Federal Signal opened 2026 with record first-quarter results, as net sales grew 35% to $626 million and Adjusted EBITDA rose 48% to $126.3 million, expanding margin 190 basis points to 20.2%. Adjusted EPS climbed 55% to $1.18 and operating cash flow surged 176% to $101 million, a 144% conversion rate. Recent acquisitions added $92 million of net sales while both groups posted strong organic gains and SSG margin expanded 460 basis points. Backlog eased about 6% on the planned run-off of third-party Labrie refuse orders and a roughly $20 million decline in international export orders.
Good morning. Welcome to Federal Signal's First Quarter 2026 Conference Call. 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. We will refer to some presentation slides today as well as to the earnings 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 Ian, 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. We will file our Form 10-Q later today. Ian will start today with more detail on our first quarter financial results. Jennifer will provide her perspective on our performance, current market conditions, our multi-year growth initiatives, and go over our revised outlook for 2026 before we open the line for any questions.
With that, I would now like to turn the call over to Ian.
Thank you, Felix. Our consolidated first quarter financial results are provided in today's earnings release. In summary, we delivered strong financial results for the quarter with 35% year-over-year net sales growth, 52% operating income improvement, gross margin expansion, a 190 basis point improvement in adjusted EBITDA margin, robust cash generation, and strong order intake. Consolidated net sales for the quarter were $626 million, up $162 million or 35% compared to last year. Organic sales growth for the quarter was $70 million or 15%. Consolidated operating income for the quarter was $99.7 million, up $34 million or 52% compared to last year.
Consolidated adjusted EBITDA for the quarter was $126.3 million, up $41.2 million or 48% compared to last year. That translates to a margin of 20.2% in Q1 this year, up 190 basis points compared to last year. GAAP diluted EPS for the quarter was $1.14 per share, up $0.39 per share or 52% compared to last year. On an adjusted basis, EPS for the quarter was $1.18 per share, an increase of $0.42 per share or 55% from last year. Orders for the quarter were $623 million, up $55 million or 10% from last year, contributing to a backlog at the end of the quarter of $1.04 billion.
In terms of our group results, ESG's net sales for the quarter were $533 million, up $145 million or 38% compared to last year. ESG's operating income for the quarter was $89.1 million, up $29.4 million or 49% compared to last year. ESG's adjusted EBITDA for the quarter was $113.3 million, up $35.8 million or 46% compared to last year. That translates to an adjusted EBITDA margin for the quarter of 21.3%, an improvement over 130 basis points compared to last year. ESG reported total orders of $534 million in Q1 this year, an increase of $54 million or 11% compared to last year.
SSG's net sales for the quarter were $93 million this year, up $17 million or 22%. SSG's operating income for the quarter was $23.6 million, up $7.8 million or 49% compared to last year. SSG's adjusted EBITDA for the quarter was $24.7 million, up $7.9 million or 47%. That translates to an adjusted EBITDA margin for the quarter of 26.6%, up 460 basis points compared to last year. SSG's orders for the quarter were $89 million, up $1 million or 1% from last year. Corporate operating expenses for the quarter were $13 million compared to $9.8 million last year, with the increase primarily due to higher acquisition and integration related expenses and increased legal, stock compensation, and incentive-based compensation costs.
Turning now to the consolidated income statement, where the increase in net sales contributed to a $48.6 million improvement in gross profit. Consolidated gross margin for the quarter was 28.7%, a 50 basis point increase over last year. As a percentage of net sales, our selling, engineering, general, and administrative expenses for the quarter were down 150 basis points from Q1 last year.
Other items affecting the quarterly results include a $2.2 million increase in amortization expense, a $600,000 increase in acquisition-related expenses, and a $3.9 million increase in interest expense associated with higher average debt levels. Tax expense for the quarter was $21.8 million, an increase of $6.1 million compared to Q1 last year, with the increase primarily due to the effects of higher pre-tax income levels, partially offset by the recognition of approximately $1 million of excess tax benefits from stock compensation activity. Our effective tax rate for Q1 this year was 23.6%. At this time, we continue to expect that our full year effective tax rate will be approximately 25%, excluding additional discrete tax benefits.
