Federal Signal Corporation · NYSE:FSS
Federal Signal — Q1 2020 Earnings Presentation
37 slides from Federal Signal's earnings presentation, May 2020
Slide 1: Disciplined Growth
Disciplined Growth Investor Presentation May 2020
Slide 2: Safe Harbor Statement
Safe Harbor Statement This presentation contains unaudited financial information and forward-looking statements. Statements that are not historical are forward-looking statements and may contain words such as “may”, “will” ,“believe”, “expect”, “anticipate”, “intend”, “plan”, “project”, “estimate”,
Slide 3: Federal Signal at a Glance
Federal Signal at a Glance • Founded in 1901, joined NYSE in 1969 (“FSS”) • Diversified industrial manufacturer of specialized vehicles for maintenance and infrastructure markets such as street sweepers, sewer cleaners, vacuum/hydro-excavators (“safe- digging trucks”), industrial vacuum loaders, wat
Slide 4: An Experienced Leadership Team
An Experienced Leadership Team Jennifer Sherman Mark D. Weber President and Chief Executive Officer Senior Vice President and Chief Operating Officer ▪ Appointed January, 2016 ▪ Appointed January, 2018 ▪ Previously Chief Operating Officer, Chief Administrative ▪ Previously served as President and Ch
Slide 5: Federal Signal Today vs. Prior Downturns
Federal Signal Today vs. Prior Downturns Today Prior Downturns Composition of • Clearly-defined strategy, with two groups – ESG and SSG – each of • Composition of our current groups, in addition to Businesses which have strong growth potential through a combination of organic low-margin or loss-maki
Slide 6: Two Attractive Platforms
Segment Two Attractive Platforms Environmental Solutions $1.0 B* Safety and Security Systems Group Group (ESG) (SSG) Serves municipal, industrial, Serves the needs of and utility markets for surface municipalities and industrial Markets and sub-surface cleaning, verticals for audible and $227 M* saf
Slide 7: Environmental Solutions Group (ESG)
Environmental Solutions Group (ESG) Have established a platform serving maintenance and infrastructure markets to provide customers with a comprehensive suite of products and services Street Sewer Safe Industrial Materials Hauling Road Application sweeping cleaning digging cleaning Marking Brands Pr
Slide 8: Safety and Security Systems Group (SSG)
Safety and Security Systems Group (SSG) Serves the needs of government and industrial verticals for audible and visual safety and security notification devices Public Safety and Security Signaling Systems Lights and siren products for Police, Fire and Audible and visual Warning Systems Application H
Slide 9: COVID-19 Pandemic: How we are Responding
COVID-19 Pandemic: How we are Responding Protecting our Employees ▪ As “essential” businesses, our operations have to date remained largely operational ▪ Key area of focus has been on the safety and wellbeing of our employees; with that in mind, we were proactive in taking a number of important meas
Slide 10: Reclaiming Tomorrow, Together
Reclaiming Tomorrow, Together • Recently launched Reclaiming Tomorrow, Together initiative, which targets growth strategies during the various phases of the pandemic, in four primary areas: ▪ Improving digital customer experience ▪ Focusing NPD efforts on ways to make our products and the way we con
Slide 11: COVID-19 Pandemic: Challenges Entering Q2
COVID-19 Pandemic: Challenges Entering Q2 ▪ Although they had a limited impact in Q1, expect the following factors related to the COVID-19 pandemic to have a more significant impact on productivity in Q2: ▪ Decrease in availability of labor at several facilities in recent weeks ▪ Supply chain disrup
Slide 12: Strong Balance Sheet and Financial Flexibility
Strong Balance Sheet and Financial Flexibility* • Cash and cash equivalents of $69.4 M • $279 M of total debt outstanding • Net debt of ~$210 M ** Strong capital • In July 2019, executed a five-year, $500 M revolving credit facility, with flexibility to increase by additional $250 M for structure ac
