Federal Signal Raises Full-Year Outlook after Outstanding Second Quarter

OAK BROOK, Ill., Aug. 7, 2018 /PRNewswire/ -- Federal Signal Corporation (NYSE:FSS), a leader in environmental and safety solutions, today reported results for the second quarter ended June 30, 2018.

• Net sales of $291 million, up $67 million, or 30%, from last year, including organic growth of $27 million, or 13%
• Orders of $278 million, up $7 million from last year, including organic growth of 3%
• GAAP EPS of $0.44, up from $0.19 last year
• Adjusted EPS of $0.45, up from $0.23 last year
• Raising full-year adjusted EPS^* outlook to a range of $1.26 to $1.32, which would equate to year-over-year improvement of between 48% and 55%

Consolidated net sales for the second quarter were $291.0 million, up $66.6 million, or 30% versus the same quarter a year ago. Second quarter income from continuing operations was $26.9 million, equal to $0.44 per diluted share, compared to $11.5 million, equal to $0.19 per share, in the prior-year quarter.

The Company also reported adjusted net income from continuing operations for the second quarter of $27.5 million, equal to $0.45 per diluted share, compared to $13.8 million, or $0.23 per diluted share, in the same quarter a year ago. The Company is reporting adjusted results to facilitate comparisons of underlying performance on a year-over-year basis. A reconciliation of these and other non-GAAP measures is provided at the conclusion of this news release.

Outstanding Q2 Results Exceed Expectations; Reflect Significant Increases in Sales and Income

"With the schedule for deliveries within our backlog entering the quarter, and the effects of the extended winter season which lingered in much of North America into late March, we were anticipating a strong second quarter," commented Jennifer L. Sherman, President and Chief Executive Officer. "Our results exceeded those expectations, reflecting significant year-over-year growth in both the top and bottom line. Our 30% sales growth included the effects of continued momentum on our organic growth initiatives, like our expansion into the utility market, higher rental and aftermarket demand, and a full quarter of activity in what is typically a seasonally-strong quarter for TBEI. Our adjusted EBITDA margin of 16.4% exceeded our target range, benefiting from actions taken in response to increasing commodity costs, favorable sales mix and operational efficiencies associated with increased production levels. I was also pleased with our strong order intake, including 3% organic growth, despite the pull forward of orders noted in the previous two quarters."

In the Environmental Solutions Group, net sales were up $59.0 million, or 34%, primarily due to organic sales improvement of $19.6 million, or 13%, driven by increased shipments of vacuum trucks and street sweepers, higher rental income, improved parts sales, and $39.4 million of incremental net sales resulting from the TBEI acquisition, which was completed in June 2017. Sales in the Safety and Security Systems Group increased by $7.6 million, or 15%, primarily due to higher global sales of public safety products.

Consolidated second quarter operating income was $38.1 million, up $19.3 million, or 103%, compared to the prior-year quarter, primarily driven by a $16.2 million increase within the Environmental Solutions Group. Consolidated operating margin was 13.1%, up from 8.4% in the prior-year quarter.

Consolidated adjusted earnings before interest, tax, depreciation and amortization ("adjusted EBITDA") for the second quarter of 2018 was $47.8 million, up $18.8 million, or 65%, compared to the prior-year quarter, and consolidated adjusted EBITDA margin was 16.4%, compared to 12.9% last year.

Adjusted EBITDA in the Environmental Solutions Group was up $16.5 million, or 56%, to $45.8 million, and its adjusted EBITDA margin was 19.6%, up from 16.8% last year. Within the Safety and Security Systems Group, adjusted EBITDA was $9.2 million, compared to $6.7 million last year, and its adjusted EBITDA margin was 15.9%, compared to 13.4% last year.

Consolidated orders were $277.6 million for the second quarter of 2018, up $6.5 million, or 2%, compared to the prior-year quarter. The Environmental Solutions Group reported orders of $217.3 million, an increase of $2.6 million, or 1%, compared to the prior-year quarter, and orders within the Safety and Security Systems Group improved by $3.9 million, or 7%. Consolidated backlog at June 30, 2018 was $322 million, up $100 million, or 45%, compared to last year.

