MSA Safety (MSA) 16 Feb 232022 Q4 Earnings call transcript

Good day, and welcome to the MSA Fourth Quarter and Full Year 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Chris Hepler. ahead. go Please

Relations. morning, Vice and Good is to Safety Blanco, CEO; for and MSA Hepler, Vartanian, President are Thank President Segment and Chairman Year and CFO; XXXX Quarter and Investor Development Corporate Full Director McChesney, This me Earnings Fourth today Executive Nish Senior you. Lee of welcome With President Conference Americas. Chris Steve Call. and

include during forward-looking like I'd remind that this to of call discussed Private Act may within Before Litigation we begin, the statements the everyone meaning the Reform matters Securities of XXXX.

are limited of but include, statements anticipated and all levels Forward-looking performance. not to, projections future

These Forward-looking this duty in to uncertainties MSA statements actual risks, and other no statements factors cause our risks, made forward-looking Safety on materially our undertakes as of by results may a except involve other to SEC factors today. from filings. uncertainties publicly are number law. and detailed any required that differ call, update discussed those

non-GAAP certain The presentation part are available appendix investors.msasafety.com. presentation. today's included The website of of Relations available press in have release reconciliations Investor morning. this financial on and are non-GAAP We at discussion the our as our measures

agenda. to on Moving today's

and will to remarks. call key of Nish then full closing with performance will turn conclude our highlights First and then year. financial over the the will discuss quarter He Lee discuss the to outlook. Nish

remarks, open questions. will the prepared we our for Following call

Nish. to With over that, I'll the turn call

made everyone, our and the with X. unwavering in good possible for exceptional Thanks, slide year was MSA mission. to I'll our team's quarter. morning, Chris, strong on This by fourth commitment us another and thanks joining today. delivered start results

sets of do, to is world's dedication workers our at the and the for everything core Our foundation performance. strong purpose-driven culture and we the protecting

focused want And around solutions thank associates and of safety MSA's us helping communities get of global also the the other leading to their is and our positive in leader stakeholders thanks that and customers the a to technologies for world. build of and for making all world. safety work execution health hard hands to our a I our MSA and shareholders safety the workers into on around our impact

slide to Moving X.

quarter robust team expansion including for cash the platforms flow. protective our headwinds, year, through detection, personal supply on the strong Even strong outstanding challenges margin ongoing results gas industrial safety, year, of sales chain Incremental we and operating was and and achieved full operational with generated and record and broad-based for growth the target of side firefighter we Our execution. delivered margin our high inflation equipment. across

enabled was growth This by on our executing driving improved strategic plan. and focus laser throughput our

XCell continue V-Gard software, advance and Sensors. proprietary heat strategy to our latest launching solutions our become worker io like CX the developing reduce detector, MSA's Hat help thermal with a gas grid innovative Hard And and the with our stress, by derivation focus safety. has integration for ALTAIR the patent-pending major workplace seamless into We to its full safety of connectivity barrier which cloud X

enhance share anniversary and have also productivity address and across XXth solutions us V-Gard worker success types solutions needs design industries. V-Gard them customers' of differentiated And and market commercial garnered Hat has XXXX. improve the and These enable these strong many technologies in unmet our connected to world simplify its has the recently portfolio its MSA's Hard with and safety, Notably, innovative across celebrated new and helped brand compliance. iconic around strengthen

MSA fit people our planet. these advancing focused social our across with and corporate, make company, safety and which programs on products, the are pillars, key the And the been of our since our begins responsibility for our to unwavering future. our each has is mission, XXXX for our our founding commitment As in pillars basis we to CSR

have Our sustainability, one nationally. MSA been recognized proud development, continuous inclusion both product year. of to has and diversity America's second the consecutive Newsweek stewardship is locally and progress named around Responsible by been Companies for environmental talent and Most

believe it to our as in choice prospective of have that preferred customers. an area to supplier and associates differentiated MSA existing when it our this employer a talent advancements I our and comes comes when

time Before operated an to MSA, proud XXXX injury. I to accomplishment protecting living XX our mission we're turn a I example. also of recognize consecutive our workers' team XXXX. health the call months over that leading associates I'm want to Lee, share without important from lost and by At

end and our product the associates and diversification talented leading we've prospects across our to progress I'm MSA platforms, the the globe. of made markets excited is from geographies ahead. positioned for across well proud

the pass our to financial With XXXX outlook. results discuss to and on call I'll that Lee

