Q2 2024 Federal Signal Corp Earnings Call

Greetings and welcome to the Federal Signal Corporation's second 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.

Operator: quarterly earnings conference call. At this time, all participants are in a listen-only mode.

Operator: 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, Felix. You may begin.

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, Investor Relations. Thank you, Felix. You may begin.

Felix M. Boeschen: Good morning, and welcome to Federal Signal's second quarter 2024 conference call. I'm Felix Boeschen, 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 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.

Good morning and welcome to Federal Signal's second quarter 2024 conference call. I'm Felix Boeschen, the company's Vice President of Corporate Strategy and Investor Relations.

Speaker Change: Also with me on the call today is Jennifer Sherman, our President and Chief Executive Officer, and Ian Hudson, our Chief Financial Officer.

Speaker Change: 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.

Felix M. Boeschen: We have 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.

Ian will start today by providing details on our second quarter financial results.

Felix M. Boeschen: 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 second quarter financial results. Jennifer will then provide her perspective on our performance, an update on our multi-year growth outlook, and our updated guidance 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 you. Thank you, Felix.

Ian A. Hudson: Our consolidated second 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 organic net sales and earnings growth, gross margin expansion, and a 280 basis point improvement in EBITDA margins. Consolidated net sales for the quarter were $490 million, a record high for the company and an increase of $48 million, or 11%, compared to last year. However, all of the growth this quarter was organic.

Ian A. Hudson: In summary, we delivered strong financial results for the quarter, with double-digit year-over-year organic net sales and earnings growth, gross margin expansion, and a 280 basis point improvement in EBITDA margin.

Ian: Consolidated net sales for the quarter were 490 million dollars, a record high for the company and an increase of 48 million dollars or 11% compared to last year. All of the growth this quarter was organic.

Ian A. Hudson: Consolidated operating income for the quarter was $81.1 million, up $21.7 million, or 37% compared to last year. Consolidated Adjusted EBITDA for the quarter was $97.7 million, up $22.2 million, or 29% compared to last year. That translates to a margin of 19.9% in Q2 this year, up from 16.1% in Q2 last year. Gap EPS for the quarter was $0.99 per share, up $0.33 per share, or 50% from last year.

Ian: Consolidated operating income for the quarter was $81.1 million, up $21.7 million, or 37% compared to last year.

Ian: Gap EPS for the quarter was $0.99 per share, up $0.33 per share, or 50% from last year. On an adjusted basis, EPS for the quarter was $0.95 per share, up $0.28 per share, or 42% from last year.

Ian A. Hudson: On an adjusted basis, EPS for the quarter was $0.95 per share, up $0.28 per share, or 42% from last year. Order intake for the quarter was again strong, with second quarter orders of $473 million contributing to a backlog of $1.08 billion at the end of the quarter, an increase of $73 million, or 7% compared to Q2 last year. In terms of our group results, ESG's net sales for the quarter were $409 million, up $36 million or 10% compared to last year. ESG's operating income for the quarter was $72.9 million, up $16.7 million or 30% compared to last year.

Speaker Change: In terms of our group results, ESG's net sales for the quarter were $409 million.

Ian: up $36 million, or 10% compared to last year. ESG's operating income for the quarter was $72.9 million, up $16.7 million, or 30% compared to last year.

Ian A. Hudson: ESG's Adjusted EBITDA for the quarter was $88.2 million, up $17.5 million, or 25% compared to last year. That translates to an Adjusted EBITDA margin for the quarter of 21.6%, an improvement of 260 basis points compared to last year, and performance towards the upper end of our current target range. ESG reported total orders of $396 million in Q2 this year compared to $409 million last year

Ian: That translates to an adjusted EBITDA margin for the quarter of 21.6%, an improvement of 260 basis points compared to last year, and performance towards the upper end of our current target range.

Ian: ESG reported total orders of $396 million in Q2 this year compared to $409 million last year.

Ian A. Hudson: SSG's net sales for the quarter were $82 million this year, up $12 million, or 18%. SSG's operating income for the quarter was $18.3 million, up $4.2 million, or 30% compared to last year. SSG's adjusted EBITDA for the quarter was $19.3 million, up $4.1 million, or 27%. That translates to a margin of 23.7% above SSG's current target range and up 180 basis points compared to last year. SSG's orders for the quarter were $77 million, an increase of $5 million or 7% compared to last year. Corporate operating expenses for the quarter were $10.1 million, down from $10.9 million last year.

Speaker Change: SSG's net sales for the quarter were $82 million this year, up $12 million, or 18%. SSG's operating income for the quarter was $18.3 million, up $4.2 million, or 30% compared to last year.

Speaker Change: SSG's adjusted EBITDA for the quarter was $19.3 million, up $4.1 million, or 27 percent.

Speaker Change: That translates to a margin of 23.7% above SSG's current target range and up 180 basis points compared to last year. SSG's orders for the quarter were $77 million, an increase of $5 million or 7% compared to last year.

Speaker Change: Corporate operating expenses for the quarter were $10.1 million, down from $10.9 million last year.

Ian A. Hudson: Turning now to the Consolidated Income Statement, where the increase in sales contributed to a $26.7 million improvement in gross profit. Consolidated gross margin for the quarter was 29.4%, a 290 basis point increase over last year. As a percentage of sales, upselling, engineering, general, and administrative expenses for the quarter were down 20 basis points from Q2 last year. Other items affecting the quarterly results include a $200,000 increase in acquisition-related expenses, a $100,000 reduction in amortization expense, a $700,000 decrease in other expenses, and a $2.4 million reduction in interest expenses. Tax expense for the quarter was $16.7 million, up $4.3 million from the prior year.

Speaker Change: Turning now to the Consolidated Income Statement, where the increase in sales contributed to a $26.7 million improvement in gross profit. Consolidated gross margin for the quarter was 29.4%, a 290 basis point increase over last year.

Speaker Change: As a percentage of sales, our selling, engineering, general and administrative expenses for the quarter were down 20 basis points from Q2 last year.

Speaker Change: Other items affecting the quarterly results include a $200,000 increase in acquisition-related expenses, a $100,000 reduction in amortization expense, a $700,000 decrease in other expense,

Speaker Change: and a $2.4 million reduction in interest expense.

Speaker Change: Tax expense for the quarter was $16.7 million, up $4.3 million from the prior year.

Ian A. Hudson: Our effective tax rate in Q2 this year was 21.5% compared to 23.5% last year, with the reduction primarily due to a $2.6 million discrete tax benefit recognized in connection with the amendment of certain state tax returns to claim a worthless stock deduction. At this time, we expect our effective tax rate for the remaining half of the year to be between 25% and 26%, excluding any additional discrete tax benefits. On an overall gap basis, we therefore earned $0.99 per share in Q2 this year, compared with $0.60 per share and $0.66 per share in Q2 last year.

Speaker Change: Our effective tax rate in Q2 this year was 21.5% compared to 23.5% last year, with a reduction primarily due to a $2.6 million discrete tax benefit recognized in connection with the amendment of certain state tax returns to claim a worthless stock deduction.

Speaker Change: At this time, we expect our effective tax rate for the remaining half of the year to be between 25% and 26%, excluding any additional discrete tax benefits.

Speaker Change: On an overall gap basis, we therefore earned $0.99 per share in Q2 this year, compared with $0.60 per share, $0.66 per share in Q2 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 quarter. For example, in the current quarter, we made adjustments to GAAP earnings per share to exclude acquisition-related expenses and the discrete tax benefits I previously mentioned. On this basis, our adjusted earnings for the quarter were $0.95 per share, compared with $0.67 per share last year.

Speaker Change: To facilitate earnings comparisons, we typically adjust our gap earnings per share for unusual items recorded in the current or prior quarters.

Speaker Change: In the current year quarter, we made adjustments to GAAP earnings per share to exclude acquisition-related expenses and the discrete tax benefits I previously mentioned. On this basis, our adjusted earnings for the quarter were $0.95 per share, compared with $0.67 per share last year.

Ian A. Hudson: Looking now at cash flow, we generated $41 million of cash from operations during the quarter, an increase of $5 million from Q2 last year. That brings the total cash generated from operations in the first half of this year to $72 million, an increase of 67% over the first half of last year. We ended the quarter with $207 million of net debt and availability under our credit facility of $533 million. Our current net debt leverage ratio remains low.

Speaker Change: That brings the total cash generated from operations in the first half of this year to $72 million, an increase of 67% over the first half of last year.

Speaker Change: We ended the quarter with $207 million of net debt and availability under our credit facility of $533 million.

Ian A. Hudson: 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. On that note, we paid dividends of $7.4 million during the quarter, reflecting a dividend of 12 cents per share, and we recently announced a similar dividend for the third quarter. That concludes my comments, and I would now like to turn the call over to Jennifer. Thank you, Ian.

Speaker Change: Our current net 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 repurchases.

Speaker Change: On that note, we paid dividends of $7.4 million during the quarter, reflecting a dividend of 12 cents per share, and we recently announced a similar dividend for the third quarter.

Jennifer L. Sherman: Our second quarter results represent another outstanding quarter, as our team set quarterly performance records across many metrics, including net sales, EBITDA margins, and adjusted EPS, all while maintaining a healthy order intake. Within our Environmental Solutions Group, we are able to deliver 10% year-over-year net sales growth and a 25% increase in adjusted EBITDA with increased production at several of our businesses and continued price realization representing meaningful year-over-year drivers. Overall, in what is typically a seasonally strong quarter, ESG's adjusted EBITDA margin was up 260 basis points year over year.

Speaker Change: That concludes my comments and I would now like to turn the call over to Jennifer.

Jennifer L. Sherman: Thank you, Ian. Our second quarter results represent another outstanding quarter, as our team sent quarterly performance records across many metrics, including net sales, EBITDA margins, and adjusted EPS, all while maintaining a healthy order intake.

Jennifer L. Sherman: Within our environmental solutions group, we were able to deliver 10% year-over-year net sales growth and a 25% increase in adjusted EBITDA with increased production at several of our businesses and continued price realization representing meaningful year-over-year drivers.

