Title

Presentation

Federal Signal Corporation beats earnings expectations. Reported EPS is $0.76, expectations were $0.73.

Operator: Greetings and welcome to the Federal Signal Corporation First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and answer-session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Felix Boeschen, Vice President of Corporate Strategy and Investor Relations. Thank you, sir. You may begin.

Felix Boeschen: Good morning and welcome to Federal Signal’s first quarter 2025 conference call. I’m Felix Boeschen, the company’s Vice President of Corporate Strategy and Investor Relations. Also with me on the call today is Jennifer Sherman, our President and Chief Executive Officer; and Ian Hudson, our Chief Financial Officer. We will refer to some presentation slides today as well as to the earnings release, which we issued this morning. The slides can be followed online by going to our website, federalsignal.com, clicking on the Investor Call icon and signing into the webcast. We have also posted the slide presentation and the earnings release under the Investor tab on our website. Before I turn the call over to Ian, I’d like to remind you that some of our comments made today may contain forward-looking statements that are subject to the Safe Harbor language found in today’s news release and in Federal Signal’s filings with the Securities and Exchange Commission.

These documents are available on our website. Our presentation also contains some measures that are not in accordance with US Generally Accepted Accounting Principles. In our earnings release and filings, we reconcile these non-GAAP measures to GAAP measures. In addition, we will file our Form 10-Q later today. Ian start today with more detail on our first quarter financial results. Jennifer will then provide her perspective on our performance and go over our revised outlook for 2025 before we open the line for any questions. With that, I would now like to turn the call over to Ian.

Ian 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 9% year-over-year net sales growth, double-digit operating income improvement, gross margin expansion, a 170 basis point improvement in adjusted EBITDA margin and new records in orders and backlog. Consolidated net sales for the quarter were $464 million up $39 million or 9% compared to last year. Organic sales growth for the quarter was $28 million or 7%. Consolidated operating income for the quarter was $65.7 million up $11.4 million or 21% compared to last year. Consolidated adjusted EBITDA for the quarter was $85.1 million up $14.5 million or 21% compared to last year.

That translates to a margin of 18.3% in Q1 this year, up from 16.6% last year. GAAP diluted EPS for the quarter was $0.75 per share compared to $0.84 per share in Q1 last year. On an adjusted basis, EPS for the quarter was $0.76 per share, an increase of $0.12 per share or 19% from last year. Order intake for the first quarter set a new company record, surpassing the previous high, which was set in Q1 last year. In total, orders in Q1 this year were $568 million an increase of $65 million or 13% compared to last year. Backlog at the end of the quarter was $1.1 billion another all-time high for the company and an increase of $3 million compared to Q1 last year. In terms of our group results, ESG’s net sales for the quarter were $387 million up $33 million or 9% compared to last year.

ESG’s operating income for the quarter was $59.7 million up $8 million or 15% compared to last year. ESG’s adjusted EBITDA for the quarter was $77.5 million up $11 million or 17% compared to last year. That translates to an adjusted EBITDA margin for the quarter of 20%, an improvement of 120 basis points compared to last year. ESG reported total orders of $480 million in Q1 this year, an increase of $52 million or 12% compared to last year. SSG’s net sales for the quarter was $76 million this year, up $6 million or 8%. SSG’s operating income for the quarter was $15.8 million up $2 million or 14% compared to last year. SSG’s adjusted EBITDA for the quarter was $16.8 million up $2 million or 14%. That translates to an adjusted EBITDA margin for the quarter of 22% up 110 basis points compared to last year.

SSG’s orders for the quarter were $88 million up $13 million or 17% from last year. Corporate operating expenses for the quarter were $9.8 million compared to $11.2 million last year with a decrease primarily due to lower post-retirement and stock compensation expenses, partially offset by the non-recurrence of a $1.8 million benefit from an insurance recovery that was recognized in Q1 last year. Turning now to the consolidated income statement, where the increase in net sales contributed to a $14.8 million improvement in gross profit. Consolidated gross margin for the quarter was 28.2%, a 90 basis point increase over last year. As a percentage of net sales, our selling, engineering, general and administrative expenses for the quarter were down 50 basis points from Q1 last year.

