Q4 2019 Earnings Call

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Good morning, and welcome to the MSA safety Inc. Fourth quarter 2019 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal icon month Specialists by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions. Please note this event is being recorded. I would not like to turn the conference over to at least Lawrence Auto director investor relations MSA safety Inc, please go ahead. Thank you Andrew. Good morning. Everyone. Welcome to em essays fourth quarter earnings conference call for 2019 with me here today are Niche Volcanion president and CEO and Ken Crouse senior vice president and Treasurer month before we begin. I'd like to remind everyone that the matters discussed on this call excluding historical information are forward-looking statements within the meaning of the private Securities litigation Reform Act of 1995.

forward-looking statements

Include but are not limited to all projections and anticipated levels of future performance forward-looking statements involve risks and uncertainties and other factors that may cause our actual results to differ materially from those discussed here these risks uncertainties and other factors are detailed in our form 10-K filings with the SEC MSA undertakes, no duty to publicly update any forward-looking statements made on this call except as required by law. We've included certain non-gaap Financial measures as part of our discussion this morning and the non-gaap reconciliations as well. As our Q4 earnings. Press release are available on our investor relations website at investors with that. I'll turn the call over to our president and CEO.

Thanks, Elise and welcome everyone for all of us another year of strong financial performance driven largely by our ability to consistently bring game-changing Innovation offer that help protect the lives of workers throughout the world financial highlights for the year include Revenue growth of 5% earnings grew about two times the pace of Revenue and we had very healthy levels of cash flow all in line with our expectations that we discuss that our investor Day event in New York City back in November and on our past earnings calls. I want to thank and recognize the entire MSA team for their engagement dedication to our mission of protecting people's lives as I've said many times before our mission is the foundation of our success. It's what drives our Associates passion that developed the most advanced technology for our customers which in turn enables higher levels of both safety and productivity.

This morning. I'll highlight a couple of those.

Unique Solutions as well as our progress on another key initiative with which we're making progress. But first, I'd like to provide a quick overview of our fourth quarter Revenue performance, which is a clear indicator wage product Solutions are driving msa's business forward.

We realize Revenue growth of 5% and constant currency despite a very difficult comparison from a year ago particularly in our International segment while the environment remained choppy and took a short cycle Industrial Products that momentum that we gained from new products and gas detection and fall protection certainly helped offset that choppiness Not only was invoicing strong the order page as healthy as we had a book-to-bill ratio a greater than 100% in the quarter. We invested heavily in R&D in the quarter as we move closer to the launch of two highly Advanced connect products that were showcased at our investor Des. Ken will provide more texture on our quarterly and full-year financials, but I'd like to provide more insight into the Investments. We're making and the returns we're seeing off.

and the fire

This area of our business. We continue to advance development of lunar a wireless handheld device that enables firefighter point-to-point Direction and ranging thermal. Imaging in motion detection through the use of advanced Samsung cloud and GPS Technologies in the fourth quarter. We conducted voice of customer sessions with several major fire departments during these sessions. We observed dozens of firefighters a first-hand how lunar help them search and rescue help reduce search and rescue time during rescue operations this new and potentially life-saving technology speaks directly to the mission in passion that I mentioned earlier and it's why we're so excited to bring lunar to Market which we expect to happen later this year.

On the industrial side of our business. We launched the LT Rio 360 gas detector earlier this month. This product allows customers to establish a network of connected gas detection devices. Thereby creating a connection work site with the ease and simplicity of operating a smart home device in for MSA this new technology expands our addressable Market into the area monitoring space given the nature of the whole product. We expect Distributors and end-user customers to trial the device for a period of time before ordering it. So it'll have a longer adoption cycle than a typical portable gas detection instruments from an Innovative perspective the key breakthroughs for the LT Rio 360 include battery life that is measured in months. Not days faster sensor response times and unpack ease-of-use.

As we've discussed in the past msa's ability to respond to customer needs through Innovation is a key driver.

Of our Market leadership positions our sales Vitality the percentage of sales from products developed over the last five years was more than 40% this quarter driven by strong momentum with our 5000 series gas monitors and RV series fall protection and RG one in M1 SCBA lines in fall protection. We launched 50 new products over 30 years increased msh training centers from 3 to 12 triple their manufacturing capacity and it's great to see the Returns on those Investments with annual revenue growth of 29% in America child protection.

We're also seeing good traction with the M1 SCBA in our International segment the MS a team secured an exciting win in the quarter with Taiwan fire department who not only specify o r m c b a but they were also the first to order a significant portion of their units with optional Advanced Electronics.