Speaker Change: Overall, in what is typically a seasonally strong quarter, ESG's adjusted EBITDA margin was up 260 basis points year over year.

Jennifer L. Sherman: We were particularly encouraged with the progress we have made across the enterprise on our Build More Trucks initiative this quarter. Our dump truck body businesses had another strong quarter, with sales up 22 percent on the back of improving chassis availability and higher build rates. The increased dump truck body production, coupled with our ongoing 80-20 initiatives at several key facilities, was again a contributing factor in our year-over-year margin improvement within our ESG segment.

Speaker Change: We were particularly encouraged with the progress we have made across the enterprise on our Build More Trucks initiative this quarter. Our dump truck body businesses had another strong quarter with sales up 22% on the back of improving chassis availability and higher build rates.

Speaker Change: The increased dump truck body production coupled with our ongoing 80-20 initiatives at several key facilities was again a contributing factor in our year-over-year margin improvement within our ESG segment.

Jennifer L. Sherman: In fact, monthly chassis receipts at our OX bodies facility grew sequentially throughout the quarter, with June Chassis Deliveries being the highest experience since the first quarter of 2021. We remain focused on maintaining our industry-leading lead times in this space as we raise our production. Our strategic dump truck growth initiatives are also gaining momentum. OxBodies is broadening its geographic reach in key states such as Texas.

Speaker Change: In fact, monthly chastity receipts at our OXBODY facility grew sequentially throughout the quarter.

Speaker Change: with June Chassis Deliveries, the highest experience since the first quarter of 2021. We remain focused on maintaining our industry-leading lead times in this space as we raise our production levels.

Speaker Change: Our strategic dump truck growth initiatives are also gaining momentum. OxBodies is broadening its geographic reach in key states such as Texas.

Jennifer L. Sherman: The rugby team is progressing along its 80-20 journey in the form of product and SKU simplification, and Switch & Go is on track to start production of its new Class 3 interchangeable multi-body product in August. The Switch & Go Class 3 product launch provides customers additional flexibility in what remains a constrained, medium-duty chassis environment. At our largest manufacturing facility in Streeter, production increased by 15% year-over-year, including the 13 million sewer cleaner shipments that were affected by the third-party component supply issue that we experienced in March.

Speaker Change: The rugby team is progressing along its 80-20 journey in the form of product and SKU simplification. And Switch & Go is on track to start production of its new Class 3 interchangeable multi-body product in August .

Speaker Change: The Switch & Go Class 3 product launch provides customers additional flexibility in what remains a constrained, medium-duty chassis environment.

Speaker Change: At our largest manufacturing facility in Streeter, production increased by 15% year-over-year, including the 13 million of sewer cleaner shipments that were affected by the third-party component supply issue that we experienced in March.

Jennifer L. Sherman: MRL, our road marking and line removal business, is also benefiting from improving supply chain conditions and a constructive demand backdrop as the team was able to drive a 29% year-over-year increase in sales. In addition to anticipated multi-year benefits stemming from the infrastructure bill, we also see the ongoing shift towards early autonomous vehicle functionality and the addition of smart features for passenger cars as a key long-term driver of road striping demand.

Speaker Change: MRL, our road marking and line removal business, is also benefiting from improving supply chain conditions and a constructive demand backdrop as the team was able to drive a 29% year-over-year increase in sales.

Speaker Change: In addition to anticipated multi-year benefits stemming from the infrastructure bill, we also see the ongoing shift towards early autonomous vehicle functionality and the addition of smart features for passenger cars as a key long-term driver of road striping demand.

Jennifer L. Sherman: Big picture, while supply chain performance has not yet fully recovered to pre-pandemic levels, supply chains are consistently improving for our family of specialty vehicle businesses. This improvement in supply chain efficiency should, over time, allow us to drive additional output and gain manufacturing efficiencies as we aim to reduce lead times for certain products, including vacuum trucks and street sweepers. From a capacity perspective, our access to labor remains good, and our large-scale capacity expansions that we completed between 2019 and 2022 position us well to profitably absorb incremental volumes into the current facility footprint.

Speaker Change: Big picture, while supply chain performance has not yet fully recovered to pre-pandemic levels, supply chains are consistently improving for our family of specialty vehicle businesses.

Operator: This improvement in supply chains should, over time, allow us to drive additional output and gain manufacturing efficiencies as we aim to reduce lead times for certain products, including vacuum trucks and street sweepers.

Speaker Change: This improvement in supply chain should, over time, allow us to drive additional output and gain manufacturing efficiencies as we aim to reduce lead times for certain products, including vacuum trucks and street sweepers.

Operator: From a capacity perspective, our access to labor remains good, and our large scale capacity expansion that we completed between 2019 and 2022 positions us well to profit by absorbed in criminal volumes into the current facility footprint.

Speaker Change: From a capacity perspective, our access to labor remains good, and our large-scale capacity expansions that we completed between 2019 and 2022 position us well to profitably absorb incremental volumes into the current facility footprint.

Operator: Shifting to after markets, activity levels remain strong across our offering. Performance was led by increase in part sales, service rental, and rental income, partially offset by lower used equipment sales, as our teams are working diligently to balance rental unit availability and used equipment sales to best serve our customers. In short, rental utilization and demand for our rent-to-own equipment offerings remains high.

Jennifer L. Sherman: Shifting to aftermarkets, activity levels remain strong across our offerings. Performance was led by an increase in part sales, service rental, and rental income, partially offset by lower used equipment sales as our teams are working diligently to balance rental unit availability and used equipment sales to best serve our customers. In short, rental utilization and demand for our rent-to-own equipment offerings remains high.

Speaker Change: Shifting to aftermarkets, activity levels remain strong across our offerings.

Speaker Change: Performance was led by increase in part sales, service rental, and rental income partially offset by lower used equipment sales as our teams are working diligently to balance rental unit availability and used equipment sales to best serve our customers.

Speaker Change: In short, rental utilization and demand for our rent-to-own equipment offerings remains high.

Jennifer L. Sherman: From a strategic perspective, our growing aftermarket ecosystem allows us to better serve our customer needs throughout the entire business cycle. Especially in the higher interest rate environment that we are experiencing today, the option to rent new or acquire used pieces of equipment represents an important alternative for many of our industrial customers to access equipment in a timely and affordable manner. As we continue to scale our aftermarket business, we see additional long-term growth opportunities as acquired businesses are integrated into the platform.

Operator: From a strategic perspective, our growing after market ecosystem allows us to better serve our customer needs throughout the entire business cycle. Especially in the higher interest rate environments that we are experiencing today, the option to rent new or acquire use piece of equipment represents an important alternative for many of our industrial customers to access equipment in a timely and affordable manner.

Speaker Change: From a strategic perspective, our growing aftermarket ecosystem allows us to better serve our customer needs throughout the entire business cycle.

Speaker Change: Especially in the higher interest rate environments that we are experiencing today, the option to rent new or acquire used pieces of equipment represents an important alternative for many of our industrial customers to access equipment in a timely and affordable manner.

Operator: As we continue to scale, our after market business, we see additional long-term growth opportunities as acquired businesses are integrated into the platform. We further increase a part to capture rate, optimize underserved regions, and address non-traditional federal signal customer cohorts through our rent-owned service offerings. In total, after market represented approximately 25% the ISG revenue in the second quarter of 2024.

Speaker Change: as we continue to scale our aftermarket business.

Speaker Change: We see additional long-term growth opportunities as acquired businesses are integrated into the platform. We further increase our parts capture rate, optimize underserved regions, and address non-traditional Federal Signal customer cohorts through our rent-to-own service offerings.

Jennifer L. Sherman: We further increase our parts capture rate, optimize underserved regions, and address non-traditional Federal Signal customer cohorts through our rent-to-own service offerings. In total, aftermarket represented approximately 25 percent of ESG revenue in the second quarter of 2024.

Speaker Change: In total, aftermarket represented approximately 25% of ESG revenue in the second quarter of 2024.

Jennifer L. Sherman: Shifting to our safety and security systems group, the team delivered another quarter of outstanding results with 18% top line growth, a 27% increase in adjusted EBITDA, and a 180 basis point improvement in adjusted EBITDA margin on the back of sales volume increases and price realization. Sales of public safety equipment paved the way with 25% year-over-year growth as our light bar and siren products are responding in the marketplace. This strong underlying demand for our products, coupled with the insourcing investments we've made in recent years and our ongoing 80-20 efforts, have contributed to achieving a mid-teens year-over-year improvement in volume.

Operator: Shifting to our safety and security systems group, the team delivered another quarter of our standing results with 18% top-line growth, a 27% increase in adjusted EBITDA, and a 180 basis point improvement in adjusted EBITDA margin on the back of sales volume increases and price realization. Sales of public safety equipment paved the way with 25% year-of-year growth as our light-bar and diamond products are resonating in the marketplace. This strong underlying demand for our products croupled with the in-sourcing investments we've made in recent years and our ongoing 80-20 efforts have contributed to achieving a big team's year-of-year improvement in volume.

Speaker Change: Shifting to our safety and security systems group, the team delivered another quarter of outstanding results.

Speaker Change: with 18% top line growth, a 27% increase in adjusted EBITDA, and 180 basis point improvement in adjusted EBITDA margin on the back of sales volume increases and price realization.

Speaker Change: Sales of public safety equipment paved the way with 25% year-over-year growth as our light bar and siren products are resonating in the marketplace.

Speaker Change: This strong underlying demand for our products, coupled with the insourcing investments we've made in recent years, and our ongoing 80-20 efforts, have contributed to achieving a mid-teens year-over-year improvement in volume.

Jennifer L. Sherman: Going forward, our teams remain energized to continue to execute on a robust NPD pipeline across all of our SSG businesses as we aim to fortify and grow our position as the industry leader of audible and visual safety equipment. We have also been pleased with our cash generation through the first half of the year, as cash generated from operations rose 67% compared to last year. On an annual basis, we continue to target 100% cash conversion levels.