Other items affecting the quarterly results include a $700, 000 increase in amortization expense, a $300,000 reduction in acquisition related expenses, a $500,000 increase in other expense and a $200,000 reduction in interest expense. Tax expense for the quarter was $15.7 million compared to a benefit of $700,000 in Q1 last year with the increase primarily due to the effects of higher pretax income levels and the non-recurrence of a $13 million discrete tax benefit, which was recognized in the prior year quarter. Our effective tax rate for Q1 this year was 25.3%. At this time, we continue to expect that our full year effective tax rate will be between 25% and 26% excluding discrete tax benefits. On an overall GAAP basis, we therefore earned $0.75 per share in Q1 this year compared with $0.84 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 year quarters. In the current year quarter, we made adjustments to GAAP earnings per share to exclude acquisition related expenses and purchase accounting expense effects, whereas in Q1 last year, we also excluded the $13 million discrete tax benefit that I previously mentioned. On this basis, our adjusted earnings for the quarter was $0.76 per share compared with $0.64 per share last year. Looking now at cash flow, we generated $37 million of cash from operations during the quarter, an increase of $5 million or 17% from Q1 last year. We ended the quarter with $220 million of net debt and availability under our credit facility of $509 million.

Our current net debt leverage ratio remains low even after accounting for the acquisition of HOG Technologies, which we completed during the quarter for an initial payment of approximately $82 million. With our financial position remaining strong, we have significant flexibility to invest in organic growth initiatives, pursue strategic acquisitions like HOG and return cash to stockholders through dividends and opportunistic share repurchases. On that note, we paid dividends of $8.6 million during the quarter, reflecting an increased dividend of $0.14 per share and we recently announced a similar $0.14 per share dividend for the second quarter. During the first quarter, we also repurchased approximately $20 million of stock buying back around 250,000 shares.

And so far in April, we have repurchased an additional $20 million of stock under our authorized repurchase programs. As you may have seen last week, our Board recently approved an additional stock repurchase authorization of $150 million. That concludes my comments and I would now like to turn the call over to Jennifer.

Jennifer Sherman: Thank you, Ian. Our first quarter performance represents a strong start to 2025 inclusive of first quarter records across consolidated net sales, adjusted EPS and adjusted EBITDA margin, thanks to the outstanding contributions from both of our groups. Within our Environmental Solutions Group, we delivered 9% year-over-year net sales growth and a 17% increase in adjusted EBITDA with higher production levels, growth in sales of our aftermarket offerings, proactive management of price cost dynamics and contributions from recent acquisitions representing meaningful year-over-year contributors. In what is typically a seasonally softer quarter, ESG’s adjusted EBITDA margins expanded by 120 basis points year-over-year to approximately 20%, representing a new first quarter record and performance within the upper half of our current margin target range.

On the back of our strong backlog and continued healthy order levels, our teams remain focused on building more trucks across our family of specialty vehicle businesses. As such, combined first quarter production at our two largest ESG facilities rose double-digits year-over-year. From a capacity perspective, our access to labor remains good, supply chain fluidity and supply chain consistency has improved materially and our large scale capacity expansions that we completed between 2019 and 2022 position us well to profitably absorb incremental volumes into our existing footprint. Additionally, we’ve made important investments at our Elgin Street Sweeper plant inclusive of several management hires, expansion of our hourly workforce and continued optimization of our fabrication processes.

With these investments, we are confident that we can meet structurally higher demand requirements on the back of market share gains. Shifting to aftermarket. Demand for our aftermarket products and services remains high as revenues grew 11% year-over-year. Given strong rental utilization levels, our teams are diligently managing between ensuring sufficient rental equipment availability and used equipment sales to best serve our customers’ needs. In the quarter, both rental revenue and used equipment sales grew double-digits year-over-year. In the aggregate, aftermarket represented approximately 26% of ESG revenue in Q1 this year. I’m particularly encouraged by the progress we’ve made on our various strategic initiatives in the quarter aimed at expanding our market share, some of which I will address throughout the call.

