Michael Shlisky - Colliers Securities Felix Boeschen - Raymond James Walter Liptak - Seaport Global Chris Moore - CJS Securities Greg Burns - Sidoti & Company Marco Rodriguez - Stonegate Capital.

Greetings and welcome to Federal Signal Corporation First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Mr.

Ian Hudson, Chief Financial Officer. Thank you, sir. You may begin..

Good morning and welcome to Federal Signal's first quarter 2021 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..

Thank you, Ian. It's been over a year now, since the pandemic began. And while there have been many challenges along the way, I remain in awe of how our teams have responded modifying our work practices to keep employees safe, exercising flexibility in handling uncertain market conditions, and finding new ways to serve our customers.

continues to experience some ongoing COVID related disruptions, but conditions are improving.

Our companywide efforts to raise awareness about vaccines, assist our employees in gaining access to vaccines and encourage participation levels, are paying off and we are pleased to report that our domestic employee vaccination rates are ahead of the national average.

In fact, in Illinois, where we have three of our largest facilities and the corporate office, over 60% of our employees are now fully vaccinated. With that, we've seen an uptick in our sales, resources, traveling, reinforcing our customer-centric value proposition and contributing to greater order intake.

As in the last two quarters, we again saw improved demand for our products with our first-quarter order intake setting a new record for the company, surpassing the previous high by over $50 million.

Our first quarter orders reflect strength in most of our end markets and growing confidence in a post-pandemic recovery, which seems to be further solidified by recent economic stimulus. That sentiment seems to be shared widely by our dealer partners and customers across most of our businesses.

Demand for sewer cleaners remains strong, with first quarter orders up 30% year-over-year, and almost double the amount recorded last quarter. Safe digging is also continuing to gain acceptance..

Thank you. Our first question comes from Steve Barger with KeyBanc. Please proceed with your question..

Hey, good morning everybody. This is Ken Newman on for Steve..

Okay..

Good morning, Ken..

Good morning. So, I guess the first question here will be on the chassis production. And obviously, I think we all understand that the supply chains are tight, pretty much across all of industrials, especially with the chip shortages going around.

Can you just kind of help us quantify the impact of chassis production on guidance -- of the maintain guidance? So, one, how do we think about the lead times for those supply constraint chassis? I think you said 90 days for certain types, but how do we translate that into whether it's a revenue or a margin impact relative to the full-year guidance?.

Yes, I think there's a couple of things to keep in mind. One of the things that Mark did with our teams that has really benefited us, at the beginning, late last year, early this year, we started to order additional chassis. And one, again, we're chassis-agnostic. So, we've got a lot of different options to choose from.

We were recently notified that one of our chassis suppliers is shutting down for up to 90 days. And although that was disappointing to hear, we are in a pretty good position, because of the work that we had done late last year and beginning of this year in terms of ordering additional chassis.

Our teams responded by, when we got this news, we were able to go out and leverage both our dealer partners and the relationships that we have with various chassis dealers to order additional chassis. So, in terms of the impact, it's really a short-term situation at Vactor.

And typically, we have a shutdown between the Christmas and New Year's holiday. They've moved that shut down forward. We're doing our physical inventory during that time period, but there will be a brief pause over the Fourth of July week that we will be shut down. Our goal is to optimize our efficiency.

And then, we feel like we're in a really good position once we come out of that Fourth of July holiday that we'll be able to ramp up pretty quickly.

Ian?.

Yes. And Ken, in terms of -- I think it will have both a revenue impact, as you said, as well as the earnings impact, the flows through. But I think as Jennifer mentioned, it's fairly limited at this point to that two-week period; the late second quarter and early third quarter.

So, we've done a great job in securing chassis for the balance of the year. It really is limited to that one location we talked about, because the teams have done a nice job -- they've done in our sweeper facility, pivoting to change the schedule, so that we're doing -- producing more of the three wheel Elgin lines.

And that's the one where we actually produce the chassis. So, I think it's really just a testament to the flexibility of the teams that we've been able to really minimize the financial impact..