Thanks, Nish and good everyone. morning,

started highlights. on get Slide with the Let's X quarterly

million. is Our which MSA a gas record to safety, seasonal We trends were volume sequential across firefighter industrial the in detection Sales year sales had growth double-digit $XXX consistent team our a quarterly strong growth finish executed with organic PPE. business. with of and

remained Orders enabled again the and Design us improvements chain throughout performed in moderate reduce we to XXXX quarter. this healthy supply reengineering backlog sequentially.

still are continue and that unpredictable constrained we and into expect XXXX. to chains supply However,

paced consistent Gross We of and years. from slightly. quarter in was backlog increased leverage, entered the with in price/cost XX.X%, also favorable backlog volume up elevated from dynamics. strong basis is margin XX% trends of This prior and XXXX orders with a last points positive year year-over-year an In mix again has XXX ago. ahead January, approximately year

environment. despite progress we see gross are a focused in We rate with remain challenging progress margin our are in making and will the starting encouraged XXXX, to on further

basis X% tax we in slightly EPS $XX normalized This over Adjusted a net was interest XX% leverage up the Fourth income and was benefited and last million, in pricing which XXX quarter the year. from quarter. from quarter margin in operating from XX.X%, strong Incremental as resulted up last adjusted volume. higher year operating we year. margin points expense of had rate $X.XX, the higher operating was diluted

gas performance. we Latin had segment saw North Americas In our with to double-digit robust take Now XX% I'd in detection to our Americas results firefighter as operating by and leverage driven quarter in the up cost like quarter year-over-year America. result execution, points in management. in the safety, a was growth and protection. XX.X%, of head volume our margin moment Adjusted a growth solid America XXX review industrial basis portable segment commercial strength and

euro our International headwinds EMEA. in of saw sales the reported perspective, in by growth some And challenging a APAC regional and X%, despite very in growth double-digit constant a the British currency largely resulted pounds, related offset a made resilient X% quarter. we in Currency growth segment, we X% From progress in region, delivered the mid-single-digit a and decline. headwinds to

Price/cost Adjusted basis the backlog particularly unfavorable from but up currency points was XXX in headwinds transactions quarter, gas and in operating margin detection. XX% points cross-border third down quarter. basis longer the due to was on the XXX conversion dated year-over-year of

on moving X. to slide Now

XXXX, broad-based one-third drove a full realization of $X.X year up of billion, last the represented strong versus as basis. For about XX% volume demand constant sales two-thirds Price on up well. X% and currency the record about being with a year growth

inflation basis Volume was points gross actions of For leverage significant offset the price full and XX headwinds and XX.X%. yielded margin improvement. year,

was year. in net diluted XX% income XX% range. which year. up margin XX%, margin the Incremental year, end $XXX of resulted year towards XXX of over our the was was million, from for Adjusted up EPS operating the high adjusted For basis $X.XX, operating last points last target

reduces cash Now On materially subsidiary announced company liabilities. the turning important transaction to future. business, risk This our legacy an balance slide predictability. transaction sale and flow completed our a X. enhances that Xth, for simplifies our We holding recently strengthens sheet we the January of in

the which borrowings. million contributed funding included MSA transaction, million at $XXX In closing, in $XXX incremental

to in to We cash quickly borrowings. committed utilizing deleveraging excess repay we are anticipate and flow XXXX

January, our in first early occurred be XXXX this closing quarter will results. in the transaction As financial reflected

Now or and on cash slide flow turning XX% net to was million flow cash of income. X. free Quarterly leverage $XX

flow cash in throughout million times and impacted or XX% customer $XXX inventory we meet versus last to amid certain made improve free year. year, the the of the down XX% flow was delivery year. income, challenges to supply purposeful investments For Cash demand by was