As a reminder, through cycles, we target annual double-digit top line growth split roughly evenly between inorganic and organic growth. Execution on our strategic initiatives is an important component of that long-term growth algorithm as we look to drive organic growth in excess of end market growth rates. In the quarter, we reported double-digit organic growth in net sales of road-marking equipment and dump bodies driven by healthy end market demand, continued market share expansion efforts and our reputation for high quality products. In particular, our Ox bodies business with its primary manufacturing facility in Alabama continues to expand its geographic reach into key Southeastern markets such as Texas and Florida enabling strong market share expansion runway in critical markets with additional opportunities available going forward.

Further, our most recent acquisitions also contributed positively to top line results with Standard adding approximately $6 million of incremental net sales in the quarter and HOG contributing around $5 million of net sales and a little over six weeks post-acquisition. On a full year basis, we continue to expect that HOG will contribute net sales of between $50 million and $55 million in 2025. Shifting to our Safety and Security Systems group, the team delivered another outstanding quarter with 8% top line growth, a 14% increase in adjusted EBITDA and a 110 basis point improvement in adjusted EBITDA margin. This improvement was primarily driven by a combination of volume increases and favorable sales mix. Within our SSG Group, our public safety business led the charge in form of 13% revenue growth with strong margin expansion as the team continues to execute on an active pipeline of opportunities within police end markets.

Lastly, we had another strong quarter of cash generation with $37 million of cash generated from operations, up 17% over the prior year. As a reminder, on a full year basis, we target 100% cash conversion on a net income basis. Shifting now to current market conditions. Demand for our products and aftermarket offerings remain strong with our first quarter order intake of $568 million representing a 13% year-over-year increase and the highest ever quarterly order intake on record for Federal Signal. The addition of HOG’s backlog contributed approximately $21 million of orders in the quarter. As such, excluding the impact of HOG’s acquired backlog, orders increased 9% year-over-year. A record backlog at the end of the quarter provides excellent visibility for the remainder of the year and for certain key product lines into the first half of 2026.

Within our end markets, publicly funded orders increased high-single-digits year-over-year led by strength in domestic street sweepers and public safety equipment primarily within our North American police business. Industrial orders rose double-digits led by strength in demand for dump truck bodies, safe-digging trucks and road-marking equipment as our teams continue to execute on several important strategic market share initiatives. As an example, within our dump truck body business, more than 75% of the revenue growth in the quarter was derived from conquest customers representing meaningful market share gains. This success has been a direct result of our strategic initiatives, beginning with our 80-20 processes aimed at rationalizing our product offerings, which has set the foundation to allow our business to expand geographically, while commanding industry leading lead times.

This lead time advantage is an important competitive differentiator in the marketplace as it significantly decreases working capital cost for our distribution partners. Looking ahead, we are excited about future geographic white space opportunities within our dump truck body businesses and we are executing on various cross-selling initiatives across the enterprise such as driving higher municipal customer penetration. Lastly, our SSG team had a record order intake of $88 million in the quarter, up 17% compared to prior year as we continue to gain traction across our various market share initiatives within the police market. As an example, within North America, we continue to make progress expanding our share with the existing customers as we secured an order from a large strategic customer in the quarter that is expected to ship later this year.

We are also seeing incremental opportunities to gain share across several US state agencies amidst an ever increasing need to keep our communities and law enforcement personnel safe. Similarly, our European public safety business VAMA secured a strategic contract win in France underpinning our future growth ambitions in Europe in this arena. In short, demand for our products and services remain strong. Our teams are focused on reducing lead times for certain product categories, while maintaining a healthy order intake. I now want to take a moment to expand on our various internal initiatives, many of which form the foundation through which we believe we can outgrow our end markets through cycles. Firstly, I want to address the current macroeconomic environment and how we are positioning Federal Signal in light of the recently announced global tariffs.

