jennifer L. Sherman: As Ian noted this component supply issue delayed the timing of approximately $13 million of sewer cleaner shipments in the quarter as we were unable to ship several substantially completed units.
Jennifer L. Sherman: In order to minimize the impact of this disruption our teams have worked diligently with our supplier and have identified a solution that we began implementing in April importantly, given our mitigating actions recovery plan and good access to labor, we accept expect to ship all impacted units and then.
Jennifer L. Sherman: Strong aftermarket demand, continued price realization, contributions from our recent acquisitions, and increases in production at several businesses were meaningful contributors to this year-over-year growth, which was achieved despite an isolated third-party component supply issue that we experienced in March at our Streeter manufacturing facility. We have previously discussed our objective to increase production levels at this facility in an effort to reduce lead times, and on that note, we started this year strong, with unit production over the first two months of the year up 12% year-over-year.
Jennifer L. Sherman: Second quarter and do not believe this will materially alter our underlying building plans for the rest of the year.
Jennifer L. Sherman: More broadly across our businesses, we continue to see incremental underlying supply chain improvements.
Jennifer L. Sherman: As we have recently experienced episodic challenges remain at several of our ESG businesses. We believe that we are well positioned to respond to supply chain challenges and we continue to expect gradual build rate increases throughout the year.
Jennifer L. Sherman: Our dump truck body businesses had a standout quarter with sales up 7% on the back of improving chassis availability for the majority of our businesses and supply chain fluidity. The increase dump truck body production, coupled with our rigorous 80 20 processes at several key facilities, including.
Jennifer L. Sherman: Upon encountering this issue in March, we shifted some of our production to prioritize customer deliveries at the expense of units destined for our own rental fleet, which resulted in fewer rental fleet additions in Q1 than we had originally anticipated. As Ian noted, this component supply issue delayed the timing of approximately 13 million sewer cleaner shipments in the quarter as we were unable to ship several substantially completed units.
Jennifer L. Sherman: Our ox bodies plant in <unk>, Alabama was a contributing factor in our year over year margin improvement within the ESG segment.
Jennifer L. Sherman: Although supply of classified chassis remains a constraint for a minority share of our dump body businesses. We remain optimistic for further build rate increases on a combination of pent up replacement demand underlying demand increases and improving chassis flow across class eight units.
Jennifer L. Sherman: In order to minimize the impact of this disruption, our teams have worked diligently with our supplier and identified a solution that we began implementing in April. Importantly, given our mitigating actions, recovery plan, and good access to labor, we expect to ship all impacted units in the second quarter and do not believe this will materially alter our underlying building plans for the rest of the year. More broadly, across our businesses, we continue to see incremental underlying supply chain improvement. However, as we have recently experienced, episodic challenges remain at several of our ESG businesses.
Jennifer L. Sherman: Our teams also continued to find innovative solutions to best serve our customers throughout this still fluid supply chain environment. One. Such example is the recent launch of our interchangeable body product switching go on a class III chassis. We introduced this lighter weight product at the <unk> show.
Jennifer L. Sherman: In March and have received positive customer feedback as it further broadens chassis options for existing customers, while targeting additional end markets.
Jennifer L. Sherman: Shifting to aftermarket activity remained strong across our offerings as total aftermarket revenue increased 6% year over year led by an 11% year over year increase in part sales and a 9% year over year increase in rental income as demand for our equipment and utilization rate right.
Jennifer L. Sherman: We believe that we are well positioned to respond to supply chain challenges, and we continue to expect gradual build rate increases throughout the year. Our dump truck body businesses had a standout quarter with sales up 7% on the back of improving chassis availability for the majority of our businesses and supply chain flexibility. The increased dump truck body production coupled with our rigorous 80-20 processes at several key facilities, including our Ox Bodies plant in Fayette, Alabama, was a contributing factor in our year-over-year margin improvement within the ESG segment.
Jennifer L. Sherman: <unk> remained elevated the.
Jennifer L. Sherman: The recent acquisitions of ground force in tow Hall also provided meaningful contributions to our year over year growth in part sales with Tau parts, representing approximately 60% of its total revenues in the quarter going forward, we continue to see potential for further aftermarket growth as the.
Jennifer L. Sherman: Team Optimizes recently acquired businesses and new businesses are introduced to the platform via M&A.
Jennifer L. Sherman: Although supply of Class V chassis remains a constraint for a minority share of our dump body businesses, we remain optimistic about further build rate increases on a combination of pent-up replacement demand, underlying demand increases, and improving chassis flow across Class VIII. Our teams also continue to find innovative solutions to best serve our customers throughout this still fluid supply chain environment. One such example is the recent launch of our interchangeable body product, Switch & Go, on a Class 3 chassis.
Jennifer L. Sherman: In aggregate aftermarket represented 26% of ESG revenue in the first quarter of 2024.
Jennifer L. Sherman: In addition to strong organic growth. Our recent acquisitions also contributed with trackless. Our most recent acquisition continuing its strong start adding approximately $11 million to our top line during the quarter.
Jennifer L. Sherman: Shifting to our safety and security systems group the team delivered another quarter of strong results with 6% top line growth and an adjusted EBITDA margin of 29% at the top end of our SSG margin target range sales.
Jennifer L. Sherman: Sales of public safety equipment, and warning systems led the charge with revenues up 12, and 15% respectively. Our teams are seeing continued efficiency benefits, resulting from recent investments increased operating leverage and rising volumes and strong price realization all of which contributed to a hunter.
Jennifer L. Sherman: We introduced this lighter weight product at the NTEA show in March and have received positive customer feedback as it further broadens chassis options for existing customers while targeting, Shifting to aftermarkets, activity remains strong across our offerings as total aftermarket revenue increased 6% year-over-year, led by an 11% year-over-year increase in parts sales and a 9% year-over-year increase in rental income as demand for our equipment and utilization rates remain elevated The recent acquisitions of Ground Force and TowHaul also provided meaningful contributions to our year-over-year growth and parts sales, with TowHaul parts representing approximately 60 percent of its total revenues in the quarter.
Jennifer L. Sherman: Third 10 basis point margin improvement year over year. Lastly, we are pleased with our cash generation in the quarter as cash from operations rose by more than $20 million year over year recall, the first quarter typically represents our lowest cash flow quarter due to seasonal working capital build and rental fleet investor.
Jennifer L. Sherman: And then on an annual basis, we continue to target 100% cash conversion.
Jennifer L. Sherman: Shifting now to current market conditions demand for our product offerings remained strong with our first quarter order intake representing a new quarterly record the composition of orders remains balanced between publicly funded and industrial end markets the demand for our dump truck body.
