FEDERAL SIGNAL EARNINGS AND OUTLOOK CALL 2025

Corporate Strategy and Investor Relations; Federal Signal Corp. Greetings and welcome to Federal Signal Corporation's fourth quarter earnings 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 L. Sherman; our President and Chief Executive Officer, and Ian A. Hudson; 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. Our presentation also contains some measures that are not in accordance with US generally accepted accounting principles. In our earnings releases and filings, we reconcile these non-gap measures to GAAP measures. In addition, we will file our form 10k later today. Ian will start today with more detail on our fourth quarter and full year financial results. Jennifer will then provide her perspective on our performance, discuss our recent acquisition of Hawk technologies, and go over our outlook for 2025 before we open the line for any questions. With that, I would now like to turn the call over to Ian. Thank you, Felix. Our financial results for the fourth quarter and full year of 2024 are provided in today's earnings release. Before I talk about the fourth quarter, let me highlight some of our full year consolidated results for 2024. Net sales for the year were approximately $1.86 billion a record high for the company, and an increase of $139 million or 8% compared to last year. Operating income for the year was $281.4 million an increase of $56.9 million or 25% from last year.

Adjusted EBITDA after the year was $350.6 million up $64.6 million or 23% compared to last year. That translates to a margin of 18.8% this year, up 220 basis points from last year. [GAAP] diluted EPFs for the year equated to $3.50 per share, up $0.94 per share, or 37% from last year. On an adjusted basis, we reported full year earnings of $3.34 per share, up $0.76 per share, or 29% from last year.
Orders for the year were $1.85 billion the second highest annual orders in the company's history, contributing to a backlog of approximately $1 billion at the end of the year. For the rest of my comments, I will focus mostly on comparisons of the fourth quarter of 2024 to the fourth quarter of 2023. Consolidated net sales for the quarter were $472 million an increase of $24 million or 5% compared to last year, despite a $7 million dollar headwind from fewer chatty parts through to sales.
Consolidated operating income for the quarter was $70.1 million up $7 million or 11% compared to last year. Consolidated adjusted EBITDA for the quarter was $89.3 million up $11.8 million or 15% compared to last year. That translates to a margin of 18.9%, an increase of 160 basis points from last year. [GAAP] diluted EPS for the quarter was $0.81 per share, up $0.06 per share, or 8% from last year.
On an adjusted basis, EPS for Q4 this year was $0.87 per share, an increase of $0.13 per share, or 18% compared to last year. Orders in Q4 this year were $446 million compared to $465 million in Q4 last year. In terms of our fourth quarter group results, ESG sales were $396 million an increase of $23 million or 6% compared to last year. ESGs adjusted EBITDA for the quarter was $82.9 million up $9.6 million or 13% compared to last year. That translates to an adjusted EBITDA margin of 20.9% in Q4 this year, up 130 basis points from Q4 last year.
ESG reported total orders of $365 million in Q4 this year compared to $399 million last year. SSG's fourth quarter sales were $76 million this year, up $1 million or 1% compared to last year. SSG's adjusted EBITDA for the quarter was $16.4 million of $400,000 or 2% from last year. SSGs adjusted EBITDA margin for the quarter, was 21.6% of 40 basis points from last year. SSG's orders for the quarter were $81 million an increase of $15 million or 23% from last year, primarily due to strength in orders for public safety equipment and warning systems.
Corporate operating expenses in Q4 this year were $10.5 million compared to $10 million last year. Turning now to the consolidated statement of operations, where the increase in sales contributed to a $13.2 million dollar improvement in gross profit. Consolidated gross margin for the quarter was 28.1% of 150 basis points compared to last year.
As a percentage of sales are selling, engineering, general, and administrative expenses for the quarter were up 30 basis points from Q4 last year. During the fourth quarter of this year, we recognized $300,000 of acquisition-related expenses compared to a $1.6 million dollar benefit in Q4 last year.
Other items affecting the quarterly results included a $1.2 million dollar reduction in interest expense associated with lower average debt levels and a $3.8 million pre-tax non-cash pension settlement charge recognized in connection with a voluntary lump sum pension offering to certain participants of our frozen US benefit plan which was completed during the quarter.
Income tax expense for the quarter was $12.9 million an increase of $800,000 from last year, with the year over year changed largely due to higher pre-tax income levels partially offset by the recognition of $1.8 million more in discrete tax benefits in the current year compared to the prior quarter.
