FEDERAL SIGNAL CORP /DE/ (FSS)

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide information that is supplemental to, and should be read together with, the condensed consolidated financial statements and the accompanying notes contained in this Form 10-Q, as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. Information in MD&A is intended to provide an analysis of our financial condition and results of operations from management’s perspective and assist the reader in obtaining an understanding of (i) the condensed consolidated financial statements, (ii) the Company’s business segments and how the results of those segments impact the Company’s results of operations and financial condition as a whole, and (iii) how certain accounting principles affect the Company’s condensed consolidated financial statements, and to provide discussion of material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or future financial condition. The Company’s results for interim periods should not be regarded as necessarily indicative of results that may be expected for the entire year, which may differ materially due to, among other things, the risk factors described under Part I, Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, which was filed with the SEC on February 25, 2026.

Executive Summary

The Company is a leading global manufacturer and supplier of (i) vehicles and equipment for maintenance and infrastructure end-markets, including vacuum trucks (i.e., sewer cleaners, vacuum- and hydro-excavation (“safe-digging”) trucks, and industrial vacuum loaders), dump truck bodies and trailers, and other specialty equipment (i.e., street sweepers, waterblasting equipment, refuse collection vehicles, road-marking and line-removal equipment, metal extraction support equipment, and multi-purpose maintenance vehicles), and (ii) public safety equipment, such as vehicle lightbars and sirens, industrial signaling equipment, public warning systems, and general alarm/public address systems. Product offerings also include certain products manufactured by other companies. In addition to vehicle and equipment sales, the Company engages in the sale of parts, service and repair, equipment rentals, and training as part of a comprehensive aftermarket offering to its customers. The Company operates 21 principal manufacturing facilities in the U.S., three in Canada, two in Europe, and one in South Africa and provides products and integrated solutions to municipal, governmental, industrial, and commercial customers in all regions of the world.

As described in Note 12 – Segment Information to the accompanying condensed consolidated financial statements, the Company’s business units are organized in two reportable segments: the Environmental Solutions Group and the Safety and Security Systems Group.

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Operating Results

Net sales for the three months ended June 30, 2026 increased by $105.6 million, or 19%, compared to the prior-year quarter, primarily due to the effects of acquisitions, and pricing actions. Our Environmental Solutions Group reported a net sales increase of $97.2 million, or 20%, due to increases in sales of other specialty equipment of $47.7 million, aftermarket offerings of $28.4 million, vacuum trucks of $10.7 million, and dump truck bodies and trailers of $10.5 million. Within our Safety and Security Systems Group, net sales increased by $8.4 million, or 10%, primarily due to improvements in sales of public safety equipment of $7.5 million and industrial signaling equipment of $0.9 million.

Net sales for the six months ended June 30, 2026 increased by $267.4 million, or 26%, compared to the prior-year period, primarily due to higher sales volumes, inclusive of the effects of acquisitions, and pricing actions. Our Environmental Solutions Group reported a net sales increase of $242.5 million, or 28%, due to increases in sales of other specialty equipment of $153.9 million, aftermarket offerings of $45.6 million, vacuum trucks of $21.0 million, dump truck bodies and trailers of $19.1 million, as well as a $2.9 million favorable foreign currency translation impact. Within our Safety and Security Systems Group, net sales increased by $24.9 million, or 16%, primarily due to improvements in sales of public safety equipment of $20.5 million and industrial signaling equipment of $2.3 million, as well as a $2.4 million favorable foreign currency translation impact.

Operating income for the three months ended June 30, 2026 increased by $20.5 million, or 21%, compared to the prior-year quarter, primarily driven by a $34.2 million improvement in gross profit, partially offset by an $11.4 million increase in Selling, Engineering, General and Administrative (“SEG&A”) expenses, a $2.1 million increase in amortization expense, and a $0.2 million increase in acquisition and integration-related expenses, net. Consolidated operating margin for the three months ended June 30, 2026 was 17.6%, compared to 17.3% in the prior-year quarter.

