Q2 2025 Federal Signal Corp Earnings Call

While the formal presentation, if anyone should require operator assistance. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce feel expulsion Vice President corporate strategy and Investor Relations. Please go ahead.

Good morning, and welcome to Federal Signal's second quarter 2025 conference call I'm feel expulsion of the company's vice president of corporate strategy and Investor Relations.

So 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 federal signal dot com clicking on the investor call icon and signing into the webcast.

We have also posted the slide presentation and the earnings release under the Investor tab on our website.

Before I turn the call over to Ian I'd like to remind you that some of our comments made today may contain forward looking statements that are subject to the safe Harbor language found in today's news release and in federal Signal's filings with the Securities and Exchange Commission. These documents are available on our website. Our presentation. Also contains some measures that are not in accordance with U S.

Generally accepted accounting principles in our earnings release and filings we reconcile these non-GAAP measures to GAAP measures. In addition, we will file our Form 10-Q later today, Ian will start today with more detail on our second quarter financial results. Jennifer will then provide her perspective on our performance our revised margin targets and.

Go over our increased guidance for 2025 before we open the line for any questions with that I would now like to turn the call over to Ian.

Thank you Felix our consolidated second quarter financial results are provided in today's earnings release and summary in what is typically a seasonally strong period, our businesses were able to deliver 15% year over year net sales growth, 20% operating income improvement gross margin expansion a 100.

<unk> basis point improvement in adjusted EBITDA margin and continued momentum in orders during the record setting second quarter.

Consolidated net sales for the quarter were $565 million, an increase of $74 million or 15% compared to last year organic sales growth for the quarter was $42 million or 9%.

Consolidated operating income for the quarter was $97 7 million.

Up $16 6 million or 20% compared to last year.

Consolidated adjusted EBITDA for the quarter with $118 $2 million.

Up $25 million or 21% compared to last year.

That translates to a margin of 29% in Q2, this year up 100 basis points compared to last year.

GAAP diluted EPS for the quarter was $1 16 per share up <unk> 17 per share or 17% compared to last year.

On an adjusted basis EPS for the quarter was $1 17 per share an increase of 22 per share or 23% from last year.

Customer demand remained strong during the quarter with orders of $540 million.

Renting an increase of $67 million or 14% compared to last year.

Backlog at the end of the quarter was 1.08 billion, an increase of $4 million compared to Q2 last year.

In terms of our group results Esg's net sales for the quarter were $491 million up $72 million or 18% compared to last year.

Esg's operating income for the quarter was $91 9 million up $19 million or 26% compared to last year.

<unk> adjusted EBITDA for the quarter was $110 $8 million of $22 6 million or 26% compared to last year that.

That translates to an adjusted EBITDA margin for the quarter of 23, 1% an improvement of 150 basis points compared to last year.

ESG reported total orders of $441 million in Q2, this year, an increase of $45 million or 11% compared to last year.

SSG net sales for the quarter were $84 million this year up $3 million or 3% compared to last year.

Ssg's operating income for the quarter was $21 5 million up $3 2 million or 17% compared to last year.

Ssg's adjusted EBITDA for the quarter was $22 6 million up $3 3 million or 17%.

That translates to a margin for the quarter of 26, 9% up 320 basis points compared to last year.

Ssg's orders for the quarter were $99 million.

Up $22 million or 28% from last year.

Corporate operating expenses for the quarter were $15 $7 million.

Compared to $10.

$1 million last year with the increase primarily due to higher post retirement expenses and increased stock compensation costs.

Turning now to the consolidated income statement, where the increase in net sales contributed to a $25 $6 million improvement in gross profit Consol.

Consolidated gross margin for the quarter was 30% a 60 basis point increase over last year.

As a percentage of net sales up selling engineering general and administrative expenses for the quarter were down 10 basis points from Q2 last year.

Other items affecting the quarterly results include a $700000 increase in amortization expense of $300000 reduction in acquisition related expenses, a $400000 increase in other expense and a $300000 increase in interest expense.

Tax expense for the quarter was $22 million compared to $16 7 million in Q2 last year with the increase primarily due to the effects of higher pretax income and the non recurrence of a $2 6 million discrete tax benefit recognized in the prior year quarter, partially offset by a $700000 increase.

<unk> and excess tax benefits associated with stock based compensation activity.

Our effective tax rate for Q2. This year was 23, 6% compared to 21, 5% in Q2 last year.

At this time, we are expecting a full year effective tax rate to be between 24% and 25% excluding additional discrete tax benefits.

On an overall GAAP basis, we therefore earned $1 16 per share in Q2, this year compared with 99 cents per share in Q2 last year.

To facilitate earnings comparisons, we typically adjust our GAAP earnings per share for unusual items recorded in the current or prior year quarters in the current and prior quarters, we made adjustments to GAAP earnings per share to exclude acquisition related expenses purchase accounting expense effects and certain special tax items where applicable.

On this basis, our adjusted earnings for the quarter.

We're $1 17 per share compared with 95 per share last year.

Looking now at cash flow, we generated $60 million of cash from operations during the quarter, an increase of $19 million.

47% from Q2 last year.

That brings the total cash generated from operations in the first half of this year to $96 million, an increase of 34% over the first half of last year.

We ended the quarter with $204 million of net debt and availability under our credit facility of $515 million. Our current net debt leverage ratio remains low.

With our financial position remains strong we have significant flexibility to invest in organic growth initiatives pursue strategic acquisitions and return cash to stockholders through dividends and opportunistic share repurchases.

On that note, we paid dividends of $8 5 million during the quarter, reflecting a dividend of <unk> 14 per share and we recently announced a similar 14 cents per share dividend for the third quarter.

During the quarter, we also repurchased approximately $20 million of shares buying back around 290000 shares at an average price of $71 16 per share.

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

We are proud of our second quarter financial results, which included New quarterly records in net sales operating income adjusted EBITDA adjusted EBITDA margin and adjusted EPS. Thanks to outstanding contributions from both of our groups one of our core competitive advantages enable.

Such growth within the ESG group is the scale and power of our specialty vehicle platform. This platform's planned several operational categories, such as sourcing supply chain optimization, our federal signal operational system sales channel alignment dealer development.

Aftermarket support data analytics and new product development.

As I review, our financial results in more detail I will highlight certain platform benefits. We are continuing to realize within our environmental solutions group, we delivered 18% year over year net sales growth and a 26% increase in adjusted EBITDA with higher production levels.

Growth in sales of our aftermarket offerings proactive management of price cost dynamics and contributions from recent acquisitions, representing meaningful year over year contributors.

And what is typically the seasonally strongest quarter of the year Esg's adjusted EBITDA margins expanded by 150 basis points year over year to approximately 23%.

Given continued strong order levels and an extensive pipeline of internal market share expansion initiatives. Our teams remained focused on building more trucks across our family of specialty vehicle businesses.

These efforts to increase production at two largest ESG facilities contributed to increases in sales of street sweepers and safe digging trucks with each up by approximately $10 million year over year from a capacity perspective or access to labor remains good supply chains are.

Largely stable and our large scale capacity expansion that we completed between 2019 and 2020 to position us well to profitably absorb incremental volumes into our existing footprint I am specifically encouraged by the progress we are making at our Elgin Street Sweeper plant, where we are.

<unk> completed a host of capacity in vas investments spanning fabrication process optimization and expansion of our workforce and several new management hires. These structural changes will enable us to capitalize on the strong demand we see for our region X product a big dump regenerative air sweeper, so well.

Enable us to expand market share in the historically underserved air sweeper market for Allergan.

Shifting now to aftermarkets, where demand remains strong with revenues up 13% year over year. Our teams continue to drive higher parts penetration rates across our specialty vehicle businesses, which contributed to a 13% year over year increase in part sales. Additionally, given straw.

Wrong rental utilization levels, our teams are diligently managing between ensuring sufficient rental equipment availability and used equipment sales to best serve our customers' needs in the quarter rental revenue again grew double digits year over year in the aggregate aftermarket represented.

24%.

<unk> revenue in Q2 of this year in the quarter. We also reported double digit growth in net sales of metal extraction support equipment, driven by healthy end market demand our reputation for high quality products and continued channel optimization efforts at ground force in Tahoe in fact since.

We completed the acquisition of Tahoe, and the fourth quarter 2022, our teams have grown our distribution partner network for metal extraction support equipment by approximately 15%.

Ongoing channel optimization efforts, coupled with the application of our federal signal operating model, how help contribute to more than a 70% increase in combined net sales for ground for centaur over that same timeframe, while expanding margins as we look ahead.

