Federal Signal Corporation (FSS) Earnings Call Transcript & Summary

Greetings, and welcome to the Federal Signal Corporation, New Way Trucks Investor Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Felix Boeschen, Vice President, Corporate Strategy and Investor Relations. Please go ahead.

Good morning, and welcome to Federal Signal's conference call to discuss the acquisition of New Way Trucks, which was announced yesterday after market close. I'm Felix Boeschen, the company's Vice President of Corporate Strategy and Investor Relations. Also with me on the call today is Jennifer Sherman, our President and Chief Executive Officer; and Ian Hudson, our Chief Financial Officer. On today's call, we will provide an overview of New Way and its competitive position, give some details on the economics of the transaction and discuss the strategic rationale inclusive of our expected synergies. We will refer to some presentation slides today as well as to the news release, which we issued yesterday afternoon. 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 news release under the Investor tab on our website. Before I turn the call over to Jennifer, I'd like to remind you that today's call and the related slides may contain forward-looking statements that are subject to the safe harbor language found in yesterday's news release, the slide presentation and in Federal Signal's filings with the Securities and Exchange Commission. These documents are available on our website. With that, I would now like to turn the call over to Jennifer.

Thank you, Felix, and good morning from Scranton, Iowa. I'm delighted to announce that we have signed a definitive agreement to acquire New Way Trucks, a U.S.-based leader in the design and manufacture of refuse collection vehicles serving the solid waste industry. New Way has 5 manufacturing facilities. Today, I'm sitting in the headquarters here in Scranton and they have additional facilities in Carroll, Iowa and Booneville, Mississippi. New Way employees over 750 people, and I'm pleased to welcome every one of these employees to the Federal Signal family today. Before we get into the details of New Way and the transaction, I would like to provide a bit of context around the strategic rationale of the acquisition. As many of you know, we have been distributing third-party refuse trucks through our Joe Johnson Equipment network for almost a decade. Throughout that time frame, we've been able to intensely study the refuse collection vehicle industry and its players, and we believe we have identified the ideal anchor tenant in what is a new specialty vehicle vertical for us. As a family-owned business, New Way has established itself as a leading refuse truck manufacturer dedicated to its employees, customers and the communities in which it operates. And given our track record of acquiring and growing privately owned companies, we believe Federal Signal is an excellent cultural fit to lead New Way into its next chapter. We also believe the unique value proposition of Federal Signal's specialty vehicle platform can help optimize New Way's operations, unlock incremental growth opportunities and further strengthen New Way's aftermarket service in the years to come. A couple of important factors stood out to us when evaluating New Way's competitive position that ultimately drove our conviction in this transaction. First, New Way's leading position in automated side loaders within the United States. One of the fastest-growing subsectors in the refuse vehicle industry. Second, it's U.S.-based manufacturing footprint, including a recently expanded facility in Mississippi. Third, its proven history of strong organic growth and resilience through economic cycles. Fourth, its leadership in offerings to the U.S. municipal and non-CDL customers. Fifth, the opportunities that exist for further improvement as we are able to execute on our synergy plans. And 6 and critical the fantastic team at New Way. On that note, we are excited that several key New Way management team members will continue in their roles with the company post-transaction. We believe the amalgamation of our internal refuse leadership team at Federal Signal, which has more than 100 years of combined refuse industry experience, our direct Joe Johnson distribution channel and the New Way's team's expertise strategically positioned the combined companies for outside growth going forward. I will now turn the call over to Ian to discuss the key financial terms of the deal.