Slide 13: Key Strategic Initiatives
Key Strategic Initiatives Specialty Vehicles for Areas of Aftermarket Parts and Audible and Visual Focus Safe Digging Diverse Services Warning Devices End-Markets Supported By Flexible New Product Technology as an Manufacturing & “ETI” Disciplined M&A Development Enabler Culture 13
Slide 14: Strategic Initiative – Safe Digging
Strategic Initiative– Safe Digging Federal Signal is well positioned to establish a leading position in an emerging application for vacuum-excavation technology; increased regulation expected to accelerate growth What is it? Why is it Attractive? Why Federal Signal? • Vacuum excavation or “Safe Digg
Slide 15: Strategic Initiative – Aftermarket Parts & Services
Strategic Initiative– Aftermarket Parts & Services Optimizing platform to transform Federal Signal’s aftermarket business into an industry leader of parts and services to maintenance and infrastructure markets • Unified platform to serve municipal and industrial Rentals customers across all ESG busi
Slide 16: Strategic Initiative – Audible & Visual Warning Devices
Strategic Initiative– Audible & Visual Warning Devices SSG businesses focused on optimizing their existing channels and expanding product offerings Optimize Channel Product Portfolio Expansion Smart Products • Pricing / Promotion strategy • “Allegiant” – low cost lightbar to • CommanderOne – monetiz
Slide 17: Profitable Growth Execution
Profitable Growth Execution Net Sales Adjusted EBITDA Margin* Q1 2020 Highlights2: (Consolidated) • Strong start to the year, despite 1,221 1,234 exceptionally difficult circumstances 1,090 228 227 16.2% $ in millions 15.4% 15.7% • Net sales of $286M, up $12M, or 4% Adjusted EBITDA 899 226 14.6% 768
Slide 18: Priority Driven Long-Term Capital Allocation
Priority Driven Long-Term Capital Allocation • Organic projects leverage existing assets, generally require limited cash investment Cash Deployment • Innovation R&D efforts target new and updated products Reinvest in the (2017-19)1 • Generally, funded within operating results, cash flow and normal c
Slide 19: Factors Expected to Drive Long-Term Growth
Factors Expected to Drive Long-Term Growth ▲Clearly-defined strategy with history of successful execution against key initiatives ▲Newly-identified offensive strategies, including Reclaiming Tomorrow, Together initiative ▲Strong financial position – low net debt leverage and ample liquidity ▲Robust
Slide 20: Positioned for Long-Term Growth
Positioned for Long-Term Growth With continued focus on organic growth and M&A, and margin performance above that of many of our peers, our financial framework aims to create long-term shareholder value Long-Term Organic Value-Added Revenue Growth Acquisitions (Couple of % points > GDP) High Single
Slide 21: Appendix
Appendix I. Segments Overview II. Eighty-Twenty Improvement Culture III. New Product Development IV. Disciplined M&A Process V. Non-GAAP Measures VI. Executive Compensation VII. Investor Information 21
Slide 22: I: ESG Products
Appendix I: ESG Products VACTO OTRUVAC EsSolutions
Slide 23: I: ESG Products (continued)
Appendix I: ESG Products (continued) 23
Slide 24: I: ESG - Market Influencers & Where We Play
Appendix I: ESG - Market Influencers & Where We Play Market Dynamics ▪ Economic recovery supports state and local funding for 2019 Sales by Geography street sweepers and sewer cleaners ▪ Funding for sewer cleaners through water tax 18% revenues adds further stability 82% ▪ Continued recovery in oil
Slide 25: I: SSG Products
Appendix I: SSG Products FEDERAL SIGNAL Safety and Security Systems Public Safety Systems FEDERAL SIGNAL Safety and Security Systems. Heavy Duty FEDERAL SIGNAL Safety and Security Systems Signaling FEDERAL SIGNAL Safety and Security Systems Systems fi FEDERAL SIGNAL VAMA Safety and Security Systems.
