MSA Security Included (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 might 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 immediately’s presentation, there might be a chance to ask questions. [Operator Instructions]. Please notice, this occasion is being recorded.
I’d 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 immediately 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 throughout the which means of the Non-public 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 quite a lot of dangers, uncertainties and different elements which will trigger our precise outcomes to vary materially from these mentioned immediately. These dangers, uncertainties and different elements are detailed in our SEC filings.
MSA security undertakes no obligation to publicly replace any forward-looking statements made on this name besides as required by legislation. We have now 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 immediately’s presentation. The presentation and press launch can be found on our Investor Relations web site at buyers.msasafety.com.
Transferring on to immediately’s agenda. First, Nish will talk about 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 are going to 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 immediately.
I am on Slide 4. I need to begin with a short story that has an important reminder. MSAs goal runs deep in our firm and our staff are fairly often concerned in group work that ties intently to our mission. Considered one of our associates domestically right here in Pittsburgh, who additionally serves as a volunteer firefighter responded to a home hearth not too long ago, the place tragically, two kids had been killed by the smoke and flames. The investigation recognized that there have been no smoke detectors within the house, which may have helped save the lives of those kids. Consequently, he is turn into obsessed with smoke detectors and launched a group occasion on smoke detector consciousness.
To amplify this necessary message, I need to remind everybody on this name to test your smoke and carbon monoxide detectors frequently, change the batteries and guarantee they’re put in all through your private home. It may possibly assist prevent or your beloved’s life.
Now transferring on to Slide 5. MSA had an impressive begin to the yr with sturdy 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 had been up double digits during the last yr. Our book-to-bill ratio was favorable at greater than 1.1x, and we grew backlog sequentially.
Income was up a robust 20% within the quarter, we noticed balanced progress throughout our key product classes and areas. Progress in our shorter cycle merchandise like moveable fuel detection, head safety and fall safety was sturdy within the quarter. Our mounted fuel detection enterprise additionally noticed a stable progress and orders. And in firefighter security, we noticed wholesome progress in respiratory equipment and protecting attire particularly in our international 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 satisfaction in our capacity to design modern options that handle our clients’ hardest security challenges and enhance their productiveness. By placing the client on the heart of every part we do, our groups are capable of design higher options that handle these challenges. This has helped us introduce higher options to the security trade and has resulted in main product vitality, which was 37% for 2022. This demonstrates a robust product market match for our options, and we’re competing effectively in our markets.
An ideal instance of that is the continued growth 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 enrich 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 industrial aspect, we proceed to see momentum within the hearth companies market with latest wins with Los Angeles Metropolis for the G1 respiratory equipment and Bedfordshire, United Kingdom for the M1, these contracts construct on our wins that we had final yr with Los Angeles County and London Fireplace Brigade. And we have additionally had latest notable wins in Chile, China and in France.
Transferring on to Slide six, as the security firm, our dedication to sustainability begins with our mission and is the idea for our key sustainability pillars. Our merchandise, our folks and our planet. And our not too long ago revealed annual report we introduced a 1.5 diploma Celsius carbon discount goal, decreasing our scope one and two emissions by 42% by 2030. To attain this goal, we’re incorporating sustainability rules into our every 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 integrated in how we function, it is also integrated into the merchandise we develop.
For example, we not too long ago launched the Bacharach MGS-401 Entrance Monitor that gives improved security to monitored areas akin to 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 means our workforce is bringing modern options to resolve our clients evolving security and sustainability challenges.
With that, I am going to cross the decision to Lee to debate our first quarter monetary outcomes and outlook. Lee?
Lee McChesney
Thanks, Nish, and good morning, everybody. Earlier than entering 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 affect of the transaction.