Operator: Going forward, our teams remain energized to continue to execute on a robust NPD pipeline across all of our SSG businesses as we aim to fortify and grow our position as the industry leader of audible and visual safety equipment.

Speaker Change: Going forward, our teams remain energized to continue to execute on a robust NPD pipeline across all of our SSG businesses as we aim to fortify and grow our position as the industry leader of audible and visual safety equipment.

Operator: We have also been pleased with our cash generation through the first half of the year, as cash generated from operations rose 67% compared to last year.

Speaker Change: We have also been pleased with our cash generation through the first half of the year as cash generated from operations rose 67% compared to last year. On an annual basis, we continue to target 100% cash conversion levels.

Operator: On an annual basis, we continue to target 100% cash conversion levels.

Jennifer L. Sherman: Another highlight of the quarter was the publication of our latest sustainability report. In the report, we highlight the ways in which we make a difference to our customers, our communities, and our environment. We know that as a global manufacturer of critical infrastructure and safety products, we have the responsibility to operate sustainably with a long-term positive impact on our employees, customers, partners, and stakeholders at large. These efforts also position us well in the communities in which we operate and serve as a differentiating factor in our ability to attract labor at most of our facilities.

Operator: Another highlight of the quarter included the publication of our latest sustainability report. In the report, we highlight the ways in which we make a difference to our customers, our communities, and our environment.

Speaker Change: Another highlight of the quarter included the publication of our latest sustainability report. In the report we highlight the ways in which we make a difference to our customers, our communities, our environment.

Operator: We know that, as a global manufacturer of critical infrastructure safety products, we have the responsibility to operate sustainably with a long-term positive impact to our employee, customers, partners, and stakeholders at large. These efforts also position us in the communities in which we operate and serve as a differentiating factor in our ability to attract labor at most of our facilities.

Speaker Change: We know that as a global manufacturer of critical infrastructure and safety products, we have the responsibility to operate sustainably with a long-term positive impact to our employees, customers, partners, and stakeholders at large.

Speaker Change: These efforts also position us well in the communities in which we operate and serve as a differentiating factor in our ability to attract labor at most of our facilities.

Jennifer L. Sherman: The report also highlights the progress we have made against our sustainability goals that were initially established in 2018. Having achieved our electricity, water, and CO2 intensity reduction goals early, we have announced our new 2030 energy intensity reduction goals.

Speaker Change: The report also highlights the progress we have made against our sustainability goals that were initially established in 2018, and having achieved our electricity, water, and CO2 intensity reduction goals early, we have announced our new 2030 energy intensity reduction goals.

Jennifer L. Sherman: Shifting now to current market conditions, demand for our product offerings and services remains high, with our second quarter order intake of $473 million, just falling short of last year's record second quarter orders of $480 million. For comparison purposes, please note that last year's orders included approximately $8 million of acquired backlog from the track list acquisition. In recent years, we have supplied a higher concentration of chassis than our customers. But as chancy availability has improved, customer buying patterns have started to revert to the more typical 50-50 split that we have historically experienced. This shift resulted in 9 million fewer chassis orders in Q2 this year compared to last year.

Speaker Change: Shifting now to current market conditions.

Speaker Change: Demand for our product offerings and services remains high, with our second-quarter order intake of $473 million just falling short of last year's record second-quarter orders of $480 million.

Speaker Change: For comparison purposes, please note that last year's orders included approximately $8 million of acquired backlog from the track list acquisition.

Speaker Change: In recent years, we have supplied a higher concentration of chassis than our customers.

Speaker Change: But as chassis availability has improved, customer buying patterns have started to revert to the more typical 50-50 split that we have historically experienced. This shift resulted in 9 million fewer chassis orders in Q2 this year compared to last year.

Jennifer L. Sherman: This trend is also expected to represent a year-over-year net sales headwind of approximately $10 million in the second half of the year but should have some nominal margin benefits. The composition of orders remains balanced between our publicly-funded and industrial end markets, as contributions from both subsets were similar on a year-over-year basis. On the publicly funded side, demand for our flagship sewer cleaners has remained consistently high throughout 2024 on the back of solid core funding mechanisms.

Speaker Change: This trend is also expected to represent a year-over-year net sales headwind of approximately $10 million in the second half of the year, but should have some nominal margin benefits.

Speaker Change: The composition of orders remains balanced between our publicly funded and industrial end markets, as contributions from both subsets were similar on a year-over-year basis.

Speaker Change: On the publicly funded side, demand for our flagship sewer cleaners has remained consistently high throughout 2024 on the back of solid core funding mechanisms.

Jennifer L. Sherman: Our SSG business is experiencing a similarly stable growth pattern as orders increased 7% in the quarter. This includes a $6 million public safety equipment order from a major municipality slated for delivery in 2025. Lastly, resulting from our ongoing end customer and market diversification efforts, our dump truck body business enjoyed double-digit order growth with municipal customers in the second quarter. On the industrial side, orders for dump truck bodies continue to lead the charge, with orders up 32% year over year.

Speaker Change: Our SSG business is experiencing a similarly stable growth pattern as orders increase 7% in the quarter.

Speaker Change: This includes a $6 million public safety equipment order from a major municipality slated for delivery in 2025.

Speaker Change: Lastly, resulting from our ongoing end-customer and market diversification efforts, our dump truck body business enjoyed double-digit order growth with municipal customers in the second quarter.

Speaker Change: On the industrial side, orders for dump truck bodies continue to lead the charge with orders up 32% year over year.

Jennifer L. Sherman: Similar to last quarter, we believe this to be driven by a combination of pent-up replacement demand, execution on our strategic initiatives across different end markets, and high current equipment utilization levels. We are also seeing strong demand for our metal extraction support equipment as we are starting to reap distribution benefits from the combined ground force and tow haul platform. Lastly, our teams remain laser-focused on positioning our businesses to be able to capitalize on projects resulting from the $550 billion bipartisan infrastructure bill.

Speaker Change: Similar to last quarter, we believe this to be driven by a combination of pent-up replacement demand, execution on our strategic initiatives across different end markets, and high current equipment utilization levels.

Speaker Change: We are also seeing strong demand for our metal extraction support equipment as we are starting to reap distribution benefits from the combined ground force and tow haul platform.

Speaker Change: Lastly, our teams remain laser-focused on positioning our businesses to be able to capitalize on projects resulting from the $550 billion bipartisan infrastructure bill.

Jennifer L. Sherman: Although we believe the opportunity still remains in its early stages today, we anticipate many of our special vehicle offerings to participate in an array of projects and, importantly, at different stages of projects. As an illustrative example, while we expect the use of dump trucks to be fairly consistent, throughout the life of a project, we expect road marking or street sweeping demand to be weighed more heavily toward the end of a project when a new road is marked or streets are cleaned.

Speaker Change: Although we believe the opportunity still remains in its early stages today, we anticipate many of our special vehicle offerings to participate in an array of projects and, importantly, at different stages of projects.

Speaker Change: As an illustrative example, while we expect the use of dump trucks to be fairly consistent,

Speaker Change: Throughout the life of a project, we expect road marking or street sweeping demand to be weighted more heavily toward the end of a project when a new road is marked or projects are cleaned.

Jennifer L. Sherman: In fact, we have seen some examples of dump truck orders tied to early infrastructure projects, including a multi-unit order for a highway construction project in the Southwest that we booked this quarter. We are also encouraged by the early feedback we've received on our Guzzler micro-trenching. Our teams will be showcasing our Guzzler micro-trencher at the upcoming Fiber Broadband Association. In summary, demand for our products remains strong, and our teams are focused on executing our growth initiatives and building more trucks while continuing to maintain a healthy order index.

Speaker Change: In fact, we have seen some examples of dump truck orders tied to early infrastructure projects, including a multi-unit order for a highway construction project in the Southwest that we booked this quarter.

Speaker Change: We are also encouraged with early feedback we've received on our Guzzler micro-trenching vacuum truck, which is ideally suited for the installation of broadband infrastructure.

Operator: Structure, our teams will be showcasing our Guzzle and micro-trencher at the upcoming Fiber Broadband Association Show. In summary, demands for our products remain straws, and our teams are focused on executing our growth initiatives and building more trucks while continuing to maintain a healthy order intake.

Speaker Change: Our teams will be showcasing our Guzzler microtrencher at the upcoming Fiber Broadband Association show.

Speaker Change: In summary, demand for our products remains strong and our teams are focused on executing our growth initiatives and building more trucks while continuing to maintain a healthy order intake.

Jennifer L. Sherman: I now want to take a few minutes to provide an update on our ThruCycle Revenue Targets and Growth Initiative. While we have historically talked about a high single-digit annual revenue growth target, we are officially raising the bar to a low double-digit annual growth target, which is roughly consistent with our actual track record since 2016. Achieving that growth will be multifaceted, as we expect low-to-single, low to mid-single-digit base level and market growth to be supplemented by outsized growth from our organic initiatives and contributions from M&A.

Operator: I now want to take a few minutes to provide an update on our true cycle revenue targets and growth initiatives, while we have historically talked about a high single-digit annual revenue growth target. We are officially raising the bar to a low double-digit annual growth target, which is roughly consistent with our actual track record since 2016. Achieving that growth will be multifaceted as we expect low to single, low to mid-single digit based level and market growth to be supplemented by outside growth from our organic initiatives and contributions from M&A.

Speaker Change: I now want to take a few minutes to provide an update on our ThruCycle Revenue Targets and Growth Initiatives.

Speaker Change: While we have historically talked about a high single-digit annual revenue growth target, we are officially raising the bar to a low double-digit annual growth target, which is roughly consistent with our actual track record since 2016.

Speaker Change: Achieving that growth will be multifaceted as we expect low-to-single

Speaker Change: [inaudible]

Operator: In fact, we see opportunities for several businesses to expand their geographic reach as we start to harness the increasing benefits of the power of our growing specialty vehicle platform with our aftermarket operations that the heart of that value proposition. An excellent example that platform power is the 30% year-over-year growth we achieved to track in the first year of five-year single ownership. We also see these platform benefits fueling father strategic growth initiatives, including new product development, aftermarket support, sales channel, and procurement optimization.