Slide 26: I: SSG - Market Influencers & Where We Play
Appendix I: SSG - Market Influencers & Where We Play Market Dynamics 2019 Sales by Geography ▪ Increased national focus on issues of public safety and law enforcement, and rising public expectations for transparency and accountability driving demand for safety and security products 37% 63% ▪ Recover
Slide 27: II: Eighty–Twenty Improvement ("ETI") Culture
Appendix II: Eighty–Twenty Improvement (“ETI”) Culture Manufacturing Efficiency Material Cost Reduction • Lean manufacturing focus • Waste reduction • Throughput flexibility • SKU rationalization • Labor pool management • Savings through volume aggregation • Flexible manufacturing model • Sourcing o
Slide 28: III: New Product Development
Appendix III: New Product Development Customer-Focused Process • Complete change in approach to innovation, starting in 2013 • Current innovation organization has had a number of successes, including the record- breaking launch of the ParaDIGm vacuum excavator • Most successful new product launch in
Slide 29: IV: Disciplined M&A
Appendix IV: Disciplined M&A Target companies that accelerate our current strategic initiatives or provide a platform for growth in adjacent markets or new geographies • Niche market leader (product, geography, end-market) Characteristics • Sustainable competitive advantage Business • Deep domain ex
Slide 30: V: Non-GAAP Measures
Appendix V: Non-GAAP Measures • Impact of 2019 Lease Accounting Standard Adoption on historical non-GAAP measures - Effective January 1, 2019, the Company adopted the new lease accounting standard, which resulted in a change to the Company’s recognition of the deferred gain associated with historica
Slide 31: V: Adjusted Earnings Per Share
Appendix V: Adjusted Earnings Per Share Three Months Ended March 31, ($ in millions, except EPS) 2020 2019 Net income $ 23.4 $ 17.5 Add: Income tax expense 7.2 5.9 Income before income taxes 30.6 23.4 Add: Acquisition and integration-related expenses 0.3 0.6 Coronavirus-related expenses (1) 0.4 - Pu
Slide 32: V: Adjusted Earnings Per Share (cont.)
Appendix V: Adjusted Earnings Per Share (cont.) Year Ended December 31, (1) Purchase accounting effects relate to adjustments to exclude the step-up in the valuation of equipment acquired in connection with recent acquisitions that was sold ($ in millions, except EPS) 2016 2017 2018 2019 subsequent
Slide 33: V: Adjusted EBITDA
Appendix V: Adjusted EBITDA $ millions, except % Q1 2020 Q1 2019 Net income $ 23.4 $ 17.5 Add: Interest expense 1.5 2.0 Acquisition and integration-related expenses 0.3 0.6 Coronavirus-related expenses 0.4 - Purchase accounting effects * 0.1 - Other expense, net 0.2 0.4 Income tax expense 7.2 5.9 De
Slide 34: V: Adjusted EBITDA (cont.)
Appendix V: Adjusted EBITDA (cont.) TTM (a) Coronavirus-related expenses in the trailing twelve ($ in millions) 2015 2016 2017 2018 2019 3/31/20 months ended March 31, 2020 relate to direct expenses Net Sales $ 768.0 $ 707.9 $ 898.5 $ 1,089.5 $1,221.3 $1,233.6 incurred in connection with the Company
Slide 35: VI: Executive Compensation Aligned with Long-term Objectives
Appendix VI: Executive Compensation Aligned with Long-term Objectives • The Company continues to focus on executing against a number of key long-term objectives, which include the following: ▪ Creating disciplined growth ▪ Improving manufacturing efficiencies and costs ▪ Leveraging invested capital
Slide 36: VII: Investor Information
Appendix VII: Investor Information Stock Ticker: NYSE:FSS Company website: federalsignal.com/investors HEADQUARTERS 1415 West 22nd Street, Suite 1100 Oak Brook, IL 60523 INVESTOR RELATIONS CONTACTS 630-954-2000 Ian Hudson Svetlana Vinokur SVP & Chief Financial Officer VP, Treasurer and Corporate Dev
Slide 37: Federal Signal
ff FEDERAL SIGNAL Moves. Cleans. Protects.