MSA - Earnings call transcript Q2 2019 | MSA Safety Incorporated

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Operator

Good morning, and welcome to the MSA Safety Second Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Elyse Lorenzato, Director Investor Relations. Please go ahead.

Elyse Lorenzato

Thank you, Drew. welcome second and conference XXXX everyone, call. morning, to quarter MSA’s earnings Good today President Nish Ken me are With here Vartanian, Vice CFO Krause, President, and and Treasurer. Senior and CEO;

that I’d XXXX. to call, begin, historical forward-looking the meaning are within information, discussed Reform Private we Before Securities excluding remind everyone Litigation on the like this the of statements matters Act of

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

actual made factors Forward-looking and differ by Investor on as XXXX. call as results financial recent as statements statements February on our this in certain MSA our in our non-GAAP reconciliations press to risks, this law. the available at as may involve most here. included other uncertainties including and XX-K release with SEC, publicly required detailed to our other part from of risks, investors.msasafety.com. that undertakes morning, discussed and well Relations are QX measures those website our discussion no materially any filings filed Form except We’ve our cause non-GAAP uncertainties update These factors duty the forward-looking are

that also like host Investor on that growth in we and to are an course, will programs City that scheduled that November insight of New to York session, At hope the We into employees. mention to customers will Day performance strong XX. there, we would more see I provide shareholders, and and platforms of our are designed continued be to for many you webcasted. drive event

Nish Vartanian. the call over With our that, and to turn I CEO, President will

Nish Vartanian

quarter to of growth team solutions of Thanks, advance provide The our lives work programs achieved and Elyse, on and in MSA everyone. environments. efforts dangerous this our and morning, breakthrough protecting mission to our solid execution both good results

growth and protection. notably groups provide revenue gas growth. products detection in all increases nearly our mid-single-digit We reflected fall as in to momentum, core earnings and most product double-digit saw quarter new second Our continue

May, welcome say late Sierra MSA, we Monitor. We on glad In of integration to track. acquisition our are to California-based team I’m the plans completed the and

As areas of helping results. to the include on are hand product our out to this Ken year. as quarter the a planned who’ll development a his want additional provide I later few over Sierra launches parse as Monitor of two some our that we results results. exciting that minutes it well drive result, our quarterly Ken, a impact more review. off numbers for drivers then provide I’ll take to month highlight have in for will just texture

gas of the fixed Our detection growth. years, over fastest-growing and Two XX% detection in fall from with sales the product quarter. to compared and XX% fall developed growing and a showing year products reflected flame vitality, percentage when ago, quarter, sales greatest lines products also the was our the five protection. areas improvement our the in last accelerating product Those protection gas to XX% over

V-Series in XX% all incremental products half XXXX. brand by protection discussed we These in convert protection, of XX our products, which the competitive in growth business development resulting our helping the and XXXX, new launch of of fall pipeline new product the of In nature nice first to highlighted accounts, are included new robust fall products.

On in key SXXXX the our gaining gas markets. detection XXXXX traction and are monitors side, gas new

mind changers, daily. with of and cost provides several two checking sensors for themselves times their total devices have peace noted largely real XCell TruCal propositions to intervals we’ve lower factors As before, these game in environmental technology This uptime by extend calibration ownership. because key customers, potential value for two self-correcting be we our believe of

accuracy it’s helpful industry of other Diffusion an Supervision. instruments first. coming or the reach the that is gas If such in know detected. calibrate paint as and by sand, leak is might months we’ll the blocked external cost not point that innovation This to it, substance, sensor a be sensors advantage where that completely benefit, the and customers cannot launching is on are Building to called covered not voice. an ownership verify To their to be ensure or to understand

not problem While job say our doing users team solved that the I’m proud to solution, monitor its a alerts blockage. when a to which due this patented acoustic with actually of is capable

This of innovations, instrument that excited kind we’re about detection also its area the intuitive is Looking upcoming ioXXX. is to at first of our launch further ALTAIR monitoring a use.