Jennifer L. Sherman: In fact, we see opportunities for several businesses to expand their geographic reach as we start to harness the increasing benefits of the power of our growing specialty vehicle platform, with our aftermarket operations at the heart of that value proposition. An excellent example of that platform power is the 30% year-over-year growth we achieved at Trackless in the first year of Federal Signal ownership.

Speaker Change: as we start to harness the increasing benefits of the power of our growing specialty vehicle platform with our aftermarket operations at the heart of that value proposition.

Speaker Change: An excellent example of that platform power is the 30% year-over-year growth we achieved at TrackList in the first year of Federal Signal ownership.

Jennifer L. Sherman: We also see these platform benefits fueling other strategic growth initiatives, including new product development, aftermarket support, sales channel, and procurement optimization. Shifting to inorganic growth, our M&A pipeline remains active with several opportunities currently under evaluation. In line with our M&A strategy set forth in 2016, we are primarily focused on three types of acquisition opportunities.

Speaker Change: We also see these platform benefits fueling other strategic growth initiatives including new product development, aftermarket support, sales channel, and procurement optimization.

Operator: Shifting to inter-organic growth, our M&A pipeline remains active with several opportunities currently under evaluation.

Speaker Change: Shifting to inorganic growth, our M&A pipeline remains active with several opportunities currently under evaluation.

Operator: In line with our M&A strategy set forth in 2016, we are primarily focused on three types of acquisition opportunities. First, identifying new market adjacencies to penetrates within our ESG and SSG segment. Second, opportunistically adding to verticals in which we already operate, and finally, acquisitions to further accelerate our aftermarket growth.

Speaker Change: In line with our M&A strategy set forth in 2016, we are primarily focused on three types of acquisition opportunities.

Jennifer L. Sherman: First, identifying new market adjacencies to penetrate within our ESG and SSG segments. Second, opportunistically adding to verticals in which we already operate. And finally, acquisitions to further accelerate our aftermarket growth. We remain vigorous and Vigorous in our due diligence processes as we aim to identify the right strategic conditions for Federal Signal, but we believe our track record, integration process, modest debt profile, and strong free cash flow generation all position us as an acquirer of choice in our market.

Speaker Change: First, identifying new market adjacencies to penetrate within our ESG and SSG segments. Second, opportunistically adding to verticals in which we already operate.

Speaker Change: And finally, acquisitions to further accelerate our aftermarket growth. We remain vigorous.

Operator: We remain vigorous and vigorous and vigorous, and our due diligence processes as we aim to identify the right strategic conditions for federal signal. But we believe our track records, integration process, modest debt profile, and strong free cash flow generation all position us as an acquired choice in our markets.

Speaker Change: and Vigorous, and our due diligence processes as we aim to identify the right strategic conditions for Federal Signal, but we believe our track record

Speaker Change: Integration process, modest debt profile, and strong free cash flow generation all position us as an acquirer of choice in our markets.

Jennifer L. Sherman: Lastly, as we indicated, we were pleased with our margin performance in the quarter, with performance towards the upper end of our current target range. Recall, our stated margin targets are meant to be annual and through-the-cycle targets. When we last raised our targets on our third quarter 2023 earnings call, we outlined four foundations supporting the raise, including leveraging our capacity expansions, the rollout of our recently codified Federal Signal Operating System, continued growth in our aftermarket business, and value-added M&A. At Elgin, our pilot plant for the rollout of our recently codified Federal Signal Operating System, we saw some initial productivity and cost optimization benefits associated with this initiative in Q

Operator: Lastly, as we indicated, we were pleased with our margin performance to the quarter, with performance towards the upper end of our current target range.

Operator: We're called our stated margin targets are meant to be annual and through-the-cycle targets. When we last raised our targets on our third quarter, 2023 earnings call, we outlined four foundations supporting the race, including leveraging our capacity expansions, the roll out of our codified federal signal operating system, continued growth in our aftermarket business, and value at an M&A. At Allergens, our pilot plant for the roll out of our recently codified federal signal operating system, we saw some initial productivity and cost optimization benefits associated with this initiative in Q2. We are pleased with the progress we've made on a number of these foundations through the year at many of our businesses, but we are not done here.

Speaker Change: When we last raised our targets on our third quarter 2023 earnings call, we outlined four foundations supporting the raise.

Speaker Change: including leveraging our capacity expansions, the rollout of our codified federal signal operating system, continued growth in our aftermarket business, and value-added M&A.

Speaker Change: At Elgin, our pilot plant for the rollout of our recently codified Federal Signal Operating System, we saw some initial productivity and cost optimization benefits associated with this initiative in Q2.

Jennifer L. Sherman: We are pleased with the progress we've made on a number of these foundations through the year at many of our businesses, but we are not done here. We see ourselves as being in the early innings of what we view as a multi-year opportunity to drive structural improvement. Turning now to our outlook for the rest of the year, demand for our products and our aftermarket offerings remains high, with our strong order intake this quarter contributing to a backlog that provides us with excellent visibility into the second half of the year.

Operator: We see ourselves as being an early innings of what we view as a multi-year opportunity to drive structural improvements.

Operator: Turning now to our outlook for the rest of the year, demand for our products in our aftermarket offerings remains tied with our strong order intake this quarter, contributing to a backlog, which provides us with excellent visibility into the second half of the year.

Speaker Change: Turning now to our outlook for the rest of the year, demand for our products and our aftermarket offerings remains high, with our strong order intake this quarter contributing to a backlog, which provides us with excellent visibility into the second half of the year.

Jennifer L. Sherman: With our second quarter performance, our current backlog, and continued execution against our strategic initiatives, we are raising our full year adjusted EPS outlook to a new range of $3.20 to $3.35 from the prior range of $2.95 to $3.15.

Operator: With our second quarter performance, our current backlog in continued execution against our strategic initiatives, we are raising our full year adjusted EPS outlook to a new range of $3.20 to $3.35 from the prior range of $2.95 to $3.15. We also reaffirm our full year net sales outlook of between 1.85 billion and 1.9 billion. This outlook, this outlook, which does not assume an M&A, reflects our view of continued housing demand for a new equipment, parts, and aftermarket services, and also assumes the continuation of daily bills rate increases at several key facilities, somewhat offset by fewer production days in the second half of the year.

Jennifer L. Sherman: We're also reaffirming our full-year net sales outlook of between $1.85 billion and $1.9 billion. This outlook, which does not assume any M&A, reflects our view of continued healthy demand for our new equipment, parts, and aftermarket services and also assumes a continuation of daily build rate increases at several key facilities, somewhat offset by fewer production days in the second half of the year. 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 $40 million for the year. At this time, I think we are ready for questions. Operator?

Speaker Change: to $3.15.

Speaker Change: We are also reaffirming

Speaker Change: Our full year net sales outlook of between $1.85 billion and $1.9 billion.

Speaker Change: somewhat offset by fewer production days in the second half of the year.

Operator: We also continue to expect double-digit improvement in pretext earnings and EBITDA margins performance in the upper half of our target range.

Speaker Change: 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 $40 million for the year.

Operator: Lastly, we are maintaining our campus outlook of $35 million to $40 million for the year.

Operator: At this time, I think we are ready for questions.

Operator: Operate. Thank you.

Speaker Change: At this time, I think we are ready for questions. Operator.

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 your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press R1 on your telephone keypad. A confirmation to indicate your line is in the question queue. You may press R2 if you would like to remove your question from the queue.

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 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Speaker Change: You may press star 2 if you would like to remove your question from the queue.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Steve Badger with Key Bank Capital Market. Please proceed with your question. Thanks. Good morning.

Operator: For participants using speaker equipment, a banking necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: One moment, please, while we poll for questions.

Operator: Thank you.

Steve Badger: Our first question comes from the line of Steve Badger with Key Bank Capital Markets. Please proceed with your question.

Speaker Change: Thank you. Our first question comes from the line of Steve Badger with Key Bank Capital Markets. Please proceed with your question.

Steve Badger: Thanks.

Operator: Good morning. Good morning, Steve. Really strong quarter.

Steve Badger: Good morning, Steve. A really strong quarter. I wanted to start with the ESG incremental margin of 46% following 40% in the first quarter. Can you talk through volume, mix, and price?

Speaker Change: Thanks, good morning. Good morning, Steve.

Operator: I wanted to start with the ESC incremental margin of 46%. Following 40% in the first quarter.

Speaker Change: Really strong quarter. I wanted to start with the ESG incremental... We agree. Yeah.

Steve Badger: I wanted to start with the ESG incremental margin of 46% following 40% in the first quarter. Can you talk through volume, mix, and price, and just what do you expect for incrementals in the back half?

Steve Badger: Can you talk through volume, mix and price and just what do you expect for incrementals in the back half?

Operator: Yes. Steve, I think as we look kind of the breakdown on the top line, volume, that was 8% of the 10% growth; price was about 2.5. We had a little bit of a headwind from fewer chassis. I think Jennifer talked about that impact. That was about a 1% drag on the top line there.

Ian A. Hudson: What do you expect for incrementals in the back half? Yeah, so Steve, I think as we look kind of at the breakdown on the top line, volume, that was 8% of the 10% growth, and price was about two and a half.

Steve Badger: Yeah, so Steve, I think as we look kind of the breakdown on the top line, volume, that was 8% of the 10% growth. Price was about two and a half.

Ian A. Hudson: We had a little bit of a headwind from fewer chassis, and I think Jennifer talked about that impact. So that was about a 1% drag on the top line. So as we think about kind of the drivers of the margin improvement, volume was the biggest driver of that, and just the efficiencies that we get from ramping up production at several of our facilities. We did have favorable price-cost dynamics in the quarter, so that was also a factor. And then the other thing is, you know, we have an out-of-the-off-the-market business as well as some of our recent acquisitions, which have a slightly more attractive margin profile.

