Greetings and welcome to the Federal Signal Corp. First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Ian Hudson, Chief Financial Officer. Please proceed, sir.

Good morning, and welcome to Federal Signal’s first quarter 2020 conference call. I am 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 I turn the call over to Jennifer, 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. Jennifer is going to kick things off today with some introductory comments. I will then give some more details on our first quarter financial results. Before turning the call back to Jennifer to discuss the impact of the coronavirus pandemic on current operations and its effect on our outlook for the rest of the year. After that, we will open the line for any questions. With that, I would now like to turn the call over to Jennifer.

Thank you, Ian. These are not normal times and I’m going to start this call in an untraditional manner with the conclusion. The conclusion is Federal Signal is well positioned to weather the storm and we will continue to grow and thrive in the long run. Our portfolio of businesses include many market leading brands with solid fundamentals. We have a strong financial position, a history of robust cash flow generation, a culture of winning, a clearly defined strategy and an experienced team with a proven track record of anticipating issues and proactively implementing responses. The coronavirus has not changed any of these factors. We had a great first quarter. We expect the second quarter will be tough. And at this time, the rest of the year remains uncertain. We have record backlogs that will allow us to both adjust and optimize our production schedules to serve our customers. We have also created several new offensive strategies with our Reclaiming Tomorrow, Together initiative that will create opportunities for new products and potential for acquisitions. We have outstanding people, ample liquidity, quality businesses, and we have acted swiftly and decisively to keep our employees safe. I’d like to start by giving my profound thanks to each of our employees for their commitment over the past several weeks. The coronavirus pandemic has impacted almost every aspect of our daily lives. One of the stark realities of this pandemic is that virtually all participants in our highly integrated economy, including our employees, our customers, our dealers, our suppliers, and our investors are facing economic challenges and personal uncertainties that are not of their own making and over which they have limited control. Despite these unprecedented challenges, I’ve been so proud of the positive attitude and adaptability that I’ve seen from our employees. As…

Thank you, Jennifer. Our consolidated first quarter financial results that provided in today’s earnings release. In summary, we got off to a strong start to the year and the teams did an excellent job navigating through a variety of unprecedented challenges, which became more impactful towards the end of the quarter. Our first quarter results reflect impressive increases in sales and income, 220 basis points expansion in adjusted EBITDA margin and the 30% improvement in adjusted earnings per share. Consolidated net sales for the quarter were $286 million, up $12 million or 4% compared to last year. Consolidated operating income in Q1 this year was $32.3 million, up $6.5 million or 25% from last year. On an adjusted basis, consolidated operating margin was 11.6%, up from 9.7% in Q1 last year. Consolidated adjusted EBITDA for the quarter was $43.9 million, up $8 million or 22% from Q1 last year. That translates to a margin of 15.3% in Q1 this year, up from 13.1% last year. Net income in Q1 this year was $23.4 million compared to $17.5 million last year. That equates to GAAP EPS of $0.38 per share, up from $0.29 per share last year. On an adjusted basis, EPS for Q1 this year was $0.39 per share, which compares to $0.30 per share last year. Order intake in the first quarter continued to be strong with orders of $304 million, up $5 million or 2% compared to last year. Consolidated backlog at the end of the quarter, again set a new company record at $401 million. That represents an increase of $37 million or 10% compared to last year and an increased of $14 million or 4% from the end of December. In terms of our first quarter group results, ESG’s first quarter sales were $233 million, up…

