MSA Safety rporated(MSA) - 2024 Q2 - Quarterly Results

Executive Summary & Company Overview Second Quarter 2024 Financial Highlights MSA Safety reported strong Q2 2024 results with GAAP net income of $72 million and adjusted earnings of $80 million Q2 2024 Financial Highlights | Metric | Q2 2024 ($ millions) | Q2 2023 ($ millions) | % Change | | :-------------------------- | :------------------- | :------------------- | :------- | | Net Sales | 462 | 447 | 3% | | Operating Income | 100 | 95 | 5% | | Adjusted Operating Income | 108 | 104 | 4% | | Net Income | 72 | 67 | 8% | | Diluted EPS | 1.83 | 1.70 | 7% | | Adjusted Earnings | 80 | 72 | 10% | | Adjusted Diluted EPS | 2.01 | 1.83 | 10% | - Invested $14 million for capital expenditures, repaid $8 million of debt, returned $20 million to shareholders through dividends, and repurchased $10 million of common stock[49] Management Commentary Management highlighted strong execution, solid top-line growth, and margin expansion, with 4% organic constant currency sales growth - CEO noted strong execution, solid top-line growth, and margin expansion, demonstrating business resiliency and outlining a long-term strategy for profitable growth[54] - CFO highlighted 4% organic constant currency sales growth, healthy margin expansion, double-digit adjusted EPS growth, strong balance sheet (0.9x net leverage), and disciplined capital allocation[55] - The company is maintaining its mid-single-digit growth outlook for the year, while closely assessing global economic trends[55] About MSA Safety MSA Safety is a global leader in advanced safety products and solutions, protecting workers and infrastructure, with $1.8 billion in 2023 revenues - MSA Safety is a global leader in advanced safety products, technologies, and solutions, driven by a mission of safety since 1914[42] - The company protects workers and facility infrastructure across diverse end markets, creating sustainable value for shareholders[42] - In 2023, MSA Safety reported revenues of $1.8 billion, is headquartered in Cranberry Township, Pennsylvania, and employs over 5,000 associates across more than 40 international locations[42] Consolidated Financial Performance Condensed Consolidated Statements of Operations Q2 2024 net sales increased to $462.5 million, with net income of $72.2 million, and H1 2024 net income improved to $130.4 million Condensed Consolidated Statements of Operations | Metric | Q2 2024 ($ thousands) | Q2 2023 ($ thousands) | % Change (QoQ) | H1 2024 ($ thousands) | H1 2023 ($ thousands) | % Change (YoY) | | :------------------------------------ | :-------------------- | :-------------------- | :------------- | :-------------------- | :-------------------- | :------------- | | Net Sales | 462,463 | 447,299 | 3.4% | 875,765 | 845,561 | 3.6% | | Gross Profit | 223,029 | 213,796 | 4.3% | 418,560 | 395,194 | 5.9% | | Operating Income | 99,944 | 95,008 | 5.2% | 180,056 | 34,947 | 415.3% | | Income Before Income Taxes | 94,428 | 87,483 | 7.9% | 170,035 | 19,746 | 763.1% | | Net Income (Loss) | 72,234 | 67,090 | 7.7% | 130,373 | (83,083) | Not meaningful | - The significant increase in H1 2024 operating income and net income compared to H1 2023 is primarily due to the absence of a large loss on divestiture of MSA LLC in the prior year[29] Condensed Consolidated Balance Sheets As of June 30, 2024, total assets increased to $2.24 billion, and total shareholders' equity grew to $1.03 billion Condensed Consolidated Balance Sheets | Metric | June 30, 2024 ($ thousands) | December 31, 2023 ($ thousands) | % Change | | :----------------------------------- | :-------------------------- | :------------------------------ | :------- | | Total Current Assets | 861,445 | 786,270 | 9.6% | | Total Assets | 2,243,571 | 2,170,150 | 3.4% | | Total Current Liabilities | 351,751 | 332,818 | 5.7% | | Long-term debt, net | 561,771 | 575,170 | -2.3% | | Total Liabilities | 1,033,647 | 966,802 | 6.9% | | Total Shareholders' Equity | 1,033,647 | 966,802 | 6.9% | Condensed Consolidated Statements of Cash Flows Q2 2024 operating cash flow decreased to $53.3 million, while H1 2024 operating cash flow improved to $104.2 million from a prior-year net outflow Condensed Consolidated Statements of Cash Flows | Metric | Q2 2024 ($ thousands) | Q2 2023 ($ thousands) | H1 2024 ($ thousands) | H1 2023 ($ thousands) | | :---------------------------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Cash flow from operating activities | 53,302 | 95,068 | 104,188 | (190,841) | | Cash flow used in investing activities | (14,267) | (7,281) | (25,486) | (15,648) | | Cash flow (used in) from financing activities | (38,633) | (76,182) | (67,718) | 196,589 | | (Decrease) increase in cash, cash equivalents and restricted cash | (1,479) | 8,241 | 427 | (15,551) | - The significant improvement in H1 2024 operating cash flow compared