to can yet. With sites and scale conditions with devices remotely the and io They meet can manage their multiple that ioXXX, capture better safety needs. monitor data through connected then work ALTAIR grid, their our create customers site

monitors area most to ioXXX or forward in year. hours, provides to We run ALTAIR product measured have of months the days that run market this While time. look times later bringing

a our short the on XXX. We A video the product have website features detailing key of

homepage the section. New MSA under You can our access What’s that from

being It’s product In to development. Germany. SCBA GX compliant SCBA. NFPA we’re gaining have the XXXX departments launch and Americas, SCBA. new the competitive Switching most to gears to service the The exciting fire recent Hamburg, used traction see that winning MX historically preparing

date August, ability As the will our is second necessary confident to be the many the and get approve in NFPA – of approval process. through of to standard we’re breathing half in you anticipated the revised XXXX the every necessary know, years. effective sometime get five for The apparatus standard

SCBA issue released in when assistance mention, funding to sometime third our pipeline have that particularly GX funds Firefighter should and for get strong. are I only But of timing some could if timing remains as when are volumes, released, be The we our would anticipate on we NIOSH approval letter third grant our either to delayed. quarter. the a quarter AFG SCBA also be impact

year comp stride and in that to Regardless the in face certainly difficult Nevertheless, that of XX% in of more hit the nature in the MX U.S. cycle really its replacement last the is the international. area. quarter, timing, we’re fact starting third SCBA with a growth in we’ll confident ongoing SCBA

to back discussion the level. Bringing consolidated portfolio up the

you $XXX cost time, years to brought years, high-performance transforming investments million. in around ago, market strengthen MSA’s over EBITDA culture. If on structure, to $XXX streamlined our and a that XXX% acquisitions, three changes, additional EBITDA those invested positions years. was years our remains past the conversion about several business and only recall, Through tracking accretive to of well fueled past million come. in under we’ve the success margin created and was Since XX%, over pipeline our four operating value flow approximately and We’ve generated NPD our and had MSA positioned create cash our we’ve

financial the turn over Ken for review. With Ken? to call I’ll that,

Ken Krause

and Nish, good everyone. morning, Thanks,

Revenue substantially was in margins product begin I’d discuss our or the X% basis revenue like I growth, good that in review total to a growth in reported groups start few growth of currency. in to continue XX% support on mid-single-digit growth revenue of adjusted Before mid-single-digit see all in the core strong with quarter P&L earnings We the constant and range. our the leveraged It encouraging incremental and more provide highlights to as growth in the quarter. X% our performance. is detail, a

charges And basis Adjusted stock it’s amortization operating to XX of this points transaction. primarily related from dilution ago. increased XX.X% to purchase margin the year basis associated includes a and XXX Sierra non-stock comparison to compensate that, compensation points Monitor with related important – the accounting that of to note acquisition, time

on deployed Sierra per conversion Monitor value with capital shares an $X a million $XX ago quarter XX% million share to payments, year year, from the for basis and Free acquisition, $XX for to and the balanced growing repurchases for of offset share dilution We from from cash flow continue the million improved a and strategy, to focused shareholders. execute in the connection acquisition. returning on dividend first we a business issued increase the allocation our

X% quarter the I’d Now you a $X on compared largely first currency. year. our in FX XXXX, million. to million had Chinese weaker second sequential just to euro, through Total to of results. or the to a the last quarter LatAm compared foreign in We headwind quarter walk quarter X% RMB headwind financial $X million, or constant X% to and On basis this revenue time under in related about was currencies $X the increased quarter like the currency revenue

continue results our core with growth business see X%. We of across to product solid

quarter we were mentioned pipeline, With the a in and to On new able that both in call, the gas East international we segments strong quarterly accepted invoicing Gas that market. gas detection first detection. backlog our growth to be across products growth region. Americas the FGFD the in well than realize Middle board XX% more was as and strong detection in portable by continue of FGFD

a which international notably overall products prepared continued the helmets. remarks. as success was our and Nish declined represents in of the Europe, his New X% core around quarter, products products efforts, our Noncore mentioned industrial, XX% of Fall in headwind by to lower well. growth sales the headwind business on X% The of segment, equipment was product ballistic protection specifically the new driver quarter. driven drove sales protective by our personal growth of in V-Series development the

million results was profit of the $X of product points in Gross expense sales, The to costs business. million $XX of for globally. taken XX% the base are basis of launches related pricing million XX new which the acquisition in XX.X% from cost or and $X SG&A and quarter reflective we’ve the last was actions year. Sierra quarter, strong up includes Sierra’s onetime

