MSA Safety rporated(MSA) - 2025 Q2 - Quarterly Report

Cover Page This document is a Quarterly Report (Form 10-Q) for MSA SAFETY INCORPORATED, detailing key filing information and share data - The document is a Quarterly Report (Form 10-Q) for the quarter ended June 30, 2025, filed by MSA SAFETY INCORPORATED[2] Filer Status and Shares Outstanding | Metric | Value | | :--- | :--- | | Filer Status | Large Accelerated Filer | | Common Stock Trading Symbol | MSA | | Shares Outstanding (as of July 25, 2025) | 39,143,220 | Table of Contents PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including statements of income, comprehensive income, balance sheets, cash flows, and changes in equity, along with detailed notes explaining accounting policies, segment information, debt, acquisitions, and contingencies for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Statements of Income (unaudited) Three Months Ended June 30 (in thousands, except per share values) | Metric | 2025 | 2024 | YoY Change | | :-------------------------------- | :------- | :------- | :--------- | | Net sales | $474,116 | $462,463 | +2.5% | | Gross profit | $220,710 | $223,029 | -1.0% | | Operating income | $85,862 | $99,944 | -14.2% | | Net income | $62,773 | $72,234 | -13.0% | | Basic EPS | $1.60 | $1.83 | -12.5% | | Diluted EPS | $1.59 | $1.83 | -13.0% | | Dividends per common share | $0.53 | $0.51 | +3.9% | Six Months Ended June 30 (in thousands, except per share values) | Metric | 2025 | 2024 | YoY Change | | :-------------------------------- | :------- | :------- | :--------- | | Net sales | $895,456 | $875,765 | +2.2% | | Gross profit | $414,105 | $418,560 | -1.1% | | Operating income | $163,623 | $180,056 | -9.1% | | Net income | $122,378 | $130,373 | -6.1% | | Basic EPS | $3.11 | $3.31 | -6.0% | | Diluted EPS | $3.10 | $3.30 | -6.1% | | Dividends per common share | $1.04 | $0.98 | +6.1% | Condensed Consolidated Statements of Comprehensive Income (unaudited) Three Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | YoY Change | | :-------------------------------- | :------- | :------- | :--------- | | Net income | $62,773 | $72,234 | -13.0% | | Foreign currency translation adjustments | $44,143 | $(8,822) | Significant positive swing | | Total other comprehensive gain (loss), net of tax | $44,385 | $(8,000) | Significant positive swing | | Comprehensive income | $107,158 | $64,234 | +66.8% | Six Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | YoY Change | | :-------------------------------- | :------- | :------- | :--------- | | Net income | $122,378 | $130,373 | -6.1% | | Foreign currency translation adjustments | $66,680 | $(19,495) | Significant positive swing | | Total other comprehensive gain (loss), net of tax | $67,123 | $(18,299) | Significant positive swing | | Comprehensive income | $189,501 | $112,074 | +69.1% | Condensed Consolidated Balance Sheets (unaudited) Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :-------------------------------- | :-------------- | :---------------- | :------- | | Total current assets | $887,461 | $803,030 | +10.5% | | Total assets | $2,550,211 | $2,205,784 | +15.6% | | Total current liabilities | $285,464 | $288,093 | -0.9% | | Long-term debt, net | $670,965 | $481,622 | +39.3% | | Total liabilities | $1,297,569 | $1,062,465 | +22.1% | | Total shareholders' equity | $1,252,642 | $1,143,319 | +9.6% | - Goodwill increased by $112.35 million and Intangible assets, net, increased by $64.497 million from December 31, 2024, to June 30, 2025, primarily due to the M&C acquisition[14][79][81] Condensed Consolidated Statements of Cash Flows (unaudited) Cash Flow Highlights (Six Months Ended June 30, in thousands) | Activity | 2025 | 2024 | YoY Change | | :-------------------------------- | :----------- | :----------- | :----------- | | Cash Flow From Operating Activities | $129,051 | $104,188 | +23.9% | | Cash Flow Used in Investing Activities | $(227,873) | $(25,486) | +794.1% (higher outflow) | | Cash Flow From (Used in) Financing Activities | $73,979 | $(67,718) | Significant positive swing | | Change in cash, cash equivalents and restricted cash | $(17,151) | $427 | Shift to net decrease | - Acquisitions, net of cash acquired, used $187.774 million in cash in 2025, compared to none in 2024[16] - Net proceeds from long-term debt were $165.220 million in 2025, compared to net payments of $13.260 million in 2024, primarily to fund the M&C acquisition[16][78] Condensed Consolidated Statements of Changes in Retained Earnings and Accumulated Other Comprehensive Loss (unaudited) Retained Earnings (in thousands) | Period | Balance at Beginning | Net Income | Common Dividends | Preferred Dividends | Balance at End | | :-------------------------------- | :------------------- | :--------- | :--------------- | :---------------- | :------------- | | Six Months Ended June 30, 2025 | $1,349,650 | $122,378 | $(40,861) | $(20) | $1,431,147 | | Six Months Ended June 30, 2024 | $1,143,442 | $130,373 | $(38,569) | $(20) | $1,235,226 | Accumulated Other Comprehensive Loss (in thousands) | Period | Balance at Beginning | Foreign Currency Translation Adjustments | Pension & Post-retirement Adjustments | Reclassification | Balance at End | | :-------------------------------- | :------------------- | :--------------------------------------- | :------------------------------------ | :--------------- | :------------- | | Six Months Ended June 30, 2025 | $(141,649) | $66,680 | $443 | — | $(74,526) | | Six Months Ended June 30, 2024 | $(129,249) | $(19,495) | $2,396 | $(1,200) | $(147,548) | Note 1—Basis of Presentation - The unaudited condensed consolidated financial statements include normal recurring adjustments and should be read in conjunction with the 2024 Form 10-K[20] - ASU 2023-09 (Improvements to Income Tax Disclosures) and ASU 2024-03 (Disaggregation of Income Statement Expenses) are not expected to have a material effect on the consolidated financial statements, except for expanding disclosures[21][22] Note 2—Revenue Recognition - Revenue is primarily generated from manufacturing and selling safety products and solutions, recognized when control passes to the customer (generally upon shipment or delivery)[23][24] - Managed fire service contracts are accounted for as sales-type leases; equipment revenue is recognized at lease commencement, while maintenance and interest are recognized monthly over the lease term[30][31] - Remaining maintenance performance obligations for managed fire service contracts totaled $34.4 million as of June 30, 2025, expected to be recognized over approximately 3 years[31] Note 3—Cash and Cash Equivalents - The company utilizes a notional cash pooling arrangement to manage global liquidity requirements, combining cash balances to offset bank overdrafts[35] Net Cash Pool Position (June 30, 2025, in thousands) | Metric | Amount | | :-------------------- | :------- | | Gross cash pool position | $52,967 | | Less: cash pool borrowings | $(51,964) | | Net cash pool position | $1,003 | Note 4—Restructuring Charges Restructuring Charges (in millions) | Period | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Three Months Ended June 30 | $0.5 | $1.5 | | Six Months Ended June 30 | $2.4 | $4.6 | - Restructuring charges in 2025 were primarily related to initiatives to right-size the organization in response to macroeconomic conditions and to optimize the manufacturing footprint[37] Restructuring Reserve Balances (in millions) | Date | Balance | | :-------------------- | :------ | | December 31, 2024 | $3.4 | | June 30, 2025 | $3.6 | Note 5—Inventories Inventory Components (in thousands) | Component | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Finished products | $105,940 | $93,356 | | Work in process | $19,511 | $13,413 | | Raw materials and supplies | $218,432 | $190,027 | | Total inventories | $343,883 | $296,796 | Note 6—Property, Plant and Equipment Property, Plant and Equipment, Net (in thousands) | Component | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Land | $9,579 | $4,235 | | Buildings | $198,730 | $142,605 | | Machinery and equipment | $544,266 | $512,894 | | Construction in progress | $31,913 | $25,451 | | Total (gross) | $784,488 | $685,185 | | Less: accumulated depreciation | $(505,069) | $(473,320) | | Property, plant and equipment, net | $279,419 | $211,865 | Note 7—Reclassifications Out of Accumulated Other Comprehensive Loss - Accumulated other comprehensive loss decreased from $(141,649) thousand at December 31, 2024, to $(74,526) thousand at June 30, 2025[19] - Foreign currency translation adjustments resulted in a gain of $66,680 thousand for the six months ended June 30, 2025, a significant positive swing compared to a loss of $(19,495) thousand in the prior year[42] - Pension and post-retirement plan adjustments resulted in a gain of $443 thousand for the six months ended June 30, 2025[42] Note 8—Capital Stock - The company's 2024 stock repurchase program authorizes up to $200.0 million for common stock repurchases[45] - 248,768 shares were repurchased during the six months ended June 30, 2025, compared to 52,561 shares in the same period of 2024[45] Common Stock and Treasury Cost Activity (Six Months