We see further channel optimization opportunities across this platform and we are energized by an accelerating new product development pipeline, both of which we believe will unlock further share expansion opportunities are.

Our most recent acquisitions also contributed positively to top line results in the quarter with hog contributing approximately $21 million or not sales and standard, adding approximately $12 million of incremental net sales.

Shifting to our safety and security systems group the team delivered another outstanding quarter with 3% top line growth a 17% increase in adjusted EBITDA and a 320 basis point improvement in adjusted EBITDA margin. This improvement was primarily driven by a combination.

Our proactive price cost management volume increases in our warning systems business and the realization of certain cost savings.

As we shared on our last earnings call in sourcing certain componentry from Asia has been an important strategic lever within our SSG business for several years, including the addition of three printed circuit Board manufacturing lines at our University Park facility in Illinois since 2022.

We continue to see benefits associated with these actions and our financial results in the form of cost savings realization product quality improvements and expanded available capacity. We are on track to add a fourth printed circuit board manufacturing line before the end of this year, which we expect to provide incremental.

Benefits in 2026 and beyond.

Lastly, we had another strong quarter of cash generation with $60 million of cash generated from operations up 47% over the prior year as a reminder, on a full year basis, we target, 100% cash conversion on a net income basis.

Shifting now to current market conditions demand for our products and aftermarket offerings remained strong with our second quarter order intake of $540 million, representing a 14% year over year increase and the highest ever second quarter order intake on record for federal signal.

In fact, our SSG team had a record order intake of $99 million during the quarter, an increase of 28% compared to last year.

Our backlog at the end of the quarter provides excellent visibility for certain key product lines for the remainder of this year and into the first half of 2026 within our end markets orders for our publicly funded offerings were up double digits year over year with broad based strength across product categories.

At both ESG and SSG.

Within SSG, we continue to target opportunities to gain share access across several U S law enforcement agencies. Similarly, we are seeing strong market demand for our domestic warning systems and within our European public safety business.

We also saw broad based demand for our industrial offerings with industrial orders also up double digits year over year, notwithstanding a $25 million year over year decline in third party Rockies truck orders associated with the anticipated non recurrence of certain regulatory.

Driven fleet orders received from customers in Ontario, Canada. During Q2 of last year, we are particularly encouraged by the momentum we are seeing in demand for our safe digging trucks with orders up more than $20 million year over year as safe digging adoption across the United States continues to increase we see few.

Volume opportunities both across our external dealer network and through our expanded direct sales team in short demand for our products and services remains strong. Our teams continue to remain focused on reducing lead times for certain product categories, while maintaining a healthy order intake.

I would now like to spend a moment discussing our progress on several strategic growth initiatives and provide an update on our through cycle margin targets. As a reminder, through cycles, we target annual low double digit top line growth split roughly evenly between inorganic and organic growth.

Execution on our strategic initiatives is an important component of that long term growth algorithm as we look to drive organic growth in excess of end market growth rates as.

As part of our strategic initiatives, we have been actively accelerating our good better best product strategy across several specialty vehicle businesses with the scaling of certain entry level products aimed at penetrating historically underserved market sub segments for federal signal.

Examples of such offerings include our Baxter impact allergen broom Badger and the true Vac paradigm. These products not only unlock deeper penetration of new customer cohorts at different price points, but also represent non CDL options for customers, thereby expanding their.

The labor pool looking ahead as we begin to fully integrate hog in 2026, we see incremental opportunities to advance this strategy across road marking offerings.

Secondly, similar to the success, we are seeing a ground for Centaur, we are pursuing several other cross selling and sales optimization efforts across our specialty vehicle platform. One. Such example is our switching go product line that we are actively pushing through our company owned sales channel in Canada.

While this initiative remains in early stages today, we are pleased with the progress we are seeing as we look to expand switching go brand into Canada.

Thirdly, as we continue to execute on our acquisition strategy. Each additional acquisition should further strengthen our platform and widen our value proposition in the marketplace.

<unk> is an exact excellent example of this we are encouraged by hogs first full quarter under federal signal ownership and have already identified substantial future synergy opportunities spanning operational efficiencies go to market strategy aftermarket optimization and the usage of hogs unique customer education.

<unk> technology across other federal signal products, we remain committed to expanding hogs margin profile as initial synergies are realized in 2026 and beyond looking.

Looking ahead, our teams continue to work through our pipeline of M&A opportunities spanning both operating groups. We are currently experiencing one of the most active M&A environment. Since we embarked on our growth strategy in 2016, and believe that federal signal is well positioned to continue driving share.

Value via accretive M&A in coming years.

Turning now to our revised EBITDA margin targets. Shortly after I became CEO, we implemented a set of strategic objectives with associated EBITDA margin targets for our groups in the company overall and setting these targets our intention was to operate within the range on an annual basis through different business cycles.

As demonstrated by our past performance. These margin targets have served as the cornerstone of our business operations and we have aligned our internal compensation practices accordingly.

Last year, we raised the EBITDA margin targets for our safety and security systems group to a range of 18% to 24% from the previous range of 17% to 21% today building on the success that our teams have driven we are raising our EBITDA margin target for our environmental solutions group to our new <unk>.

Range of 18% to 24% from the previous range of 17% to 22%.

As a result of increasing the margin targets for ESG. We are also increasing our consolidated EBITDA margin target to a new range of 16% to 22% from the previous range of 14% to 20% similar to our past approach. These targets do not present any.

Sort of long term ceiling, and we remain committed to driving profitable growth going forward.

Turning now to our outlook for the remainder of 2025 with our record setting second quarter performance, our current backlog and continued execution against our strategic and operational initiatives, we're raising our full year adjusted EPS outlook to a new range of $3 92 to $4 10.

From the prior range of $3 63 to $3 90.

We are also raising our net sales outlook to a range of $2 7 billion and 2.13 billion from the prior range of 2.02 billion and $2 10 billion. This updated outlook assumes that the current trade agreements entire policies remain in place lastly, we are reaffirming our cash.

Jennifer Sherman: 20%. Similar to our past approach, these targets do not present any sort of long-term ceiling, and we remain committed to driving profitable growth going forward. Turning now to our outlook for the remainder of 2025, with our record-setting second-quarter performance, our current backlog, and continued execution against our strategic and operational initiatives, we are raising our full-year adjusted EPS outlook to a new range of $3.92 to $4.10 from the prior range of $3.63 to $3.90. We are also raising our net sales outlook to a range of $2.07 billion and $2.13 billion from the prior range of $2.02 billion and $2.10 billion. This updated outlook assumes that the current trade agreements and tariff policies remain in place. Lastly, we are reaffirming our CapEx guidance of between $40 million and $50 million for the year. With that, we are ready to open the line for questions. Operator?

These targets do not present any sort of long term ceiling and we remain committed to driving profitable growth going forward.

Capex guidance of between $40 million and $50 million for the year with that we're ready to open the line for questions operator.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Turning now to our outlook for the remainder of 2025 with our record setting second quarter performance, our current backlog and continued execution against our strategic and operational initiatives, we're raising our full year adjusted EPS outlook to a new range of $3 92 to $4 10.

Information tone will indicate your line is in the question queue.

Across our two or three months of yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

<unk> from the prior range of $3 63 to.

First question comes from Tim <unk> with Raymond James. Please go ahead.

To $3 90.

Good morning, Tim.

We're also raising our net sales outlook to a range of $2 7 billion and 2.13 billion from the prior range of $2 2 billion and $2 10 billion. This updated outlook assumes that the current trade agreements entire policies remain in place and lastly, we are reaffirming our <unk>.

Hey, good morning, Thank you.

I had two.

Two questions. The first is.

On the specifics within our margins in the quarter for ESG you highlighted few.

Dynamics in the in the release I'm just curious if you would.

Highlight you mentioned price cost obviously, the aftermarket growth.

Opex guidance of between $40 million and $50 million for the year with that we're ready to open the line for questions operator.

So that that wasn't as large as the whole goods with the increase in the whole goods volume. So I don't know maybe and is there a notable highlight that you would call out in terms of.

Linda Wiley: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. The first question comes from Tim Thein with Raymond James. Please go ahead.

Thank you we will now be conducting a question and answer session.

I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two to remove yourself from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

A particular driver of improved margins in the quarter I think probably the largest component Tim is as you mentioned the increased production.

At our two largest ESG facilities that we've had.

First question comes from Tim <unk> with Raymond James. Please go ahead.

The objective to really reduce lead times for for quite a while now and as we've had success kind of increasing production of those those facilities.