Thank you, Jennifer. In terms of the economics of the deal, Federal Signal will acquire New Way for an initial purchase price of $396 million on a cash-free debt-free basis. In connection with the acquisition, the company will also acquire New Way's manufacturing facilities and associated real estate rights in Iowa and Mississippi for additional consideration of $30 million. Additionally, there is a contingent earn-out opportunity of up to $54 million, which is based on the achievement of certain specified financial targets over a 2-year period. When adjusted for the present value of anticipated tax benefits, which are currently estimated at approximately $60 million, the combined initial purchase price represents a multiple of approximately 11x New Way's projected EBITDA for 2026, of between $30 million and $35 million. This multiple includes the impact of various planned investments and integration and optimization initiatives, including deployment of Federal Signal's chassis and inventory management best practices. Including anticipated synergies, the initial purchase price represents a multiple of approximately 7x New Way's projected EBITDA for 2028. We expect the transaction to be neutral to earnings per share in 2026, reflecting the impact of higher interest costs and the anticipated purchase accounting -- purchase accounting effects, including a preliminary estimate of intangible asset amortization expense. We expect the transaction to be accretive to EPS in subsequent years, with anticipated accretion of between $0.40 per share and $0.45 per share in 2028. This outlook assumes debt paydown of approximately $100 million per year. We intend to finance the acquisition with a combination of cash on hand and availability under our existing credit facility. We anticipate that our pro forma net debt leverage ratio upon completion of the acquisition will be less than 1.5x, leaving sufficient financial flexibility for additional acquisitions and other capital allocation priorities, such as organic growth initiatives and cash returns to stockholders. Given the acquired facility footprint and consistent with our other specialty vehicle businesses, we expect annual capital expenditures at New Way will represent a low single-digit percentage of net sales in coming years, supporting strong cash generation. Lastly, we are expecting to close the transaction during the fourth quarter, subject to regulatory approval and customary closing conditions. With that, I will now turn the call back to Jennifer to expand on the strategic rationale for the acquisition and to provide additional details around our expected synergies.

