MSA Safety Incorporated (NYSE:MSA) Q3 2020 Results Conference Call October 29, 2020 8:30 AM ET Company Participants Elyse Lorenzato - Director, IR Nish Vartanian - Chairman, President and CEO Ken Krause - SVP, CFO and Treasurer Conference Call Participants Stanley Elliott - Stifel Brendan Popson - CJS Securities Richard Eastman - Robert W. Baird Larry De Maria - William Blair Operator Good day, and welcome to the MSA Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note event is b ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) Unaudited statements show decreased Q3 net sales and income, stable liabilities, and improved operating cash flow [Condensed Consolidated Statements of Income](index=2&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Q3 2020 net sales and net income declined, while nine-month net income saw a slight increase year-over-year | Indicator (In thousands) | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $304,392 | $351,014 | $959,975 | $1,026,726 | | **Gross profit** | $132,232 | $158,701 | $431,176 | $469,767 | | **Operating income** | $41,149 | $59,614 | $148,213 | $146,252 | | **Net income attributable to MSA** | $28,034 | $42,239 | $107,763 | $105,278 | | **Diluted EPS** | $0.71 | $1.08 | $2.74 | $2.69 | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased slightly to $1.79 billion due to higher inventories, with stable liabilities | Balance Sheet Item (In thousands) | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total current assets** | $744,089 | $693,363 | | **Total assets** | $1,792,665 | $1,739,693 | | **Total current liabilities** | $284,658 | $277,509 | | **Total liabilities** | $1,012,562 | $1,007,120 | | **Total shareholders' equity** | $780,103 | $732,573 | - Inventories increased significantly to **$252.9 million** as of September 30, 2020, from $185.0 million at the end of 2019[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow increased to $110.2 million, while overall cash decreased due to financing activities | Cash Flow Activity (In thousands) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | **Cash Flow From Operating Activities** | $110,155 | $88,250 | | **Cash Flow Used in Investing Activities** | $(51,701) | $(73,785) | | **Cash Flow Used in Financing Activities** | $(76,143) | $(40,833) | | **Decrease in cash, cash equivalents and restricted cash** | $(19,357) | $(31,746) | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail restructuring charges, segment performance, and significant product liability contingencies [Note 4—Restructuring Charges](index=9&type=section&id=Note%204%E2%80%94Restructuring%20Charges) The company recorded $18.5 million in restructuring charges for the first nine months of 2020 | Period | Restructuring Charges (In millions) | | :--- | :--- | | **Three Months Ended Sep 30, 2020** | $7.6 | | **Nine Months Ended Sep 30, 2020** | $18.5 | | **Three Months Ended Sep 30, 2019** | $1.9 | | **Nine Months Ended Sep 30, 2019** | $11.2 | - The restructuring reserve balance increased from **$6.2 million** at the end of 2019 to **$19.3 million** as of September 30, 2020[26](index=26&type=chunk) [Note 8—Segment Information](index=13&type=section&id=Note%208%E2%80%94Segment%20Information) Both Americas and International segments saw sales declines in Q3 2020, with Breathing Apparatus leading product sales | Segment (Q3 2020) | Sales to External Customers (In thousands) | Adjusted Operating Income (In thousands) | Adjusted Operating Margin % | | :--- | :--- | :--- | :--- | | **Americas** | $194,303 | $40,898 | 21.0% | | **International** | $110,089 | $15,658 | 14.2% | | Product Group (Nine Months 2020) | Sales (In thousands) | Percent of Total | | :--- | :--- | :--- | | **Breathing Apparatus** | $214,162 | 22% | | **Fixed Gas & Flame Detection** | $205,334 | 21% | | **Firefighter Helmets & Protective Apparel** | $121,669 | 13% | [Note 17—Contingencies](index=22&type=section&id=Note%2017%E2%80%94Contingencies) The company faces significant product liability claims with a reserve of $166.5 million for 1,743 open lawsuits - As of September 30, 2020, subsidiary MSA LLC was a defendant in **1,743 lawsuits** comprised of **2,840 cumulative trauma claims** related to substances like silica, asbestos, and coal dust[76](index=76&type=chunk)[77](index=77&type=chunk) | Contingency Item (As of Sep 30, 2020) | Amount (In millions) | | :--- | :--- | | **Cumulative Trauma Product Liability Reserve** | $166.5 | | **Insurance Receivables** | $59.1 | | **Notes Receivable, Insurance Companies** | $52.0 | | **Ending Warranty