Jennifer Sherman: Good morning, Tim.

Good morning, Tim.

Tim Thein: Hey, good morning. Thank you. I had two questions. The first is on the specifics within the margins in the quarter for Federal Signal Corporation. You highlighted a few dynamics in the release. I am just curious if you would highlight, you mentioned price cost, obviously the aftermarket parts growth, though that wasn't as large as the whole goods, the increase in the whole goods volume. I do not know, maybe Ian Hudson, is there a notable highlight that you would call out in terms of a particular driver on the improved margins in the quarter?

Good morning, Thank you.

I had two.

Two questions. The first is.

That that has some attractive drop through in terms of leverage. So that's that in addition to as you mentioned the other components, we alluded to in the release the the.

On the specifics within our margins in the quarter for ESG you highlighted few.

Dynamics in the in the release I'm just curious if you would.

The growth in the aftermarket business, which has a slightly more attractive margin profile.

Highlight you mentioned price cost.

That grew 13% year over year.

Obviously the aftermarket.

Gross so that that wasn't as large as the whole goods.

The favorable price cost dynamics as we manage through that as well as just some of the underlying operating efficiencies that we generate through the 80 20 principle. So.

Christian.

Good volume so I don't know maybe Ian is there a notable highlight that you would call out in terms of.

That's probably an order of magnitude as I listed those off but yes.

A particular driver of improved margins in the quarter I think probably the largest component Tim is as you mentioned the increased production.

Ian Hudson: Yeah, I think probably the largest component, Tim, is, as you mentioned, the increased production. At our two largest ESG facilities, we've had the objective to really reduce lead times for quite a while now. As we've had success kind of increasing production at those facilities, that has some attractive drop through in terms of leverage. So that's, in addition to, as you mentioned, the other components we alluded to in the release, the growth in the aftermarket business, which has a slightly more attractive margin profile, that grew 13% year over year. The favorable price-cost dynamics as we've managed through that, as well as just some of the underlying operating efficiencies that we generate through the 80/20 principle. So that's probably in order of magnitude as I listed those off. The biggest component would be just the efficiencies from the increased production level.

The biggest component would be just the efficiencies from the increased production levels.

Okay. Thank you Ian and maybe just I guess more of a big picture question, just with respect to the <unk>.

At our two largest ESG facilities that we've had.

The objective is to really reduce lead times for quite a while now and as we had success kind of increasing production at those those facilities.

The recently.

Signed with tax reform.

Does that that can have a myriad of impacts, but I was just thinking Jennifer in terms of <unk>.

That that has some attractive drop through in terms of leverage. So so that's that in addition to as you mentioned the other components, we alluded to in the release the.

Conversations with customers in terms of maybe from a from a depreciation standpoint does it start to.

Maybe move that move the needle a bit more probably not so much for your publicly funded customers, but I'm curious about impacts and how youre thinking about it from a demand perspective, and then I.

The growth in the aftermarket business, which has a slightly more attractive margin profile.

That grew 13% year over year.

The favorable price cost dynamics as we manage through that as well as just some of the underlying operating efficiencies that we generate through the 80 20 principle. So.

Secondarily do you think that has any impact on <unk>.

Just the M&A.

Landscape or is it maybe bring more properties to the to the table or not.

It's probably in order of magnitude as I listed those off but.

I'm just curious if you think that has any meaningful impact either way in terms of.

Yeah. The biggest component would be just the efficiencies from the increased production levels.

Right.

More M&A volume thank you.

Tim Thein: Thank you, Ian. Maybe just, I guess, more of a big-picture question, just with respect to the recently signed tax reform, that can have a myriad of impacts. I was just thinking, Jennifer Sherman, in terms of conversations with customers, in terms of maybe from a depreciation point, does this start to maybe move the needle a bit more? Probably not so much for your publicly funded customers, but I am curious about impacts and how you are thinking about it from a demand perspective. Secondarily, do you think that has any impact on just the M&A landscape? Does it maybe bring more properties to the table or not? I am just curious if you think that has any meaningful impact either way in terms of more M&A volume. Thank you.

Okay. Thank you Ian and maybe just I guess more of a big picture question, just with respect to the.

Yeah, we believe that the bonus depreciation.

Provisions in a big beautiful build could be a benefit for our industrial customers and provide some incentives for those customers to purchase new equipment.

The recently.

Signed with tax reform.

You know that that can have a myriad of impacts, but I was just thinking Jennifer in terms of conversations with customers in terms of maybe from a from a depreciation standpoint does it start to.

Given that these bonus depreciation rules make the economics of the equipment purchases more attractive.

With respect to the M&A landscape.

Maybe move it moved the needle a bit more probably not so much for your publicly funded customers, but I'm curious about impacts and how youre thinking about it from a demand perspective, and then I.

I guess I'll restate, what I said on the call in terms of.

It is a very active environment that we're in right now.

We have a number of opportunities that we're reviewing both for our SSG team and for our ESG ESG team.

Secondarily do you think that has any impact on just.

Just the M&A landscape does it does it maybe bring more properties to the to the table or not.

I don't expect it to have any kind of meaningful impact on this particular year.

I'm just curious if you think that has any meaningful impact either way in terms of.

And Tim just just on the Bill itself is it in the <unk>.

Okay.

More M&A volume thank you.

Expecting a significant impact on our effective tax rate in 25 or 26. However, we are expecting to get some benefit from a cash tax savings standpoint, just as a result of the bonus depreciation rules. So.

Jennifer Sherman: We believe that the bonus depreciation provisions in the Big Beautiful Bill could be a benefit for our industrial customers and provide some incentives for those customers to purchase new equipment, given that these bonus depreciation rules make the economics of the equipment purchases more attractive. With respect to the M&A landscape, I guess I will restate what I said on the call in terms of, it is a very active environment that we are in right now. We have a number of opportunities that we are reviewing both for our SSG team and for our ESG team. I do not expect it to have any kind of meaningful impact this particular year.

Yeah, we believe that the bonus depreciation.

Provisions in a big beautiful build could be a benefit for our industrial customers and provide some incentives for those customers to purchase new equipment.

Yeah. So we are pleased that those tax benefits that we've had in the past have been restored.

Given that these bonus depreciation rules make the economics of the equipment purchases more attractive with.

Thank you very much.

Thank you.

With respect to the M&A landscape.

Next question, Ralph <unk> with William Blair. Please go ahead.

I guess I'll restate, what I said on the call in terms of.

It is a very active environment that we're in right now.

Hi, Good evening. This is Sam Karla on for Ross, Thanks for taking my questions.

We have a number of opportunities that we're reviewing both for our SSG team and for ESG ESG team.

I guess I'll start with the margins I mean outside of the expected overhead absorption from the underutilized manufacturing capacity can you talk about what other factors led you to increase your through cycle margin targets.

I don't expect it to have any kind of meaningful impact on this particular year.

Yeah, I think it really comes down to you know.

Ian Hudson: Tim, just on the bill itself, as it, we are not expecting a significant impact on our effective tax rate in 2025 or 2026. However, we are expecting to get some benefit from a cash tax savings standpoint just as a result of the bonus depreciation rules. We are pleased that those tax benefits we have had in the past have been restored.

And Tim just just on the Bill itself is it in the we are expecting a significant impact on our effective tax rate in 'twenty five or 'twenty six.

We examined the pipeline of our internal initiatives that we believe can prove margin additive.

However.

And those include several things kind of first.

We are expecting to get some benefit from a cash tax savings standpoint, just as a result of the bonus depreciation rules. So yes.

Continuing to raise production.

And continuing to leverage our capacity expansions are growing aftermarket business, we're really pleased with the year over year growth in parts.

So we are pleased that those tax benefits that we've had in the past have been restored.

Tim Thein: Thank you very much.

Thank you very much.

Jennifer Sherman: Thank you.

Thank you.

<unk>.

<unk> to realize the synergies.

Linda Wiley: Next question, Ross Sparrenbeck with William Blair. Please go ahead.

Next question Ross there in Black with William Blair. Please go ahead.

Some acquisitions that we've done.

Sam Karlov: Hey, good morning. This is Sam Karlov for Ross. Thanks for taking my questions. I guess I will start with margins. Outside of the expected overhead absorption from the underutilized manufacturing capacity, can you talk about what other factors led you to increase your through-cycle margin target?

Hey, Good morning. This is Sam Carlin on for Ross, Thanks for taking my questions.

We talked about the SSG in sourcing that we've done we believe that provides further opportunities.

