Federal Signal Corp 10-Q for FY2024 Q3
Federal Signal Corp (FSS)
10-Q
2024-10-31
For: 2024-09-30
View Original
Added on
April 08, 2026
About this 10-Q
Federal Signal Corp filed this 10-Q on October 31, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $474.2M
- up 6.2% from $446.4M a year earlier
- Net income
- $53.9M
- up 24.5% from net income of $43.3M a year earlier
- Diluted EPS
- $0.87
- up 22.5% from $0.71 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2024
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission file number: 1-6003
_____________________________________________
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices)
(Zip code)
(630 ) 954-2000
(Registrant’s telephone number, including area code)
_____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ | ||||||||||||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of September 30, 2024, the number of shares outstanding of the registrant’s common stock was 61,106,430 .
FEDERAL SIGNAL CORPORATION
TABLE OF CONTENTS
| Page | ||||||||
| PART I. | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”) is being filed by Federal Signal Corporation and its subsidiaries (referred to collectively as the “Company,” “we,” “our” or “us” herein, unless the context otherwise indicates) with the United States (“U.S.”) Securities and Exchange Commission (the “SEC”), and includes comments made by management that may contain words such as “may,” “will,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “project,” “estimate” and “objective” or similar terminology, or the negative thereof, concerning the Company’s future financial performance, business strategy, plans, goals and objectives. These expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information concerning the Company’s possible or assumed future performance or results of operations and are not guarantees. While these statements are based on assumptions and judgments that management has made in light of industry experience as well as perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances, they are subject to risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different.
These risks and uncertainties, some of which are beyond the Company’s control, include the risk factors described under Part I, Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 27, 2024. These factors may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. The Company operates in a continually changing business environment and new factors emerge from time to time. The Company cannot predict such factors, nor can it assess the impact, if any, of such factors on its results of operations, financial condition or cash flow. Accordingly, forward-looking statements should not be relied upon as a predictor of actual results. The Company disclaims any responsibility to update any forward-looking statement provided in this Form 10-Q.
ADDITIONAL INFORMATION
The Company is subject to the reporting and information requirements of the Exchange Act and, as a result, is obligated to file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports and information with the SEC, as well as amendments to those reports. The Company makes these filings available free of charge through our website at www.federalsignal.com as soon as reasonably practicable after such materials are filed with, or furnished to, the SEC. The Company also uses our website as a means of disclosing material non-public information and to comply with our disclosure requirements under Regulation FD. Information on our website does not constitute part of this Form 10-Q. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically.
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions, except per share data) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, engineering, general and administrative expenses | |||||||||||||||||||||||
| Amortization expense | |||||||||||||||||||||||
| Acquisition and integration-related expenses, net | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Other expense, net | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See notes to condensed consolidated financial statements.
2
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Change in foreign currency translation adjustment | ( | ( | |||||||||||||||||||||
Change in unrecognized net actuarial loss and prior service cost related to pension benefit plans, net of income tax (benefit) expense of $( | ( | ||||||||||||||||||||||
Change in unrealized gain or loss on interest rate swaps, net of income tax (benefit) expense of $( | ( | ( | ( | ||||||||||||||||||||
| Total other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See notes to condensed consolidated financial statements.
3
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2024 | December 31, 2023 | ||||||||||
| (in millions, except per share data) | (Unaudited) | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowances for doubtful accounts of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
Properties and equipment, net of accumulated depreciation of $ | |||||||||||
Rental equipment, net of accumulated depreciation of $ | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
Intangible assets, net of accumulated amortization of $ | |||||||||||
| Deferred tax assets | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term borrowings and finance lease obligations | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Customer deposits | |||||||||||
| Accrued liabilities: | |||||||||||
| Compensation and withholding taxes | |||||||||||
| Current operating lease liabilities | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term borrowings and finance lease obligations | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Long-term pension and other postretirement benefit liabilities | |||||||||||
| Deferred tax liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| Capital in excess of par value | |||||||||||
| Retained earnings | |||||||||||
Treasury stock, at cost, | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See notes to condensed consolidated financial statements.
4
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Nine Months Ended September 30, | |||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation expense | |||||||||||
| Changes in fair value of contingent consideration | ( | ||||||||||
| Amortization of interest rate swap settlement gain | ( | ( | |||||||||
| Deferred income taxes | |||||||||||
| Changes in operating assets and liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Investing activities: | |||||||||||
| Purchases of properties and equipment | ( | ( | |||||||||
| Payments for acquisition-related activity, net of cash acquired | ( | ||||||||||
| Other, net | |||||||||||
| Net cash used for investing activities | ( | ( | |||||||||
| Financing activities: | |||||||||||
| (Decrease) increase in revolving lines of credit, net | ( | ||||||||||
| Payments on long-term borrowings | ( | ||||||||||
| Purchases of treasury stock | ( | ( | |||||||||
| Redemptions of common stock to satisfy withholding taxes related to stock-based compensation | ( | ( | |||||||||
| Payments for acquisition-related activity | ( | ||||||||||
| Cash dividends paid to stockholders | ( | ( | |||||||||
| Proceeds from stock-based compensation activity | |||||||||||
| Other, net | ( | ||||||||||
| Net cash used for financing activities | ( | ( | |||||||||
| Effects of foreign exchange rate changes on cash and cash equivalents | ( | ||||||||||
| Increase (decrease) in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of year | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
See notes to condensed consolidated financial statements.
5
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
| Three Months ended September 30, 2024 | |||||||||||||||||||||||||||||||||||
| (in millions) | Common Stock | Capital in Excess of Par Value | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||||||||||||
| Balance at July 1, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||
| Total other comprehensive income | |||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | ( | ( | |||||||||||||||||||||||||||||||||
| Stock-based payments: | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||||||||||||||
| Stock option exercises and other | ( | ||||||||||||||||||||||||||||||||||
| Stock repurchase program | ( | ( | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
| Three Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
| (in millions) | Common Stock | Capital in Excess of Par Value | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||||||||||||
| Balance at July 1, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||
| Total other comprehensive loss | ( | ( | |||||||||||||||||||||||||||||||||
Cash dividends declared ($ | ( | ( | |||||||||||||||||||||||||||||||||
| Stock-based payments: | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||||||||||||||
| Stock option exercises and other | ( | ||||||||||||||||||||||||||||||||||
| Stock repurchase program | ( | ( | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
| Nine Months Ended September 30, 2024 | |||||||||||||||||||||||||||||||||||
| (in millions) | Common Stock | Capital in Excess of Par Value | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||
| Total other comprehensive loss | ( | ( | |||||||||||||||||||||||||||||||||
Cash dividends declared ($ | ( | ( | |||||||||||||||||||||||||||||||||
| Stock-based payments: | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||||||||||||||
| Stock option exercises and other | ( | ||||||||||||||||||||||||||||||||||
| Performance share unit transactions | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Stock repurchase program | ( | ( | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
6
| Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
| (in millions) | Common Stock | Capital in Excess of Par Value | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||
| Total other comprehensive income | |||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | ( | ( | |||||||||||||||||||||||||||||||||
| Stock-based payments: | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||||||||||||||
| Stock option exercises and other | ( | ||||||||||||||||||||||||||||||||||
| Performance share unit transactions | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Stock repurchase program | ( | ( | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||
7
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of the Business
Federal Signal Corporation was founded in 1901 and was reincorporated as a Delaware corporation in 1969. References herein to the “Company,” “we,” “our” or “us” refer collectively to Federal Signal Corporation and its subsidiaries.
Products manufactured and services rendered by the Company are divided into two reportable segments: Environmental Solutions Group and Safety and Security Systems Group. The individual operating businesses are organized as such because they share certain characteristics, including technology, marketing, distribution and product application, which create long-term synergies. These segments are discussed in Note 11 – Segment Information.
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements represent the consolidation of Federal Signal Corporation and its subsidiaries included herein and have been prepared by the Company pursuant to the rules and regulations of the United States (“U.S.”) Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures presented herein are adequate to ensure the information presented is not misleading. Except as otherwise noted, these condensed consolidated financial statements have been prepared in accordance with the Company’s accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, and should be read in conjunction with those consolidated financial statements and the notes thereto.
These condensed consolidated financial statements include all normal and recurring adjustments that we considered necessary to present a fair statement of our results of operations, financial condition and cash flow. Intercompany balances and transactions have been eliminated in consolidation.
The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year, which may differ materially due to, among other things, the risk factors described under Part I, Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 27, 2024. While we label our quarterly information using a calendar convention whereby our first, second and third quarters are labeled as ending on March 31, June 30 and September 30, respectively, it is our longstanding practice to establish interim quarterly closing dates based on a 13-week period ending on a Saturday, with our fiscal year ending on December 31. The effects of this practice are not material and exist only within a reporting year.
Recent Accounting Pronouncements and Accounting Changes
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, including enhanced disclosures regarding significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting this guidance on its financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topics 740): Improvements to Income Tax Disclosures, which expands the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective prospectively for annual periods beginning after December 15, 2024, with early adoption and retrospective application permitted. The Company is currently evaluating the impact of adopting this guidance on its financial statement disclosures.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and (iii) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
8
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
Significant Accounting Policies
There have been no changes to the Company’s significant accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
NOTE 2 – ACQUISITIONS
Acquisition of Trackless
On April 3, 2023, the Company completed the acquisition of substantially all the assets and operations of Trackless Vehicles Limited and Trackless Vehicles Asset Corp, including the wholly-owned subsidiary Work Equipment Ltd. (collectively, “Trackless”), a leading Canadian manufacturer of off-road, multi-purpose maintenance vehicles and attachments.
The initial cash consideration paid by the Company to acquire Trackless was C$56.3 million (approximately $41.9 million), inclusive of certain closing adjustments. In addition, there is a contingent earn-out payment of up to C$6.0 million (approximately $4.4 million), based upon the achievement of certain financial targets over a specified performance period. The purchase price was funded through existing cash and borrowings under the Company’s credit agreement.
During the first quarter of 2024, the Company finalized the Trackless purchase price allocation and recognized measurement period adjustments, which primarily resulted from obtaining third-party valuations, that reduced the estimated fair value of contingent consideration by $0.2 million and increased the carrying value of acquired intangible assets by $1.1 million, resulting in a corresponding $1.3 million decrease to the carrying value of Goodwill, from the $8.0 million previously recognized as of December 31, 2023. The measurement period adjustments did not have a material impact on the Company’s Consolidated Statements of Operations for the nine months ended September 30, 2024.
The following table summarizes the fair value of assets acquired and liabilities assumed as of the acquisition date:
| (in millions) | |||||
| Purchase price, inclusive of closing adjustments | $ | ||||
Estimated fair value of additional consideration (a) | |||||
| Total consideration | |||||
| Accounts receivable | |||||
| Inventories | |||||
| Prepaid expenses and other current assets | |||||
| Rental equipment | |||||
| Properties and equipment | |||||
Customer relationships (b) | |||||
Trade names (c) | |||||
| Accounts payable | ( | ||||
| Accrued liabilities | ( | ||||
| Net assets acquired | |||||
Goodwill (d) | $ | ||||
(a) Represents the estimated fair value of the contingent earn-out payment as of the acquisition date, which is included in Other long-term liabilities on the Condensed Consolidated Balance Sheets. See Note 12 – Fair Value Measurements for discussion of the methodology used to determine the fair value of the contingent earn-out payment.
(b) Represents the fair value assigned to customer relationships, which are considered to be definite-lived intangible assets, with an estimated useful life of approximately 12 years.
(c) Represents the fair value assigned to trade names, which are considered to be indefinite-lived intangible assets.
(d) Goodwill, which is primarily tax-deductible, has been allocated to the Environmental Solutions Group on the basis that the synergies identified will primarily benefit this segment.
9
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
NOTE 3 – REVENUE RECOGNITION
The following table presents the Company’s Net sales disaggregated by geographic region, based on the location of the end customer, and by major product line:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Geographic Region: | |||||||||||||||||||||||
| U.S. | $ | $ | $ | $ | |||||||||||||||||||
| Canada | |||||||||||||||||||||||
| Europe/Other | |||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
| Major Product Line: | |||||||||||||||||||||||
| Environmental Solutions | |||||||||||||||||||||||
Vehicles and equipment (a) | $ | $ | $ | $ | |||||||||||||||||||
| Parts | |||||||||||||||||||||||
Rental income (b) | |||||||||||||||||||||||
Other (c) | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
| Safety and Security Systems | |||||||||||||||||||||||
| Public safety and security equipment | |||||||||||||||||||||||
| Industrial signaling equipment | |||||||||||||||||||||||
| Warning systems | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
(a) Includes net sales from the sale of new and used vehicles and equipment, including sales of rental equipment.
(b) Represents income from vehicle and equipment lease arrangements with customers.
(c) Primarily includes revenues from services, such as maintenance and repair work, and the sale of extended warranty contracts.
Contract Balances
The Company recognizes contract liabilities when cash payments, such as customer deposits, are received in advance of the Company’s satisfaction of the related performance obligations. Contract liabilities are recognized as Net sales when the related performance obligations are satisfied, which generally occurs within three to six months of the cash receipt. Contract liability balances are not materially impacted by any other factors. The Company’s contract liabilities were $25.7 million and $30.9 million as of September 30, 2024 and December 31, 2023, respectively. Contract assets, such as unbilled receivables, were not material as of any of the periods presented herein.
NOTE 4 – INVENTORIES
The following table summarizes the components of Inventories:
| (in millions) | September 30, 2024 | December 31, 2023 | |||||||||
| Finished goods | $ | $ | |||||||||
| Raw materials | |||||||||||
| Work in process | |||||||||||
| Total inventories | $ | $ | |||||||||
10
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
NOTE 5 – DEBT
The following table summarizes the components of Long-term borrowings and finance lease obligations:
| (in millions) | September 30, 2024 | December 31, 2023 | |||||||||
2022 Credit Agreement (a) | $ | $ | |||||||||
| Finance lease obligations | |||||||||||
| Total long-term borrowings and finance lease obligations, including current portion | |||||||||||
| Less: Current maturities | |||||||||||
| Less: Current finance lease obligations | |||||||||||
| Total long-term borrowings and finance lease obligations | $ | $ | |||||||||
As more fully described within Note 12 – Fair Value Measurements, the Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The fair value of the Company’s long-term borrowings and finance lease obligations is based on interest rates that we believe are currently available to us for issuance of debt with similar terms and remaining maturities (Level 2 input). The carrying amounts of the Company’s long-term borrowings and finance lease obligations approximate their fair values as of September 30, 2024 and December 31, 2023.
The 2022 Credit Agreement is a senior secured credit facility that provides the Company and certain of its foreign subsidiaries access to an aggregate original principal amount of up to $800 million, consisting of (i) a revolving credit facility in an amount up to $675 million (the “Revolver”) and (ii) a term loan facility in an original amount of up to $125 million. The 2022 Credit Agreement matures on October 21, 2027.
On May 16, 2024, the Company entered into the First Amendment to the 2022 Credit Agreement. The amendment was largely administrative in nature, including certain language to address ongoing reference rate reform. There were no changes to the term or the Company’s borrowing capacity under the 2022 Credit Agreement.
Borrowings under the 2022 Credit Agreement bear interest, at the Company’s option, at a base rate or an Adjusted Eurocurrency Rate (as defined in the 2022 Credit Agreement) in the case of borrowings in Euros or an adjusted RFR (as defined in the 2022 Credit Agreement) in the case of borrowings in U.S. Dollars, Canadian Dollars and Sterling, plus, in each case, an applicable margin. The applicable margin ranges from zero to 0.75 % for base rate borrowings and 1.00 % to 1.75 % for Adjusted Eurocurrency Rate and RFR borrowings. The Company must also pay a commitment fee to the lenders ranging between 0.10 % to 0.25 % per annum on the unused portion of the Revolver along with other standard fees. Applicable margin, issuance fees and other customary expenses are payable on outstanding letters of credit.
The Company is subject to certain net leverage ratio and interest coverage ratio financial covenants under the 2022 Credit Agreement that are measured at each fiscal quarter-end. The Company was in compliance with all such covenants as of September 30, 2024.
As of September 30, 2024, there was $107.0 million of cash drawn on the Revolver, $122.7 million outstanding under the term loan facility and $11.1 million of undrawn letters of credit under the 2022 Credit Agreement, with $556.9 million of net availability for borrowings. As of December 31, 2023, there was $173.2 million of cash drawn on the Revolver, $124.2 million outstanding under the term loan facility and $9.1 million of undrawn letters of credit under the 2022 Credit Agreement, with $492.7 million of net availability for borrowings.
