Good day and welcome to the Federal Signal Fourth Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brian Cooper, Senior Vice President and Chief Financial Officer. You may begin.

Good morning and welcome to Federal Signal's fourth quarter 2016 conference call. I am Brian Cooper, 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 news release that 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 in to the webcast. We have also posted the slide presentation and today's news release under the Investors tab on our website. Before we begin, 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 news release and filings, we reconcile these non-GAAP measures to GAAP measures. In addition, we will file our Form 10-K later today. I'm going to begin by providing some detail on our fourth quarter and full year results, before turning the call over to Jennifer to provide her commentary on our performance in 2016 and update on our strategic initiatives and her thoughts on our outlook for 2017. After our prepared comments, Jennifer and I will address your questions. Our consolidated fourth quarter and full year financial results for 2016 are provided in today's in earnings news release. As a reminder, the latest fourth quarter includes the operating results of Joe Johnson Equipment or JJE, which we acquired in early June 2016. Please also note that the historical and current year…

Thank you Brian, and thanks to all of you for joining us on the call today. Our fourth quarter results helped us deliver solid full year earnings towards the higher end of our recent expectations. However, it is clear that 2016 was a challenging year. We started 2016 with relatively low backlog and weak incoming industrial orders throughout most of the year, reflected the major downturn in oil and gas along with general softness in our broader industrial markets. Due to our longer lead times for equipment we sell into oil and gas end markets during 2015, we fought the effects of the downturn in oil and gas later than many industrial companies. As a result in 2016, sales were down significantly and the lower volume especially for some of our higher margin equipment, including hydro-excavators created negative operating leverage. On the positive side, several of our businesses performed well in 2016. Our public safety systems business grew market share and improved its bottom line. Our Elgin sweeper business posted its second best year for earnings in spite of demand for its products fluctuating as a result of the timing and pattern of large fleet in international orders. Demand for our Vactor sewer cleaners remained steady. As I will discuss later, we finish this year and start the New Year with some improving trends in industrial orders. Before I move on to our strategic objectives and outlook, I would like to recap some of the Company's specific achievements in 2016. As you know, in January of 2016, we completed the sale of our Bronto Skylift business, receiving proceeds of approximately $88 million. Bronto Skylift was a low-margin operation, required a disproportionate amount of invested capital and its divestment facilitates our focus on more profitable growth opportunity. Also in January of…

Thank you. [Operator Instruction] We'll take our first question from Steve Barger with KeyBanc Capital Markets.

Good morning, Steve.

This is actually Ken Newman on for Steve. So, first question, just wanted to ask what drove the mix in SSG to give you that EBIT margin in the quarter, and do you expect that is a sustainable margin going forward in first half of 2017?

Yeah Ken. We have a mix of business there, our lease business and public safety side in general has been doing well, and so their margins have performed well. We will see that margin going up and down from time to time, so it was a good quarter, but it is not out of the range of what we think is just going to…

Yeah, I think, I would add too, is in terms of our outdoor warning business, they had a very solid quarter and that was the significant contributor to the operating margin.

Going back to the guidance, could you quantify the solid year-over-year growth commentary that you gave, is that, should we think about that as low-single digit, mid-single digit?

Yeah, I think the way we look at it, we look at for 2017, we expect our growth to be 1% to 2% above GDP and then we'll also benefit from the full year impact of JJE.

So just to clarify that, 1% and 2% is that organic, or is that also including acquisitions?

No, that does not include any additional acquisition. It only includes the full year impact from JJE.

What are you seeing in 2017 in terms of demand for hydro-vac. First in the U.S. and then in Canada, and then how much of a step-up in that product line is embedded in your guidance whether it's for oil and gas or the utility market that you are stepping into, or just your traditional applications?

Yeah, as I mentioned, we've been encouraged by the order pattern that we've seen since early December for industrial orders, for December and January, they were up 50%, some of that's been driven by hydro-excavation orders. We're not baking kind of meaningful improvement in that area with respect to oil and gas since 2017. We expect that to occur, we would start to benefit if there are meaningful impact in 2018. As we've talk about before, we think any recovery would – we would – be delayed for us because there is an excess inventory out there. Although we are encouraged that because we haven't seen a lot of our equipment in the auctions that we monitor on a regular basis. We're also encouraged by the sales of the ParaDIGm into the utility market. We were ahead of our expectations. We introduced product in July last year, we're ahead of our expectations for 2016 and we're off to a strong start in 2017.

Could you just talk about other areas of industrial order that are seeing strength? I mean is that really broad based, or did you get a couple of big orders that really gave you some confidence there?

