FSS - NYSE

Good day, and welcome to the Federal Signal Corporation Second Quarter Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ian Hudson, Chief Financial Officer. Please go ahead.

Good morning, and welcome to Federal Signal's second quarter conference call. I'm Ian Hudson, the Company's Chief Financial Officer. Also with me on the call today is Jennifer Sherman, our President and Chief Executive Officer. We will refer to some presentation slides today, as well as to the earnings news release, which we issued this morning. The slides can be followed online by going to our website, federalsignal.com, clicking on the Investor Call icon and signing into the webcast. We have also posted the slide presentation and the earnings release under the Investor tab on our website. Before we being, I'd like to remind you that some of our comments made today may contain forward-looking statements that are subject to the Safe Harbor language found in today's news release and in Federal Signal's filings with the Securities and Exchange Commission. These documents are available on our website. Our presentation also contains some measures that are not in accordance with U.S. generally accepted accounting principles. In our earnings release and filings, we reconcile these non-GAAP measures to GAAP measures. In addition, we will file our Form 10-Q later today. I am going to begin today by providing some detail on our second quarter results before turning the call over to Jennifer to provide her perspective on our performance, market conditions and our outlook for the remainder of 2023. After our prepared comments, Jennifer and I will address your questions. Our consolidated second quarter financial results are provided in today's earnings release. In summary, we delivered record financial results for the quarter with double-digit year-over-year net sales and earnings growth, gross margin expansion, improved cash generation, a 120 basis point improvement in EBITDA margin, and new records in orders and backlog. Consolidated net sales for the quarter were $442 million, a new quarterly record and an increase of $76 million or 21%, compared to last year. Organic sales growth for the quarter was $54 million or 15%. Consolidated operating income for the quarter was $59.4 million, up $13.2 million or 29% compared to last year. Consolidated adjusted EBITDA for the quarter was $75.5 million, up $17.3 million or 30% compared to last year. That translates to a margin of 17.1% in Q2 this year, up from 15.9% in Q2 last year. GAAP EPS for the quarter was $0.66 per share, up $0.11 per share or 20% from last year. On an adjusted basis, EPS for the quarter was $0.67 per share, up $0.14 per share or 26% from last year. Order intake for the quarter was again outstanding, setting a new record and surpassing the previous high, which we set last quarter. In total orders in Q2 this year were $490 million, an increase of $67 million or 16% compared to last year. Backlog at the end of the quarter was $1 billion, another all-time high and an increase of $212 million or 27%, compared to Q2 last year. In terms of our group results, ESG's net sales for the quarter were $373 million, up $67 million or 22% compared to last year. ESG's operating income for the quarter was $56.2 million, up $17.1 million or $0.44, compared to last year. ESG's adjusted EBITDA for the quarter was $70.7 million, up $19.1 million or 37%, compared to last year. That translates to an adjusted EBITDA margin for the quarter of 19%, an improvement of 220 basis points, compared to last year despite higher chassis revenue, which represented a year-over-year headwind of approximately 90 basis points. ESG's orders for the quarter were $409 million, an improvement of $57 million or 16% compared to last year. SSG's net sales for the quarter were $69 million this year, up $9 million or 15%. SSG's operating income for the quarter was $14.1 million, up $3.8 million or 37% compared to last year. SSG's adjusted EBITDA for the quarter was $15.2 million, up $3.8 million or 33%, that translates to an adjusted EBITDA margin for the quarter of 21.9%, up 300 basis points, compared to last year. SSG's orders were $72 million, up $10 million or 16% compared to last year. Corporate operating expenses for the quarter were $10.9 million compared to $3.2 million last year with the majority of the increase resulting from unfavorable changes in fair value adjustments of post-retirement reserves and the non-recurrence of an acquisition-related benefit of approximately $2 million relating to a post-closing adjustment that was received during Q2 of last year. Turning now to the consolidated income statement where the increase in sales contributed to a $27.5 million improvement in gross profit. Consolidated gross margin for the quarter was 26.5%, a 200 basis point increase over last year. As a percentage of sales, our selling engineering, general and administrative expenses for the quarter were up 60 basis points from Q2 last year. Other items affecting the quarterly results include a $700,000 increase in amortization expense, a $2.3 million increase in acquisition-related expenses, a $1.4 million increase in other expense, and a $3.7 million increase in interest expense. Tax expense for the quarter was $12.4 million, up $1.3 million from the prior year. Our effective tax rate for the quarter was 23.5% compared to 24.9% last year with the reduction primarily due to a $700,000 increase in excess tax benefits associated with stock-based compensation activity. At this time, we expect our full year effective tax rate to be approximately 24%, excluding any additional discreet tax benefits. On an overall GAAP basis, we therefore earned $0.66 per share in Q2 this year compared with $0.55 per share in Q2 last year. To facilitate earnings comparisons, we typically adjust our GAAP earnings per share for unusual items recorded in the current or prior year quarters. In the current year quarter, we made adjustments to GAAP earnings per share to exclude acquisition-related expenses and environmental remediation costs of a discontinued operation. On this basis, our adjusted earnings for the quarter were $0.67 a share compared with $0.53 per share last year. Looking now at cash flow, we generated $36 million of cash from operations during the quarter, which was up $21 million from Q2 last year. We ended the quarter with $360 million of net debt and availability under our credit facility of $381 million. Our current net debt leverage ratio remains low even after funding the acquisition of Trackless that we completed in April for an initial payment of approximately $43 million. With our financial position remaining strong, we have significant flexibility to invest in organic growth initiatives, pursue strategic acquisitions and return cash to stockholders through dividends and opportunistic share repurchases. On that note, we paid dividends of $6.1 million during the quarter, reflecting an increased dividend of $0.10 per share and we recently announced a similar dividend for the third quarter. That concludes my comments. And I'd now like to turn the call over to Jennifer.

