Federal Signal (FSS) Q1 2026 Earnings Transcript

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DATE

Wednesday, April 29, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Jennifer L. Sherman
• Chief Financial Officer — Ian A. Hudson

TAKEAWAYS

• Net Sales -- $626 million, increasing 35%, with $70 million of organic growth (15%) and $92 million from acquisitions.
• Operating Income -- $99.7 million, up 52%, driven by broad-based group performance.
• Adjusted EBITDA -- $126.3 million, rising 48%, with a consolidated margin of 20.2%, up 190 basis points.
• GAAP Diluted EPS -- $1.14 per share, up 52% ($0.39-per-share increase).
• Adjusted EPS -- $1.18 per share, increasing 55% ($0.42 per share higher).
• Orders -- $623 million, a 10% increase, elevating quarter-end backlog to $1.04 billion, which is down about 6% year over year.
• ESG Segment Net Sales -- $533 million, up 38%, with $145 million growth and $92 million tied to acquisitions.
• ESG Adjusted EBITDA -- $113.3 million, rising 46%, achieving a 21.3% margin (up 130 basis points).
• SSG Segment Net Sales -- $93 million, an increase of 22%.
• SSG Adjusted EBITDA -- $24.7 million, up 47%, and an adjusted margin of 26.6%, increasing 460 basis points.
• Aftermarket Revenue -- Grew 18%, mainly due to increased aftermarket parts demand, more service activity, and higher rental income.
• Operating Cash Flow -- $101 million, up 176%, reflecting improved working capital management and acquisition-led benefits.
• Net Debt -- $480 million at quarter-end, after M&A earnout and acquisition payments.
• Dividend -- $9.2 million paid, from an increased $0.15-per-share rate, with the same rate announced for next quarter.
• Full-Year EPS Guidance Raised -- Adjusted EPS now projected at $4.80 to $5.50 (prior: $4.50 to $4.80).
• Full-Year Net Sales Guidance Raised -- New range of $2.57 billion to $2.66 billion (prior: $2.55 billion to $2.65 billion).
• SSG EBITDA Margin Target -- Raised to 22% to 28%, up from the previous 18% to 24% range, reflecting improved outlook and productivity accomplishments.
• ESG Production Output -- 15% increase in throughput at vacuum truck and Elgin facilities; lead times for sewer cleaners reduced to about 11 months.
• Aftermarket Ecosystem -- Expanded recurring revenue streams through parts, rental, and service, positioning the company to continue to serve in varying economic cycles.
• Integration and Synergies -- On track to deliver $15 million to $20 million in annual synergies from New Way and other recent acquisitions by 2028.
• Cash Conversion Target -- Achieved 144% of net income this quarter, still targeting 100% annually.

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RISKS

• Backlog decreased approximately 6% year over year, largely driven by successful execution, decreasing lead times across vacuum trucks and street sweepers, and the planned decline in the third-party LaBrie refuse backlog, which was discontinued in 2025.
• Around "$20 million year-over-year reduction in international export orders spanning product lines across both groups," attributed to nonrecurring prior-year orders.
• Steel pricing for most product lines is "locked in," but inflation on that line item is expected in the second half of the year, which may increase costs despite existing price agreements.

SUMMARY

Federal Signal (NYSE:FSS) reported record-setting quarterly financial results, including robust sales and margin expansion across both Environmental Solutions Group and Safety and Security Systems Group. Management raised full-year guidance for adjusted EPS and net sales, reflecting improved order intake, successful integration of recent acquisitions, and accelerated progress on margin and throughput initiatives. Strategic investments are focused on organic and inorganic growth, expanding production capacity, aftermarket ecosystem, and further vertical integration, aiming to unlock efficiency and recurring revenue opportunities. Significant synergies remain expected from New Way, HOG, and MEGA, with ongoing M&A activity in both primary segments.

• The company aims for future revenue and cost benefits split roughly equally from growth projects as part of its "Power of the Platform" strategy.
• Lead times for core products such as sewer cleaners and street sweepers remain higher than target; efforts continue to reduce these to more nimble four- to six-month intervals.
• SSG is benefiting from new product launches, efficiency gains post-fourth printed circuit board line, and market share initiatives in public safety and warning systems.
• Management reaffirmed its focus on cash conversion, productivity investments, and disciplined working capital management following a spike in operating cash flow this quarter.
• The shift away from third-party LaBrie products will further emphasize in-house brands, with company-specific aftermarket support highlighted as a market differentiator.

