MSA Security Integrated (MSA) Q1 2023 Earnings Convention Name Could 2, 2023 10:00 AM ET
Company Individuals
Chris Hepler – Govt Director, Company Improvement & Investor Relations
Nish Vartanian – Chairman, President and Chief Govt Officer
Lee McChesney – Senior Vice President and Chief Monetary Officer
Convention Name Individuals
Stanley Elliott – Stifel
Rob Mason – Baird
Operator
Good day and welcome to the MSA First Quarter 2023 Earnings Convention Name. All individuals will probably be in listen-only mode. Do you have to want help, please sign a convention specialist by urgent the star key adopted by zero. After as we speak’s presentation, there will probably be a chance to ask questions. [Operator Instructions]. Please word, this occasion is being recorded.
I might now like to show the convention over to Chris Hepler. Please go forward.
Chris Hepler
Thanks. Good morning and welcome to MSA Security first quarter 2023 earnings convention name. That is Chris Hepler, Govt Director of Company Improvement and Investor Relations. With me as we speak are Nish Vartanian, Chairman, President and CEO; Lee McChesney, Senior Vice President and CFO; and Steve Blanco Phase President for the Americas.
Earlier than we start, I would prefer to remind everybody that issues mentioned throughout this name could embody forward-looking statements inside the that means of the Personal Securities Litigation Reform Act of 1995. Ahead-looking statements embody however should not restricted to all projections and anticipated ranges of future efficiency. Ahead-looking statements contain a lot of dangers, uncertainties and different elements that will trigger our precise outcomes to vary materially from these mentioned as we speak. These dangers, uncertainties and different elements are detailed in our SEC filings.
MSA security undertakes no responsibility to publicly replace any forward-looking statements made on this name besides as required by legislation. We’ve got included sure non-GAAP monetary measures as a part of our dialogue this morning. The non-GAAP reconciliations can be found within the appendix of as we speak’s presentation. The presentation and press launch can be found on our Investor Relations web site at traders.msasafety.com.
Shifting on to as we speak’s agenda. First, Nish will focus on key highlights of the quarter. He’ll then flip the decision over to Lee to debate our monetary efficiency and outlook. Nish will then conclude with closing remarks. Following our ready remarks, we’ll open the decision for questions.
With that. I am going to flip the decision over to Nish.
Nish Vartanian
Thanks, Chris. Good morning, everybody. We respect you becoming a member of us as we speak.
I am on Slide 4. I need to begin with a quick story that has an important reminder. MSAs function runs deep in our firm and our workers are fairly often concerned in group work that ties intently to our mission. Certainly one of our associates regionally right here in Pittsburgh, who additionally serves as a volunteer firefighter responded to a home fireplace not too long ago, the place tragically, two kids have been killed by the smoke and flames. The investigation recognized that there have been no smoke detectors within the residence, which might have helped save the lives of those kids. Consequently, he is change into keen about smoke detectors and launched a group occasion on smoke detector consciousness.
To amplify this vital message, I need to remind everybody on this name to examine your smoke and carbon monoxide detectors repeatedly, change the batteries and guarantee they’re put in all through your private home. It may assist prevent or the one you love’s life.
Now shifting on to Slide 5. MSA had an excellent begin to the 12 months with robust income, earnings and money stream progress. We’re very inspired as this marks the third straight quarter of double-digit income progress and wholesome incremental margins and money stream. Our worthwhile progress was a results of broad-based demand for MSAs main security options. Orders have been up double digits during the last 12 months. Our book-to-bill ratio was favorable at greater than 1.1x, and we grew backlog sequentially.
Income was up a powerful 20% within the quarter, we noticed balanced progress throughout our key product classes and areas. Development in our shorter cycle merchandise like transportable fuel detection, head safety and fall safety was robust within the quarter. Our fastened fuel detection enterprise additionally noticed a stable progress and orders. And in firefighter security, we noticed wholesome progress in respiration equipment and protecting attire particularly in our world enterprise.
So to all of our MSA associates across the globe, thanks for delivering one other nice quarter. Outcomes like these are pushed by your unwavering dedication to our mission of security. We additionally take nice pleasure in our capability to design progressive options that tackle our clients’ hardest security challenges and enhance their productiveness. By placing the shopper on the heart of every part we do, our groups are in a position to design higher options that tackle these challenges. This has helped us introduce higher options to the protection business and has resulted in main product vitality, which was 37% for 2022. This demonstrates a powerful product market match for our options, and we’re competing properly in our markets.
A terrific instance of that is the continued enlargement of our fall safety portfolio an effort that was began pre-pandemic. We not too long ago launched the V-Shock collection of self-retracting lanyards to enhance our V-Tech lineup. The V-Shock product line is designed for sturdiness, ease of use, and improves our aggressive place within the rising fall safety sector, whereas extending our addressable market. And on the business aspect, we proceed to see momentum within the fireplace companies market with latest wins with Los Angeles Metropolis for the G1 respiration equipment and Bedfordshire, United Kingdom for the M1, these contracts construct on our wins that we had final 12 months with Los Angeles County and London Hearth Brigade. And we have additionally had latest notable wins in Chile, China and in France.