Ended June 30, in thousands) | Metric | 2025 (Common Stock) | 2025 (Treasury Cost) | 2024 (Common Stock) | 2024 (Treasury Cost) | | :-------------------------------- | :------------------ | :------------------- | :------------------ | :------------------- | | Balance at beginning of period | $329,953 | $(396,604) | $312,324 | $(361,684) | | Share repurchase program | — | $(39,995) | — | $(10,000) | | Balance at end of period | $336,175 | $(442,123) | $320,556 | $(376,556) | Note 9—Segment Information - The company is organized into three reportable segments: Americas, International, and Corporate, based on geographical operating segments[48][49] Six Months Ended June 30, 2025 - Segment Net Sales (in thousands) | Segment | Net Sales | | :------------ | :---------- | | Americas | $613,299 | | International | $282,157 | | Consolidated | $895,456 | Six Months Ended June 30, 2025 - Sales by Product Group (Consolidated, in thousands) | Product Group | Dollars | Percent | | :-------------------- | :-------- | :------ | | Detection | $354,906 | 40% | | Fire Service | $313,922 | 35% | | Industrial PPE and Other | $226,628 | 25% | | Total | $895,456 | 100% | Note 10—Earnings per Share Earnings Per Share (Six Months Ended June 30) | Metric | 2025 | 2024 | YoY Change | | :-------------------------------- | :----- | :----- | :--------- | | Basic EPS | $3.11 | $3.31 | -6.0% | | Diluted EPS | $3.10 | $3.30 | -6.1% | Earnings Per Share (Three Months Ended June 30) | Metric | 2025 | 2024 | YoY Change | | :-------------------------------- | :----- | :----- | :--------- | | Basic EPS | $1.60 | $1.83 | -12.6% | | Diluted EPS | $1.59 | $1.83 | -13.1% | Note 11—Income Taxes - The effective tax rate for the three months ended June 30, 2025, was 24.1% (2024: 23.5%), and for the six months ended June 30, 2025, was 23.8% (2024: 23.3%)[59][60] - Differences from the U.S. federal statutory rate are primarily due to state income taxes and nondeductible executive compensation[59][60] - The gross liability for unrecognized tax benefits was $4.7 million at June 30, 2025, with $1.5 million in recognized tax benefits[61] Note 12—Stock Plans Stock Compensation Expense (in thousands) | Period | 2025 | 2024 | | :-------------------------------- | :------- | :------- | | Three Months Ended June 30 | $5,370 | $5,042 | | Six Months Ended June 30 | $7,999 | $9,229 | - Unvested restricted stock awards and units totaled 188,641 shares at June 30, 2025, with a weighted average grant date fair value of $155.11[66] - Unvested performance stock units totaled 144,537 shares at June 30, 2025, with a weighted average grant date fair value of $151.73. The 2022 performance unit awards vested at 220% of the target award in Q1 2025[68] Note 13—Long-Term Debt Long-Term Debt (in thousands) | Debt Type | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Total | $679,348 | $508,013 | | Amounts due within one year | $8,383 | $26,391 | | Long-term debt, net | $670,965 | $481,622 | - The company entered into a Fifth Amended and Restated Credit Agreement (Revolving Credit Facility) with a capacity of $1.3 billion on April 1, 2025, with $915.4 million unused at June 30, 2025[69] - The acquisition of M&C on May 6, 2025, was financed by $137.3 million under the Revolving Credit Facility and cash on hand[78] Note 14—Goodwill and Intangible Assets, Net - Goodwill increased by $112.35 million from January 1, 2025, to June 30, 2025, primarily due to $91.005 million from the M&C acquisition and $21.345 million from currency translation[79] - Intangible assets, net, increased by $64.497 million, with $66.568 million from additions (M&C acquisition) and $7.535 million from currency translation, offset by $9.606 million in amortization[81] - Goodwill of $91.0 million related to the M&C acquisition was allocated $63.7 million to the International segment and $27.3 million to the Americas segment[86] Note 15—Acquisitions - On May 6, 2025, the company acquired M&C TechGroup Germany GmbH for approximately $188 million, net of cash acquired, to enhance its gas analysis systems portfolio[82][83] - The acquisition resulted in preliminary fair values of $66.6 million for customer relationships and other intangible assets, and $91.0 million for goodwill[84] - M&C contributed $10.8 million in sales and a net loss of $4.8 million to the company's results for the three and six months ended June 30, 2025[88] Note 16—Pensions and Other Post-retirement Benefits Net Periodic Benefit (Income) Cost (Six Months Ended June 30, in thousands) | Benefit Type | 2025 | 2024 | | :-------------------------------- | :------- | :------- | | Pension