Yes, I guess the other thing I'd add is, you might have read that a lot of the chassis OEM just sold out for the year. I think we're in a good competitive position because of the work that we did late last year and early this year. And we have our orders in, so we can secure those chassis that we need for 2021 and ramp production back up.

So, although it was a challenging set of facts, we're in a better position than most to respond to them..

So, is it fair to assume that the entire backlog as of the end of first quarter is expected to deliver in 2021? None of those are for 2022 delivery?.

It really depends on product line. The dump trucks and trailers would be delivered in 2021. It depends on some of the sewer cleaners could extend into 2022. And there is a continuum, depending on the various product lines..

Right. And for my follow-up, it seems you that had really solid orders in the quarter.

Obviously I think everybody's trying to kind of navigate their way around the top supply chain tightness, do you have any sense of whether or not your customers are pulling forward orders in order to get ahead of some of those supply chain issues? Would you expect -- or maybe just give a little bit of commentary in terms of what order inquiries are like quarter to date..

Sure. A couple of things, we're always looking at kind of order pull forward , we didn't see that here. So, the answer to your question is no. Another encouraging fact is that our April orders remained strong..

Yes, okay. I think when we see pull forward, Ken, it's typically somewhat limited to certain product lines. The strength in the orders that we've seen really was almost in all of our end markets for the majority of our product lines. So, it wasn't limited to any one single product line, it was strength, almost across the board..

We see some really nice traction that I talked about in my prepared remarks on some of our organic growth initiatives, particularly in our dump truck and trailer business..

Right, yes. One more, if I could squeeze it in, just regarding your M&A pipeline, I know you're talking about the pipeline remaining active. It seems like you've got a lot of dry powder here in terms of availability and liquidity.

Can you just talk about the opportunities in terms of deal sizes and multiples? And again, just to remind us on how you're thinking about the best returns for relative to potential targets across the portfolio?.

Yes, couple of thing. Our pipeline is about as full as it's ever been. So that's encouraging, particularly because we have a very detailed road map in terms of what we're interested in buying and we work those relationships.

And we're starting to see, as we come out of this pandemic, that that hard work has benefited us in terms of deal size, everything from small product line acquisitions too transformational type deals. We're always looking at a number of different opportunities. On multiples, we've seen, as everybody has, if there's -- multiples are going up.

And again, we believe that given the position we're in. There are a lot of synergy opportunities for us to fill out our product portfolio. We talked about in the first quarter, OSW, closed-end transaction. We've done some training already on ETI and we're very encouraged by what we've seen thus far.

And again, will we will continue to be disciplined acquirers. And we need to, obviously, we look at a number of different factors, but we need to make sure that we always talk about does this make sense, and how does this bring value to Federal Signal shareholders. So, we're very encouraged and energized by what's in our pipeline..

Great, thanks. I'll jump back in queue..

Thanks, Ken..

Our next question comes from Mike Shlisky with Colliers Securities. Please proceed with your question..

Good morning, everyone..

Good morning, Mike..

Hey, how are you doing?.

Great..

Okay. I wanted to quickly follow up on one of the other questions just asked about the pull forward -- the possible pull forward of orders. It sounds like chassis apply was not -- was not a reason for folks to order more during the quarter.

I'm trying to get ahead of the curve, but was there any order pull-forward from people concerned about getting their prices increased on them or was that not much of an issue either?.

We didn't hear a lot of that back from our sales channel and our price increase, because of the rising commodity costs, the price increases have taken a somewhat of a regular pattern this year, compared to a more kind of stable commodity market. So that has -- we haven't received a lot of that feedback.

The feedback has really been around a couple of things. One is, as we've talked about before, our sales people have been out for -- starting during the pandemic, last year, when it was safe, they started to get back out. And we believe that we are able to capture some additional market share as a result of that.

Number two, is just talking to our dealers, the confidence is pretty high, particularly around some of the stimulus funds that have been available. Number three, is we've seen kind of our used equipment sales increase and our rental utilization numbers continue to uptick. So, it's really been across the board.

And I would be remiss if I didn't talk about new product development and the impact that that's had on some of our businesses, particularly our TBEI dump truck and trailer business..