Shifting on to Slide six, as the protection firm, our dedication to sustainability begins with our mission and is the premise for our key sustainability pillars. Our merchandise, our folks and our planet. And our not too long ago printed annual report we introduced a 1.5 diploma Celsius carbon discount goal, lowering our scope one and two emissions by 42% by 2030. To realize this goal, we’re incorporating sustainability ideas into our each day operations throughout the globe. Our associates are impressed by our ambition, and we’ve quite a few initiatives in course of to assist us attain our goal. Not solely a sustainability included in how we function, it is also included into the merchandise we develop.
For instance, we not too long ago launched the Bacharach MGS-401 Entrance Monitor that gives improved security to monitored areas resembling mechanical rooms and walk-in freezers by offering correct fuel concentrations, and audible and visible alarms when fuel ranges are too excessive. Importantly, the monitor additionally helps clients extra simply adjust to refrigeration security requirements. It is one other method our crew is bringing progressive options to resolve our clients evolving security and sustainability challenges.
With that, I am going to move the decision to Lee to debate our first quarter monetary outcomes and outlook. Lee?
Lee McChesney
Thanks, Nish, and good morning, everybody. Earlier than moving into the numbers, I need to remind you that the accounting associated to the legacy legal responsibility divesture we accomplished in January is on this quarter’s GAAP outcomes. In our adjusted numbers, we’ve eliminated the influence of the transaction.
Now let’s get began on Slide seven with the quarterly monetary highlights. We’re off to a powerful begin for the 12 months with stable outcomes throughout our product classes and areas. Gross sales have been 398 million a rise of 20% in comparison with the prior 12 months. Forex translation had a 2% unfavorable influence on gross sales. Development was properly balanced between quantity and worth, with every contributing about half. We noticed improved gross sales in fuel detection and fall safety on account of robust demand and higher provide chain situations.
As Mitch talked about, order progress was wholesome within the quarter up double digits in comparison with the prior 12 months. E book-to-bill was greater than 1.1x and backlog grew mid-teen sequentially and is up 20% from final 12 months. Gross margin within the quarter was 45.5% up 230 foundation factors year-over-year from sound worth price administration quantity leverage and productiveness. We’re inspired with the sustained progress we’re seeing in gross margin. With provide chain moderation and sure product strains and the appliance of our enterprise techniques or operations, we’re seeing higher throughput in our amenities and that is exhibiting within the outcomes.
Within the first quarter adjusted working margin was 19.4% up 310 foundation factors in comparison with final 12 months. Incremental margin was 35%. Adjusted internet revenue of 53.7 million, which resulted in diluted earnings per share of $1.36, a rise of 24% over final 12 months.
Now I would prefer to evaluate our section efficiency. In our Americas section we had robust outcomes with gross sales of 280 million, a rise of 24% over the prior 12 months. Americas noticed double-digit progress throughout all key classes, together with firefighters security, fuel detection and industrial PPE and the expansion was balanced throughout each North America and Latin America.
Adjusted working margin within the quarter was 25.6% up 240 foundation factors year-over-year on account of quantity, leverage and disciplined price administration.
In our worldwide section, we additionally had robust outcomes, gross sales have been 118 million, a rise of 12% on a reported foundation, and 18% on a relentless foreign money foundation. Forex translation was a 6% headwind within the quarter. From a product perspective, each fuel detection and industrial PPE noticed double-digit progress, which was partially offset by slower progress in firefighter security gear.
We carried out properly in each EMEA and APAC. Our adjusted working margin was 13.4% within the quarter, increasing 480 foundation factors over the prior 12 months, pushed by quantity leverage and disciplined price administration.
Now, shifting to money stream and leverage on Slide eight. Free money stream when adjusted for the divestiture was 52 million, or 97% of adjusted internet revenue. Money stream improved within the quarter from greater earnings and improved working capital and demonstrates our confirmed capability to ship a strong money era.
Our monetary place is powerful. Within the quarter we invested 8 million in CapEx and returned 80 million in dividends to our shareholders. We have been paid $80 million of debt after adjusting for the divestiture and internet debt on March 31 was 731 million.
For the trailing 12 months ended March 31, 2023, adjusted EBITDA was 361 million, internet leverage at quarter finish was 2.0 in comparison with 2.2x professional forma at 12 months finish 2022 when adjusted for the divestiture. Once we introduced the divestiture in January, we mentioned we might give attention to lowering leverage and we’re making measurable progress.