Thank you, Ian. As mentioned, we see the acquisition of New Way as a natural extension of our specialty vehicle portfolio that checks all of our target M&A criteria. In fact, one of the most attractive characteristics of the Refuse Vehicle Collection segment is its recession-resilient nature. As many of you know, since launching our current growth strategy in 2016, one of our key strategic objectives has been to mute the cyclicality of Federal Signal's earnings stream. We believe the entrance into refuse collection vehicle manufacturing further fortifies this objective, given its stable funding mechanisms and essential service similar to the sewer cleaner industry. As mentioned earlier, New Way's leadership in automated side loaders is especially exciting. Automated side loaders or ASLs for short, represent approximately 37% of the North American industry refuse collection vehicle industry today, up from approximately 29% ,5 years ago based on the National Waste Recycling Association. In line with this shift toward ASL, New Way has been able to expand its share by approximately 500 basis points over that same time frame, given its leading U.S. position within ASL. This growing preference for ASLs within the refuse collection industry is underpinned by compelling labor and safety advantages associated with the equipment. Specifically, ASL require just a single operator compared to 2 to 3 operators for traditional rear loader refuse garbage trucks. Not only does this automation reduce labor costs for haulers and municipalities, but it also substantially increases operator safety, as operators are able to remain inside the truck throughout the waste collection process, thereby eliminating ride-along crews where the bulk of injuries occur. Going forward, we see New Way well positioned to continue to capitalize on these secular automation tailwinds within waste collection. As Ian noted, we expect the acquisition to be neutral to adjusted EPS in 2026. This is partially due to several investment opportunities that we've identified as well as working capital and inventory management optimization opportunities that we plan to complete next year. We also have a plan that will be driven by our voice of customer feedback to enhance New Way's technology offerings by leveraging our existing businesses, incremental R&D and third-party partnerships. These initial investments, which will include our 80/20 operating principles, increased new product development and other operational initiatives will allow us to more efficiently achieve our 3-year synergy targets by 2028 and expand New Way's margins into our recently raised ESG margin range of 18% to 24% over time. By harnessing the power of our specialty vehicle platform, we are targeting annual run rate synergies of between $15 million and $20 million. These synergies, coupled with core organic growth at New Way combined to form our $55 million EBITDA target for 2028. Our identified synergies span 3 primary categories: number one, operational, including procurement and the application of our Federal Signal operational model; number two, enhancing customer service via expanded aftermarket service and dealer development; and number three, unlocking growth, including new product development and sales channel optimization. Across all 3 categories, we expect synergies to gradually ramp over the next 3 years with synergy targets expected to be substantially realized by the end of 2028. Starting with the operational synergies. We expect operational synergies to be roughly evenly balanced between procurement savings and the application of our operational model, including supply chain optimization. Importantly, we believe the application of the Federal Signal operational model, including and intense focus on our deeply entrenched 80/20 principles will form the foundation of additional growth and margin expansion opportunities well beyond the next 3 years. Additionally, we see opportunities to optimize manufacturing efficiencies via a combination of labor productivity gains, safety improvements and targeted automation opportunities. A great example of how effective this process can be is our Ox Bodies dump body business based in Fayette, Alabama, with the same operating team in 2023 was able to drive a 90% reduction in standard dump body SKUs through its 80/20 initiatives. This initiative helps expand Ox EBITDA margins by more than 800 basis points over a 2-year time frame, while Ox meaningfully expanded its market share. Shifting to best-in-class customer service. We expect to realize synergies primarily through the optimization of New Way's aftermarket business and dealer development opportunities aimed at driving targeted growth. In short, Federal Signal's North American aftermarket footprint of more than 35 locations will materially increase New Way's reach, driving more robust parts coverage, closer proximity to customers and ultimately allow New Way to penetrate historically underserved regions. One of those examples is in Canada, where New Way has historically not been a major player. Utilizing our footprint of 10 Canadian service center locations and the experience of our Joe Johnson team in the refuse distribution space, we believe we can drive meaningful share growth for New Way similar to the playbook we deployed after acquiring Trackless in 2023. Within the aftermarket expansion opportunity, we are particularly excited about parts. As New Way's growing installed base of trucks reaches more optimal part consumption ages over the next 3 years, we see us well positioned to use our combined aftermarket footprint to drive a higher capture rate for this expanded opportunity set. Additionally, we plan to further accelerate our existing build more parts initiative, whereby we have chosen to vertically integrate certain parts production in order to drive increased recurring revenue streams and higher aftermarket share. While the initiative is only a few years old, we have seen consistently strong double-digit growth from this initiative and the acquisition of New Way further expands our build more parts opportunity set. Owing to a combination of these strategic initiatives, we see opportunity to increase New Way's aftermarket sales mix into the mid- to high teens range, as a percentage of net sales by 2028. Lastly, we expect to realize additional revenue growth synergies by unlocking incremental opportunities through new product development, sales channel optimization and market intelligence tools. Key new product development priorities include enhancing New Way's front loader product line, fortifying its leadership with a non-CDL and ASL offerings and accelerating other technology initiatives, all areas where we see meaningful growth potential and strong customer interest. Additionally, similar to other specialty vehicle acquisitions that we've completed in recent years, we also see sales channel alignment opportunities. In particular, we will aim to scale direct sales into private haulers, an important customer group that has been historically underserved by New Way. We also see incremental cross-selling opportunities across our other specialty vehicle offerings including street sweepers, vacuum trucks, municipal maintenance tractors and certain specialty dump bodies and trailers. In closing, Federal Signal has a long track record of acquiring niche specialty vehicle leaders and delivering sustainable growth through a disciplined operating model. We have been steadfast in our commitment to growing profitability, while diversifying both our revenue stream and end market exposures as we seek to mute the impact of market cyclicality. The acquisition of New Way is another highly strategic opportunity to add to our platform of specialty vehicle companies and for Federal Signal to further diversify into the recession-resilient waste and recycling industry. We see New Way as the ideal anchor tenant for this new growth vertical within Federal Signal that will create both organic and inorganic growth opportunities going forward. We will now open the call for questions. Operator?

[Operator Instructions] Our first question comes from the line of Tim Thein with Citi.

My Citi days are over. But anyways, the question -- the first one, Jennifer, is -- I was hoping maybe you could expand a bit on the distribution strategy, just given the kind of the cross-pollination of brands that exist across yours as well as your competitive -- or your competitor dealers. And I'm just thinking about the potential risk that you get some churn through the process as you go through this? So maybe you could speak to that. That's question one.