INDUSTRY GLOSSARY

• ESG: Environmental Solutions Group; company division specializing in street sweepers, safe-digging trucks, sewer cleaners, industrial vacuum loaders, and similar vehicles/equipment.
• SSG: Safety and Security Systems Group; company division providing public warning, emergency vehicle communications, and related signaling equipment.
• Build More Parts (BMP) initiative: Vertical integration strategy to manufacture select parts in-house, expanding recurring aftermarket revenue streams and margins.
• Automated Side Loader (ASL): Type of refuse collection truck capable of lifting and dumping containers from the vehicle’s side, often used in automated waste collection operations.

Full Conference Call Transcript

Ian will start today with more detail on our first quarter financial results. Jennifer will then provide her perspective on our performance, current market conditions, our multiyear growth initiatives, and go over our revised outlook for 2026 before we open the line for any questions. With that, I would now like to turn the call over to Ian.

Ian A. Hudson: Thank you, Felix. Our consolidated first quarter financial results are provided in today's earnings release. In summary, we delivered strong financial results for the quarter with 35% year-over-year net sales growth, 52% operating income improvement, gross margin expansion, a 190 basis point improvement in adjusted EBITDA margin, robust cash generation, and strong order intake. Consolidated net sales for the quarter were $626 million, up $162 million, or 35%, compared to last year. Organic sales growth for the quarter was $70 million, or 15%. Consolidated operating income for the quarter was $99.7 million, up $34 million, or 52%, compared to last year. Consolidated adjusted EBITDA for the quarter was $126.3 million, up $41.2 million, or 48%, compared to last year.

That translates to a margin of 20.2% in Q1 this year, up 190 basis points compared to last year. GAAP diluted EPS for the quarter was $1.14 per share, up $0.39 per share, or 52%, compared to last year. On an adjusted basis, EPS for the quarter were $1.18 per share, an increase of $0.42 per share, or 55%, from last year. Orders for the quarter were $623 million, up $55 million, or 10%, from last year, contributing to a backlog at the end of the quarter of $1.04 billion. In terms of our group results, ESG's net sales for the quarter were $533 million, up $145 million, or 38%, compared to last year.

ESG's operating income for the quarter was $89.1 million, up $29.4 million, or 49%, compared to last year. ESG's adjusted EBITDA for the quarter was $113.3 million, up $35.8 million, or 46%. That translates to an adjusted EBITDA margin for the quarter of 21.3%, an improvement of 130 basis points compared to last year. ESG reported total orders of $534 million in Q1 this year, an increase of $54 million, or 11%, compared to last year. SSG's net sales for the quarter were $93 million, up $17 million, or 22%. SSG's operating income for the quarter was $23.6 million, up $7.8 million, or 49%, compared to last year.

SSG's adjusted EBITDA for the quarter was $24.7 million, up $7.9 million, or 47%. That translates to an adjusted EBITDA margin for the quarter of 26.6%, up 460 basis points compared to last year. SSG's orders for the quarter were $89 million, up $1 million, or 1%, from last year. Corporate operating expenses for the quarter were $13 million, compared to $9.8 million last year, with the increase primarily due to higher acquisition and integration-related expenses and increased legal, stock compensation, and incentive-based compensation costs. Turning now to the consolidated income statement, the increase in net sales contributed to a $48.6 million improvement in gross profit.

Consolidated gross margin for the quarter was 28.7%, a 50 basis point increase over last year. As a percentage of net sales, our selling, engineering, general, and administrative expenses for the quarter were down 150 basis points from Q1 last year. Other items affecting the quarterly results include a $2.2 million increase in amortization expense, a $600,000 increase in acquisition-related expenses, and a $3.9 million increase in interest expense associated with higher average debt levels.

Tax expense for the quarter was $21.8 million, an increase of $6.1 million compared to Q1 last year, with the increase primarily due to the effects of higher pretax income levels, partially offset by the recognition of approximately $1 million of excess tax benefits from stock compensation activity. Our effective tax rate for Q1 this year was 23.6%. At this time, we continue to expect that our full-year effective tax rate will be approximately 25%, excluding additional discrete tax benefits. On an overall GAAP basis, we therefore earned $1.14 per share in Q1 this year compared with $0.75 per share in Q1 last year.