Now let’s flip to our up to date outlook on Slide 9. We’ve got a number of causes to be responsibly optimistic getting into the second quarter. Demand has been resilient and our markets proceed to be properly funded. Quick cycle product demand has been robust this 12 months and we proceed to hold an elevated backlog throughout the enterprise. The latest moderation in provide chain constraints and authorized manufacturing facility throughput, give us confidence that the worst of our provide chain challenges are behind us. We are going to proceed to stability these positives with macro uncertainty within the again half of the 12 months.
The economic system continues to be very dynamic and there is rising recession issues throughout most of our key areas. Our groups are targeted on these variables which might be in our management and executing our technique ship revenue progress, and powerful money stream like we have accomplished for the previous a number of quarters. Contemplating these dynamics and a powerful begin to our 12 months, we now settle for progress for the complete 12 months within the excessive single digit to low double-digit vary with incremental margins in our goal vary of 30% to 40%, and free money stream conversion of roughly 100%.
Earlier than closing, I need to take a second to thank our troopers around the globe for bringing our imaginative and prescient to life every day and for the robust execution this quarter. At MSA, I’ve now seen time and again our crew’s dedication to our mission of employee security. And that strategy is fueling our resilient outcomes.
With that, I am going to move a callback to Nish for his closing remarks.
Nish Vartanian
Thanks, Lee.
I am on Slide 10. In closing, I am inspired by the robust begin to the 12 months, our unparalleled portfolio of progressive security options continues to achieve momentum available in the market. We’re strategically investing in our enterprise to speed up key initiatives to ship sustainable, worthwhile progress. And our groups are energized by our progress and pushed by our mission of security. As we glance ahead MSAs diversification throughout merchandise, geographies and in markets has made our enterprise extra resilient. And our expectation is that the profitable execution of our technique will proceed to drive long-term worth creation.
With that, I am going to flip the decision again over to the operator for the Q&A.
Query-and-Reply Session
Operator
Thanks. We are going to now start the question-and-answer session. [Operator Instructions]. And the primary query will probably be from Stanley Elliott from Stifel. Please go forward.
Stanley Elliott
Hey, good morning, everybody. Congratulations on the robust begin to the 12 months.
Nish Vartanian
Thanks, Stanley.
Stanley Elliott
Query for you guys across the fireplace division. I imply, go into FDIC final week, there’s appreciable momentum that you simply’re seeing there, you talked about all of the conversions. How do you all take into consideration that enterprise from a bodily capability standpoint, actually simply the power to ship it. I imply, even inside the ones that you simply talked about, you continue to had the Air Drive and a few of the issues on the market within the works, simply curious how to consider how that enterprise can evolve.
Nish Vartanian
Certain, Stanley. So once we constructed that, that line for the G1 SCBA, we constructed with loads of flex in capability, understanding that the enterprise could be very clumpy, as you recognize, the sometimes, the AFG funding cycles within the again half of the 12 months, and we’ve to ramp up manufacturing to get these models out the door, predominantly within the fourth quarter. So we’ve loads of capability, we are able to run that line at very excessive charges and deal with elevated capability or elevated demand with ease. I do not lose sleep over our capability constraints, I lose sleep over the provision chains. That is actually the gating problem with regards to getting respiration equipment out the door. However so far as our capability is anxious, we’re in actually fine condition.
Stanley Elliott
And type of how the core merchandise carried out within the quarter, I imply, fuel detection as much as 47% or so. How a lot of that’s, how you have type of considered going to market otherwise, with type of long run income contracts, how a lot of that’s simply product uptake? Simply curious type of what you are seeing there, and perhaps something you could possibly share about a few of these new go-to-market methods?
Nish Vartanian
So what you noticed within the quarter was, was actually a results of two key issues, Stanley. Primary, product uptake, the demand for product was actually robust within the quarter, we had nice demand. Truly, beginning fourth quarter and into the primary quarter, we noticed actually good demand for transportable fuel detection, and provide chains additionally have been favorable. So we have been in a position to get a whole lot of product out the door, delivery an incredible quantity of 4x hours, which have been very profitable. On the IO 4 and the linked employee, that pipeline continues to ramp up, the enterprise ramps up in a really favorable method. However actually, what you noticed within the quarter was extra about demand within the quarter, and in addition provide chain is getting higher.
Stanley Elliott
After which final for me, you talked about energy in a whole lot of your quick cycle companies and Lee, I feel on the finish, you talked about type of you are making ready for issues round a recession, nevertheless it was appeared just like the quick cycle enterprise would have been softer right here even with the latest PMIs. Do you assume it is extra of type of — we have talked, we have heard about infrastructure spending, mega initiatives, reshoring issues alongside these strains, completely different CapEx cycles could also be probably. However the outcomes that you simply’re placing up appear to essentially type of counter your issues over what one would possibly take into consideration from a recessionary standpoint.