I guess I'll start with margins I mean outside of the expected overhead absorption from the underutilized manufacturing capacity can you talk about what other factors led you to increase your through cycle margin targets.

And execution are the federal signal operating model.

So as we move forward.

We have a high degree of confidence.

Jennifer Sherman: Yeah, I think it really comes down to, we examine the pipeline of our internal initiatives that we believe can prove margin additive, and those include several things. First, continuing to raise production and continuing to leverage our capacity expansion, our growing aftermarket parts business. We are really pleased with the year-over-year growth in parts. Continuing to realize the synergies from acquisitions that we have done. We talked about the SSG insourcing that we have done. We believe that provides further opportunities and execution of the Federal Signal Corporation operating model. So as we move forward, we have a high degree of confidence of our execution of these initiatives in the long term. Again, these margin targets are meant to be through the cycle. They are not aspirational targets.

Yeah, I think it really comes down to.

Our execution of these initiatives in the long term and again these margin targets are meant to be kind of through the cycle, they're not aspirational.

We examined the pipeline of our internal initiatives that we believe can prove margin additive.

Those include several things kind of first.

Targets and internally, we take them very seriously because they are an integral part part of our annual compensation system at each of our businesses.

Continuing to raise production.

And continuing to leverage our capacity expansions are growing aftermarket business, we're really pleased with the year over year growth in parts.

Got it that's super helpful. And then as a follow up can you give us an update on what youre seeing in the territories reassigned earlier. This year have you seen any disruption and have you been able to successfully retain customers in the region.

Continuing to realize the synergies from acquisitions that we've done.

Talked about the SSG in sourcing that we've done we believe that provides further opportunities.

Yeah, I would say that the order intake.

For that particular territory was in line with expectations.

Execution of the federal signal operating model, so as we move forward.

We understand that it takes time to gain traction as the new dealers expand their sales teams.

We have a high degree of confidence.

Of our execution of these initiatives in the long term.

To serve these territories are also making investments.

And the infrastructure needed to serve these particular territories.

And again these margin targets are meant to be kind of through the cycle, they're not aspirational.

And that takes time, but long term, we believe there's opportunity for increased market share for our products. So the short answer is we're very pleased with what we've seen thus far.

Target and internally, we take them very seriously because they are an integral part part of our annual compensation system at each of our businesses.

Jennifer Sherman: Internally, we take them very seriously because they are an integral part of our annual compensation system at each of our businesses.

Sam Karlov: Got it. That is super helpful. As a follow-up, can you give us an update on what you are seeing in the territories you reassigned earlier this year? Have you seen any disruption, and have you been able to successfully retain customers in the region?

Got it that's super helpful. And then as a follow up can you give us an update on what youre seeing in the territories reassigned earlier. This year have you seen any disruption and have you been able to successfully retain customers in the region.

Got it that's helpful I will leave it there thanks guys.

Next question Walter Liptak with Seaport Global Securities. Please go ahead.

Alright, Thanks, guys congratulations on a nice quarter. Thank you Paul.

Jennifer Sherman: Yeah. I would say that the order intake for that particular territory was in line with expectations. We understand that it takes time to gain traction as the new dealers expand their sales teams to serve these territories. They are also making investments in the infrastructure needed to serve these particular territories, and that takes time. But long term, we believe there is opportunity for increased market share for our product. So the short answer is we are very pleased with what we have seen thus far.

Yeah, I would say that the order intake.

Uh huh.

For that particular territory was in line with expectations.

So I just wanted to go over these margin target ranges again.

We understand that it takes time to gain traction as the new dealers expand their sales teams.

And just to give you clarity so you increase the ESG margin range.

You went over.

SSG, the new increased margin targets there yeah.

To serve these territories are also making investments.

Yeah, I mean, we had increased the margin targets for SSG in the second half of last year.

And the infrastructure needed to serve these particular territories.

And that takes time.

And you.

But long term, we believe there's opportunity for increased market share for our products. So the short answer is we're very pleased with what we've seen thus far.

The teams had a fantastic quarter as we talked about in the prepared remarks.

But given that recency.

Also that particular team we've talked about has.

Sam Karlov: Got it. That's helpful. I will leave it there. Thanks, guys.

Got it that's helpful I will leave it there thanks guys.

1% of federal signal of Cogs is exposed.

Linda Wiley: Next question, Walt Liptak with Seaport Global Securities. Please go ahead.

Exposed to China, it's really the predominant source of that is our SSG team.

Next question Walter Liptak with Seaport Global Securities. Please go ahead.

Gregory Burns: Hi. Thanks, guys. Congratulations on a nice quarter.

Alright, thanks, guys congratulations on the nice quarter. Thank.

We're monitoring the tariff situation.

Jennifer Sherman: Thank you, Walt.

Thank you all.

Gregory Burns: Hey, I just wanted to go over these margin target ranges again. To get clarity, you increased the ESG margin range, and you went over what it was. Did you increase margin targets there?

As we move forward, we have an internal initiative to in source additional printed circuit board lines that we're on track to do so given the recency of our raise of the EBIT margins for SSG.

So I just wanted to go over these margin target ranges again.

Yeah.

And just to get a clarity so you increase the ESG margin range.

And you went over what it was with SSG, the new increased margin targets there.

We'll continue to monitor it but again I'll emphasize that we are committed to raising those ranges.

Jennifer Sherman: Yeah. I mean, we had increased the margin targets for SSG in the second half of last year. The teams had a fantastic quarter, as we talked about in the prepared remarks. But given that recency, also, that particular team we have talked about has 1% of Federal Signal Corporation's COGS is exposed to China. It is really the predominant source of that is our SSG team. So, we are monitoring the tariff situation as we move forward. We have an internal initiative to insource additional printed circuit board lines that we are on track to do. So, given the recency of our raise of the EBITDA margins for SSG, we will continue to monitor it. But again, I will emphasize that we are committed to raising those ranges longer term and very pleased with the progress the teams, both SSG and ESG, made during the quarter.

Yeah, I mean, we had increased the margin targets for SSG in the second half of last year.

Longer term and very pleased with the progress the teams at both SSG and ESG made during the quarter.

And you.

You know the teams had a fantastic quarter and as we talked about in the prepared remarks.

Okay, great yeah, it sounds like the in sourcing.

But given that recency.

Also that particular team we've talked about you know has E 1% of federal signal of Cogs is.

Source components is going great and you mentioned the fourth.

PCB line going in.

Yeah.

Like where how far along are you in.

Exposed to China, it's really the predominant source of that is our SSG team.

In sourcing is this like the final production line or is there more to go after them.

We're monitoring the tariff situation.

Yeah.

I think we're.

We are on track and we expect it for it to be fully operational by the end of the year I think it's important to understand that there are several benefits for our SSG team regarding this in sourcing initiative.

As we move forward, we have an internal initiative to in source additional printed circuit board lines that we're on track to do so given the recency of a raise of the EBIT margins for SSG.

One is that it supports the higher growth volumes, but it provides a lot of flexibility for us as we launch new products. We found that it's really accelerated our new product development efforts and we think it could have potential benefits.

We'll continue to monitor it but again I'll emphasize that we are committed to raising those ranges longer term and very pleased with the progress the teams at both SSG and ESG made during the quarter.

Gregory Burns: Okay, great. It sounds like that insourcing of source components is going great. You mentioned the fourth PCB line going in. How far along are you in that insourcing? Is this the final production line, or is there more to go after this?

Okay, great yeah, it sounds like that in sourcing.

As we expand the SSG platform through M&A.

Source components is going great and you mentioned the fourth.

And so we believe there's future opportunity.

PCB line going in.

Beyond the fourth printed circuit Board line.

Yeah.

How far along are you in.

Okay Alright, great.

And that in source, who uses like the final production line or is there more to go after this.

And just just.

Just to follow up on that first question again.

Jennifer Sherman: Yeah, I think we're on track, and we expect it for it to be fully operational by the end of the year. I think it's important to understand that there are several benefits for our SSG team regarding this insourcing initiative. One is that it supports the higher growth volumes, but it provides a lot of flexibility for us as we launch new products. We found that it's really accelerated our new product development efforts. We think it could have potential benefits as we expand the SSG platform through M&A. So we believe there's future opportunity beyond the fourth printed circuit board line.

The profit margins in Memphis.

Yeah.

I think.

We're really good this quarter.

We're on track and we expect it for it to be fully operational by the end of the year I think it's important to understand that there are several benefits for at this chi team regarding this in sourcing initiative.

Is that something where.

We're just being cautious on it or is that sort of a sustainable margin in the back half of the years I've been in my guidance.