Thank you, Ian. Our first quarter represented a strong start to the year, but like many other companies we expect that the next few quarters maybe challenging in light of the current uncertainty relating to the COVID pandemic. As Ian just referenced, our first quarter orders were strong, contributing to a record backlog at the end of the quarter. However, order intake at certain businesses so far in April has been slow. In the first quarter, TBEI, our business which manufactures dump trucks, bodies and trailers reported its highest quarterly order intake under our ownership with Q1 orders up $13.4 million or 25% year-over-year. During Q1, we saw traction on many of the strategic initiatives we have put in place. While the strong first quarter order intake provided a healthy backlog entering the second quarter, we have seen a significant drop off in order so far in April. This decrease in orders is driven in part by the lack of available customer supply chassis. As a reminder, unlike many of our other vehicle based businesses at TBEI, the customer almost always provides the chassis. With many chassis OEMs shut down during April. Some customers are not placing orders because they are unable to obtain a chassis or they are closed. We have started to see that relax a little over the last week at some of the OEMs have started to open back up. We have also seen some softness in utilization levels of our rental fleet with rental income in the first quarter down about 8% compared to last year. In addition to factors related to the coronavirus, the lower utilization is also linked to reduced rental activity with customers serving oil and gas markets. While our exposure to oil and gas is a fraction of what it was…

Thank you. We will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Walter Liptak with Seaport Global. Please proceed with your question.

Good morning, Walt.

Hi, thanks. Good morning. Good morning. Thanks for the detailed presentation. Wanted to ask first about the – the comments about the April orders and so it sounds like TBEI had a great quarter, but April slowed. I wonder if you could quantify it a little bit. And then also, the other products, some of the safe diggers and sewer cleaners, how are those trending in April?

Sure. So the first thing, I guess, I’d say is pretty limited sample size and the data has been pretty erratic changes day-to-day. So it’s very difficult to look at trends. There have been pros and cons overall, as we said, April orders have been slower. But let me try to give you some color commentary. The first thing is our SSG orders are holding up pretty well. We have seen, as I talked about in my prepared remarks, some softness in TBEI. So to put that in context, TBEIs orders in April looked like they may be down on a year-over-year basis, somewhere in the range of $8 million to $10 million. But in the first quarter, their orders were up $13 million or 25%, and they had the highest quarterly orders under our ownership. So it’s a bit of a mixed bag. A lot of the softness that we’ve seen is tied to customers not being able to secure chassis with many of the OEMs. With respect to our other ESG vehicle based businesses, it has been mixed. We’re seeing some slower orders. But we’ve also had some fleet order wins. Last week, our Elgin team had a nice win. I think one of the things that you need to remember is with respect to safe digging, demos are really important there. And we’ve been limited in our ability to demos. Several customers have been closed or had other priorities. And that has been challenging for us during the quarter. Finally, we talk about 50% of our employees are located in Illinois. And as you know, while Illinois had one of the first stay-at-home orders and one of the most restrictive stay-at-home orders. So that’s created some additional challenges in terms of visitation with customers over the quarter. We believe that our Reclaiming Tomorrow, Together initiative over the long run will be important as we educate customers on how we can use our equipment to sanitize outdoor spaces. We’re also looking at some other types of products at our SSG business. So the nutshell is, it’s a very mixed bag, but orders are done.

Okay, got it. I wanted to switch gears and just ask about M&A, there’s a drop in M&A expenses. I wonder if you can talk about that and what the pipeline for M&A looks like.

Well, I’ll take the first one. Well, the drop in the M&A expenses is really a function. We have the earn-out. We have – we accrete that liability. So it wasn’t that last quarter, in last year because we didn’t own MRL. So this quarter, it’s down because of the level of activity in Q1 of the last year, we were working pretty much full speed on the MRL acquisition. And this year because of various travel restrictions, the M&A activity down. So that’s the year-over-year variance. But Jen can talk more about kind of that what we’re seeing in the M&A space.

Sure. So we continue to believe that M&A will be a critical part of the growth for our future. I had spent a good portion of January and February in active dialogue with many M&A candidates. We put that on pause now. We believe that there could be opportunities for us going forward at valuation levels that are more reasonable then they were perhaps pre-pandemic. But we continue to be encouraged by the quality of targets and the strategic fit of the opportunities are available. And I’ve continued as many other members on our team have an active dialogue with those companies.

Okay, great. Thank you.

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

Hey, good morning, guys.

Good morning.

Good morning. Yes. So maybe you can talk a little bit about the – more about the supply chain challenges other than kind of the chassis related issues you talked about. Are there other specific areas of concern and how much visibility do you have in terms of things improving a little bit.