The following table summarizes the gross borrowings and gross payments under the Company’s revolving credit facilities:
| Nine Months Ended September 30, | |||||||||||||||||||||||
| (in millions) | 2024 | 2023 | |||||||||||||||||||||
| Gross borrowings | $ | $ | |||||||||||||||||||||
| Gross payments | |||||||||||||||||||||||
11
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
Interest Rate Swaps
On October 21, 2022, the Company entered into an interest rate swap (the “2022 Swap”) with a notional amount of $75.0 million, as a means of fixing the floating interest rate component on $75.0 million of its variable-rate debt. The 2022 Swap is designated as a cash flow hedge, with an original maturity date of October 31, 2025.
On July 11, 2023, the Company entered into an additional interest rate swap (the “2023 Swap”) with a notional amount of $75.0 million, as a means of fixing the floating interest rate component on $75.0 million of its variable-rate debt. The 2023 Swap is designated as a cash flow hedge, with an original maturity date of August 1, 2025.
As a result of the application of hedge accounting treatment, all unrealized gains and losses related to the derivative instruments are recorded in Accumulated other comprehensive loss and are reclassified into operations in the same period in which the hedged transaction affects earnings. Hedge effectiveness is assessed quarterly. The Company does not use derivative instruments for trading or speculative purposes.
The fair value of the Company’s interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve (Level 2 inputs) and measured on a recurring basis in our Condensed Consolidated Balance Sheets.
At September 30, 2024 and December 31, 2023, the fair value of the Company’s interest rate swaps was a liability of $1.0 million and $0.7 million, respectively, which were included in Other long-term liabilities on the Condensed Consolidated Balance Sheets. During the three and nine months ended September 30, 2024, unrealized pre-tax losses of $1.7 million and $0.3 million, respectively, were recorded in Accumulated other comprehensive loss. During the three and nine months ended September 30, 2023, unrealized pre-tax gains of $0.6 million and $1.5 million, respectively, were recorded in Accumulated other comprehensive loss. No ineffectiveness was recorded in either period.
In connection with entering into the 2022 Credit Agreement in October 2022, the Company terminated an interest rate swap initially entered into in 2019, receiving proceeds of $4.3 million upon settlement. The settlement gain was recorded in Accumulated other comprehensive loss and was amortized into earnings ratably through the original maturity date of July 30, 2024. During the three and nine months ended September 30, 2024, the Company recognized non-cash settlement gains of $0.2 million and $1.4 million, respectively, as a component of Interest expense, net on the Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2023, the Company recognized non-cash settlement gains of $0.6 million and $1.8 million, respectively, as a component of Interest expense, net on the Condensed Consolidated Statements of Operations.
NOTE 6 – INCOME TAXES
During the year ended December 31, 2023, the Company filed amended U.S. federal income tax returns for the 2015 through 2018 tax years to claim a worthless stock deduction. As of December 31, 2023, the amended tax returns were under examination by the applicable tax authorities and recovery of the refund claim was not considered more-likely-than-not. Accordingly, the aggregate refund claim of $13.6 million, including interest of $1.8 million, was recorded as an income tax receivable as of December 31, 2023, fully offset by a corresponding liability for unrecognized tax benefits.
During the first quarter of 2024, the tax authorities notified the Company that the amended tax returns had been approved, at which point receipt of the refund claim was considered more-likely-than-not. As a result, the Company released the associated liability for unrecognized tax benefits and recognized a $13.0 million discrete tax benefit for the U.S. federal refund claim, net of taxes on the associated interest. During the second quarter of 2024, the Company received the U.S. federal income tax refund and began amending applicable state tax returns to reflect the worthless stock deduction, resulting in the recognition of a $2.6 million discrete state tax benefit.
The Company recognized income tax expense of $18.7 million for the three months ended September 30, 2024, compared to $13.8 million in the prior-year quarter, with the increase primarily due to higher pre-tax income levels. The Company’s effective tax rate for the three months ended September 30, 2024 was 25.8 %, compared to 24.2 % in the prior-year quarter.
Including the discrete tax benefits associated with the worthless stock deduction, which aggregated to $15.6 million, and the recognition of $1.7 million in excess tax benefits associated with stock-based compensation activity, the Company recognized income tax expense of $34.7 million for the nine months ended September 30, 2024, resulting in an effective tax rate of 17.3 %. For the nine months ended September 30, 2023, the Company recognized income tax expense of $33.5 million, resulting in an
12
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
effective tax rate of 23.2 %. The Company’s income tax expense and effective tax rate for the nine months ended September 30, 2023 also included the effects of the recognition of $1.9 million in excess tax benefits associated with stock-based compensation activity and a $0.6 million benefit associated with changes in tax reserves.
NOTE 7 – PENSIONS
The following table summarizes the components of Net periodic pension expense (benefit):
| U.S. Benefit Plan | Non-U.S. Benefit Plan | ||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of actuarial loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service cost | |||||||||||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Net periodic pension expense (benefit) | $ | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
The items that comprise Net periodic pension expense (benefit), other than service cost, are included as a component of Other expense, net on the Condensed Consolidated Statements of Operations.
In October 2024, the Company executed an amendment to the Federal Signal Corporation Retirement Plan (“the Plan”), which enabled the Company to announce a limited-time voluntary lump-sum pension offering to eligible plan participants. The lump-sum settlement payments will be made during the fourth quarter of 2024, using assets from the Plan. In connection with the lump-sum offering, the Company expects to incur a pre-tax, non-cash settlement charge of up to $5 million in the fourth quarter of 2024, when the lump sum settlements are expected to be paid. The Company also anticipates that the lump-sum offering will result in a decrease in the Company’s Long-term pension and other postretirement benefit liabilities as presented on the Condensed Consolidated Balance Sheet.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Financial Commitments
The Company provides indemnifications and other guarantees in the ordinary course of business, the terms of which range in duration and often are not explicitly defined. Specifically, the Company is occasionally required to provide letters of credit and bid and performance bonds to various customers, principally to act as security for retention levels related to casualty insurance policies and to guarantee the performance of subsidiaries that engage in export and domestic transactions. At September 30, 2024, the Company had outstanding performance and financial standby letters of credit, as well as outstanding bid and performance bonds, aggregating to $25.0 million. If any such letters of credit or bonds are called, the Company would be obligated to reimburse the issuer of the letter of credit or bond. The Company believes the likelihood of any currently outstanding letter of credit or bond being called is remote.
Product Warranties
The Company issues product performance warranties to customers with the sale of its products. The specific terms and conditions of these warranties vary depending upon the product sold and country in which the Company does business, with warranty periods generally ranging from to five years . The Company estimates the costs that may be incurred under its basic limited warranty and records a liability in the amount of such costs at the time the sale of the related product is recognized. Factors that affect the Company’s warranty liability include (i) the number of units under warranty, (ii) historical and anticipated rates of warranty claims and (iii) costs per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
13
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
The following table summarizes the changes in the Company’s warranty liabilities during the nine months ended September 30, 2024 and 2023:
| (in millions) | 2024 | 2023 | |||||||||
| Balance at January 1 | $ | $ | |||||||||
| Provisions to expense | |||||||||||
| Acquisitions | |||||||||||
| Payments | ( | ( | |||||||||
| Balance at September 30 | $ | $ | |||||||||
Legal Proceedings
The Company is subject to various claims, including pending and possible legal actions for product liability and other damages, and other matters arising in the ordinary course of the Company’s business. On a quarterly basis, the Company reviews uninsured material legal claims against the Company and accrues for the costs of such claims as appropriate in the exercise of management’s best judgment and experience. However, due to a lack of factual information available to the Company about a claim, or the procedural stage of a claim, it may not be possible for the Company to reasonably assess either the probability of a favorable or unfavorable outcome of the claim or to reasonably estimate the amount of loss should there be an unfavorable outcome. Therefore, for many claims, the Company cannot reasonably estimate a range of loss.
The Company believes, based on current knowledge and after consultation with counsel, that the outcome of such claims and actions will not have a material adverse effect on the Company’s results of operations or financial condition. However, in the event of unexpected future developments, it is possible that the ultimate resolution of such matters, if unfavorable, could have a material adverse effect on the Company’s results of operations, financial condition or cash flow.
Hearing Loss Litigation
The Company has been sued for monetary damages by firefighters claiming that exposure to the Company’s sirens impaired their hearing and the sirens are therefore defective. Between 1999 and 2013, 40 cases were filed on behalf of a total of 2,816 plaintiffs in the Circuit Court of Cook County, Illinois. The trial of the first 27 of these plaintiffs’ claims occurred in 2008, whereby a Cook County jury returned a unanimous verdict in favor of the Company. In 2009, a trial was held on behalf of nine Chicago firefighter plaintiffs and concluded with a verdict for the plaintiffs in varying amounts totaling $0.4 million. Following appeals, the Company satisfied the judgments, resulting in the final dismissal of the cases. A third consolidated trial involving eight Chicago firefighter plaintiffs occurred in November 2011. The jury returned a unanimous verdict in favor of the Company. Thereafter, the trial court scheduled a fourth consolidated trial involving three firefighter plaintiffs. Prior to trial, the claims of two of the firefighter plaintiffs were dismissed, and on December 17, 2012, the jury entered a complete defense verdict for the Company. On December 20, 2021, the parties executed a settlement agreement to resolve claims of approximately 462 firefighters still involved in the litigation, agreeing to pay a lump sum of $0.2 million based upon an assessment of firefighters who met minimal bilateral hearing loss standards. The estimated settlement amount was accrued by the Company. The settlement agreement did not require the payment of any attorney fees by the Company and provided that plaintiffs’ attorney would withdraw from representing firefighters who did not agree to the settlement. In July 2022, the Company issued the settlement payment for eligible plaintiffs who submitted a release. The claims of all other eligible plaintiffs were dismissed for want of prosecution on August 5, 2022.
The Company also filed motions to dismiss cases involving firefighters who worked for fire departments located outside of Illinois based on improper venue. On February 24, 2017, the Circuit Court of Cook County dismissed the cases of 1,770 such firefighter plaintiffs. In 2017, the Company entered into a global settlement agreement (the “2017 Settlement Agreement”) with two attorneys who represented approximately 1,090 of these plaintiffs offering to pay $700 per plaintiff to settle these cases, and 717 plaintiffs accepted this offer as a final settlement. The 2017 Settlement Agreement did not require the payment of any attorney fees by the Company. The attorneys representing these plaintiffs agreed to withdraw from representing plaintiffs who did not respond to the settlement offer. It is the Company’s position that the non-settling plaintiffs who failed to timely refile their cases are barred from doing so by the statute of limitations.
The Company was also sued on this issue outside of the Cook County, Illinois venue. Between 2007 and 2009, lawsuits involving 71 plaintiffs were filed in the Court of Common Pleas, Philadelphia County, Pennsylvania. Three of these cases were dismissed pursuant to pretrial motions, one case was voluntarily dismissed, and others were settled for nominal sums. Three
14
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
trials were held in these cases. In the first trial, a jury returned a verdict for the plaintiff, finding that the Company’s siren was not defectively designed but that the Company negligently constructed the siren. The jury awarded damages in an amount less than $0.1 million. In 2010, a jury returned a defense verdict for the Company as to the claims of nine plaintiffs. In a third trial, the jury returned a defense verdict for the Company as to the claims of nine plaintiffs. Following the defense verdicts in the last two Philadelphia trials, in order to avoid the inconvenience, uncertainty and distraction of the lawsuits, the Company entered into a global settlement agreement (the “2010 Settlement Agreement”) on behalf of 1,125 claimants (the “Claimants”). The 2010 Settlement Agreement provided that the Company pay a total amount of $3.8 million to settle the claims (including the costs, fees and other expenses of the law firm in connection with its representation of the Claimants), subject to certain terms, conditions and procedures set forth in the 2010 Settlement Agreement. On April 22, 2011, the Company confirmed that the terms and conditions of the 2010 Settlement Agreement had been met and made an adjusted payment of $3.6 million to conclude the settlement. The amount was based upon the Company’s receipt of 1,069 signed releases provided by Claimants. The Company generally denies the allegations made in the lawsuits and denies that its products caused any injuries to the Claimants.
From 2007 through 2009, firefighters also brought hearing loss claims against the Company in New Jersey, Missouri, Maryland and Kings County, New York, all of which were dismissed prior to trial.
In 2012, 20 new cases were filed in Philadelphia on behalf of 20 Philadelphia firefighters against various defendants in addition to the Company. Five of these cases were dismissed. The first trial involving these cases occurred in December 2014 and involved three firefighter plaintiffs. The jury returned a verdict in favor of the Company. Following the trial, the parties agreed to settle cases involving seven firefighter plaintiffs for nominal amounts.
In January 2015, plaintiffs’ attorneys filed two new complaints in Philadelphia on behalf of approximately 70 additional firefighter plaintiffs. One of the complaints, which involved 11 firefighter plaintiffs from the District of Columbia, was removed to federal court in the Eastern District of Pennsylvania. Plaintiffs voluntarily dismissed all claims in that case on May 31, 2016. The Company thereafter moved to recover fees and costs in this case, asserting that plaintiffs’ counsel failed to properly investigate the claims prior to filing suit. The Court granted the motion, awarding $0.1 million to the Company, and the United States Court of Appeals for the Third Circuit affirmed the decision awarding fees and costs to the Company. The Court granted the Company’s motion to dismiss the remaining out-of-state firefighters. In 2015, another nine new cases involving a total of 193 firefighters were filed in Philadelphia. The court dismissed all claims filed by out-of-state firefighters, a decision affirmed by the appellate court.
In 2016 and 2017, plaintiffs filed new cases involving a total of 155 Philadelphia firefighters in Philadelphia state court, and the cases were transferred to the mass tort program in Philadelphia for pretrial purposes. In November 2017, a trial involving one Philadelphia firefighter occurred, and the jury returned a verdict in favor of the Company.
In 2014, an action was brought in the Court of Common Pleas of Erie County, Pennsylvania on behalf of 61 firefighters against various defendants in addition to the Company. Also in 2014, 20 lawsuits involving a total of 193 Buffalo Fire Department firefighters were filed in the Supreme Court of the State of New York, Erie County. In 2015, the Company was served with a complaint filed in Union County, New Jersey state court, involving 34 New Jersey firefighters. In 2016, nine cases were filed in Suffolk County, Massachusetts state court, naming the Company as a defendant. These cases involved 194 firefighters who lived and worked in the Boston area. In 2017, plaintiffs’ attorneys filed additional hearing loss cases in Florida. Prior to a dismissal of these cases pursuant to the Tolling Agreement discussed below, there was a total of 1,084 firefighters involved in these cases.
In 2013, cases were filed in Allegheny County, Pennsylvania on behalf of 247 plaintiff firefighters from Pittsburgh and against various defendants including the Company. In 2016, cases were filed against an additional 19 Pittsburgh firefighters. After the Company filed pretrial motions, the Court dismissed claims of 55 Pittsburgh firefighter plaintiffs. Prior to the first scheduled trial, the Court granted the Company’s motion for summary judgment and dismissed all claims asserted by plaintiff firefighters involved in this trial. Following an appeal by the plaintiff firefighters, the appellate court affirmed this dismissal. A jury rendered a verdict in favor of the Company in 2017.
In 2017, five cases involving 70 firefighter plaintiffs were filed in Lackawanna County, Pennsylvania.
A second trial involving Pittsburgh firefighters began in 2018. At the outset of this trial, plaintiffs’ attorneys, who represent all firefighters who filed cases in Allegheny County, Philadelphia, Buffalo, New Jersey, Massachusetts, and Florida requested that the Company consider settlement of various cases. In March 2018, the parties agreed in principle on a framework (the “Settlement Framework”) to resolve hearing loss claims and cases in all jurisdictions involved in the hearing loss litigation
15
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
except Cook County, Illinois and Lackawanna County, Pennsylvania and a case involving one firefighter in New York City, cases being handled by different attorneys. The Company later settled the cases in Lackawanna County and settled the case involving one firefighter in New York City for nominal amounts.
In order to minimize the parties’ respective legal costs and expenses during this settlement process, on July 5, 2018, the parties entered into a tolling agreement (the “Tolling Agreement”). Pursuant to the Tolling Agreement, counsel for the settling firefighters agreed to dismiss the pending lawsuits in all jurisdictions except for the Allegheny County (Pittsburgh), Pennsylvania cases, and the Company agreed to a tolling of any statute of limitations applicable to the dismissed cases. The Tolling Agreement continued in place until the parties executed a global settlement agreement (the “2019 Settlement Agreement”) on November 4, 2019. After execution of the 2019 Settlement Agreement, the Allegheny County (Pittsburgh) cases were dismissed.
