Federal Signal Q Earnings Call August 8, 2017

Transcription

1 Federal Signal Q Earnings Call August 8, 2017 Jennifer Sherman, President & Chief Executive Officer Ian Hudson, VP, Interim Chief Financial Officer

2 Safe Harbor This presentation contains unaudited financial information and various forward-looking statements as of the date hereof and we undertake no obligation to update these forwardlooking statements regardless of new developments or otherwise. Statements in this presentation that are not historical are forward-looking statements. Such statements are subject to various risks and uncertainties that could cause actual results to vary materially from those stated. Such risks and uncertainties include but are not limited to: economic conditions in various regions, product and price competition, supplier and raw material prices, risks associated with acquisitions such as integration of operations and achieving anticipated revenue and cost benefits, foreign currency exchange rate changes, interest rate changes, increased legal expenses and litigation results, legal and regulatory developments and other risks and uncertainties described in filings with the Securities and Exchange Commission. This presentation also contains references to certain non-gaap financial information. Such items are reconciled herein and in our earnings news release provided as of the date of this presentation. 2

3 Q2 Highlights * Net sales of $224.4 M, up $52 M, or 30% Operating income of $18.7 M, up $4.4 M, or 31% Operating margin of 8.3% Adjusted EBITDA of $28.9 M, up $9.5 M, or 49% ESG up $10.8 M, or 58% SSG down $1.0 M to $6.7 M Adjusted EBITDA margin of 12.9%, compared to 11.3% GAAP EPS of $0.19, up $0.04, or 27% Adjusted EPS of $0.23, up $0.06, or 35% Orders of $271 M, up $84 M, or 45% Organic order growth of $27 M, or 19% Backlog of $223 M vs. $150 M and vs. $174 M at 3/31/17 Completed acquisition of Truck Bodies and Equipment International ( TBEI ) in Q2 * Comparisons versus Q2 of 2016, unless otherwise noted 3

4 Group and Corporate Results $ millions, except % Q Q % Change ESG Orders % Sales % Operating income % Operating margin 12.0% 12.5% Adjusted EBITDA % Adjusted EBITDA margin 16.8% 15.5% SSG Orders % Sales % Operating income % Operating margin 11.2% 12.5% Adjusted EBITDA % Adjusted EBITDA margin 13.4% 14.6% Corporate expenses % Consolidated Orders % Sales % Operating income % Operating margin 8.3% 8.3% Adjusted EBITDA % Adjusted EBITDA margin 12.9% 11.3% 4

5 Income from Continuing Operations $ millions, except % and per share Q Q $ Change % Change Net sales % Gross profit % SEG&A expenses % Acquisition and integration-related expenses % Restructuring NM Operating income % Interest expense % Other income, net (0.2) (0.3) % Income tax expense % Income from continuing operations % Diluted earnings per share from continuing operations $0.19 $0.15 $ % Diluted adjusted earnings per share from continuing operations $0.23 $0.17 $ % Gross Margin 24.4% 26.1% Effective tax rate 34.7% 33.8% 5

6 Adjusted Earnings per Share ($ in millions) Three Months Ended June 30, Six Months Ended June 30, Income from continuing operations $ 11.5 $ 9.4 $ 18.7 $ 19.8 Add: Income tax expense Income before income taxes Add: Restructuring Executive severance costs Acquisition and integration-related expenses Purchase accounting effects (1) Debt settlement charges Adjusted income before income taxes Adjusted income tax expense (2) (7.4) (5.0) (11.9) (11.5) Adjusted net income from continuing operations $ 13.8 $ 10.1 $ 22.3 $ 21.7 Diluted EPS from continuing operations $ 0.19 $ 0.15 $ 0.31 $ 0.32 Adjusted diluted EPS from continuing operations $ 0.23 $ 0.17 $ 0.37 $ 0.35 (1) Purchase accounting effects relate to adjustments to exclude the step-up in the valuation of equipment acquired in connection with current and prior-year acquisitions that was sold subsequent to the acquisition dates in the three and six months ended June 30, 2017 and 2016, as well as to exclude the depreciation of the step-up in the valuation of the rental fleet acquired in the JJE transaction. (2) Adjusted income tax expense for the three and six months ended June 30, 2017 and 2016 was recomputed after excluding the impact of restructuring activity, executive severance costs, acquisition and integration-related expenses, purchase accounting effects and debt settlement charges, where applicable. 6

7 Financial Strength and Flexibility * Generated $32 M of cash from continuing operations, compared to ~$11 M YTD cash from operations of $46 M, up $42 M from first half of 2016 Completed acquisition of TBEI in Q2 for initial purchase price of $271.8 M $243 M of purchase price funded through borrowings against revolver, with remainder through cash $20 M of debt paid down post-acquisition Executed interest rate swap in Q2 to fix rate on $150 M of variable-rate debt $289 M of debt outstanding; $37 M of cash Net debt of $252 M ** Debt leverage ratio at 2.4 times at end of Q2 Down from 2.7 times at TBEI acquisition date ~$93 M of availability under credit facility Paid $4.2 M for dividends; recently declared $0.07 per share dividend for Q3 $31 M remaining on share repurchase authorization (~ 3% of market capitalization) *Dollar amounts as of, or for the quarter ending 6/30/2017, unless otherwise noted ** Net debt is a non-gaap measure and is computed as total debt of $289 M, less total cash and cash equivalents of $37 M 7