Jennifer L. Sherman: We had a little bit of a headwind from fewer chassis. I think Jennifer talked about that impact. So that was about a 1% drag on the top line there. So as we think about kind of the drivers of the margin improvement...

Operator: As we think about the drivers of the margin improvement, volume was the biggest driver of that, just the efficiencies that we get from ramping up production as several of the opportunities. We did have favorable price cost dynamics in the quarter, so that was also a factor. The other thing is we have the offer markets business as well as some of our recent acquisitions, which have a slightly more attractive margin profile. As those businesses have grown, that pulled up the overall average, and so that has some margin benefits as well.

Speaker Change: Volume was the biggest driver of that, and just the efficiencies that we get from ramping up production at several of our facilities.

Speaker Change: We did have favorable price-cost dynamics in the quarter, so that was also a factor. And then the other thing is, you know, we have the aftermarkets business, as well as some of our recent acquisitions, which have a slightly more attractive margin profile.

Ian A. Hudson: As those businesses have grown, that's pulled up kind of the overall average, and so that's had some margin benefits as well. As we think about kind of the back half of the year, I think the guidance that we've given, you know, would indicate that we're still expecting incrementals for ESG to be kind of north of 30%, so that's kind of what's implied in the out-of-the-off-the-market. Yeah, for sure. If I model to the high end of the new guidance, the quarters in the back half will certainly have good margins but will run maybe $0.07 to $0.08 lower than what you just put up. Is the mix getting worse?

Speaker Change: as those businesses have grown.

Speaker Change: That's pulled up kind of the overall average, and so that's had some margin benefits as well. As we think about kind of the back half of the year, I think the guidance that we've given would indicate that we're still expecting incrementals for ESG to be kind of north of 30%.

Operator: As we think about the back half of the year, I think the guidance that we've given, you know, we're indicating we're still expecting incremental for ESG to be kind of north of 30%. So that's kind of what's implied in the app.

Speaker Change: So, that's kind of what's implied in the outlook.

Speaker Change: Yeah, for sure. If I model to the high end of the new guidance, the quarters in the back half will...

Speaker Change: You certainly have good margins, but will run be 7 to 8 cents lower than what you just put up. Is mix getting worse? Is it holidays? Can you talk about why 95 cents isn't a sustainable run rate given the backlog and the capacity you have?

Ian A. Hudson: Is it the holidays? Can you talk about why $0.95 isn't a sustainable run rate, given the backlog and the capacity you have? Yeah. A couple of things that I think Jennifer alluded to, the fewer production days that we have in the second half of the year versus the first half of the year. That's kind of always something that we face in the second half of the year. There are a couple of other... We talked about the chassis impact, the $10 million that will impact the top line. That won't be much of an earnings impact because it's typically passed through.

Speaker Change: Yeah, a couple of things that I think Jennifer alluded to, the fewer production days that we have in the second half of the year versus the first half of the year, that's kind of always

Speaker Change: something that we face in the second half of the year. There's a couple of other things. We talked about the chassis impact, the $10 million that will impact the top line. That won't be much of an earnings impact because it's typically passed through. So that should have a little bit of a margin benefit there. And then just the other thing to remember is we talked on our last earnings call about some incremental rental fleet investment that we were making. Most of that is in the second half of the year, so that will also be a factor.

Ian A. Hudson: So that should have a little bit of a margin benefit there. And then just the other things to remember, as we talked about on our last earnings call about some incremental rental fleet investment that we were making, most of that is in the second half of the year. So that will also be a factor. And, sorry if I missed this, what's the difference in production days between the first half and the second half?

Speaker Change: And sorry if I missed this. What's the difference in production days between the first half and the back half?

Speaker Change: I think we're within kind of the six to seven range.

Speaker Change: And did you say what the incremental investment in rental is?

Ian A. Hudson: I think it's in kind of the six to seven range. And did you say what the incremental investment in rental is? So this was on our first quarter call. We talked about a $20 million incremental fleet investment. So that will have some impact, with most of that being in the second half.

Speaker Change: So this was on our first quarter call, we talked about a $20 million incremental fleet investment. So that will have some impact with most of that being in the second half of the year.

Ian A. Hudson: That's nothing new; that's the same as what we talked about in Q1. Understandable. Yeah, thank you.

Speaker Change: That's nothing new, that's the same as what we talked about in Q1.

Speaker Change: Understood, yeah, thank you.

Speaker Change: Thank you.

Operator: Thank you. Thank you. Our next question comes from the line of Walt Liptak with Seaport Research. Please proceed with your question. Hey, good morning, guys. Great quarter. Good morning.

Speaker Change: Thank you. Our next question comes from the line of Walt Liptak with Seaport Research. Please proceed with your question.

Walter Scott Liptak: One to ask about the dump truck orders being very strong. It's nice to see that recovery happening. I think that's the second or third quarter in a row.

Walter Scott Liptak: Hey, good morning, guys. Great quarter.

Walter Scott Liptak: Good morning. Good morning. I wanted to ask about the dump truck orders were very strong. It's nice to see that recovery happening, I think that's the second or third quarter in a row.

Jennifer L. Sherman: I wonder if you could talk a little bit about the cadence of orders, and I think you kind of alluded to some of this in your comments Jennifer. Are those orders? I mean, you know, at what point do you start getting into tough comps? You know, do you see sort of this pent-up demand giving way to sort of a normalized growth rate? What should we think about the second half for dump truck orders? Yeah, I mean, first of all, we were pleased with orders overall, and, as we know them called dump truck orders were strong.

Speaker Change: I wonder if you could talk a little bit about the Cadence of Orders, and I think you kind of alluded to some of this in your, Jennifer, in your presentation.

Speaker Change: your presented comments. Are those orders, I mean, you know, at what point do you start getting into tough comps? You know, do you see sort of this pent-up demand giving way to sort of a normalized growth rate? How should we think about the second half for dump truck ordering?

Speaker Change: Yeah, I mean, first of all, we were pleased with orders overall, and as we noted on the call, dump truck orders were strong. You know, I think that it is a combination of execution on strategic initiatives.

Jennifer L. Sherman: You know, I think that was the combination of execution on strategic initiatives, particularly some of the geographic expansion initiatives. The teams have done a really nice job. There's pent-up demand. Chassis improvement, we talked about during this quarter at Ox Bodies; we saw kind of the highest number of chassis available that we've seen for several years. And then, you know, finally, there's pent-up demand. And then we're starting, you know, we have some examples that we cited, one on the call of benefits from infrastructure, and their lead times are much shorter than, for example, right now, sewer cleaners and certain street sweepers.

Speaker Change: particularly some of the geographic expansion issues initiatives, the teams have done a really nice job. There's pent-up demand.

Speaker Change: Chassis Improvement, we talked about during this quarter at Ox Bodies, we saw kind of the highest number of chassis available that we've seen for several years.

Speaker Change: And then, you know, finally there's pent-up demand, and then we're starting, you know, we have some examples that we cited, one on the call of, you know, benefits from infrastructure.

Speaker Change: And their lead times are much shorter than, for example, right now, sewer cleaners and certain street sweepers.

Jennifer L. Sherman: So we're able to, for many of those orders, flip those orders when the order comes in, and we're able to deliver them within the quarter. The other thing that was encouraging on the dump truck order side was that it was pretty balanced between municipal and industrial. Okay, great.

Speaker Change: So, you know, we're able to, for many of those orders, flip those orders when the order comes in and we're able to deliver it within the quarter. The other thing that was encouraging on the dump truck order side is it was pretty balanced between municipal and industrial.

Jennifer L. Sherman: So it sounds like the order activity was, you know, good and kind of consistent during the quarter, and you're feeling good going into the third quarter for order activity. The order activity was consistent throughout the quarter, and really, accolades to the team for just strong performance and continued excellence. Okay.

Speaker Change: Okay, great. So it sounds like the order activity was, you know, good and kind of consistent during the quarter and you're feeling good going into the third quarter for order activity.

Speaker Change: The order activity was consistent throughout the quarter and really accolades to the team for just strong performance and continued execution of the strategic initiatives.

Walter Scott Liptak: And, okay, thanks for that. Going back to the production question, and, you know, what are the pluses and minuses around, you know, you guys increasing the production in the second half? Because you got the backlog that's there.

Speaker Change: Okay, thanks for that. Going back to the production question.

Speaker Change: And, you know, what are the pluses and minuses around, you know,

Speaker Change: You know, he has increasing production in the second half.

Jennifer L. Sherman: It sounds like the orders are coming in strong. You know, is it the supply chain that's the biggest risk? Is it factory productivity?

Speaker Change: Because you've got the backlog that's there, sounds like the orders.

Speaker Change: are coming in strong, you know, is it supply chain that's the biggest risk? Is it factory productivity? You know, and what could what could help you, you know, build more trucks in the second half?

Jennifer L. Sherman: You know, and what could help you, you know, build more trucks in the second half? So I'll start with, you know, again, we were really encouraged by what we saw in Q2. So I'll start there.

Speaker Change: So, I'll start with, you know, again, you know, we were really encouraged by what we saw in Q2. So, I'll start there. The teams did a really nice job in terms of building more trucks.

Jennifer L. Sherman: The teams did a really nice job in terms of building more trucks at many of our facilities. You know, it can always vary business to business, but some of the critical considerations are, you know, we need to ramp up and train labor. We generally have pretty good access to labor, but we need to hire and train them.

Speaker Change: and many of our facilities. It can always vary business to business, but some of the critical considerations are we need to ramp and train labor. We generally have pretty good access to labor, but we need to hire and train them. Supply chain.

Jennifer L. Sherman: Supply chain always remains a factor. You know, we've talked about, you know, chassis availability is pretty good. The medium duty chassis market continues to be tight.

Speaker Change: We've talked about chassis availability is pretty good. The medium duty chassis market continues to be tight. It represents a pretty small percentage of our overall business.

