FSS

• Overall Financial and Business Model Performance

  • Q2 2026 set new records across net sales, adjusted EBITDA, adjusted EPS, and orders, with 19% YoY consolidated net sales growth, 21% operating income growth, 18% order growth, and 60 basis point adjusted EBITDA margin expansion
  • Multi-year diversification of revenue streams, end markets, and funding sources has reduced business cyclicality, strengthened the core business, and created a more durable revenue profile: ~55% of revenue is publicly funded, with the largest single public source (U.S. water taxes) accounting for less than 15% of total net sales, with the remainder spread across diverse public and private end markets
  • The company's established growth platform spanning procurement, operational systems, supply chain optimization, aftermarket, dealer development, sales alignment, data analytics, and new product development supports continued earnings growth and margin expansion

• Aftermarket Growth Initiatives

  • Aftermarket revenue for ESG increased 24% YoY in Q2, representing 25% of total ESG segment revenue, with strength across parts, used equipment sales, and rental income (up 16% YoY)
  • Three core initiatives drive aftermarket growth: 1) The early-stage "Build More Parts" initiative to vertically integrate parts production, with new dedicated manufacturing capacity coming online in H2 2026; 2) Geographic expansion of aftermarket service locations (20 added since 2019) to serve the growing installed vehicle base; 3) Leveraging the aftermarket ecosystem to drive growth from newly integrated acquisitions
  • Management expects aftermarket revenue to grow slightly faster than overall company revenue long-term, supported by its attractive margin profile

• M&A and Integration Update

  • Early July 2026 completed the acquisition of Western Technology, a small niche manufacturer of portable explosion-protected lighting for industrial end markets, which expands SSG's product portfolio and leverages existing sales and manufacturing infrastructure
  • Recent acquisitions NewWay and Mega are tracking ahead of internal expectations for margin and profit contribution in H1 2026, with cost synergy realization for NewWay running ahead of the target of $15-$20 million in annual synergies (split evenly between cost and revenue) to be achieved by end of 2028
  • An active M&A pipeline is maintained across both business segments, with a strong track record of meeting or exceeding synergy targets from 17 acquisitions completed during CEO Jennifer Sherman's tenure

• Operational Capacity and Capital Allocation

  • Capacity expansions completed between 2019 and 2022, good labor access, and ongoing productivity investments allow the company to absorb higher volume within its existing footprint
  • Full year 2026 capital expenditures are planned to be split evenly between growth initiatives and maintenance investments, with a maintained target range of $45 million to $55 million
  • The company generated $113 million in operating cash flow in Q2 (89% YoY growth), paid down $97 million in debt, ending the quarter with $391 million in net debt and $1.04 billion in available credit capacity. The strong balance sheet provides flexibility for organic investment, M&A, debt repayment, dividends, and opportunistic share repurchases

• Management raised full year 2026 adjusted EPS guidance to a range of $5.12 to $5.30, up from the prior range of $4.80 to $5.05
• Full year 2026 net sales guidance was raised to a range of $2.58 billion to $2.67 billion, from the prior range of $2.57 billion to $2.66 billion
• Full year 2026 capital expenditure guidance is maintained at $45 million to $55 million
• The low end of the guidance range assumes slower than expected delivery timing for the remaining $45 million of third-party refuse trucks (which the company does not control), while the high end assumes continued momentum across the company's strategic growth initiatives
• Long-term, the company targets annual low double-digit top line growth, split roughly evenly between organic and inorganic growth

Environmental Solutions Group (ESG): Net sales were $578 million, up $97 million (20% year-over-year), accounting for 86.3% of consolidated net sales. Operating income was $113.9 million, up $22 million (24% YoY). Adjusted EBITDA was $138.3 million, up $27.5 million (25% YoY), with an adjusted EBITDA margin of 23.9% (an 80 basis point improvement YoY). Q2 2026 orders totaled $548 million, up $107 million (24% YoY).

Safety and Security Systems Group (SSG): Net sales were $93 million, up $8 million (10% YoY), accounting for 13.9% of consolidated net sales. Operating income was $22.1 million, up $600 thousand (3% YoY). Adjusted EBITDA was $23.2 million, up $600 thousand (3% YoY), with an adjusted EBITDA margin of 25.1% (down from 26.9% YoY). Q2 2026 orders were $89 million, down from $99 million YoY.

Corporate: Corporate operating expenses were $17.8 million, up $2.1 million from $15.7 million YoY, with the increase driven by higher post-retirement expenses and increased medical costs.

• Lead times for certain products remain elevated above management's target levels
• Delivery timing for the remaining $45 million of third-party refuse backlog is outside the company's control, creating downside risk to revenue if deliveries are delayed
• Street sweeper (the company's only pure-play U.S. municipal exposure) orders were down in Q2 2026, though municipal budgets for street sweepers have remained steady growing in line with GDP

Q: How would you characterize the security of funding across your diverse public and private sources for the back half of 2026 and into 2027? / A: Management emphasized that deliberate diversification over the past decade has created a highly resilient business model. Only ~55% of revenue comes from public sources, with the largest single source (U.S. water taxes) accounting for less than 15% of total revenue, spread across additional public sources including Canadian provincial budgets, European public funding, U.S. military, and refuse collection fees. The only pure-play U.S. municipal exposure is street sweepers, which represent mid-to-high single-digit percentage of total revenue, and their property/sales tax funding remains steady growing in line with GDP. The $1 billion end-of-quarter backlog provides strong visibility for the back half of 2026 and early 2027.

Q: Is the long-term target of 30% aftermarket revenue as a share of ESG still achievable after integrating NewWay? / A: Management confirmed 30% remains a realistic long-term target. NewWay's current parts revenue is only 11% of its total revenue, creating significant upside as integration progresses. Management expects aftermarket to grow faster than overall ESG revenue, with the ultimate percentage dependent on the mix of future acquisitions. The company remains fully committed to growing the aftermarket segment to enhance business model durability.

Q: What is driving the EPS guidance increase, and are SSG M&A opportunities available to replicate the ESG acquisition platform? / A: The main drivers of EPS upside are stronger than expected aftermarket growth and better than anticipated acquisition integration: NewWay and Mega are tracking ahead of cost synergy targets, and prior expectations of slight acquisition dilution for 2026 are no longer expected. The recent small Western Technology acquisition is the first for SSG, which operates in a fragmented industry with many attractive niche M&A opportunities, including ancillary public safety equipment and certified hazardous environment products. Management has a pipeline of prospective SSG acquisitions alongside continued opportunities in ESG.

Q: Why is NewWay performing better than expected on orders amid broader industry expectations of a 2026 refuse market decline? / A: Management's 2026 order expectations for NewWay were already built on the assumption that the overall refuse industry would be down due to excess channel inventory from reduced lead times, so the current slight upside against plan aligns with broader industry commentary. Revenue is tracking in line with the original model, but cost synergies are being achieved earlier than planned, and integration progress remains on track to hit the full $15-$20 million annual synergy target by the end of 2028.