Pursuant to the 2019 Settlement Agreement, the Company would pay $700 to each firefighter who filed a lawsuit and is eligible to be part of the settlement and $300 to each firefighter who has not yet filed a case and is eligible to be part of the settlement. To be eligible for settlement, among other things, firefighters must provide proof that they have high frequency noise-induced hearing loss. There are approximately 2,160 firefighters whose claims may be considered as part of this settlement, including approximately 921 firefighters who have ongoing filed lawsuits. The 2019 Settlement Agreement requires plaintiffs’ attorneys to withdraw from representing firefighters who elect not to participate in the settlement and does not include the payment of any attorney fees by the Company. Pursuant to the 2019 Settlement Agreement, the parties initiated the process of determining how many of the approximately 2,160 firefighters will be eligible to participate in the settlement.
As of September 30, 2024, the Company has recognized an estimated liability for the potential settlement amount under the Settlement Framework. While it is reasonably possible that the ultimate resolution of this matter may result in a loss in excess of the amount accrued, the incremental loss is not expected to be material.
NOTE 9 – EARNINGS PER SHARE
The Company computes earnings per share (“EPS”) in accordance with Accounting Standards Codification (“ASC”) 260, Earnings per Share, which requires that non-vested restricted stock containing non-forfeitable dividend rights should be treated as participating securities pursuant to the two-class method. Under the two-class method, net income is reduced by the amount of dividends declared in the period for common stock and participating securities. The remaining undistributed earnings are then allocated to common stock and participating securities as if all of the net income for the period had been distributed. The amounts of distributed and undistributed earnings allocated to participating securities for the three and nine months ended September 30, 2024 and 2023 were insignificant and did not materially impact the calculation of basic or diluted EPS.
Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock and non-vested restricted stock awards outstanding for the period.
Diluted EPS is computed using the weighted average number of shares of common stock and non-vested restricted stock awards outstanding for the year, plus the effect of dilutive potential common shares outstanding during the period. The dilutive effect of common stock equivalents is determined using the more dilutive of the two-class method or alternative methods. The Company uses the treasury stock method to determine the potentially dilutive impact of our employee stock options and restricted stock units, and the contingently issuable method for our performance-based restricted stock unit awards.
For both the three and nine months ended September 30, 2024 and 2023, the number of options to purchase shares of the Company’s stock that had an antidilutive effect on EPS was immaterial.
16
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
The following table reconciles Net income to basic and diluted EPS:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions, except per share data) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average shares outstanding – Basic | |||||||||||||||||||||||
| Dilutive effect of common stock equivalents | |||||||||||||||||||||||
| Weighted average shares outstanding – Diluted | |||||||||||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | |||||||||||||||||||||||
NOTE 10 – STOCKHOLDERS’ EQUITY
Dividends
On February 20, 2024, the Company’s Board of Directors (the “Board”) declared a quarterly cash dividend of $0.12 per common share. The dividend totaled $7.3 million and was distributed on March 28, 2024 to stockholders of record at the close of business on March 15, 2024.
On April 23, 2024, the Board declared a quarterly cash dividend of $0.12 per common share. The dividend totaled $7.4 million and was distributed on May 31, 2024 to stockholders of record at the close of business on May 17, 2024.
On July 23, 2024, the Board declared a quarterly cash dividend of $0.12 per common share payable. The dividend totaled $7.3 million and was distributed on August 30, 2024 to stockholders of record at the close of business on August 16, 2024.
During the three and nine months ended September 30, 2023, dividends of $6.1 million and $17.7 million, respectively, were paid to stockholders.
On October 22, 2024, the Board declared a quarterly cash dividend of $0.12 per common share payable on December 2, 2024 to stockholders of record at the close of business on November 15, 2024.
Stock Repurchase Program
In March 2020, the Board authorized a stock repurchase program of up to $75.0 million of the Company’s common stock, with the remaining authorization under our previously described repurchase program adopted in 2014 being subject to the March 2020 program. The stock repurchase program is intended primarily to facilitate purchases of Company stock as a means to provide cash returns to stockholders, enhance stockholder returns and manage the Company’s capital structure. Under its stock repurchase program, the Company is authorized to repurchase, from time to time, shares of its outstanding common stock. Stock repurchases by the Company are subject to market conditions and other factors and may be commenced, suspended or discontinued at any time.
During the three months ended September 30, 2024, the Company repurchased 52,500 shares for a total of $4.4 million under its stock repurchase program. During the nine months ended September 30, 2024, the Company repurchased 54,100 shares for a total of $4.5 million under its stock repurchase program.
During the three and nine months ended September 30, 2023, the Company repurchased 72,468 shares for a total of $4.3 million under its stock repurchase program.
17
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
Accumulated Other Comprehensive Loss
The following tables summarize the changes in each component of Accumulated other comprehensive loss, net of tax in the three months ended September 30, 2024 and 2023:
| (in millions) | Actuarial Losses | Prior Service Costs | Foreign Currency Translation | Interest Rate Swaps | Total | ||||||||||||||||||||||||
Balance at July 1, 2024 (a) | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | ( | ( | |||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ||||||||||||||||||||||||||||
| Net current-period other comprehensive (loss) income | ( | ( | |||||||||||||||||||||||||||
Balance at September 30, 2024 (a) | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| (in millions) | Actuarial Losses | Prior Service Costs | Foreign Currency Translation | Interest Rate Swaps | Total | ||||||||||||||||||||||||
Balance at July 1, 2023 (a) | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | |||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ( | |||||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||
Balance at September 30, 2023 (a) | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
(a) Amounts in parentheses indicate losses.
The following tables summarize the changes in each component of Accumulated other comprehensive loss, net of tax in the nine months ended September 30, 2024 and 2023:
| (in millions) | Actuarial Losses | Prior Service Costs | Foreign Currency Translation | Interest Rate Swaps | Total | ||||||||||||||||||||||||
Balance at January 1, 2024 (a) | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | ( | ( | |||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ( | |||||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||
Balance at September 30, 2024 (a) | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||
| (in millions) | Actuarial Losses | Prior Service Costs | Foreign Currency Translation | Interest Rate Swaps | Total | ||||||||||||||||||||||||
Balance at January 1, 2023 (a) | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications | ( | ( | |||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ( | |||||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||
Balance at September 30, 2023 (a) | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||
(a) Amounts in parentheses indicate losses.
18
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
The following table summarizes the amounts reclassified from Accumulated other comprehensive loss, net of tax, in the three months ended September 30, 2024 and 2023 and the affected line item in the Condensed Consolidated Statements of Operations:
| Details about Accumulated Other Comprehensive Loss Components | Amount Reclassified from Accumulated Other Comprehensive Loss | Affected Line Item in Condensed Consolidated Statements of Operations | ||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||
(in millions) (a) | ||||||||||||||||||||
| Amortization of actuarial losses of defined benefit pension plans | $ | ( | $ | ( | Other expense, net | |||||||||||||||
| Amortization of prior service costs of defined benefit pension plans | ( | Other expense, net | ||||||||||||||||||
| Interest rate swaps | Interest expense, net | |||||||||||||||||||
| Total before tax | ( | |||||||||||||||||||
| Income tax expense | ( | Income tax expense | ||||||||||||||||||
| Total reclassifications for the period, net of tax | $ | ( | $ | |||||||||||||||||
(a) Amounts in parentheses indicate losses.
The following table summarizes the amounts reclassified from Accumulated other comprehensive loss, net of tax, in the nine months ended September 30, 2024 and 2023 and the affected line item in the Condensed Consolidated Statements of Operations:
| Details about Accumulated Other Comprehensive Loss Components | Amount Reclassified from Accumulated Other Comprehensive Loss | Affected Line Item in Condensed Consolidated Statements of Operations | ||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||
(in millions) (a) | ||||||||||||||||||||
| Amortization of actuarial losses of defined benefit pension plans | $ | ( | $ | ( | Other expense, net | |||||||||||||||
| Amortization of prior service costs of defined benefit pension plans | ( | ( | Other expense, net | |||||||||||||||||
| Interest rate swaps | Interest expense, net | |||||||||||||||||||
| Total before tax | ||||||||||||||||||||
| Income tax expense | ( | Income tax expense | ||||||||||||||||||
| Total reclassifications for the period, net of tax | $ | $ | ||||||||||||||||||
(a) Amounts in parentheses indicate losses.
19
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
NOTE 11 – SEGMENT INFORMATION
The Company has two reportable segments: the Environmental Solutions Group and the Safety and Security Systems Group. Business units are organized under each reportable segment because they share certain characteristics, such as technology, marketing, distribution and product application, which create long-term synergies.
The following tables summarize the Company’s operations by segment, including Net sales, Operating income (loss), and Total assets:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Environmental Solutions | $ | $ | $ | $ | |||||||||||||||||||
| Safety and Security Systems | |||||||||||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||||||||
| Operating income (loss): | |||||||||||||||||||||||
| Environmental Solutions | $ | $ | $ | $ | |||||||||||||||||||
| Safety and Security Systems | |||||||||||||||||||||||
| Corporate and eliminations | ( | ( | ( | ( | |||||||||||||||||||
| Total operating income | |||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||
| Other expense, net | |||||||||||||||||||||||
| Income before income taxes | $ | $ | $ | $ | |||||||||||||||||||
| (in millions) | September 30, 2024 | December 31, 2023 | |||||||||
| Total assets: | |||||||||||
| Environmental Solutions | $ | $ | |||||||||
| Safety and Security Systems | |||||||||||
| Corporate and eliminations | |||||||||||
| Total assets | $ | $ | |||||||||
NOTE 12 – FAIR VALUE MEASUREMENTS
The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about valuation based on the best information available in the circumstances. The three levels of inputs are classified as follows:
•Level 1 — quoted prices in active markets for identical assets or liabilities;
•Level 2 — observable inputs, other than quoted prices included in Level 1, such as quoted prices for markets that are not active, or other inputs that are observable or can be corroborated by observable market data; and
•Level 3 — unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
20
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. The valuation methodologies used for the Company’s assets and liabilities measured at fair value and their classification in the valuation hierarchy are summarized below.
Cash Equivalents
Cash equivalents primarily consist of time-based deposits and interest-bearing instruments with maturities of three months or less. The Company classified cash equivalents as Level 1 due to the short-term nature of these instruments and measured the fair value based on quoted prices in active markets for identical assets.
Interest Rate Swaps
As described in Note 5 – Debt, the Company may, from time to time, execute interest rate swaps as a means of fixing the floating interest rate component on a portion of its floating-rate debt. The Company classifies its interest rate swaps as Level 2 due to the use of a discounted cash flow model based on the terms of the contract and the interest rate curve (Level 2 inputs) to calculate the fair value of the swaps.
Contingent Consideration
At September 30, 2024, the Company had contingent obligations to transfer up to $7.5 million, $6.2 million, and C$6.0 million (approximately $4.4 million), to the former owners of Deist Industries, Inc. and certain of its affiliates (collectively, “Deist”), Blasters, Inc. and Blasters Technologies, LLC (collectively, “Blasters”), and Trackless, respectively, if specified financial results are met over future reporting periods (i.e., an earn-out). The Deist, Blasters, and Trackless acquisitions were completed on December 30, 2021, January 3, 2023, and April 3, 2023, respectively. The Deist contingent earn-out payment, if earned, would be due to be paid following the third anniversary of the closing date. The Blasters contingent earn-out payments, if earned, would be due to be paid annually, in each of the three years following the anniversary of the closing date. There was no contingent earn-out payable for the first annual measurement period ended December 31, 2023. The Trackless contingent earn-out payment, if earned, would be due to be paid following the second anniversary of the closing date. During the nine months ended September 30, 2023, the Company paid $0.5 million to settle the contingent consideration obligation due to the former owners of Mark Rite Lines Equipment Company, Inc. (“MRL”), which was acquired on July 1, 2019.
Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration transferred. Subsequent changes in fair value are included as a component of Acquisition and integration-related expenses, net on the Condensed Consolidated Statements of Operations.
The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2024:
| Fair Value Measurement at Reporting Date Using | |||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Contingent consideration | |||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||
21
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
(Unaudited)
The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements in the three months ended September 30, 2024 and 2023:
| (in millions) | 2024 | 2023 | |||||||||
| Contingent consideration liability, at July 1 | $ | ` | $ | ||||||||
| Foreign currency translation | ( | ||||||||||
| Contingent consideration liability, at September 30 | $ | $ | |||||||||
The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements in the nine months ended September 30, 2024 and 2023:
| (in millions) | 2024 | 2023 | |||||||||
| Contingent consideration liability, at January 1 | $ | $ | |||||||||
| Acquisitions, including measurement period adjustments | ( | ||||||||||
| Settlements of contingent consideration liabilities | ( | ||||||||||
| Foreign currency translation | ( | ( | |||||||||
Total expense (benefit) included in earnings (a) | ( | ||||||||||
| Contingent consideration liability, at September 30 | $ | $ | |||||||||
(a) Changes in the fair value of contingent consideration liabilities are included as a component of Acquisition and integration-related expenses, net on the Condensed Consolidated Statements of Operations
NOTE 13 – SUBSEQUENT EVENTS
Acquisition of Standard Equipment Company
On October 4, 2024, the Company completed the acquisition of substantially all the assets and operations of Standard Equipment Company (“Standard”) for an initial purchase price of $38.8 million, subject to certain closing adjustments. The initial purchase price was funded through existing cash on hand. In addition, there is a contingent earn-out payment of up to $4.8 million that is based on the achievement of certain financial targets over a specified performance period.
Standard is a leading distributor of specialty maintenance and infrastructure equipment for municipal and industrial markets in parts of Illinois and Indiana. The Company expects that the acquisition of Standard will further build upon its aftermarket growth strategy by adding additional scale and capabilities to its parts, services, rental, and used equipment operations.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide information that is supplemental to, and should be read together with, the condensed consolidated financial statements and the accompanying notes contained in this Form 10-Q, as well as Federal Signal Corporation’s Annual Report on Form 10-K for the year ended December 31, 2023. References herein to the “Company,” “we,” “our,” or “us” refer collectively to Federal Signal Corporation and its subsidiaries. Information in MD&A is intended to assist the reader in obtaining an understanding of (i) the condensed consolidated financial statements, (ii) the Company’s business segments and how the results of those segments impact the Company’s results of operations and financial condition as a whole and (iii) how certain accounting principles affect the Company’s condensed consolidated financial statements. The Company’s results for interim periods should not be regarded as necessarily indicative of results that may be expected for the entire year, which may differ materially due to, among other things, the risk factors described under Part I, Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 27, 2024.
Executive Summary
The Company is a leading global manufacturer and supplier of (i) vehicles and equipment for maintenance and infrastructure end-markets, including sewer cleaners, industrial vacuum loaders, vacuum- and hydro-excavation trucks (collectively, “safe-digging trucks”), street sweepers, waterblasting equipment, road-marking and line-removal equipment, dump truck bodies, trailers, metal extraction support equipment, and multi-purpose maintenance vehicles, and (ii) public safety equipment, such as vehicle lightbars and sirens, industrial signaling equipment, public warning systems, and general alarm/public address systems. In addition, we engage in the sale of parts, service and repair, equipment rentals, and training as part of a comprehensive aftermarket offering to our customer base. We operate 23 principal manufacturing facilities in five countries and provide products and integrated solutions to municipal, governmental, industrial, and commercial customers in all regions of the world.
As described in Note 11 – Segment Information to the accompanying condensed consolidated financial statements, the Company’s business units are organized in two reportable segments: the Environmental Solutions Group and the Safety and Security Systems Group.
Operating Results
Net sales for the three months ended September 30, 2024 increased by $27.8 million, or 6%, compared to the prior-year quarter, primarily due to higher sales volumes and the effects of pricing actions. Our Environmental Solutions Group reported a net sales increase of $25.2 million, or 7%, primarily due to increases in sales of dump truck bodies, sewer cleaners, street sweepers, road-marking and line-removal equipment, and metal extraction support equipment of $9.2 million, $4.8 million, $3.3 million, $1.6 million, and $1.3 million, respectively. In addition, aftermarket revenues improved by $9.8 million. Partially offsetting these improvements were reductions in sales of trailers and safe-digging trucks of $3.3 million and $2.5 million, respectively. Within our Safety and Security Systems Group, net sales increased by $2.6 million, or 4%, primarily due to improvements in sales of public safety equipment of $4.0 million, partially offset by a $1.5 million reduction in sales of warning systems.