Yeah, I think well obviously the team at <unk>.

One is that it supports the higher growth volumes, but it provides a lot of flexibility for us as we launch new products. We found that's really accelerated our new product development efforts and we think it could have potential benefit.

Standing quarter end.

There was there was a couple of things that helped on the margin front, we had some favorable changes in inventory reserves.

Which.

That's not necessarily baked into the guidance that that's going to repeat in the second half of the year. We also had some some of the benefits from insourcing initiatives and that would be something that would be we would expect it to continue to realize going forward. Jennifer mentioned, while we do have kind of a fairly limited exposure on.

You know as we expand the SSG platform through M&A.

And so we believe there's future opportunity.

Beyond the fourth printed circuit Board line.

Gregory Burns: Okay. All right. Great. Just to follow up on that first question again, the profit margins in SSG were really good this quarter. Is that something where we're just being cautious on it, or is that sort of a sustainable margin in the back half of the year? Is that in the guidance, I guess?

Okay Alright, great.

Tariff from the business that does have most of that exposure is SSG and so.

And just just.

Just to follow up on that first question again.

The profit margins and Thats just you were really good this quarter is that something where.

We're waiting to see how that really plays out.

We've baked into the guide kind of the current state.

We're just being cautious on it or is that sort of a sustainable margin in the back half of the errors in the guidance.

But I think that was probably.

In terms of the outlook or the that the not raising the targets for example for SSG, we wanted to kind of wait and see how that plays out.

Ian Hudson: I think, well, obviously, the team had an outstanding quarter, and there were a couple of things that helped on the margin front. We had some favorable changes in inventory reserves, which that is not necessarily baked into the guidance that that is going to repeat in the second half of the year. We also had some of the benefits from the insourcing initiatives, and that would be something that we would expect to continue to realize going forward. As Jennifer Sherman mentioned, while we do have kind of a fairly limited exposure on the tariff front, the business that does have most of that exposure is SSG. So we are waiting to see how that really plays out.

Yeah, I think well obviously the team had an outstanding quarter and.

There was there was a couple of things that helped on the margin front, we had some favorable changes in inventory reserves.

Just to get some additional time behind us.

Okay.

Okay, and maybe one last one the Robinson sourcing you've done great with the PCB lines.

Which that's.

That's not necessarily baked into the guidance that that's going to repeat in the second half of the year. We also had some some of the benefits from insourcing initiatives and that would be something that would be we would.

Have you started looking at other things that you might want to.

Source.

And just make yourself.

Uh huh.

A longer opportunity or do you think the PCB is just a unique opportunity that yet.

Sectors continue to realize going forward Jennifer mentioned, while we do have kind of a fairly limited exposure on the tariff front. The business that does have most of that exposure is SSG and so.

Yeah, I would say across all of our federal signal are.

Our businesses are constantly evaluating that in sourcing outsourcing.

On balance and looking for opportunities when it makes sense.

Waiting to see how that really plays out.

Ian Hudson: We have baked into the guide kind of the current state, but I think that was probably in terms of the outlook or the, they are not raising the targets, for example, for SSG. We want to kind of wait and see how that plays out just to get some additional time behind us.

To bring.

Baked into the guide kind of the current state.

Particular componentry in house.

But I think that was probably.

Okay, Alright, great. Thank you.

In terms of the outlook all the you know that the not raising the targets for example for SSG, we wanted to kind of wait and see how that plays out just.

Next question, Steve Barger with Keybanc capital markets. Please proceed.

Just to get some additional time behind us.

Thanks, and good morning, good morning.

Gregory Burns: Okay. Okay, good. And maybe one last one around this insourcing. You have done great with the PCB lines. Have you started looking at other things that you might want to insource and just make yourself? Is this a longer opportunity, or do you think the PCB is just a unique opportunity that you had?

Okay.

It's really good to see the product strategy generating strong results. How do you think about the good better best approach, increasing the ESG tam or or what could that add to the growth algorithm.

Okay, and maybe one last one the run this in sourcing you've done great with the PCB lines.

Have you started looking at other things that you might want to.

In source.

Just make yourself.

Yeah.

Yeah. So this is Bob.

Uh huh.

A longer opportunity or do you think the PCB is just a unique opportunity that yet.

And effort that we've really been working on over the last.

Jennifer Sherman: Yeah, I would say across all of Federal Signal Corporation, our businesses are constantly evaluating that insourcing-outsourcing balance and looking for opportunities when it makes sense to bring particular componentry in-house.

A years and gone back to our long term growth algorithm as you know we Wanna.

I would say across all of federal signal.

Our businesses are constantly evaluating that in sourcing outsourcing.

Target low double digit growth about half of that coming from organic growth initiatives.

Balance.

And looking for opportunities when it makes sense to bring.

And this is one of the strategies that helps us.

Particular component tree in house.

Get the kind of extra points beyond kind of regular and market growth.

Gregory Burns: Okay. All right. Great. Thank you.

Okay, Alright, great. Thank you.

Linda Wiley: Next question, Steve Barger with KeyBanc Capital Markets. Please proceed.

Next question, Steve Barger with Keybanc capital markets. Please proceed.

So we're.

Steve Barger: Morning.

Sam Karlov: Thanks. Good morning.

We're able to leverage.

Thanks, and good morning.

Jennifer Sherman: Good morning.

Arnie.

The our NPD teams were able to leverage channel.

Steve Barger: Hey, it's really good to see the product strategy generating strong results. How do you think about the good, better, best approach increasing the ESG TAM, or what could that add to the growth algorithm?

It's really good to see the product strategy generating strong results. How do you think about the good better best approach, increasing the ESG tam or or what could that add to the growth algorithm.

It really opens up new customer base for us and kind of given the strength of our brands.

In those particular end markets we're encouraged.

Jennifer Sherman: Yeah. So this has been an effort that we've really been working on over the last couple of years. Going back to our long-term growth algorithm, as you know, we want to, we target low double-digit growth, about half of that coming from organic growth initiatives. This is one of the strategies that helps us get those kind of extra points beyond kind of regular end-market growth. We are able to leverage our MPD teams. We are able to leverage channel. It really opens up new customer base for us. Given the strengths of our brands in those particular end markets, we are encouraged by the success that we have seen thus far. In summary, when we talk about how do we outgrow the market, this is an important part of that particular strategy long term.

Yeah. So this is Bob.

And effort that we've really been working on over the last couple of years and you know going back to our long term growth algorithm.

The success that we've seen thus.

Thus far yeah in.

In summary, when we talk about how do we outgrow the market. This is the important part that particular strategy long term.

As you know we want it.

Target low double digit growth about half of that coming from organic.

You have enough data to really be able to quantify the share gains at the low end, where you didn't participate before I guess.

Growth initiatives.

And this is one of the strategies that helps us.

Get the kind of extra points beyond kind of regular and market growth.

Yeah.

As part of our.

Dana analytics team.

Our teams are getting.

So.

More granular in terms of understanding market share.

We're able to leverage.

The our MPD teams were able to leverage channel.

And as we look across the various businesses.

It really opens up new customer base for us and kind of given the strength of our brands.

Our market shares range somewhere between 20, and 50% part of it is how you define it so that gives us a lot of opportunity in different categories to continue to expand and grow.

In those particular end markets we're encouraged.

The success that we've seen thus.

Thus far yeah in summary, when we talk about how do we outgrow the market. This is the important part that particular strategy long term.

Got it and you you had a line in the in the prepared remarks about hogs internal tax that you are spreading across other product lines.

Steve Barger: Do you have enough data to really be able to quantify the share gains at the low end where you didn't participate before, I guess?

You have enough data to really be able to quantify the share gains at the low end, where you didn't participate before I guess.

What is that specifically and can you talk about any other technology initiatives that you have in place that are helping widen competitive advantages sure.

Jennifer Sherman: As part of our data analytics team, our teams are getting more granular in terms of understanding market share. As we look across the various businesses, our market shares range somewhere between 20% and 50%. Part of it is how you define it. So that gives us a lot of opportunity in different categories to continue to expand and grow.

Sure absolutely last week, we had our board meeting down in Hog.

Yeah.

As part of our.

Dana analytics team.

And one of the things that we took a look at.

Our teams are getting.

To demonstrate for our board is their virtual reality training modules.

More granular.

In terms of understanding market share.

And it does everything kind of three parts to it.

And as we look across the various businesses and our market shares range somewhere between 20 and 50% part of it is how you define it so that gives us a lot of opportunity in different category to continue to expand and grow.

One is the how to operate the equipment.