To facilitate earnings comparisons, we typically adjust our GAAP earnings per share for unusual items recorded in the current or prior quarters. In the current year quarter, we made adjustments to GAAP earnings per share to exclude acquisition-related expenses and purchase accounting expense effects. On this basis, our adjusted earnings for the quarter were $1.18 per share compared with $0.76 per share last year. Looking now at cash flow, we generated $101 million of cash from operations during the quarter, an increase of $65 million, or 176%, from Q1 last year. We ended the quarter with $480 million of net debt and availability under our credit facility of $939 million.

Our current net debt leverage ratio remains low, even after paying the full $15 million earnout associated with the HOG acquisition and funding the MEGA Equipment acquisition during the quarter. With our financial position remaining strong, we have significant flexibility to invest in organic growth initiatives, pursue strategic acquisitions, pay down debt, and return cash to stockholders through dividends and opportunistic share repurchases. On that note, we paid dividends of $9.2 million during the quarter, reflecting an increased dividend of $0.15 per share, and we recently announced a similar $0.15 per share dividend for the second quarter. That concludes my comments, and I would now like to turn the call over to Jennifer.

Jennifer L. Sherman: Thank you, Ian. We are proud of our record-setting first quarter performance, which included new quarterly records across net sales, adjusted EPS, and adjusted EBITDA, thanks to outstanding results from both of our groups. As I reflect on our start to 2026, I was particularly pleased with several items in the quarter that drove better-than-expected results versus our expectations. First, there was broad-based strength across several product verticals within each of our groups. Second, the early progress our teams made integrating HOG, New Way, and MEGA into the Federal Signal Corporation family. And third, the strong margin performance in the quarter, with adjusted EBITDA margins expanding 190 basis points year over year.

Within our Environmental Solutions Group, we delivered 38% year-over-year net sales growth, a 46% increase in adjusted EBITDA, and a 130 basis point improvement in adjusted EBITDA margin. Higher production levels, leveraging the power of our platform to drive internal margin initiatives, and proactive price/cost management were all meaningful organic contributors. Acquisitions also contributed $92 million of net sales during the quarter, with the New Way, HOG, and MEGA transactions driving notable increases in sales of refuse trucks, road marking and line removal equipment, and mineral extraction support equipment. We remain focused on building more trucks across our family of specialty vehicle businesses in line with demand levels.

These efforts to increase throughput across our manufacturing sites contributed to strong net sales across several ESG product verticals, including vacuum trucks, dump truck bodies and trailers, and other specialty equipment including street sweepers, road marking and line removal trucks, and water blasting equipment. From a capacity perspective, the combination of large-scale capacity expansions that we completed between 2020 and 2022, good access to labor, and continued investments in several productivity-enhancing projects position us well to properly absorb more volume into our existing footprint. In 2026, we expect approximately half our annual capital expenditures to be focused on various growth initiatives, with the other half focused on maintenance investments.

Shifting to aftermarkets, demand remains strong, aided by contributions from recent acquisitions. For the quarter, aftermarket revenue increased 18% year over year, primarily driven by higher demand for aftermarket parts, increased service activity, and rental income growth. As we continue to monitor this dynamic geopolitical and tariff environment alongside our dealer partners, customers, and suppliers, we see our aftermarket operations as a critical competitive advantage for our customers. With a dedicated local service footprint across both Canada and the United States, including rental assets, we believe we are well positioned to continue to serve the local markets in which we operate.

Moreover, our unique aftermarket ecosystem spanning parts, service, rental, and used equipment offerings allows customers to access equipment in a capital-efficient manner of their choice, providing flexibility throughout various economic cycles. We also continue to execute on early opportunities within our Build More Parts, or BMP, initiative, whereby we are vertically integrating certain parts production. Over a multiyear timeframe, this initiative allows our teams to drive increased recurring parts revenue streams while expanding margins. Our acquisition of New Way provides additional opportunity for future BMP growth. Shifting to our Safety and Security Systems Group, the team delivered another excellent quarter with 22% top-line growth, a 47% increase in adjusted EBITDA, and a 460 basis point improvement in adjusted EBITDA margin.