Net sales for the nine months ended September 30, 2024 increased by $115.2 million, or 9%, compared to the prior-year period, primarily due to higher sales volumes, inclusive of the effects of acquisitions, and pricing actions. Our Environmental Solutions Group reported a net sales increase of $96.2 million, or 9%, primarily due to increases in sales of dump truck bodies, sewer cleaners, street sweepers, road-marking and line-removal equipment, industrial vacuum loaders, multi-purpose maintenance vehicles, metal extraction support equipment, refuse trucks, safe-digging trucks and hoists of $23.1 million, $12.1 million, $11.6 million, $7.9 million, $6.9 million, $6.7 million, $6.6 million, $4.6 million, $3.8 million and $2.5 million, respectively. In addition, aftermarket revenues improved by $16.0 million. Partially offsetting these improvements was a reduction in sales of trailers of $7.6 million as well as a $1.6 million unfavorable foreign currency translation impact. Within our Safety and Security Systems Group, net sales increased by $19.0 million, or 9%, primarily due to improvements in sales of public safety equipment and warning systems of $19.5 million and $2.2 million, respectively, partially offset by a $2.8 million reduction in sales of industrial signaling equipment.
Operating income for the three months ended September 30, 2024 increased by $13.4 million, or 21%, compared to the prior-year quarter, primarily driven by a $22.7 million improvement in gross profit, a $0.1 million decrease in acquisition and integration-related expenses, and a $0.1 million reduction in amortization expense, partially offset by a $9.5 million increase in Selling, Engineering, General and Administrative (“SEG&A”) expenses. Consolidated operating margin for the three months ended September 30, 2024 was 16.0%, compared to 14.0% in the prior-year quarter.
Operating income for the nine months ended September 30, 2024 increased by $49.9 million, or 31%, compared to the prior-year period, primarily driven by a $69.6 million improvement in gross profit and a $0.2 million decrease in amortization expense, partially offset by a $19.6 million increase in SEG&A expenses and a $0.3 million increase in acquisition and
23
integration-related expenses. Consolidated operating margin for the nine months ended September 30, 2024 was 15.2%, compared to 12.7% in the prior-year period.
Income before income taxes for the three months ended September 30, 2024 increased by $15.5 million, or 27%, compared to the prior-year quarter. The increase resulted from the higher operating income and a $2.1 million reduction in interest expense.
Income before income taxes for the nine months ended September 30, 2024 increased by $56.5 million, or 39%, compared to the prior-year period. The increase resulted from the higher operating income, a $6.0 million reduction in interest expense, and a $0.6 million decrease in other expense.
Net income for the three months ended September 30, 2024 increased by $10.6 million compared to the prior-year quarter, largely due to the aforementioned increase in income before taxes, partially offset by a $4.9 million increase in income tax expense. The effective tax rate for the three months ended September 30, 2024 was 25.8%, compared to 24.2% in the prior-year quarter.
Net income for the nine months ended September 30, 2024 increased by $55.3 million compared to the prior-year period, largely due to the aforementioned increase in income before taxes, partially offset by a $1.2 million increase in income tax expense. The effective tax rate for the nine months ended September 30, 2024 was 17.3%, compared to 23.2% in the prior-year period.
Total orders for the three months ended September 30, 2024 were $426 million, a reduction of $24 million, or 5%, as compared to the prior-year quarter. Our Environmental Solutions Group reported total orders of $353 million in the three months ended September 30, 2024, a reduction of $22 million, or 6%, in comparison to the prior-year quarter. Orders in the three months ended September 30, 2024 within our Safety and Security Systems Group were $73 million, a decrease of $2 million, or 3%, compared to the prior-year quarter.
Total orders for the nine months ended September 30, 2024 were $1.40 billion, a $4 million reduction compared to the prior-year period. Our Environmental Solutions Group reported total orders of $1.18 billion in the nine months ended September 30, 2024, a reduction of $3 million compared to the prior-year period. Orders in the nine months ended September 30, 2024 within our Safety and Security Systems Group were $225 million, a decrease of $1 million compared to the prior-year period.
Our consolidated backlog at September 30, 2024 was $1.03 billion, an increase of $27 million, or 3%, compared to the prior-year quarter.
24
Results of Operations
The following table summarizes our Condensed Consolidated Statements of Operations and illustrates key financial indicators used to assess our consolidated financial results:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| ($ in millions, except per share data) | 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||
| Net sales | $ | 474.2 | $ | 446.4 | $ | 27.8 | $ | 1,389.5 | $ | 1,274.3 | $ | 115.2 | |||||||||||||||||||||||
| Cost of sales | 333.8 | 328.7 | 5.1 | 989.1 | 943.5 | 45.6 | |||||||||||||||||||||||||||||
| Gross profit | 140.4 | 117.7 | 22.7 | 400.4 | 330.8 | 69.6 | |||||||||||||||||||||||||||||
| Selling, engineering, general and administrative expenses | 60.1 | 50.6 | 9.5 | 175.6 | 156.0 | 19.6 | |||||||||||||||||||||||||||||
| Amortization expense | 3.8 | 3.9 | (0.1) | 11.2 | 11.4 | (0.2) | |||||||||||||||||||||||||||||
| Acquisition and integration-related expenses, net | 0.6 | 0.7 | (0.1) | 2.3 | 2.0 | 0.3 | |||||||||||||||||||||||||||||
| Operating income | 75.9 | 62.5 | 13.4 | 211.3 | 161.4 | 49.9 | |||||||||||||||||||||||||||||
| Interest expense, net | 3.0 | 5.1 | (2.1) | 9.4 | 15.4 | (6.0) | |||||||||||||||||||||||||||||
| Other expense, net | 0.3 | 0.3 | — | 0.9 | 1.5 | (0.6) | |||||||||||||||||||||||||||||
| Income before income taxes | 72.6 | 57.1 | 15.5 | 201.0 | 144.5 | 56.5 | |||||||||||||||||||||||||||||
| Income tax expense | 18.7 | 13.8 | 4.9 | 34.7 | 33.5 | 1.2 | |||||||||||||||||||||||||||||
| Net income | $ | 53.9 | $ | 43.3 | $ | 10.6 | $ | 166.3 | $ | 111.0 | $ | 55.3 | |||||||||||||||||||||||
| Operating data: | |||||||||||||||||||||||||||||||||||
| Operating margin | 16.0 | % | 14.0 | % | 2.0 | % | 15.2 | % | 12.7 | % | 2.5 | % | |||||||||||||||||||||||
| Diluted earnings per share | $ | 0.87 | $ | 0.71 | $ | 0.16 | $ | 2.70 | $ | 1.81 | $ | 0.89 | |||||||||||||||||||||||
| Total orders | 425.9 | 450.2 | (24.3) | 1,401.6 | 1,405.1 | (3.5) | |||||||||||||||||||||||||||||
| Backlog | 1,032.8 | 1,005.8 | 27.0 | 1,032.8 | 1,005.8 | 27.0 | |||||||||||||||||||||||||||||
| Depreciation and amortization | 16.5 | 15.3 | 1.2 | 47.7 | 45.1 | 2.6 | |||||||||||||||||||||||||||||
Net sales
Net sales for the three months ended September 30, 2024 increased by $27.8 million, or 6%, compared to the prior-year quarter, primarily due to higher sales volumes and the effects of pricing actions. The Environmental Solutions Group reported a net sales increase of $25.2 million, or 7%, primarily due to increases in sales of dump truck bodies, sewer cleaners, street sweepers, road-marking and line-removal equipment, and metal extraction support equipment of $9.2 million, $4.8 million, $3.3 million, $1.6 million, and $1.3 million, respectively. In addition, aftermarket revenues improved by $9.8 million. Partially offsetting these improvements were reductions in sales of trailers and safe-digging trucks of $3.3 million and $2.5 million, respectively. Within the Safety and Security Systems Group, net sales increased by $2.6 million, or 4%, primarily due to improvements in sales of public safety equipment of $4.0 million, partially offset by a $1.5 million reduction in sales of warning systems.
Net sales for the nine months ended September 30, 2024 increased by $115.2 million, or 9%, compared to the prior-year period, primarily due to higher sales volumes, inclusive of the effects of acquisitions, and pricing actions. The Environmental Solutions Group reported a net sales increase of $96.2 million, or 9%, primarily due to increases in sales of dump truck bodies, sewer cleaners, street sweepers, road-marking and line-removal equipment, industrial vacuum loaders, multi-purpose maintenance vehicles, metal extraction support equipment, refuse trucks, safe-digging trucks and hoists of $23.1 million, $12.1 million, $11.6 million, $7.9 million, $6.9 million, $6.7 million, $6.6 million, $4.6 million, $3.8 million and $2.5 million, respectively. In addition, aftermarket revenues improved by $16.0 million. Partially offsetting these improvements was a reduction in sales of trailers of $7.6 million as well as a $1.6 million unfavorable foreign currency translation impact. Within the Safety and Security Systems Group, net sales increased by $19.0 million, or 9%, primarily due to improvements in sales of public safety equipment and warning systems of $19.5 million and $2.2 million, respectively, partially offset by a $2.8 million reduction in sales of industrial signaling equipment.
Cost of sales
Cost of sales increased by $5.1 million, or 2%, for the three months ended September 30, 2024 compared to the prior-year quarter, largely due to an increase of $7.5 million, or 3%, within the Environmental Solutions Group, primarily related to higher sales volumes and increased material costs. Within the Safety and Security Systems Group, cost of sales decreased by $2.4 million, or 5%, primarily related to favorable product mix and lower material costs, partially offset by higher sales volumes.
25
Cost of sales increased by $45.6 million, or 5%, for the nine months ended September 30, 2024 compared to the prior-year period, largely due to an increase of $41.6 million, or 5%, within the Environmental Solutions Group, primarily related to higher sales volumes, inclusive of the effects of acquisitions, and increased material costs. Within the Safety and Security Systems Group, cost of sales increased by $4.0 million, or 3%, primarily related to higher sales volumes, partially offset by favorable product mix and lower material costs.
Gross profit
Gross profit increased by $22.7 million, or 19%, for the three months ended September 30, 2024 compared to the prior-year quarter, primarily due to a $17.7 million improvement within the Environmental Solutions Group and a $5.0 million increase within the Safety and Security Systems Group. Gross profit as a percentage of revenues (“gross profit margin”) for the three months ended September 30, 2024 was 29.6%, compared to 26.4% in the prior-year quarter, primarily due to improvements within the Environmental Solutions Group and the Safety and Security Systems Group of 290 basis points and 530 basis points, respectively.
Gross profit increased by $69.6 million, or 21%, for the nine months ended September 30, 2024 compared to the prior-year period, primarily due to a $54.6 million improvement within the Environmental Solutions Group and a $15.0 million increase within the Safety and Security Systems Group. Gross profit margin for the nine months ended September 30, 2024 was 28.8%, compared to 26.0% in the prior-year period, primarily due to improvements within the Environmental Solutions Group and the Safety and Security Systems Group of 280 basis points and 330 basis points, respectively.
SEG&A expenses
SEG&A expenses for the three months ended September 30, 2024 increased by $9.5 million, or 19%, compared to the prior-year quarter, primarily due to increases of $3.7 million and $1.9 million within the Environmental Solutions Group and the Safety and Security Systems Group, respectively, in addition to a $3.9 million increase in Corporate SEG&A expenses. As a percentage of net sales, SEG&A expenses were 12.7% in the current-year quarter, compared to 11.3% in the prior-year quarter.
SEG&A expenses for the nine months ended September 30, 2024 increased by $19.6 million, or 13%, compared to the prior-year period, primarily due to increases of $9.4 million and $6.0 million within the Environmental Solutions Group and the Safety and Security Systems Group, respectively, in addition to a $4.2 million increase in Corporate SEG&A expenses. As a percentage of net sales, SEG&A expenses were 12.6% in the current-year period, compared to 12.2% in the prior-year period.
Operating income
Operating income for the three months ended September 30, 2024 increased by $13.4 million, or 21%, compared to the prior-year quarter, primarily driven by a $22.7 million improvement in gross profit, a $0.1 million decrease in acquisition and integration-related expenses, and a $0.1 million reduction in amortization expense, partially offset by a $9.5 million increase in SEG&A expenses. Consolidated operating margin for the three months ended September 30, 2024 was 16.0%, compared to 14.0% in the prior-year quarter.
Operating income for the nine months ended September 30, 2024 increased by $49.9 million, or 31%, compared to the prior-year period, primarily driven by a $69.6 million improvement in gross profit and a $0.2 million decrease in amortization expense, partially offset by a $19.6 million increase in SEG&A expenses and a $0.3 million increase in acquisition and integration-related expenses. Consolidated operating margin for the nine months ended September 30, 2024 was 15.2%, compared to 12.7% in the prior-year period.
Interest expense, net
Interest expense, net, for the three and nine months ended September 30, 2024 decreased by $2.1 million and $6.0 million, respectively, compared to the corresponding periods of the prior year, largely due to reductions in average debt levels.
Other expense, net
Other expense, net, for the three months ended September 30, 2024 was $0.3 million, unchanged from the prior-year quarter.
Other expense, net, for the nine months ended September 30, 2024 decreased by $0.6 million, compared to the prior-year period, primarily due to the non-recurrence of an $0.8 million environmental remediation charge recorded in the prior-year period associated with a business discontinued in 2009 and lower foreign currency transaction losses, partially offset by a $0.5 million increase in net periodic pension expense.
26
Income tax expense
During the year ended December 31, 2023, the Company filed amended U.S. federal income tax returns for the 2015 through 2018 tax years to claim a worthless stock deduction. As of December 31, 2023, the amended tax returns were under examination by the applicable tax authorities and recovery of the refund claim was not considered more-likely-than-not. Accordingly, the aggregate refund claim of $13.6 million, including interest of $1.8 million, was recorded as an income tax receivable as of December 31, 2023, fully offset by a corresponding liability for unrecognized tax benefits.
During the first quarter of 2024, the tax authorities notified the Company that the amended tax returns had been approved, at which point receipt of the refund claim was considered more-likely-than-not. As a result, the Company released the associated liability for unrecognized tax benefits and recognized a $13.0 million discrete tax benefit for the U.S. federal refund claim, net of taxes on the associated interest. During the second quarter of 2024, the Company received the U.S. federal income tax refund and began amending applicable state tax returns to reflect the worthless stock deduction, resulting in the recognition of a $2.6 million discrete state tax benefit.
The Company recognized income tax expense of $18.7 million for the three months ended September 30, 2024, compared to $13.8 million in the prior-year quarter, with the increase primarily due to higher pre-tax income levels. The Company’s effective tax rate for the three months ended September 30, 2024 was 25.8%, compared to 24.2% in the prior-year quarter.
Including the discrete tax benefits associated with the worthless stock deduction, which aggregated to $15.6 million, and the recognition of $1.7 million in excess tax benefits associated with stock-based compensation activity, the Company recognized income tax expense of $34.7 million for the nine months ended September 30, 2024, resulting in an effective tax rate of 17.3%. For the nine months ended September 30, 2023, the Company recognized income tax expense of $33.5 million, resulting in an effective tax rate of 23.2%. The Company’s income tax expense and effective tax rate for the nine months ended September 30, 2023 also included the effects of the recognition of $1.9 million in excess tax benefits associated with stock-based compensation activity and a $0.6 million benefit associated with changes in tax reserves.
Net income
Net income for the three months ended September 30, 2024 increased by $10.6 million compared to the prior-year quarter, largely due to the aforementioned increase in income before taxes, partially offset by a $4.9 million increase in income tax expense.
Net income for the nine months ended September 30, 2024 increased by $55.3 million compared to the prior-year period, largely due to the aforementioned increase in income before taxes, partially offset by a $1.2 million increase in income tax expense.