Yes. So the chassis challenges have really been at our TBEI businesses. With respect to our Allegiant business, for example, our largest product line is Pelican, we build our own chassis there. For our Vactor business, it’s about half the time we acquire the chassis, the other half the time the customer acquires the chassis. So given the longer lead times, the Vactor business we’re in pretty good shape there with respect to chassis. Supply chain issues have been – we’ve had a couple issues out of Mexico. We had an issue out of Italy with some transfer cases. What I’ve been impressed with is the ingenuity of the teams in terms of addressing it. So for example, we had a harness issue out of Mexico and our teams figured how to redeploy field technicians to make these wiring harnesses at home and went through our quality testing and the teams did a super job. The other challenge has been in some situations just transportation to get the supplies to our various facilities. So that is at an impact on productivity. But our productivity issues are broader than just supply chain. And maybe I can give you an example that would be helpful. Is it Vactor, which is our largest plant. We have an initiative that I’ve talked about several times with all of you called BMT, build more trucks. And I’m pleased to report that in February, we hit a record on that initiative in terms of productivity. Unfortunately, we started to see the impact of the pandemic in March and productivity from the February high reduced 10%. And then in April, we saw more meaningful impact and it reduced 40%. And so why? A couple of things. One is Vactor, we were doing a $25 million plant expansion, both to support future growth, but also to give us more room to operate. So we worked with the local management team and we put together a productivity plan that was significantly less than February to accommodate labor availability, need for safety, supply chain challenges and we laid off a number of people. Our current expectation is that those people will return at the end of June, but those productivity challenges that are related to not only supply chain, but also to labor availability, willingness of customers to take delivery is impacting productivity pretty significantly.

Got it. All extremely helpful. I’ll jump back in line. Thanks guys.

Our next question comes from Ken Newman with KeyBanc. Please proceed with your question.

Good morning, Ken.

Hey, good morning guys. Hope you all are well and healthy.

Yes, thank you.

I just wanted to touch back on the production ranges that you gave for 2Q. Do you have any color on how much finished product you have in the backlog today? Or I guess, another way of asking is do you expect revenue to be down less than production?

Yes. I think in terms of the second part of the question, Ken, I think it’s – at that time, it’s just too uncertain to kind of predict that with any reasonable degree of accuracy. We were in the first month of the quarter and we’ve given some stats on kind of what we’ve seen from a production standpoint. It’s down anywhere between 20% and 40% of some of our businesses. So I think it’s – in terms of the finished goods, we did have slightly higher finished goods at the end of March, really, as Jennifer mentioned, there are certain customers that were just unable to take delivery of the equipment, just given the fact that they didn’t have employees available to take delivery. So a finished good balance at the end of the quarter was a little high. It was about $93 million, $94 million. So it’s up about $7 million from where it was a year end. We had expect those units to ship at some point during the second quarter. But again, we are seeing some delays in terms of deliveries just with the limited number of employees that our customers have.

Got it. That’s helpful. And switching over to the margins, I know the demand uncertainty kind of hits you in the middle of a couple of expansion initiatives, just given all the variables just around volumes and fixed costs. Any way you can give us a framework for how you’re thinking about operating leverage or decremental margins into the quarter for the year.

Yes. It’s really – it’s difficult, Ken, as you can probably imagine, I mean, the decremental margins can vary for us from business to business and it can vary widely based on the assumption of the volume deterioration and kind of the mix of the products that’s affected. Just a couple of data points I can give you is if you go back to 2008, 2009, between those dates, decremental margin was about 20%. Between 2015 and 2016, it was a little higher than that. But again, we were a very, very different company to what we were back then, because it’s diversification of our end markets, our revenue stream. So I think those data points are data points, but they may not be tremendously accurate. So I think with so much uncertainty, I don’t think we’re in a position to really size it that much. But we have target EBITDA ranges for each of our businesses. Those are intended to be through the cycle margin targets. At this time, we’re not really sure if we’re in what we would call a typical cycle. I think it’s fair to say we didn’t necessarily consider a global pandemic, when we set those targets, but our goal is to continue to operate within those ranges. And as we talked about some of the cost reduction initiatives that we took in the early part of the second quarter, those were designed with the goal of operating within those target ranges.