On an overall GAAP basis, we therefore earned $1.14 per share in Q1 this year, compared with $0.75 per share in Q1 last year. To facilitate earnings comparisons, we typically adjust our GAAP earnings per share for unusual items recorded in the current or prior quarters. In the current year quarter, we made adjustments to GAAP earnings per share to exclude acquisition-related expenses and purchase accounting expense effects. On this basis, our adjusted earnings for the quarter were $1.18 per share, compared with $0.76 per share last year. Looking now at cash flow, we generated $101 million of cash from operations during the quarter, an increase of $65 million or 176% from Q1 last year.
We ended the quarter with $480 million of net debt and availability under our credit facility of $939 million. Our current net debt leverage ratio remains low even after paying the full $15 million earn-out associated with the Hog acquisition and funding the Mega equipment acquisition during the quarter. With our financial position remaining strong, we have significant flexibility to invest in organic growth initiatives, pursue strategic acquisitions, pay down debt, and return cash to stockholders through dividends and opportunistic share repurchases. On that note, we paid dividends of $9.2 million during the quarter, reflecting an increased dividend of $0.15 per share, and we recently announced a similar $0.15 per share dividend for the second quarter. That concludes my comments, and I would now like to turn the call over to Jennifer.
Thank you, Ian. We are proud of our record-setting first quarter performance, which included new quarterly records across net sales, adjusted EPS, and adjusted EBITDA, thanks to outstanding results from both of our groups. As I reflect on our start to 2026, I was particularly pleased with several items in the quarter that drove better than expected results versus our expectations. First, there was broad-based strength across several product verticals within each of our groups that contributed. Second, the early progress our teams made integrating Hog Technologies, New Way, and Mega into the Federal Signal family. Third, the strong margin performance in the quarter with adjusted EBITDA margins expanding 190 basis points year-over-year.
Within our Environmental Solutions Group, we delivered 38% year-over-year net sales growth, a 46% increase in adjusted EBITDA, and a 130 basis point improvement in adjusted EBITDA margin. Higher production levels, leveraging the power of our platform to drive internal margin initiatives, and proactive price cost management were all meaningful organic contributors. Acquisitions also contributed $92 million of net sales during the quarter, with the New Way, Hog, and Mega transactions driving notable increases in sales of refuse trucks, road marking and line removal equipment, and mineral extraction support equipment. We remain focused on Build More Trucks across our family of specialty vehicle businesses in line with demand levels.
These efforts to increase throughput across our manufacturing sites contributed to strong net sales across several ESG product verticals, including vacuum trucks, dump truck bodies and trailers, and other specialty equipment, including street sweepers, road marking, and line removal trucks and waterblasting equipment. From a capacity perspective, the combination of large-scale capacity expansions that we completed between 2019 and 2022, good access to labor, and continued investments in several productivity-enhancing projects position us well to properly absorb more volume into our existing footprint. In 2026, we expect approximately half our annual capital expenditures to be focused on various growth initiatives, with the other half focused on maintenance investments. Shifting to aftermarkets, where demand remains strong, aided by contributions from recent acquisitions.
For the quarter, aftermarket revenue increased 18% year-over-year, primarily driven by higher demand for aftermarket parts, increased service activity, and rental income growth. As we continue to monitor this dynamic geopolitical and tariff environment alongside our dealer partners, customers, and suppliers, we see our aftermarket operations as a critical competitive advantage for our customers. With a dedicated local service footprint across both Canada and the United States, including rental assets, we believe we are well positioned to continue to serve the local markets in which we operate. Moreover, our unique aftermarket ecosystem spanning parts, service, rental, and used equipment offerings allows customers to access equipment in a capital-efficient manner of their choice, providing flexibility throughout various economic cycles. We also continue to execute on early opportunities within our Build More Parts, or BMP initiative, whereby we are vertically integrating certain parts production.
Over a multi-year time frame, this initiative should allow our teams to drive increased recurring parts revenue streams while expanding margins. Our acquisition of New Way provides additional opportunity for future BMP growth. Shifting to our Safety and Security Systems Group, where the team delivered another excellent quarter with 22% top line growth, a 47% increase in adjusted EBITDA and a 460 basis point improvement in adjusted EBITDA margin. This improvement was primarily driven by a combination of volume increases across our public safety and industrial signaling product verticals, proactive price cost management and realization of certain cost savings. Our SSG teams continue to drive efficiency gains across our University Park facility, partially fueled by the successful addition of a fourth printed circuit board in the fourth quarter of last year.