Environmental Solutions
The following table summarizes the Environmental Solutions Group’s operating results as of and for the three and nine months ended September 30, 2024 and 2023:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| ($ in millions) | 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||
| Net sales | $ | 398.2 | $ | 373.0 | $ | 25.2 | $ | 1,161.0 | $ | 1,064.8 | $ | 96.2 | |||||||||||||||||||||||
| Operating income | 71.5 | 57.2 | 14.3 | 196.1 | 151.0 | 45.1 | |||||||||||||||||||||||||||||
| Operating data: | |||||||||||||||||||||||||||||||||||
| Operating margin | 18.0 | % | 15.3 | % | 2.7 | % | 16.9 | % | 14.2 | % | 2.7 | % | |||||||||||||||||||||||
| Total orders | $ | 352.7 | $ | 374.8 | $ | (22.1) | $ | 1,176.6 | $ | 1,179.2 | $ | (2.6) | |||||||||||||||||||||||
| Backlog | 979.7 | 938.6 | 41.1 | 979.7 | 938.6 | 41.1 | |||||||||||||||||||||||||||||
| Depreciation and amortization | 15.4 | 14.3 | 1.1 | 44.4 | 41.8 | 2.6 | |||||||||||||||||||||||||||||
Three months ended September 30, 2024 vs. three months ended September 30, 2023
Total orders for the three months ended September 30, 2024 decreased by $22.1 million, or 6%, compared to the prior-year quarter. U.S. orders decreased by $7.0 million, primarily due to reductions in orders for safe-digging trucks, street sweepers, refuse trucks, hoists, road-marking and line-removal equipment, metal extraction support equipment, and industrial vacuum loaders of $18.2 million, $4.0 million, $3.4 million, $1.4 million, $1.0 million, $0.7 million, and $0.6 million, respectively. Partially offsetting these reductions were improvements in orders of aftermarket offerings, dump truck bodies, sewer cleaners, and trailers of $7.9 million, $7.0 million, $6.7 million, and $1.1 million, respectively. Non-U.S. orders decreased by $15.1
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million, largely due to reductions in orders for sewer cleaners, metal extraction support equipment, safe-digging trucks, multi-purpose maintenance vehicles, refuse trucks, and street sweepers of $2.9 million, $2.5 million, $2.2 million, $2.1 million, $1.4 million, and $1.2 million, respectively.
Net sales for the three months ended September 30, 2024 increased by $25.2 million, or 7%, compared to the prior-year quarter, primarily due to higher sales volumes and pricing actions. For the three months ended September 30, 2024, U.S. sales increased by $30.7 million, largely due to increases in sales of dump truck bodies, sewer cleaners, street sweepers, metal extraction support equipment, refuse trucks, and road-marking and line removal equipment of $9.7 million, $4.4 million, $4.0 million, $2.8 million, $1.9 million, and $1.6 million, respectively. Additionally, aftermarket revenues increased by $8.4 million. Partially offsetting these improvements was a $3.3 million reduction in sales of trailers. Non-U.S. sales decreased by $5.5 million, largely due to reductions in sales of safe-digging trucks, metal extraction support equipment, and refuse trucks of $2.3 million, $1.5 million, and $1.4 million, as well as a $0.7 million unfavorable foreign currency translation impact. Partially offsetting these reductions was a $1.4 million increase in aftermarket revenues.
Cost of sales for the three months ended September 30, 2024 increased by $7.5 million, or 3%, compared to the prior-year quarter, primarily related to higher sales volumes and increased material costs. Gross profit margin for the three months ended September 30, 2024 was 27.1%, compared to 24.2% in the prior-year quarter, with the improvement primarily attributable to improved operating leverage from higher sales volumes, benefits from pricing actions, and favorable sales mix.
SEG&A expenses for the three months ended September 30, 2024 increased by $3.7 million, or 13%, compared to the prior-year quarter, primarily due to increases in marketing costs, sales commissions, and incentive-based compensation expense. As a percentage of net sales, SEG&A expenses were 8.1% in the current-year quarter, compared to 7.6% in the prior-year quarter.
Operating income for the three months ended September 30, 2024 increased by $14.3 million, or 25%, compared to the prior-year quarter, largely due to a $17.7 million improvement in gross profit, a $0.2 million decrease in acquisition and integration-related expenses, and a $0.1 million reduction in amortization expense, partially offset by the $3.7 million increase in SEG&A expenses.
Nine months ended September 30, 2024 vs. nine months ended September 30, 2023
Total orders for the nine months ended September 30, 2024 decreased by $2.6 million compared to the prior-year period. U.S. orders decreased by $40.2 million, primarily due to reductions in orders for street sweepers, safe-digging trucks, trailers, multi-purpose maintenance vehicles, industrial vacuum loaders, road-marking and line-removal equipment, and metal extraction support equipment $48.7 million, $46.3 million, $9.4 million, $4.9 million, $2.0 million, $1.9 million, and $1.1 million, respectively. Partially offsetting these reductions were improvements in orders of dump truck bodies, aftermarket offerings, sewer cleaners, refuse trucks, waterblasting equipment, and hoists of $43.3 million, $12.2 million, $9.8 million, $3.1 million, $2.5 million, and $1.5 million, respectively. Non-U.S. orders increased by $37.6 million, largely due to a $31.8 million improvement in orders for refuse trucks, inclusive of certain large fleet orders, as well as increases in orders for street sweepers, multi-purpose maintenance vehicles, aftermarket offerings, dump truck bodies, and metal extraction support equipment of $6.1 million, $5.8 million, $4.3 million, $3.9 million, and $1.9 million, respectively. Partially offsetting these improvements were reductions in orders for sewer cleaners, industrial vacuum loaders, safe-digging trucks, and snow removal equipment of $9.7 million, $2.2 million, $2.2 million, and $1.1 million, respectively, as well as a $1.9 million unfavorable foreign currency translation impact.
Net sales for the nine months ended September 30, 2024 increased by $96.2 million, or 9%, compared to the prior-year period, primarily due to higher sales volumes, inclusive of the effects of acquisitions, and pricing actions. For the nine months ended September 30, 2024, U.S. sales increased by $84.8 million, largely due to increases in sales of metal extraction support equipment, dump truck bodies, street sweepers, sewer cleaners, road-marking and line-removal equipment, safe-digging trucks, industrial vacuum loaders, metal extraction support equipment, refuse trucks and hoists of $19.1 million, $13.5 million, $10.1 million, $8.0 million, $7.9 million, $6.9 million, $3.6 million, $2.6 million and $2.6 million, respectively. Additionally, aftermarket revenues increased by $12.7 million. Partially offsetting these improvements was a $7.6 million reduction in sales of trailers. Non-U.S. sales increased by $11.4 million, largely due to increases in sales of multi-purpose maintenance vehicles, dump truck bodies, metal extraction support equipment, sewer cleaners and refuse trucks of $5.3 million, $4.0 million, $3.0 million, $2.0 million and $2.0 million, respectively. In addition, aftermarket revenues increased by $3.3 million. Partially offsetting these improvements were reductions in sales of safe-digging trucks and street sweepers of $4.1 million and $1.9 million, respectively, as well as a $1.6 million unfavorable foreign currency translation impact.
Cost of sales for the nine months ended September 30, 2024 increased by $41.6 million, or 5%, compared to the prior-year period, primarily related to higher sales volumes, inclusive of the effects of acquisitions, and increased material costs. Gross profit margin for the nine months ended September 30, 2024 was 26.2%, compared to 23.4% in the prior-year period, with the
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improvement primarily attributable to improved operating leverage from higher sales volumes, benefits from pricing actions, and favorable sales mix.
SEG&A expenses for the nine months ended September 30, 2024 increased by $9.4 million, or 11%, compared to the prior-year period, primarily due to additional costs from acquired businesses, as well as increases in marketing costs, sales commissions and incentive-based compensation expense. As a percentage of net sales, SEG&A expenses were 8.2% in the current-year period, compared to 8.1% in the prior-year period.
Operating income for the nine months ended September 30, 2024 increased by $45.1 million, or 30%, compared to the prior-year period, largely due to a $54.6 million improvement in gross profit and a $0.2 million decrease in amortization expense, partially offset by the $9.4 million increase in SEG&A expenses and a $0.3 million increase in acquisition and integration-related expenses.
Backlog was $980 million at September 30, 2024, compared to $939 million at September 30, 2023.
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Safety and Security Systems
The following table summarizes the Safety and Security Systems Group’s operating results as of and for the three and nine months ended September 30, 2024 and 2023:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| ($ in millions) | 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||
| Net sales | $ | 76.0 | $ | 73.4 | $ | 2.6 | $ | 228.5 | $ | 209.5 | $ | 19.0 | |||||||||||||||||||||||
| Operating income | 16.8 | 13.7 | 3.1 | 48.9 | 39.9 | 9.0 | |||||||||||||||||||||||||||||
| Operating data: | |||||||||||||||||||||||||||||||||||
| Operating margin | 22.1 | % | 18.7 | % | 3.4 | % | 21.4 | % | 19.0 | % | 2.4 | % | |||||||||||||||||||||||
| Total orders | $ | 73.2 | $ | 75.4 | $ | (2.2) | $ | 225.0 | $ | 225.9 | $ | (0.9) | |||||||||||||||||||||||
| Backlog | 53.1 | 67.2 | (14.1) | 53.1 | 67.2 | (14.1) | |||||||||||||||||||||||||||||
| Depreciation and amortization | 1.0 | 0.9 | 0.1 | 3.0 | 3.1 | (0.1) | |||||||||||||||||||||||||||||
Three months ended September 30, 2024 vs. three months ended September 30, 2023
Total orders for the three months ended September 30, 2024 decreased by $2.2 million, or 3%, compared to the prior-year quarter. U.S. orders increased by $6.7 million, primarily due to improvements in orders for public safety equipment, warning systems and industrial signaling equipment of $2.6 million, $2.3 million and $1.8 million, respectively. Non-U.S. orders decreased by $8.9 million, primarily due to a $7.7 million reduction in orders for public safety equipment in comparison to the prior-year quarter, which included a large fleet order from a customer in Europe, as well as a $1.7 million reduction in orders for industrial signaling equipment.
Net sales for the three months ended September 30, 2024 increased by $2.6 million, or 4%, compared to the prior-year quarter, inclusive of the effects of higher sales volumes and pricing actions. U.S. sales increased by $9.2 million, driven by increases in sales of public safety equipment and industrial signaling equipment of $7.7 million and $1.5 million, respectively. Non-U.S. sales decreased by $6.6 million, largely due to reductions in sales of public safety equipment, industrial signaling equipment and warning systems of $3.7 million, $1.6 million and $1.5 million, respectively.
Cost of sales for the three months ended September 30, 2024 decreased by $2.4 million, or 5%, compared to the prior-year quarter, primarily related to favorable product mix and lower material costs, partially offset by higher sales volumes. Gross profit margin for the three months ended September 30, 2024 was 42.9%, compared to 37.6% in the prior-year quarter, with the improvement primarily attributable to favorable sales mix, lower material costs, and benefits from pricing actions.
SEG&A expenses for the three months ended September 30, 2024 increased by $1.9 million, or 14%, compared to the prior-year quarter, primarily due to higher sales commissions and incentive-based compensation expense. As a percentage of net sales, SEG&A expenses were 20.8% in the current-year quarter, compared to 18.9% in the prior-year quarter.
Operating income for the three months ended September 30, 2024 increased by $3.1 million, or 23%, compared to the prior-year quarter, primarily due to a $5.0 million improvement in gross profit, partially offset by the $1.9 million increase in SEG&A expenses.
Nine months ended September 30, 2024 vs. nine months ended September 30, 2023
Total orders for the nine months ended September 30, 2024 decreased by $0.9 million compared to the prior-year period. U.S. orders increased by $20.6 million, primarily due to improvements in orders for public safety equipment and industrial signaling equipment of $17.0 million and $4.0 million, respectively. Non-U.S. orders decreased by $21.5 million, primarily due to a $18.0 million reduction in orders for public safety equipment in comparison to the prior-year period, which included large fleet orders from customers in Mexico and Europe, as well as a $3.3 million reduction in orders for industrial signaling equipment.
Net sales for the nine months ended September 30, 2024 increased by $19.0 million, or 9%, compared to the prior-year period, inclusive of the effects of higher sales volumes and pricing actions. U.S. sales increased by $25.8 million, driven by improvements in sales of public safety equipment, warning systems and industrial signaling equipment of $22.2 million, $2.2 million and $1.4 million, respectively. Non-U.S. sales decreased by $6.8 million, largely due to reductions in sales of industrial signaling equipment and public safety equipment of $4.2 million and $2.7 million, respectively.
Cost of sales for the nine months ended September 30, 2024 increased by $4.0 million, or 3%, compared to the prior-year period, primarily related to higher sales volumes, partially offset by favorable product mix and lower material costs. Gross profit margin for the nine months ended September 30, 2024 was 42.2%, compared to 38.9% in the prior-year period, with the
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improvement primarily attributable to improved operating leverage from higher sales volumes, favorable sales mix, lower material costs, and benefits from pricing actions.
SEG&A expenses for the nine months ended September 30, 2024 increased by $6.0 million, or 14%, compared to the prior-year period, primarily due to higher sales commissions and incentive-based compensation expense. As a percentage of net sales, SEG&A expenses were 20.8% in the current-year period, compared to 19.8% in the prior-year period.
Operating income for the nine months ended September 30, 2024 increased by $9.0 million, or 23%, compared to the prior-year period, primarily due to a $15.0 million improvement in gross profit, partially offset by the $6.0 million increase in SEG&A expenses.
Backlog was $53 million at September 30, 2024, compared to $67 million at September 30, 2023.
Corporate Expenses
Corporate operating expenses for the three months ended September 30, 2024 were $12.4 million, compared to $8.4 million in the prior-year quarter, with the increase primarily due to higher post-retirement expenses, as well as increases in medical expense, information technology costs, and stock compensation expense.
Corporate operating expenses for the nine months ended September 30, 2024 were $33.7 million, compared to $29.5 million in the prior-year period, with the increase primarily due to higher stock and incentive-based compensation expense, post-retirement expenses, and information technology costs, partially offset by a $1.8 million gain associated with an insurance recovery and lower medical expenses.
Seasonality of Company’s Business
Certain of the Company’s businesses are susceptible to the influences of seasonal factors, including buying patterns, delivery patterns, and productivity influences from holiday periods and weather. In general, the Company tends to have lower equipment sales in the first calendar quarter of each year compared to other quarters as a result of these factors. In addition, rental income and parts sales are generally higher in the second and third quarters of the year, because many of the Company’s products are used for maintenance activities in North America, where usage is typically lower during periods of harsher weather conditions.
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Financial Condition, Liquidity and Capital Resources
The Company uses its cash flow from operations to fund growth and to make capital investments that sustain its operations, reduce costs, or both. Beyond these uses, remaining cash is used to pay down debt, repurchase shares, fund dividend payments and make pension contributions. The Company may also choose to invest in the acquisition of businesses, like the acquisition of substantially all the assets and operations of Standard Equipment Company that was completed on October 4, 2024. In the absence of significant unanticipated cash demands, we believe that the Company’s existing cash balances, cash flow from operations, and borrowings available under the Company’s credit facility will provide funds sufficient for these purposes.
As of September 30, 2024, there was $107.0 million of cash drawn on the Revolver, $122.7 million outstanding under the term loan facility, and $11.1 million of undrawn letters of credit under the 2022 Credit Agreement, with $556.9 million of availability for borrowings. The net cash flows associated with the Company’s rental equipment transactions are included in cash flow from operating activities.
The Company’s cash and cash equivalents totaled $73.7 million and $61.0 million as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024, $21.1 million of cash and cash equivalents was held by foreign subsidiaries. Cash and cash equivalents held by subsidiaries outside the U.S. typically are held in the currency of the country in which it is located. The Company uses this cash to fund the operating activities of its foreign subsidiaries and for further investment in foreign operations. Generally, the Company has considered such cash to be permanently reinvested in its foreign operations and the Company’s current plans do not demonstrate a need to repatriate such cash to fund U.S. operations. However, in the event that these funds are needed to fund U.S. operations or to satisfy U.S. obligations, they generally could be repatriated. The repatriation of these funds may cause the Company to incur additional U.S. income tax expense, dependent on income tax laws and other circumstances at the time any such amounts are repatriated.
Net cash of $140.7 million was provided by operating activities in the nine months ended September 30, 2024, compared to $91.0 million in the prior-year period, with the year-over-year increase primarily due to higher net income and working capital improvements, partially offset by higher incentive-based compensation payments.
Net cash of $30.8 million was used for investing activities in the nine months ended September 30, 2024, compared to $75.7 million in the prior-year period. During the nine months ended September 30, 2024, the Company funded $32.1 million of capital expenditures. During the nine months ended September 30, 2023, the Company made initial payments of $41.9 million and $13.2 million to acquire Trackless and Blasters, respectively, and funded $21.4 million of capital expenditures.