Thank you, Ian. Impressive execution by both of our groups contributed to a record-setting quarter on many metrics. Within our Environmental Solutions Group, an improving supply chain supported higher production levels and with increased sales volumes, contributions from recent acquisitions, robust aftermarket demand and strong price realization, we were able to deliver a 22% year-over-year net sales increase and a 220 basis point improvement in adjusted EBITDA margin. During Q2, we were again able to increase production levels at our largest manufacturing facility achieving the third successive quarter of production growth as the overall supply chain environment continues to improve. This strong execution contributed to a 35% year-over-year increase in [Technical Difficulty]. And what is typically a seasonally strong quarter, our aftermarket revenues were also up 18% over last year, with particular strength in parts sales. In addition to strong organic growth, our recent acquisitions also contributed with Trackless, our most recent acquisition completed early in the quarter off to a strong start. Collectively, the acquisitions added approximately $22 million to our top line during the quarter. While we are encouraged by the improving supply chain environment, we are still not out of the woods and there continue to be pockets of supply-related disruptions for certain components, like hydraulics and pumps. Given that, we are not yet maximizing our production capacity and continue to experience some inefficiencies. Chassis availability also continues to be a constraining factor within our dump body businesses, particularly for our businesses that build on Class 5 chassis. Our Safety and Security Systems Group again delivered impressive results during the quarter, with record net sales and adjusted EBITDA. SSG's second quarter results included 15% top-line growth and an adjusted EBITDA margin of 21.9%, a 300 basis point improvement compared to last year and above its target range, which we increased earlier this year. Over the last few years, we have made several investments in organic growth within SSG, including purchasing the University Park facility and in sourcing production of several key components. These investments include the addition of a third printed circuit board line to increase production volumes of public safety equipment, achieve cost savings and reduce reliance on suppliers. The new production line is expected to be operational in the third quarter. We expect that the broad actions we have taken to mitigate component shortages, including investments to in-source production and bring additional suppliers online will provide meaningful long-term benefits to Federal Signal. Other highlights of the quarter include the publication of our latest sustainability report, demonstrating our ongoing commitment to environmental, social and governance initiatives. The report highlights the progress we've made against our sustainability goals that were established in 2018, including achieving our targeted 10% reduction in water and electricity intensity early. In the report, we highlight the ways in which we make a difference to our customers, our communities and our environment. We know that it is a global manufacturer of critical infrastructure and safety products. We have the responsibility to do the right thing, operate sustainably and with a long-term fact based view on issues regarding the environment society and corporate governance and positively impact our employees, customers, partners and stakeholders at large. These efforts also position us well in the communities in which we operate and serve as a differentiating factor in our ability to attract labor at most of our facilities. Demand for our products and our aftermarket offerings remains at unprecedented levels with both our orders and backlog this quarter again setting new company records. As we talked about previously, there are several macroeconomic tailwinds contributing to the strong demand we are currently experiencing within our municipal markets, we are continuing to see the benefits from the American Rescue Plan, which in 2021 earmarked $350 billion for state, local and territorial governments for a variety of purposes, including the maintenance of essential infrastructure such as sewer systems and streets. In the second quarter, municipal orders were up 13%, compared to last year, primarily driven by significant increase in demand for sewer cleaners. As a reminder, approximately 75% of our sewer cleaners orders include a hydro-excavation, our safe-digging package, allowing the unit to be utilized in a variety of applications. We also continue to expect meaningful multi-year tailwinds arising from the $1.2 trillion Infrastructure Act, which has $550 billion earmarked for new investments in roads, bridges, power, water and broadband infrastructure, public transportation and airports. Today, nearly 35,000 projects have been awarded funding from the Bipartisan Infrastructure Law. They range from repaving roads and water system upgrades funded through formula grants to state to competitive funding for massive bridge and transit projects. Our teams are working with our customers in the designated area as they evaluate their equipment needs to support these large multiyear-scale projects. With the funding available to support broadband infrastructure development, we have seen additional interest in our broad range of safe-digging product offerings that can vacuum excavate and/or convey materials in a safe and efficient manner. With that orders, our safe digging trucks were up 20%, compared to the prior year. As another example of the potential application for the use of our safe-digging products, there is a significant operating in California to mitigate the risk associated with wildfires with major utility companies recently announcing that it is seeking $8 billion in funding to barry power lines underground. We are also continuing to see benefits from the infrastructure bill within SSG. In particular with higher demand for warning systems, the Infrastructure Act earmarked $6.8 billion for the Federal Emergency Management Agency or FEMA to invest in disaster mitigation programs. This includes $500 million over five years to provide hazard mitigation assistance to local governments through the STORM Act. To date, we have received over $4 million in warning system orders supported by FEMA funding and are currently working with several counties that have been awarded grants totaling several million dollars to expand their tornado warning system. We have received multiple proposals from communities across the country that are seeking government grants from this funding source to update or expand warning system. As