Sure. Thank you. This is something that we thought a lot about. And what's exciting here is we have a lot of different options. So we have our exclusive ESG distribution network. And we respect the fact that some of our ESG dealers represent competitive line. And so we don't plan on disrupting that. There will be opportunities for some ESG dealers in underserved New Way territories, if they're interested to bid on those territories. So given the exclusive nature of this dealer network and the go-to-market strategy, we feel that we plan on continuing that and we can minimize conflict. Going forward, we plan on leveraging our JJE distribution network, with a particular focus on Canada, which has been a historically underserved market for New Way. So we think we're in an ideal position in terms of -- we're going to have a lot of optionality by leveraging the strong partners that New Way has in place, bringing some new partners into the equation, either through our ESG network or otherwise, and then most critically leveraging our JJE team with a specific focus in Canada.

Okay. All right. And then just on the parts penetration, I think, 11% -- 10%, 11% of sales, the last area or last example I saw in this space about a year ago and another transaction in the space. In fact, that specific OEM was almost 20%. So again, not all these manufacturers are the same, but quite a big difference. And I'm just curious what -- is there something structural that you just think about kind of the high wear and tear of a garbage truck, I would think inherently the parts penetration should be higher than 10%, 11%. Was it a lack of focus? Or what gave rise to -- it certainly seems like a big opportunity, but maybe there's something we're missing that precludes the parts capture for New Way.

Yes. I'll start with -- this is a synergy area that we've spent a lot of time and focused on. And frankly, it was one of the reasons -- the many reasons that New Way was so attractive to us, because we have the infrastructure in place to grow that parts business. So a couple of things I would say. One is there are -- they've had so much growth over the last couple of years. So as those trucks enter into the kind of sweet spot of 2-plus years. There's just by definition, going to be more parts opportunities for New Way. Second, the New Way team would tell you that it wasn't an area of focus, and it will be a critical area of focus for us. I think what also is important is we referenced our build more parts initiative that we're in early days of in this New Way acquisition and refuse in general creates a new opportunity set for the build more parts of initiatives. I guess what I'll end on is we have a lot of confidence in our ability to grow these parts, and we don't see any structural reason that we can't hit those high teens 20% number.

Understood.

Our next question comes from the line of Ross Sparenblek with William Blair.

Jennifer, it's Sam Karlov on for Ross.

Absolutely.

I guess -- so can you help us size New Way's revenue growth in '24, '25, and then your expectations for '26? And then touch on how New Way's current revenue growth profile compared to the double-digit growth the company has seen over the past decade or so?

Yes. So Sam, I think in our prepared remarks, we talked about the growth they've experienced over the last few years. That growth has been organic in 2024, which is the last full year of operations. Their revenue is about $250 million. And so that's over the -- that's for the annual period 2024. As we move forward, I think, obviously, there's embedded within our guidance for 2024. You can -- essentially, you can back into some of the numbers there. So I think we are expecting to be a little down versus 2024. As we -- in 2026, that is, as we have some inventory in the system will work through. But as we move forward and start to realize some of those synergies, I think we would be expecting a nice growth rate going forward.

Yes. I guess I'll add a couple of things, too. 2026 is going to be a year of investment. And then as Ian mentioned, there's some inventory optimization. We're really going to focus heavily on 80/20. And as I mentioned in my prepared remarks, we feel confident with these investments that we will be able to grow from $30 million to $35 million in 2026 to $55 million in '28. And a lot of that's going to be synergies we talked about. But we've never worked on a transaction where we have a more detailed plan, and the teams are raring to go in terms of what do we need to do in '26 and the growth opportunities going forward. Longer term, we would expect this to be kind of very similar to our other ESG assets, mid-single-digit organic growth. What's unique here is the synergy opportunities over the next 3 years and the size of those synergy opportunities. And frankly, I'll say the confidence we have regarding what we can bring to the table. New Way has got a great foundation and through leveraging our aftermarket group through our 80/20 initiatives, procurement, we think there's a tremendous opportunity here going forward. And parts will be an important part of that, as I discussed earlier.