In was million return in debt million we $XX of than dividends through part our our as have to invested of to In repaid maturities. near-term returned of share significant shareholders, the $XX $XXX no $XX million million value CapEx, buybacks. million $XXX commitment to the shareholders and XXXX, and debt. year-end and at more quarter, we paid dividends Cash we

Full adjusted year EBITDA increased to million. $XXX XX%

adjusting year-end the XX returning for ratio X.X Our year. to basis, liability XX net at a X.X. leverage to ratio within borrowings, and prior anticipate our compared was the On was months. historical net X.X additional forma leverage to pro leverage We legacy adjusted EBITDA, in

year. strong with slide to Now, about let's reasons XX. the move optimistic XXXX XXXX We to be on outlook and cautiously momentum enter

markets in solutions These PPE but and firefighter sold and healthy. only are of broad a technologies globally markets. growing workers, make differentiated safety range safety the around leading Our across see and products more not detection We them remain gas protect world that safety, productive. diversified for industrial balanced demand attractive

noncash the in as half of is divestiture, challenges elevated debt backlog. healthy to as the borrowings the higher to from do entered and and EPS existing less rates to incremental of that expense Demand headwinds we're for we in remain resulting the income. year the environment and the pension look to the well back interest we macroeconomic We said, with our trends the visibility cognizant business year. That our related in lower below-the-line geopolitical higher expect related as and

$XX nonoperating $XX We be between and is income year. business across and and the geographies cycles. products million and expect economic million MSA's tested pension to diversified time other across for

its our in further challenges, year and of growth to XXXX in another operating own have improve will team's mid-single-digit we confident and execute range the While drive ability surely margin. sales are our

call the Nish pass I'll for that, to closing With remarks. back his

Thanks, Lee.

accomplishments our In to Despite momentum. our on of challenges year, proud build slide progress XX. enter we We priorities. past position our XXXX executed and strength of a and closing, to make the team expect strategic our on the continued XXXX. in from incredibly to of against I'm many Moving well

safety stronger Our our portfolio has technologies of more balanced never been diversified and to relevant and innovative customers.

for the shareholders. a of passion deep throughout proven across ability in executing talent exceptional continue have to deliver our cycles. value to We and economic with capability creation confident mission our long-term our I'm to company,

that, operator call the Q&A. over to I'll turn back the for With

Thank you.

Stifel. Please Stanley first from ahead. We the question-and-answer And go is will now Session. from [Operator begin the Elliott Instructions] question

morning the Good and for you to question the year. congratulations the strong on Thank everyone. finish

Thank you, Stanley.

strength margins? Quite all happening pricing supply you whole second you're that what's bit chain. more bit. we helping you Americas of little kind the some on some despite year XXXX, given talk a about? of sure give the of the us this cadence half margin really is about the Could a kind especially I'm the good, in second first half But could of the and uncertainties into disability think should about how the sense talking versus sustainability of of a half really the

Sure. And that Lee, why don't one? you take

Stanley, morning All you. right, to good

So, out. really call good appreciate questions the to

some I good So, the really from to momentum team. speaks think it

the year, You've with some seen SG&A nice both progression throughout and gross on leverage. margin

the think, We've leverage. you've and volume nice now second seen the got I are certainly and some So come half. alignment. – costs then you price get together in productivity, that in better Certainly, good

look I So as of you half first year, continue. be next to towards the the I mean, That have for we dynamic year, could positive. think certainly

levels we're confident those where at. pretty So in

XXXX You different quarterly in to you've here. year-over-year, going the progression of you've some seasonality. some you're back the half I see, do for what But have think seen to to got nice similar adjust Obviously, sizes.