part of our warning system offerings, we also provide ongoing maintenance and subscription, alerting services which following the initial sale of the warning equipment provide for our long-term recurring revenue stream. SSG has recently introduced a couple of new features key to advancing the safety and security of communities and workplaces. The first is lightning detection alerting which are additions to our flagship commander one outdoor warning siren activation and monitoring system. This feature is ideal tool or industrial chemical plants, outdoor recreational areas, parks and campuses, where lightning is a threat to employees and communities. The second is a new option for siren communication with our IoT family of products. These devices allow for quick upgrades from legacy radio technologies to secure cellular communication. With higher frequencies of natural disasters such as wildfires, hurricanes, tornadoes and floods, we are proud that our products play a role in helping to keep communities safe. During the second quarter, the U.S. Department of Energy also released a notice of intent to invest $2 billion from the Inflation Reduction Act to accelerate domestic manufacturing of electrified vehicle. These investments are expected to be made available in the coming months. Electrification remains a key area of investment for the company and we expect this public funding source to support future growth related both to our EV product lines, as well as our platform of specialty vehicles that support metal extraction. During the second quarter, despite increased production levels that contributed to record quarterly sales, our orders once again exceeded shipments. In fact, the second quarter represented the 10th successive quarter that our orders have outpaced sales. With this unprecedented demand contributed to record backlogs, lead times for certain products have become extended. And consequently, we may see some lumpiness in ESG order trends as we move forward, which may impact comparability from quarter to quarter. In addition, while orders within SSG in the front half of the year were outstanding, including benefits from certain large fleet orders, we may see some moderation in SSG orders in the second-half of the year with forward scheduling a police vehicle model year changeover in Q4. We remain focused on increasing production levels to build more trucks as we aim to reduce current backlog and lead times, while continuing to maintain healthy order intake. I now want to take a few minutes to provide an update on a couple of our organic growth initiatives. Our focus on 80-20 improvement is deeply ingrained in our culture and has played and will continue to play a key role in driving our organic growth and industry-leading margins. As discussed on the last earnings call, we hired a dedicated resource tasked with driving additional throughput projects across many of our businesses as we seek to reduce current lead time at several of our businesses. This resource has already conducted a series of 80-20 and lean manufacturing session at our Elgin Street Sweeper facility, lean initiatives have initially focused on synchronizing fabrication and paint processes within assembly demand. This improved flow is expected to increase throughput by eliminating double handling of materials, maximizing paint line capacity and assembly productivity. At our Travis party and trailer facility, the management team initiated a product line simplification initiative. Similar to the successful Ox Bodies dump by the SKU reduction that we talked about in our last earnings call. The Travis team identified over 9,500 current combinations of trailer offerings and the first round of its 80-20 analysis achieved a 30% reduction in variations with continued standardization underway. Moving on to aftermarkets which represented approximately 28% of ESG's revenues during the quarter, mainly due to the strength and parts sales that I noted earlier. Aftermarket remains a key strategic initiative of ours, and we see additional opportunities to grow that business by expanding into new geographies. In addition, we made meaningful investments in the first-half of '23 to replenish our rental fleet and support the anticipated continuation of high demand for rentals and used equipment. We also continue to invest in new product development and I wanted to touch on a few recent product innovations. During the second quarter, SSG introduced the high literal lead, a new design of our popular mini light bar with improved optical performance and a sleeker more attractive appearance. The wide variety of mounting options, colors and flash patterns ensure there is a suitable model for on-road or off-road utility telling in construction vehicles. In addition, reduced availability of Class 3 to Class 5 chassis continues to be a constraint for our dump body business. As a result, our teams have launched products that utilize chassis that currently have more availability. As an example, we recently introduced an aluminum dump body product offering designed for the widely available Ford at 350 pickup chassis that has been well received in the market. On the M&A front, we were pleased to announce the closing of the Trackless acquisition in April, and are encouraged with its financial performance in the quarter. Trackless is a leading Canadian manufacturer of multipurpose off-road municipal tractors, and a variety of attachments we'd provide year-round value to its customers. The Trackless integration is well underway, and we are excited about the opportunities to leverage our existing distribution channel in the US to expand the geographic reach of Trackless products and accelerate the growth trajectory of this business. Our continued growth through disciplined M&A differentiates Federal Signal as an accumulator of leading brands of specialty vehicles and supporting aftermarket offerings. Our deal pipeline remains very active and we continue to expect M&A to be an important part of our future. Turning now to our outlook for the rest of the year, demand for our products and our aftermarket offerings remains at unprecedented levels with both our orders and backlog this quarter, again setting new company records. With our second-quarter performance, our record backlog and improving supply chain conditions, we are raising our full-year adjusted EPS outlook to a new range of $2.30 to $2.46 from the prior range of $2.21 to $2.43. We are also increasing the low end of our full-year net sales outlook range by $30 million, establishing a new range of $1.65 billion to $1.72 billion. At this time, I think we're ready for questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Steve Barger with KeyBanc Capital Markets. Please go ahead.