It wasn't really a large – any large fleet order. It was really, it was driven by our ESG business and we're seeing it at Jetstream, we're seeing at Guzzler, we're seeing hydro-excavators. I mean we're in early month, two months of data and has continued early in February, but it's more broad based. It was really driven by the ESG side of the business.

Then just one more from me and then I will get back in line. Can you talk about how the pricing power is in both municipal and industrial? Are you seeing competitors being rational, or they are being pretty aggressive in pricing?

You know we operate in competitive markets, but you know generally we produced a premium product and we're typically able to get paid for.

Got it. That's helpful. Thank you.

Our next question comes from Chris Moore with CJS Securities.

Great. Good morning guys. Thanks for taking my questions.

Good morning Chris.

Good morning Chris.

Yeah. Just on ESG maybe we can talk a little bit about the operating margin. I know that, obviously they are low. This quarter part of that is absorption, is – can you just talk a little bit about that in terms of Q4 and then you know moving forward in terms of expectations for those to rebound a little bit?

Yeah, I mean clearly the two major drivers were volume and mix. You know our volumes were down significantly. And then, if you look at the mix of the equipment, we've talked a lot in the past about the kind of higher margin, hydro-excavators. But with respect to the other – with respect to JJE, the results will impact there, because there was more non-Federal Signal equipment that was sold, the other equipment they distribute, so that had an impact on it. As we move forward, we are encouraged, as we talked about by the recent order trends of the industrial products, because that tends to carry higher margin.

On the municipal side, it sounds – what are your, what I heard was overall the trends remain positive. Are there areas within the municipal that's not necessary the case, or is there any more kind of specifics behind that?

You know I think, you know in our Vactor sewer cleaner line, they, as I mentioned, they were very stable throughout the year. Our public safety system business, they had a very good year with a gain on the top-end and bottom-line. That business can be impacting in terms of timing, because on the larger municipalities will tend to have larger fleet type orders. On the street sweeper side, that business can be impacted again by the larger fleet orders and the international orders. So, it really can vary quarter-to-quarter. Overall, we feel, we believe that 2017, our municipal business will remain stable.

Just one last, on the Canadian side, I mean are you – I'm reading some different things, are you seeing any impact from new weight regulations in Ontario and enforcements in all the parts of Canada on how do you hydro-vac operators. Is there anything that's on your radar?

It's something that our business is, our teams at Vactor are working very closely with the JJE team. We're aware that regulations, we believe that we will have products that meet those requirements and ultimately, we think it will give us the competitive advantage.

And one last one, just trying to get a feel for the demand from different perspectives. On the smaller truck side, is there – you know, can you give us a sense, is there any difference there from a demand perspective than some of the larger you know ASP type like offerings or is there much of a distinction there?

You know on the smaller truck side, the ParaDIGm and some of our trailer jetter equipment, we see strong demand in 2016 and we're off to a solid start in 2017. With respect to the larger trucks, the larger hydro-excavators, a lot of that business is tied to oil and gas. I talked about earlier, we're not expecting meaningful improvement in 2017 to the extent there is a rebound, it will be delayed for us and we expect to benefit fourth quarter and into 2018.

Alright, appreciate guys.

Thanks Chris.

[Operator Instructions]. We'll take our next question from Marco Rodriguez with Stonegate Capital Markets.

Good morning guys. Thank you for taking my questions. Wondering if you might be able to talk a little bit more about the order rates that we're discussing a little bit earlier, you saw some nice movement December and January, and I believe in your prepared remarks you talked about some increasing confidence from the distributors that you were talking to very recently. Did you see like any sort of a budget flush that maybe had increased those orders and can you maybe talk a little bit more just anecdotally what's driving the confidence for these distributors on the order rate?

Marco, just to start, we – if you look at the quarter, it was little on the softer side and we – what we really though happened was, there was some slowdown in demand in the November timeframe and then after the elections things seemed to have open up again a little bit. I wouldn't characterize what we heard about at least as being budget flush, but people were feeling more positive, and that seemed to carry into the order patterns we were seeing.

Last week I had the opportunity to meet with several of our dealers and I visited with several of them over the last couple of months. And as they look into 2017, many of them are expecting year-over-year improvement. They are very enthusiastic about the ParaDIGm product line that we talked about and the ex-factor date, the re-rent program that we have in place now with JJE gives them opportunity to rent our equipment, also gives them access to use equipment, so their portfolio of offerings has been broadened by the JJE acquisition, and overall you know last week and in my one-on-one meetings, it's been very encouraging about 2017.

Got you. And in terms of the operating leverage that you guys might be basing into your guidance here in the fiscal 2017, can you guys give us a little bit of a sense as far as how much you might see based on volume or mix, or anything of that nature.