Have any on Great. orders a And pushing to point? customers the color seen you that but assuming backlog could? I'm we municipal strength. either not, this get little canceling all love you at out or if otherwise, mentioned or would any

probably we've But and in type business. got the upfront, that on of business protection, orders, a with our shift customer we've to cancellation It's chain any some – really It's due books. haven't really the We lost some custom by probably area had to is with never our business orders, some the order. and lost seen we haven't we our and supply where of opportunities in the seen especially backlog. no, fall lot the Stanley, really cancellations. business of inspected any inability struggled

is deliver the customers and waiting from backlog Our able really standpoint of on helping that. being to

some some that? us share larger timing about maybe on And Is should then if contracts? lastly the about can on investors to of orders of for have end fire any you services me, you you winning talked there potential what And were with those update sort think side. up guys

this think Yeah, year. is the budgets and you pipeline When again are strong. about AFG the funding service fire We've the really municipal state in really the got healthy. coming budgets

fairly our that that those some XX% about an continue economy large occur in in economic business, to a products as optimistic of of insulated from We're And there's the in you municipalities, business. and from enhance So, their as to does with and in that's service marketplace, through the and business. matter the back getting that, pacing what products standpoint. But orders XXXX. a business fire working our approvals, recession number of the well the we're somewhat pipeline, just the competing optimistic about know half may of that represents about That business. regardless year is the

So we're XXXX. the in fire about optimistic service here

much That's guys. best and Great, luck. so for it me. of Thanks

Stanley. you, Thank

question And Baird. from next is from Mason Please the ahead. Rob go

break that growth for outlook, – to also had morning, a I around question but the be proved press in year. FX around the the just mid-single-digit thinking the If aiming volume? to a am I I price Yes. from positive between Good neutral versus was how down in your that is all. case point? this there think that even for contributions year would for correct at XXXX commentary release mid-single And slightly maybe digit,

there. XXXX. on demand our a we backlog scenario through planning for and there's of We scenarios laid good It's a We price – number even question. different went as out some

from So we price going went which we'll price, is pricing, overhang through to various our some increase. scenarios. have the And the XXXX quarter fourth we're get

XXXX, So there. nine months go price as through get first we some the of we'll

service areas top of business, think demand that gets gas on And those the increasing. low-single-digit business, those then, to in fire have see then some growth price in volume that and we we're the and at probably mid-single-digit We looking oil markets level. core unit some we'll us do of that

we that how come to So scenario. that's

XXXX. possibility plays see how a worked half a additional through back And the of we're different obtaining some on price of we'll year. of scenarios, still There's the the in maybe we've year those working But in number possible scenarios the slowdown based through economic and out.

plays And us. for an improve all as backlog obviously, chains then and having this, possibly backlog to reduce of into opportunity supply

high that of there's of have to, So coming back here but through growth the a we scenario we rate. a in degree play that variables lot XXXX regardless we of go in out mid-single-digit keep that could confidence

-- how Nish, ahead. go

Just have bit view. half was, add be then of in slight headwind a the It FX, your a a back will half. going current be in and year negative I a pretty good FX to right will you be hey, first the It -- now. question of positive think it's the a the based on Rob,

Nish -- okay. year, just Lee, are the to how For speak or you you orders.

you Just maybe own may flame can obviously, and fire on are some PPE. cycle set longer aside dynamics -- But cycle, But being speak cycle it's project-based, longer service on longer and your dynamic. the its potentially I shorter cycle going dissect because two gas fixed detection, cycle and there? shorter more think between then be to industrial

Right.

natural which strong. The very order is when business that products, is but pace a still being those quarter, fourth was short-cycle short-cycle to products. it seasonality for than really little quarter that see, us strong consider lower the we third the on of across So, natural we had

of remains and can markets We're business, whole those some construction other of the and that industrial quarter, in Obviously, business than coming a To quite on the of pie some a areas, watching new that quarter. good. we're here, And the the that into that the remains markets. as Quarter-to-date good. little outlook booking business watching non-residential for honest, and the remains orders, we anticipated based better Surprisingly first from utilities other the closely good. solid standpoint, we business really those in manufacturing. be

being demand healthy products there's $XX longer-cycle good gas for employment flame there. that's one. oil healthy the the gas the of us and above fixed The from and and oil within That's that's being And number future. detection, outlook price the On for standpoint and industry, us. the for

be there or back for and that the the detection in and some a two of the beauty our piece. number projects different sort detection diversified some flame of there's and There is that gas half of if in will We And out. stabilizer plays business into gas recession year slowdown funding fixed projects. then economic And about and another projects our how for portfolio see cycles. we resiliency and having That's fixed playing and often is business some through durability flame business. that talk of the