Yes. I think I’ll add there that, I think that’s really important is that we acted pretty swiftly as we started to adjust production levels. And I gave the example, we’ve taken over $10 million of cost out in the second quarter and we’re going to continue to monitor that and we will adjust accordingly. And it’s with those target EBITDA ranges in mind. But I’ll add as though inside is, these are highly unusual circumstances.

Yes. I totally understand that. I guess, just as a follow-on to that, obviously, the corporate expense and the SG&A margins were lower this quarter than we had expected and held in pretty quickly or pretty well. I just curious barring obviously the uncertainty from COVID, just how sustainable are margins at this level, if we were to go back to like a normalized cycle type of a environment.

For back in the normalized cycle, yes, they’re sustainable.

Got it. Okay, thank you. That’s very helpful.

[Operator Instructions] Our next question comes from Marco Rodriguez with Stonegate. Please proceed with your question.

Hi, good morning guys.

Good morning, Marco.

Thank you for taking my question. I was wondering if maybe you could talk a little bit about your thoughts on recoveries, if you will. I mean, I know this is very difficult and I’m assuming your crystal ball is no better than anyone else’s, but I’m assuming you guys have run through a lot of different scenario analysis on potential outcomes for your business through fiscal 2020. Maybe if you can kind of share a little bit of color around what your base case scenario kind of looks like. What your expectations are as far as recoveries are concerned.

Yes. So Q2, it’s going to be tough. Beyond Q2, it’s – we’ll update you at the end of Q2. We have – we started really early on the offense. If you think about our Reclaiming Tomorrow, Together initiative that has four parts. We adjusted pretty quickly. We have four parts to that initiative in terms of our digital market share part of that initiative, our outdoor sanitation, cleaning outdoor spaces initiative. You think about that we launched that mid-March. And it still needs to be proven out, but we’re gaining traction. So I think some of those initiatives are going to be important to recovery. We’re also in a position where we have record backlog. Our backlog is over $400 million. And it allows us the luxury of being able to optimize production, which sounds like strange words in very difficult time periods. And we can work with our customers to make sure they get the equipment they need when they need the equipment. I’ve been really impressed with some of how the new product ideas that people are going to need in this new world. And we’re working diligently on that. I think we’ve proven in the past that our new product development machine is a much different machine than it was during previous downturns. So a lot of what you ask is going to depend on traction on some of these initiatives and the overall impact on our customers. We still have customers that are important customers that are closed. They’re very encouraging when we talk to them. They appreciate our partnership. And as soon as they open their – we think we’re going to be in a great position to serve it, serve them, but there’s still a lot of unknowns.

Okay, that’s helpful. And then kind of switching here towards the municipal market, you provided some great color here in terms of how you guys are positioning yourself product wise to really drive and increase market share there. I was wondering if maybe you could share if you have any, any early indications of demand increases or lack thereof, some of the municipal and government customers.

Yes. I think a couple of things that are important is, historically, municipal and government customers don’t cancel orders and they haven’t canceled any orders and any kind of meaningful way. That’s the first thing that’s important to understand. The second thing is, frankly, in some situations I don’t believe delivery of our product has been a top priority. For example, for some of the larger municipalities, they’re dealing with the challenges, the pandemic. But what I would – I think it’s really important to remember is that we – many of our products are essential products. And we’re working to make them more essential. The whole purpose of Reclaiming Tomorrow, Together initiative is in terms of helping the company going forward, but also helping our customers. We believe that there are opportunities to repurpose this essential equipment to assist in outdoor cleaning and that will benefit both our customers and Federal Signal in the long run.

Got it. And last quick questions, just kind of a clarification. I believe you guys had mentioned on productivity level, you saw about a 20% to 40% decline year-over-year. Is that specific to any particular areas of your business or was that sort of a general comment across all your businesses if you will?

