new federal signal q1 2017 earnings call unlinked · 2018. 4. 9. · federal signal q1 2017...

Federal Signal Q1 2017 Earnings CallApril 27, 2017

Jennifer Sherman, President & Chief Executive Officer

Ian Hudson, VP, Interim Chief Financial Officer

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 forward-

looking 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, 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.

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Q1 Highlights *

• Net sales of $178 M, up 3%

• Operating income of $11.3 M, compared to $16.1 M

� Q1 2016 benefited from entering year with a backlog which carried a higher margin

� Q1 2017 operating income is net of $2.7 M increase in depreciation expense

� Operating margin, excluding acquisition-related costs, purchase accounting expenses,

restructuring and executive severance costs, of 7.5%, down from 10.3%

• Adjusted EBITDA of $18.9 M, compared to $20.8 M

• Adjusted EBITDA margin of 10.6%, compared to 12.0%

• GAAP EPS of $0.12, compared to $0.17

• Adjusted EPS of $0.14, compared to $0.19

• Orders of $215 M, up $79 M, or 58%

� Orders up $49 M, or 30%, compared to Q4 of 2016

• Backlog of $174 M, up $37 M, or 27% from Q4 of 2016

3* Comparisons versus Q1 of 2016, unless otherwise noted

Group and Corporate Results

$ millions, except % Q1 2017 Q1 2016 % Change

ESG Orders 166.6 83.2 100%

Sales 127.8 115.4 11%

Operating income 10.3 16.5 -38%

Operating margin 8.1% 14.3%

Adjusted EBITDA 15.5 18.3 -15%

Adjusted EBITDA margin 12.1% 15.9%

SSG Orders 48.0 52.5 -9%

Sales 50.0 57.4 -13%

Operating income 6.4 4.9 31%

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Operating income 6.4 4.9 31%


Adjusted EBITDA 7.7 7.2 7%Adjusted EBITDA margin 15.4% 12.5%

Corporate expenses 5.4 5.3 2%

Consolidated Orders 214.6 135.7 58%

Sales 177.8 172.8 3%

Operating income 11.3 16.1 -30%


Adjusted EBITDA 18.9 20.8 -9%


Income from Continuing Operations

$ millions, except % and per share Q1 2017 Q1 2016 $ Change % Change

Net sales 177.8 172.8 5.0 3%

Gross profit 43.6 47.4 (3.8) -8%

SEG&A expenses 31.5 29.6 1.9 6%

Acquisition and integration-related expenses 0.5 0.5 - 0%

Restructuring 0.3 1.2 (0.9) -75%

Operating income 11.3 16.1 (4.8) -30%

Interest expense 0.6 0.4 0.2 50%

Debt settlement charges - 0.3 (0.3) NM

Other income, net (0.3) (0.7) 0.4 -57%

Income tax expense 3.8 5.7 (1.9) -33%

Income from continuing operations 7.2 10.4 (3.2) -31%

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Income from continuing operations 7.2 10.4 (3.2) -31%

Diluted earnings per share from

continuing operations $0.12 $0.17 ($0.05) -29%

Diluted adjusted earnings per share from

continuing operations $0.14 $0.19 ($0.05) -26%

Gross Margin 24.5% 27.4%

Effective tax rate 34.5% 35.4%

Adjusted Earnings per Share($ in millions)

2017 2016

Income from continuing operations 7.2$ 10.4$

Add:

Income tax expense 3.8 5.7

Income before income taxes 11.0 16.1

Add:

Restructuring 0.3 1.2

Executive severance costs 0.7 -

Acquisition and integration-related expenses 0.5 0.5

Purchase accounting effects (1) 0.5 -

Debt settlement charges - 0.3

Adjusted income before income taxes 13.0 18.1

Three Months Ended March 31,

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Adjusted income before income taxes 13.0 18.1

Adjusted income tax expense (2) (4.5) (6.4)

Adjusted net income from continuing operations 8.5$ 11.7$

Diluted EPS from continuing operations 0.12$ 0.17$

Adjusted diluted EPS from continuing operations 0.14$ 0.19$

(1) Purchase accounting effects relate to adjustments to exclude the step-up in the valuation of acquired JJE equipment that was sold

subsequent to the acquisition in the three months ended March 31, 2017, as well as to exclude the depreciation of the step-up in the

valuation of the rental fleet acquired.

(2) Adjusted income tax expense for the three months ended March 31, 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.