Jennifer L. Sherman: Going forward, we continue to see potential for further aftermarket growth as the team optimizes recently acquired businesses and new businesses are introduced to the platform via M&S. In aggregate, aftermarket revenue represented 26% of ESG revenue in the first quarter of 2025.
Jennifer L. Sherman: He stood out with orders up approximately $22 million or 38% in the quarter. We believe this to be driven by a combination of pent up replacement demand as chassis supply shortages have weighed on demand last year execution on strategic initiatives across different end markets and high.
Jennifer L. Sherman: In addition to strong organic growth, our recent acquisitions also contributed, with Trackless, our most recent acquisition, continuing its strong start, adding approximately $11 million to our top line during the quarter. Shifting to our safety and security systems group, the team delivered another quarter of strong results, with 6% top line growth and an adjusted EBITDA margin of 20.9% at the top end of our SSG margin target range. Sales of public safety equipment and warning systems led the charge, with revenues up 12 and 15 percent, respectively.
Jennifer L. Sherman: Current equipment utilization level.
Jennifer L. Sherman: As mentioned on our last call. We are seeing early examples of our equipment being used in projects, resulting from the 550 billion dollar bipartisan infrastructure Bill although not material at this point some of the pieces of equipment. Currently in use at early infrastructure funded proxy. It includes street sweepers.
Jennifer L. Sherman: Safe digging equipment and warning systems, while we are encouraged to see these early examples we still believe we remain in early innings of what should prove to be a multiyear demand uplift for our suite of products and aftermarket services pursuant to the infrastructure Bill.
Jennifer L. Sherman: Our teams are seeing continued efficiency benefits resulting from recent investments, increased operating leverage, and rising volumes and strong price realization, all of which contributed to a 110 basis point margin improvement year over year. Lastly, we are pleased with our cash generation for the quarter, as cash from operations rose by more than 20 million year over year. Recall, the first quarter typically represents our lowest cash flow quarter due to seasonal working capital bills and rental fleet investments.
Jennifer L. Sherman: We also continued to see strong demand for our publicly funded side of the business as our diversification and market share efforts are yielding positive results to provide some context around this public funded refers to a wide range of funding mechanisms for our products, including water taxes for our flag.
Jennifer L. Sherman: Ship sewer cleaners General U S municipal funds certain U S federal funds Canadian provincial budgets Canadian federal funds and several international budgets, especially for our European SSG business bomber.
Jennifer L. Sherman: On an annual basis, we continue to target 100% cash conversion. Shifting now to current market conditions, demand for our product offerings remains strong, with our first quarter order intake representing a new quarterly record. The composition of orders remains balanced between publicly funded and industrial end markets, though demand for our dump truck body stood out, with orders up approximately $22 million or 38% in the quarter.
Jennifer L. Sherman: Lastly, although SSG Q1 orders were down slightly compared to record orders in the prior year period. We were pleased with the 75 million orders reported this quarter were call. Then in Q1 last year, we booked an 11 million dollar fleet order for public safety equipment from our customer in Mexico.
Jennifer L. Sherman: <unk> that we did not expect to repeat our teams continue to focus 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.
Jennifer L. Sherman: We believe this to be driven by a combination of pent-up replacement demand as chassis supply shortages weighed on demand last year, execution on strategic initiatives across different end markets, and high current equipment utilization levels. As mentioned on our last call, we are seeing early examples of our equipment being used in projects resulting from the $550 billion bipartisan infrastructure bill. Although not material at this point, some of the pieces of equipment currently in use at early infrastructure-funded projects include street sweepers, safe digging equipment, and warning signs.
Jennifer L. Sherman: Continue to believe that we have ample physical capacity and good access to labor to allow for scaling of current production level.
Jennifer L. Sherman: I now want to take a few minutes to provide an update on a couple of our key multi year internal growth initiatives, many of which Mark The foundation on which we recently raised our margin targets, starting with aftermarket growth of our rental and used equipment strategy continues to resonate well.
Jennifer L. Sherman: In the marketplace. Given the addition of rental and used offerings, we are targeting new cohorts of customers for many of our flagship products, including our sewer cleaners and safe digging trucks Street, sweepers and water bed lasting solution.
Jennifer L. Sherman: While we are encouraged to see these early examples, we still believe we remain in the early innings of what should prove to be a multi-year demand uplift for our suite of products and aftermarket services, pursuant to the infrastructure bill. We also continue to see strong demand for our publicly funded side of the business as our diversification and market share efforts are yielding positive results. To provide some context around this, public funding refers to a wide range of funding mechanisms for our products, including water taxes for our flagship sewer cleaners, general U.S. municipal funds, certain U.S. federal funds, Canadian provincial budgets, Canadian federal funds, and several international budgets, especially for our European SSG business funds. Lastly, although SSG Q1 orders were down slightly compared to record orders in the prior year period, we were pleased with the 75 million orders reported this quarter.
Jennifer L. Sherman: <unk> stream, our water blasting business is a great example of the success of our aftermarket strategy in recent years as sales of parts service and rentals have grown at a high single digit CAGR since 2016, which has increased jet streams aftermarket mix by 400 basis points over that.
Jennifer L. Sherman: Time frame. This change in revenue composition was a strategic action the team undertook to best serve our customers' needs while at the same time expanding applications for the use of our equipment.
Jennifer L. Sherman: We see similar optimization effort across our other products in fact over the last six months a cross functional team has undergone a review of our commercial strategy for our true vaccine, giving digging products and our guzzler industrial vacuum loaders as part of this process.
Jennifer L. Sherman: Recall that in Q1 last year, we booked an $11 million fleet order for public safety equipment from a customer in Mexico that we did not expect to repeat. Our teams continue to focus on increasing production levels to build more trucks as we aim to reduce the current backlog and lead times while continuing to maintain a healthy order book. We continue to believe that we have ample physical capacity and good access to labor to allow for the scaling of current production levels.
Jennifer L. Sherman: We have identified opportunities for growth in certain territories, we believe to be currently underserved that warrant incremental investments in the form of true back and guzzler rental additions and other related service assets addressing a need in certain territories that we have recently assumed.
Jennifer L. Sherman: As a result over the remainder of the year. We currently expect to incur incremental true vacuum Guzzler fleet investments beyond what we had originally contemplated in our previous 2024 guidance by allocating more of our production to our internal fleet. We expect these investments to rep.
Jennifer L. Sherman: I now want to take a few minutes to provide an update on a couple of our key multi-year internal growth initiatives, many of which mark the foundation on which we recently raised our margin target, starting with Aftermath. Growth of our rental and used equipment strategy continues to resonate well in the marketplace. Given the addition of rental and used offerings, we are targeting new cohorts of customers for many of our flagship products, including our sewer cleaners, safe digging trucks, street sweepers, and water blasting solutions.