Benefits | $(6,917) | $(3,108) | | Other Benefits | $940 | $722 | - The company made $3.7 million in pension contributions during the six months ended June 30, 2025, and expects to contribute between $6 million and $8 million in 2025[92] Note 17—Derivative Financial Instruments - The company uses foreign currency forward contracts to manage currency exchange rate risk, with a notional amount of $107.8 million at June 30, 2025[93] - Foreign exchange contracts resulted in a gain of $(4.432) million for the six months ended June 30, 2025, compared to a loss of $3.659 million in 2024[95] Note 18—Fair Value Measurements - Derivative financial instruments, consisting of foreign currency forward contracts, are classified within Level 2 of the fair value hierarchy[96] Fixed Rate Long-Term Debt (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Carrying amount | $300,300 | $303,500 | | Fair value | $269,800 | $266,400 | Note 19—Commitments and Contingencies - The company faces inherent product liability risks, including single incident and cumulative trauma claims[98][99][100] - Globe, a subsidiary, is defending 835 lawsuits comprising 10,808 claims related to PFAS in firefighter turnout gear[103][104] Warranty Reserve (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Beginning warranty reserve | $13,724 | $14,288 | | Ending warranty reserve | $12,791 | $13,724 | | Warranty expense (six months) | $6,500 | $5,000 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including a business overview, detailed analysis of quarterly and year-to-date performance, liquidity, capital resources, and critical accounting policies. It highlights the impact of the M&C acquisition, macroeconomic factors, and currency fluctuations on financial results BUSINESS OVERVIEW - MSA Safety Incorporated is a global leader in advanced safety products, technology, and solutions, with principal product categories in fire service, detection, and industrial personal protective equipment (PPE)[109] - The company operates through three reportable segments: Americas, International, and Corporate[111] - On May 6, 2025, MSA acquired M&C TechGroup, a provider of gas analysis systems, for approximately $188 million, net of cash acquired[115] RESULTS OF OPERATIONS Three Months Ended June 30, 2025, Compared to Three Months Ended June 30, 2024 Consolidated Net Sales (Three Months Ended June 30, in millions) | Metric | 2025 | 2024 | Increase | Percent Increase | | :--------- | :--- | :--- | :------- | :--------------- | | Net Sales | $474.1 | $462.5 | $11.6 | 2.5% | - Organic sales decreased by 0.2% consolidated, with Americas up 1.6% (driven by detection growth) and International down 4.1% (due to declines in fire service, detection, and industrial PPE)[117][118][119] - Gross profit margin decreased to 46.6% from 48.2%, primarily due to inflation, transactional foreign currency headwinds, and lower organic volumes, partially offset by price realization[122] - GAAP operating income decreased to $85.9 million from $99.9 million, mainly due to increased SG&A (M&C acquisition and transaction costs), higher currency exchange losses, and lower gross profit[130] Six Months Ended June 30, 2025, Compared to Six Months Ended June 30, 2024 Consolidated Net Sales (Six Months Ended June 30, in millions) | Metric | 2025 | 2024 | Increase | Percent Increase | | :--------- | :--- | :--- | :------- | :--------------- | | Net Sales | $895.5 | $875.8 | $19.7 | 2.2% | - Organic sales increased by 1.7% consolidated, with Americas up 1.3% (detection and industrial PPE growth) and International up 2.5% (detection and fire service growth)[143][144][145] - Gross profit margin decreased to 46.2% from 47.8%, primarily due to inflation, transactional foreign currency headwinds, and lower organic volumes, partially offset by price realization[147] - GAAP operating income decreased to $163.6 million from $180.1 million, driven by lower gross profit, increased SG&A expenses, and higher currency exchange losses[156] Non-GAAP Financial Measures - The company uses non-GAAP financial measures such as organic sales/SG&A change, adjusted operating income/margin, and adjusted EBITDA/margin to provide a better understanding of underlying business performance and trends[167][168][169] - These non-GAAP measures are supplemental and not a substitute for GAAP results[170] LIQUIDITY AND CAPITAL RESOURCES - Primary liquidity sources are operating cash flows and borrowings, with principal requirements for working capital, capital expenditures, debt payments, dividends, and share repurchases[171] - Cash and