Excluding increase to Sierra cost The currency, all and on increased controls. team the X% related in X% execute prudent constant revenue. organic SG&A continues cost,

activities We on also to continue business. executing focus restructuring streamline to our

in those with the executed on rationalization closure Eastern balance progress MSA million activities the of of you locations. expected our progressing executing our our We $X in the to of in of be and restructuring activities in in several the made planned recall, completing expense Africa second with associated segment South international recorded on If good year. the rationalization quarter, locations the European first we the of quarter programs footprint

noncash than More plan the with is restructuring of closure in United million associated pension spend $X quarter second a million a charge, the Kingdom. the of of the in $X.X

our in and was Europe. is on quarter, SG&A the over down quarter, X% X%. X% particularly SG&A In down up restructuring in year-to-date initiatives revenue that on cost international is are We seeing control for in good the where track Europe, with the

cost We are reducing in progress making Europe. good our in structure

of the sales or $XX was in income XX.X% quarter. operating million GAAP

Excluding XX% was incrementals year and restructuring, on are strategic exceeding transaction margin that points from costs XX.X%, product liability adjusted and remain expense, basis up strong foreign XXX year-to-date. currency, ago a operating

of As the I margins. weeks points Sierra of about provided first basis to XX headwind six-or-so mentioned earlier, ownership of

organic So up basis our XXX over margins were points. in business

million. on certain noncash of $XX was for impact quarterly for from the Quarterly XX% earnings was tax XX% the were a GAAP income tax to ago million Our the ago. year was an effective items, adjusted quarter. a rate revenue year share, increase. adjusted per rate And XX% which $X.XX our currency constant XX% neutralizes compared $XX basis, up GAAP net or on effective X%

Free our quarter to our net was growth, based million flow We which the cash outflows receivables shipment in used timing about inventory cash the were on $XX of activity $XX for liability. for product million in in of up the includes quarter. quarter, and the support revenue second

free flow the XXX% X.Xx full and the target the shares the for dividend first mitigate average XX,XXX repurchasing deploying stock price year. acquisition of consistent for million XX% compensation. the to cash with by at an continue quarter, and $XXX our acquisition, Debt-to-EBITDA increasing associated the is quarter Sierra end the to despite about dilution with at conversion $XX of We

the is to pursuing Our and sheet acquisitions. business continue investing with in and provides our flexibility us balance strong

welcome transaction As in family, Nish indicated, California MSA be the The it to to we the acquisition Monitor closing Sierra a our the and EPS are goal step was with in in connectivity forward pleased dilutive use impact The and May. through late reflects accounting the worker exciting technology. for to other was team to adjusted safety which by $X.XX, transaction the the noncash of transaction. charges purchase compensation enhance cloud of to associated and reflects

to Internet has benefits accretive excited $X.XX, by the one our the to make is us financial not size, of portfolio, additional impact was Things to strategic Sierra’s for investments remain business. we really strategic Sierra’s positioned bringing as and MSA solutions of this meaningful leveraging underlying actually overly MSA about while asset well continue grow the into business

growth of quarter. are XXXX. growth our are execution earnings constant on and mid-single-digit in strong continue to team. revenue year full margin and over backlog good organic double-digit the The points quarter It in good by another healthy, levels the of to margins a was the for basis the expect see growth we currency Incremental XXX of mid-single-digit revenue and quarter business expansion reflects

with We that for margins, continue past metrics growth we remain to incremental and in flow ability earnings in revenue on have growth, discussed confident cash deliver key our to our calls. you

call With the concluding commentary. that, to I’ll some over turn Nish Nish? for back

Nish Vartanian

Thanks, Ken.

about think the but become we industrial As clear, indicators the point cautious, more to has outlook, sentiment growth. it’s

environment has cycles, quarter. XX% business been by to short-term and in choppy the protection able throughout the by grow While X% detection like year, portable gas we’re the fall

gas Our our to well pace. mid-single-digit beyond. positioned is detection margin and longer-cycle driving is MSA flame business, strong remains toward which fixed XXXX growth expansion goals in and order continue and seeing

now give you Thank the does I morning. up will may we’ll to At for open any glad call for questions. not have. this and Having remember, MSA take you your attention this Ken your be Please that, questions time, said guidance.