Now let’s get began on Slide seven with the quarterly monetary highlights. We’re off to a robust begin for the yr with stable outcomes throughout our product classes and areas. Gross sales had been 398 million a rise of 20% in comparison with the prior yr. Forex translation had a 2% unfavorable affect on gross sales. Progress was effectively balanced between quantity and worth, with every contributing about half. We noticed improved gross sales in fuel detection and fall safety on account of sturdy 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 yr. Ebook-to-bill was greater than 1.1x and backlog grew mid-teen sequentially and is up 20% from final yr. Gross margin within the quarter was 45.5% up 230 foundation factors year-over-year from sound worth value 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 applying of our enterprise techniques or operations, we’re seeing higher throughput in our services 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 yr. 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 yr.
Now I would prefer to evaluate our section efficiency. In our Americas section we had sturdy outcomes with gross sales of 280 million, a rise of 24% over the prior yr. 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 value administration.
In our worldwide section, we additionally had sturdy outcomes, gross sales had 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 effectively in each EMEA and APAC. Our adjusted working margin was 13.4% within the quarter, increasing 480 foundation factors over the prior yr, pushed by quantity leverage and disciplined value administration.
Now, transferring 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 capacity to ship a strong money era.
Our monetary place is robust. Within the quarter we invested 8 million in CapEx and returned 80 million in dividends to our shareholders. We had 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 yr finish 2022 when adjusted for the divestiture. Once we introduced the divestiture in January, we stated we’d give attention to decreasing leverage and we’re making measurable progress.
Now let’s flip to our up to date outlook on Slide 9. We have now a number of causes to be responsibly optimistic getting into the second quarter. Demand has been resilient and our markets proceed to be effectively funded. Brief cycle product demand has been sturdy this yr and we proceed to hold an elevated backlog throughout the enterprise. The latest moderation in provide chain constraints and authorised manufacturing unit 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 yr.
The financial system continues to be very dynamic and there is rising recession considerations throughout most of our key areas. Our groups are targeted on these variables which can be in our management and executing our technique ship revenue progress, and powerful money stream like we have executed for the previous a number of quarters. Contemplating these dynamics and a robust begin to our yr, we now settle for progress for the complete yr 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 all over the world for bringing our imaginative and prescient to life each day and for the sturdy execution this quarter. At MSA, I’ve now seen again and again our workforce’s dedication to our mission of employee security. And that method is fueling our resilient outcomes.
With that, I am going to cross a callback to Nish for his closing remarks.
Nish Vartanian
Thanks, Lee.
I am on Slide 10. In closing, I am inspired by the sturdy begin to the yr, our unparalleled portfolio of modern security options continues to achieve momentum out there. 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 might be from Stanley Elliott from Stifel. Please go forward.
Stanley Elliott
Hey, good morning, everybody. Congratulations on the sturdy begin to the yr.
Nish Vartanian
Thanks, Stanley.
Stanley Elliott
Query for you guys across the hearth 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 throughout the ones that you simply talked about, you continue to had the Air Power and a number of the issues on the market within the works, simply curious how to consider how that enterprise can evolve.
Nish Vartanian
Certain, Stanley. So after we constructed that, that line for the G1 SCBA, we constructed with loads of flex in capability, realizing that the enterprise could be very clumpy, as you already know, the usually, the AFG funding cycles within the again half of the yr, and we’ve to ramp up manufacturing to get these items out the door, predominantly within the fourth quarter. So we’ve loads of capability, we will 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 subject in terms of getting respiratory equipment out the door. However so far as our capability is worried, 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’ve got type of considered going to market in a different way, with type of long term 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 sturdy within the quarter, we had nice demand. Really, beginning fourth quarter and into the primary quarter, we noticed actually good demand for moveable fuel detection, and provide chains additionally had been favorable. So we had been capable of get a whole lot of product out the door, transport an incredible quantity of 4x hours, which had 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 likewise provide chain is getting higher.
Stanley Elliott
After which final for me, you talked about power in a whole lot of your quick cycle companies and Lee, I believe on the finish, you talked about type of you are getting ready for considerations 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 suppose it is extra of type of — we have talked, we have heard about infrastructure spending, mega tasks, reshoring issues alongside these strains, completely different CapEx cycles could also be doubtlessly. However the outcomes that you simply’re placing up appear to essentially type of counter your considerations over what one would possibly take into consideration from a recessionary standpoint.