This improvement was primarily driven by a combination of volume increases across our public safety and industrial signaling product verticals, proactive price/cost management, and realization of certain cost savings. Our SSG teams continue to drive efficiency gains across our University Park facility, partially fueled by the successful addition of a fourth printed circuit board line in the fourth quarter of last year. We are also energized by several market share initiatives aimed at penetrating historically underserved customer segments, such as certain law enforcement customers and environmental disaster warning applications. Lastly, we had an outstanding quarter of cash generation, with $101 million of operating cash flow representing cash conversion of 144% of net income.

On an annual basis, we continue to target 100% cash conversion. Shifting to current market conditions, on an underlying basis, excluding the impact of acquired backlog and third-party LaBrie refuse orders received in Q1 last year, our orders this quarter increased by $70 million, or 13% year over year, with healthy demand across both our Environmental Solutions and Safety and Security Systems groups. Within product lines, we experienced strength in demand for other specialty equipment, including refuse trucks and mineral extraction support equipment, as well as in aftermarket parts and service and warning systems. Somewhat offsetting this strength was an approximate $20 million year-over-year reduction in international export orders spanning product lines across both groups.

While they represent a small portion of our overall net sales, we are closely monitoring any political impacts on international demand stemming from current geopolitical conflicts. Looking ahead, we are energized by the pipeline of strategic market share initiatives across the enterprise that aim to further strengthen our value proposition in the marketplace for years to come. Lastly, our backlog stood at $1.04 billion at the end of the quarter, essentially unchanged from the end of last year, and down approximately 6% year over year. This decrease is principally driven by our successful execution, decreasing lead times across vacuum trucks and street sweepers, and the planned decline in the third-party LaBrie refuse backlog, which was discontinued in 2025.

At the end of the quarter, our third-party LaBrie refuse truck backlog stood at approximately $55 million. As a reminder, net sales of our backlog-intensive products represented approximately 45% of net sales last year. As such, given the size of our backlog, we continue to enjoy strong forward visibility in our backlog-driven product lines. Shifting now to an update on our multiyear growth strategy, through cycles we target low double-digit top-line growth, split roughly evenly between inorganic and organic growth. At the same time, we are committed to growing profitably and have implemented associated EBITDA margin targets for our groups that we have increased several times over the past years.

While we are proud of our historical track record, we are not done here. As I sit here today, I feel as energized as I have ever been as I look across our set of strategic initiatives. A couple of highlights. Starting with SSG, we are formally raising our EBITDA margin targets today for our Safety and Security Systems Group to a new range of 22% to 28% from the previous range of 18% to 24%. As a reminder, these margin targets represent through-cycle margin targets and do not present any sort of long-term ceiling.

Within SSG, we continue to see a multitude of organic market share opportunities spanning penetration of underserved customer segments within our domestic public safety and warning system businesses, an active new product development pipeline, including several recent launches, and certain geographic expansion opportunities. These growth opportunities, coupled with our ongoing productivity investments, including capacity optimization and automation within our factories, all underpin our confidence in these new margin targets. In fact, our consistent margin improvement journey throughout the last quarters has solidified two important strategic pillars for us, which we are further accelerating throughout 2026.

The first is the identification of incremental margin opportunities across the enterprise that we believe we can realize in 2027 and beyond spanning several work streams. At the same time, we are also scaling several enterprise-wide investments starting in 2026 aimed at fortifying Federal Signal Corporation's competitive position to achieve continued multiyear growth. These include investments in our internal centers of excellence, with a focus on new product development, dealer development, data analytics, and operations. We are also piloting two capacity optimization initiatives across our plants, whereby we are constructing additional warehousing space, allowing for conversion of prior storage space to available manufacturing capacity to support future growth initiatives.

While a small financial investment at less than $5 million, our teams will be well positioned to capitalize on our growing Power the Platform benefits that we have identified. As an example, we are in the early stages of utilizing our dealer development processes within our refuse collection and multipurpose maintenance product verticals. Our dealer development team, in conjunction with our data analytics team, helps our direct sales and dealer development teams identify untapped growth opportunities across new, used, and aftermarket services on a localized basis. An institutionalized function within our vacuum truck and street sweeper product verticals, we are in the early innings across other vehicle categories.