Jennifer L. Sherman: It represents a pretty small percentage of our overall business, um We, you know, have fewer production days in the second half of the year, but again, I want to emphasize, you know, we would expect kind of no gradual continued improvement as we work our way through the year because this is the team is razor focused on reducing lead times at several of our facilities and increasing, Okay, great. And, you know, sticking with ESG, you made a comment that I hadn't heard before about autonomous vehicles and MRL road striping. Is there something that's changed in that market? Are there like regulations or something or some funding for that?

Speaker Change: We, you know, fewer production days in the second half of the year.

But again, I want to emphasize, you know, we would expect kind of, you know, gradual continued improvement as we work our way through the year because this is, the teams are razor focused on reducing lead times at several of our facilities and increasing production rates.

Speaker Change: Okay, great. And you know sticking with ESG, you made a comment that I hadn't heard before about autonomous vehicles and the MRL road striping. Is there something that's changed in that market or they're like regulations or something or some funding for that or is it just a product development that you're working on?

Jennifer L. Sherman: Or is it just a product development that you're working on? Yeah, I think, you know, as more and more people have smart features on their cars that notify them, for example, when you're changing lanes and alert you, you need road striping, solid road striping, to utilize those features. And if, you know, our teams are out talking to customers and talking to agencies, you know, having the ability to utilize those features that are in many of the automobiles we drive continues to be an important part of the driver for our business. Okay, great. Okay, I'll get back in the queue.

Speaker Change: Yeah, I think you.

Speaker Change: As more and more people have smart features on their cars that notify you, for example, when you're changing lanes and alert you, you need road striping, solid road striping, to utilize those features.

Speaker Change: And if our teams are talking to customers and talking to agencies, you know, having the ability to utilize those features that are in many of the automobiles we drive continues to be an important part of the driver for our products.

Walter Scott Liptak: Thanks, y'all. Thank you. Our next question comes from the line of Chris Moore with CJS Security. Please proceed with your question. Good morning, guys.

Speaker Change: Okay, great. Okay, I'll get back in queue, thanks. Thanks, Paul.

Speaker Change: Thank you. Our next question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.

Christopher Paul Moore: Another terrific quarter. No surprises. All right. So you've discussed, you know, rental. In many cases, the rent-to-own strategy has really been helpful in this hybrid environment, you know, a differentiator. If rates come down a little this year, more than 25, is that going to have a meaningful impact on the aftermarket mix? You know, we believe with the infrastructure bill, there's going to continue to be demand for rental products. This is particularly important to our industrial customers, particularly around safe digging, and if product adoption of that particular product line increases, rental is often a format to, you know, kind of try before you buy.

Christopher Paul Moore: Good morning, guys. Another terrific quarter. No surprises. All right, so you've discussed, you know, rental, in many cases, the rent-to-own strategy.

Speaker Change: really been helpful in this hybrid environment, you know, a differentiator.

Speaker Change: If rates come down a little this year, more in 2025, is that going to have a meaningful impact on the aftermarket mix?

Speaker Change: You know, we believe with the infrastructure bill there's going to continue to be demand for rental products.

Speaker Change: This is particularly important to our industrial customers.

Speaker Change: particularly around safe digging. And if product adoption of that particular product line, you know, increases, rental is often a format to, you know, kind of try before you buy.

Jennifer L. Sherman: So I think, again, part of our strategy that we've talked a lot about is that we're very flexible in terms of whether you want to buy new equipment, you want to rent equipment, you want to buy used equipment at a different price point; we can respond to all those different needs. The other thing I'd point out is, as you know, 50% of our business is publicly funded, which is really kind of immune to the interest rate environment. I got it.

Speaker Change: So, you know, I think, again...

Speaker Change: Part of, you know, our strategy that we've talked a lot about.

Speaker Change: We're very flexible in terms of whether you want to buy new equipment, you want to rent equipment, you want to buy used equipment at a different price point, we can respond to all those various needs.

Speaker Change: The other thing I'd point out is, as you know, 50% of our business is publicly funded, which is really kind of immune to the interest rate environment.

Christopher Paul Moore: Very helpful. You guys have done a really good job leveraging acquisitions into new geographies. You talked about Mark Wright and TrackList as an example. Are there any meaningfully underpenetrated geographies for any of your product lines at this point in time? Ha, ha, ha.

Speaker Change: Got it, very helpful. You guys have done a really good job leveraging acquisitions into new geographies. You talked about Mark Wright and Trackless as an example. Are there any meaningfully underpenetrated geographies for any of your product lines at this point in time?

Speaker Change: Yeah.

Jennifer L. Sherman: We'll leave it there. Would you like a cursory version of that answer? Yes, fair enough. I was hoping you'd get more specific, but I also understand from a competitive standpoint. No, I'm more than happy to give some examples. Sure. But the room was cringing.

Speaker Change: We'll leave it there. Do you like crushing that answer? Yes, fair enough.

I was hoping you'd get more specific, but I also understand from a competitive standpoint. No, I'm more than happy to give some examples. Sure. But the room was cringing. So specifically, let's talk about dump trucks.

Jennifer L. Sherman: So specifically, let's talk about dump trucks. So, you know, we have geographic areas where we're the number one market provider and part of the strategic initiatives of several of those dump truck businesses to extend that geographic reach. Number two is TrackList, which would be a good example.

Speaker Change: So, you know, we have...

Speaker Change: geographic areas where, you know, we're the number one market provider and part of the strategic initiatives of several of those dump truck businesses to extend that geographic reach.

Speaker Change: Number two is TrackList would be a good example. We have not fully optimized.

Jennifer L. Sherman: We have not fully optimized our go-to-market strategy. There are several geographies where TrackList doesn't really—does nominal sales, if any, and we're in the process of either leveraging our JGE footprint or pairing with other dealers to expand their geographic reach, which creates opportunity. We believe that the ground force and toll hall and the optimization we've done on distribution have allowed us to penetrate new geographies. We think we're in the early stages there, so geographic expansion for many of our product lines is a critical strategy. Perfect. I will leave it there.

Speaker Change: Our go-to-market strategy, there's several geographies where TrackList doesn't really does nominal sales of any, and we're in the process by either leveraging our JGE footprint or pairing with other dealers to expand their geographic reach.

Speaker Change: and it creates opportunity. We believe that

Speaker Change: Ground Force and Toll Hall, and the optimization we've done on distribution has allowed us to penetrate new geographies. We think we're in early stages there, so geographic expansion for many of our product lines is a critical strategic initiative.

Speaker Change: Perfect. I will leave it there. I appreciate it, guys.

Speaker Change: Thank you.

Christopher Paul Moore: I appreciate it, guys. Thank you. Our next question comes from the line of Ross Berenblich with William Blair. Please proceed with your question. Hey, good morning. This is Sam Karlovan for Ross.

Speaker Change: Thank you. Our next question comes from the line of Ross Ferenblick with William Blair. Please proceed with your question.

Ross Berenblich: Thanks for taking my question. Good morning. So the ESG segment backlog declined 1% from the first quarter. Can you talk about what this means for top-line growth given that the ESG book-to-bill is less than 1 for the quarter? Is there a possibility that once you work through this backlog, sales could be pressured? Yeah, I think, Sam. We've talked for several quarters now about trying to reduce lead times by increasing production while maintaining that healthy order intake level. And I think that's really what we did this quarter.

Speaker Change: Hey, good morning. This is Sam Karlovan for Ross. Thanks for taking my question.

Speaker Change: Good morning.

Sam Karlovan: So the ESG segment backlog declined 1% from the first quarter. Can you talk about what this means for top line growth given that the ESG book-to-bill is less than 1 for the quarter? Is there a possibility that once you work through this backlog that sales could be pressured?

Sam Karlovan: Yeah, I think, Sam, we've talked for several quarters now about...

Speaker Change: trying to reduce lead times by increasing production while maintaining that healthy order intake level.

Speaker Change: And I think that's really what we did this quarter. You know, we were pleased with the order levels that we saw. Jennifer alluded to some of the comparisons and the facts that go into kind of the comparisons on.

Ian A. Hudson: You know, we were pleased with the order levels that we saw. Jennifer alluded to some of the comparisons and the facts that went into kind of the comparisons on, you know, the fact that it was down about 1% year-over-year. There was the trackless backlog that was in last year's numbers, which was about $8 million. And then there was also the chassis dynamics, which was down $9 million year-over-year.

Speaker Change: on, you know, the fact that it was down about 1% year over year. There was the trackless backlog that was in last year's numbers, that was about 8 million. And then there was also the chassis dynamics.

Speaker Change: which was down $9 million year-over-year. On a full-year basis, we're expecting that chassis impact to have about a $25 million impact on orders.

Ian A. Hudson: On a full-year basis, we're expecting that chassis impact to have about a $25 million impact on orders, so that's something to consider as we go forward. But I think, you know, I think this was the first time that our sales had outpaced orders since the fourth quarter of 2020. And so that's resulted in some long lead times, and so that's why there is such a focus there on reducing those lead times while maintaining the healthy order intake level.

Speaker Change: So that's something to consider as we go forward, but...

Speaker Change: But I think, you know, I think this was the first time that our sales...

had outpaced orders since the fourth quarter of 2020.

Speaker Change: And so that's resulted in some long lead times, and so that's why there is such a focus there on reducing those lead times while maintaining the healthy order intake level.

Ian A. Hudson: Just on the chassis, you know, even though it's a $25 million impact, that's largely passive revenue. So from an earnings standpoint, it doesn't have much of an impact. Got it. That makes sense. And then kind of one follow-up at 25% of ESG or 25% of revenue, and it by math implies that aftermarket revenue is flat from the second quarter. Is that right?

Just on the chassis, you know, even though it's a $25 million impact, that's largely passive revenue. So from an earnings standpoint, it doesn't have much of an impact. It actually would likely have some margin benefits.

Speaker Change: got it that makes sense and then kind of one follow-up at 25% of ESG or 25% of revenue and it by math implies that aftermarket revenue was flat from the second quarter 23 is that

Ian A. Hudson: Am I thinking about that right? Yeah. It was up a little bit, almost.