Good morning, Steve.

Hi, Steve.

Good morning. This is actually Christian

Hi, Chris.

Good morning.

Good morning. My first question is on ESG. If we just take the average of your two best quarters in ESG, I get about $350 million in quarterly sales. Is it reasonable to think you guys can run at that rate or even above for an extended period of time as long as you can get chassis and other components with minimal disruptions? And then…

Yes.

I know you mentioned you're still not maximizing your production capabilities but what needs to happen in the supply chain to get you to that point, and when do you think that happens?

First answer to your question is, yes. The second part is a couple of things. One is we need consistency, so what we're seeing now is episodic-type issues. It is improving supply chain, but we'll have -- we talked about in the prepared remarks, we will have a problem with a particular component, and then we'll have to pull products off the line, until that component becomes available. The good news is, now we are typically talking about weeks not months. So, we're able to solve the problem that contributes to inefficiencies because we often have to retest the vehicles. And we're not running them down the line, but instead, we're bay building. The area that we need to see improvement is chassis availability for our TBI businesses. There still constraints in that, particularly in that Class 5 chassis, which impacted a couple of our businesses. We have the chassis we need for our non-TBI businesses for 2023, but we're continuing to look at opportunities to increase production in our TBI businesses and that's contingent upon chassis availability particularly classified.