Within sales channel optimization, we are in early phases of leveraging and scaling HOG's existing airport sales channel to capitalize on opportunities across other specialty vehicle verticals. We have also identified aftermarket growth opportunities in several historically underserved states. On the operational side, we are working on several production simplification projects across our vacuum truck, road marking, and water blasting verticals. Our procurement and aftermarket teams are working diligently on leveraging the recently acquired businesses which have provided multiple new parts optimization opportunities spanning several existing specialty vehicle verticals. As we have added more product verticals, the possibility for further collaboration and productivity gains continues to increase.

I go through this illustrative list of initiatives to highlight the breadth of our strategic growth projects as we continue to intensely focus on solving our customers' problems. As we scale our internal Power of the Platform infrastructure, we believe these benefits will be split roughly evenly between revenue and cost while supporting our M&A integration efforts. Lastly, we have been pleased with the early integration progress our teams are making at New Way and MEGA. We are in the early stages of reaping benefits by merging the MEGA and Ground Force sales channels, which we ultimately believe will drive cross-selling opportunities in historically underserved markets for our mineral extraction support equipment.

We are also pleased with the early performance of New Way, including execution on our cost initiatives, and reaffirm our targets of delivering the outlined $15 million to $20 million of annual synergies by 2028. Turning now to our outlook for the remainder of 2026. With our first quarter performance, our current backlog, and continued execution against our strategic growth and productivity initiatives, we are raising our full-year adjusted EPS outlook to a new range of $4.80 to $5.50 from the prior range of $4.50 to $4.80. We are also increasing our full-year net sales outlook to a new range of between $2.57 billion and $2.66 billion from the prior range of between $2.55 billion and $2.65 billion.

We are maintaining our CapEx outlook of between $45 million and $55 million for the year. We also remain active in the M&A markets across both of our operating groups. We will now open the call for questions.

Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. Participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Timothy W. Thein with Raymond James. Please proceed with your question.

Jennifer L. Sherman: Good morning, Tim.

Timothy W. Thein: Good morning. Jennifer, I was surprised you did not weave in some Michigan basketball reference into your Go Blue. On how the first quarter played out and how that plays into the balance of the year, from a seasonal perspective, the first quarter did not play out as the first quarter normally does. I am curious if there is anything that went for you more than you thought and maybe that pulled ahead earnings. How should we read the first quarter in the context of the full year?

Jennifer L. Sherman: I will start with a couple of comments. Our teams did an outstanding job, and what always gives me encouragement is that it is not any one business. There was really strength across the board, and I want to do a shout-out to our teams because we are continuing to execute on the programs we put in place. Our acquisitions did better than expected and got off to a strong start this quarter, particularly New Way, and we saw strong performance in early days from our MEGA/Ground Force teams. SSG had a better quarter than expected. So, strong performance across the board with a very encouraging start with respect to the acquisitions and SSG.

With respect to the cadence of the seasonality of EPS, the seasonality of our earnings is not as pronounced this year, largely due to some of the seasonality of the recently acquired businesses that are different than our legacy businesses. For the remainder of the year, we are expecting our EPS contribution to be roughly evenly split by quarter.

Timothy W. Thein: Got it. Thank you. On the management of price/cost as a benefit in the first quarter, we may see more inflationary dynamics coming. Can you remind us how you expect that to play out, including contractual agreements and the like, and what could be coming in terms of raw material and other cost inflation?

Ian A. Hudson: The major raw material we have is primarily steel. As we typically do, for the majority of our product lines, pricing is locked in through the rest of the year. With that said, we will experience some inflation on that line item in the second half of the year even though we are locked. That is considered in the guidance we gave today. As it relates to other cost increases, everyone is monitoring the freight market. That is a relatively low percentage of our overall costs and sometimes a pass-through for us.

We are monitoring it, and as we have demonstrated in the past, if we need to, we have the ability to reset pricing on new quotes for the second half of the year.

Timothy W. Thein: Very good. Thank you.

Jennifer L. Sherman: Thank you, Tim.

Operator: Thank you. Our next question comes from the line of Ross Sparenblek with William Blair. Please proceed with your question.

Jennifer L. Sherman: Good morning, Ross.

Ross Sparenblek: To start off on free cash flow, it was a record quarter. It looks like there is an unusual benefit from inventory. Is this related more to new acquisitions and pruning what you acquired, or more progress on bringing down lead times?