It really varies, Marco, across each business. I think we talked about SSG University Park in Illinois, that’s the business to support the SSG business, supports primarily the emergency first responders. That business is taking along quite nicely. The order intake has been good. They had a great quarter. At some of vehicle based businesses, again, it varies based on the state that you’re operating in with the various stay-at-home orders that are in place. We have three facilities in Illinois. And there’s the stay-at-home orders are in place and so while we are an essential business, there has been an impact, as Jennifer talked about, on the productivity level. So I would say that at our Vactor facility, we’ve seen a higher degree of an impact from the productivity issues that Jennifer described. So that’s probably towards the higher end of that range.

And I would add is our Spanish facility was closed down by the government for two weeks. They’re backup online. So all of that is going to contribute to the second quarter results.

Understood. Thanks a lot. Appreciate your time.

Thanks, Marco.

Thank you.

Our next question comes from Steve Barger with KeyBanc. Please proceed with your question.

Hey, good morning. Sorry, I got on late. Another call ran over. I know Ken was already on, but I just had a couple of quick follow-ups.

Sure.

I may have – maybe you addressed this already, but when you think about lower production, supply chain or labor issues and then offset by the cost actions you’re taking, do you expect you get the positive swing in free cash flow that revenue slowdown typically brings in the next couple of quarters? Or will that be hindered by the circumstances?

Yes. I think, Steve, we’re monitoring our cash levels very closely. I think – I don’t know if you heard on the call, but we talked about our cash balances as of today, and what we’ve seen in April to date. Our net debt position as of today is actually lower than it was at the end of 2019. So we’re pretty encouraged with the cash flow that we’ve seen so far in April, but it’s early days. I think we’re continuing to expect that we’re going to generate good cash flow as we have, even if you go back to the 2015, 2016 timeframe, we were positive for operating cash flow. We’ve put some things on pause that we talked about. We’ve put some of the discretionary CapEx that’s been on pause. We’re continuing to pay the dividend, but we have suspended further share repurchase. So we’re encouraged with what we’ve seen so far, but I think it’s another – it’s something that we’re continuing to monitor. We put in a number of working capital measures in place, as you can probably imagine, and we’re encouraged so far with what we’ve seen.

I guess the only thing I would add is that longer-term, longer-term can be end of third quarter, fourth quarter these days, we really believe there’s some good M&A opportunities.

Right. Just – and would that be more on the ESG side or safety?

ESG.

Okay. That’s great.

There are some smaller ones on the safety side also that we’re taking a look at. But relatively, larger ones would be on the ESG side. But again, I think we’ve proven ourselves to be pretty prudent in valuation. We’d continue to do so. And like other companies, we believe that valuations will be more reasonable than pre-pandemic.

Yes. No, I think that makes sense. Have you actually seen the bankers coming to you talking about resetting prices on deals that you may have previously vetted? Or is that more of a proactive assumption that will take place?

I think bankers have generally been on kind of a quasi-pause. But as we’ve talked about in the past, we’ve developed relationships with a number of different acquisition candidates. And we continue to – we continue that dialogue. Nothing’s going to happen in the second quarter. But we think it’s critical. We continue that dialogue. And M&A will be an important part of our future, and there’s some really good strategic acquisitions out there.

Great. And then last on Slide 13, you’re talking about your four initiatives. First one being improving digital customer experience. What does that really mean? What have you invested in? What does that look like to the customer? And how does it help?

Sure. A couple of things. One is we are rapidly, and, we have a very, very aggressive time line, our people will tell you, increasing the number of videos that we have about our products, about training. We’re looking at contact-less delivery in terms of what we can do. So I’ve been impressed by the speed, and we’ve got teams around that, e-commerce is a critical part of our future, particularly for our SSG businesses. And we are committed to that and continuing that particular initiative. So we believe it’s an opportunity to really distinguish us from some of our competition, considering that many of our competitors are smaller entities. And this will be an area of focus as we move forward.

For contact-less delivery, is that having a third-party auditor come in and verify the machine is built to spec? Or is that something that you would do internally via a video call or something as you inspect the vehicle?