Which provides very important training, particularly.

When you.

Several of our customers have labor constraints number two <unk>.

Okay.

Steve Barger: Got it. You had a line in the prepared remarks about Hogg's internal tech that you are spreading across other product lines. What is that specifically? Can you talk about any other technology initiatives that you have in place that are helping widen competitive advantages?

Provide different.

Got it and you you had a line in the in the prepared remarks about hogs internal tax that you're spreading across other product lines.

Live.

Training regarding repairing equipment and then finally.

It provides access to a historical.

Is that specifically and can you talk about any other technology initiatives that you have in place that are helping widened competitive advantages.

Manuals and it is something that we were impressed by the hog team.

Jennifer Sherman: Sure, absolutely. Last week, we had our board meeting down at Hogg. One of the things that we took a look at to demonstrate for our board is their virtual reality training module. It does everything, kind of three parts to it. One is the how-to operate the equipment, which provides very important training, particularly when several of our customers have labor constraints. Number two, provides different live training regarding repairing equipment. Finally, it provides access to historical manuals. It is something that we were impressed by the Hogg team, and we look to leverage that training for other Federal Signal products. Another example would be their control systems. They have developed very sophisticated control systems that simplify operation of the equipment. We know in our voice of customer studies that that is something that is very important, particularly as labor has turned over for several of our customers.

Sure absolutely last week, we had our board meeting down in Hog.

And we look to leverage that training for other federal signal products.

And one of the things that we took a look at.

Another example would be their control systems.

To demonstrate for our board is their virtual reality training modules.

They've developed very sophisticated control systems.

And it does everything kind of three parts to it.

That simplify operation of the equipment and we know in our voice of customer studies, but that's something very important with.

One is the how to operate the equipment.

Which provides very important training, particularly.

As labor is turned over for several of our customers.

As we move into 'twenty, six we'll be looking for opportunities to leverage that technology across the federal signal's specialty vehicle platform.

When I'm.

Several of our customers have labor constraints number two.

Survived different.

Live.

Got it okay, and if I can just sneak one more in on the M&A front. It seems like you've become kind of a preferred buyer can you talk about what you're seeing from multiples in the specialty vehicle market broadly and what youre seeing on the books that are crossing your desk.

Training regarding repairing equipment and then finally.

It provides access to a historical.

Manuals.

And it is something that we were impressed by the hog team.

Yeah, absolutely kind of two parts to it one is we continue to proactively source deals.

And we look to leverage that training for other federal signal products.

Another example would be their control systems.

And you know we have developed a reputation as a buyer of choice.

They've developed very sophisticated control systems.

That simplify operation of the equipment and we know in our voice of customer studies, but that's something very important with particularly.

And in those deals on just repeating them, we're really developing a solid pipeline for our SSG business.

Particularly as Labour has turned over for several of our customers. So as we move into 'twenty six we'll be looking for opportunities to leverage that technology across the federal signal and specialty vehicle platform.

And in that we our intent is to grow that business, both organically and through M&A.

Jennifer Sherman: As we move into 2026, we will be looking for opportunities to leverage that technology across the Federal Signal specialty vehicle platform.

On the ESG side, and we're continuing to grow that internal pipeline we have.

Steve Barger: Got it. Okay. If I can just sneak one more in. On the M&A front, it seems like you have become kind of a preferred buyer. Can you talk about what you are seeing for multiples in the specialty vehicle market broadly and what you are seeing on the books that are crossing your desk?

Got it okay, and if I can just sneak one more in on the M&A front. It seems like you've become kind of a preferred buyer can you talk about what you're seeing from multiples in the specialty vehicle market broadly and what youre seeing on the books that are crossing your desk.

Also see deals.

That are brought to us by various bankers.

I guess I would say that depending on the asset the interest in the asset how the multiples are all over.

And it would be hard to quantify because there really is kind of a wide range of multiple expectations out there.

Jennifer Sherman: Yeah, absolutely. You know, kind of two parts to it. One is we continue to proactively source deals, and you know we have developed a reputation as a buyer of choice. In those deals, just repeating, we are really developing a solid pipeline for our SSG business. You know, our intent is to grow that business both organically and through M&A. On the ESG side, we are continuing to grow that internal pipeline. We also see deals that are brought to us by various bankers. I guess I would say that, you know, depending on the asset, the interest in the asset, kind of the multiples are all over. You know, it would be hard to quantify because there really is kind of a wide range of multiple expectations out there.

Yeah, absolutely you know kind of two parts to it.

One is we continue to proactively source deals.

Got it that's good color. Thank you.

Thank you.

And you know we have developed a reputation as a buyer of choice.

Next question, Chris Moore with CJS Securities.

And in those deals I'm, just repeating them, we're really developing a solid pipeline for our SSG business.

Good morning, Good morning, guys. Good morning, Congrats on a terrific quarter. It is a good morning.

That's right so orders.

You know that we our intent is to grow that business, both organically and through M&A.

$450 million up 14%.

Especially impressive given the exceptionally strong Q1.

On the ESG side, and we're continuing to grow that internal pipeline.

568, when you had to wonder if maybe there was some.

We also see deals that are brought to us by various bankers.

Pull through from the tariffs I guess, it's the same question there.

How would you view Q2 from that perspective is likely.

I guess I would say that you know depending on the asset that the interest in the asset how the multiples are all over.

Much pull forward from from what you can tell.

Yeah.

And it would be hard to quantify because there really is kind of a wide range of multiple expectations out there.

I guess, a couple of things I'll comment on first of all when we look at the order composition between publicly funded and industrial it was pretty broad based across the board which was encouraging.

Steve Barger: Got it. That's good color. Thank you.

Got it that's good color. Thank you.

Our metal extraction support vacuum trucks, particularly led by safe digging sweepers SSG were all up double digits year over year.

Jennifer Sherman: Thank you.

Thank you.

Linda Wiley: Next question, Chris Moore with CJS Securities. Please proceed.

Next question, Chris Moore with CJS Securities. Please proceed.

Jennifer Sherman: Good morning, Chris.

Good morning, Good morning, good morning, Congrats on a terrific quarter. It is a good morning.

Chris Moore: Good morning. Good morning. Congrats on a terrific quarter.

And we.

Jennifer Sherman: It is a good morning.

We don't believe that we saw any kind of significant pull forward in orders from tariffs.

Chris Moore: is right. So orders are strong, 40 and 50 million, up 14%. Especially impressive given the exceptionally strong Q1, 568, when you had to wonder if maybe there was some pull-through from the tariffs. I guess it is the same question there. How would you view Q2 from that perspective? Is there likely much pull forward from what you can tell?

That's right so orders.

Dror.

$450 million up 14%.

And if you think about our business, 50% plus is from publicly funded customers.

Especially impressive given the exceptionally strong Q1.

They typically.

100.

Don't pull forward orders given the nature of the RFP or bid board type processes.

<unk> hundred 68, when you had to wonder if maybe there was some.

Pull through from the tariffs I guess, it's the same question there.

How would you view Q2 from that perspective is likely.

Got it very helpful.

During the Q1 call you talked about.

Much pull forward from what you can tell.

Jennifer Sherman: Yeah, I guess a couple of things I will comment on. First of all, when we look at the order composition between publicly funded and industrial, it was pretty broad-based across the board, which was encouraging. Our metal extraction support, vacuum trucks, particularly led by safe digging sweepers, SSG, were all up double digits year over year. We do not believe that we saw any kind of significant pull forward in orders from tariffs. If you think about our business, 50% plus is from publicly funded customers. They typically do not pull forward orders given the nature of the RFP or bid board type processes.

Yeah.

Some SSG competitors sourcing quite a bit from China, and you know that being potentially helpful down the line or are you seeing much from that or just any thoughts there.

I guess, a couple of things I'll comment on first of all when we look at the order composition between publicly funded and industrial it was pretty broad based across the board which was encouraging.

Our metal extraction support vacuum trucks, particularly led by safe digging sweepers SSG were all up double digits year over year.

Yeah, I think that it's probably too early to comment on that particular issue.

But I'd just be remiss, if I didn't give a shout out to our SSG team.

And we.

You know the public safety equipment orders were up $11 4 million.

We don't believe that we saw any kind of significant pull forward in orders from tariffs.

And if you think about our business, 50% plus is from publicly funded customers.

Domestically and internationally were up $5 2 million, so just really strong.

And they typically.

Don't pull forward orders given the nature of the RFP or bid board type processes.

Across the board are warning systems business was up $2 3 million, mostly domestic so as I mentioned, you know they had a record order intake of $99 million.