Is that right? Am I thinking about that right?

Ian A. Hudson: It was about 1.5%. It was up, and some of the factors in that, parts were up about 1%, up 6% year-to-date. Rental income was up 4% in the quarter, that's up 6% year-to-date. And then service revenue was up 11%, and that's about the same year-to-date. What was down was used equipment sales, and the issue there is that there is strong demand for used equipment, and we saw strong sales in the fourth quarter of last year.

It was up a little bit, almost, it was about 1.5%. It was up and kind of the factors in that part were up.

about 1% up 6% year-to-date. Rental income was up 4% in the quarter, that's up 6% year-to-date. And then service was up 11% and that's about the same year-to-date. What was down is the used equipment sales and the issue there is...

Speaker Change: because there is strong demand for used equipment and we saw strong sales in the fourth quarter of last year, there is a need to kind of replenish that fleet.

Ian A. Hudson: There is a need to kind of replenish that fleet, but the timing of it is a factor because we're going into, or we're in the middle of, kind of peak rental season right now. So we want to make sure we're balancing holding onto the units for the rental fleet, as well as satisfying customer demand for used equipment. And so that's one of the factors in that incremental fleet investment we talked about. And I'll just add, particularly in this higher interest rate environment, for our industrial customers, rental, for safe digging equipment in particular, is a critical option, so we want to make sure we're in a position to be able to satisfy that strong rental demand. Okay. No, that makes sense.

[inaudible]

And so that's one of the factors in that incremental fleet investment we talked about last quarter.

And I'll just add, particularly in this higher interest rate environment, for our industrial customers, rental, for safe digging equipment in particular, is a critical option. So we want to make sure we're in a position to be able to satisfy that strong rental demand.

Speaker Change: Got it. No, that makes sense. I'll leave it there. Thank you.

Ross Berenblich: I'll leave it there. Thank you. Thank you. Our next question comes from the line of Mike Shlisky with D.A. Davidson.

Thank you. Our next question comes from the line of Mike Shlisky with D.A. Davidson. Please proceed with your question.

Michael Shlisky: Please proceed with your question. Yes, hi, good morning. I'm thankful for taking my questions. Good morning, Mike. Good morning, Mike. Hey, um... The backlog growth looks very, very solid here, but do you get the sense that even with the growth you're already seeing, are there folks who are waiting on this sideline until after the election to make any big decisions, and it could even be in the private sector, people in the oil and gas world? Are they holding off, and there could be an additional slug of orders to start 2025 here? No, we haven't heard that.

Yes, hi, good morning. I'm actually taking my questions. Good morning, Mike.

[inaudible]

The backlog growth looks very, very solid here.

who are waiting on the sidelines until after the election to kind of make any big decisions. And it could even be in the private sector, people in the oil and gas world. Are they holding off, and there could be an additional slug of orders to start 2025 here?

Jennifer L. Sherman: You know, with respect to, you know, we've seen only nominal benefits, as we talked about, from the infrastructure bill thus far. You know, we would expect it to be bipartisan legislation; we would expect, you know, many of the projects; over 60,000 projects have been announced. We would expect those projects to continue, regardless of the outcome in November. So, as we sit here right now, we haven't heard anything meaningful about the impact of the presidential election.

Speaker Change: You know, we haven't heard that.

You know, with respect to, you know, we've seen only nominal benefits as we talked about from the infrastructure bill thus far.

We would expect it was bipartisan legislation. We would expect many of the projects, over 60,000 projects have been announced. We would expect those projects to continue.

Speaker Change: regardless of the outcome in November . So as we sit here right now, we haven't heard anything meaningful about the impact of the presidential election on our orders.

Jennifer L. Sherman: I also certainly appreciate that you're bringing up your top-line growth outlook for the, for the long-term through the cycle. Does that also kind of introduce on the margin side that you'll remain towards the upper end of your 2023 announced target or even potentially pull forward an increase in the margin targets in the not too distant future? Yeah, you know, I think that we were pleased with the performance in Q2.

Okay.

I also certainly appreciate that you're bringing up your top line growth outlook for the long term through the cycle. Does that also, when you go into double-digit growth for top line?

Speaker Change: Does that also kind of introduce, on the margin side, that you'll, you'll...

You remain towards the upper end of your 2023 announced target, or even potentially pull forward an increase in the margin targets in the not-too-distant future.

Yeah, you know, I think that, you know, we were pleased with the performance in Q2, and we meaningfully increased the guidance range for the rest of the year.

Jennifer L. Sherman: We meaningfully increased the guidance range for the rest of the year. We believe that, as we've talked about before, you know, the EBITDA margin targets we set are long term through the cycle. You know, we'll continue to revisit those targets. And with the various strategic initiatives, including our federal signal operating system, and value-added M&A, you know, we believe that there's further opportunity in the long run to increase those EBITDA margin targets. As part of, our planning, we're pretty bullish about the opportunities as we move forward. All right.

We believe that, as we've talked about before, the EBITDA margin targets we set are long-term through the cycle.

You know, we'll continue to revisit those targets.

And with the various strategic initiatives, including our federal signal operating system and value-added M&A, we believe that there's further opportunity in the long run to increase those EBITDA margin targets.

as part of, you know, our planning. So, you know, we're pretty bullish about the opportunities as we move forward.

Michael Shlisky: Can you comment on the orders and backlogs, as well, for the quarter? How much pricing has driven the growth in each of those? Because it's beyond the full company base, not by us.

All right. Can you comment on the orders and backlogs as well for the quarter? How much pricing has driven the growth in each of those?

You could just be on the full company base if not.

Ian A. Hudson: Yeah, price, Mike, is anywhere from 2% to 3%, and that's kind of what we, you know, I think at the beginning of the year, we guided to that on the top line, and so that's also reflective of kind of the orders and the backlog, so yeah, that 2% to 3%. I'll leave it there. Thanks so much.

Yeah, price, Mike, is anywhere from 2% to 3%, and that's kind of what we, you know, I think at the beginning of the year we guided to that on the top line, so that's also reflective of kind of the orders and the backlog, so yeah, that 2% to 3%.

Operator: I'll leave it there. Thanks so much. Thank you.

Great.

I'll leave it there. Thanks so much. Thank you.

Michael Shlisky: Thank you. Thank you. Our next question comes from the line of Greg Burns with Sadozhi and Company. Please proceed with your question. Good morning.

Greg Burns: Our next question comes from the line of Greg Burns with Siddote and Company. Please proceed with your question.

Thank you. Our next question comes from the line of Greg Burns with Sidoti and Company. Please proceed with your question.

Gregory John Burns: When you look across your brand or product portfolio from an aftermarket perspective, are there some brands, maybe particularly some of the newer acquisitions, that have a lower percentage of aftermarket sales, and is there an opportunity there with maybe some particular brands to increase that? And then, longer term, do you have a target on where you want to take aftermarket sales to as a percent of revenue? I know it was at about 25% this quarter, but do you have a targeted goal that you're hoping to achieve in terms of NICs?

Greg Burns: Morning. When you look close to your brand or product portfolio from an aftermarket perspective, whether there's some brands, maybe particularly with some of the new acquisitions, that I have a lower percentage of aftermarket sales and is there an opportunity there with maybe some particular brands to increase that. And then, longer term, give a target on where you want to take aftermarket sales, too, as a percentage of revenue.

Good morning. When you look across your brand or product portfolio from an aftermarket perspective, are there some brands, maybe particularly with some of the newer acquisitions, that

I have a lower percentage of aftermarket sales and is there an opportunity there with maybe some particular brands to increase that and then longer term do you have a target on where you want to take aftermarket sales to as a percent of revenue I know is that about 25% this quarter but do you have a

Operator: I know that about 25% this quarter, but the other a target a goal that you're hoping to achieve in terms of next. So, you know, depending on the timing of the acquisition, you know, we continue to stage, you know, the parts optimization throughout the FS solution and JG platform. And that's an important part of the synergies in the growth story. I think a really good example is the toll hall and ground force. Acquisition. They've done a really nice job of, you know, collectively growing that particular business. You know, our intention if we just announced is to both grow, you know, the overall business and aftermarket is the percentage of the business.

a targeted goal that you're hoping to achieve in terms of NICS. Thanks.

Gregory John Burns: So, you know, depending on the timing of the acquisition, we continue to stay with the parts optimization throughout the FS solution and JGE platform, and that's an important part of the synergies and the growth story. I think a really good example is the Tow Hall and Ground Force acquisition.

Yeah, so, you know, depending on the timing of the acquisition, you know, we continue to, on stage,

You know, the parts optimization throughout the FS solution and JJE platform. And that's an important part of the synergies and the growth story. I think a really good example is the...

Tow Hall, and Ground Force Acquisition. They've done a really nice job of collectively growing that particular businesses.

Jennifer L. Sherman: They've done a really nice job of, you know, collectively growing that particular business. Our intention, as we just announced, is to both grow the overall business and aftermarkets as a percentage of that business. Said another way, we want to grow both the numerator and the denominator. But I think over time, you will see, with several of the initiatives that we have in place, that the aftermarket business will continue to grow. We can see that.

You know, our intention, as we just announced, is to both grow

You know, the overall business and after markets is the percentage of that business. Said another way, we want to grow both the numerator and the denominator. But, you know, I think over time you will see with several of the initiatives

Operator: Set another way, we want to grow both the numerator and the denominator. But, you know, I think over time you will see, with several initiatives that we have in place, that the aftermarket business will continue to grow. We can see that, you know, while still growing the denominator, we can see the aftermarket business getting up to 30%.

that we have in place that the aftermarkets business will continue to grow. We could see that, you know, while still growing the denominator, we could see the aftermarkets business getting up to 30 percent.

Jennifer L. Sherman: While still growing the denominator, we can see the aftermarket business getting bigger. OK, great. Thank you. Thank you. Our next question comes from the line of Dave Storms with Stonegate. Please proceed with your question. Good morning, Dave.