Great, thank you. And my second question. I know, M&A deals are kind of far and few between right now. But what types of businesses are you guys interested in? And is your priority still to enhance some of those underperforming dealers and maybe bring them in, from your conversations are higher rates causing more family-owned businesses to maybe consider monetizing at a faster pace to semi-colorful, commentary on that landscape? Thank you.

Sure. As we talked about in the call, we continue to evaluate opportunities. Our pipeline is full. We're looking at a number of different types of opportunities at a number of different sizes. So, we continue to look at specialty vehicle type opportunities. We're looking as you referenced opportunities to continue to grow our aftermarket, and we worked very closely with our dealer partners, particularly when they might be interested, you referenced in some type of liquidity event. So, we're pretty encouraged by the opportunities we're seeing, and we've seen multiples come down. So M&A will continue to play a meaningful part of the growth story of Federal Signal.

Great. And if I could just squeeze one last one.

Sure.

Could you just compare and contrast your visibility for your municipal verse industrial customers? What is the visibility look like for each and within regards to your growing an elevated historic backlogs. Could you kind of parse out, does that skew more one way or another, is that kind of split in terms of the backlogs and orders out there? Thank you so much.

Yes. It's a fairly evenly separate question. We've seen -- With the growth that we've seen in orders, it's been almost across the board, both municipal and industrial. On the one hand, on the municipal side, we've seen some benefits from the American Rescue Plan Act as Jennifer mentioned demand. On the industrial side, that's where the infrastructure bill would typically see some benefits there. So, when we look at the backlog, it's really a nice mix of municipal and then a variety of industrial applications. We talked about the variety of applications for our safe digging products. So it's not necessarily any one particular industrial end market. It's really a variety of them. But there a nice, but there's also some international business in there with the growth that we've seen within SSG on that side of the business too. So yes, a nice healthy mix.

Great, thanks so much.

Thank you.

Our next question comes from Chris Moore with CJS Securities. Please go ahead.

Good morning, Chris.

Hey. Good morning, guys. Good morning and congrats on another incredible quarter.

We would agree.

That's right. Recognizing that much of the infrastructure funding has long tails, I'm just trying to figure out a way to get a sense of how much these bills, the American Rescue Plan Infrastructure Jobs Act, how much have they provided to this point in time versus what you think is going to happen over the next few years. If you gotten 20% of what you think you're kind of get, or is there any way to kind of guesstimate that.

Yes. This pretty good data on the White House website. So I would refer you to that. To date, we really haven't seen a lot of orders from the infrastructure bill. And according to the website, really they're kind of step three of the process where they decided the types. They have awarded the particular programs. And right now, the recipient agencies are kind of agreeing to the conditions of the award. And then after that, they will put those out for bid. And our customers, our contractors will start to respond to those bids, and we're getting a lot of inquiries about look, a particular customer might be aware of a project in their area that's been announced. And they know that they're going to bid on that project. So, they're starting to line up their equipment asking us about availability equipment. But it is something we believe that we haven't seen a lot of the orders, and it's yet to come. So that's one of the reasons we're very encouraged. But, pretty good data on the White House website about where they are in the process. And according to that data, they're still in the negotiation of the award.

Got it, very helpful. When you look at the backlog today little better than $1 billion. Maybe just talk in terms of kind of how you're viewing the pricing of the backlog today versus six months ago, nine months ago.

Yes. As I think, it's -- we're in a good position with the various pricing actions that we've taken. We've also seen some moderation, I'd say in some of the inflation. So, I think we're in a good position as we move forward from a kind of a year-over-year comparison. We started to see some benefits from the pricing actions we took in the second-half of the year, so kind of the year-over-year impact might not be as significant as it was in the first-half.

But we saw a very good strong price realization in the quarter.

Got it. That makes sense. All right, I'll leave it there. Thanks, guys.

Thanks, Chris.

Our next question comes from Mike Shlisky with D.A. Davidson. Please go ahead.