Got it. And may be how to keep focusing on chassis supply, but I want to ask this one as well, how open are your customers or your end users to changing brands if there's going to be one brand that's not for potentially a couple of months here.

Do you get the sense that some of the RFPs or for a certain model or if you can just switch whenever you feel like it?.

On the municipal side, it's more challenging to change the chassis brand because it's gone through, in many times, a bid process. On the industrial side, there's more flexibility. But another fact that differentiates Federal Signal vis-à-vis some of our competitors is our rental fleet.

First thing is, that particular chassis and our -- the Canadian market chassis has not been impacted thus far. So, we've got quite a bit of flexibility there.

In terms of production scheduling, where we can sub in some of those units -- much more flexibility in the industrial side than on the municipal side, but given our rental fleet and the strong presence we have in Canada, we've got a lot of different levers to pull in response to this..

Got it. I think I'll just throw one more in there here. I really wanted to dig a little deeper on the safety, security business. In the quarter, you improved your margins even though sales were down. And I know that's sometimes part for the course, which is great, great work there.

But I'm curious if you could give us a little more color, I'm kind of curious as to how you were able to make that happen this particular time..

Yes. Yes, Mike, it's, there is -- in that business mix can be a factor from time to time because you have some of the largest systems, businesses, they can have a different margin profile than some of the public safety equipment for example. But I think one of the things we've done a really nice job there is on 80/20 down at that location.

It is -- the cost structure of that facility is that the more you can drive through the top line, it has more pull-through effect because it's -- the overhead is just limited to one primary location for the most part. I think one of the other things that we talked about was the insourcing work that we've done.

Jennifer talked about the MicroPulse which is a particular product line that we launched at the in -- during the first quarter. And that's a product that we typically outsourced in the past and we moved that in-house and really had some nice margin improvement resulting from that in the quarter.

And I think as we move forward, that's one of the other areas that we expect -- from an 80/20 standpoint, we always go through the processes; does it make more sense for us to produce versus sourcing externally? So, that's one area the teams have just done a nice job in..

Excellent, thanks so much. I'll hop back in queue..

Thank you..

Our next question comes from Felix Boeschen with Raymond James. Please proceed with your question..

Good morning..

Hey, good morning, everyone. Morning. Hey, I was curious if we could talk about the dump trailer business, sort of dump truck business a little bit more. Just first to start, I think you mentioned orders were up 28% in the quarter.

I just wanted to double check, does that include the acquisition of OSW or is that kind of an organic apples to apples number we should be thinking about?.

Yes, that's taking out the impact of OSW, Felix. So, obviously in our orders this year that includes the OSW numbers, but the rate that Jennifer quoted that costed out. So, that's really the organic growth rate..

Okay, awesome. And then, if you could broadly talk about what you're hearing from end customers in that business? And then similarly, I know we've talked about supply chain issues quite a bit on this call. But curious if you could touch on the overall lead time specifically in that book of the business right now..

Yes. So, couple of things, one is, as you know, we acquired that business in mid 2017. One of the first things the teams did is took a look at how do we implement kind of some of the best practices that Federal Signal had developed a new product development. And it's really just a fantastic management team.

And so, we took some of the best that Federal Signal has developed, and that particular management team, and really started to look at accelerating new product development. And we gave some examples on my prepared remarks that's starting to benefit us and we'll continue to do so going forward. The second issue is capacity.

So we've made some pretty significant capacity investment in the dump truck businesses at our Lake Crystal facility, at our Rugby facility. We also opened an upfitting center at High Point, North Carolina.

And now, we are looking at our OSW facility and how do we leverage that facility in the group of businesses in addition to our upfitting facility that was just opened in Tempe, Arizona. So, again, it gives the teams an opportunity to optimize production at those various facilities and we've got more capacity now.

So, it's always exciting when you sit and there is a theory and then you execute. And the performance has really surpassed my expectations in terms of what they've been able to do.

With respect to lead times, they have extended, but given the capacity expansions that we've made in the automation investments that we've made under our ownership, right now we're at a point where we still believe that we're very competitive in marketplace..

Okay.