Operator: Okay, great. Thank you.

Okay, great. Thank you.

David Joseph Storms: Our next question comes from a line of these storms with Stone Gate. Please proceed with your question.

Thank you. Our next question comes from the line of Dave Storms with Stonegate. Please proceed with your question.

David Storms: Morning, Dave. Good morning.

Operator: I'm just hoping we could get a breakout for the SSG marginal performance. So much of the issue, marginal performance.

Gregory John Burns: Just, Ian, hoping we could get a breakout for the SSG, somewhat similar to the ESG mortar. I'm just curious if volumes are the main driver. Yeah, yeah, Dave, volumes were the main driver. So if you think of the 18% top-line growth, about 14% was volume, and then the rest would have been, you know, price was about three, as we talked about, and then there were some favorable mixed components. So the vast majority were incremental volumes.

Good morning, Dave. Good morning.

Morning. Just, Ian, hoping we could get a breakout for the SSG margin performance.

Operator: Just curious if volumes are the main tribe of there as well. Yeah. Yeah, Dave volumes were the main driver. So if you think of the 18% top line growth, about 14% was volume. And then the rest would have been, you know, prices about three, as we talked about. And then there's some, some favourable mixed components. So the vast majority was the incremental volumes.

[inaudible]

About 14% was volume.

And then the rest would have been, you know, price was about three as we talked about, and then there's some favorable mixed components. So the vast majority was the incremental volumes.

Gregory John Burns: And I think, as we've talked about previously, all of our domestic operations within the SSG business are in one facility, and so the more we can push through that facility, that has some pretty attractive drop-through. And so I think we saw some of that during the, Thank you. And then I know you mentioned... on your prepared marks that give me a strong cast.

Operator: And I think, as we talked about previously, you know, all of our domestic operations within the SSG business are in one facility. And so the more we can push through that facility that has some pretty attractive drops, and so adding, adding, we saw, we saw some of that during the quarter. That was helpful.

As we've talked about previously, all of our domestic operations within the SSG business are in one facility, and so the more we can push through that facility, that has some pretty attractive drop-through. And so I think we saw some of that during the quarter.

Operator: Thank you.

Operator: And then I know you mentioned. Thank you.

Very helpful. Thank you. And then I know you mentioned

David Joseph Storms: You're excited about some organic growth initiatives. Any sense of what your prioritized list of organic growth initiatives would be? Is that increasing capacity? is kind of what it is.

On your prepared marks that, given your strong cast position, you're excited about some organic growth initiatives. Any sense of what your prioritized list of organic growth initiatives would be? Is that increasing capacity? Is that, you know, but just kind of what does that look like?

Ian A. Hudson: Any kind of in our capex, you know, we typically guide to 35 to 40 million. That's typically about half maintenance, half growth. You know, we look at things like lasers.

In our capex, I think we guide to $35-40 million, that's typically about half maintenance, half growth.

David Joseph Storms: Robots, things that can generate some operational efficiencies. So those would be the types of things that we look at across the organization. Thank you for taking my questions, and good luck in the next quarter. Thank you. Thank you. Our next question comes from the line of Steve Barger with Key Bank Capital Markets. Please proceed with your question. Thanks. This is a multi-year growth target, double-digit. Do you expect organic growth in the future to run better than the historical 7% rate?

We look at things like lasers, robots, things that can generate some operational efficiencies. So those would be the types of things that we look at across the organization.

Understood. That's very helpful. Thank you for taking my questions and good luck in the next quarter.

Thank you. Thank you.

Thank you. Our next question comes from the line of Steve Barger with Key Bank Capital Markets. Please proceed with your question.

Thanks. This is a multi-year growth target, double-digit.

Do you expect organic growth in the future will run better than the historical 7% rate?

David Joseph Storms: Or are you just kind of counting on that same number? You know, it can always vary quarter to quarter. But, you know, we expect there to be strong organic growth as we continue to execute on these strategic initiatives. Well, I'm just thinking about that.

Or are you just kind of counting on that same number?

You know it can always vary quarter to quarter but you know we expect there to be strong organic growth as we continue to execute on these strategic initiatives.

Robert Stephen Barger: Even if it is still 7%, I suggest you'll add maybe 60 million plus per year in acquired revenue, and of course, that number will have to grow over time. Does the pipeline have enough depth of deals and progress that you expect at least one deal per year? I believe we will have no problem hitting the numbers that you just mentioned. The pipeline is very full. As you think about the deals that are out there that you see, whether they close or not, what's the revenue average of those deals, and maybe the range? Is it from 10 to 100?

Well, I'm just thinking about that. Even if it is still 7%, I suggest you'll add maybe $60 million-plus per year in acquired revenue, and of course that number will have to grow over time. Does the pipeline have enough depth of deals in progress that you expect at least one deal per year?

I believe we will have no problem hitting the numbers that you just stated.

Jennifer L. Sherman: What do you see? The majority of the deals are in the 50 to 100 range. But there are a number of smaller deals, and then there's always larger opportunities also, so it's got a good, pretty wide range. But, you know, the majority of deals are in there. And I know historically, you don't like fixer uppers.

That pipeline is very full.

As you think about the deals that are out there that you see, whether they close or not, what's the revenue average of those deals and maybe the range, you know, is it from 10 to 100 or what do you see?

The majority of the deals are in the 50 to 100, but there are a number of smaller deals, and then there's always larger opportunities also, so it's got a good, a pretty wide range.

But, you know, the majority of deals are in that, you know,

Jennifer L. Sherman: Is that still the philosophy going forward? Do you know what kind of minimum margin profile that you would accept if you're doing a 50 or $100 million deal? I think that, you know, for us, the question is, can this business operate within our target EBITDA margin range? And is there opportunity for further EBITDA margin range expansion through the site? So there are examples of businesses that we've bought that are below the target EBITDA margin range, but we believe, in terms of the power of the platform and various synergies, and operational improvements, that they can operate within the range, and then there are opportunities to increase them over time.

50 to 100-ish range.

And I know historically you don't like fixer uppers. Is that still the philosophy going forward? What's kind of the minimum margin profile that you would accept if you're doing a 50 or 100 million dollar deal?

I think that you know for us it is can this business operate within our target EBITDA margin range and is there opportunity for further EBITDA margin range expansion through the cycle?

So there are examples of businesses that we've bought that are below the target EBITDA margin range, but we believe, in terms of the power of the platform and various synergies,

on operational improvements that they can operate within the range, and then there's opportunities to increase over time.

Jennifer L. Sherman: So, you know, that has been the case for several of the acquisitions we've done. The more recent acquisitions have operated within the EBITDA margin range, and we've raised those ranges because of the synergies and operational improvements that we've had.

So, you know, that has been, you know, several of the acquisitions we've done. The more recent acquisitions have operated within the EBITDA margin range, and we've raised those ranges because of the synergies and operational improvements that we've executed.

Robert Stephen Barger: Got it. And I think you addressed three ways that you can add new market adjacencies, adding to verticals. I think there was one other, but what is the most likely outcome if you can handicap it? Or do you have a preference for how you approach those?

Got it. And I think you addressed three ways that you can add new market adjacencies, adding to verticals, and I think there was one other. But, you know, what is the most likely outcome if you can handicap it, or do you have a preference for how you approach those?

Jennifer L. Sherman: Now again, I think we have a pretty good mix right now in the pipeline across the three examples that I gave. And again, it really comes down to what synergies do we bring? How do we improve performance?

Now, again, I think we have a pretty good mix right now in the pipeline across the three examples that I gave, and again, it really comes down to what synergies do we bring, how do we improve performance, and how do we grow the business.

Jennifer L. Sherman: And how do we grow the business? Got it. Okay, thanks. Thanks, Steve. Thank you. Our next question comes from the line of Walt Liptak with Seaport Research.

Got it. Okay, thanks. Thanks, Steve.

Thank you. Our next question comes from the line of Walt Liptak with Seaport Research. Please proceed with your question.

Walter Scott Liptak: Please proceed with your question. Thanks for taking the follow-up. Hi. So the SSG part of the business, the orders, I thought were in kind of a tough calm compared to last year, and they grew nicely, 7%. Could you give us a little bit of color on, you know, what's going on there with these?

Hi, thanks for taking the follow-up. Hi, so the SSG part of the business, the orders, I thought were on kind of a tough calm.

with last year, and they grew nicely, 7%. Could you give us a little bit of color on what's going on there? Were these international orders that you're taking in? Are they domestic? Is it market share wins, or is it growth in the market?

Jennifer L. Sherman: You know, the international orders that you're taking in, are they domestic? Is it market share wins, or is it growth in the market? I'll start with the teams are just doing a super job on execution of their strategic initiatives. And I think you know that's a business in particular where we see strong new product development, and we're seeing the benefits from that. You know they were able to secure several, particularly in police, We've been able to secure several orders.

And I think, you know, that's a business in particular where we see...

strong new product development, and we're seeing the benefits from that. They were able to secure several, particularly in police.

Jennifer L. Sherman: We talked about the one large order that we secured near the end of the quarter that will be delivered next year. Our Vama team in Europe has done a really nice job also. The signaling and warning team has done a nice job. So, you know, what we're encouraged about is, you know, just excellent execution on strategic initiatives, including, as we've talked about with you many times, 80-20, and the results that we continue to see as that is part of our culture. Okay, great.

Our Vama team in Europe has done a really nice job also.

Our signaling and warning team has done a nice job. So, you know, what we're encouraged about is, you know, just excellent execution on strategic initiatives.

including, as we've talked about with you many times, 80-20 and the results that we continue to see as that is part of our culture there.

Okay, great, thank you.

Walter Scott Liptak: Thank you. Thank you. Thank you. There are no further questions at this time. I would like to turn the floor back over to Jennifer Sherman for closing comments. Thank you. In closing, I'd 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.

Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Jennifer Sherman for closing comments.

Thank you. In closing, I'd 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.

Jennifer L. Sherman: We would like to express our sincere 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. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

We would like to express our sincere 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.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.