I think operating leverage goes with volume, so as we see some of the improved, some of the return volume and also goes with mix, so it depends on where we get our orders. But as we see the industrial orders coming, that's positive for us, and the more we get – and obviously municipal orders that flow through Elgin and Vactor are positive as well.

And any update on the oil and gas on how you talk about is looking relatively weak. Any updated expectations in terms of where you think that might kind of work its way through this fiscal year for you guys?

We've expected to be late this year, perhaps fourth quarter into 2018 based on what we're seeing right now. We've talked in the past about kind of the excess inventory of our equipment that's out. We're starting to see some of that equipment come out of mothballs and it's being serviced at our service centers, so we think that's encouraging. But again, we would expect to see kind of any meaningful improvement that occurs late this year and really bleeding into 2018.

Got it. And two real quick kind of housekeeping items here. Do you by chance have the gross margin by segment whether it's for the quarter, for the annual?

We'll be filing the 10-K later this afternoon. All that information will be in there.

Okay got you. And then last quick question, I believe this was in your press release. You talked about increasing working capital. I guess there was a specific reason for. If you could maybe talk a little bit about that?

We had a couple of specific investments that we've made deliberately. Part of it was to build some stock units, so that we could capture immediate sale opportunities. Part of it was to better manage our chassis flow as we have a lower backlog and we wanted to maintain reasonable lead times on producing product. So we made some additions, some specific investments in inventory. I would tell you it's a temporary thing probably, but it's something that made sense for the business at that point in time.

I appreciate you're guys time.

Thank you.

[Operator Instructions] We'll take our next question from Steve Barger with KeyBanc Capital Markets.

Hello Ken.

Hey, thanks for the follow-up. So, how much input cost inflation are you seeing in the manufactured items that you bought?

I'm sorry, how much input inflation?

Correct.

It's fairly minimal. We're seeing a little bit in some of the commodities, but – steel is probably our biggest component and might be 10% or so in that category. So there is a little pressure there. We don't feel, it makes a huge difference in our margins though.

Got it. And then the balance sheet does look pretty strong and can you talk a little bit about the M&A opportunities for 2017. Can you just provide an update on what you're seeing in the M&A pipeline, whether in terms of how many deals of size of potential revenue for these deals that you're seeing?

Sure. We're looking at a number of different opportunities. We're looking at the small product line acquisitions and we're looking at some larger opportunities, you know everything from typically the source of most of our deals comes from privately held, some type of family business where there is liquidity event. But then we're also invited to the dialogue with various investment bankers and who bring deals forward to us. So, we are very active right now in the market and as I mentioned earlier, you know M&A will be an important part of the growth of the Company.

Right. Could you talk a little bit about what multiples have been like for these past few months post-election?

Sure. It really depends again on the transaction, but as we've seen some multiple creek, and it's something that as a company we remained – we've looked at 100 plus acquisition opportunities. We remained very disciplined. We will pay fair value, but again, we're looking at all the strategic. It doesn't advance our strategic initiatives where are the synergy opportunities and this again, as I said this will be an important part of our growth going forward.

100 plus opportunities that you looked at?

Over the last few years, yeah.

Wow. Last one for me. Could you just talk about how big the revenue range is for active project that you're looking at?

Yeah. I don't know that we want to get into active projects and get that specific, but as Jenifer said it's a pretty wide range, some fairly large ones and some very small ones. As we work on them, you never know what's going to come through and when. My experience has always been, you know what you think is going to happen doesn't and what you're not sure will happen seen to end up happening. So, it's a pretty wide range.

In several of the acquisition opportunities, we've been in dialogue for a couple of years.

Right. Sorry. This is my last one, I promise. Just kind of going off of that, when you think about the M&A pipeline, are you more geared towards maybe building out the JJE type product set or something that would help or be I guess the side strategy to that platform? Are you looking more towards the core type legacy businesses to add on to or to transform?

It's kind of any of those, really. I mean, we have a number of different businesses and whether our logical fits that can help us grow those businesses and make them more profitable. We'll look at those things, so there can be a variety of different types of businesses. The JJE platform was not something we were planning to keep growing in that respect as a distributor, but we are – we do like their products. What we're looking forward in general is, on the product side would be things that are match our manufacturing capabilities and it's kind of aligned that way.

Got it. Thanks for your time, guys.

It appears there are no further questions at this time. I'd like to turn the conference back to Jennifer Sherman for any additional or closing remarks.

In closing, I'd like to reiterate that we are confident in the long-term prospects for our businesses and our markets. Again, we'd like to express our thanks to our stockholders, employees, distributors, dealers and customers for their continued support. Thank you for joining us today.

This does conclude today's conference. We thank you for your participation. You may now disconnect.