Good morning and thanks for taking my question. You kind of -- yes, hi. Are you kind of beating me too it on the California comments about wanting to variable on the parallel and other infrastructure? Maybe I'll turn to lead pipes, that appears like a starting out very early, but looks like -- it's [Indiscernible] always buried lead pipes around the country, pitching into the soil. Just starting to hit the news headlines for last couple of months or so? I guess, do you see Federal Signal playing a big role and your products and help me to dig up all of those lead pipes safely and get them replaced or am I thinking of this the wrong way as to how they're going to have to remediate all that in the soil?

When I saw the Wall Street Journal article, I circulated it to our teams. There's a -- it's a great perfect application for our safe-digging trucks. And we think, we're in a good position to assist those contractors with those multi-year projects.

Outstanding. I also wanted to just get a quick question on SSG and your EBITDA range. I mean, I think you put up the -- that guidance range up a little higher a few months ago. At this point, you already exceeded it. I'm curious if you feel like maybe you may have undershot things already out of the gate here, maybe it actually is a little bit higher than you had thought just a few months back on a more long-term basis. Are -- were there any temporary items here in this particular quarter unusually supportive of margins due to other price cost to unusual contracts that the kind of one-time in nature. Any kind of commentary on the SSG…

Yes. We had a -- I think we mentioned on our last call, we had a pretty significant fleet order from a customer in Mexico in the first quarter. And some of that spilled over into Q2 in terms of the shipments. So that was kind of an unusually large contract, I would say. That was in the first-half of the year that we'd not necessarily expecting that to repeat in the second-half. We also are aware of, I think, Jennifer mentioned in her prepared comments that Ford is planning to do a model year changeover. So, please vehicle production will be down in Q4 to allow for that changeover. So, that will be a factor in the second-half of the year in terms of the order trends within SSG. So, I think, we're obviously thrilled with the performance of SSG, since we raised the targets. And I think long term we still believe that those targets are appropriate. It can vary quarter-to-quarter. And I think the other thing I've mentioned in Q4, we typically see historically we have seen some unexpected orders as municipalities get towards the end of the year, mainly on the system side. We can tend to see some larger systems orders in Q4. So, that might be something that causes some variability in the margin profile.

But longer term, as I talked about earlier, we're making a number of investments that SSG, with respect to automation in sourcing, and we are very excited about the long-term impact that those investments will have on the margin performance of the business.

Okay. And just a follow-up there. Going into the ESG. It sounds like because you're still facing some supply chain issue is not ready to change that outlook yet. But I'm curious, there are still some challenges in supply chain for that group is probably never been perfect even pre-pandemic has always been. There's always something. How far off are you from pre-pandemic monitor challenges as opposed to anything major currently?

I'll be really blank. We need to see improvement in chassis availability for our TBI business. And we need to see consistency on supply chain, not perfection. But we can't be in positions where we're pulling multiple trucks offline for weeks. But the encouraging news with respect to the supply chain issues. We're getting better, and it's improving. But I would say, we're also looking at waiting for the chassis allocations for 2024 and that's critical as our teams are very focused on building more trucks on BMT and increasing production levels. I'm encouraged by the progress made today. But those factors that I cited are the factors that we're monitoring, but I'll conclude with. We are committed to raising those ESG margin targets and the overall margin targets of the company.

All right, I'll leave it there. Thank you.

Thanks, Mike.

Our next question comes from Walter Liptak with Seaport Research. Please go ahead.

Hey, good morning, guys and congratulations. Great quarter.

Thank you. Good morning, Walt.

Wanted to ask a couple of follow-ups here. On SSG, I think some of the comments are positive and then some moderation at the same time. But then I mean, you've got the third production line coming on and you just mentioned that that's going to have some profit benefits. But then I think when Ian was talking about fleet orders, he was talking about international fleet orders and that something might not repeat. So, I wonder and you talked about the orders coming down in SSG. So I guess the question is, are we going to expect SSG orders to come down? Can you give us some more detail about that and what do you think profitability in SSG looks like in the third quarter with the production ramp, are these profit levels sustainable?

Yes, I think, well the order -- rest in the fleet order that was what we told back in Q1, that was about $111 million order from Mexico. So that was -- It was basically they ordered enough for the full year, so that won't necessarily repeat again in queue -- in the second-half of the year. So that would be a consideration. And then on top of that is the changeover within the fleet business in Q4. So, the second-half orders within SSG probably won't be at the same level as they were in the first-half, but we still expecting healthy order intake as we've made some great strides with some of our new products. On the margin profile, I think we still believe the 17% to 21% range that we gave at the beginning of the year. We still think that's appropriate, and we would expect to be within that range in the second-half of the year.