Reserve** | $11.7 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the 13.3% Q3 sales decline due to COVID-19 and improved nine-month operating income from cost controls [Results of Operations - Three Months Ended September 30, 2020](index=28&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20September%2030%2C%202020) Q3 2020 net sales fell 13.3% to $304.4 million, partially offset by a 21.8% decrease in SG&A expenses | Metric | Q3 2020 | Q3 2019 | Change | | :--- | :--- | :--- | :--- | | **Net Sales** | $304.4M | $351.0M | (13.3)% | | **Gross Profit** | $132.2M | $158.7M | (16.7)% | | **SG&A Expenses** | $64.8M | $82.9M | (21.8)% | | **Operating Income** | $41.1M | $59.6M | (31.0)% | - The decrease in SG&A was driven by restructuring program returns, discretionary cost controls (**$8-10M savings**), and lower variable compensation (**$6M savings**)[116](index=116&type=chunk) - Restructuring charges of **$7.6 million** were recorded in Q3 2020, aimed at reducing the global cost structure in response to weakened economic conditions[120](index=120&type=chunk) [Results of Operations - Nine Months Ended September 30, 2020](index=32&type=section&id=Results%20of%20Operations%20-%20Nine%20Months%20Ended%20September%2030%2C%202020) Nine-month net sales decreased 6.5%, but operating income increased due to reduced SG&A and currency losses | Metric | Nine Months 2020 | Nine Months 2019 | Change | | :--- | :--- | :--- | :--- | | **Net Sales** | $960.0M | $1,026.7M | (6.5)% | | **Gross Profit** | $431.2M | $469.8M | (8.2)% | | **SG&A Expenses** | $214.1M | $245.3M | (12.7)% | | **Operating Income** | $148.2M | $146.3M | +1.3% | - Currency exchange losses were significantly lower at **$3.8 million** for the nine-month period in 2020, compared to $17.3 million in 2019, which included a $15.4 million non-cash loss from the closure of South Africa subsidiaries[144](index=144&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) Operating cash flow improved to $110.2 million, and the company maintains sufficient liquidity with $133.2 million in cash - The company maintains a healthy balance sheet with **$133.2 million in cash and cash equivalents** as of September 30, 2020[161](index=161&type=chunk) - Improved operating cash flow was primarily due to lower net product liability payments, with **collections from insurance exceeding payments by $4.2 million** in the first nine months of 2020[163](index=163&type=chunk) - The company is deferring approximately **$6 million** of employer social security tax payments in 2020 under the CARES Act[164](index=164&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to currency exchange and interest rate risks on its variable rate debt - A hypothetical **10% strengthening or weakening of the U.S. dollar** would impact Q3 2020 sales by approximately **$13.6 million (4%)** and net income by **$0.8 million (3%)**[176](index=176&type=chunk) - As of September 30, 2020, the company had **$231.9 million of variable rate borrowings**, exposing it to interest rate fluctuations[180](index=180&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - Management concluded that the company's **disclosure controls and procedures are effective**[182](index=182&type=chunk) - **No material changes** to internal control over financial reporting occurred during the most recent fiscal quarter[182](index=182&type=chunk) PART II. OTHER INFORMATION [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) Key business risks include product liability claims, economic conditions, and pandemic-related disruptions - The company faces inherent business risk from **product liability claims**, which could lead to significant expense or negative publicity[183](index=183&type=chunk) - A key risk is the potential for losses from cumulative trauma product liability claims to exceed current reserves, as the subsidiary **MSA LLC is now largely self-insured** for this risk[184](index=184&type=chunk) - Pandemics like **COVID-19** are cited as a risk factor that could adversely affect customer demand, disrupt manufacturing operations, and negatively impact financial results[187](index=187&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company purchased 3,488 shares during Q3 2020 related to stock compensation transactions | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | **July 2020** | — | $— | | **August 2020** | 3,488 | $125.30 | | **September 2020** | — | $— | - The share repurchase program authorizes up to **$100.0 million** in repurchases and has no expiration date[188](index=188&type=chunk)