We are also energized by several market share initiatives aimed at penetrating historically underserved customer segments such as certain law enforcement customers and environmental disaster warning applications. Lastly, we had an outstanding quarter of cash generation with $101 million of operating cash flow, representing cash conversion of 144% of net income. On an annual basis, we continue to target 100% cash conversion. Shifting to current market conditions. On an underlying basis, excluding the impact of acquired backlog and third-party Labrie refuse orders received in Q1 last year, our orders this quarter increased by $70 million or 13% year-over-year, with healthy demand across both our Environmental Solutions and Safety and Security Systems Group.
Within product lines, we experienced strength in demand for other specialty equipment, including refuse trucks and metal extraction support equipment, as well as in aftermarket parts and service and warning systems. Somewhat offsetting this strength was an approximate $20 million year-over-year reduction in international export orders spanning product lines across both groups. While they represent a small portion of our overall net sales, we are closely monitoring any political impacts on international demand stemming from current geopolitical conflicts. Looking ahead, we are energized by the pipeline of strategic market share initiatives across the enterprise that aim to further strengthen our value proposition in the marketplace for years to come. Lastly, our backlog stood at $1.04 billion at the end of the quarter, essentially unchanged from the end of last year and it down approximately 6% year-over-year.
This decrease is principally driven by our successful execution, decreasing lead times across vacuum trucks and street sweepers, and the planned decline in the third party Labrie refuse backlog, which was discontinued in the fourth quarter of 2025. At the end of the quarter, our third party Labrie refuse truck backlog stood at approximately $55 million. As a reminder, net sales of our backlog intensive products represented approximately 45% of net sales last year. Given the size of our backlog, we continue to enjoy strong forward visibility for our backlog driven product lines. Shifting now to an update on our multi-year growth strategy. As a reminder, through cycles, we target low double-digit top line growth split roughly evenly between inorganic and organic growth.
At the same time, we are committed to growing profitably and have implemented associated EBITDA margin targets for our groups that we have increased several times over the past years. While we are proud of our historical track record, we are not done here. As a matter of fact, as I sit here today, I feel energized as I've ever been as I look across our set of strategic initiatives. A couple of highlights. Starting with SSG, we are formally raising our EBITDA margin targets today for our Safety and Security Group to a new range of 22%-28% from the previous range of 18%-24%. As a reminder, these margin targets represent through cycle margin targets and do not present any sort of long term ceiling.
Within our Safety and Security Systems Group, we continue to see a multitude of organic market share opportunities spanning the penetration of underserved customer segments within our domestic public safety and warning system businesses, an active new product development pipeline, including several recently launched and certain geographic expansion opportunities. These growth opportunities, coupled with our ongoing productivity investments, include capacity optimization and automation within our factories all underpin our confidence in these new margin targets. In fact, our consistent margin improvement journey throughout the last quarters has solidified two important strategic pillars for us, which we are further accelerating throughout 2026. The first is the identification of incremental margin opportunities across the enterprise that we believe we can realize in 2027 and beyond, spanning several work streams.
At the same time, we are also scaling several enterprise-wide investments starting in the second quarter of 2026, aimed at fortifying Federal Signal's competitive position to achieve continued multi-year growth. These include investments in our internal centers of excellence with a focus on new product development, dealer development, data analytics, and operations. We are also piloting two capacity optimization initiatives across our plants, whereby we are constructing additional warehousing space, allowing for conversion of prior storage space to available manufacturing capacity to support future growth initiatives. While a small financial investment at less than $5 million, our teams will be well-positioned to capitalize on our growing power of the platform benefits that we have identified. As an example, we are in the early stages of utilizing our dealer development processes within our refuse collection and multipurpose maintenance product verticals.
Our dealer development team, in conjunction with our data analytics team, helps our direct sales and dealer development teams identify untapped growth opportunities across new, used, and aftermarket services on a localized basis. An institutionalized function within our vacuum truck and street sweeper product verticals, we are in early innings across other vehicle categories. Within sales channel optimization, we are in early phases of leveraging and scaling Hog's existing airport sales channel to capitalize on opportunities across other specialty vehicle verticals. We have also identified aftermarket growth opportunities in several historically underserved states. On the operational side, we are working on several production simplification projects across our vacuum truck, road marking, and waterblasting verticals. Our procurement and aftermarket teams are working diligently on leveraging the recently acquired businesses, which have provided multiple new parts optimization opportunities spanning several existing specialty vehicle verticals.