Operating income for the six months ended June 30, 2026 increased by $54.5 million, or 33%, compared to the prior-year period, primarily driven by an $82.8 million improvement in gross profit, partially offset by a $23.2 million increase in SEG&A expenses, a $4.3 million increase in amortization expense, and a $0.8 million increase in acquisition and integration-related expenses, net. Consolidated operating margin for the six months ended June 30, 2026 was 16.8%, compared to 15.9% in the prior-year period.

Income before income taxes for the three months ended June 30, 2026 increased by $18.0 million, or 19%, compared to the prior-year quarter. The increase resulted from the higher operating income, partially offset by a $2.5 million increase in interest expense, net.

Income before income taxes for the six months ended June 30, 2026 increased by $48.2 million, or 31%, compared to the prior-year period. The increase resulted from the higher operating income and a $0.1 million reduction in other expense, partially offset by a $6.4 million increase in interest expense, net.

Net income for the three months ended June 30, 2026 increased by $14.7 million compared to the prior-year quarter, largely due to the aforementioned increase in income before taxes, partially offset by a $3.3 million increase in income tax expense.

Net income for the six months ended June 30, 2026 increased by $38.8 million compared to the prior-year period, largely due to the aforementioned increase in income before taxes, partially offset by a $9.4 million increase in income tax expense.

Total orders for the three months ended June 30, 2026 were $637 million, an increase of $97 million, or 18%, compared to the prior-year quarter. Our Environmental Solutions Group reported total orders of $548 million in the three months ended June 30, 2026, an increase of $107 million, or 24%, in comparison to the prior-year quarter. Orders in the three months ended June 30, 2026 within our Safety and Security Systems Group were $89 million, a reduction of $10 million, or 10%, compared to the prior-year quarter.

Total orders for the six months ended June 30, 2026 were $1.26 billion, an increase of $152 million, or 14%, compared to the prior-year period. Our Environmental Solutions Group reported total orders of $1.08 billion in the six months ended June 30, 2026, an increase of $161 million, or 17%, in comparison to the prior-year period. Orders in the six months ended June 30, 2026 within our Safety and Security Systems Group were $177 million, a reduction of $9 million, or 5%, compared to the prior-year period.

Our consolidated backlog at June 30, 2026 was $1.00 billion, compared to $1.08 billion at June 30, 2025.

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Results of Operations

The following table summarizes our Condensed Consolidated Statements of Operations and illustrates key financial indicators used to assess our consolidated financial results:

Net sales

Net sales for the three months ended June 30, 2026 increased by $105.6 million, or 19%, compared to the prior-year quarter, primarily due to the effects of acquisitions and pricing actions. The Environmental Solutions Group reported a net sales increase of $97.2 million, or 20%, due to increases in sales of other specialty equipment of $47.7 million, aftermarket offerings of $28.4 million, vacuum trucks of $10.7 million, and dump truck bodies and trailers of $10.5 million. Within the Safety and Security Systems Group, net sales increased by $8.4 million, or 10%, primarily due to improvements in sales of public safety equipment of $7.5 million and industrial signaling equipment of $0.9 million.

Net sales for the six months ended June 30, 2026 increased by $267.4 million, or 26%, compared to the prior-year period, primarily due to higher sales volumes, inclusive of the effects of acquisitions, and pricing actions. The Environmental Solutions Group reported a net sales increase of $242.5 million, or 28%, due to increases in sales of other specialty equipment of $153.9 million, aftermarket offerings of $45.6 million, vacuum trucks of $21.0 million, dump truck bodies and trailers of $19.1 million, as well as a $2.9 million favorable foreign currency translation impact. Within the Safety and Security Systems Group, net sales increased by $24.9 million, or 16%, primarily due to improvements in sales of public safety equipment of $20.5 million and industrial signaling equipment of $2.3 million, as well as a $2.4 million favorable foreign currency translation impact.