From a high level perspective, our strategy remains largely unchanged. The vast majority of our supply chains are localized to the regions and countries in which we sell our equipment, which results in us sourcing more than 95% of our direct supplies from North America, the majority of which are from the United States. Going forward, we want to continue our strategy of producing in country for country and are proud of our domestic manufacturing operations in the United States, Canada and Europe. As such, we estimate that supplies directly sourced from China comprise less than 1% of our annual cost of sales. In fact, insourcing certain componentry out of Asia has been an important strategic lever within our SSG business for several years. Since 2022, we have invested several million dollars in three printed circuit board manufacturing lines at our University Park facility in Illinois.

These additions have not only reduced our reliance on offshore Asian suppliers, but have also expanded our available capacity, while further increasing the quality of our products and realizing important cost savings. Given the recently announced tariffs, we are currently accelerating several other insourcing activities at SSG, including the addition of a fourth printed circuit board manufacturing line. While it is more difficult to quantify the exact indirect exposure resulting from tariffs, I would note that chassis costs have historically been treated as a pass-through item for many of our specialty vehicle products within the ESG Group. As such, we would expect that any potential resulting changes in the price of chassis would be directly passed on to the end customer.

In addition, similar to the post-COVID inflationary period, we will look to strategically optimize our supply chains and continue to proactively manage price cost dynamics where necessary. Moreover, with 18 principal manufacturing facilities in United States and three in Canada, we have ample flexibility to strategically shift North American production as needed should the tariff environment change. Finally, from an underlying demand standpoint, we have seen no material changes in customer behavior in response to the announced tariffs thus far. We are also encouraged by the progress we are making on several important new product development projects across the enterprise that we are starting to accelerate as supply chains have stabilized. One of our core competitive advantages within the ESG Group is the scale and power of our specialty vehicle platform spanning several operational categories such as sourcing, supply chain optimization, our Federal Signal operational system, sales channel alignment, dealer development, aftermarket support, data analytics and new product development.

As part of our growing specialty vehicle platform, we’ve established a centralized new product development group supporting our various business units led by our Chief Technology Officer. In the long-term, we believe the centralized approach for certain new product development initiatives will drive important scale advantages and ultimately support above market growth rates. One such example is the recent launch of our simplified control systems across many ESG vehicle categories. Originally launched in our Vactor vacuum truck business and currently being rolled out across our dump truck businesses, our new control system simplify ease of use and are aimed at alleviating one of our customers’ greatest challenges at the moment, qualified labor availability.

We are also excited about the progress we are seeing for adoption of two NPD initiatives, both of which are creating meaningful market share opportunities. Within our street sweeper business, we previously launched the RegenX product, a mid-dump regenerative air sweeper. This product enables us to strategically expand share in the historically underserved air sweeper market for Elgin and so far we have received outstanding customer interest. We are currently in the process of structurally raising our production capabilities to accommodate our expansion into this subset of the street sweeper market. In the fourth quarter of 2024, our SSG Group launched its Pathfinder Perimeter Breach Warning System, a patented system that enhances police officer safety by providing increased situational awareness and alerting law enforcement personnel of a threat within a 25 foot radius around the police car.

When activated, the Perimeter Breach Warning System signals the officer audibly and visually to allow for sufficient reaction time. Initial interest in the product has been very strong and we see this innovation not only as market share additive within our public safety business, but we also see an opportunity to increase overall Federal Signal content per police car sold. Finally, we are pleased to announce that we have transitioned to multi-state territory within our exclusive dealer channel to five selected dealer partners with a combined 250 years of experience representing Federal Signal products. As a reminder, our exclusive dealer channel primarily serves certain municipal product lines including sewer cleaners, street sweepers and multipurpose maintenance vehicle and accounts for approximately 36% of total sales net sales.

Turning now to our outlook for the remainder of 2025. Despite current global macroeconomic uncertainty, our record backlog provides us with visibility to the rest of the year and with our predominantly North American centric supply base and continued execution against our strategic and operational initiatives, we are raising our full year adjusted EPS outlook to a new range of $3.63 to $3.90 from the prior range of $3.60 to $3.90. At the midpoint, this revised guidance represents another year of double-digit growth and the highest adjusted EPS level in the company’s history. Additionally, we are reaffirming our net sales outlook of between $2.02 billion and $2.1 billion. We are also reaffirming our expectations for double-digit improvement in pre-tax earnings and EBITDA margin performance in the upper half of our target range.