Nish Vartanian
I’ll take the primary, Stanley, after which move it on to Lee for some extra colour. We actually noticed energy within the quick cycle merchandise that what we name the PPE industrial area. And that was actually pushed by the utility market, the non-residential building, oil and fuel normally business, that was — all these markets have been stable for us. We proceed to observe tempo of enterprise intently. And as you recognize, we do not have super line of sight in that enterprise as you get into the second half of the 12 months. However for now, that enterprise seems fairly good. And Lee, if you wish to add some extra colour to that,
Lee McChesney
Sure. So I feel Stanley what I might say there’s, in the event you return to February, once we gave an outlook, we mentioned we will be cautious on that view. And if it turned out to be optimistic, it might be a chance. That is actually what performed out within the first quarter. To Nish’s level, we are able to solely see to date there, that is the place the enterprise would care the smallest backlog and since return it shortly. We’re anticipating a few of that to proceed within the second quarter as a part of the replace. And within the again half, we’re simply going to be balanced. However I feel beneath what Nish mentioned is, frankly, the employment ranges on this space are robust. And albeit, it might even be stronger if we had extra folks to work in a few of these trades. So hey, we’ll see the way it performs out for now. We’ll be as I mentioned, responsibly optimistic. And perhaps it will become a chance.
Operator
Thanks. [Operator Instructions]. The subsequent query is from Rob Mason from Baird. Please go forward.
Rob Mason
Sure, good morning and good work on the quarter as properly. Your outlook that you simply did elevate to be excessive single digit, low double digit gross sales for the 12 months, how does worth issue into that progress for the complete 12 months to the extent that, it was roughly I suppose I am about 11 factors within the first quarter. How does worth development via the 12 months?
Nish Vartanian
Thanks, Rob, and good morning. Lee, why do not you are taking that?
Lee McChesney
Sure, positive. So I feel the value influence will probably be at its most within the first quarter, Rob, and as we undergo the 12 months, that can change into a smaller a part of the consideration. And albeit, that is a part of the mathematics and the outlook as properly. We’re watching the commodity area intently, identical to we’re watching the pricing setting as properly. And our objective is to maintain these in stability. To this point, we have accomplished a very good job with that. So I suppose, properly, it appears — we’re not going to imagine perfection. We’ll see how that performs out. It is performed out properly, to date. And I feel I am proud of the place we’re, from a instruments and perception perspective and we’ll handle accordingly.
Rob Mason
Would you assume, for the complete 12 months the same, name it 50:50 weighting between worth quantity as you had within the first quarter?
Lee McChesney
Sure. I feel that is the precise stability. And I feel when you concentrate on the again half, Rob, there might be some alternatives on either side, simply relying the way it performs out. However once more, we’re going to simply proceed to be cautious on that again half due to the macro elements.
Rob Mason
Certain. After which simply I am curious across the book-to-bill that was 1.1 or so what have been the larger drivers of that being properly above, or solidly above one within the quarter from a product standpoint?
Lee McChesney
Properly, I am going to say it is attention-grabbing. And I am going to let Steve or Nish add in right here as properly. When you concentrate on the expansion we had within the first quarter, after which you concentrate on the book-to-bill being optimistic that simply frankly, speaks to a really broad demand setting. It is humorous, in the event you take a look at the insights on progress, after which while you take a look at the order quantity, they’re very constant by way of being all double digits throughout the classes in very comparable numbers. The one distinction is just a little bit within the industrial PPD area. However that is simply partly as a result of, the enterprise turns shortly.
Nish Vartanian
And the place we noticed, Rob, some actual good energy was within the respiration equipment section, protecting attire, these have been a few the true robust ones and fireplace helmets have been additionally good.
Rob Mason
Nish, I feel there was a point out perhaps the fireplace companies just a little bit softer abroad, however you additionally known as out some wins there. Is that only a timing distinction within the quarter? Or how does that form up for the 12 months I suppose?
Nish Vartanian
Sure, that is appropriate. It is simply seasonality and timing on a quarterly foundation. We’ve got some good orders within the pipeline from a world standpoint. So we’re actually optimistic about that enterprise. We had a pleasant win. One other good one within the U.Ok. There have been a number of extra within the pipeline. So we’re optimistic about that enterprise. That needs to be stable all year long.
Operator
And women and gents, this concludes our question-and-answer session. I wish to flip the convention again over to Chris Hepler, for any closing remarks.
Chris Hepler
Thanks, Chad. And thanks all for becoming a member of. For those who missed the portion of as we speak’s name, an audio replay will probably be made out there later as we speak on our Investor Relations web site, and will probably be out there for the subsequent 90 days. We respect you becoming a member of us this morning. And we look ahead to talking with you once more quickly. Thanks.
Operator
The convention has now concluded. Thanks for attending as we speak’s presentation. Chances are you’ll now disconnect.