Got it. That's super helpful. And then kind of touching on the investments you just talked about. Can you help us size those investments in 2026, just so we can get a sense of what the headwind looks like next year?

Yes. I think it's -- we're still working through the numbers, but it will be at least a couple of million dollars. But I want to remind everybody, there will be, as I mentioned in my prepared remarks, a laser focus on 80/20 and we're also looking at some inventory optimization and other tools that we have in the toolbox going forward.

Got it. And one quick follow-up. I mean, can you help us size New Way's backlog, just so we have a sense of how much inorganic order growth we can expect in the fourth quarter?

Yes. I think Sam, that's probably something we will -- when we close, we'll have more clarity on the size of the backlog. Obviously, we have a period of time between signing and closing where we're going to be waiting for regulatory approval and some of those things. So I think we'll come back to you with an updated number on the backlog there.

Our next question comes from the line of Walter Liptak with Seaport Research.

So I guess my first question is about 80/20, and it's great that you've got those tools to go get profit improvement within this acquisition. So when you're calling out the goal of the $55 million EBITDA, is that -- is there some revenue growth -- some organic revenue growth in that number, or is that all based on 80/20 aftermarket other synergies?

Yes. There's absolutely organic revenue growth. I'll start there. The synergies of $15 million to $20 million are incremental and embedded in that $55 million, and they're kind of split equally between cost and revenue. And I just wanted to highlight the success our teams have had with 80/20. We -- it wasn't a coincidence. We highlighted the Ox team that same team members who have 100-plus years' experience in refuse. We'll be working on this particular transaction. We've identified that particular team. And what's really important, as you know, is that the 80/20 really sets us up for growth beyond 2028. We're in this for the long run. And one of the reasons we were so attracted to New Way is they have a great foundation, and we feel like we were the ideal partner with respect to our specialty vehicle platform, and the synergies and experience that we can bring to the table to grow revenue. And frankly, there'll be a laser focus on growing their EBITDA margin targets.

Okay. Great. Yes. That's excellent. And the Ox body team, there's no doubt those -- the data that you pointed out, 90% reduction in SKUs and the profit improvement is really impressive. How -- is it a similar sort of a product offering to Ox Bodies where you could go through and over time doing the similar sorts of programs to reduce SKUs and improve the profitability?

Each business is different. And -- but the team has, through our diligence process, identified some opportunities through 80/20, and we've embedded those opportunities in our $15 million to $20 million of synergies. And we're really fortunate to have those team members who are energized about the opportunities of working with the New Way team.

Okay. Great. Okay. Well, congratulations.

Thank you.

Our next question comes from the line of Steve Barger with KeyBanc Capital Markets.

I just want to talk about market dynamics first. So my understanding is there are 2 big competitors that have sizable market share and then maybe a more fragmented, but still relatively small pool of OEMs. So first, is that correct? And then second, how do you think about the TAM?

Yes. So we would say that there are 4 major players, each player has expertise. And we've really focused on New Way because of its leading market position for non-CDL and for the ASL product and what we can bring to the equation. We're also, frankly, very attracted because of its high percentage of municipal sales. So it goes back to kind of the fundamental premise of your question of how do you define the market? And for us, it's really focused on this, obviously, growth of all products, but with the focus on the ASLs, the non-CDL. And we understand, and we pointed out in our materials that on the front loader, for example, there's work to be done, and we think there's great opportunity there. So -- and that's really our view of the market and the opportunities. And as we talked about on the call, New Way does very little in Canada right now. And with our distribution footprint in Canada and the expertise we have, we think that, that is a tremendous opportunity.

So if you think about Canada and what the opportunity is in America, like how do you size it in terms of what you consider the addressable market?

Yes, Steve, I think when you think about it, it's probably a good way to think about the split on U.S. versus Canada on a population basis. So certainly, when you think about Canada, it's a very large untapped opportunity for New Way. And again, given their leadership in automated side loaders, we think we're the right player to penetrate that Canadian market.

Okay. How -- you kind of alluded to this, Jennifer, like how have companies differentiated in this market? Is it by technology? Is it by relationship? And is pricing historically rational?