Jennifer L. Sherman: Present, a revenue drag of up to $20 million compared to our original revenue outlook and also pose a headwind to current year EBITDA. These factors have been embedded into our latest outlook for the year.
Jennifer L. Sherman: Importantly, we expect these true back and guzzler aftermarket investments to be accretive to our longer term outlook as units become operational generate rental and parts income and subsea and subsequently translate into used equipment sales with many rental customers purchasing the equipment. Following the initial.
Jennifer L. Sherman: JetStream, our water blasting business, is a great example of the success of our aftermarket strategy in recent years as sales of parts, service, and rentals have grown at a high single-digit rate since 2016, which has increased JetStream's aftermarket mix by 400 basis points over that time span.
Jennifer L. Sherman: Rental period.
Jennifer L. Sherman: In addition to providing attractive returns our aftermarket model helps us to access new customer cohorts.
Jennifer L. Sherman: Recall, we continue to believe that rising adoption of safe digging excavation methods in the United States remains an important tailwind for our business in the coming years. This coupled with the proliferation of use cases for hydro excavation and rising demand from the bipartisan infrastructure Bill leaves.
Jennifer L. Sherman: This change in revenue composition was a strategic action the team undertook to best serve our customers' needs while at the same time expanding applications for the use of our equipment. We see similar optimization efforts across our other products. In fact, over the last six months, a cross-functional team has undergone a review of our commercial strategy for our TrueVac safe digging products and our Guzzler industrial vacuum loaders. As part of this process, we have identified opportunities for growth in certain territories we believe to be currently underserved that warrant incremental investments in the form of TrueVac and Guzzler rental additions and other related service assets to address a need in certain territories that we have recently assumed.
Jennifer L. Sherman: US and our dealer partners optimistic regarding future demand.
Jennifer L. Sherman: In short, we see our aftermarket business is a growing ecosystem spanning parts service rental and used equipment offerings that is particularly powerful for newly acquired companies coming onto the platform. In fact, just last week I had the opportunity to attend our teams open house.
Jennifer L. Sherman: At our new J J E facility located in the Denver area, where we showcased a dozen different federal signal brands out of one shared location to over 150 customers in attendance.
Jennifer L. Sherman: Is this shared aftermarket footprint that allows us to best serve our customers at scale. Our M&A pipeline also remains active we are diligently working on optimizing our recently acquired businesses, while surgically evaluating new opportunities that meet our criteria.
Jennifer L. Sherman: As a result, over the remainder of the year, we currently expect to incur incremental TrueVac and Guzzler fleet investments beyond what we had originally contemplated in our previous 2024 guidance. By allocating more of our production to our internal fleet, we expect these investments to represent a revenue drag of up to $20 million compared to our original revenue outlook and also pose a headwind to current year EBITDA.
Jennifer L. Sherman: Lastly, our new product development remains at the core of the federal signal identity. We remain focused on several electrification projects across our family of vehicles and we are pleased with the early momentum of our electric Street sweeper orders.
Jennifer L. Sherman: We are also introducing several new products within our SSG businesses, including a universal mass warning siren control and we expect to begin accepting orders for the class III switching go product next month.
Jennifer L. Sherman: These factors have been embedded into our latest outlook for the year. Importantly, we expect these TrueVac and Guzzler aftermarket investments to be accretive to our longer-term outlook as units become operational, generate rental and parts income, and subsequently translate into used equipment sales, with many rental customers purchasing the equipment following the initial rental period. In addition to providing attractive returns, our aftermarket model helps us to access new customer cohosts. Recall, we continue to believe that the rising adoption of safe digging excavation methods in the United States remains an important tailwind for our business in the coming years.
Jennifer L. Sherman: Turning to our outlook for the rest of the year demand for our products and our aftermarket offerings remained strong with both our orders and backlog this quarter again setting New company Records.
Jennifer L. Sherman: With our first quarter performance, our record backlog and continued execution against our strategic and operational initiatives. We are raising our full year adjusted EPS outlook to a new range of $2 95 to $3 15 from the prior range of $2 eight.
Jennifer L. Sherman: Five cents to $3 five.
Jennifer L. Sherman: As noted this outlook contemplates higher than originally anticipated investments in our rental fleet from Q2 to Q4, given our prioritization of slots to external customers in the first quarter and our aftermarket growth strategy. The guidance also reflects our view of continued.
Jennifer L. Sherman: This, coupled with the proliferation of use cases for hydro-excavation and rising demand from the bipartisan infrastructure bill, leaves us and our dealer partners optimistic regarding future demand. In short, we see our aftermarket business as a growing ecosystem. Spanning parts, service, rental, and used equipment offerings, this is particularly powerful for newly acquired companies coming onto the platform. In fact, just last week, I had the opportunity to attend our team's open house at our new JJE facility located in the Denver area, where we showcased a dozen different Federal Signal brands out of one shared location with over 150 customers in attendance. It is this shared aftermarket footprint that allows us to best serve our customers at scale.
Jennifer L. Sherman: Gradual build increases and healthy demand for our parts and service offerings. At this time. We are also reaffirming our full year net sales outlook between 185 billion and $1 9 billion. We also continue to expect double digit improvement in pretax earnings.
Jennifer L. Sherman: EBITDA margin performance in the upper half of our target range.
Speaker Change: Lastly, we are maintaining our capex outlook of $35 million to $45 million for the year at this time I think we're ready for questions operator.
Speaker Change: Yeah.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Jennifer L. Sherman: Our M&A pipeline also remains active. We are diligently working on optimizing our recently acquired businesses while surgically evaluating new opportunities that meet our criteria. Lastly, new product development remains at the core of the Federal Signal identity. We remain focused on several electrification projects across our family of vehicles, and we are pleased with the early momentum of our electric street sweeper orders. We are also introducing several new products within our SSG businesses, including a universal mass warning siren control, and we expect to begin accepting orders for the Class 3 Switch & Go product next year.
Speaker Change: Information tone will indicate the airlines in the question queue. You May press star two if he would like to remove your question from the queue.
Speaker Change: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the starkey.
Jennifer L. Sherman: One moment, please while we poll for question.
Jennifer L. Sherman: Yeah.
Jennifer L. Sherman: Our first question comes from Steve Barker with Keybanc capital markets. Please proceed with your question.
Robert Stephen Barger: Hi, good morning, good morning.
Jennifer L. Sherman: Yeah.
Robert Stephen Barger: Yeah good morning.
Robert Stephen Barger: I want to I wonder if.
Speaker Change: First start with.