Cost of sales

Cost of sales increased by $71.4 million, or 18%, for the three months ended

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Objective

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide information that is supplemental to, and shall be read together with, the consolidated financial statements and the accompanying notes included in Item 8, Financial Statements and Supplementary Data, in this Form 10-K. Information in MD&A is intended to provide an analysis of our financial condition and results of operations from management’s perspective and assist the reader in obtaining an understanding of (i) the consolidated financial statements, (ii) the Company’s business segments and how the results of those segments impact the Company’s results of operations and financial condition as a whole, and (iii) how certain accounting principles affect the Company’s consolidated financial statements, and to provide discussion of material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or future financial condition.

See below for discussion and analysis of our financial condition and results of operations for the year ended December 31, 2025 compared to the year ended December 31, 2024. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 26, 2025, for a detailed discussion of our financial condition and results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023.

Executive Summary

The Company is a leading global manufacturer and supplier of (i) vehicles and equipment for maintenance and infrastructure end-markets, including sewer cleaners, industrial vacuum loaders, safe-digging trucks, street sweepers, waterblasting equipment, refuse collection vehicles, road-marking and line-removal equipment, dump truck bodies, trailers, metal extraction support equipment, and multi-purpose maintenance vehicles, and (ii) public safety equipment, such as vehicle lightbars and sirens, industrial signaling equipment, public warning systems, and general alarm/public address systems. Product offerings also include certain products manufactured by other companies, such as third-party refuse and recycling collection vehicles. In addition, we engage in the sale of parts, service and repair, equipment rentals, and training as part of a comprehensive aftermarket offering to our customer base. We operate 26 manufacturing facilities in five countries and provide products and integrated solutions to municipal, governmental, industrial, and commercial customers in all regions of the world.

As described in Note 17 – Segment Information in Item 8, Financial Statements and Supplementary Data, in this Form 10-K the Company’s business units are organized in two reportable segments: the Environmental Solutions Group and the Safety and Security Systems Group.

Operating and Financial Performance in 2025

Conditions in our end markets remained strong throughout 2025, with robust demand for our products and services. We continued to execute against our organic growth initiatives, and with contributions from recent acquisitions and additional efficiency gains resulting from the application of our eighty-twenty initiatives, we were able to sustain a high level of financial performance. During the year, we increased production levels at several of our facilities, helping us to deliver record financial results for our stockholders, with 17% net sales growth, double-digit earnings improvement, expansion of margins, and improved cash flow generation.

Included among the Company’s highlights in 2025 were the following:

•Net sales for the year ended December 31, 2025 were $2.18 billion, the highest level in our history, and an increase of $319 million, or 17% from last year.

•Operating income for the year ended December 31, 2025 was $340.9 million, an increase of $59.5 million, or 21%, from last year.

•Operating margin for the year ended December 31, 2025 was 15.6%, compared to 15.1% in the prior year.

•Net income for the year ended December 31, 2025 was $246.6 million, an increase of $30.3 million, or 14%, from last year.

•Adjusted EBITDA* for the year ended December 31, 2025 was $438.9 million, an increase of $88.3 million, or 25%, from last year.

•Adjusted EBITDA margin* for the year ended December 31, 2025 was 20.1%, up from 18.8% last year.

•Orders for the year were $2.22 billion, the highest annual orders reported in the Company’s history, contributing to a backlog of $1.04 billion at December 31, 2025.

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•Net cash provided by operating activities for the year ended December 31, 2025 was $255 million, an increase of $23 million, or 10%, from last year.

•In October 2025, we refinanced our credit agreement, increasing our revolving credit facility from up to $675 million to up to $1.1 billion, and increasing the term loan facility from up to $125 million to up to $400 million.