Strong Financial Position and Healthy Cash Flow Support Additional Debt Reduction and Cash Returns to Shareholders

Net cash of $27.5 million was provided by continuing operating activities in the second quarter of 2018, which facilitated additional debt repayments of $18.0 million. At June 30, 2018, consolidated debt was $248 million, total cash and cash equivalents were $36 million and the Company had $140 million of availability for borrowings under its credit facility.

"Since we completed the TBEI acquisition a little over a year ago, we have paid down approximately $61 million of borrowings, lowering our debt leverage ratio at the end of the quarter to 1.8 times adjusted EBITDA," said Sherman. "Our strong financial position allows us to continue to pursue strategic acquisitions, invest in new product development initiatives, and fund cash returns to shareholders."

The Company also funded dividends of $4.8 million during the second quarter, reflecting an increased dividend of $0.08 per share, and the Board of Directors recently declared a similar dividend that will be payable in the third quarter.

Outlook

"With our current backlog, favorable conditions in our end markets and continued traction on our organic growth initiatives, we are expecting our adjusted EPS* in the second half of 2018 to improve by 21% to 33% in comparison to the same period of last year, despite headwinds associated with increased commodity costs," Sherman noted. "With that, and the outstanding performance in the second quarter, we are raising our full-year 2018 adjusted EPS* outlook to a new range of $1.26 to $1.32, from a range of $1.15 to $1.22. That would equate to an improvement of between 48% and 55% over last year."

CONFERENCE CALL

Federal Signal will host its second quarter conference call on Tuesday, August 7, 2018 at 10:00 a.m. Eastern Time. The call will last approximately one hour. The call may be accessed over the internet through Federal Signal's website at http://www.federalsignal.com or by dialing phone number 1-800-263-0877 and entering the pin number 7938186. A replay will be available on Federal Signal's website shortly after the call.

About Federal Signal

Federal Signal Corporation (NYSE: FSS) provides products and services to protect people and our planet. Founded in 1901, Federal Signal is a leading global designer, manufacturer and supplier of products and total solutions that serve municipal, governmental, industrial and commercial customers. Headquartered in Oak Brook, Ill., with manufacturing facilities worldwide, the Company operates two groups: Environmental Solutions and Safety and Security Systems. For more information on Federal Signal, visit: http://www.federalsignal.com .

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995

This release contains unaudited financial information and various forward-looking statements as of the date hereof and we undertake no obligation to update these forward-looking statements regardless of new developments or otherwise. Statements in this release 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.

Corporate Expenses

Corporate operating expenses were $7.3 million and $7.8 million for the three months ended June 30, 2018 and 2017, respectively. For the six months ended June 30, 2018 and 2017, corporate operating expenses were $14.4 million and $13.1 million, respectively.

SEC REGULATION G NON-GAAP RECONCILIATION

The financial measures presented below are unaudited and are not in accordance with U.S. generally accepted accounting principles ("GAAP"). The non-GAAP financial information presented herein should be considered supplemental to, and not a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company has provided this supplemental information to investors, analysts, and other interested parties to enable them to perform additional analyses of operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the reconciliations below, and to provide an additional measure of performance which management considers in operating the business.

Adjusted net income and earnings per share from continuing operations ("EPS"):

The Company believes that modifying its 2018 and 2017 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, 2018 and 2017 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 hearing loss settlement charges, where applicable.

Adjusted EBITDA:

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, hearing loss 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, hearing loss 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.

Consolidated

The following table summarizes the Company's consolidated adjusted EBITDA and adjusted EBITDA margin and reconciles income from continuing operations to consolidated adjusted EBITDA for the three and six months ended June 30, 2018 and 2017:

Environmental Solutions Group

The following table summarizes the Environmental Solutions Group's adjusted EBITDA and adjusted EBITDA margin and reconciles operating income to adjusted EBITDA for the three and six months ended June 30, 2018 and 2017:

Safety and Security Systems Group

The following table summarizes the Safety and Security Systems Group's adjusted EBITDA and adjusted EBITDA margin and reconciles operating income to adjusted EBITDA for the three and six months ended June 30, 2018 and 2017:

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SOURCE Federal Signal Corporation