And then, I guess my bigger picture question as it relates to TBI and OSW is can you help us unpack the margin profile a little bit? So, I always thought of TBI as being a very high margin business, understand this year you have a slew of supply chain headwinds going on and obviously commodity cost pressures, but knowing that it is maybe a quicker lead time business, does it feel like you're able to pass on price adequately there? And then overall, I know OSW is coming off depressed 2020 COVID levels, but help us understand what this acceleration in the dump trailer business could mean to overall ESG margins, I guess as my bigger picture question?.

Yes. I think, Felix, obviously, with businesses within ESG we talk about that EBITDA margin target of the 15% to 18%, which we think for a specialty vehicle company that's a pretty attractive margin profile. We have also talked about taking those up once we get through this pandemic.

I would say within the portfolio of TBI businesses we have, the margin profile, probably varies. I mean we're talking a little bit about different sizes of dump trucks across the portfolio. As we've talked about, I think in our year-end call, OSW right now is not currently operating within that range.

But one of the filters that we apply, when we look at acquisitions is asking ourselves, even if they are not currently operating within those ranges, do they have the ability to get within that range once we acquire 80/20 principles and explore some of the synergy opportunities there? So, OSW isn't there right now and -- but I think we feel like over the course of the next two to three years, there's opportunity together.

And I think that will then be the area where as we look at TBI as a platform for growth, looking at some of these companies sharing best practices across the businesses, sharing buying practices, and things of that nature.

We think that's where there's going to be some potential for margin improvement, which will be one of the factors we take into account when we come up with out with our revised margin target..

I'd add, within that TBI Group, as Ian mentioned, we have -- there is a range depending on both mix fleet orders and otherwise, but we've got some very high performing EBITDA margin businesses within that product portfolio..

Got it. Very helpful. I'll leave it there..

Thanks, Felix..

Our next question comes from Walter Liptak with Seaport Global. Please proceed with your question..

Good morning, Wal..

Hey, congratulations on the nice quarter. So, I think the big question here has been covered, which is the question about pent-up demand, and it doesn't sound like there was.

So, I guess my question first is, if you had to pin your order growth on one or two things, is it just the selling and the opening or was it some sort of -- it doesn't sound like it was a pre-buy, but do you think that this is sustainable or do you think that this is something where we saw a big slug of orders that were pent-up and then now we're going to see things taper off?.

We've been encouraged because the strong order trend has continued in April. It extends kind of across the board too as something else was encouraging. We've seen some nice traction on NPD, but there is always seasonality in our businesses. It can vary quarter to quarter.

But I think -- what I noticed, and tried to address this, again, in my prepared remarks, is that we did not slow down on our NPD investments during 2020 and the pandemic. And I think we're really seeing some of the benefits of that as we work our way through 2021..

I think the other thing that I would add, and Jennifer mentioned it, we have safe digging. We gave some statistics about the percentage of our sewer cleaners, that now includes the hydro vacuum excavation package, that's where we've been out doing demonstrations and demos are up 70% year-over-year.

That is having some -- some nice pull through, if you will, on the sewer cleaners. In that about 70% of our sewer cleaners over the course of the last two years have been sold with this hydro excavation package.

So, not only do we have our TRUVAC line of products where you can use those purely for the Safe digging, we also have sewer cleaners now that have the optionality to perform that function as well. So, the continued strength in our sewer cleaner demand is encouraging, really.

And it is kind of tangential to the efforts that we are having on the safe digging side..

Yes, that's great. Yes, it's good to see the TRUVAC orders picking up again because I think those were hit pretty hard during the pandemic. I guess another question would be, going back to the chassis shortages and your inventory or your own pre-buy of chassis.

Are you seeing a competitive advantage? I know you guys are good at that, anticipating demand and getting your chassis slots, do you think you beat out the competitors with your chassis availability?.

Yes..

Yes, I think while we were very proactive, I would say, certainly, toward the end of last year, we saw some of this and we started taking actions at that point. We've worked with our dealers and kind of shared our knowledge with them to say we are going out and trying to secure additional supply, encouraging them to do the same.

I think we had a question earlier about do we work with customers to see if they would be agreeable to switching out the chassis and we certainly -- the teams are all over that.