Operator

Stifel. first of Please Instructions] [Operator session. now question Elliott comes ahead. the We’ll from Stanley go question-and-answer begin The

Stanley Elliott

some taking Hey, PMIs, market outgrowth? Europe, nice seen particularly Can bit just safety you the kind this products your to good Thank there. thoughts it for a than little these growth the Or growth. curious you hear the typical be that? question. in weaker, movement? was talk to morning, Is about PMI – see of We’ve everybody. Just resilient around and sort a mid-single-digit of is more are

Nish Vartanian

Along million to couple years, developed with new Good business hitting of areas. $X What mid-XXs. strong marketing of we’re taking some on nice the the that, we some is Clearly, morning, we’re Stanley, we’ve last invested believe that marketing capacity sales about to some we’re and the front see of Devizes, products in seeing, distribution. And how with the in and through. expand programs, and protection, doing believe and growth it’s share the good outstripping over with fall well in are quite We market end with Stanley, we’re CapEx buying, we’ve the come market in really that. stride Mexico England you? some that

share nice So we’re believe gaining we some there.

we market. And detection, of is the continue and off second to flame as that’s we that in growth in perform the year-to-date. really to detection, to XX% X% got The great and go slow well. X% got we we good gas some that We’ve brought second in market And the course, but and the quarter, growth the that fixed gas space. forward. Portable a products we look outpacing year, quarter, new to healthy, had start bookings market probably

outperforming market pretty well. for the bit a executing we we’re the And So think and end-markets healthy remain us overall.

Stanley Elliott

done is about you around Perfect. side? the just could, of have would the Are incremental headwind part My to higher would hear of concerned you end that guess range. love products things of have. at we’re kind that, costs all you the if And then back part any of of thinking about the all the year, getting times. be nice growth, business, be, – job X.X value of input the the cost And there the a to that then of or to and on on have price question for I guys last anything terms in the the comments about of with you please? leveraging earnings talked X mix towards pricing

Nish Vartanian

really nice staying action to price and No, side, on take in supply pricing increases be closely, after in continue job monitor the there increase really we’re done watch managing then pricing executing here, price the the Stanley. the And side. we increase, work we’re our job Europe that price international supply pricing sure to specifically, again chain increase the more We’ve chain. the Americas, very on flip We and our on which and XXXX, a XXXX the nice those then make that midyear hold. taking a and done specifically to with January a with in

So the that going margin do be forward in pretty we confident able But have more with levels some going that we’re our to work we’re area. maintain to business. to

Stanley Elliott

much, Perfect you guys. very congratulations. Thank

Operator

The Please from & Marshall Company. Sidoti next go ahead. of question comes Edward

Edward Marshall

good guys, Hey, morning.

that you any Sierra have I have the from missed Monitor you quarter might contribution? but Ken, So in content give it, did the

Ken Krause

revenue – contribution I less Yes. the than growth. X% was

acquisition. GAAP dilution revenue So on of with the dilution we perspective, we under the and of an from line $X.XX the $X And a did of earnings adjusted about on million earnings line. associated $X.XX saw

for Our year. expectations full there talked remain We’ve we’ve $X.XX to first only the call, $X.XX since it, owned as late on the May. about

committed we we I earlier to on delivering had remain think still and we So what very it’s much said very would the in quarter. much on track,

Edward Marshall

So XX that revenue? days worth is $X million of about XX,

Ken Krause

was May about late That’s And that Yes. when acquisition. we closed it right.