to H1 2023 is largely due to the absence of the contribution on divestiture of MSA LLC in the prior year[31] Segment and Product Category Performance Americas Segment Performance The Americas segment reported net sales of $314.7 million in Q2 2024 and $610.2 million for H1 2024, with H1 adjusted operating income of $184.7 million Americas Segment H1 Financials | Metric | H1 2024 ($ thousands) | H1 2023 ($ thousands) | % Change (YoY) | | :------------------------------------ | :-------------------- | :-------------------- | :------------- | | Net sales to external customers | 610,249 | 588,645 | 3.7% | | Operating income | (Included in Consolidated) | (Included in Consolidated) | N/A | | Adjusted operating income (loss) | 184,688 | 166,510 | 10.9% | | Adjusted operating margin % | 30.3% | 28.3% | 2.0 pp | | Adjusted EBITDA | 203,923 | 184,471 | 10.5% | | Adjusted EBITDA margin % | 33.4% | 31.3% | 2.1 pp | Americas Segment Q2 Organic Constant Currency Sales Change | Americas Segment (Q2 2024) | GAAP Reported Sales Change | Currency Translation Effects | Organic Constant Currency Sales Change | | :------------------------------------- | :------------------------- | :--------------------------- | :------------------------------------- | | Fire Service | (2)% | —% | (2)% | | Detection | 7% | —% | 7% | | Industrial PPE and Other | 2% | 2% | 4% | International Segment Performance The International segment reported net sales of $147.8 million in Q2 2024 and $265.5 million for H1 2024, with H1 adjusted operating income of $37.8 million International Segment H1 Financials | Metric | H1 2024 ($ thousands) | H1 2023 ($ thousands) | % Change (YoY) | | :------------------------------------ | :-------------------- | :-------------------- | :------------- | | Net sales to external customers | 265,516 | 256,916 | 3.3% | | Operating income | (Included in Consolidated) | (Included in Consolidated) | N/A | | Adjusted operating income (loss) | 37,770 | 37,522 | 0.7% | | Adjusted operating margin % | 14.2% | 14.6% | -0.4 pp | | Adjusted EBITDA | 45,097 | 44,007 | 2.5% | | Adjusted EBITDA margin % | 17.0% | 17.1% | -0.1 pp | International Segment Q2 Organic Constant Currency Sales Change | International Segment (Q2 2024) | GAAP Reported Sales Change | Currency Translation Effects | Organic Constant Currency Sales Change | | :------------------------------------- | :------------------------- | :--------------------------- | :------------------------------------- | | Fire Service | 19% | 1% | 20% | | Detection | 10% | 1% | 11% | | Industrial PPE and Other | (13)% | 1% | (12)% | | Net Sales | 6% | 1% | 7% | Consolidated Organic Constant Currency Revenue Growth by Product Category Consolidated organic constant currency sales growth for Q2 2024 was 4%, with Fire Service growing 4% and Detection 8% Consolidated Q2 Organic Constant Currency Sales Change | Consolidated (Q2 2024) | GAAP Reported Sales Change | Currency Translation Effects | Organic Constant Currency Sales Change | | :------------------------------------- | :------------------------- | :--------------------------- | :------------------------------------- | | Fire Service | 3% | 1% | 4% | | Detection | 8% | —% | 8% | | Industrial PPE and Other | (3)% | 1% | (2)% | | Net Sales | 3% | 1% | 4% | Consolidated H1 Organic Constant Currency Sales Change | Consolidated (H1 2024) | GAAP Reported Sales Change | Currency Translation Effects | Organic Constant Currency Sales Change | | :------------------------------------- | :------------------------- | :--------------------------- | :------------------------------------- | | Fire Service | 15% | —% | 15% | | Detection | 1% | 1% | 2% | | Industrial PPE and Other | (7)% | —% | (7)% | | Net Sales | 3% | —% | 3% | - Fire Service includes Breathing Apparatus and Firefighter Helmets and Protective Apparel. Detection includes Fixed Gas and Flame Detection and Portable Gas Detection. Industrial PPE and Other includes Industrial Head Protection, Fall Protection and Non-Core[21][69] Non-GAAP Financial Measures and Reconciliations Non-GAAP Financial Measures Overview MSA Safety utilizes non-GAAP financial measures to provide useful information, facilitate peer comparisons, and assess underlying business performance - Non-GAAP measures are used to evaluate segment results, make strategic decisions, understand operating performance and trends, and facilitate comparisons with peers[27] - Management uses these measures internally to assess and better understand underlying business performance and trends related to core business activities[27] - These non-GAAP financial measures are supplemental in nature and should not be viewed as a substitute for, or superior to, reported results prepared in accordance with GAAP[44] Adjusted Operating Income and Margin Reconciliation Consolidated adjusted operating income for Q2 2024 was $108.2 