• Generated $13.7 M of cash from continuing operations,

compared to $6.7 M cash usage in prior-year quarter

• $65 M of debt outstanding; $57 M of cash

� Net debt of $8 M **

� Low leverage ratio at 0.8 times

• ~$243 M of availability under credit facility

Financial Strength and Flexibility *

• ~$243 M of availability under credit facility

• Paid $4.2 M for dividends; recently declared $0.07 per share

dividend for Q2

• $31 M remaining on share repurchase authorization (~ 4% of

market capitalization)

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*Dollar amounts as of, or for the quarter ending 3/31/2017, unless otherwise noted

** Net debt is a non-GAAP measure and is computed as total debt of $65 M, less total cash and cash equivalents of $57 M

• Q1 2017 revenue and earnings exceeded expectations

• Significant improvement in orders

� Q1 2017 orders were the highest reported orders in any quarter in over a decade

� 58% year-over-year order improvement largely driven by ESG, whose orders in Q1 2017 were $167 M, more than double Q1 2016 orders

• Includes effects of JJE acquisition, as well as organic order growth in excess of $30 M

� 30% sequential order improvement largely driven by ESG, whose orders

CEO Remarks

� 30% sequential order improvement largely driven by ESG, whose orders improved by $46 M

• Municipal markets remain steady, overall

• Some initial signs of encouragement from industrial markets

• Progress being made to diversify end markets by expanding into new markets, such as utility

• Strong financial position facilitates investments in organic growth initiatives, strategic acquisitions and cash returns to shareholders

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• Niche market leader (product, geography, end-market)

• Sustainable competitive advantage

• Deep domain expertise (technology, application, manufacturing)

• Strong management team

• Leverages FSC’s distribution and manufacturing capabilities

M&A Target Evaluation

Target companies that accelerate Federal Signal current strategic initiatives or provide a platform

for growth in adjacent markets or new geographies

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• Leverages FSC’s distribution and manufacturing capabilities

• Solid growth potential

• Through-the-cycle margins comparable to or higher than FSC’s target operating

margins

• Ideally, identifiable synergies and recurring revenue opportunities

• Return on capital greater than our cost of capital, appropriately adjusted for risk

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2017 Outlook

Maintaining adjusted EPS range of $0.70 to $0.78

� Adjustments to include items related to

acquisitions

� Depreciation to increase by ~$8 M to $10 M

• Reflects full year of JJE and depreciation of rental

fleet

� Nominal increases in capital expenditures vs.

Key Assumptions

� Additional SEG&A expenses, including R&D, in

support of long-term strategic initiatives. Net

reduction of ~$0.02 to $0.03 reflected in 2017

Adjusted EPS outlook

� Interest expense reflects no significant change in

current debt levels

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� Nominal increases in capital expenditures vs.

2016 (excluding investment in rental fleet)

current debt levels

� Income tax rate of 34-35%

+ Stable municipal demand

+ Improving recent order patterns and sales

funnels

+ Full year of Paradigm sales into utility and

construction end-markets

+ Full year impact from 2016 acquisitions

– Weak oil & gas demand, which impacts our

hydro-excavation products and signaling

business

– Continued strength of US dollar benefiting

foreign competitors and reducing value of

overseas earnings

– Entered 2017 with reduced backlog carrying

lower gross margin

Tailwinds Headwinds

Federal Signal Q1 2017 Earnings Call

Q&A

11

April 27, 2017

Jennifer Sherman, President & Chief Executive Officer

Ian Hudson, VP, Interim Chief Financial Officer

Investor Information

Stock Ticker - NYSE:FSS

Company website: federalsignal.com/investors

HEADQUARTERS

1415 West 22nd Street, Suite 1100Oak Brook, IL 60523Oak Brook, IL 60523

INVESTOR RELATIONS CONTACTS

630-954-2000

Ian HudsonVP, Interim Chief Financial [email protected]

Svetlana VinokurVP, Treasurer and Corporate [email protected]

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Federal Signal Q1 2017 Earnings Call

Appendix

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Consolidated Adjusted EBITDA

$ millions, except % Q1 2017 Q1 2016

Income from continuing operations 7.2$ 10.4$

Add:

Interest expense 0.6 0.4

Debt settlement charges - 0.3

Acquisition and integration-related expenses 0.5 0.5


Executive severance costs 0.7 -

Purchase accounting effects 0.5 -

14

Other income, net (0.3) (0.7)

Income tax expense 3.8 5.7

Depreciation and amortization 5.6 3.0

Consolidated adjusted EBITDA 18.9$ 20.8$

Net Sales 177.8$ 172.8$

Consolidated adjusted EBITDA margin 10.6% 12.0%

Segment Adjusted EBITDA

ESG


Operating Income 10.3$ 16.5$

Add:

Acquisition and integration-related expenses 0.2 -

Purchase accounting effects 0.5 -


Adjusted EBITDA 15.5$ 18.3$

Net Sales 127.8$ 115.4$


15


SSG


Operating Income 6.4$ 4.9$

Add:



Adjusted EBITDA 7.7$ 7.2$

Net Sales 50.0$ 57.4$


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 months ended March 31, 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 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.

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new federal signal q1 2017 earnings call unlinked · 2018. 4. 9. · federal signal q1 2017...

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