Federal Signal (US:FSS)2022-11-06 02:41Financial Data and Key Metrics Changes - Consolidated net sales for Q3 2022 were $346 million, an increase of $48 million or 16% year-over-year, despite a $3 million unfavorable foreign currency translation impact [5] - Organic revenue growth for the quarter was $27 million or 9% [5] - Consolidated operating income was $39.5 million, up $5.2 million or 15% compared to last year [5] - Consolidated adjusted EBITDA for the quarter was $53.5 million, up $6.1 million or 13% year-over-year, with a margin of 15.4% compared to 15.9% last year [5] - Net income for the quarter was $31.8 million, an increase of $2.6 million or 9% from last year, equating to GAAP EPS of $0.52 per share, up 11% [5][6] - Adjusted EPS for the quarter was $0.53, an improvement of $0.05 or 10% compared to last year [6] - Order intake for the quarter was $382 million, representing an increase of $32 million or 9% compared to Q3 last year [6] - Consolidated backlog at the end of the quarter reached a record $824 million, an increase of $337 million or 69% from last year [6] Business Line Data and Key Metrics Changes - Environmental Solutions Group (ESG) net sales were $285 million, an increase of $36 million or 14% year-over-year [7] - ESG's operating income was $33.9 million, up $3.1 million or 10% compared to last year [7] - ESG's adjusted EBITDA was $46.5 million, up $3.8 million or 9% year-over-year, with an adjusted EBITDA margin of 16.3% compared to 17.1% last year [7] - Safety and Security Systems Group (SSG) net sales were $62 million, up $12 million or 25% year-over-year [7] - SSG's operating income was $10.5 million, up $2.9 million or 38% from last year [7] - SSG's adjusted EBITDA was $11.5 million, up $3 million or 35% year-over-year, with an adjusted EBITDA margin of 18.7%, up 140 basis points from Q3 last year [7][8] Market Data and Key Metrics Changes - U.S. municipal orders were up 20% for both the quarter and year-to-date, with strong demand for street sweepers and sewer cleaners [21] - Domestic municipal demand within SSG saw a 9% order improvement year-to-date [21] - Industrial end markets experienced a 15% year-over-year improvement in domestic orders [22] - The infrastructure bill, with $550 billion for new investments, is expected to drive demand for equipment inquiries from contractors [24][30] Company Strategy and Development Direction - The company is focused on organic growth initiatives and strategic acquisitions, including the recent acquisition of TowHaul Corporation for $43 million [11][25] - The acquisition of TowHaul is expected to enhance the company's position in the metal extraction industry and support recurring aftermarket needs [25][26] - The company is committed to vehicle electrification initiatives and has entered into agreements with EV chassis manufacturers [32] - The company is actively pursuing M&A opportunities and has a strong pipeline for future acquisitions [31][74] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in long-term opportunities and the prospects for recent acquisitions, highlighting strong demand for products and aftermarket offerings [28][29] - Despite ongoing supply chain disruptions, the company has seen improvements in production levels and is encouraged by recent trends [18][19] - The company raised its full-year adjusted EPS outlook to a range of $1.91 to $2, and net sales outlook to $1.41 billion to $1.44 billion [28] - Management noted that they are not currently seeing leading indicators of a recession and have not experienced meaningful order cancellations [31] Other Important Information - The company generated $10 million of cash from operations during the quarter, with total year-to-date operating cash generation at $32 million [10] - The company executed a new 5-year $800 million credit facility, providing greater financial flexibility [11] - The effective tax rate for the quarter was 13.4%, with expectations for a full-year effective tax rate of approximately 22% [9][60] Q&A Session Summary Question: Is the updated guidance implying a record 4Q revenue performance? - Management indicated that the combination of backlog size and recent production improvements gives confidence for revenue to be up over Q3 [40][41] Question: How much of the ESG backlog is shippable in 2023? - Management confirmed that all of the $765 million ESG backlog is shippable in 2023 [44][45] Question: Can you quantify how much revenue disruptions cost in ESG? - Management estimated that disruptions cost around $20 million in revenue, but noted it was difficult to pinpoint an exact number [66][68] Question: What are the lead times for products now compared to normal times? - Management acknowledged that lead times are currently too long but are focused on reducing them moving forward [76] Question: How does the rising interest rate environment impact customer purchases? - Management believes that municipal purchases will not be significantly impacted, while the aftermarket business provides rental options for industrial customers [77]