This updated outlook assumes that the current trade agreements and recently announced tariff policies remain in place. Lastly, we are reaffirming our CapEx guidance of between $40 million and $50 million for the year. With that, we are ready to open the line for questions. Operator?

Operator: Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Steve Barger with KeyBanc Capital Markets. Please proceed with your question.

Jennifer Sherman: Good morning, Steve.

Jacob Moore: Hi. Good morning. This is actually Jacob Moore on for Steve today. Thank you for taking our questions.

Jennifer Sherman: Absolutely.

Jacob Moore: First for me, I just wanted to ask about lead times compared to three months ago or maybe a year ago and how that relates to open capacity? I mean, the big backlog is great for visibility, but it sounds like you’re working rather hard to deliver more to your customers. I’m trying to get a sense for a potential need for you to invest in additional capacity from here versus how much capacity you still have that just needs to be unlocked?

Jennifer Sherman: Sure. So let’s talk. We’ll start with the capacity question. Across the enterprise, we’re running between 70% and 72% capacity. So we think we have plenty of capacity at our existing facilities to support the increased production going forward. I’ll start there. We also have opportunities within our service centers where we can build trucks. A good example of that would be that currently we’re building Guzzler trucks in, Leeds, Alabama. With respect to lead times, I’m pleased to report about the progress we’ve made, particularly with our three-wheel street sweeper. And that lead time right now is running at about six months, which is where we’d like it. That was the project that we referenced last year, where we started with respect to our throughput improvement initiatives at Elgin to support our strategic growth initiatives.

And we’re working diligently also on our four-wheel line to reduce those lead times. So as we talked about, production was up at our two largest facilities within our ESG group in Q1. And overall, we are pleased with the progress that we’re making.

Ian Hudson: Yes. And Jacob just as it relates to kind of the investments, we continue to make investments in a number of our businesses. Certainly, nothing to the level that we have over the last couple of years. About 50% of that CapEx guide that Jennifer referenced earlier on the call, that $40 million to $50 million about half of that is growth investments. The rest would be maintenance. As an example, we’ve made some investments in adding capacity within our water blasting business as well as our mineral extraction business as we see kind of some nice potential on the mineral extraction side. So we’ve made some investments, but it’s certainly not to the level that we had when we did the large expansion of our Streator facility, for example. So that’s all factored into that $40 million to $50 million CapEx guide.

Jacob Moore: Okay, great. That’s really great color. As my follow-up, I just wanted to ask about what you’re seeing in the backlog as it relates to the cadence for the rest of the year. Is there anything in there that would indicate lumpiness in a particular quarter for either sales or margin?

Jennifer Sherman: Nothing stands out.

Ian Hudson: Yes. I mean, the one thing, Jacob, just as Jennifer alluded to it, the backlog gives us good visibility to the rest of 2025. And for certain key product lines, it stretches into the first half of 2026. So from a cadence standpoint, there’s a portion of the backlog that stretches into 2026.

Jacob Moore: Understood. Thank you very much.

Jennifer Sherman: Thank you.

Operator: Our next question comes from Ross Sparenblek with William Blair. Please proceed with your question.

Jennifer Sherman: Good morning, Ross.

Sam Karlov: Good morning, Jennifer. This is Sam Karlov on for Ross. Thanks for taking my questions.

Jennifer Sherman: Hi, Sam.

Sam Karlov: Can you give us a sense of how April ESG orders have trended? I know you touched on this in your prepared remarks, but I just wanted to confirm that the first quarter strength in ESG orders was not a pull forward of demand ahead of tariff impacts on chassis?