Yes. So this company is -- New Way has distinguished itself by its leading market position in the U.S. in automated side loaders, non-CDLs and its relationship with customers. It is a very strong relationship-based company. It has good dealers, as I talked about earlier in some of my prepared remarks. And we believe that pricing has been pretty rational as -- it is a recession resilient end market.

Got it. And then just one quick follow-up. If I look at the website, I see a lot of different models across the product categories. Without naming models, can you just give us an idea of average selling price from the high end to the low end? And given your 80/20 process, do you want to participate in all those categories going forward?

The average selling price would range somewhere between $85,000 and $175,000, and part of our 80/20 initiative will be -- and that's excluding the chassis, obviously. And part of our 80/20 initiative, we'll be focused on that very question.

And Steve, the other comment on that automated side loaders would be on the high end of that average selling price.

Yes. Understood. Congratulations.

Thank you.

Our next question comes from the line of Chris Moore with CJS Securities.

Congrats. It looks very interesting. I'm always interested in the processes in terms of why New Way was selling at this point in time. And is this a relationship that you've been tracking for a while, or just any thoughts there?

Yes. This is a family business owned by siblings. We've gotten to know them, and there was just a strong cultural fit between how they've grown this business, how they treat employees, their investment in the communities where they live and operate. That was very important to the family. We had dinner with them last night, and one of many dinners and the whole management team and just the energy and the similarities that we see with the culture here at New Way and the culture at our Federal Signal businesses. That was an important part of -- on the fit and particularly for the family, because as they said last night in their toast, they're trusting us. And we couldn't be more thrilled to build on the legacy that the McLaughlin family has created.

Very helpful. Is there any rental revenue currently at New Way? And is that -- is that an opportunity moving forward?

There is no rental revenue in terms of what we're buying, and we will be evaluating all opportunities as we move forward.

Got it. And maybe just the last one is maybe more of an FSS question, but you talked about the current use of AI in the bid process and being able to leverage that at New Way. Can you maybe just expand a little bit on kind of the use of AI currently?

Yes. We're -- we've got a number of projects that we are piloting right now. So we're in early stages. But that is, as we've talked about, part of the harnessing the power of our specialty vehicle platform, and we will plan on applying those same tools over time to New Way.

Sounds good.

Thank you, Chris.

Our next question comes from the line of Mike Shlisky with D.A. Davidson.

Maybe a follow-up on the last question. We started to see fully autonomous waste trucks from some of the other players in the industry as well as new technology, not necessarily fully autonomous, but they at least sense the bin as they go along. And that's more than just an automated waste truck that's a different system. We started to see other companies introduce EV waste trucks. I was kind of wondering where does New Way stand in the area of making its trucks autonomous or adding more autonomy to them and going electric where sub [indiscernible] are going to start to require that in the near future?

Yes. So New Way has been building EV trucks since 2018. Their strategy is in line with Federal Signal strategy. They're agnostic with respect to chassis. They build on a variety of EV chassis. So they've sold 50-plus EV trucks since 2020. And we believe that we can leverage, as we've talked about, kind of Federal Signal's team that's focused on this to continue to grow that going forward.

And on the question of adding more autonomy to the vehicles?

Yes. So with respect to one of the things that we have planned is a voice of customer project to really understand and enhance new waste technology offerings. One of the very first things we're doing, going to do. And so through a combination of leveraging our own existing businesses, incremental R&D, which we've built into our model and third-party partnerships that could be an important opportunity for New Way. But again, really, we're going to start with that voice of customer research.

Great. And I also wanted to ask about the process to start to integrate the company. Because there's an earn-out, how do with Hog, do you have -- do you plan to give the company a time within it as a stand-alone company first, so that management can earn the earn-out? Or do you plan to -- on the first day post-closing dive right in with the integration process? I'm just curious as to how this might differ from the Hog deal.