So, I think, yes, I would add Jennifer's statement that we -- it does give us a competitive advantage because I think to be here today and knowing kind of the efforts of the team and how they have mitigated the potential impact, I think they've just done an outstanding job..

Okay..

As the economy opens back up and these infrastructure projects move forward, I was speaking to one of our dealers yesterday and she just explained to me how important it is to have equipment available, both for rentals used equipment and new sales, and we've been able to respond to that demand..

I think, well, the other thing, from a competitive standpoint that we have, we also have a rental fleet, that can be a temporary solution that we can offer to our customers in the event that they are unable to get the chassis. So, having the range of product offerings we have has helped us during this time..

Okay, that's great. Yes, there was another question I had about the rental fleet.

Is there -- it sounds like you didn't take up guidance despite the strong orders because of concern about deliveries in the back half of the year, but is it possible that the rental fleet could offset all or most of any sort of chassis related production slowdowns?.

Yes. Well, just to be clear on the first part of your comment. I think our concern from the chassis supply situation is really limited to late second quarter, early third quarter, around that around that July 4 holiday. We are expecting for production to ramp back up.

And as we go forward with the chassis that we have been able to secure and what we've been told by the chassis OEMs about how they're going to reopen again. So, I just wanted to make that point clear. On the rental side of the equation, we have seen an uptick in rental demand in April.

And one of the things we mentioned, we're monitoring just the situation up in Canada with the shutdown in Ontario in particular is that that is a typically a strong market for us from an aftermarket standpoint, from a rental standpoint. So, that's one area that we are monitoring.

But as you said, during that timeframe, could we offer rentals or used equipment sales? Could they benefit? Potentially, yes..

Maybe another thing to note though is that we also -- one of the advantages we have is between us and our dealer rental partners. We have the ability to redeploy that equipment in Canada to other regions if we need to..

Okay. Okay. Good point. All right, and then, Jennifer, you mentioned in the discussion about M&A that there could be something transformational.

I wonder if you could tell us a little bit about what transformational means? Is it transformational because of size or is it transformational because of the type of product that you're going to be acquiring in an M&A deal?.

Yes, just I want to make sure I am clear here, what the question I was responding to is what types of acquisitions are in the pipeline. And at any one point in time, we're always looking at a number of different opportunities; everything from $10 million type product line acquisitions to large transformational type deals.

So, that's something that's an ongoing exercise at the company rather than anything specific. So, that's really how I was responding to that particular question. The vast majority of our acquisitions, I think will fall into that $50 million to $100 million type range, similar to MRL and OSW.

Transformational would be -- could be something like the TBEI type deal where we make a meaningful advancement into a new product category. So, that's a good example of something that we're very proud of the work that's been done and we've seen the results for Federal shareholders..

Okay, got it. All right, thank you..

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

Good morning, Chris..

Good morning, Chris..

Good morning.

Just on the -- the record order is 26% year-over-year, can you talk a little bit about the mix between price and volume on that?.

Yes, it's mostly volume, Chris. I mean, we have -- in that number we have the OSW -- is in that number. So, there's about 25 million of orders from the acquisition. Price, can range anywhere from, in a typical year can be anywhere from 1% to 4% across, depending on the business. But most of this is really volume driven.

And as I said earlier, it really is across the board, as we go through kind of the different product lines. Dump trucks are up, as Jennifer mentioned, in excess of 20% and sewer cleaners are up 30%. Aftermarket demand is up in excess of 20%. So, it isn't one -- any one single product line, it's really is across the board..

Got it. That's helpful. Thinking about steel, obviously, rapid increase, it sounds like it was more of a headache than anything for you guys in the first quarter. You talked about some unsteady price increases.

So, just trying to get a sense in terms of how you view the balance now between kind of raising prices to protect margin and the current demand?.

Yes, I think the teams have pretty good visibility with respect to steel. As you know, it's about -- we do about $45 million of direct steel purchases. So we lock in pricing, and so the teams can react, particularly the TBI team can react pretty quickly.

I think the other issue right now for us and for many companies is it's critical that you secure availability. So, we have done -- secured the necessary steel to produce the backlog and that's been a significant effort..