Jennifer Sherman: Yes. So, I’ll start with a couple of things. Given our backlogs for certain products, particularly sewer cleaners and certain street sweepers that stretch into ’26, it would be difficult to kind of pull forward to avoid tariffs, particularly with our ability to surcharge backlogs if we would need to. The second thing is just I would point you again to the strength of the orders across the board. Again, our publicly funded orders increased high-single-digits, industrial orders increased double-digits year-over-year. And again, it wasn’t any one particular business. For example, on the industrial side, we saw strength in dump truck body orders, safe-digging trucks and road-marking equipment. I guess I also want to emphasize, we spent some time on the call talking about the success that we’ve had regarding execution on our strategic initiatives around gaining additional market share.

We’re really encouraged by the results that we saw for example at our dump truck body business where over 75% of the growth in net sales was from conquest customers. And overall, we just haven’t seen any kind of fundamental change in the underlying demand, in our end markets, our products.

Sam Karlov: Got it. That’s what we figured, but that’s helpful. And then just quick follow-up, on that dealer reassignment, that $13 million of orders that were kind of pushed out in the fourth quarter, were those all recaptured in the first quarter or some of those expected to come later in the year?

Ian Hudson: Yes, there was some as it relates to the transition, there was some of the dealers placed orders. That was so but it wasn’t a meaningful driver of the growth that we saw year-over-year.

Sam Karlov: Got it. I appreciate the color. Thanks, guys.

Operator: Our next question comes from Tim Thein with Raymond James. Please proceed with your question.

Jennifer Sherman: Good morning.

Tim Thein: Good morning. The first question maybe for Ian was just on the ESG margins. Obviously, the aftermarket growth that you realized was certainly helpful and supportive. But I’m just curious if there’s anything else that we should be mindful of in what is normally a seasonally softer quarter from a margin perspective. Was there anything in terms of like maybe accelerated product shipments or any kind of mix benefit or along those lines that may have taken some, maybe pulled forward into the quarter? I’m just trying to think as to how we should be thinking about the balance of the year.

Ian Hudson: Yes. Nothing particularly unusual, Tim. I think you referenced in your question the fact that Q1 is typically on the softer side because of the aftermarket business typically is lower in Q1 than in subsequent quarters as the weather improved as more projects. So that has some benefits to the rentals parts and service business. The other thing that we’ve talked about and Jennifer talked about the production increases at Vactor and Elgin. That has some operating leverage as we ramp up production and actually leverage the capacity we’ve added the last couple of years. So as we ramp up production that has an impact and was one of the drivers of the year-over-year margin improvement. We would expect that to continue as we move forward and we continue to make progress with increasing production and trying to reduce those lead times.

But there was nothing really unique or unusual in the quarter as it relates to ESG margins other than the continued progress on production and just the seasonality of Q1. Beside that nothing unusual.

Jennifer Sherman: Yes. I think I’d add to that. We continue to see further margin expansion opportunities through execution on strategic initiatives going forward.

Tim Thein: Okay, helpful. And then just on the industrial orders, I think in a quarter that the government is telling us where GDP is going backwards and all these kind of cautious comments from pretty much everything across industrial land. Then you see your order is up double-digits and I think it’s everyone’s kind of trying to understand what’s underneath some of this. But specifically, within that dump truck business, not one you’ve had for super long. And so I’m just curious how that behaves in a normal cycle, I guess, what we’re in now is at all normal. But I’m just trying to understand, if we’ve heard from several of the OEMs talking about them, taking their build rates down on the chassis side. I know that that’s not going to perfectly marry up with your business, but it’s become a sizable piece. So maybe just a minute or so in terms of what you’re seeing within that business. Thank you.

Jennifer Sherman: Sure. So kind of dissecting that, I’ll start with the essential nature of many of the products that we manufacture, particularly road-marking and the initiatives we’ve had to gain market share. With respect to safe-digging, I referenced last year a team that we put together to examine how do we go to market and what improvements we can make with respect to both the product and go to market. And we’re tracking success on that initiative and teams are doing a really good job in terms of expanding market share and we saw success on those initiatives in Q1. To dump trucks, when we bought the dump truck business back in 2017, one of the initiatives that we had was to mute cyclicality of that business in terms of diversification of the end markets.