cash equivalents totaled $147.0 million at June 30, 2025, with $915.4 million unused capacity on the $1.3 billion revolving credit facility[172][173] - Operating activities provided $129.1 million in cash (2025), investing activities used $227.9 million (primarily due to the M&C acquisition and capital expenditures), and financing activities provided $74.0 million (driven by net debt proceeds and increased share repurchases) for the six months ended June 30, 2025[175][176][177] CUMULATIVE TRANSLATION ADJUSTMENTS - A translation gain of $66.7 million was recorded to cumulative translation adjustments for the six months ended June 30, 2025, compared to a $19.5 million loss in the same period of 2024, due to the U.S. dollar's position relative to international currencies[179] COMMITMENTS AND CONTINGENCIES - The company expects to make net contributions of $6.0 million to $8.0 million to its pension plans in 2025[180] - Outstanding bank guarantees and standby letters of credit totaled $10.3 million as of June 30, 2025[181] CRITICAL ACCOUNTING POLICIES AND ESTIMATES - Business combinations have been identified as a critical accounting policy and estimate due to the recent M&C acquisition, requiring significant judgment in valuing acquired assets and liabilities[184][185] RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, specifically currency exchange rates and interest rates, and outlines the potential financial impact of hypothetical changes in these rates on sales, net income, and the fair value of financial instruments - A hypothetical 10% strengthening or weakening of the U.S. dollar would decrease or increase reported sales by approximately $19.9 million (4.2%) and net income by $1.6 million (2.5%) for the three months ended June 30, 2025[189] - The notional amount of open foreign currency forward contracts was $107.8 million at June 30, 2025, with a hypothetical 10% strengthening or weakening of the U.S. dollar resulting in a $10.8 million change in their fair value[190] - A 100 basis point increase or decrease in interest rates would have a $3.2 million impact on future annual earnings, given $383.1 million of variable rate borrowings at June 30, 2025[193] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2025, and reports that there were no material changes in internal control over financial reporting during the most recent fiscal quarter - The company's disclosure controls and procedures were effective as of June 30, 2025[195] - There were no material changes in the company's internal control over financial reporting during the most recent fiscal quarter[195] PART II. OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the company's share repurchase activities under its $200.0 million program, detailing the number of shares purchased and the remaining authorization for the quarter ended June 30, 2025 Issuer Purchases of Equity Securities (Quarter Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs | | :--------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------------- | :----------------------------------------------------------------------------- | | April 2025 | 657 | $157.28 | — | 1,016,845 | | May 2025 | 158,220 | $160.09 | 157,777 | 827,216 | | June 2025 | 31,075 | $164.10 | 28,866 | 776,419 | - During the quarter ended June 30, 2025, 186,643 shares were repurchased for $30.0 million under the $200.0 million share repurchase program[196] Item 5. Other Information This section states that no Rule 10b5-1 trading arrangements were adopted or terminated by the company, its directors, or officers during the three months ended June 30, 2025 - No Rule 10b5-1 trading arrangements were adopted or terminated by any director, officer, or the company itself during the three months ended June 30, 2025[198] Item 6. Exhibits This section lists all documents filed as exhibits to the Form 10-Q, including credit agreements, certifications from the CEO and CFO, and XBRL data files - Exhibits include the Fifth Amended and Restated Credit Agreement, Amendment No. 4 to the Third Amended and Restated Multicurrency Note Purchase and Private Shelf Agreement, Amendment No. 4 to the Second Amended and Restated Master Note Facility, CEO and CFO certifications, and XBRL documents[199][201] SIGNATURE This section contains the required signatures from the company's Interim Chief Financial Officer and Chief Accounting Officer, certifying the accuracy and completeness of the report - The report is signed by Elyse L. Brody, Interim Chief Financial Officer, and Jonathan D. Buck, Chief Accounting Officer and Controller, on August 5, 2025[205]