Chris Moore: Got it. Very helpful. During the Q1 call, you talked about some SSG competitors sourcing quite a bit from China. You know, that being potentially helpful down the line. Are you seeing much from that, or just any thoughts there?

Got it very helpful.

During the Q1 call you talked about.

In the quarter and what I want to emphasize here is the teams are really three.

Some SSG competitors sourcing quite a bit from China.

Driving strategic initiative to expand their market share.

And you know that being potentially helpful down the line or are you seeing much matter and just any thoughts there.

Okay.

Got it no I was going there next so maybe just my last one is.

Jennifer Sherman: I think that it is probably too early to comment on that particular issue, but I would just be remiss if I did not give a shout-out to our SSG team. The public safety equipment orders were up $11.4 million domestically, and internationally, we are up $5.2 million. So just really strong across the board. Our warning systems business was up $2.3 million, mostly domestic. As I mentioned, they had a record order intake of $99 million in the quarter. What I want to emphasize here is the team is really thriving strategic initiative to expand their market share.

Yeah, I think that it's probably too early to comment on that particular issue, but I just be remiss, if I didn't give a shout out to our SSG team you know the public safety equipment orders were up 11 4 million domestically.

Just cash flow overall terrific first half cash flow from operations, just any any more thoughts on.

Kind of the balance of 25 move forward yes.

I think Chris we continue to target on an annual basis, 100% cash conversion that is helping.

And internationally were up $5 2 million, so just really strong.

Operating cash flow over net income so I think if you look at where we are year to date, we're just over 80%. So we think there's still room for some improvement in the second half of the year.

Right.

Across the board are warning systems business was up $2 3 million mostly domestic.

I would also note that when you look at the year over year improvement in cash generation, we had $60 million in Q2, this year and that was up nicely over last year and that's despite some and increase in tax payments year over year because in Q2 last year, we received a.

So as I mentioned, you know they had a record order intake of $99 million in.

In the quarter and what I want to emphasize here is the teams are really.

Rising strategic initiative to expand their market share.

<unk> of about $14 million back.

Okay.

Chris Moore: Got it. I was going there next. So maybe just my last one. I guess cash flow overall, terrific first half. Cash flow from operations. Any more thoughts on kind of the balance of 2025 moving forward?

Got it no I was going there next so maybe just the last one is.

So that's that's that's that increase was notwithstanding the fact that that didnt repeat so we were really pleased with the cash generation during the quarter and we think second half year, we will continue to see.

Just cash flow overall terrific first half cash flow from operations, just any any more thoughts on kind.

The balance of 25 move forward yes.

Ian Hudson: I think, Chris, we continue to target on an annual basis 100% cash conversion. That is helping operating cash flow over net income. I think if you look at where we are year to date, we are just over 80%. We think there is still room for some improvement in the second half of the year. I would also note that when you look at the year-over-year improvement in cash generation, we had $60 million in Q2 this year, and that was up nicely over last year. That is despite some increase in tax payments year over year because in Q2 last year, we received a refund of about $14 million back. That increase was notwithstanding the fact that that did not repeat. We were really pleased with the cash generation during the quarter, and we think second half of the year, we will continue to see strong cash generation.

Strong cash generation.

I think Chris we continue to target on an annual basis, 100% cash conversion that's helping.

Terrific I will leave it there thanks guys. Thank you Chris.

Next question like shrinking with Dave Mclennan Company. Please go ahead.

Operating cash flow over net income so I think if you look at where we all year to date, we're just over 18%. So we think there's still room for some improvement in the second half of the year.

Good morning, Mike.

Good morning.

No.

Ask about how orders are progressing so far in the first month of a quarter here in July.

I would also note that when you look at the year over year improvement in cash generation.

And if you got any phone calls maybe after the first week of July with some folks who on the industrial side that.

We had $60 million in Q2, this year and that was up nicely over last year and that's despite some an increase in tax payments year over year because in Q2 last year, we received a refund of about $14 million back.

But who could come out of the woodwork with some.

One big beautiful bill or David holding off on until we have some certainty has that been a factor at all in the orders.

July thus far.

Yeah, we don't typically comment on kind of pending quarter orders.

So that's that's that's that's that increase was notwithstanding the fact that that didnt repeat so we were really pleased with the cash generation during the quarter and we think the second half year will continue to see.

We haven't heard a lot yet because it's relatively new on the.

Pact of the bonus depreciation benefits for industrial customers.

Strong cash generation.

Chris Moore: Terrific. I will leave it there. Thanks, guys.

Terrific I will leave it there thanks guys.

Ian Hudson: Thank you.

Linda Wiley: Thank you, Chris. Next question, Mike Schleske with D.A. Davidson & Company. Please go ahead.

But you know we would expect kind of as we move forward that could be a possible benefit.

Yes.

Next question like shrinking with Davidson and company. Please go ahead.

Jennifer Sherman: Morning, Mike.

Gregory Burns: Morning, thanks. Good morning. Can I ask about how orders are progressing so far in the first month of the quarter here in July? If you have any phone calls, maybe after the first week of July with some folks on the industrial side that felt they could come out of the woodwork with some one big beautiful bill orders that they have been holding off on until they had some certainty, has that been a factor at all in the orders in July thus far?

Good morning, Mike.

Good morning.

Great.

Also wanted to ask a little bit more about the good better best strategy.

Uh huh.

Ask about how orders are progressing so far in the first month of a quarter here in July.

And the margin impact.

And if you got any phone calls maybe after the first week of July with some of course, who on industrial side that.

As you introduce new products. They are the kind of feeling sparks some of them sounds like the lower the smaller chassis side without studios.

The other who could come out of the woodwork with some one big beautiful Billboard David holding off on until we have some certainty is that been a factor at all in the orders in July thus far.

There are margin impact, we should be thinking about there.

It was kind of having your.

Your <unk> initiatives enough to.

Jennifer Sherman: We do not typically comment on, you know, kind of pending quarter orders. We have not heard a lot yet because it was relatively new on the impact of the bonus depreciation benefits for industrial customers. You know, we would expect kind of as we move forward, that could be a possible benefit.

Yeah, we don't typically comment on you know kind of pending quarter orders.

The overall margins for those products halfway halfway decent here.

Yeah. So.

We haven't heard a lot yet.

I think it's really important to I'll go back to that each one of our business units has EBITDA margin targets as part of their annual compensation system.

Because it's relatively new an impact.

Impact of the bonus depreciation benefits for industrial customers.

So we take these targets that we set with the street very seriously.

But you know we would expect kind of as we move forward that could be a possible benefit.

We develop new products as we acquire companies.

We look through the lens of those margin targets.

Gregory Burns: Great. I also wanted to ask a little bit more about the good, better, best strategy and the margin impact. As you introduce new products there to kind of fill in spots, some of them on, it sounds like, the lower, the smaller chassis side without CDLs, is there a margin impact we should be thinking about there, or is kind of having your ETI initiatives enough to keep the overall margins for those products halfway decent here?

Great.

Also wanted to ask a little bit more about the good better best strategy and the margin impact.

In terms of you know.

Continuing to increase our EBITDA margins over the long run.

As you introduce new products, there to kind of fill in spark some of them.

With respect to these particular products.

The lower <unk>.

Smaller chassis side without two deals is there a margin impact we should be thinking about there or.

So it is an important factor, but it's also important to look at that we have available capacity.

Just kind of having your.

These particular products would.

Your ETR initiatives enough to keep.

Continue to utilize some of that capacity, which has favorable economics and we've also found that some of these products too.

Keep the overall margins for those products halfway halfway decent here.

Jennifer Sherman: Yeah. So, I think it is really important to go back to that each one of our business units has EBITDA margin targets as part of their annual compensation system. We take these targets that we set with the street very seriously. As we develop new products, as we acquire companies, we look through the lens of those margin targets in terms of continuing to increase our EBITDA margins over the long run. With respect to these particular products, there is an important factor. It is also important to look at that we have available capacity. These particular products would continue to utilize some of that capacity, which has favorable economics. We have also found that some of these products, too, can be, particularly on the industrial side, in addition to opening up new markets, they might buy a good or better product.

Yeah. So.

Can be particularly on the industrial side. In addition to opening up new markets they might buy a good or better product product and then over time.

It's really important to go back to that each one of our business units has EBITDA margin targets as part of their annual compensation system.

So we take these.

They would move.

<unk> targets that we set with the street very seriously.

Up into the best product.

And finally, it creates stickiness and opportunities for our aftermarket team long run.

We develop new products as we acquire companies we.