So we're fairly optimistic we as about our get XXXX here. into business

last one Good, question, good. housekeeping Maybe just Lee.

that that would it of $XX decline year-over-year roughly? pension lower $XX year, we're million, level. be at million Was level Is this talking income in the mentioned past about? You

about year-over-year be Chris headwind it's million $X be up difference have $X us into model can a to going the follow – I the but or to exact for going difference. going It's XXXX. million that's

Okay, very Thank good. you.

Rob. you, Thank

from Instructions] go Maria The is William Blair. Larry De next ahead. [Operator Please with question

everybody. order but give Hey, a curious, this maybe still morning, of or this bit supply off, color little into on book the starting sort kind second the see of can thanks. we're please? if lead first to times? better Good more Maybe as normalize And book-to-bill well I there is get orders half? missed color you Any chains just

pace pace. So strong really order Larry, order been we the good the year, order The We're pace. order that we saw the with a good. throughout saw pleased pace has

to obviously, the we a for bit complete we the might components It is waiting been product finish eight nine way or would has to we we product. best for to different have – it and define the a improved chain we had be supply of issue. some were an For XXX%, frankly Supply year And quite book-to-bill continues in headwind good a orders. us. was so strength created chain

a we're components. couple waiting for of Today,

still that. we're that still through working improved not some but so of perfect and has And

optimistic withstand that certainly in half quarter business in going And the an certainly that the we think strong of backlog for the If year, things have back we cushion that's first the throughout slow we're economic down the the So through the in the year. and we have where here and resiliency slowdown obviously half about that portfolio year. of a will as the back remains us. demand product backlog help the our some first half could

to some do mentioned Nish. macro, mid growth a within or resiliency mid some growth? first times first have obviously in you've maybe we half of XXXX, half there. half to that half apply see Should concern second single-digit single-digit obviously Thanks, How growth breaking but Okay. down half? And second or the half on and that for about flatter outlook the first half the happens, and a also close couple and we of second growth what kind how are then we the think double-digit but second in

So take let for that us. I'll Lee

right. All

half. a it's Larry, we the do than have to first question. So visibility half second good Certainly, the more we

you of you guide mid going -- that probably the we're more the of first be single-digit I'd visibility be in for could volume. an of there, side math less But the just to an out with take And the out. going price So but to year. element element we're to outlook also Nish's then, if plays in the there's positive the see points earlier, lower. how it to is half, second There that of to have that's half

out half. we're optimistic. on we'll half here, to but than see mid just higher half a again, how first second based the bit single-digit So have And the plays I'd the first little the in guide, guide

Yeah. That's Thank exactly that's that. and you enough what wondering. I for fair was

we in are of the part XXXX. in some second range incremental one normal XX% The or and things would around there? margins to in weird be XX% Are there question last the the

as is covered still stuff positive have and XXXX. think strong what some those of mix America it's to that whether well. in the the committed that. headwinds this really no in saw the as those all XX% OM we've XXXX continue you opportunity lot price/cost I whether should of things No, North a we see mix we've below temporary to, got Certainly, which certainly into of these you've I we incrementals first But half like that it's XX% mean dynamics like are we that -- dynamic, and interest

and Okay. Thank everybody. you good luck

Thank you.

back gentlemen, concludes to Chris turn for to this Hepler the remarks. session. and Ladies would our any like conference over question-and-answer closing I

you. Thank

soon. will will portion morning with appreciate our If made the website days. be be you this forward Thanks. you an joining to XX us call, We for replay available available on today's missed next speaking the of and Investor we today later again audio look Relations and you

presentation. The conference now Thank today's you attending concluded. has for

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