Nish Vartanian
I’ll take the primary, Stanley, after which cross it on to Lee for some extra shade. We actually noticed power within the quick cycle merchandise that what we name the PPE industrial house. And that was actually pushed by the utility market, the non-residential building, oil and fuel normally trade, that was — all these markets had been stable for us. We proceed to observe tempo of enterprise intently. And as you already know, we do not have super line of sight in that enterprise as you get into the second half of the yr. However for now, that enterprise seems to be fairly good. And Lee, if you wish to add some extra shade to that,
Lee McChesney
Sure. So I believe Stanley what I’d say there may be, in case you return to February, after we gave an outlook, we stated we will be cautious on that view. And if it turned out to be constructive, it will be a chance. That is actually what performed out within the first quarter. To Nish’s level, we will solely see up to now there, that is the place the enterprise would care the smallest backlog and since return it rapidly. 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 believe beneath what Nish stated is, frankly, the employment ranges on this space are sturdy. And albeit, it may 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 stated, responsibly optimistic. And perhaps it will transform 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 effectively. Your outlook that you simply did increase to be excessive single digit, low double digit gross sales for the yr, how does worth issue into that progress for the complete yr to the extent that, it was roughly I suppose I am about 11 factors within the first quarter. How does worth pattern by way of the yr?
Nish Vartanian
Thanks, Rob, and good morning. Lee, why do not you’re taking that?
Lee McChesney
Sure, positive. So I believe the value affect might be at its most within the first quarter, Rob, and as we undergo the yr, that may turn into a smaller a part of the consideration. And albeit, that is a part of the maths and the outlook as effectively. We’re watching the commodity house intently, identical to we’re watching the pricing setting as effectively. And our objective is to maintain these in stability. To date, we have executed a superb job with that. So I suppose, effectively, it appears — we’re not going to imagine perfection. We’ll see how that performs out. It is performed out effectively, up to now. And I believe I am pleased with the place we’re, from a instruments and perception perspective and we’ll handle accordingly.
Rob Mason
Would you assume, for the complete yr an identical, name it 50:50 weighting between worth quantity as you had within the first quarter?
Lee McChesney
Sure. I believe that is the correct stability. And I believe when you consider the again half, Rob, there could possibly be some alternatives on each 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 had been the larger drivers of that being effectively above, or solidly above one within the quarter from a product standpoint?
Lee McChesney
Effectively, I am going to say it is attention-grabbing. And I am going to let Steve or Nish add in right here as effectively. When you consider the expansion we had within the first quarter, after which you consider the book-to-bill being constructive that simply frankly, speaks to a really broad demand setting. It is humorous, in case you take a look at the insights on progress, after which whenever you take a look at the order quantity, they’re very constant when it comes to being all double digits throughout the classes in very related numbers. The one distinction is somewhat bit within the industrial PPD house. However that is simply partly as a result of, the enterprise turns rapidly.
Nish Vartanian
And the place we noticed, Rob, some actual good power was within the respiratory equipment section, protecting attire, these had been a few the actual sturdy ones and hearth helmets had been additionally good.
Rob Mason
Nish, I believe there was a point out perhaps the hearth companies somewhat 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 yr I suppose?
Nish Vartanian
Sure, that is right. It is simply seasonality and timing on a quarterly foundation. We have now 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 just a few extra within the pipeline. So we’re optimistic about that enterprise. That needs to be stable all year long.
Operator
And girls and gents, this concludes our question-and-answer session. I want 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. Should you missed the portion of immediately’s name, an audio replay might be made accessible later immediately on our Investor Relations web site, and might be accessible for the subsequent 90 days. We respect you becoming a member of us this morning. And we stay up for talking with you once more quickly. Thanks.
Operator
The convention has now concluded. Thanks for attending immediately’s presentation. It’s possible you’ll now disconnect.