Edward Marshall

mean, talk you we you’ve curious got lot to and – opportunity maybe or job the is growth term, wanted of what SG&A But is a this further, I’d at how XXXX. as the done input the last on look continue curious longer margins is sense bit a to enhancements about the done this pointed great hear margin but margin, I’m that on I incremental little probably most over you’ve that gross your kind be and Yes. a for MSA? initiatives carry Be through to I great us My out SG&A having? is margin you’re point, it takeouts. we the where of

Nish Vartanian

still over. cost the wouldn’t take is say Ed. there’s that lots of out And I opportunity,

fact, in X%. We’re SG&A. focused SG&A which SG&A had by improvement, We very our on in nice in declined about Europe,

SG&A and managing in lot the look really the systems throughout leverage processes expenses. to We those focus that we’re business. a There area. is of So at our

forward. going the look million say isn’t nice we’re wouldn’t to So behind going that opportunity in to but some that Obviously, $XX again out there’s us. I continue at that’s over cards, or

with businesses that we’re also that believe of in. expansion the there margin We is opportunity some some

Sierra really looks for help detection that into some growth Monitor in really in area will attractive and us gas technology The organization. us. like an flame bring some with Fixed investment the area and

business. So on nice we growth think there’s some the of the opportunity that side

fall player still protection. We’re a small with

number the that some player that there fall is that opportunity hopefully, both to in some opportunity nice can area, inorganically, organically and distant a three us find protection business, grow We’re to we think and grow business. we help

some going and So top on nice business. both SG&A and the forward line there’s across the opportunity margin

Ken Krause

I opportunities and cost thing very We’ve our after investments sourcing of about go are sales, significant The our only cost those is our we’re sales on Nish, raw organization really sales our cost some been the side. of would consistent to and where materials initiatives, realize talking making in our in so some of of on XX% improvements. sourcing of add, and

So pricing as and some improvements things Nish seeing The takeout we’ve gross doing of opportunities. new sourcing got, And think like indicated, Europe. the the improvements side then general our SG&A, products in with we’re I the on the that pursuing drive cost to and in things. margin we’re

us give those together all think deliver our ability expansion. to to I things in to confidence come additional continue margin

Edward Marshall

called So some I’m rate the about business? out XX% XX% look do five years, of core that out the that see you you you curious, rate plus context, with in based think plus the I at on continues and release incrementals. it that in If what press existing initiatives

Ken Krause

say No, say above the at or But or last been XX%. XX% five or always like will incremental four margins years. four I three it’s look years, we’ve or consistently can what business in hard to over delivering those the is what

margin opportunity this position. grow think so business to continue to we the overall the And improve has underlying and

we’re continue improve margin well, we and we’ve think positioned and our to yes, of so us profile. grow ahead got earnings enough think opportunities to we And

Edward Marshall

it. color the I for appreciate Thanks guys,

Operator

with Please William The Maria ahead. Maria, go Larry question your question. of is line Mr. your Instructions] Please open. De next comes De [Operator ahead from Blair. go

Larry De Maria

concern? of may maybe of I Good sorry may you’re that that couple not leading questions, you morning, kind that. seeing hats do why what Unmuted, A discuss flattened can there and out you see an be the Can indicator. everybody. hard area about just of and or

Nish Vartanian

industrial in leading seeing we’re XXXX. hats. hard post-X/XX head not way that’s double-digit protection distributors, not inventory. back with What in the economic then is in indicator Yes. and XXXX, today. XXXX I’d with the again saw really today all tightening we was go the that downturn those and with concerned overly Larry, sudden more downturn seeing back what and When in downturns seeing quick and we’re we’re What business. to go And decline what up a really you we’re

our May, destocking, in experienced some incoming then which in sometime indicators up is is was digits head that protection. we May. seeing were we in And what’s as into get began that it We’re here, interesting double business all July

the really don’t it’s double-digit And growth. the because we we’re I in wouldn’t this uneven with been and head significant hasn’t in know either. coming year, with years having really difficult of time we this played back-to-back and to be growth finding If So get protection overly of employers choppy. out some are there year concerned do people that our weather favor employment, work, off