Speaker Change: The dealer channel, obviously, a huge focus you spent the whole slide on internal growth and growth initiatives what percentage of the dealers have a market share. We're realistically it'll be hard to grow share versus what percentage have lower share in their region and you'd consider substantial opportunity for sure.
Jennifer L. Sherman: Turning to our outlook for the rest of the year, demand for our products and our aftermarket offerings remains strong, with both our orders and backlog this quarter again setting new company records. With our first quarter performance, our record backlog, and continued execution against our strategic and operational initiatives, we are raising our full year adjusted EPS outlook to a new range of $2.95 to $3.15 from the prior range of $2.85 to $3.05.
Speaker Change: Yes, so we.
Speaker Change: However, beginning in 2020.
Speaker Change: Three last year and moving into this year, we've undertaken initiatives working closely with our dealer partners to better understand market share in fact, Felix and his strategy role is leading that effort.
Speaker Change: And we.
Speaker Change: We have several very strong dealer partners I think all of them would agree. This initiative has been helpful. And there is a lot of opportunity we believe to grow market share.
Speaker Change: Particularly with some of our organic growth initiatives.
Speaker Change: As we move forward.
Speaker Change: I guess.
Jennifer L. Sherman: As noted, this outlook contemplates higher-than-originally-anticipated investments in our rental fleet from Q2 to Q4, given our prioritization of slots to external customers in the first quarter and our aftermarket growth strategy. The guidance also reflects our view of continued, gradual build increases and healthy demand for our parts and service offerings. At this time, we are also reaffirming our full-year net sales outlook between $1.85 billion and $1.9 billion. We also continue to expect double-digit improvement in pre-tax earnings and EBITDA margin performance in the upper half of our target range. Lastly, we are maintaining our CapEx outlook of $35 million to $45 million for the year. At this time, I think we're ready for questions.
Speaker Change: Okay, what percentage of the channel is optimized for rental and aftermarket meaning all the infrastructure is in place to drive meaningful revenue as you as you push those initiatives out.
Speaker Change: I think.
Speaker Change: We always think theres opportunities to improve you know we have several strong dealer partners.
Speaker Change: With the ecosystem that we've talked about.
Speaker Change: In terms of new equipment rental and then used equipment sales, we think that opens up the door for new customers.
Speaker Change: As we move forward.
Speaker Change: We continue to.
Speaker Change: Always identify opportunities to improve.
Speaker Change: As we move forward.
Speaker Change: Okay, and I'll, just I'll ask one more about the channel I think the target for aftermarket to include rental is around 30% or a little less and I know, it's hard to build rental with your new equipment backlog, where it is and you you mentioned that for this quarter. The question is can you compare margin or return on.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker Change: Capital for aftermarket and rental versus selling equipment on a third party basis, how favorable or is it in line or a much more favorable just trying to gauge the benefit because it seems like a big opportunity.
Speaker Change: Yes, Steve I think when we when we look at kind of the optimal lifecycle of a piece of our equipment.
Operator: One moment, please, while we poll for questions. Our first question comes from Steve Barger with KeyBank Capital Markets. Please proceed with your question.
Speaker Change: When you consider the part you put a piece of equipment into the rental fleet you you rent it for a period of two to three years.
Speaker Change: You get the parts and service revenue over that time period, and then you sell it as he used piece of equipment and all our equipment tends to retain its resale value pretty well.
Robert Stephen Barger: Hi, good morning. Good morning. Thank you. Yeah, it is a good morning.
Robert Stephen Barger: I want to first start with the dealer channel. Obviously, a huge focus; you spent the whole slide on internal growth initiatives. What percentage of the dealers have a market share where realistically it'll be hard to grow share versus what percentage have a lower market share in their region and you'd consider a substantial opportunity for share?
Speaker Change: When we look at that whole return versus a new equipment sale, it's more attractive to put it through that kind of after market ecosystem as we refer to it. So yeah. It is and Thats. What we were trying to explain with the investments we're making in the fleet from a return standpoint, while it may be ahead.
Jennifer L. Sherman: Yes, so we've, um, begun in two, two, 2020, three last year and moving into this year, we've undertaken an initiative working closely with our dealer partners to better understand market share. In fact, Felix, in a strategic role, leading that effort. And we have several very strong dealer partners. I think all of them would agree this initiative has been helpful, and there's a lot of opportunity, we believe, to grow market share, particularly with some of our organic growth initiatives as we move forward.
Speaker Change: Headwind to EBITDA in 2000 and for the longer term returns.
Speaker Change: More attractive than the nuc himself and so from a return standpoint, that's really one of the drivers for the investment.
Speaker Change: And what's exciting for US is it opens up both for us and for our dealer partners, new customers, particularly with that used equipment.
Speaker Change: Because it's at a different price point.
Speaker Change: No I understood.
Speaker Change: It seems like Theres, a lot of opportunity through the through a lot of different facets of the dealer channel, but with that I'll get back in line. Thanks. Thanks.
Robert Stephen Barger: I guess, uh... Okay, what percentage of the channel is optimized for rental and aftermarket, meaning all the infrastructures in place to drive meaningful revenue as you push those initiatives out?
Speaker Change: Thanks, Steve Thank you.
Speaker Change: Our next question comes from Chris Moore with CJS Securities. Please proceed with your question.
Jennifer L. Sherman: You know, I think we always think there are opportunities to improve. You know, we have several strong dealer partners. With the ecosystem that we've talked about, in terms of new equipment, rental, and then used equipment sales, we think that opens up the door for new customers. As we move forward, we continue to always identify opportunities to improve.
Christopher Paul Moore: Good morning, Good morning, guys. Good morning.
Christopher Paul Moore: And maybe it will just stay with the rental fleet for a second so obviously you talked about the third party component supply you.
Christopher Paul Moore: To help offset some of that you took some rental fleet production from Q1 that normally impacts Q1 is is that fair to say that that piece of it could have a little bit of impact on Q2.
Robert Stephen Barger: Okay. And I'll just ask one more question about the channel.
Robert Stephen Barger: I think the target for the aftermarket to include rental is around 30% or a little less. And I know it's hard to build rental with your new equipment backlog where it is, and you mentioned that for this quarter. The question is, can you compare margin or return on capital for aftermarket and rental versus selling equipment on a third-party basis? How favorable or, you know, is it in line or much more favorable? Just trying to gauge the benefit because it seems like a big opportunity.
Speaker Change: We are right now, yes, we did shift.
Speaker Change: Some of the rental delivery from Q1 to Q2.
Speaker Change: In addition, as we talked about as a result of.
Speaker Change: This cross functional tax task force, we will be investing.
Speaker Change: Up to $20 million of equipment in <unk>.
Speaker Change: Safe digging equipment and our guzzler equipment.