million (23.4% margin), and for H1 2024, it was $196.2 million Adjusted Operating Income and Margin Reconciliation | Metric | Q2 2024 ($ thousands) | Q2 2023 ($ thousands) | % Change (QoQ) | H1 2024 ($ thousands) | H1 2023 ($ thousands) | % Change (YoY) | | :------------------------------------ | :-------------------- | :-------------------- | :------------- | :-------------------- | :-------------------- | :------------- | | Operating Income | 99,944 | 95,008 | 5.2% | 180,056 | 34,947 | 415.3% | | Adjusted Operating Income (Consolidated) | 108,190 | 103,783 | 4.2% | 196,200 | 181,163 | 8.3% | | Adjusted Operating Margin % (Consolidated) | 23.4% | 23.2% | 0.2 pp | 22.4% | 21.4% | 1.0 pp | - Adjusted operating income (loss) is defined as operating income excluding restructuring charges, currency exchange (gains) losses, loss on divestiture of MSA LLC, product liability expense, amortization of acquisition-related intangible assets, net cost for product related legal matter and transaction costs[46] - Adjusted operating margin is defined as adjusted operating income (loss) divided by segment net sales to external customers[46] Adjusted Earnings and EPS Reconciliation Q2 2024 adjusted earnings were $79.7 million ($2.01 adjusted diluted EPS), and H1 2024 adjusted earnings were $143.2 million ($3.62 adjusted diluted EPS) Adjusted Earnings and EPS Reconciliation | Metric | Q2 2024 ($ thousands) | Q2 2023 ($ thousands) | % Change (QoQ) | H1 2024 ($ thousands) | H1 2023 ($ thousands) | % Change (YoY) | | :-------------------------- | :-------------------- | :-------------------- | :------------- | :-------------------- | :-------------------- | :------------- | | Net Income (Loss) | 72,234 | 67,090 | 7.7% | 130,373 | (83,083) | Not meaningful | | Adjusted Earnings | 79,662 | 72,137 | 10% | 143,160 | 125,865 | 14% | | Adjusted Diluted EPS | 2.01 | 1.83 | 10% | 3.62 | 3.19 | 13% | - Management uses adjusted earnings and adjusted earnings per diluted share to internally assess the company's performance and ongoing operating trends[38] Debt and Net Debt to Adjusted EBITDA Reconciliation As of June 30, 2024, total end-of-period debt was $588.2 million, with net debt of $441.4 million and a net debt to adjusted EBITDA ratio of 0.9 Debt and Net Debt as of June 30, 2024 | Metric | June 30, 2024 ($ thousands) | | :------------------------------------ | :-------------------------- | | Total end-of-period debt | 588,243 | | Total end-of-period cash and cash equivalents | 146,830 | | Net debt | 441,413 | | Net debt to adjusted EBITDA | 0.9 | - Management uses Debt to adjusted EBITDA and Net debt to adjusted EBITDA to internally assess the company's liquidity and balance sheet strength[72] Adjusted EBITDA for Twelve Months Ended June 30, 2024 | Metric | Twelve Months Ended June 30, 2024 ($ thousands) | | :------------------------------------ | :---------------------------------------------- | | Operating income | 376,429 | | Adjusted EBITDA | 466,424 | Organic Constant Currency Revenue Growth Reconciliation Organic constant currency revenue growth is a non-GAAP metric used to understand ongoing business performance by excluding foreign currency impacts - Organic constant currency revenue growth is a useful metric for investors as foreign currency translation can materially impact revenue growth trends[37][68] - This metric highlights ongoing business performance by excluding the impact of fluctuating foreign currencies, which is outside of management's control[37][68] Other Information Conference Call Details MSA Safety will host a conference call on Thursday, July 25, 2024, at 10:00 a.m. Eastern time to discuss Q2 2024 results - Conference call to discuss Q2 2024 results and outlook will be held on Thursday, July 25, 2024, at 10:00 a.m. Eastern time[14][76] - The call and accompanying slide presentation will be webcast at http://investors.msasafety.com/ under "News and Events" tab, subheading "Events & Presentations"[14] - Investors can dial into the call at 1-844-854-4415 (toll-free) or 1-412-902-6599 (international), with a replay available online for 90 days[14] Cautionary Statement Regarding Forward-Looking Statements The press release contains forward-looking statements subject to various assumptions, risks, and uncertainties that may cause actual results to differ materially - The press release includes "forward-looking statements" relating to future events or financial performance, subject to various assumptions, known and unknown risks, and uncertainties[48][73] - Actual results, performance, or outcomes may differ materially due to factors discussed in the company's Form 10-K and 10-Q reports, available on www.sec.gov and the investor relations website[73] - The company is under no duty to update publicly any forward-looking statements after the earnings press release date, except as required by law[73]