Ian A. Hudson: There is definitely some of that with the recent acquisitions. We ended the year probably at a higher level of working capital than necessary, so there was an effort to work down some of that. You see that in the cash generation during the quarter. Contribution from those acquisitions was pretty good during Q1. There is also some benefit from reduced lead times, and overall, really strong management of working capital by the businesses, along with the increase in earnings. Those are the main factors.

Ross Sparenblek: As a follow-up, going forward in the second and third quarters, should we expect more of an inventory benefit as well, or was this a onetime thing to start the year?

Ian A. Hudson: Maybe so, but we are not expecting it to be as dramatic as what we saw in Q1. We are still expecting strong cash generation for the balance of the year. What we have seen in April is consistent with this as well. We aim for cash conversion of 100% on an annual basis. We were ahead of that for Q1, but that remains the long-term goal.

Jennifer L. Sherman: I will add that the New Way team did an excellent job of implementing Federal Signal Corporation’s approach, and we saw benefits from that in Q1.

Ross Sparenblek: That is very helpful. One more on New Way. A robust quarter, much higher than we were expecting on top-line contribution. Any seasonal factors to be aware of, or is this penetration in Canada, parts sales synergies? How should we think about the strength in the first quarter?

Jennifer L. Sherman: We are very focused on executing on synergies. The revenue synergies typically take longer. On the cost side, we exceeded our internal expectations in terms of realization of some of those cost synergies. The teams were extremely disciplined with respect to implementing the power of our platform, and we are very pleased with the progress in Q1.

Ross Sparenblek: That is very helpful. Great quarter. I will pass it along.

Jennifer L. Sherman: Thank you.

Operator: Thank you. Our next question comes from the line of Walter Scott Liptak with Seaport Global Securities. Please proceed with your question.

Walter Scott Liptak: Great quarter. On the order growth, in the prepared remarks you talked about a 13% order growth rate. Can you go through in a little more detail where you are seeing that order growth and what kinds of products are getting the orders?

Jennifer L. Sherman: A couple of comments about the orders this quarter that are important to understand. We have a few moving pieces, given the discontinuation of the third-party LaBrie refuse trucks and the impact of the acquired backlog. As I stated in my prepared remarks, looking forward we have about $55 million of these third-party refuse trucks in our backlog. As we strip out these nonrecurring items and give you the cleanest view on net sales and orders for what we view as continuing operations into 2027 and beyond, we provided a walk on page 9 of the earnings presentation.

When you look at that, orders are up 13%, and that includes the impact of New Way and some of the other acquisitions. One challenge is there can be noise in organic growth numbers because we have effectively merged the sales and production functions across MEGA/Ground Force and our road marking businesses—MRL, HOG, and Blasters—as a function of our 80/20 and integration growth strategies. If you think about the underlying core organic orders, without the impact of LaBrie or any of the acquisitions, that number was down about $20 million due to a reduction in international export orders as described in the prepared remarks. Excluding that, organic orders were flat.

Walter Scott Liptak: Thank you. On the backlog, understanding you did a great job with production this quarter, have we seen the peak for backlog and now see more stability, or does backlog keep coming down?

Ian A. Hudson: As Jennifer mentioned, backlog-relevant businesses represented about 45% of our net sales last year. There is still $55 million of LaBrie debris backlog remaining, and we expect to work that down over the next few quarters. Also, as we continue to reduce lead times for street sweepers and sewer cleaners, backlog could come down a bit there. Those are the main drivers—delivery dynamics and reducing lead times.

Walter Scott Liptak: The Section 232 modifications that happened in April—any impact from that? Do you have tariff-related costs?

Jennifer L. Sherman: We do not have material exposures because we are mostly in-country-for-country from both the manufacturing and supply chain perspectives. The biggest potential exposure is on the chassis side, which is a pass-through for us. So the short answer is not a material impact.

Operator: Thank you. Our next question comes from the line of Analyst with KeyBanc Capital Markets. Please proceed with your question.

Jennifer L. Sherman: Morning.

Analyst: Jennifer, you have been vocal about your desire to reduce lead times and backlogs in things like vacuum trucks and street sweepers. Can you give us an estimate of how much throughput you have realized with those 2019 to 2022 capacity investments, and is there more room for improvement as we think about 2026 and beyond?

