Federal Signal Corporation Q3 FY2025 earnings call

• ESG delivered 17% year-over-year net sales growth, 20% increase in adjusted EBITDA with higher production levels, strong aftermarket demand, and contributions from recent acquisitions. Its adjusted EBITDA margin expanded to 22.5%, a new third quarter record, and is in the upper half of the 18% to 24% margin target range. - SSG had 18% top line growth, 29% increase in adjusted EBITDA, and a 220 basis point improvement in adjusted EBITDA margin, driven by volume growth in public safety and warning systems, and successful PCB line installation. - Highlighted current market conditions with healthy demand, third quarter order intake of $467 million (highest ever third quarter order intake), and backlog decline due to lower third-party refuse truck orders in Canada. - Multiyear growth initiatives include positive initial performance of Hog Technologies acquisition, investing in scaling internal centers of excellence, accelerating the build more parts initiative, and expectation of New Way acquisition closing in Q4 2025 pending regulatory approval.

For the third quarter, Federal Signal had consolidated net sales of $555 million. The Environmental Solutions Group (ESG) had net sales of $466 million, an increase of $67 million or 17% compared to last year. ESG's operating income was $85.3 million, up $13.8 million or 19%, and adjusted EBITDA was $104.9 million, up $17.7 million or 20%, with a margin of 22.5% in Q3 2025, up 60 basis points from last year. ESG accounted for approximately 83.96% of consolidated net sales ($466 million / $555 million). The Safety and Security Systems Group (SSG) had net sales of $90 million, up $14 million or 18% compared to last year. SSG's operating income was $21.9 million, up $5.1 million or 30%, and adjusted EBITDA was $22.9 million, up $5.1 million or 29%, with a margin of 25.6% in Q3 2025, up 220 basis points from last year. SSG accounted for approximately 16.22% of consolidated net sales ($90 million / $555 million).

• Raised full year adjusted EPS outlook to a new range of $4.09 to $4.17 from the prior range of $3.92 to $4.10. - Increased full year net sales outlook to a new range of $2.1 billion to $2.14 billion from the previous range of $2.07 billion to $2.13 billion. - Maintained CapEx outlook of $40 million to $50 million for the year.

• Approximately 85% of the year-over-year backlog decline was driven by lower orders for third-party refuse trucks in Canada, and transition to New Way may cause continued backlog decline in coming quarters. - Potential impact of federal government shutdown on funding and orders, although direct federal sales are minimal. - New Way integration may have initial margin dilution in 2026, but long-term synergy opportunities are expected to bring it within EBITDA target margin ranges.

Q: What was the M&A contribution from Hog and Standard at ESG in the quarter?

A: Hog added about $20 million in the quarter and Standard was about $10 million.

Q: Any FX to call out for SSG?

A: FX was very nominal.

Q: Framing the backlog contribution from third-party refuse trucks and margin lift expectations going forward?

A: 85% of year-over-year backlog reduction was driven by third-party refuse backlog decline, and transition to New Way should be margin accretive over time, varying quarter-to-quarter with next 12 months to deliver trucks in backlog.

Q: Feedback from dealer channel on New Way combination?

A: Feedback has been overwhelmingly positive, with existing and new dealers excited about the combination.

Q: Accretion timeline for New Way to EPS?

A: Synergies will be more gradual, fully realized by end of 2028.

Q: Impact of federal government shutdown?

A: No meaningful disruption expected as direct federal sales are minimal and funding sources are diversified.

Q: ESG growth momentum excluding New Way?

A: Well positioned to achieve another record year in 2026 with execution on strategic initiatives, throughput improvements, and new product development pipeline.

Q: Pace of margin expansion with New Way?

A: New Way may be margin dilutive in 2026, but long-term synergy opportunities on cost and revenue side will bring it within target margin ranges.

Q: Percent of parts currently in-sourced for build more parts initiative?

A: Very small, with untapped opportunity especially with addition of refuse business.

Q: Goal and margin uplift for build more parts initiative?

A: Still in early stages, with expectation of multiples bigger over time and pilot phase nearly finished, looking to accelerate in 2026 and 2027.

Q: Lead times and backlog expectations for next year?

A: Sewer cleaners run around 11 months, 3-wheel sweepers in 5-6 months, 4-wheel sweepers 12-18 months, with expectation to continue reducing lead times for sewer cleaners and 4-wheel sweepers, and goal to increase production to leverage capacity.