So you a year that rest having X% strong. the this to is protection, to point the we’re really not this our always in growth, head disappointed this with that X% while business year, of because doesn’t growth really or view point downturn want to see at

Larry De Maria

first shift. Okay. lower business Also bit in think overall was their if you. X.XX% quarter it a I or for little adjust didn’t book-to-bill the you Thank the

book-to-bill be the quarter? So second would in what the

Ken Krause

pretty good, which the for around really The with that’s if backlog or course second us. us, look is forward. growth as one mid-single-digit for remains it over at seasonality healthy book-to-bill the that have confidence really right is it’s the above was we year, and quarter But you XX%, one. around for of going typical us, Typical why in the slightly

Larry De Maria

Got you.

product by could you top have still little if been it what ex positive was? $XX Now did shift million if would if in if the $XX it out, lower, the a so to in bit that that shift did and didn’t the business – shift, quarter, obviously obviously, growth in you remind first million quarter. think shift that second line few Can And I a but us percent.

or numbers Americas quarter have your the second So domestically internal in would targets? the line top hit

Ken Krause

that, internal our a our talk what normally why well I and Larry, plans guidance can plans, to that overall, there’s And fairly reason performance quarter. gas what year detection of terms our business that’s the That out in this we delays certainly revenue our some but is It that’s our is don’t through quarter. predominantly you, growth. saw versus comes products plans. was – internal We big in shift in we in first tell facility those committed tracking internal of our of are mid-single-digit Pittsburgh, about of and where some second Yes. the our here

So out. we level us. But that do, as backlog to a at did really we that carry is indicated, purge a continue for Nish has healthy

feel So where we still pretty we confident about sit.

Larry De Maria

missed And good. – discussed maybe you about East been we obviously I for if confident for apologize the Very half. me, good some you second still in Are that hitting? last it, backlog But had this, weak. have question talked Middle you but I

Nish Vartanian

But the flame Larry. about Yes. breathing apparatus. a XX% and really Right. had business in East about real what’s with the gas The comparison is self-contained the encouraging tough the quarter, Middle detection they Middle for quarter. fixed up East second is was

back. with things the there. So business, decent cycle honestly, and of come XXXX that still there, and pipeline we’re if business had it’s nice which, that of quite starting off normal strong tailed of real to see we a business a bounce see cycle then they business, there’s backlog of that natural back, good to And XXXX part anticipated

improvement also improving which the are some area there. in see to refreshing. nice is that margins too, And it’s So

Ken Krause

some to East, going of we’ve business nice at that see here in comment and East seen a the and was continued and on Middle parts Middle pretty that, was looking the to of where markets America, The bigger of the margin look some just our add performance many just Asia higher-growth spot. in really quarter. Latin the after some weak for opportunities, those markets us of we if back of I Larry, some at bounce areas, our to we

XX% growing that the So seems the first for be America, we saw doing down the job and China’s almost pipeline with for intact then well. at nice good. good very half. in us, that there second half, was as to a much through, And a business is team come Latin

So growth in of not perspective. a those only a markets, we growth perspective, but positioned many margin we’re think from well from

we – pretty good it’s that. about feel So

Larry De Maria

Okay.

pipeline to already to the and expected projects – hit the half, that better. see The was are that in and you’re are hit starting getting other conditions happening. some words, in of So backlog second you’re already it

So the the backlog East getting Middle if better? end-market the of not per se but just timing hitting, the is overall in

Nish Vartanian

I good way to that’s think Yes, it. a define

We’re the for through the again, to see of cycle of us. starting projects come projects coming the process, are through, some once

Larry De Maria

luck Got guys. you. Thanks, good

Operator

no Seeing that Lorenzato we have would closing additional turn any remarks. Elyse I back over for questions. to like to the conference

Elyse Lorenzato

us here, to you On joining behalf thank morning. we of for our entire team again this want

next XX to We available Investor Relations website of you the you. on days. audio missed If will be look forward you soon. a portion the conference an for again talking call, replay Thank and with transcript a our

Operator

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

may disconnect. now You

MSA Safety (MSA) 25 Jul 192019 Q2 Earnings call transcript