Jennifer L. Sherman: We are really pleased with the progress at our vacuum truck facility and at our Elgin facility this quarter on what we call Build More Trucks. Overall, we saw about 15% year-over-year improvement. Our lead times for our sewer cleaners are running about 11 months, and for our street sweepers, the four-wheel sweepers, a tick up of a year. We have made nice progress and will continue to make progress. We think it is really important that those lead times be in the four- to six-month range depending on the particular product line. That will allow us to be more nimble in responding to market opportunities. We have the capacity and labor to continue.

Analyst: Switching gears to your four strategic pillars, is there an overarching technology angle or commonality across your products? Technology adoption seems likely to become more prevalent.

Jennifer L. Sherman: Our technology is segmented with respect to our SSG teams and our ESG teams, and our CTO oversees that. We look for opportunities—for example, we have had success with control systems as a common platform. We also look for opportunities across our parts and aftermarket businesses. This is a critical focus and one of the values of the Power of the Platform. We can make investments in technology at the Federal Signal Corporation level and then implement across our various vehicle or SSG businesses.

Operator: Thank you. Our next question comes from the line of Christopher Paul Moore with CJS Securities. Please proceed with your question.

Jennifer L. Sherman: Good morning, Chris.

Christopher Paul Moore: Congrats. SSG margins are exceptional and look to be getting better, much due to internal actions. Can you talk about the competitive landscape? Has it changed much over the last few years, and who do you see consistently?

Jennifer L. Sherman: Success is not the result of one initiative. We have a lot of bets and different projects across the enterprise. With SSG, what is encouraging and why we raised those margin targets is not only what they have accomplished but what we see in the pipeline. On new product development, that team has introduced several new products to respond to customer needs in new end markets, and we are in early innings of traction. The team does an exceptional job on speed to market. On insourcing, the team identified the opportunity to insource printed circuit boards, which gives flexibility to the new product development team and accelerates speed to market.

We completed the implementation of our fourth printed circuit board line in Q4 and are seeing benefits. The competitive market is primarily privately held competition. We are very active in that M&A market. As we move forward, the team is bringing on some new products in the second half of the year, we are making additional investments in new product development and talent, and I feel really good about the opportunities in 2027 and beyond.

Christopher Paul Moore: One on New Way. JJ has been distributing LaBrie refuse trucks for a long time in Canada. You are not taking new orders there and are ramping sale of the New Way refuse trucks. Can you compare and contrast the two truck lines? Is there anything on the LaBrie trucks that is hard to match, or that you will have to incorporate into New Way trucks to convert long-term LaBrie owners?

Jennifer L. Sherman: Both companies make a good ASL—the automated side loader. We are very pleased by the start. These are demo-intensive products, and we are in the very early innings of our Canadian strategy. Dealer development is important as we work with valued dealer partners to grow market share. One critical differentiator is our aftermarket support. Our teams have years of experience and customer intimacy that we believe we will leverage to grow New Way products.

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

Ian A. Hudson: Good morning.

Jennifer L. Sherman: Good morning, Mike.

Michael Shlisky: Can you give us a few more comments on your international shipments in the quarter? Are issues tied to customers in countries facing military conflict, or more political or tariff-related? More color on what is going on there?

Jennifer L. Sherman: In the prepared remarks, I was referring to a reduction in international export orders of approximately $20 million year over year. That involves several product lines, so it is not material to any single product, but there is an aggregate impact. That would include street sweepers, a small portion of our SSG business, and a small portion of our road marking business. We also had a onetime large order in Q1 of last year out of Mexico. So it is a year-over-year comparison effect of those large, nonrecurring international export orders.

Michael Shlisky: Understood. On the increase in the SSG margin outlook, it looks really strong. What has changed to make it go four full points higher? Is it mix, new products, or something that has been building for quite some time?

Jennifer L. Sherman: We have been operating at the top end or above the previous EBITDA margin targets. As we look at the new products we are introducing, market penetration opportunities and what we have already achieved in underserved markets, and the production efficiencies and scale we have achieved, it gives us confidence. I highlighted the fourth printed circuit board line, but there are many factors. This is primarily done in North America in one facility, and there are opportunities to continue expanding. I referenced a small pilot project—putting up a warehouse to open more manufacturing space at our University Park facility. That supports new products we are introducing and some M&A opportunities.