Look through the lens of those margin targets.

And so.

It really has been in the products that I cited the paradigm the region acts the.

In terms of you know continuing to increase our EBITDA margins over the long run.

Badger product, we're really encouraged by the results that we're seeing to date.

With respect to these particular products.

So it is an important factor, but it's also important to look at that we have available capacity.

Outstanding I'll pass it along thank you so much thank you.

Next question, Greg Burns from Sidoti <unk> Company. Please go ahead.

And these particular products would continue to utilize some of that capacity, which has favorable economics and we've also found that some of these products to them can be particularly on the industrial side. In addition to opening up new markets they might buy a good or better product product.

Good morning.

Morning.

SSG segment, when we look at our.

Revenue recognition this quarter versus maybe the strong orders in our backlog was that just a timing issue in terms of when the orders came in in or was there any.

Jennifer Sherman: Then over time, they would move kind of up into the best product. Finally, it creates stickiness and opportunities for our aftermarket team long run. It really has been in the products that I cited, the Paradigm, the RegenX, the Badger product, we are really encouraged by the results that we are seeing to date.

And then over time.

Production.

Sure.

Final notes, which caused some of that.

They would move kind of up.

Order intake to be pushed out to later quarters and then within the orders was there any particularly large.

And to the best product and.

And finally, it creates stickiness and opportunities for our aftermarket team long run.

Fleet type orders or anything worth calling out there or was it just broad based order demand.

And so.

It really has been in the products that I cited the paradigm the region acts the Badger product, we're really encouraged by the results that we're seeing to date.

Yes.

The audit.

Versus sales disparity Greg that again as you mentioned is mostly timing just in terms of when it came in because typically within that business that we can receive the order and ship it within the same quarter sometimes.

Gregory Burns: Outstanding. I will pass it along. Thank you so much.

Outstanding I'll pass it along thank you so much thank you.

Jennifer Sherman: Thank you.

Linda Wiley: Next question, Greg Burns with Sidoti & Company. Please go ahead.

Next question, Greg Burns with Sidoti <unk> Company. Please go ahead.

The backlog for SSG as you probably would've seen as is at a record level so backlog <unk>.

Gregory Burns: Morning. In the SSG segment, when we look at the revenue recognition this quarter versus maybe the strong orders and backlog, was that just a timing issue in terms of when the orders came in, or were there any production bottlenecks which caused some of that order intake to be pushed out to later quarters? Within the orders, was there any particularly large fleet-type orders or anything worth calling out there, or was it just broad-based order demand?

Good morning.

Typically isn't.

And yet in the SSG segment, when we look at our.

As relevant a metric for SSG as it is for some of our ESG businesses and that's really just a reflection of just the timing of when the orders are received.

The revenue recognition this quarter versus maybe the strong orders in our backlog was that just a timing issue in terms of when the orders came in in or was there any <unk>.

There wasn't anything of.

A material nature in terms of large fleet orders, we had some larger orders from certain customers, but nothing I would necessarily call out in terms of an unusually large fleet order on the SSG side.

Production.

Bottlenecks, which caused some of that order intake to be pushed out to later quarters and then within the orders was there any particularly large.

Fleet type orders or anything worth calling out there or was it just broad based order demand.

Okay, great. Thanks, and then.

In terms of M&A.

Ian Hudson: The order versus sales disparity, Greg, as you mentioned, is mostly timing just in terms of when it came in because typically within that business, we can receive the order and ship it within the same quarter sometimes. The backlog for SSG, as you probably would have seen, is at a record level. Backlog typically isn't as relevant a metric for SSG as it is for some of our ESG businesses. That's really just a reflection of the timing of when the orders are received. There wasn't anything of a material nature in terms of large fleet orders. We had some larger orders from certain customers, but nothing I would necessarily call out in terms of an unusually large fleet order on the SSG side.

Are there any new markets that you're looking at or interested in potentially entering and within your existing markets are there any of that offer.

The audit.

Versus sales disparity Greg that again as you mentioned is mostly timing just in terms of when it came in because typically within that business.

Yes.

We can receive the order and ship it within the same quarter sometimes.

Particularly good opportunities for you where do you think.

The backlog for SSG as you probably would've seen as is at a record level backlog typically isn't as.

You're subscale and you'd you'd like to get bigger in those markets given the opportunities that you see ahead for for maybe some of those areas.

As relevant a metric for SSG as it is for some of some of our ESG businesses and that's really just a reflection of just the timing of when the orders are received.

Yeah.

I'll reiterate that our pipeline is about as active as it's been.

And in one of the areas that we're encouraged by is the opportunities for our SSG business.

There wasn't anything of.

A material nature in terms of large fleet orders, we had some larger orders from certain customers, but nothing I wouldn't necessarily call out in terms of an unusually large fleet order on the SSG side.

We've been working on developing that pipeline over the last couple of years.

And we think Theres a number of opportunities.

Gregory Burns: Okay, great. Thanks. In terms of M&A, are there any new markets that you are looking at or interested in potentially entering? Within your existing markets, are there any that offer particularly good opportunities for you where you think you are subscale and you would like to get bigger in those markets given the opportunities that you see ahead for maybe some of those areas?

Both currently and.

Okay, great. Thanks, and then.

And in the long run.

In terms of M&A are there any new markets that you're looking at or interested in potentially entering and within your existing markets.

With respect to the ESG side.

We're continuing to look at kind of new verticals, we're looking at filling in holes within existing verticals.

Are there any of that offer.

Geographic expansion.

Yes.

Particularly good opportunity for you where do you think.

Particularly for our aftermarket team so.

Ah, you're subscale and you'd you'd like to get bigger in those markets given the opportunities that you see ahead for for maybe some of those areas.

A lot of opportunity out there and again that being that buyer of choice.

<unk> proved to be valuable and many of those acquisitions.

Jennifer Sherman: Yeah, I mean, I'll reiterate that our pipeline is about as active as it's been. One of the areas that we're encouraged by is the opportunities for our SSG business. We've been working on developing that pipeline over the last couple of years, and we think there's a number of opportunities both currently and in the long run. With respect to the ESG side, we're continuing to look at new verticals. We're looking at filling in holes with an existing vertical, geographic expansion, particularly for our aftermarket parts team. So a lot of opportunity out there, and again, that being that buyer of choice proves to be valuable in many of those acquisitions.

Yeah.

I'll reiterate that our pipeline is about as active as it's been.

Okay. Thank you thank.

Thank you.

And you know one of the areas that we're encouraged by is the opportunities for our SSG business.

Thank you I would like to turn the floor over to Jennifer for closing remarks.

Thank you in closing I would like to note that during the quarter, we published our sixth annual sustainability report, which is available on our website. The report highlights our progress against our natural resource reduction goals and our ongoing community engagement efforts.

And we've been working on developing that pipeline over the last couple of years.

And we think Theres a number of opportunities both currently.

And in the long run.

With respect to the ESG side.

These are people that defined the unique culture at federal signal and we remain committed to investing in the local communities in which we operate we would also like to express our thanks to our stockholders distributors dealers and customers for their continued support. Thank you for joining us today and we'll talk to you soon.

We're continuing to look at kind of new verticals, we're looking at filling in holes within existing verticals.

Geographic expansion.

Particularly for our aftermarket team so.

A lot of opportunity out there and again that being that buyer of choice.

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

You know proved to be valuable and many of those acquisitions.

Gregory Burns: Okay. Thank you.

Okay. Thank you.

Jennifer Sherman: Thank you.

Yeah.

Linda Wiley: Thank you. I would like to turn the floor over to Jennifer for closing remarks.

Thank you I would like to turn the floor over to Jennifer for closing remarks.

Jennifer Sherman: Thank you. In closing, I would like to note that during the quarter, we published our sixth annual sustainability report, which is available on our website. The report highlights our progress against our natural resource reduction goals and our ongoing community engagement efforts. It is our people that define the unique culture at Federal Signal Corporation, and we remain committed to investing in the local communities in which we operate. We would also like to express our thanks to our stakeholders, distributors, dealers, and customers for their continued support. Thank you for joining us today, and we'll talk to you soon.

Thank you in closing I would like to note that during the quarter, we published our sixth annual sustainability report, which is available on our website. The report highlights our progress against our natural resource reduction goals and our ongoing community engagement efforts is our people.

The unique culture at federal signal and we remain committed to investing in the local communities in which we operate we would also like to express our thanks to our stockholders distributors dealers and customers for their continued support. Thank you for joining us today and we'll talk to you soon.

Linda Wiley: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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

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