Got it. Most of my others were answered. I will leave it there. I appreciate it, guys..

Thank you..

Our next question comes from Greg Burns with Sidoti & Company. Please proceed..

Morning, Greg..

And in terms of the safe digging opportunities, it sounds like you're getting more market acceptance so there is more traction in the market.

So, can you just talk about what you're hearing from customers, demand you're seeing, is it picking up because there's more understanding of what it is, is it government mandate, like what's driving the demand there?.

Yes, I think it's really been a grassroots effort to educate customers about both the safety benefits and the efficiency benefits. One of the reasons that we give you the data on demonstrations is because we found that that is an important kind of leading indicator if somebody is interested in that.

Again, where we were in Chicago last night, the Western suburbs, a good portion of them didn't have any type of internet access, which is even more critical today than it might have been a couple of years ago, because a construction crew cut a fiber line.

So, that type of incident in many situations will lead customers to want to better understand what the alternatives are. We also believe as we move forward with the infrastructure investments that are being made by the government right now, particularly in terms of the broadband work that will also benefit sales of safe digging products.

We continue to monitor tour legislation and legislation right now, is at a best practice stage, but that is something that increases awareness among our customer base..

Okay.

When you talked about the upfitting of the sewer cleaners with the Safe digging package, what would that do to the like -- typically, to like the MSR pay of the sewer cleaner, adding that package?.

You know I asked that very question too the other day, so I can better understand it. And there is so much features and functionality that you can -- it cannot be anything from -- it varies pretty significantly.

So they're small things that you can do that are in the $10,000 to $20,000 range and then there is much larger types of packages that tend to be closer to $70,000 to $100,000 range. So, it really depends on the type of package that you order..

Okay. And the 70% of tax rate, do you think that's sustainable? Do you foresee like selling that much equipment to the sewer cleaners ….

Yes, it's been at that level, Greg. We went back -- about the last -- over the last couple of years, it's been at that level and it was similar in Q1..

Okay. And then, just lastly, I might have missed it, but on the TBI side of business where the customers are bringing their chassis.

Has there been any issues there with the customers having availability, chassis availability?.

Today, it's been pretty minimal..

Okay, thank you..

Our next question comes from Marco Rodriguez with Stonegate Capital. Please proceed..

Good morning..

Good morning, everybody. Thank you. Thank you for taking my questions. Most have actually been asked and answered, but just one real quick one here for you, I know it's still a little bit early and you made some positive comments on the OSW acquisition, closing it, and results look to be pretty good.

But can you kind of just give us a little bit of an update on the integration efforts there?.

Sure. A couple of things, one is, as we evaluate acquisitions, one of the things that's key to us is to have an experienced management team. And , who leads that business is we're very pleased that he's part of the Federal Signal family. Bob Fines, who runs our TBI business is very much involved in the integration of the business.

He has been out there a couple of times. Ian, Mark, myself have all been out there. We've -- I feel like we're developing a pretty good playbook. We've done a number of successful acquisitions over the last five years. And like anything, you get better at each one you do. And so, we understand the importance of 80/20.

And Bob and Jay and the teams had a working session last week with very positive feedback. So, we're putting in the building blocks during 2021 to capture the -- to improve the EBITDA margin performance and capture the synergies that we talked about when we did the deal.

But, I mean, it's early days, but we're pleased and we're off to a strong start..

All right, understood. And last one from me. I just wanted to make sure I heard this correctly.

Just kind of the impact of the winter storms on results for the quarter, it sounded like it was minimal, if anything on results?.

We lost production for a couple of days. So, I think what we are trying to indicate is although there was no structural damage, our results reflected the fact, which were very strong, reflect the fact that we lost production in several of our Southern facilities for days, and in one situation, for almost a week.

So, it was a despite that type comment..

I see.

Is there a way that you can quantify the impact of the quarter's results?.

I think if you look at the gross margin, it's a fact therein that the lower gross margin quarter -- there's a couple of other things that, obviously, in Q1 last year, we had record production in our largest facility and minimal impact from the pandemic.