Speaker Change: We baked all that into the improved guidance that we gave this morning.
Jennifer L. Sherman: Yes, Steve, I think when we look at kind of the optimal life cycle of a piece of our equipment, when you consider, you know, the parts, you put a piece of equipment into the rental fleet, you rent it for a period of two to three years, you get the parts and service revenue over that time period, and then you sell it as a used piece of equipment. And our equipment tends to retain its resale value pretty well.
Speaker Change: So we think we're in pretty good shape.
Speaker Change: Gotcha that's helped.
Speaker Change: Paul.
Speaker Change: You you talked about this a little bit so I think roughly 80% of your products.
Speaker Change: Touched at some point by the infrastructure spending and just wanted to go a little deeper maybe into the timing it sounds like early on street sweeper, some safety equipment.
Jennifer L. Sherman: When we look at that whole return versus a new equipment sale, it's more attractive to put it through that kind of aftermarket ecosystem, as we refer to it. So yeah, and that's what we were trying to, you know, explain with the investments we're making in the fleet. From a return standpoint, while it may be a headwind to EBITDA in 24, the longer-term returns are more attractive than the new equipment sale, and so from a return standpoint, that's really one of the drivers for the investment.
Speaker Change: <unk> would be more of the focus and as things.
Speaker Change: Evolve over the next few years.
Speaker Change: The balance of that 80% or how should I look at that timing.
Speaker Change: Yeah. So we believe we've seen some limited examples thus far, particularly with respect to street sweeping safe digging equipment dump trucks, and then our warning systems.
Speaker Change: So again, we think we're in very early innings.
Speaker Change: It's sometimes it's hard to understand particularly would come trucks, because they have multi uses where theyre going but we saw a dump truck orders were up $22 million or 38%. So that was encouraging and we continue to monitor the whitehouse website.
Jennifer L. Sherman: And what's exciting for us is it opens up, both for us and for our dealer partners, new customers, particularly with that used equipment, because it's at a different price point.
Robert Stephen Barger: No, understood. Yeah, it seems like there's a lot of opportunity through a lot of different facets of the dealer channel.
Speaker Change: And.
Robert Stephen Barger: But with that, I'll get back in line. Thanks. Thanks, Steve.
Speaker Change: We believe that the cadence of projects is beginning.
Operator: Thanks, Steve. Thank you.
Speaker Change: And that will provide multiyear tailwind for the company as we move forward.
Operator: Our next question comes from Chris Moore with CJS Securities. Please proceed with your question.
Speaker Change: Got it maybe maybe just one last one for me the new product development obviously.
Christopher Paul Moore: Hey, good morning, guys. Good morning.
Christopher Paul Moore: Maybe we'll just stay with the rental fleet for a second. So, obviously, you talked about, you know, the third-party components apply. You..., to help offset some of that, you took some rental fleet production from Q1 that normally impacts Q1. Is that fair to say that piece of it could have a little bit of an impact on Q2?
Speaker Change: <unk> very important.
Speaker Change: It looks like the biggest hurdle tip to any significant move by customers to electrification as the.
Speaker Change: Cost you know not not costs coming necessarily from.
Speaker Change: Federal signal, just trying to kind of understand what youre seeing there and what your thoughts might be over the medium term.
Jennifer L. Sherman: Right now, yes, we did shift some of the rental delivery from Q1 to Q2. In addition, as we talked about, as a result of this cross-functional task force, we will be investing up to $20 million of equipment in safe digging equipment and our guzzler equipment. We baked all that into the improved guidance that we gave this morning. So we think we're in pretty good shape.
Speaker Change: Yes, so <unk> continues to be an important tenant of our NPD.
Speaker Change: Graham.
Speaker Change: We introduced and showcased several EV dump trucks at the N T a show.
Speaker Change: We're encouraged by you know the although still small the increasing pace of orders for our electric Street sweeper products.
Christopher Paul Moore: Gotcha. That's helpful. You talked about this a little bit. So I think roughly 80% of your products, you know, are touched at some point by the infrastructure spending. And I just want to go a little deeper, maybe into the timing. It sounds like early on, street sweepers and safety equipment would be more of the focus, and as things evolve over the next few years, the balance of that 80% or, you know, how should I look at that timing?
Speaker Change: But price does seem to be the biggest single objective and.
Speaker Change: Objection and particularly its around the cost of the chassis that we don't manufacture, but we are fully committed to continuing our EV development efforts and we expect as we move forward.
Speaker Change: You know that sales will continue to increase.
Speaker Change: Got it no that makes sense.
Speaker Change: I will jump back in line I appreciate it guys.
Speaker Change: Okay.
Speaker Change: Our next question comes from Mike <unk> with D. A Davidson. Please proceed with your question.
Jennifer L. Sherman: Yes, so you know we believe we've seen some limited examples thus far, particularly with respect to street sweeping, safety equipment, dump trucks, and then our warning systems. So, again, we think we're in the very early innings.
Mike: Good morning, good morning, good morning.
Mike: Thanks for taking my question.
Mike: I just wanted to get some more detail from you on your plan in rentals.
Jennifer L. Sherman: You know, sometimes it's hard to understand, particularly with dump trucks, you know, because they have multiple uses where they're going. But we saw dump truck orders were up $22 million, or 38 percent, so that was encouraging. We continue to monitor the White House website, and we believe that the pace of projects is beginning, and that will provide multi-year tailwinds for the company as we move forward.
Mike: <unk>.
Mike: It's still a relatively small part of the business.
Mike: <unk> portion of other parts of the infrastructure world, but using a lot of almost across whether it's.
Mike: Bucket trucks.
Mike: And certain kinds of dump trucks sometime ago. Thank.
Speaker Change: Taking equipment for construction et cetera, I guess I'm kind of curious more long term.
Mike: How large do you think rental.
Mike: Can or ought to be.
Mike: Health pocket.
Mike: Okay.
Speaker Change: Yeah, I think the thing that is important.
Mike: Is to think about the ecosystem.
Mike: And when we rented truck.
Christopher Paul Moore: Got it. Maybe, maybe just one last one for me.
Mike: The times can vary, but it's usually between 18 months and two years.
Christopher Paul Moore: The new product development, obviously, EV is very important. It looks like the biggest hurdle to any significant move by customers to electrification is the cost, not cost coming necessarily from Federal Signal, just trying to kind of understand what you're seeing there and what your thoughts might be over the medium term.
Mike: And on in many situations.
Mike: <unk>.
Mike: The entity, that's renting a truck buys the truck. So it's that used equipment that is an important part of the ecosystem. In addition to you on parts and service.
Mike: Furthermore, we have several strong rental partners.