Financial Data and Key Metrics Changes - The company reported a revenue decline of 10%, with local currency revenues down 8% due to weakness in the industrial portfolio, partially offset by strong shipments of SCBA into fire service and growth in respiratory revenues [31][32] - Adjusted operating margin improved by 30 basis points to 18.7%, with year-to-date adjusted operating margin also at 18.7%, up 50 basis points despite headwinds [42][43] - Free cash flow conversion was strong at over 150% of net income, with a total of $63 million generated in the first half [44][45] Business Line Data and Key Metrics Changes - The industrial PPE segment, particularly fall protection, head protection, and portable gas detection, faced a 25% decline due to work site shutdowns [12] - The SCBA business in the fire service market saw a 3% revenue increase, driven by momentum in China and Europe, as well as solid execution in the U.S. [13] - Air-purifying respirators (APRs) accounted for 10% of Q2 sales, increasing over 60% year-over-year, contributing $23 million in incremental revenue year-to-date [15][16] Market Data and Key Metrics Changes - The company experienced a 9% revenue increase in China, with incoming orders up 16%, indicating a strong recovery in that market [33][120] - Europe reported a 7% decline in revenue, while the Middle East and Africa experienced low single-digit declines [84][85] - The backlog remained healthy, consistent with the end of the first quarter, providing support for the second half [32][120] Company Strategy and Development Direction - The company is focused on providing a safe work environment for employees while advancing its mission and investing in growth opportunities [9][10] - Strategic pricing, cost controls, and restructuring programs have driven operating leverage despite revenue declines [11][28] - The company is positioned to pursue M&A opportunities as business conditions improve, with a strong balance sheet supporting these initiatives [30][135] Management's Comments on Operating Environment and Future Outlook - The near-term outlook remains unclear, heavily influenced by the timing and shape of economic recovery, virus resurgence, and funding conditions [24][25] - Management expressed confidence in the diversified portfolio and strong balance sheet, which position the company well for challenges ahead [26][49] - The company remains committed to productivity improvements and long-term margin expansion projects [49][130] Other Important Information - The company incurred approximately $3 million in higher costs related to the pandemic, impacting gross profit margins [34] - SG&A expenses decreased by 18% on a reported basis, reflecting the benefits of restructuring programs [36] - The company plans to maintain discretionary cost controls through the third quarter to navigate uncertainty [38] Q&A Session Summary Question: How did business cadence trend through the quarter? - Management noted strong order pace in April, a weak May, and an encouraging June as the economy began to reopen, but early July showed some softening [55][60] Question: What is the status of distributor inventory levels? - Management indicated that much of the product is made to order, but distributors cut inventory levels in May, with some recovery in June [61][62] Question: How much of the International segment's improvement is due to cost savings versus restructuring? - Management highlighted that improvements in the International segment are largely due to restructuring initiatives and pricing strategies [65][70] Question: What caused the decline in the portable gas business? - The decline was attributed to direct market conditions, with budget cuts and project delays impacting sales [76][77] Question: How did Europe perform compared to the rest of the world? - The Asia business, particularly China, performed well, while Europe saw a 7% decline, reflecting the impact of COVID-19 [81][84] Question: What is the outlook for revenue growth in the third quarter? - Management expressed uncertainty about revenue growth due to the unpredictable nature of COVID-19 and its impact on business operations [90][130] Question: What is the status of the M&A pipeline? - The company continues to engage in discussions with potential acquisition targets, but integration challenges due to travel restrictions remain a concern [93][135] Question: Were temporary furloughs a factor in margin performance? - Management confirmed that there were no temporary furloughs, and cost savings were primarily from reduced travel and lower variable compensation [122][123]

Commission File No. 1-15579 MSA SAFETY INCORPORATED UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Exact name of registrant as specified in its charter) Pennsylvania 46-4914539 (State or other jurisdiction of (IRS Employer Identification No.) incorporation ...

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For the quarter ended March 31, 2020 or UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-15579 MSA SAFETY INCORPORATED (Exact name of registrant as specified in its charter) Pennsylvania 46-4914539 (State or other jurisdiction of incorporation or organization) 1000 Cranberry ...

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 OR Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File No. 1-15579 MSA SAFETY INCORPORATED (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation ...

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☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-15579 MSA SAFETY INCORPORATED UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 2019 or Cranberry Township, Pennsylvania 16066-5207 (Address of principal executive offices) (Zip Code) Identification No.) Registrant's telephone number, includ ...

MSA Safety Incorporated (NYSE:MSA) Q3 2019 Earnings Conference Call October 24, 2019 8:30 AM ET Company Participants Elyse Lorenzato - Director, IR Nish Vartanian - President and CEO Ken Krause - SVP, CFO and Treasurer Conference Call Participants Stanley Elliott - Stifel Richard Eastman - Baird Edward Marshall - Sidoti & Company Larry De Maria - William Blair Operator Good day, and welcome to the MSA Third Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instru ...