It was a very geographically focused set of businesses where they predominantly focused on a range of 750 miles around the plant where the trucks were manufactured. As part of our integration efforts and leveraging the power of the specialty vehicle platform, we, a couple of years ago, started initiative to expand into new territories. And we’re in the beginning innings of that initiative. I talked about on the call about the success that we’ve had in Florida and Texas. We have a number of initiatives to continue expanding both market share and diversifying the end markets for the dump truck body business.

Tim Thein: Great. Thank you.

Ian Hudson: Thanks, Tim.

Operator: Our next question comes from Chris Moore with CJS Securities. Please proceed with your question.

Christopher Moore: Hey, good morning, guys. Thanks for taking a couple.

Jennifer Sherman: Good morning, Chris.

Christopher Moore: Good morning. You guys historically have good pricing power, contractually have the right to re-price backlog. Is that something that’s happened at all? And just trying to understand the possibility of that for the balance of the year?

Jennifer Sherman: Again, let’s talk about our direct supply base. As you know 80% of our sales in United States and they’re supported by 18 manufacturing facilities. 15% of our sales, I’m talking about for ’24, are in Canada supported by three manufacturing facilities. We have a couple of percentage points in Europe supported by a manufacturing facility there. So again, our supply base is in country for country and it also gives us some flexibility there. So to-date, given that 95% of our supply base is in North America with the vast majority of that being in the US. We’re in a pretty good position with respect to the direct suppliers in results of any tariffs. With respect to chassis, that’s typically a pass-through expense and to the extent the chassis manufacturers have different surcharges, we will be passing those on to customers.

Also as we’ve talked about in previous calls, we’re also reducing the amount of chassis that we supply. And for example, in our dump truck business, we never supply the chassis. So we think we’re very well positioned, as we sit here today. And as we move forward, we’ll continue our efforts with respect to supply chain optimization and price cost optimization as needed to respond to any changes.

Christopher Moore: Got it. I appreciate it. Along those same lines, so you had talked about less than 1% sourcing from China. My understanding is that some SSG competitors source quite a bit from China. Just trying to figure out if that’s accurate and is that helping you or do you expect it to help you in the second half of the year?

Jennifer Sherman: Yes, great question. So the 1% we source from China is predominantly our SSG businesses. And if you would have gone back five, six years ago that number would have been higher. And it’s lower and continuing to decrease because of the onshoring initiatives that we have in place that we’re currently accelerating. Vis-a-vis the competition, we do believe that it gives us an advantage on the SSG side.

Christopher Moore: Perfect. And maybe just the last one. In this obviously very uncertain market, just from an M&A standpoint, curious from a valuation perspective kind of what you’re seeing out there?

Jennifer Sherman: Yes. Our pipeline continues to remain full. Again, as we’ve talked about in the past, we’ve developed a reputation as a buyer of choice. And we talk about long run double-digit revenue growth with about low-double-digit with about half of that coming from M&A and we would expect that to continue.

Christopher Moore: Sounds good. I will leave it there. Thanks guys.

Operator: Our next question comes from Michael Shlisky with D. A. Davidson. Please proceed with your question.

Linda Wiley: Hi. This is Linda Wiley on for Mike. Thank you for letting us ask questions. My first question is, what are your thoughts on your rental business in 1Q? Did it grow? And what’s your near-term outlook for that business?

Ian Hudson: Yes. So the rental business grew. It was part of the aftermarket business that was up 11%. The rental income was up double-digits year-over-year. It continues to be a very important strategic initiative for us and not just the pure rental, but that used equipment sale is key. It gets us access to different customers at different price points. So that’s a very important strategic initiative of ours. In addition to the rental income being up double-digit, used equipment sales were also up double-digits. So that’s an important tool to have in our toolboxes within the situation we have with sewer cleaners and sweepers with the long lead times. Having the ability to rent or to sell used equipment to those customers is important.

Jennifer Sherman: Yes. And I’ll add. As we continue to execute on our new product development initiatives, the rental fleet also provides an opportunity for us to accelerate adoption of some of those new product development features or functionality that we’re introducing to the market.