Jennifer L. Sherman: Yes, so EV continues to be an important tenant of our NPD program. We introduced and showcased several EV dump trucks at the NTA show. We're encouraged by, you know, the, although still small, increasing pace of orders for our electric street sweeper product. But price does seem to be the biggest single objective and objection, and particularly it's around the cost of the chassis that we don't manufacture. But we are fully committed to continuing our EV development efforts, and we expect as we move forward, sales will continue to increase.
Mike: And we continue to support their efforts in the field.
Mike:
Mike: We began in the rental business in 2016.
Mike: And if you look at our investment into our fleet.
Mike: Can see that it hasn't meaningfully changed.
Mike: Over time, given the growth of the company.
Mike: And we.
Mike: Can you to believe that the largest part of our aftermarket business is parts.
Mike: Which is continuing to grow and that's again kind of going back to that ecosystem that we talk about it is we rent. We salad is used equipment and there is also that parts and service business. That's continued to grow that's a critical part of that ecosystem.
Christopher Paul Moore: Got it. That makes sense. I will jump back in line. Appreciate it, guys.
Operator: Our next question comes from Mike Shulsky with D.A. Davidson. Please proceed with your question.
Speaker Change: So just kind of recap that.
Speaker Change: The added ask that you're putting in now.
Speaker Change: That's pretty much it you don't have a much broader plan to make rental.
Michael Shlisky: Good morning. Good morning.
Speaker Change: The lion's share or you know are reluctant.
Michael Shlisky: Thanks for taking my question. I just want to get some more detail from you on your plans for rental properties. You know, it's still a relatively small part of the business, but it is a large portion of other parts of the infrastructure world that are used in a lot of projects across the country, whether it's, you know, bucket trucks and certain kinds of dump trucks, certain kinds of safety equipment for construction sites, et cetera. I guess I'm kind of curious, more long-term, how large of a percentage of business do you How far could this kind of go here?
Speaker Change: The overall revenue yes.
Speaker Change: Yes, Mike the investment we talked about with just a specific investment we're making in certain territories that we recently assumed so it's it's.
Speaker Change: It's more we look at the investments and the additions to our fleet, we look at it product by product.
Speaker Change: Look at it by geography, so we're very selective in how and when we add and so that's really the driver for this this most recent investment that we're making.
Speaker Change: Got it.
Speaker Change: And then secondly, I wanted to ask about.
Speaker Change: A choppy supplier.
Speaker Change: At this point cloud data in any way.
Speaker Change: Gating factor for your production or do you feel that you're acquiring.
Jennifer L. Sherman: Yeah, I think the thing that's important is to think about the ecosystem. And when we rent a truck, the times can vary, but it's usually between 18 months and two years. And in many situations, the entity that's renting the truck buys the truck. So it's that used equipment that is an important part of the ecosystem in addition to parts and service. Furthermore, you know, we have several strong rental partners, and we continue to support their efforts in the field.
Speaker Change: At this point it doesn't appear to be increases in some Oems classic vocational chassis, if not all of them I'm curious as to how you're feeling right now about the rest of the year here.
Speaker Change: We feel really good class eight chassis supply is not an issue for us.
Speaker Change: Outstanding.
Speaker Change: Our pipeline at this point thanks, so much.
Speaker Change: Our next question comes from Walter Liptak with Seaport Research. Please proceed with your question.
Walter Scott Liptak: Alright. Thank you good morning, good quarter guys.
Walter Scott Liptak: I wanted to ask about the backlog you have the strong orders this quarter and the backlog now is like $1 1 billion.
Jennifer L. Sherman: You know, we began the rental business in 2016, and if you look at our investment in our fleet, you can see that it hasn't meaningfully changed over time, given the growth of the company. And, you know, we continue to believe that the largest part of our aftermarket business is parts, which is continuing to grow, and that's, again, kind of going back to that ecosystem that we talk about. It is, you know, we rent, we sell it as used equipment, and there's also that parts and service business that's continued to grow. That's a critical part of that ecosystem.
Speaker Change: Yeah.
Walter Scott Liptak: Which is a great thing, but at what point is there a point at which the backlog is too big and it becomes a bad thing.
Walter Scott Liptak: I think as we've talked about we're very focused on building more trucks.
Speaker Change: This translates into increased throughput.
Speaker Change: At our various businesses.
Speaker Change: We have focused on.
Speaker Change: <unk> our lead times.
Speaker Change: And we're making.
Speaker Change: Some progress.
Speaker Change: Before we had the third party supply chain issue in March.
Speaker Change: Production at our Streator facility was up 12% for the first two periods of the year.
Michael Shlisky: So just to kind of recap that, then the added act that you're putting in now... is pretty much it. You don't have a much broader plan to make a rental.
Speaker Change: So we're and with the implementation of the federal single operating system, and our 80 20 efforts.
Michael Shlisky: [inaudible]
Jennifer L. Sherman: Yeah, Mike, the investment we talked about was just a specific investment that we're making in certain territories that we recently assumed. So it's more, you know, we look at the investments and the additions to our fleet product by product. We look at it by geography. So we're very selective in how and when we add. And so that's really the driver for this most recent investment that we're making.
Speaker Change: We continue to expect increased throughput through the year.
Speaker Change: While maintaining strong orders, we expect those lead times to come down.
Speaker Change: Okay great.
Speaker Change: How should we think about the backlog like at the end of the year, if you're successful in.
Speaker Change: Uh huh.
Speaker Change: Do we stay around the $1 billion level through the year or do you think it comes down.
Speaker Change: Yeah, I think we want to obviously as Jennifer mentioned, where we want to reduce those lead times by increasing production and shipping more but also at the same time, maintaining that healthy order intake so rather than kind of focus on the backlog number I think our objective and our.
Michael Shlisky: Secondly, I wanted to ask about Class A chassis supply. At this point, is Class A in any way a gating factor for your production, or do you feel that your full supply at this point, that there's a period of increases in some OEM Class A vocational chassis, not all of them? I'm curious as to how you feel right now about the rest of the year. We feel really positive
Speaker Change: Our goals for the year are really increasing build rates per day, increasing production.
Speaker Change: Things of that nature, but we want to we want to maintain that healthy order intake levels. So that's really the focus.
Jennifer L. Sherman: We feel really good. Class 8 chassis supply is not an issue.
Speaker Change: Okay that sounds great and then the.
Michael Shlisky: Outstanding. I'll pass you on at this point. Thanks so much.
Speaker Change: The orders I wanted to ask about the.
Operator: Our next question comes from Walt Liptak with Seaport Research. Please proceed with your question.
Speaker Change: The orders for the.