Yes. I think it really focuses on both the inspection and the training that’s necessary to use many of our complex pieces of equipment. And the teams have – we started this over five weeks ago, six weeks ago. And just the content that we’ve already been able to deliver that allows us to deliver the equipment, do the inspection remotely and do the training remotely. And that’s critical as we move forward. We’re also looking at ways of how do we make our equipment safer for the end users of the equipment. And what do I mean by that is we have multiple people that come in and out of trucks. So we’re working on methodologies that’s going to allow you to sanitize in between uses quickly and efficiently.

I’m curious, do you think that this indirect inspection and contact-less delivery and video training will represent a permanent change in how business gets done? Or do you think this is just you bridging the gap to things getting back to normal?

Yes. I think it’s probably a combination of both. Our dealers play a critical role in the delivery of our Vactor, TRUVAC and Allegiant equipment. So our customers’ training is important. And a lot of times, it isn’t just a onetime training because you either have new employees. And this equipment is pretty complicated, and there’s a variety of different uses. So I think that you’ll see more digital training, but it’s not going to replace some of the face-to-face opportunities that our customers require.

All right. Thanks for the time.

Thank you.

Thank you.

Our next question is a follow-up from Walter Liptak from Seaport Global. Please proceed with your question.

Good morning, Walt.

Hi, thanks. I just wanted to ask a follow-up. From your prepared remarks, you talked about some of the sewer system challenges that some of the municipal, the cities are having some sort of problem. I wonder if you could provide some detail on that. And what kind of services is Federal Signal providing to help solve those city problems?

Yes. So those challenges are really driven by a couple of things. One is initially the lack of available toilet paper, and people were using things they shouldn’t use in the sewer systems. And number two is our habits have changed quite a bit. Everyone used to go to work in school, and now people are at home. So it’s put a lot of strain on certain sewer systems. There’s actually quite a social media campaign by different water departments on this particular issue, trying to educate end users about this. And as a result, you need to clean the sewers more frequently. There’s been clogs, there’s some backup. And our equipment has become more essential than ever. One other thing I would add, Walt. The one other thing I guess I would add there is parts. We talked about on the call, our parts business, not only for us, has been solid in April, but we’ve talked to a number of our dealers, and they’re continuing to see very strong parts business during April.

Okay, sounds great. And then the CapEx, you mentioned there was some reduction there. I wonder if you could – if – maybe I missed this, but what is the CapEx going to be for 2020?

Yes. So Walt, the estimate is between $25 million and $30 million for the year, and some of that is kind of the already committed spend on the expansion of Vactor and Rugby, North Dakota. So it’s come down by about $5 million right now, but it’s something that we are continuing to evaluate. And we’re looking at things with the delay of the expansion that we talked about. Some of the payments will be made over a longer period of time as opposed to more. We originally anticipating those, but those would be more heavily weighted in the first half of the year. So those maybe spread a little more evenly throughout the year.

Yes. And I want to be clear on the Vactor expansion, we had put that on hold because of the visitor policy that we had in place, and we didn’t want outside visitors in. Since we put on hold, we’ve reinitiated that project with additional controls in place, and it’s about a quarter behind. But we are close to finished. And we expect that we should be finished by the end of the third quarter. It’s an important project, particularly for safe distancing for us.

Okay, great. Thanks. Good luck for the second quarter.

Thank you.

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

Good morning, Greg.

Good morning. Thanks for letting me in here. Just – you mentioned you haven’t really seen any cancellations on the municipal side. But on the industrial side, since the end of the quarter, have you seen any movement in the backlog, either customers delaying or pushing things out or canceling? What’s been happening on the municipal side with your customers from the demand perspective?

Yes. On the municipal side, as Jennifer mentioned, very little in terms of cancellations to date in April or historically. We rarely see that because if you think about the municipal side of the business, it’s often part of our public RFID, the purchase of our products. So it’s quite rare that we see any cancellations. We’ve seen some on the municipal – sorry, on the industrial side in the past. We had a little bit of that in – so far in April. But all of those – the impact of those cancellations are reflected in the backlog that we reported, and it’s still at record levels. So that should give you some idea that we’re not talking about a material amount of cancellations given that the backlog at the end of the quarter was at a record level.