Net cash of $97.2 million was used for financing activities in the nine months ended September 30, 2024, compared to $21.2 million in the prior-year period. In the nine months ended September 30, 2024, the Company paid down $64.4 million of borrowings under the Revolver and $1.6 million under its term loan facility, funded cash dividends of $22.0 million and share repurchases of $4.5 million, and redeemed $6.0 million of stock in order to remit funds to tax authorities to satisfy employees’ tax withholdings following the vesting of stock-based compensation and the exercise of stock options. In the nine months ended September 30, 2023, the Company increased debt borrowings by $4.6 million, funded cash dividends of $17.7 million and share repurchases of $4.3 million, and redeemed $5.6 million of stock in order to remit funds to tax authorities to satisfy employees’ tax withholdings following the vesting of stock-based compensation and the exercise of stock options. During the nine months ended September 30, 2023, the Company also paid $0.5 million to settle the contingent consideration obligation due to the former owners of MRL, and received $2.3 million from stock option exercises.
The Company is subject to certain net leverage ratio and interest coverage ratio financial covenants under the 2022 Credit Agreement that are measured at each fiscal quarter-end. The Company was in compliance with all such covenants as of September 30, 2024.
The Company anticipates that capital expenditures for 2024 will be in the range of $35 million to $40 million.
The Company believes that its financial resources and major sources of liquidity, including cash flow from operations and borrowing capacity, will be adequate to meet its operating needs, capital needs and financial commitments.
Contractual Obligations and Off-Balance Sheet Arrangements
During the nine months ended September 30, 2024, there have been no material changes in the Company’s contractual obligations and off-balance sheet arrangements as described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
See Item 7A, Quantitative and Qualitative Disclosures about Market Risk, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. During the nine months ended September 30, 2024, there have been no significant changes in our exposure to market risk.
Item 4. Controls and Procedures.
As required by Rule 13a-15 under the Exchange Act, the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of September 30, 2024. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2024.
As a matter of practice, the Company’s management continues to review and document internal control and procedures for financial reporting. From time to time, the Company may make changes aimed at enhancing the effectiveness of the controls and ensuring that the systems evolve with the business. There were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting during the three months ended September 30, 2024.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The information set forth under the heading “Legal Proceedings” in Note 8 – Commitments and Contingencies to the accompanying condensed consolidated financial statements as included in Part I of this Form 10-Q is incorporated herein by reference.
Item 1A. Risk Factors.
There have been no material changes in the Company’s risk factors as described in Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides a summary of the Company’s repurchase activity for its common stock during the three months ended September 30, 2024:
| Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (a) | ||||||||||||||||||||||
| July 2024 (6/30/24 - 8/3/24) | — | $ | — | — | $ | 53,418,519 | ||||||||||||||||||||
| August 2024 (8/4/24 - 8/31/24) | — | — | — | 53,418,519 | ||||||||||||||||||||||
| September 2024 (9/1/24 - 9/28/24) | 52,500 | 83.9502 | 52,500 | 49,011,132 | ||||||||||||||||||||||
(a) In March 2020, the Board authorized a stock repurchase program of up to $75.0 million of the Company’s common stock, with the remaining authorization under our previously described repurchase program adopted in 2014 being subject to the March 2020 program.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
On October 31, 2024, the Company issued a press release announcing its financial results for the three and nine months ended September 30, 2024. The presentation slides for the third quarter 2024 earnings call were also posted on the Company’s website at that time. The full text of the third quarter financial results press release and earnings presentation are attached hereto as Exhibits 99.1 and 99.2, respectively, to this Form 10-Q.
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Item 6. Exhibits.
| 3.1 | ||||||||
| 3.2 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 99.1 | ||||||||
| 99.2 | ||||||||
| 101.INS | XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | |||||||
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SIGNATURE
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Federal Signal Corporation | ||||||||
| Date: | October 31, 2024 | /s/ Ian A. Hudson | ||||||
| Ian A. Hudson | ||||||||
| Senior Vice President and Chief Financial Officer (Principal Financial Officer) | ||||||||
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EXHIBIT 31.1
CEO Certification under Section 302 of the Sarbanes-Oxley Act
I, Jennifer L. Sherman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Federal Signal Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: October 31, 2024
| /s/ Jennifer L. Sherman | |||||
| Jennifer L. Sherman | |||||
| President and Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
EXHIBIT 31.2
CFO Certification under Section 302 of the Sarbanes-Oxley Act
I, Ian A. Hudson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Federal Signal Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: October 31, 2024
/s/ Ian A. Hudson | |||||
| Ian A. Hudson | |||||
| Senior Vice President and Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of Federal Signal Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jennifer L. Sherman, President and Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or 78o (d)); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: October 31, 2024
| /s/ Jennifer L. Sherman | |||||
| Jennifer L. Sherman | |||||
| President and Chief Executive Officer | |||||
(Principal Executive Officer) | |||||
This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. This certification shall also not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of Federal Signal Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ian A. Hudson, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or 78o (d)); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: October 31, 2024
/s/ Ian A. Hudson | |||||
| Ian A. Hudson | |||||
| Senior Vice President and Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
This certification accompanies the Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. This certification shall also not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference.
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
Federal Signal Reports Third Quarter Results Including 6% Organic Net Sales Growth and Double-Digit Earnings Improvement; Raises Full-Year Earnings Outlook and EBITDA Margin Targets for Safety and Security Systems Group
Downers Grove, Illinois, October 31, 2024 — Federal Signal Corporation (NYSE:FSS) (the “Company”), a leader in environmental and safety solutions, today reported financial results for the third quarter ended September 30, 2024.
Third Quarter Highlights
•Net sales of $474 million, up $28 million, or 6%, from last year
•Operating income of $75.9 million, up $13.4 million, or 21%, from last year
•GAAP Diluted EPS of $0.87, up $0.16, or 23%, from last year
•Adjusted EPS of $0.88, up $0.17, or 24%, from last year
•Backlog of $1.03 billion, up $27 million, or 3%, from last year
•Operating cash flow of $69 million, up $21 million, or 43%, from last year
•Raises 2024 adjusted EPS* outlook to a new range of $3.30 to $3.40, from the prior range of $3.20 to $3.35
•Raises EBITDA margin targets for the Safety and Security Systems Group to a new range of 18% to 24%, from the previous range of 17% to 21%
Consolidated net sales for the third quarter were $474 million, an increase of $28 million, or 6%, compared to the prior-year quarter. Net income for the third quarter was $53.9 million, or $0.87 per diluted share, compared to $43.3 million, or $0.71 per diluted share, in the prior-year quarter.
The Company also reported adjusted net income for the third quarter of $54.2 million, or $0.88 per diluted share, compared to $43.8 million, or $0.71 per diluted share, in the prior-year quarter. The Company is reporting adjusted results to facilitate comparisons of underlying performance on a year-over-year basis. A reconciliation of these and other non-GAAP measures is provided at the conclusion of this news release.
Organic Year-over-Year Net Sales Growth and Double-Digit Improvement in Earnings; Raising EBITDA Margin Targets for the Safety and Security Systems Group
“With our teams’ continued focus on operational execution and serving our customers, our businesses were able to deliver 6% year-over-year organic net sales growth, double-digit earnings improvement, gross margin expansion, and a 200-basis point increase in adjusted EBITDA margin during the third quarter,” commented Jennifer L. Sherman, President and Chief Executive Officer. “Our Environmental Solutions Group delivered 7% year-over-year net sales growth and a 21% increase in adjusted EBITDA. Production increases at several of our businesses and continued price realization were meaningful growth drivers. In addition, our third quarter results benefited from strong year-over-year growth in all four of our aftermarket revenue streams, which contributed to a 10% overall increase in aftermarket revenues. Our Safety and Security Systems Group also delivered impressive results, with 4% top line growth and an adjusted EBITDA margin of approximately 23%. With its consistently strong performance over the last several quarters, we are raising the EBITDA margin targets for our Safety and Security Systems Group to a new range of 18% to 24%, from the previous range of 17% to 21%.”
In the Environmental Solutions Group, net sales for the third quarter were $398 million, up $25 million, or 7%, compared to the prior-year quarter. In the Safety and Security Systems Group, net sales were $76 million, up $3 million, or 4%, compared to the prior-year quarter.
Consolidated operating income for the third quarter was $75.9 million, up $13.4 million, or 21%, compared to the prior-year quarter. Consolidated operating margin for the third quarter was 16.0%, up from 14.0% in the prior-year quarter.
1
Consolidated adjusted earnings before interest, tax, depreciation and amortization (“adjusted EBITDA”) for the third quarter was $93.0 million, up $14.5 million, or 18%, compared to the prior-year quarter, and consolidated adjusted EBITDA margin was 19.6%, up from 17.6% in the prior-year quarter.
In the Environmental Solutions Group, adjusted EBITDA for the third quarter was $87.2 million, up $15.2 million, or 21%, compared to the prior-year quarter, and its adjusted EBITDA margin was 21.9%, up from 19.3% last year. In the Safety and Security Systems Group, adjusted EBITDA for the third quarter was $17.8 million, up $3.2 million, or 22%, compared to the prior-year quarter, and its adjusted EBITDA margin was 23.4%, up from 19.9% last year.
Consolidated orders for the third quarter were $426 million, compared to $450 million in the prior-year quarter. Consolidated backlog at September 30, 2024 was $1.03 billion, an increase of $27 million, or 3%, from last year.
Increased Operating Cash Flow Further Strengthens Financial Position, Providing Flexibility to Fund Growth Opportunities and Cash Returns to Stockholders
Net cash provided by operating activities during the third quarter was $69 million, an increase of $21 million, or 43%, from the prior-year quarter. Net cash provided by operating activities in the first nine months of this year totaled $141 million, an increase of $50 million, or 55%, compared to the prior-year period.
At September 30, 2024, consolidated debt was $231 million, total cash and cash equivalents were $74 million, and the Company had $557 million of availability for borrowings under its credit facility.
“Our operating cash flow generation this quarter was outstanding, enabling us to pay down approximately $25 million of debt during the quarter,” said Sherman. “So far this year, our operating cash flow has increased by 55% compared to last year,
further strengthening our financial position and providing significant flexibility to invest in organic growth initiatives, pursue additional strategic M&A opportunities, and fund cash returns to stockholders through dividends and opportunistic share repurchases.”
The Company funded dividends of $7.3 million during the third quarter, reflecting a dividend of $0.12 per share, and recently announced a similar $0.12 per share dividend that will be payable in the fourth quarter of 2024. The Company also funded stock repurchases of $4.4 million during the third quarter.
Outlook
“Demand for our products and aftermarket offerings remains high, with our order intake this quarter contributing to a backlog of $1.03 billion, an increase of 3% compared to last year,” noted Sherman. “With our third 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 $3.30 to $3.40, from the prior range of $3.20 to $3.35. We are also narrowing our full-year net sales outlook to a new range of between $1.86 billion and $1.88 billion, from the previous range of $1.85 billion to $1.90 billion.”
CONFERENCE CALL
Federal Signal will host its third quarter conference call on Thursday, October 31, 2024 at 10:00 a.m. Eastern Time. The call will last approximately one hour. The call may be accessed over the internet through Federal Signal’s website at www.federalsignal.com or by dialing phone number 1-877-704-4453 and entering the pin number 13749732. A replay will be available on Federal Signal’s website shortly after the call.
About Federal Signal
Federal Signal Corporation (NYSE: FSS) builds and delivers equipment of unmatched quality that moves material, cleans infrastructure, and protects the communities where we work and live. Founded in 1901, Federal Signal is a leading global designer, manufacturer and supplier of products and total solutions that serve municipal, governmental, industrial, and commercial customers. Headquartered in Downers Grove, Ill., with manufacturing facilities worldwide, the Company operates two groups: Environmental Solutions and Safety and Security Systems. For more information on Federal Signal, visit: www.federalsignal.com.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
This release contains unaudited financial information and various forward-looking statements as of the date hereof and we undertake no obligation to update these forward-looking statements regardless of new developments or otherwise. Statements in this release that are not historical are forward-looking statements. Such statements are subject to various risks and uncertainties that could cause actual results to vary materially from those stated. Such risks and uncertainties include but are not limited to: economic and political uncertainty, risks and adverse economic effects associated with geopolitical conflicts, legal and regulatory developments, foreign currency exchange rate changes, inflationary pressures, product and price competition, supply chain disruptions, availability and pricing of raw materials, interest rate changes, risks associated with acquisitions such as
2
integration of operations and achieving anticipated revenue and cost benefits, work stoppages, increases in pension funding requirements, cybersecurity risks, increased legal expenses and litigation results and other risks, and uncertainties described in filings with the Securities and Exchange Commission.
Contact: Ian Hudson, Chief Financial Officer, +1-630-954-2000, ihudson@federalsignal.com
* Adjusted earnings per share (“EPS”) is a non-GAAP measure, which includes certain adjustments to reported GAAP net income and diluted EPS. In the three and nine months ended September 30, 2024 and 2023, we made adjustments to exclude the impact of acquisition and integration-related expenses, net, and certain special income tax items, where applicable. In prior years, we have also made adjustments to exclude the impact of environmental remediation costs of a discontinued operation, purchase accounting effects, pension settlement charges, and certain other unusual or non-recurring items. Should any similar items occur in the remainder of 2024, we would expect to exclude them from the determination of adjusted EPS. However, because of the underlying uncertainty in quantifying amounts which may not yet be known, a reconciliation of our Adjusted EPS outlook to the most applicable GAAP measure is excluded based on the unreasonable efforts exception in Item 10(e)(1)(i)(B).