Speaker Change: The dump truck business and just some questions around that hope how big is the dump truck revenue on an annual basis and what were the trends in the last couple of years, because I'm recalling that there was some supply chain issues on chassis, maybe not the order levels or whatever in the last couple of years.
Walter Scott Liptak: Hi, thank you. Good morning. Good quarter, guys. I want to ask about the backlog. You had strong orders this quarter and the backlog is now at like 1.1 billion, which is a great thing, but at what point is there a point at which the backlog is too big and becomes a bad thing?
Speaker Change: And you talked about pent up demand. So I wonder if you can help quantify how big is.
Jennifer L. Sherman: I think, as we've talked about, we're very focused on building more trucks, which translates into increased throughput at our various businesses. We have focused on reducing our lead times, and, you know, we were making some progress before we had the third-party supply chain issue in March. Production at our Streeter facility was up 12% for the first two periods of the year. So we're, you know, and with the implementation of the Federal Signal Operating System and our 8020 efforts, we continue to expect increased throughput throughout the year. While maintaining strong orders, we expect those lead times to come down.
Speaker Change: The revenue for that business and what was the growth rates for the last couple of years.
Speaker Change: Yes.
Speaker Change: <unk> trucks.
Speaker Change: Representing about 17% of our total revenues.
Speaker Change: So as you can.
Speaker Change: I think we mentioned on the call that the orders are in that business were up $22 million or 38% year over year. So what.
Speaker Change: What we've seen there and is really nice growth with the improvement in some of the chassis flow.
Speaker Change: We do believe that that is a business, where there is some pent up demand because to.
Speaker Change: To your point on the recent trends that business has been impacted by the tightness in the flow of chassis in recent years.
Speaker Change: So we do believe there is pent up demand and what we saw in Q1.
Walter Scott Liptak: Okay, great. What should we think about the backlog at the end of the year if you're successful and... Uh, you know, do we stay around this billion dollar level through the year, or do you think it goes up?
Speaker Change: Is is it gives us encouragement that with the improvement in chassis there is going to be that pent up demand and what we've also seen is some of our businesses have been able to kind of expand geographically, which is really encouraging because as we think about I think we had a question earlier about the infrastructure bill and the potential that we think dump truck.
Ian A. Hudson: Yeah, I think we want to obviously, as Jennifer mentioned, we want to reduce those lead times by increasing production and shipping more, but also, at the same time, maintaining that healthy order intake. So rather than kind of focus on a backlog number, I think our objectives and our goals for the year are really increasing build rates per day, increasing production, things of that nature. But we want to maintain that healthy order intake level, so that's really the focus.
Speaker Change: As one area probably on the on the earlier end of of the funding for that would be dump trucks. So we're encourage with what we saw in Q1.
Speaker Change: There's probably more to come.
Speaker Change: Yeah, I'd just add there kind of reiterating what Ian said, we've got a really good team, they're very focused on geographic expansion and market share growth and theyre, having some early successes.
Walter Scott Liptak: Okay, that sounds great. And then the orders. I wanted to ask about the orders for the dump truck business and just some questions around that. How big is the dump truck revenue on an annual basis, and what were the trends in the last couple of years? Because I'm recalling that there were some supply chain issues with the chassis, and maybe not the order levels or whatever in the last couple of years, and you talked about pent-up demand. So I wonder if you can help quantify how big the revenue for that business is and what the growth rate was the last time.
Speaker Change: With the improved chassis supply.
Speaker Change: Really good quarter by our dump truck business and more to come.
Speaker Change: Okay, great. Okay. Thanks for the color.
Speaker Change: Our next question comes from Greg Burns with Sidoti <unk> Co. Please proceed with your question.
Gregory John Burns: Good morning.
Gregory John Burns: Even given the substantial backlog and the extended lead times could you just talk a little bit more maybe about the.
Gregory John Burns: The calculus is the thought behind diverting production maybe towards the rental.
Gregory John Burns: Our rental fleet I understand the longer term opportunity but.
Ian A. Hudson: Yeah, so the dump trucks represent about 17% of our total revenues. I think we mentioned on the call that the orders in that business were up 22 million or 38% year-over-year, so what we've seen there is really nice growth with the improvement in some of the chassis flow. We do believe that that is a business where there is some pent-up demand because, to your point on recent trends, that business has been impacted by the tightness in the flow of chassis in recent years.
Speaker Change: How does that.
Gregory John Burns: Decision factor in with this idea that we want to get.
Gregory John Burns: Our lead times down also at the same time, maybe you could do both hand in hand in and also the investments that youre looking to make in.
Gregory John Burns: Into the rental fleet or could those even be higher were it not for the lead times, you know needing to manage those like well what's.
Ian A. Hudson: So we do believe there is pent-up demand, and what we saw in Q1 gives us encouragement that with the improvement in chassis, there is going to be that pent-up demand. And what we've also seen is some of our businesses have been able to kind of expand geographically, which is really encouraging because as we think about, I think we had a question earlier about the infrastructure bill and the potential there. We think dump trucks are one area probably on the earlier end of the funding for that would be dump trucks. So we're encouraged with what we saw in Q1 and think there's probably more to come.
Speaker Change: What's the dynamic there. Thank you I think the investment Greg with it we are talking about is specific Lee we were already talking about true backend guzzlers and so for those product lines. The lead times are.
Speaker Change: Probably in an area that will be what we would call normal so we're not.
Speaker Change: Not in the same situation with sewer cleaners, and sweepers wear those lead times are probably more extended than we'd like so the investment really is not.
Speaker Change: Yes, its focus on the product lines, where lead times are normal. So that's that's one area. The other reason that there is that need to.
Jennifer L. Sherman: Yeah, I'll just add there, kind of reiterating what Ian said: we've got a really good team. They're very focused on geographic expansion and market share growth, and they're having some early success. So, with the improved chassis supply, you know, really good quarter by our dollar, and more to come. Okay, great.
Speaker Change: To add more units to the fleet is just given the strength of used equipment sales that we've seen and that creates that need to replenish.
Gregory John Burns: We talked about in Q1 shifting some of the production there.
Gregory John Burns: To prioritize customers.
Gregory John Burns: So there is that shift that we add we had planned to add units to the fleet in Q1.
Walter Scott Liptak: Okay, great. Okay, thanks for the call.
Operator: Our next question comes from Greg Burns with Sidoti & Co. Please proceed with your question.
Gregory John Burns: Some of that has now shifted to Q2, so kind of for the full year that pieces is somewhat neutral to our prior guide the incremental investment. We're talking about is primarily on the Gaza and true back side and again, that's the area where lead times are more normal.
Gregory John Burns: Morning, um, given the substantial backlog and the extended lead times, could you just talk a little bit more about the calculus of the thought behind, you know, diverting production maybe towards the rental fleet. I understand the longer-term opportunity, but, you know, how does that decision factor in with this idea that we want to get?