8 CEO Remarks Outstanding Q2 with significant improvement in orders, sales, earnings and cash flow Continued momentum in legacy businesses with organic orders up 20% Positive trends in industrial markets Progress being made to diversify end markets by expanding into new markets, such as utility Significant increases in orders for sewer cleaners and vacuum trucks, associated with replenishment of customer rental fleets Reduction in used equipment in end markets Municipal markets remain steady, overall Strong demand for sewer cleaners Some recent deferrals of orders that were expected in 2017 TBEI acquisition update Strong performance from TBEI in first month post-acquisition Monitoring chassis availability at certain locations Planned investments as part of ongoing integration efforts 8

9 EBITDA Margin Targets Establishing EBITDA margin targets: ESG: 15% - 18% SSG: 15% - 17% Consolidated: 12% - 16% Underlying assumptions: Absence of extraordinary factors affecting demand from end-markets No unusual hearing loss litigation expenses Historical EBITDA margins and targets place Federal Signal in the top tier of its peer group of specialty vehicle manufacturers 9

10 Raising 2017 Outlook Raising Adjusted EPS Outlook from a range of $0.70 to $0.78, to a new range of $0.77 to $0.80 Prior Guidance $0.70 $0.78 New Guidance $0.77 $0.80 Factors Incorporated into New Outlook Range: Post-acquisition earnings contribution from TBEI Strong backlog for sewer cleaners and vacuum trucks entering the second half of 2017 Decrease in amount of used equipment in end markets contributing to increased demand from customers replenishing rental fleets Continued momentum with initiative to expand into utility end-markets TBEI purchase price allocation is still preliminary Monitoring chassis availability at TBEI Deferral of expected orders from certain municipalities Incremental expense expected in integration efforts Increase in Illinois state tax rate 10

11 Federal Signal Q Earnings Call Q&A August 8, 2017 Jennifer Sherman, President & Chief Executive Officer Ian Hudson, VP, Interim Chief Financial Officer 11

12 Investor Information Stock Ticker - NYSE:FSS Company website: federalsignal.com/investors HEADQUARTERS 1415 West 22 nd Street, Suite 1100 Oak Brook, IL INVESTOR RELATIONS CONTACTS Ian Hudson VP, Interim Chief Financial Officer IHudson@federalsignal.com Svetlana Vinokur VP, Treasurer and Corporate Development SVinokur@federalsignal.com 12

13 Federal Signal Q Earnings Call Appendix 13

14 Consolidated Adjusted EBITDA Consolidated $ millions, except % Q Q Income from continuing operations $ 11.5 $ 9.4 Add: Interest expense Acquisition and integration-related expenses Purchase accounting effects Other income, net (0.2) (0.3) Income tax expense Depreciation and amortization Restructuring Consolidated adjusted EBITDA $ 28.9 $ 19.4 Net Sales $ $ Consolidated adjusted EBITDA margin 12.9% 11.3% 14

15 Segment Adjusted EBITDA ESG $ millions, except % Q Q Operating Income $ 21.0 $ 14.9 Add: Acquisition and integration-related expenses Purchase accounting effects Depreciation and amortization Adjusted EBITDA $ 29.3 $ 18.5 Net Sales $ $ Adjusted EBITDA margin 16.8% 15.5% SSG $ millions, except % Q Q Operating Income $ 5.6 $ 6.6 Add: Depreciation and amortization Restructuring Adjusted EBITDA $ 6.7 $ 7.7 Net Sales $ 50.1 $ 52.9 Adjusted EBITDA margin 13.4% 14.6% 15

16 Non-GAAP Measures Adjusted net income and earnings per share ( EPS ) - The Company believes that modifying its 2017 and 2016 net income and diluted EPS provides additional measures which are representative of the Company s underlying performance and improves the comparability of results across reporting periods. During the three and six months ended June 30, 2017 and 2016 adjustments were made to reported GAAP net income and diluted EPS to exclude the impact of restructuring activity, executive severance costs, acquisition and integration-related expenses, purchase accounting effects and debt settlement charges, where applicable. Adjusted EBITDA and adjusted EBITDA margin - The Company uses adjusted EBITDA and the ratio of adjusted EBITDA to net sales ("adjusted EBITDA margin"), at both the consolidated and segment level, as additional measures which are representative of its underlying performance and to improve the comparability of results across reporting periods. We believe that investors use versions of these metrics in a similar manner. For these reasons, the Company believes that adjusted EBITDA and adjusted EBITDA margin, at both the consolidated and segment level, are meaningful metrics to investors in evaluating the Company s underlying financial performance. Consolidated adjusted EBITDA is a non-gaap measure that represents the total of income from continuing operations, interest expense, debt settlement charges, acquisition and integration-related expenses, restructuring activity, executive severance costs, purchase accounting effects, other income/expense, income tax expense, and depreciation and amortization expense. Consolidated adjusted EBITDA margin is a non-gaap measure that represents the total of income from continuing operations, interest expense, debt settlement charges, acquisition and integration-related expenses, restructuring activity, executive severance costs, purchase accounting effects, other income/expense, income tax expense, and depreciation and amortization expense divided by net sales for the applicable period(s). Segment adjusted EBITDA is a non-gaap measure that represents the total of segment operating income, acquisition and integration-related expenses, restructuring activity, purchase accounting effects and depreciation and amortization expense, as applicable. Segment adjusted EBITDA margin is a non-gaap measure that represents the total of segment operating income, acquisition and integration-related expenses, restructuring activity, purchase accounting effects and depreciation and amortization expense, as applicable, divided by net sales for the applicable period(s). Segment operating income includes all revenues, costs and expenses directly related to the segment involved. In determining segment income, neither corporate nor interest expenses are included. Segment depreciation and amortization expense relates to those assets, both tangible and intangible, that are utilized by the respective segment. Other companies may use different methods to calculate adjusted EBITDA and adjusted EBITDA margin. 16

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