3
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions, except per share data) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net sales | $ | 474.2 | $ | 446.4 | $ | 1,389.5 | $ | 1,274.3 | |||||||||||||||
| Cost of sales | 333.8 | 328.7 | 989.1 | 943.5 | |||||||||||||||||||
| Gross profit | 140.4 | 117.7 | 400.4 | 330.8 | |||||||||||||||||||
| Selling, engineering, general and administrative expenses | 60.1 | 50.6 | 175.6 | 156.0 | |||||||||||||||||||
| Amortization expense | 3.8 | 3.9 | 11.2 | 11.4 | |||||||||||||||||||
| Acquisition and integration-related expenses, net | 0.6 | 0.7 | 2.3 | 2.0 | |||||||||||||||||||
| Operating income | 75.9 | 62.5 | 211.3 | 161.4 | |||||||||||||||||||
| Interest expense, net | 3.0 | 5.1 | 9.4 | 15.4 | |||||||||||||||||||
| Other expense, net | 0.3 | 0.3 | 0.9 | 1.5 | |||||||||||||||||||
| Income before income taxes | 72.6 | 57.1 | 201.0 | 144.5 | |||||||||||||||||||
| Income tax expense | 18.7 | 13.8 | 34.7 | 33.5 | |||||||||||||||||||
| Net income | $ | 53.9 | $ | 43.3 | $ | 166.3 | $ | 111.0 | |||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic | $ | 0.88 | $ | 0.71 | $ | 2.73 | $ | 1.83 | |||||||||||||||
| Diluted | $ | 0.87 | $ | 0.71 | $ | 2.70 | $ | 1.81 | |||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | 61.0 | 60.8 | 61.0 | 60.7 | |||||||||||||||||||
| Diluted | 61.7 | 61.4 | 61.7 | 61.4 | |||||||||||||||||||
| Cash dividends declared per common share | $ | 0.12 | $ | 0.10 | $ | 0.36 | $ | 0.29 | |||||||||||||||
| Operating data: | |||||||||||||||||||||||
| Operating margin | 16.0 | % | 14.0 | % | 15.2 | % | 12.7 | % | |||||||||||||||
| Adjusted EBITDA | $ | 93.0 | $ | 78.5 | $ | 261.3 | $ | 208.5 | |||||||||||||||
| Adjusted EBITDA margin | 19.6 | % | 17.6 | % | 18.8 | % | 16.4 | % | |||||||||||||||
| Total orders | $ | 425.9 | $ | 450.2 | $ | 1,401.6 | $ | 1,405.1 | |||||||||||||||
| Backlog | 1,032.8 | 1,005.8 | 1,032.8 | 1,005.8 | |||||||||||||||||||
| Depreciation and amortization | 16.5 | 15.3 | 47.7 | 45.1 | |||||||||||||||||||
4
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2024 | December 31, 2023 | ||||||||||
| (in millions, except per share data) | (Unaudited) | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 73.7 | $ | 61.0 | |||||||
Accounts receivable, net of allowances for doubtful accounts of $2.6 and $2.5, respectively | 220.3 | 186.2 | |||||||||
| Inventories | 337.0 | 303.4 | |||||||||
| Prepaid expenses and other current assets | 18.2 | 19.6 | |||||||||
| Total current assets | 649.2 | 570.2 | |||||||||
Properties and equipment, net of accumulated depreciation of $186.5 and $173.3, respectively | 205.6 | 190.8 | |||||||||
Rental equipment, net of accumulated depreciation of $52.6 and $47.5, respectively | 159.8 | 134.8 | |||||||||
| Operating lease right-of-use assets | 27.0 | 21.0 | |||||||||
| Goodwill | 471.6 | 472.7 | |||||||||
Intangible assets, net of accumulated amortization of $82.0 and $70.7, respectively | 197.1 | 207.5 | |||||||||
| Deferred tax assets | 11.7 | 12.0 | |||||||||
| Other long-term assets | 11.6 | 11.5 | |||||||||
| Total assets | $ | 1,733.6 | $ | 1,620.5 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of long-term borrowings and finance lease obligations | $ | 8.1 | $ | 4.7 | |||||||
| Accounts payable | 88.9 | 66.7 | |||||||||
| Customer deposits | 22.0 | 27.1 | |||||||||
| Accrued liabilities: | |||||||||||
| Compensation and withholding taxes | 41.0 | 42.3 | |||||||||
| Current operating lease liabilities | 7.1 | 6.8 | |||||||||
| Other current liabilities | 62.3 | 48.2 | |||||||||
| Total current liabilities | 229.4 | 195.8 | |||||||||
| Long-term borrowings and finance lease obligations | 223.3 | 294.3 | |||||||||
| Long-term operating lease liabilities | 20.7 | 14.9 | |||||||||
| Long-term pension and other postretirement benefit liabilities | 41.0 | 44.2 | |||||||||
| Deferred tax liabilities | 56.5 | 53.2 | |||||||||
| Other long-term liabilities | 13.3 | 16.2 | |||||||||
| Total liabilities | 584.2 | 618.6 | |||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $1 par value per share, 90.0 shares authorized, 70.3 and 70.0 shares issued, respectively | 70.3 | 70.0 | |||||||||
| Capital in excess of par value | 306.0 | 291.1 | |||||||||
| Retained earnings | 1,060.1 | 915.8 | |||||||||
Treasury stock, at cost, 9.2 and 9.0 shares, respectively | (205.5) | (193.7) | |||||||||
| Accumulated other comprehensive loss | (81.5) | (81.3) | |||||||||
| Total stockholders’ equity | 1,149.4 | 1,001.9 | |||||||||
| Total liabilities and stockholders’ equity | $ | 1,733.6 | $ | 1,620.5 | |||||||
5
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| Nine Months Ended September 30, | |||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Operating activities: | |||||||||||
| Net income | $ | 166.3 | $ | 111.0 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 47.7 | 45.1 | |||||||||
| Stock-based compensation expense | 12.2 | 8.9 | |||||||||
| Changes in fair value of contingent consideration | 0.1 | (0.2) | |||||||||
| Amortization of interest rate swap settlement gain | (1.4) | (1.8) | |||||||||
| Deferred income taxes | 4.0 | 2.0 | |||||||||
| Changes in operating assets and liabilities | (88.2) | (74.0) | |||||||||
| Net cash provided by operating activities | 140.7 | 91.0 | |||||||||
| Investing activities: | |||||||||||
| Purchases of properties and equipment | (32.1) | (21.4) | |||||||||
| Payments for acquisition-related activity, net of cash acquired | — | (55.1) | |||||||||
| Other, net | 1.3 | 0.8 | |||||||||
| Net cash used for investing activities | (30.8) | (75.7) | |||||||||
| Financing activities: | |||||||||||
| (Decrease) increase in revolving lines of credit, net | (64.4) | 4.6 | |||||||||
| Payments on long-term borrowings | (1.6) | — | |||||||||
| Purchases of treasury stock | (4.5) | (4.3) | |||||||||
| Redemptions of common stock to satisfy withholding taxes related to stock-based compensation | (6.0) | (5.6) | |||||||||
| Payments for acquisition-related activity | — | (0.5) | |||||||||
| Cash dividends paid to stockholders | (22.0) | (17.7) | |||||||||
| Proceeds from stock-based compensation activity | 1.6 | 2.3 | |||||||||
| Other, net | (0.3) | — | |||||||||
| Net cash used for financing activities | (97.2) | (21.2) | |||||||||
| Effects of foreign exchange rate changes on cash and cash equivalents | — | (0.6) | |||||||||
| Increase (decrease) in cash and cash equivalents | 12.7 | (6.5) | |||||||||
| Cash and cash equivalents at beginning of year | 61.0 | 47.5 | |||||||||
| Cash and cash equivalents at end of period | $ | 73.7 | $ | 41.0 | |||||||
6
FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
GROUP RESULTS (Unaudited)
The following tables summarize group operating results as of and for the three and nine months ended September 30, 2024 and 2023:
Environmental Solutions Group
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| ($ in millions) | 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||
| Net sales | $ | 398.2 | $ | 373.0 | $ | 25.2 | $ | 1,161.0 | $ | 1,064.8 | $ | 96.2 | |||||||||||||||||||||||
| Operating income | 71.5 | 57.2 | 14.3 | 196.1 | 151.0 | 45.1 | |||||||||||||||||||||||||||||
| Adjusted EBITDA | 87.2 | 72.0 | 15.2 | 241.9 | 193.9 | 48.0 | |||||||||||||||||||||||||||||
| Operating data: | |||||||||||||||||||||||||||||||||||
| Operating margin | 18.0 | % | 15.3 | % | 2.7 | % | 16.9 | % | 14.2 | % | 2.7 | % | |||||||||||||||||||||||
| Adjusted EBITDA margin | 21.9 | % | 19.3 | % | 2.6 | % | 20.8 | % | 18.2 | % | 2.6 | % | |||||||||||||||||||||||
| Total orders | $ | 352.7 | $ | 374.8 | $ | (22.1) | $ | 1,176.6 | $ | 1,179.2 | $ | (2.6) | |||||||||||||||||||||||
| Backlog | 979.7 | 938.6 | 41.1 | 979.7 | 938.6 | 41.1 | |||||||||||||||||||||||||||||
| Depreciation and amortization | 15.4 | 14.3 | 1.1 | 44.4 | 41.8 | 2.6 | |||||||||||||||||||||||||||||
Safety and Security Systems Group
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| ($ in millions) | 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||
| Net sales | $ | 76.0 | $ | 73.4 | $ | 2.6 | $ | 228.5 | $ | 209.5 | $ | 19.0 | |||||||||||||||||||||||
| Operating income | 16.8 | 13.7 | 3.1 | 48.9 | 39.9 | 9.0 | |||||||||||||||||||||||||||||
| Adjusted EBITDA | 17.8 | 14.6 | 3.2 | 51.9 | 43.0 | 8.9 | |||||||||||||||||||||||||||||
| Operating data: | |||||||||||||||||||||||||||||||||||
| Operating margin | 22.1 | % | 18.7 | % | 3.4 | % | 21.4 | % | 19.0 | % | 2.4 | % | |||||||||||||||||||||||
| Adjusted EBITDA margin | 23.4 | % | 19.9 | % | 3.5 | % | 22.7 | % | 20.5 | % | 2.2 | % | |||||||||||||||||||||||
| Total orders | $ | 73.2 | $ | 75.4 | $ | (2.2) | $ | 225.0 | $ | 225.9 | $ | (0.9) | |||||||||||||||||||||||
| Backlog | 53.1 | 67.2 | (14.1) | 53.1 | 67.2 | (14.1) | |||||||||||||||||||||||||||||
| Depreciation and amortization | 1.0 | 0.9 | 0.1 | 3.0 | 3.1 | (0.1) | |||||||||||||||||||||||||||||
Corporate Expenses
Corporate operating expenses were $12.4 million and $8.4 million for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, corporate operating expenses were $33.7 million and $29.5 million, respectively.
7
SEC REGULATION G NON-GAAP RECONCILIATION
The financial measures presented below are unaudited and are not in accordance with U.S. generally accepted accounting principles (“GAAP”). The non-GAAP financial information presented herein should be considered supplemental to, and not a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company has provided this supplemental information to investors, analysts, and other interested parties to enable them to perform additional analyses of operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the reconciliations below, and to provide an additional measure of performance which management considers in operating the business.
Adjusted Net Income and Earnings Per Share (“EPS”):
The Company believes that modifying its 2024 and 2023 net income and diluted EPS provides additional measures which are representative of the Company’s underlying performance and improves the comparability of results across reporting periods. During the three and nine months ended September 30, 2024 and 2023 adjustments were made to reported GAAP net income and diluted EPS to exclude the impact of acquisition and integration-related expenses, net, environmental remediation costs of a discontinued operation and certain special income tax items, where applicable.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net income, as reported | $ | 53.9 | $ | 43.3 | $ | 166.3 | $ | 111.0 | |||||||||||||||
| Add: | |||||||||||||||||||||||
| Income tax expense | 18.7 | 13.8 | 34.7 | 33.5 | |||||||||||||||||||
| Income before income taxes | 72.6 | 57.1 | 201.0 | 144.5 | |||||||||||||||||||
| Add: | |||||||||||||||||||||||
| Acquisition and integration-related expenses, net | 0.6 | 0.7 | 2.3 | 2.0 | |||||||||||||||||||
Environmental remediation costs of a discontinued operation (a) | — | — | — | 0.8 | |||||||||||||||||||
| Adjusted income before income taxes | 73.2 | 57.8 | 203.3 | 147.3 | |||||||||||||||||||
Adjusted income tax expense (b) (c) | (19.0) | (14.0) | (50.8) | (34.2) | |||||||||||||||||||
| Adjusted net income | $ | 54.2 | $ | 43.8 | $ | 152.5 | $ | 113.1 | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (dollars per diluted share) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| EPS, as reported | $ | 0.87 | $ | 0.71 | $ | 2.70 | $ | 1.81 | |||||||||||||||
| Add: | |||||||||||||||||||||||
| Income tax expense | 0.31 | 0.22 | 0.56 | 0.55 | |||||||||||||||||||
| Income before income taxes | 1.18 | 0.93 | 3.26 | 2.36 | |||||||||||||||||||
| Add: | |||||||||||||||||||||||
| Acquisition and integration-related expenses, net | 0.01 | 0.01 | 0.04 | 0.03 | |||||||||||||||||||
Environmental remediation costs of a discontinued operation (a) | — | — | — | 0.01 | |||||||||||||||||||
| Adjusted income before income taxes | 1.19 | 0.94 | 3.30 | 2.40 | |||||||||||||||||||
Adjusted income tax expense (b) (c) | (0.31) | (0.23) | (0.83) | (0.56) | |||||||||||||||||||
| Adjusted EPS | $ | 0.88 | $ | 0.71 | $ | 2.47 | $ | 1.84 | |||||||||||||||
(a) Environmental remediation costs of a discontinued operation in the nine months ended September 30, 2023 relate to estimated environmental clean up costs at a facility associated with a business that was discontinued in 2009. Such charges are included as a component of Other expense, net on the Condensed Consolidated Statements of Operations.
(b) Adjusted income tax expense for the three and nine months ended September 30, 2024 was recomputed after excluding the tax impacts of acquisition and integration-related expenses, net. Adjusted income tax expense for the nine months ended September 30, 2024 also excludes $15.6 million of discrete tax benefits that were recognized in connection with the amendment of certain federal and state tax returns to claim a worthless stock deduction.
(c) Adjusted income tax expense for the three and nine months ended September 30, 2023 was recomputed after excluding the tax impacts of acquisition and integration-related expenses, net, and environmental remediation costs of a discontinued operation.
8
Adjusted EBITDA and Adjusted EBITDA Margin:
The Company uses adjusted EBITDA and the ratio of adjusted EBITDA to net sales (“adjusted EBITDA margin”), at both the consolidated and segment level, as additional measures which are representative of its underlying performance and to improve the comparability of results across reporting periods. We believe that investors use versions of these metrics in a similar manner. For these reasons, the Company believes that adjusted EBITDA and adjusted EBITDA margin, at both the consolidated and segment level, are meaningful metrics to investors in evaluating the Company’s underlying financial performance.
Consolidated adjusted EBITDA is a non-GAAP measure that represents the total of net income, interest expense, net, acquisition and integration-related expenses, net, other expense, net, income tax expense, and depreciation and amortization expense, as applicable. Consolidated adjusted EBITDA margin is a non-GAAP measure that represents the total of net income, interest expense, net, acquisition and integration-related expenses, net, other expense, net, income tax expense, and depreciation and amortization expense, as applicable, divided by net sales for the applicable period(s).
Segment adjusted EBITDA is a non-GAAP measure that represents the total of segment operating income, acquisition and integration-related expenses, net, and depreciation and amortization expense, as applicable. Segment adjusted EBITDA margin is a non-GAAP measure that represents the total of segment operating income, acquisition and integration-related expenses, net, and depreciation and amortization expense, as applicable, divided by segment net sales for the applicable period(s). Segment operating income includes all revenues, costs and expenses directly related to the segment involved. In determining segment operating income, neither corporate nor interest expenses are included. Segment depreciation and amortization expense relates to those assets, both tangible and intangible, that are utilized by the respective segment.
Other companies may use different methods to calculate adjusted EBITDA and adjusted EBITDA margin.