When you look at gross margin, we had some, obviously, some unfavorable absorption impact because we weren't producing for that period of time. So, that's probably where you see a little bit. It wasn't material in any sense, but it was a headwind to our gross margin for the quarter..

Got it. Thanks a lot, guys. Really appreciate the time..

Thank you..

Thank you..

Our next question is a follow-up from Steve Barger with KeyBanc. Please proceed..

Hey, thank you. This is Ken Newman on again. Thanks. Just one quick follow-up here, I wanted to touch back on the rental comments that you'd made. Obviously, I think I totally get the whole idea around COVID impacts in Canada. But I would think that a tighter supply chain is probably a net tailwind for fleet dynamics, right.

So, for improving rental rates or fleet utilization, as well as for used equipment prices that you sell out of the fleet, so, can you just give us a little bit of color in terms of how you're thinking about forward moves and rental rates utilization and what's being sold out of the fleet this year versus being built for fleet growth?.

Yes, it's something, Ken, we monitor very closely. We look at both on a product line basis, and so, geographically, we look at the time and financial utilization and then we use that process, it's a monthly process, where we make decisions about how much to add to the fleet and whether we accelerate sales out of the fleet.

So, that's been an ongoing process. What we have seen in the -- I would say over the course of the last couple of quarters, we've seen an increase in the sales of used equipment in the sense of the age of the equipment that really assets the way -- probably north of three to four years old, I would say.

So, we've been selling more of the older units out of the fleet. Predominantly, safe digging equipment we've been selling out of the fleet. And some of that might be just to gain access to customers that because of the price dynamics, we wouldn't have had access to in the past.

So, I think the strategy is working in having -- the aftermarket business is giving us access to customers we wouldn't have had in the past. So, I think that process that we've implemented is been really beneficial. So, used equipment sales were up in the quarter. Parts were up in the quarter.

Aftermarket revenues in total grew, I think to about 27% of ESPs revenues for the quarter. That was up from 24% last year. So, we are seeing that traction continues. And so, as you say, it is nice to have alternate product offerings that we can give to our customers in the event that there is some supply chain tightness..

Yes, a couple of facts, I think they are important. One is, obviously, the ability to move that fleet as needed to respond to demand. But number two, is the chassis that is preferred in that fleet, the Western Star chassis, has not been impacted to date by the semiconductor shortage.

So again, that gives us the ability -- flexibility with respect to the production scheduling and also the ability to respond because we have those chassis available..

Yes. If I think about just longer term, the ability to grow that part of the business, right.

Does that require a significant amount of CapEx or how do you think about growing fleet versus growing branches to kind of improve your geographic footprint longer term to help improve the adoption of rental across all of your businesses?.

We're fortunate because we have a number of strong rental partners through our TRUVAC dealer network. So, we work with those partners to make sure that we've got geographic coverage where we need it. And that's something that we'll continue to do so. We will also continue in those areas where we don't have a strong TRUVAC partner.

We will grow our fleet as necessary to respond to customer demands. So, I think it's -- we're in a pretty good position because of the strength of those partnerships and also our ability to grow where there could be unmet customer demand..

Understood. Thanks for the time..

Thank you..

We have another follow-up from Walter Liptak with Seaport Global. Please proceed..

Hi, Wal..

Hey, thanks for taking this one. So, on the follow-on to the last one talking about rental and you were kind of alluding to how you use other rental partners potentially for some of your products.

Are you selling yet, any of the safety machines or any other machines to the large rental companies?.

No, and we have no intention on doing so. Right now we're very -- we have a number of great rental partners and they're -- this is a highly specialized piece of equipment and they're responding very well to rental demand..

Okay, got it. All right, thank you..

At this time, I would like to turn the call back over to Ms. Jennifer Sherman for closing comments..

Thank you. In closing, I would like to reiterate that we are confident in the long-term prospects for our businesses in our markets. Our foundation is strong and we are focused on delivering profitable long-term growth through the execution of our strategic initiatives.

We would like to express our thanks to our shareholders, employees, distributors, dealers and customers for their continued support. Thank you for joining us today and we'll talk to you soon..

Thank you. You may disconnect your lines at this time. And thank you for your participation, and have a great day..