Yes. This is very different from the Hog deal. In that we have a plan. We've got a team. We have process leaders already identified. As I mentioned in my prepared remarks, we have a group within our TBEI business that is 100-plus years of refuse experience that will be working with the New Way team. This will be a major focus of our CTO in the -- aligning with the questions you asked at the beginning. And what's critical is we will be aligning as we've done in other deals, the Federal Signal employees who work in this transaction with the same metrics that's in the earnout. So we -- and that's what we've done in several transactions, and we found it to be very powerful. So we are -- we've got a big team here today in Iowa. We've got a big team in Mississippi right now. And we are very prepared when we close this transaction to start to create the foundation for future growth going forward and capture those synergies. And both the New Way shareholders and our Federal Signal team members, again, the incentives will be aligned, and they will be highly motivated to achieve those results.

Okay. Congratulations.

Thank you.

Our next question comes from the line of Greg Burns with Sidoti & Company.

Just wanted to maybe kind of understand -- better understand the organic growth opportunity a little bit as you're looking to enter Canada and maybe further penetrate the U.S. I was just wondering if municipalities or customers, do they operate like mixed fleets, or do they standardize across the brand? Like how easy is it to penetrate different customer bases? And then maybe if you could give us a sense of what New Way's installed base looks like, and what are replacement cycles like in this market?

Yes. So to answer your question, typically, customers operate mix fleet. Our focus on the growth areas are really going to be around continued growth of the automated side loader of the non-CDL, and then also, we have R&D projects focused around the front loader in addition to that. And then there's some product -- important product variations. As we move forward with respect to the installed base, Felix will walk you through that.

Yes. I think the answer is sort of the installed base replacement cycle question, think about replacement cycles as being certainly less than 12 years and ASLs are sub 10 years, which was one of the attractive factors to us about New Way. We talked about the installed base a little bit earlier. New Way has been a material market share gainer in the space. And so when you think about all of those units that have been out in operation, they're probably not yet in what we would consider the optimal parts consumption age. And so obviously, as those trucks are out in operation and aging, we think there's an attractive aftermarket opportunity for us to capture.

Our next question is a follow-up from the line of Tim Thein with Raymond James.

I just -- there's been lots of Canada referenced here this morning and the opportunity there and the relationship, leveraging Joe Johnson foothold there. But if memory serves, they distribute a competitive line of trucks. And so I guess, in some ways, this goes back to my initial question, and I apologize, maybe not the ideal forum for this kind of question, but what happens in that kind of situation?

Yes. So the answer is complicated because you're correct. In some areas, they do distribute competitive trucks and there'll be some period of transition. But there are some large areas where they don't distribute refuse trucks at all, and they've been very anxious, and we have infrastructure there because we distribute other Federal Signal products in Calgary, Edmonton would be good examples. And we have high market share. So there's also white space for our Canadian team. It's our intention to kind of fulfill our existing backlog and service those trucks and enhance the service footprint in Canada and in other areas where we may go direct.

Okay. All right. That helps. And then maybe someone else had asked about the competitive dynamics and pricing discipline. I'm just thinking back, I guess, I think before your -- well, certainly before your start as CEO of the company, Federal had been involved in this space, and it didn't go well. And I know there were currency swings and other things that impacted that. But consolidation, I'm guessing, is going to be one answer, but is there -- are there other factors that you would point to that have made this industry and you see it in the margins and returns of others, but that you'd point to that make this a more attractive industry today versus 20 years ago? I'm sure it's true in a lot of industries. But is there anything else you would point to other than there's just been a lot of consolidation that's occurred?

Yes. I was in a very junior role at Federal Signal and didn't have a lot of visibility in terms of its previous ownership of refuse trucks, obviously, familiar with it. But this is a very different business, very different end market dynamics given the consolidation that has occurred.

Yes.

We studied the industry back to 2000, and we're encouraged by kind of the recession-resilient nature of that industry. And we think that New Way has the kind of leading market positions, and we can bring a lot to the equation. It was frankly one of the things that was pretty attractive about this acquisition opportunity with the synergies and how we can build and harness that power of the Federal Signal platform. So we studied hard. We have an execution plan in place to go after the synergies, and we're really excited.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session, and we'll conclude our call today. Thank you for your interest and participation. You may now disconnect your lines.