Speaker Change: And I guess I'd add there is that.
Speaker Change: We carefully monitor monitor our rental fleet utilization and used equipment sales parts and service and as we assumed these additional territory specifically for safe digging.
Gregory John Burns: And for Cutler.
Gregory John Burns: We see opportunities there and we want to be prepared to respond to that because we continue to believe that used equipment in particular, along with parts service will be an important growth area for the company.
Ian A. Hudson: Transcribed by https://otter.ai, into the rental fleet, or could those even be higher were it not for the lead times? Yeah, I think the investment, Greg, that we're talking about is specifically, we're only talking about TruVac and Guzzlers. And so for those product lines, the lead times are, you know, probably in an area that would be what we would call normal. So we're not in the same situation with sewer cleaners and sweepers, where those lead times are probably more extended than we'd like. So the investment really isn't, you know; it's focused on the product lines where lead times are normal.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: Our next question comes from Dave storms with Stonegate capital markets. Please proceed with your question.
Gregory John Burns: Good morning, Preston Graham sitting in for Dave today.
Preston Graham: You mentioned in your prepared remarks that your M&A pipeline continues to be strong.
Preston Graham: Any additional color you can share on what youre seeing in the M&A environment, and what type of tuck ins could make sense for the business going forward.
Jennifer L. Sherman: So that's one area. The other reason that there is that need to add more units to the fleet is just given the strength of used equipment sales that we've seen, and that creates that need to replenish. We talked about in Q1 shifting some of the production there to prioritize customers. So there is that shift that we had. We had planned to add units to the fleet in Q1. Some of that has now shifted to Q2. So kind of for the full year, that piece is somewhat neutral to our prior guide. The incremental investment we're talking about is primarily on the Guzzers and Truvec sides.
Preston Graham: Yeah.
Preston Graham: I think we're in a pretty good place right now we're working on a number of different opportunities.
Preston Graham: Again in many cases these are opportunities that we have sourced.
Preston Graham: And we've developed relationships over a longer.
Preston Graham: Period of time.
Preston Graham: So pipeline is full and more to come I guess I'll reiterate that M&A will continue to be a meaningful part of our growth story as we move forward.
Preston Graham: I mentioned in my prepared remarks, I was out in Denver last week at our open house is really exciting to see what happens when you bring all of these federal signal brands together under one umbrella.
Gregory John Burns: And I guess I'd add there that, you know, we carefully monitor our rental fleet utilization and used equipment sales, parts, and service, and as we assume these additional territories specifically for safe digging and for guzzler, we see opportunities there, and we want to be prepared to respond to that because we continue to believe that used equipment, in particular, along with parts, and service, will be an important growth area.
Preston Graham: A good example of some of the organic growth initiatives and then some of our M&A working together.
Speaker Change: Got it very helpful. Thank you and then one follow up last quarter, you touched on some lumpiness and sort of the lead orders some of the large fleet orders, obviously, it's hard to predict but I guess could you talk a little bit more about what youre seeing from your fleet customers.
Preston Graham: Demand perspective.
Speaker Change: Yeah. So one of the things we were encouraged was.
Gregory John Burns: Okay, great. Thank you very much.
Speaker Change: Demand across the board.
Operator: Our next question comes from Dave Storms with Stonegate Capital Market. Please proceed with your question.
Speaker Change: Was very strong.
Speaker Change: And we're particularly encouraged by as we talked about kind of the dump truck orders.
David Joseph Storms: Good morning. Preston Graham is sitting in for Dave today. You mentioned in your prepared remarks that your M&A pipeline continues to be strong. I guess any additional color you can share on what you're seeing in the M&A environment and what type of tuck-ins could make sense for the business going forward?
Speaker Change: The SSG orders were strong and despite the fact that the year over year comparable is tough because they had a onetime 11 million dollar order to Mexico in Q1 of 'twenty three.
Speaker Change: And again, it's pretty balanced between the publicly funded in the industrial side, which we believe is encouraging and an important sign of the health of our business.
Jennifer L. Sherman: Yeah, I think we're in a pretty good place right now. We're working on a number of different opportunities. Again, in many cases, these are opportunities that we have sourced. And we've developed relationships over a longer period of time.
Speaker Change: Okay.
Speaker Change: Thank you that's helpful. Okay, I'll jump back in the queue.
Speaker Change: Yeah.
Speaker Change: There are no further questions at this time I would now like to turn the floor back over to Jennifer Sherman for closing comments.
David Joseph Storms: So the pipeline is full, and more to come. And I guess I'll reiterate that M&A will continue to be a meaningful part of our growth story as we move forward. You know, I mentioned in my prepared remarks that I was out in Denver last week at our open house. It was really exciting to see what happens when you bring all of these Federal Signal brands together under one umbrella. A good example of some of our organic growth initiatives and then some of our M&A work.
Jennifer L. Sherman: In closing I would like to reiterate that we are confident in the long term prospects for our businesses in our markets. We remain focused on executing against our strategic framework, we would like to express our thanks to our stockholders employees distributors dealers and customers for their continued support thank you for joining us today.
David Joseph Storms: Got it. Very helpful. Thank you.
Speaker Change: And we'll talk to you soon.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
David Joseph Storms: And then one follow-up. Last quarter, you touched on some lumpiness and sort of the fleet orders, some of the large fleet orders. Obviously, it's hard to predict, but could you talk a little bit more about what you're seeing from your fleet customers from a demand perspective?
Speaker Change: [music].
Jennifer L. Sherman: Yeah. One of the things we were encouraged by was that demand across the board was very strong. And, you know, we were particularly encouraged by, as we talked about, kind of the dump truck orders. You know, the SSG orders were strong, and despite the fact that the year-over-year comparison was tough because they had a one-time $11 million order to Mexico in Q1 of 23. And, you know, again, it's pretty balanced between the publicly funded and the industrial side, which we believe is encouraging and an important sign of the health of our business.
Speaker Change: Okay.
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Speaker Change: Yeah.
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David Joseph Storms: Thank you, that's helpful. Okay, I'll jump back in the queue.
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Operator: There are no further questions at this time. I would now like to turn the floor back over to Jennifer Sherman for closing comments.
Speaker Change: [music].
Jennifer L. Sherman: In closing, I would like to reiterate that we are confident in the long-term prospects for our businesses and our markets. We remain focused on executing against our strategic framework. We would like to express our thanks to our stockholders, employees, distributors, dealers, and customers for their continued support. Thank you for joining us today, and we'll talk to you soon.
Speaker Change: Uh huh.
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Speaker Change: Okay.
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Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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