It is a combination of all those factors that gives us the confidence to make that material jump in EBITDA margin targets. We are not done—there is a lot of opportunity for that business.

Michael Shlisky: Lastly, on mineral extraction, can you give a bit more color on how that has been going in the last quarter as far as quoting activity? Do changes to tariffs mean more quoting on domestic mineral extraction projects?

Jennifer L. Sherman: Starting with MEGA, we closed that acquisition in January. It was an acquisition we had been working on for quite some time, so out of the box, day one, they were selling jointly. We discontinued certain products at one facility and are now manufacturing in another. The results are blended and off to a strong start. It was one of the businesses that did better than expected. Together, we now have additional manufacturing capacity, and putting the talented Ground Force and MEGA teams together gives us opportunities to penetrate previously underpenetrated markets. We are seeing increased activity in the United States.

Operator: Thank you. Our next question comes from the line of Gregory John Burns with Sidoti & Company. Please proceed with your question.

Jennifer L. Sherman: Good morning, Greg.

Gregory John Burns: You mentioned looking at some acquisition opportunities on the SSG side. Can you talk about the pipeline—are you looking for scale in existing businesses, new product lines, or geographic expansion? Do you think you might get something done this year?

Jennifer L. Sherman: We started cultivating that pipeline about two years ago. We have spent a lot of time meeting different founders and second-generation owners. We are encouraged by the opportunities in 2026, 2027, and beyond. They come in a couple of flavors. One is audible and visual warning devices that serve different end markets. One driver of building the warehouse in University Park is to open additional manufacturing capacity for both new products and acquisitions we might integrate into that building. It is a very attractive niche for us. We think there are opportunities to leverage our channel and manufacturing. Given the investments we have made in printed circuit board lines, there would be obvious cost and efficiency synergies.

Police is the largest portion of our SSG business, so there would be opportunities within police car upfitting to expand our portfolio. They range in different sizes, and the team is actively working on those as we speak.

Gregory John Burns: Great to see the margin uplift in SSG. With the breadth of all the internal projects you outlined, what is your view on the potential for further margin gains on the ESG side? What is the timeframe for realization of the revenue and margin benefits—2026, 2027, 2028?

Jennifer L. Sherman: The 18% to 24% ESG target is not a ceiling. Based on Power of the Platform and the investments we are making, we continue to believe there are opportunities to further increase those EBITDA margin targets. Some of that depends on the cadence of achieving both the revenue and cost synergies in the various ESG acquisitions. When we bought New Way, it was below our target EBITDA margin. We are only one quarter in—off to a good start—but more work to be done. We reaffirm our confidence in achieving $15 million to $20 million of synergies by 2028.

It will vary quarter to quarter, but directionally, we are extremely confident our current EBITDA margin targets are not a ceiling, and we will continue to strive over the long term to improve and raise those.

Operator: Thank you. Our next question comes from the line of Timothy W. Thein with Raymond James. Please proceed with your question.

Timothy W. Thein: A two-parter on ESG orders. What was the split between publicly funded versus industrial customer base? And, Jennifer, I thought you said after slicing and dicing, orders came out flat—can you clarify?

Jennifer L. Sherman: There are a couple of important things about Q1 orders. One is the discontinuation of the third-party LaBrie refuse trucks and the impacts of acquired backlog. Second, we have merged MEGA/Ground Force and also our road marking businesses across both sales and production functions, so it is increasingly difficult to parse which was a MEGA order and which was a Ground Force order, and similarly for MRL, HOG, and Blasters. We also noted that our international export orders were down about $20 million. Orders were up 13%, but when you exclude the international, organic orders were flat.

Ian A. Hudson: On the split, industrial was probably a little stronger than the publicly funded side, mostly because the public side had some fleet orders in Q1 of last year from international markets.

Timothy W. Thein: Thank you very much.

Operator: We have reached the end of the question-and-answer session. I would like to turn the floor back over to CEO Jennifer L. Sherman for closing remarks.

Jennifer L. Sherman: Thank you. We would like to express our thanks to our stockholders, employees, distributors, dealers, and customers for their continued support. Thank you for joining us today, and we will talk to you next quarter.

Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you, and have a great day.

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