•With our strong balance sheet, positive operating cash flow, and increased capacity under our new credit facility, we are well positioned to continue to invest in internal growth initiatives, pursue strategic acquisitions, and consider ways to return value to stockholders, as we did during 2025:

◦Our capital expenditures in 2025 were approximately $28 million and included a number of strategic investments in new machinery and equipment aimed at gaining operating efficiencies and expanding capacity at certain production facilities.

◦We continue to invest in new product development and anticipate that these efforts will provide additional opportunities to further diversify our customer base, penetrate new end-markets, and/or gain access to new geographic regions.

◦We continued to execute on our disciplined M&A strategy with the acquisitions of Hog, New Way, and Kinloch. As of December 31, 2025, we have completed 15 acquisitions since 2016.

◦We demonstrated our commitment to returning value to our stockholders by paying cash dividends of $34.1 million and spending $39.7 million to repurchase shares of our common stock under our authorized repurchase program.

*The Company uses adjusted earnings before interest, tax, depreciation, and amortization (“adjusted EBITDA”) and the ratio of adjusted EBITDA to net sales (“adjusted EBITDA margin”) as additional measures to assist it in comparing its performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes are not representative of its underlying performance and to improve the comparability of results across reporting periods. Refer to the Results of Operations section for further discussion regarding these non-GAAP metrics and a reconciliation of each to the most comparable GAAP measure for each of the periods presented.

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Results of Operations

The following table summarizes our Consolidated Statements of Operations as of, and for the years ended December 31, 2025 and December 31, 2024, and illustrates the key financial indicators used to assess our consolidated financial results:

(a)The Company uses adjusted EBITDA and adjusted EBITDA margin as additional measures to assist it in comparing its performance on a consistent basis for purposes of business decision making by removing the impact of certain items that management believes are not representative of its underlying performance and to improve the comparability of results across reporting periods. The Company believes that investors use versions of these metrics in a similar manner. For these reasons, the Company believes that adjusted EBITDA and adjusted EBITDA margin are meaningful metrics to investors in evaluating the Company’s underlying financial performance. Adjusted EBITDA is a non-GAAP measure that represents the total of net income, interest expense, net, pension settlement charges, acquisition and integration-related expenses, net, purchase accounting effects, other expense, net, income tax expense, and depreciation and amortization expense, where applicable. Adjusted EBITDA margin is a non-GAAP measure that represents the total of net income, interest expense, net, pension settlement charges, acquisition and integration-related expenses, net, purchase accounting effects, other expense, net, income tax expense, and depreciation and amortization expense, where applicable, divided by net sales for the applicable period(s). Other companies may use different methods to calculate adjusted EBITDA and adjusted EBITDA margin.

Year ended December 31, 2025 vs. year ended December 31, 2024

Net sales

Net sales for the year ended December 31, 2025 increased by $319.0 million, or 17%, compared to the prior year, primarily due to higher sales volumes, inclusive of the effects of acquisitions, and pricing actions. The Environmental Solutions Group reported a net sales increase of $280.4 million, or 18%, primarily due to a $61.2 million improvement in aftermarket revenues and increases in sales of road-marking and line-removal equipment of $52.4 million, sewer cleaners of $36.3 million, refuse trucks of $33.6 million, safe-digging trucks of $25.2 million, dump truck bodies of $24.6 million, street sweepers of $23.0 million, industrial vacuum loaders of $12.4 million, and metal extraction support equipment of $10.1 million. Partially offsetting these improvements was an $8.8 million reduction in sales of trailers and a $4.0 million unfavorable foreign currency translation impact. Within the Safety and Security Systems Group, net sales increased by $38.6 million, or 13%, primarily due to improvements in sales of public safety equipment of $27.7 million, warning systems of $7.4 million, and a $2.8 million favorable foreign currency translation impact.

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Cost of sales

For the year ended December 31, 2025, cost of sales increased by $220.8 million, or 17%, compared to the prior year, largely due to an increase of $201.1 million, or 17%, within the Environmental Solutions Group, primarily related to increased sales volumes, inclusive of the effects of acquisitions, higher material costs, and

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