Okay, great.

I'll add one longer-term. Our teams are very active in international markets. So longer term, there are several major orders that they're working on right now. That over time, we'll continue to see. And then after the forward model changeover which is something that's been planned for a while, we would -- there'll be some catch-up work to as we move through '24.

Okay, great. And I wanted to ask about the outfitting project. How are things going in SSG for the offsetting -- is that a profitable business?

Absolutely. I've been at -- I was in pain during Q2 and the teams, we have two facilities. Now that are focused on offsetting. And what's really exciting is we've been able to secure orders that we wouldn't have otherwise received as a result of that strategic initiative to our teams have done just an excellent job in Europe, in the States were earlier on that journey. But they've had some wins, and we're encouraged by what we're seeing.

Okay, great. And then maybe just the last one. It's nice to see the safe-digging orders. I wonder if you could provide some insight into what kind of customer orders are these? Are you starting to see some of the larger utility fleet orders or any of the service providers or these mostly municipal orders?

Yes, well. The municipal orders would come through as we've talked about on the call, that approximately 75% of our sewer cleaners orders include a safe-digging package. The other -- the orders we were talking about being up year-over-year really on the industrial side of things, and we haven't seen yet the large kind of fleet orders that we're expecting from utility contractors and industrial contractors resulting from the infrastructure funds. So that is more good to come.

Okay, great. Okay, thank you.

Our next question comes from Greg Burns with Sidoti & Co. Please go ahead.

Good morning.

Good morning, Greg.

I just wanted to touch on maybe some of the cross-selling opportunities you have with some of the new acquisitions, more recent acquisitions you've done. Yes, I think you mentioned some opportunities with Trackless to use your distribution to bring that to the U.S. But what maybe some of the opportunities to maybe accelerate growth of some of these brands that you've bought across your footprint? Thanks.

Sure, great question. So, let's start with our Ground Force acquisition. We last year acquired TowHaul and the integration is going very well, and the team our both sales teams are working closely in terms of cross-selling opportunities. We have really strong leadership team out there and we're encouraged by some of those opportunities to-date. With respect to Trackless, we close the transaction this quarter. The integration is going well. We're very focused on. They do an excellent job with respect to winter attachments. They've got a number of great summer attachments. So, we're looking at working with our dealer partners to grow that particular business. But they are off to a strong start. And then in terms of purchasing synergies, our purchasing teams for ESG were closely with our new acquisitions and are identifying opportunities there. And then I'd be remiss if I didn't talk about our efforts in Colorado, Montana and Wyoming. And we're approaching that as it carries our Vector, our Elgin, our TRUVAC brands. Ultimately we'll have TBI brands, our JetStream brand will join that group in September. So there'll be a number of cross-selling opportunities. And then finally, our Blasters acquisition, the teams are working very closely with our MRL Group and our JetStream teams and those integrations are going well. And again, yet another opportunity to pursue cross-selling.

Great, thank you.

Our next question comes from Dave Storms with Stonegate. Please go ahead.

Good morning.

Good morning, Dave.

Good morning.

Just a quick question around pacing. I know there was a lot of optimism last quarter around Q3. Was any of the strengths seen in the second quarter a pull-forward from 3Q or should we think about them separately?

Probably, think about them separately, Dave. I think, we had a strong finish to the quarter. But I still think we're expecting Q3 to be a strong quarter, again it's a seasonally strong period from an aftermarket standpoint and with the levels that we're seeing demand for rental, demand for used equipment, demand for parts. So, pretty strong. We'd expect Q3 to be a strong quarter as well.

That's very helpful. Thank you.

That concludes our question-and-answer session for today. I would now like to turn the conference back over to Jennifer Sherman, Chief Executive Officer for any closing remarks.

Thank you very much. In closing, I would like to reiterate that we are confident in the long-term prospects for our businesses and our markets. Our foundation is strong, and we are focused on delivering profitable long-term growth through the execution of our strategic initiatives. Our employees are working hard to deliver. We would like to express our thanks to our stockholders, our employees, distributors dealers and customers for their continued support. Thank you for joining us today, and we'll talk to you soon.