Linda Wiley: Got it. And then I’ll double click on the questions. The others asked about backlog and pricing. Did you get a sense that there was a pull forward of demand from folks looking to get in front of price increases from tariffs? And then I also wanted to check seeing higher costs from tariffs, what is your ability to go back and raise prices on orders already in backlog? Any color there will be helpful.

Jennifer Sherman: Sure. No, we did not get any sense that there was a pull forward with respect to tariffs. And backlogs are relevant for a little bit more than 50% of our business. And given that our lead times for certain products stretch into ’26, it’d be hard to jump ahead of those particular tariffs. If in fact, the tariffs did impact our products going forward, we would have the ability to surcharge the backlog. The other thing I would add, one of the things that we closely look at is where did the order strength come from. And in this quarter, the order strength was really across the board, publicly funded orders increased high-single-digits and then industrial orders increased double-digits. And again it was strengthened dump truck bodies, safe-digging trucks and road-marking equipment. So we look what product lines are driving those increases in orders and we’re pleased that we saw strength across the board.

Linda Wiley: I see. And then I’ll squeeze in one more. Could you give us any update on integrating HOG into MRL and the rest of their road- marking business?

Jennifer Sherman: Yes, absolutely. We owned it for a little bit over six weeks in Q1. We have a team led by Mark Weber, our Chief Operating Officer, that is leading that integration. We had a corporate team that was assigned to the HOG operations who was in Stuart. Several of us attended their large trade show, which fell shortly after closing the ATSSA show in Orlando, very positive reception by the customers. And we’re pleased with the progress that we’re seeing thus far on the integration side.

Linda Wiley: Thank you. I appreciate the time this morning.

Jennifer Sherman: Thank you.

Operator: Our next question comes from Greg Burns with Sidoti & Co. Please proceed with your question.

Gregory Burns: Good morning.

Jennifer Sherman: Good morning, Greg.

Gregory Burns: When we look at the demand you’re seeing on the industrial side of the business, you didn’t mention the infrastructure bill, but I just wanted to kind of circle back on that and see where we are in terms of the benefit that you might derive from the spending there on those projects and maybe what inning we’re in in terms of your ability to monetize that demand?

Jennifer Sherman: Sure. So less than 20% of the funds have actually been spent, less than 50% has been obligated and another 70% has been announced. We believe that we’ll see benefits with respect to a number of our vehicle businesses, specifically dump trucks, safe-digging, and road-marking. To-date, it has been nominal, given the dollars that have been spent. We think that we’ve seen nominal benefits on the dump truck side. Really the benefits the increase in orders on dump trucks, we’ve been able to tie back to our market share expansion efforts and our conquest account efforts. So we’re going to continue to monitor this going forward and we think it creates opportunities over a multiyear period.

Gregory Burns: Okay, great. Thanks. And then when you look at your aftermarket business in terms of maybe your need to invest in that fleet, where do you stand there? And is there a chance maybe you at some point prioritize maybe some of your own production? I know in the past maybe there’s been some quarters where that’s created a little bit of a revenue headwind. I just wanted to get a feel if that might be something you consider for this year.

Ian Hudson: Yes. It’s something, Greg, that we monitor very closely. And every month, we have a meeting with the team to track by product, by geography. We look at utilization, both time and financial. We also track used equipment sales. We track the number of turndowns. And I think we have invested in the fleet. Q1, I think, we’ve mentioned that it’s typically a period that we would use some of our production to add units to the fleet essentially because you want them to be added to the fleet in kind of the April, May timeframe getting ready for kind of the season as the weather improves certainly in the Northern parts of the US and in Canada. I think what we what it gives us is it gives us some flexibility on the production side.

If we see the need to add units to the fleet, we can. And if we see things slow down, we can adjust the production schedules accordingly. But it’s something we monitor closely and we balance the production levels at the factories accordingly.

Gregory Burns: All right. Thank you.

Operator: There are no further questions at this time. I would now like to turn the floor back over to Jennifer Sherman for closing comments.

Jennifer Sherman: In closing, I would like to reiterate that we are confident in the long-term prospects for our businesses and our markets. We remain focused on executing against our strategic framework and managing through the current macroeconomic uncertainty. 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’ll talk to you soon.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.