Consolidated
The following table summarizes the Company’s consolidated adjusted EBITDA and adjusted EBITDA margin and reconciles net income to consolidated adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| ($ in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net income | $ | 53.9 | $ | 43.3 | $ | 166.3 | $ | 111.0 | |||||||||||||||
| Add: | |||||||||||||||||||||||
| Interest expense, net | 3.0 | 5.1 | 9.4 | 15.4 | |||||||||||||||||||
| Acquisition and integration-related expenses, net | 0.6 | 0.7 | 2.3 | 2.0 | |||||||||||||||||||
| Other expense, net | 0.3 | 0.3 | 0.9 | 1.5 | |||||||||||||||||||
| Income tax expense | 18.7 | 13.8 | 34.7 | 33.5 | |||||||||||||||||||
| Depreciation and amortization | 16.5 | 15.3 | 47.7 | 45.1 | |||||||||||||||||||
| Consolidated adjusted EBITDA | $ | 93.0 | $ | 78.5 | $ | 261.3 | $ | 208.5 | |||||||||||||||
| Net sales | $ | 474.2 | $ | 446.4 | $ | 1,389.5 | $ | 1,274.3 | |||||||||||||||
| Consolidated adjusted EBITDA margin | 19.6 | % | 17.6 | % | 18.8 | % | 16.4 | % | |||||||||||||||
9
Environmental Solutions Group
The following table summarizes the Environmental Solutions Group’s adjusted EBITDA and adjusted EBITDA margin and reconciles operating income to adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| ($ in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Operating income | $ | 71.5 | $ | 57.2 | $ | 196.1 | $ | 151.0 | |||||||||||||||
| Add: | |||||||||||||||||||||||
| Acquisition and integration-related expenses, net | 0.3 | 0.5 | 1.4 | 1.1 | |||||||||||||||||||
| Depreciation and amortization | 15.4 | 14.3 | 44.4 | 41.8 | |||||||||||||||||||
| Adjusted EBITDA | $ | 87.2 | $ | 72.0 | $ | 241.9 | $ | 193.9 | |||||||||||||||
| Net sales | $ | 398.2 | $ | 373.0 | $ | 1,161.0 | $ | 1,064.8 | |||||||||||||||
| Adjusted EBITDA margin | 21.9 | % | 19.3 | % | 20.8 | % | 18.2 | % | |||||||||||||||
Safety and Security Systems Group
The following table summarizes the Safety and Security Systems Group’s adjusted EBITDA and adjusted EBITDA margin and reconciles operating income to adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| ($ in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Operating income | $ | 16.8 | $ | 13.7 | $ | 48.9 | $ | 39.9 | |||||||||||||||
| Add: | |||||||||||||||||||||||
| Depreciation and amortization | 1.0 | 0.9 | 3.0 | 3.1 | |||||||||||||||||||
| Adjusted EBITDA | $ | 17.8 | $ | 14.6 | $ | 51.9 | $ | 43.0 | |||||||||||||||
| Net sales | $ | 76.0 | $ | 73.4 | $ | 228.5 | $ | 209.5 | |||||||||||||||
| Adjusted EBITDA margin | 23.4 | % | 19.9 | % | 22.7 | % | 20.5 | % | |||||||||||||||
10
Federal Signal Q3 2024 Earnings Call October 31, 2024 Jennifer Sherman, President & Chief Executive Officer Ian Hudson, SVP, Chief Financial Officer Felix Boeschen, VP, Corporate Strategy & Investor Relations
Safe Harbor This presentation contains unaudited financial information and various forward-looking statements as of the date hereof and we undertake no obligation to update these forward- looking statements regardless of new developments or otherwise. Statements in this presentation that are not historical are forward-looking statements. Such statements are subject to various risks and uncertainties that could cause actual results to vary materially from those stated. Such risks and uncertainties include but are not limited to: economic and political uncertainty, risks and adverse economic effects associated with geopolitical conflicts, legal and regulatory developments, foreign currency exchange rate changes, inflationary pressures, product and price competition, supply chain disruptions, availability and pricing of raw materials, interest rate changes, risks associated with acquisitions such as integration of operations and achieving anticipated revenue and cost benefits, work stoppages, increase in pension funding requirements, cybersecurity risks, increased legal expenses and litigation results, and other risks and uncertainties described in filings with the Securities and Exchange Commission (SEC). This presentation also contains references to certain non-GAAP financial information. Such items are reconciled herein, in our earnings news release provided as of the date of this presentation or in other investor materials filed with the SEC. 2
Q3 Highlights ** 3 * Non-GAAP financial measure. See appendix for additional information on non-GAAP measures, including reconciliation to GAAP measures **Comparisons versus Q3 of 2023 • Net sales of $474 M, up $28 M, or 6% (all organic) • Operating income of $75.9 M, up $13.4 M, or 21% • Net income of $53.9 M, up $10.6 M, or 24% • Adjusted EBITDA* of $93.0 M, up $14.5 M, or 18% • Adjusted EBITDA margin* of 19.6%, compared to 17.6% • GAAP Diluted EPS of $0.87, up $0.16, or 23% • Adjusted EPS* of $0.88, up $0.17, or 24% • Orders of $426 M, contributing to Backlog of $1.03 B at end of Q3 • Backlog up $27 M, or 3%
4 Group and Corporate Results $ millions, except % Q3 2024 Q3 2023 % Change ESG Orders 352.7$ 374.8$ -6% Net sales 398.2 373.0 7% Operating income 71.5 57.2 25% Operating margin 18.0% 15.3% Adjusted EBITDA* 87.2 72.0 21% Adjusted EBITDA margin* 21.9% 19.3% SSG Orders 73.2 75.4 -3% Net sales 76.0 73.4 4% Operating income 16.8 13.7 23% Operating margin 22.1% 18.7% Adjusted EBITDA* 17.8 14.6 22% Adjusted EBITDA margin* 23.4% 19.9% Corporate expenses 12.4 8.4 48% Consolidated Orders 425.9 450.2 -5% Net sales 474.2 446.4 6% Operating income 75.9 62.5 21% Operating margin 16.0% 14.0% Adjusted EBITDA* 93.0 78.5 18% Adjusted EBITDA margin* 19.6% 17.6% * Non-GAAP financial measure. See appendix for additional information on non- GAAP measures, including reconciliation to GAAP measures
Consolidated Statement of Operations 5 $ mill ions, except % and per share Q3 2024 Q3 2023 $ Change % Change Net sales 474.2$ 446.4$ 27.8$ 6% Cost of sales 333.8 328.7 5.1 2% Gross profit 140.4 117.7 22.7 19% SEG&A expenses 60.1 50.6 9.5 19% Amortization expense 3.8 3.9 (0.1) -3% Acquisition and integration related expenses, net 0.6 0.7 (0.1) -14% Operating income 75.9 62.5 13.4 21% Interest expense, net 3.0 5.1 (2.1) -41% Other expense, net 0.3 0.3 - 0% Income tax expense 18.7 13.8 4.9 36% Net income 53.9$ 43.3$ 10.6$ 24% Diluted EPS 0.87$ 0.71$ 0.16$ 23% Diluted adjusted EPS* 0.88$ 0.71$ 0.17$ 24% Gross Margin 29.6% 26.4% SEG&A expenses as a % of net sales 12.7% 11.3% Effective tax rate 25.8% 24.2% * Non-GAAP financial measure. See appendix for additional information on non- GAAP measures, including reconciliation to GAAP measures
6 Adjusted Earnings per Share * ($ in millions) 2024 2023 2024 2023 Net income, as reported 53.9$ 43.3$ 166.3$ 111.0$ Add: Income tax expense 18.7 13.8 34.7 33.5 Income before income taxes 72.6 57.1 201.0 144.5 Add: Acquisition and integration-related expenses, net 0.6 0.7 2.3 2.0 Environmental remediation costs of a discontinued operation (1) - - - 0.8 Adjusted income before income taxes 73.2 57.8 203.3 147.3 Adjusted income tax expense (2) (3) (19.0) (14.0) (50.8) (34.2) Adjusted net income 54.2$ 43.8$ 152.5$ 113.1$ Diluted EPS, as reported 0.87$ 0.71$ 2.70$ 1.81$ Adjusted diluted EPS 0.88$ 0.71$ 2.47$ 1.84$ (3) Adjusted income tax expense for the three and nine months ended September 30, 2023 w as recomputed after excluding the tax impacts of acquisition and integration-related expenses, net, and environmental remediation costs of a discontinued operation. Three Months Ended September 30, Nine Months Ended September 30, (2) Adjusted income tax expense for the three and nine months ended September 30, 2024 w as recomputed after excluding the tax impacts of acquisition and integration-related expenses, net. Adjusted income tax expense for the nine months ended September 30, 2024 also excludes $15.6 million of discrete tax benefits that w ere recognized in connection w ith the amendment of certain federal and state tax returns to claim a w orthless stock deduction. (1) Environmental remediation costs of a discontinued operation in the nine months ended September 30, 2023 relate to estimated environmental clean up costs at a facility associated w ith a business that w as discontinued in 2009. Such charges are included as a component of Other expense, net on the Condensed Consolidated Statements of Operations. * Non-GAAP financial measure. See appendix for additional information on non-GAAP measures.
7 Financial Strength and Flexibility * * Dollar amounts as of, or for the quarter ending 9/30/2024, unless otherwise noted ** Net debt is a non-GAAP measure and is computed as total debt of $231.4 M, less total cash and cash equivalents of $73.7 M • Cash and cash equivalents of $74 M • Net debt of ~$158 M ** • In October 2022, executed a five-year, $800 M revolving credit facility, with opportunity to increase further by the greater of (i) $400 M or (ii) 100% of TTM consolidated EBITDA, subject to lenders approval • Net debt leverage remains low • Compliant with all covenants with significant headroom Strong capital structure • Generated ~$69 M of cash from operations in Q3 2024, up ~$21 M vs. Q3 2023 • YTD operating cash flow of ~$141 M, up 55% vs. prior year • Paid down ~$25 M of debt during Q3 • ~$557 M of availability under revolving credit facility • Completed acquisition of Standard Equipment Company on October 4, 2024 for initial purchase price of $38.8 M (Q4 event) • Anticipating cap ex of $35 M-$40 M in 2024, including investments in our plants to add capacity and gain efficiencies through automation • Paid $7.3 M for dividends in Q3, reflecting dividend of $0.12 per share; recently declared similar dividend for Q4 2024 • $4.4 M of share repurchases in Q3 (average price of $83.95); ~$49 M of authorization remaining under current share repurchase program (~1% of market cap) Healthy cash flow and access to cash facilitate organic growth investment, M&A and cash returns to stockholders
CEO Remarks – Q3 Performance 8 • Outstanding execution by both groups contributed to a record- setting Q3 across consolidated net sales, adjusted EPS* and adjusted EBITDA margin* • Environmental Solutions Group highlights: YoY net sales growth of 7%; 21% increase in adjusted EBITDA* 260-basis point YoY increase in adjusted EBITDA margin* Unit production at two largest manufacturing facilities +12% combined YoY Aftermarket revenues +10% YoY with growth in all categories: parts, services, rental, and used equipment sales; represented 27% of ESG’s Q3 net sales Net sales of dump truck bodies up 18% YoY • Safety and Security Systems Group highlights: YoY net sales growth of 4% YoY, driven by increases in net sales of public safety equipment; 22% increase in adjusted EBITDA* 350-basis point YoY increase in adjusted EBITDA margin* • YTD net cash provided by operations improved by 55% YoY Cash conversion* in Q3 of 128% * Non-GAAP financial measure. See appendix for additional information on non-GAAP measures, including reconciliation to GAAP measures
CEO Remarks: Market Conditions 9 • End-market demand for our products remains healthy, as evidenced by orders of $426 M in Q3 (down 5% YoY) and $1.4 B YTD (flat YoY) Includes YoY chassis pass-through order headwind of ~$17 M YTD • Domestic publicly-funded orders +8% YoY, with strength in demand for sewer cleaners and public safety equipment • U.S. industrial orders -8% YoY, due to lower orders for new safe-digging trucks Customers currently favoring rentals and/or used equipment offerings given high-interest rate environment • Excluding safe-digging, other U.S. industrial orders +4% YoY Dump truck body orders +13% YoY as chassis supply has improved High demand for road-marking and line-removal products and services • SSG orders strong at $73 M; down 3% YoY with lapping $7 M European fleet order from 3Q23 • Q3 backlog at ~$1.03 B, up 3% YoY; provides excellent visibility for 2025
CEO Remarks: Internal Initiatives 10 • Continued execution on M&A growth strategy Completed acquisition of Standard Equipment on October 4, 2024 for initial purchase price of $38.8 M Expect acquisition to be accretive to 2025 EPS and cash flow Marks 12th acquisition since 2016; surgically evaluating other M&A opportunities • Harnessing power of specialty vehicle platform Continuously optimizing go-to-market strategy across direct, third-party dealer/distribution and exclusive dealer channels Since the acquisition of TowHaul in Q4 2022, our metal extraction support platform has grown net sales by ~60%+ while expanding margins Numerous initiatives underway across all specialty vehicle verticals with focus on market share and margin opportunities • Raising SSG EBITDA margin targets to a new range of 18-24%, from 17-21% Structurally strengthened SSG via numerous investments (capacity, insourcing), our 80/20 process and new product development success Business presents strong foundation for future growth Joint Ground Force & TowHaul booth at MINExpo 1) Source: Management estimates Vactor iMPACT assisting with relief efforts in Old Fort, NC
Raising 2024 Outlook 11 • Raising Full-Year Adjusted EPS1 Outlook to a new range of $3.30 to $3.40 • Increased from the prior range of $3.20 to $3.35 • New range would represent YoY growth of 28% - 32%, and the highest EPS level in our history • Narrowing Full-Year Net Sales outlook to a new range of $1.86 B to $1.88 B (previous range $1.85 B to $1.90 B) • Would represent YoY growth of 8% - 9% • Double-digit improvement in pre-tax earnings • Capital expenditures of $35 M to $40 M • No significant deterioration in current supply chain conditions; assumes continued improvement in 2024, with steady flow of customer-provided chassis • No significant increase in current input costs • Interest expense: ~$13M, without additional M&A • Q4 effective tax rate ~26%, excluding discrete items • ~62 M weighted average shares outstanding • Depreciation and amortization expense of ~$64 M - $65M Assumptions 1. Adjusted earnings per share (“EPS”) is a non-GAAP measure, which includes certain adjustments to reported GAAP net income and diluted EPS. In the three and nine months ended September 30, 2024 and 2023, we made adjustments to exclude the impact of acquisition and integration-related expenses, net, and certain special income tax items, where applicable. In prior years, we have also made adjustments to exclude the impact of environmental remediation costs of a discontinued operation, purchase accounting effects, pension settlement charges, and certain other unusual or non-recurring items. Should any similar items occur in the remainder of 2024, we would expect to exclude them from the determination of adjusted EPS. However, because of the underlying uncertainty in quantifying amounts which may not yet be known, a reconciliation of our Adjusted EPS outlook to the most applicable GAAP measure is excluded based on the unreasonable efforts exception in Item 10(e)(1)(i)(B).
Federal Signal Q3 2024 Earnings Call 12 Q&A October 31, 2024 Jennifer Sherman, President & Chief Executive Officer Ian Hudson, SVP, Chief Financial Officer Felix Boeschen, VP, Corporate Strategy & Investor Relations
Investor Information Stock Ticker - NYSE:FSS Company website: federalsignal.com/investors HEADQUARTERS 1333 Butterfield Road, Suite 500 Downers Grove, IL 60515 INVESTOR RELATIONS 630-954-2000 Felix Boeschen VP, Corporate Strategy and Investor Relations fboeschen@federalsignal.com 13
Federal Signal Q3 2024 Earnings Call 14 Appendix
Non-GAAP Measures • Adjusted net income and earnings per share (“EPS”) - The Company believes that modifying its 2024 and 2023 net income and diluted EPS provides additional measures which are representative of the Company’s underlying performance and improves the comparability of results between reporting periods. During the three and nine months ended September 30, 2024 and 2023, adjustments were made to reported GAAP net income and diluted EPS to exclude the impact of acquisition and integration-related expenses, net, environmental remediation costs of a discontinued operation, and certain special income tax items, where applicable. • Adjusted EBITDA and adjusted EBITDA margin - The Company uses adjusted EBITDA and the ratio of adjusted EBITDA to net sales ("adjusted EBITDA margin"), at both the consolidated and segment level, as additional measures which are representative of its underlying performance and to improve the comparability of results across reporting periods. We believe that investors use versions of these metrics in a similar manner. For these reasons, the Company believes that adjusted EBITDA and adjusted EBITDA margin, at both the consolidated and segment level, are meaningful metrics to investors in evaluating the Company’s underlying financial performance. • Consolidated adjusted EBITDA is a non-GAAP measure that represents the total of net income, interest expense, net, acquisition and integration-related expenses, net, other expense, net, income tax expense, and depreciation and amortization expense. Consolidated adjusted EBITDA margin is a non-GAAP measure that represents the total of net income, interest expense, net, acquisition and integration-related expenses, net, other expense, net, income tax expense, and depreciation and amortization expense divided by net sales for the applicable period(s). • Segment adjusted EBITDA is a non-GAAP measure that represents the total of segment operating income, acquisition and integration-related expenses, net, and depreciation and amortization expense, as applicable. Segment adjusted EBITDA margin is a non-GAAP measure that represents the total of segment operating income, acquisition and integration-related expenses, net, and depreciation and amortization expense, as applicable, divided by segment net sales for the applicable period(s). Segment operating income includes all revenues, costs and expenses directly related to the segment involved. In determining segment operating income, neither corporate nor interest expenses are included. Segment depreciation and amortization expense relates to those assets, both tangible and intangible, that are utilized by the respective segment. Other companies may use different methods to calculate adjusted EBITDA and adjusted EBITDA margin. • Cash conversion is a non-GAAP measure that is computed by dividing net cash provided by operating activities by net income (represented as a percentage). The Company believes that cash conversion provides investors with a view of the Company’s ability to convert its earnings into cash. Other companies may use different methods to calculate cash conversion. 15
Consolidated Adjusted EBITDA 16 $ millions, except % Q3 2024 Q3 2023 Net income 53.9$ 43.3$ Add: Interest expense, net 3.0 5.1 Acquisition and integration-related expenses, net 0.6 0.7 Other expense, net 0.3 0.3 Income tax expense 18.7 13.8 Depreciation and amortization 16.5 15.3 Consolidated adjusted EBITDA 93.0$ 78.5$ Net Sales 474.2$ 446.4$ Consolidated adjusted EBITDA margin 19.6% 17.6%
Segment Adjusted EBITDA 17 ESG $ millions, except % Q3 2024 Q3 2023 Operating Income 71.5$ 57.2$ Add: Acquisition and integration-related expenses, net 0.3 0.5 Depreciation and amortization 15.4 14.3 Adjusted EBITDA 87.2$ 72.0$ Net Sales 398.2$ 373.0$ Adjusted EBITDA margin 21.9% 19.3% SSG $ millions, except % Q3 2024 Q3 2023 Operating Income 16.8$ 13.7$ Add: Depreciation and amortization 1.0 0.9 Adjusted EBITDA 17.8$ 14.6$ Net Sales 76.0$ 73.4$ Adjusted EBITDA margin 23.4% 19.9%
Cash Conversion 18 $ in millions, except % Net Cash Provided by Operating Activities - Nine Months Ended September 30, 2024 140.7$ Less: Net Cash Provided by Operating Activities - Six Months Ended June 30, 2024 71.9$ Net Cash Provided by Operating Activities - Three Months Ended September 30, 2024 (A) 68.8$ Net Income - Three Months Ended September 30, 2024 (B) 53.9$ Cash Conversion (A/B) 128%
