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Federal Signal (FSS) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Federal Signal Corporation's unaudited condensed consolidated financial statements, including operations, balance sheets, cash flows, and detailed notes, for the periods ended June 30, 2025 and 2024 Condensed Consolidated Statements of Operations The company reported significant growth in net sales and net income for Q2 2025, with net sales increasing 15.1% to $564.6 million and net income rising 17.4% to $71.4 million Key Financial Metrics | Financial Metric | Three Months Ended June 30, 2025 (Millions USD) | Three Months Ended June 30, 2024 (Millions USD) | YoY Change | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $564.6M | $490.4M | +15.1% | $1,028.4M | $915.3M | +12.4% | | Gross profit | $169.6M | $144.0M | +17.8% | $300.4M | $260.0M | +15.5% | | Operating income | $97.7M | $81.1M | +20.5% | $163.4M | $135.4M | +20.7% | | Net income | $71.4M | $60.8M | +17.4% | $117.7M | $112.4M | +4.7% | | Diluted EPS | $1.16 | $0.99 | +17.2% | $1.91 | $1.82 | +4.9% | Condensed Consolidated Balance Sheets Total assets increased to $1.916 billion as of June 30, 2025, driven by inventories and acquisitions, while total liabilities and stockholders' equity also grew Key Balance Sheet Items | Balance Sheet Item | June 30, 2025 (Unaudited, Millions USD) | December 31, 2024 (Millions USD) | | :--- | :--- | :--- | | Cash and cash equivalents | $64.7M | $91.1M | | Inventories | $356.5M | $331.0M | | Goodwill | $517.6M | $477.7M | | Total assets | $1,916.0M | $1,765.2M | | Long-term borrowings and finance lease obligations | $258.3M | $204.4M | | Total liabilities | $653.8M | $579.1M | | Total stockholders' equity | $1,262.2M | $1,186.1M | Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased to $96.4 million for the six months ended June 30, 2025, with significant cash usage for acquisitions and share repurchases Key Cash Flow Activities | Cash Flow Activity | Six Months Ended June 30, 2025 (Millions USD) | Six Months Ended June 30, 2024 (Millions USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | $96.4 | $71.9 | | Net cash used for investing activities | ($94.3) | ($23.0) | | Net cash used for financing activities | ($29.8) | ($60.5) | | Decrease in cash and cash equivalents | ($26.4) | ($12.4) | Notes to Condensed Consolidated Financial Statements Detailed notes highlight the $82.1 million Hog Technologies acquisition, strong revenue growth, an increased effective tax rate, and a new $150 million stock repurchase program - On February 12, 2025, the Company acquired Hog Technologies, a manufacturer of road-marking, line-removal, and waterblasting equipment, for initial cash consideration of approximately $82.1 million. The acquisition is part of the Environmental Solutions Group303132 - The effective tax rate for the six months ended June 30, 2025, was 24.3%, compared to 12.5% in the prior-year period, primarily due to the non-recurrence of a $15.6 million discrete tax benefit recognized in 202473 - In April 2025, the Board authorized a new stock repurchase program of up to $150 million. During Q2 2025, the company repurchased 280,893 shares for $20.0 million93 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2025 financial performance, noting a 15% net sales increase, 20% operating income growth, and a $1.08 billion consolidated backlog Q2 2025 Key Performance Indicators | Metric | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $564.6M | $490.4M | +15% | | Operating Income | $97.7M | $81.1M | +20% | | Operating Margin | 17.3% | 16.5% | +80 bps | | Total Orders | $540M | $473M | +14% | - The company completed the acquisition of Hog Technologies on February 12, 2025, which is expected to strengthen its position in the specialty vehicles market189 - The company anticipates capital expenditures for 2025 to be in the range of $40 million to $50 million195 Results of Operations Q2 2025 net sales increased 15% to $564.6 million, with gross profit up 18% and operating income growing 20% to $97.7 million - Q2 2025 net sales increased by $74.2 million (15%) year-over-year, primarily due to higher sales volumes, including contributions from acquisitions, and pricing actions145 - Gross profit margin for Q2 2025 was 30.0%, an improvement from 29.4% in Q2 2024, driven by margin expansion in both the Environmental Solutions Group (+70 bps) and the Safety and Security Systems Group (+240 bps)149 - Consolidated operating margin for Q2 2025 improved to 17.3% from 16.5% in the prior-year quarter153 Segment Analysis Both segments performed strongly in Q2 2025, with Environmental Solutions Group sales up 18% and Safety and Security Systems Group sales up 3%, both showing improved operating margins Q2 2025 Segment Performance | Segment | Q2 2025 Net Sales (Millions USD) | YoY Change | Q2 2025 Operating Income (Millions USD) | YoY Change | Q2 2025 Operating Margin | | :--- | :--- | :--- | :--- | :--- | :--- | | Environmental Solutions | $480.5M | +18% | $91.9M | +26% | 19.1% | | Safety and Security Systems | $84.1M | +3% | $21.5M | +17% | 25.6% | - Environmental Solutions Group orders increased 11% in Q2 2025, driven by strong demand for safe-digging trucks, aftermarket offerings, and road-marking equipment in the U.S163 - Safety and Security Systems Group orders surged 28% in Q2 2025, with notable improvements in public safety equipment in both U.S. and non-U.S. markets175 Financial Condition, Liquidity and Capital Resources The company maintained strong liquidity with $514.5 million available, net cash from operations at $96.4 million, and compliance with all debt covenants - Net cash provided by operating activities increased to $96.4 million for the first six months of 2025, up from $71.9 million in the same period of 2024, due to higher net income and working capital improvements192 - Key uses of cash in the first half of 2025 included $82.1 million for the Hog acquisition, $39.7 million for treasury stock purchases, and $17.1 million for cash dividends193194 - As of June 30, 2025, the company had $514.5 million of net availability for borrowings under its 2022 Credit Agreement and was in compliance with all financial covenants190195 Item 3. Quantitative and Qualitative Disclosures About Market Risk No significant changes in market risk exposure were reported for the six months ended June 30, 2025, compared to the prior annual report - There have been no significant changes in the Company's exposure to market risk during the six months ended June 30, 2025198 Item 4. Controls and Procedures Disclosure controls were effective as of June 30, 2025, with recent acquisitions excluded from internal control assessment, and no material changes reported - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025199 - Management's assessment of internal control over financial reporting has not yet been completed for the recent acquisitions of Hog (Q1 2025) and Standard (Q4 2024), and these entities are excluded from the current assessment200 PART II. OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings, including hearing loss litigation with an estimated liability, are incorporated by reference from Note 9 of the financial statements - The company refers to Note 9 for details on legal proceedings, which includes information on the ongoing hearing loss litigation related to the company's sirens82203 Item 1A. Risk Factors No material changes to the company's risk factors were reported compared to the Annual Report on Form 10-K for December 31, 2024 - There have been no material changes in the Company's risk factors from those described in the Annual Report on Form 10-K for the year ended December 31, 2024204 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 280,893 shares for $20.0 million in Q2 2025 under a new $150 million stock repurchase program, with $157.2 million remaining Stock Repurchase Program Summary | Period | Total Shares Purchased | Average Price Paid Per Share (USD) | Maximum Value Remaining for Repurchase (USD) | | :--- | :--- | :--- | :--- | | April 2025 | 280,893 | $71.1626 | $157,191,259 | | May 2025 | — | — | $157,191,259 | | June 2025 | — | — | $157,191,259 | - In April 2025, the Board authorized an additional stock repurchase program of up to $150 million205