Our GAAP effective tax rate for full year 2024 was 18%. That rate included a benefit of approximately $16 million associated with a worthless stock deduction that is not expected to recur in 2025. For 2025, we currently expect a tax rate of approximately 26%, excluding any discrete tax benefits. On an overall GAAP basis, we therefore earned $0.81 per share in Q4 this year, compared with $0.75 per share in Q4 last year.
To facilitate earnings comparisons, we typically adjust our GAAP earnings per share for unusual items recorded in the current or prior year periods. In the current year quarter, we made adjustments to GAAP earnings per share to exclude acquisition-related expenses, pension settlement charges, and purchase accounting expense effects. For the full year, we also excluded the $16 million tax benefit that I just noted.
On this basis, our adjusted earnings in Q4 this year were $0.87 per share, compared with $0.74 per share in Q4 last year.
Looking now at cash flow, where we generated $91 million of cash from operations during the quarter, bringing our full year operating cash generation to $231 million. That represents an increase of $37 million or 19% compared to last year. We ended the year with $133 million of net debt and availability under our credit facility of $574 million. Our current net debt leverage ratio remains low even after accounting for our recently announced acquisition of hog technologies. With our financial position remaining strong, we have significant flexibility to invest in organic growth initiatives, pursue additional strategic acquisitions like hog, and return cash to stockholders through dividends and opportunistic share repurchases. On that note, we paid dividends of $7.3 million during the quarter, reflecting a dividend of $0.12 per share, and we recently announced that we are increasing the dividend by 17% to $0.14 per share in the in the first quarter of 2025. We also funded $2.2 million of share repurchases during the quarter.
That concludes my comments, and I would now like to turn the call over to Jennifer. Thank you, Ian. Our record setting fourth quarter performance represented a strong finish to a year in which we delivered the highest net sales and adjusted EPS in our history. Our fourth quarter results included records across consolidated net sales. Adjusted EPS and adjusted EBITDA margin thanks to outstanding contributions from both of our groups. Within our environmental solutions group, we delivered 6% year over year net sales growth. And a 13% increase in adjusted EBITDA with higher production levels, contributions from acquisitions, and continued price realization representing meaningful year over year contributors. ESGs adjusted EBITDA margins, expanded by 130 basis points year over year to approximately 21%.
A new fourth quarter record and toward the upper end of our current target range. As we pointed out in prior calls, we remain focused on raising our build rates for our extended lead time products, namely our sewer cleaners and street sweepers. As such, combined fourth quarter production at our two largest facilities rose 5% year over year, primarily led by improved sewer cleaner production. From a capacity perspective, our access to labor remains good.
Supply chain fluidity has improved, 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.
Shifting to aftermarkets, demand for our aftermarket products and services remained strong as revenues grew 2% year over year, driven by strong performance in parts revenue and rental income. In aggregate, aftermarket represented approximately 26% of ESG revenue in Q4 this year compared to around 27% in Q4 last year. Our other vehicle based businesses also contributed positively to results. For example, our road marking businesses achieved 34% year over year net sales growth on the back of broad-based strength across our product. Driven by healthy and market demand and continued market share expansion efforts. Similarly, our dump truck body businesses continued their momentum in the quarter with net sales growth of 29% year over year. Our industry leading lead times, expansive product offerings across various brands, reputation for high quality products, and geographic expansion efforts at our ox bodies and rugby businesses are all resonating positively with customers.
Shifting to our safety and security systems group, the team delivered another solid quarter with 1% top line growth, a 3% increase in adjusted EBITDA, and a 40 basis point improvement in adjusted EBITDA margin. This improvement was primarily driven by a combination of price realization. And efficiency gains as I will address in more detail, we were particularly pleased with SSG's order intake in the quarter and believed this team has strong momentum heading into 2025. Lastly, we had another strong quarter of cash conversion with $91 million of cash generated from operations. For the full year, our cash conversion was 107% ahead of our annual target of 100%.
Shifting now to current market conditions, demand for our products and aftermarket offerings remained strong, with our fourth quarter order intake of $446 million representing the second highest fourth quarter on record. Lower chassis pass through orders and the impact of the standard acquisition represented a combined $8 million year over year headwind to reported orders in the quarter. In comparison to the record order intake in the prior year quarter, orders were down 4% primarily due to lower orders for long lead time item products such as street sweepers and sewer cleaners where backlogs stretch well into 2026.
In fact, excluding street sweepers and sewer cleaners, our total fourth quarter orders increased by approximately 13% year over year with notable demand for dump truck bodies, road marking and line removal products, public safety equipment, and our aftermarket offerings.