Okay, thanks. And then just talk about the complexion of your oil and gas exposure now versus maybe in 2015, 2016. I think it’s less whole goods, maybe more rental oriented, but can you just talk about maybe your exposure there? And what – how the business has changed maybe from 2015, 2016 till now?

I’ll start and maybe Ian can add some color, is that back in 2015 and 2016, we sized it around $90 million. We now size it around $30 million, and we diversified our end markets as I talked about in my prepared remarks, significantly through both M&A and our organic initiatives. Our exposure is really – a lot of it’s around our rental fleet and replenishment of that rental fleet. Although, I would add that we believe that the rental fleet will be an important strategy as people continue to come back to work and projects are restarted, and we expect our rental rates, rental utilization to increase as we move through the second and third quarter.

Yes. We’ve seen it, Greg, I think Jennifer talked about on the – in the prepared remarks. We’ve seen some of the effects of the depressed oil prices on our utilization rates of our rental fleet, primarily the safe digging equipment. Rental income in Q1 this year was down about 8% over Q1 of last year. And it’s also – some of our rental partners are also seeing the same thing. So it’s affected some of the new orders from some of our rental partners for safe digging equipment.

Okay. And how much did Mark Rite Lines contribute to orders and backlog this quarter?

So it was about – so MRL, the – it was about $16 million in Q1.

For orders and backlog growth or…

Yes. So they would be – that would be the orders they received in the first quarter. Some of those, although it will be a very small part, would have shipped out in Q1. So the addition to backlog would have been probably somewhere in the $5 million range.

Okay. And then – so looking at the ESG orders then down 2.5%, it sounded like TBEI was strong in the quarter. Or – sorry, that was down, but if I back out the contribution from Mark Rite Lines. Where were you seeing the most weakness? Was it TBEI? Or was there other areas where orders were starting to decline a little bit?

Yes. The – you’re right, TBEI was strong. The safe digging was down, probably the most significantly. And really, as Jennifer talked about the fact that the demos and presentations are a real factor in the sale process there, and with the restrictions that we’ve had in place on travel and attendance at trade shows, given a lot of the what we’ve seen have been kind of the fruits of a lot of almost missionary work where you’re trying to educate people on to the efficiency benefits of our products as well as the safety benefits. Our sales team hasn’t really been able to get out there and to kind of demonstrate those features. So we’ve seen some impact on incoming orders. I will say that our backlog is still very, very strong. Again, the record backlog at the end of the quarter includes a good amount of safe digging equipment. And that’s one of the other factors to consider.

Yes. I guess the other thing I want to add about safe digging, it’s important to understand is that despite these quarterly challenges, longer term, this is a – remains a critical part of our growth. And several of our smaller safe digging competitors have a much higher reliance upon oil and gas. So we believe going forward, given our diversified end markets that this will create opportunities for us.

Okay, great. Thank you.

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

These are tumultuous and uncertain times, there’s no denying. This experience has confirmed my strong belief that our workforce is unparalleled in its passion, commitment and grid. And while these days may seem tough, I’m confident that we will ban together and work through these challenges as we have many others. We are nimble and have moved quickly. In closing, I would like to thank our stockholders, employees, distributors, dealers and customers for their continued support. During this pandemic, I’ve implemented a new rule, which requires us to end all internal discussions on a positive notes. Applying my own rule to this call, I would encourage us all to think about the fact that never before has the entire world been collectively focused on one thing, developing and producing a vaccination for this disease. There are currently over 70 active vaccine trials, and I, for one, would not that against the U.S. or world innovation machine. I’m also optimistic about the long-term future of our company. I firmly believe that although 2020 will be challenging, Federal Signal will be stronger going forward. Thank you for joining us today. Be safe, and we’ll talk to you soon.

This concludes today’s teleconference. You may disconnect your lines at this time, and thank you for your participation.