Well, we had a difficult comparison in international SCBA due to a large order in the second half of 2018. It's encouraging to see the momentum with the m one. I'm looking forward looking for I am confident that our 2019 R&B investments will be drivers of growth in the coming years.

switching

Here's the Highlight another program that is and will continue to be a factor in our success. It was very encouraging to see the continued margin improvement in our International segment for the quarter and full-year Kathleen and our entire international team continue to execute a road map to drive growth and select markets optimize our channels approach and rationalize the cost structure in Europe or our cost-reduction programs have been focused our full-year sg&a was down 4% on Revenue that is up 1% in core product Revenue that is up 4% off. So we are realizing expected savings from these restructuring efforts for the year International segment. Operating margins was up 80 basis points to 12.7% of sales office and that's after generating 90 basis points of improvement in 2018. And we look forward to making additional margin progress in the international segment in 2020.

Before I hand the call over to cash.

I'd like to briefly discuss the coronavirus outbreak and provide an update on our operations in China.

First and foremost. Our priority is the health and safety of our colleagues in China and at this point we're not aware of any MSA employees Contracting the virus. We're taking precautions and following the government guidelines to ensure that that continues to be the case as we've discussed in the past about 5% of msa's Revenue is in China and we have a manufacturing plant in Suzhou wage Factory reopened at partial capacity after the government input imposed extension of the Chinese New Year and holiday, and we've been working to ramp up production life any other companies. We have elements of our supply chain that are Global and we Source certain components directly and indirectly from China.

While we're comfortable with our inventory positions and the near-term were navigating through the unknowns about how the situation will will evolve will continue to assess the risk as we move through the first quarter off with that. I'll now turn the call over to Ken for a financial review. Again. Thanks Nash and good morning everyone before I discussed the quarter in more detail. I'd like to start with a few highlights of our full-year performer. We finish the year well with Revenue growth of 5% on a constant currency basis for the both the quarter and the full year. We had a strong finish and orders as well with a quarterly book-to-bill off excess of one time. It is great to see the sustained mid single-digit growth in our business and we are entering twenty-twenty with a very healthy backlog.

We remained.

On the cost equation and executed a number of restructuring programs that drove incremental operating margins north of 35% for the year as a result for your margins increased sixty basis points from 2018, which includes about 40 basis points of dilution from our acquisition of Sierra monitor our strong free cash flow results in Q4 and for the full-year reflect on what I'm doing focus on improving working capital. We continue to execute around the balanced Capital allocation strategy in 2019. We deployed thirty-three million dollars for this year acquisition and funded sixty four million dollars of dividends to shareholders representing an eleven percent increase from a year ago now, I'd like to walk you through our fourth-quarter results quarterly Revenue increased 5% in constant currency. We had a 1% foreign currency headwind on Revenue fix gas and Flame detection or fgsd was a leading driver of growth as we continue age.

see great momentum weather

For 5000 series gas monitors across both are reporting segments our new V series family of fall protection products continue to drive growth in the Americas and was a major contributor to our sales Vitality metric in 2019. Looking at RSC be a business after a softer third-quarter driven by product approval and funding delays in the US which impacted bowel manufacturers. We saw a significant Rebound in America's SCBA performance as indicated on our third quarter call we expected these delays to cause Revenue to shake out over a couple of course and that is what's happening emerging-markets growth was 11% in the quarter and 8% for the year. We continue to see good results across these markets highlighted by growth and margin expansion in important areas like China which grew Revenue at 17% for the year. We were able to leverage that to more than 25% operating income growth and while we see the birth

cancel for certain risks associated with the

Coronavirus to have an impact on our results in China in the first quarter. We remain well-positioned to drive long-term value in China and across our Emerging Markets quarterly gross profit margin was down 40 basis points from last year new products and pricing programs continue to provide nice leverage. However, there was an accounting oriented charge that had an impact in the quarter. We took the two million dollar unfavorable adjustment to our like so reserved at your end based on the higher level of inventory associated with improved demand levels in areas, like fall protection that adjustment is a thousand cash accounting charge which had a 50 basis-point impact on quarterly gross profit. We also incurred 1 million dollars of purchase accounting amortization associated with our recent CRM monitor acquisition, which impacted gross margin by about twenty five basis points. We encourage this expense in the third quarter as well. The largest portion is related to the inventory step-up, which is now fully amortized dead.

Will not have an impact on our results in 2020 sg&a expense was $85 in the quarter or 22.7%

Sales, excluding Sierra and other corporate development costs. We gained a hundred and thirty basis points of Leverage from sg&a efficiencies compared to a year ago organic constant currency sg&a was down 2% in the quarter and was relatively flat for the full year on mid-single digit Revenue growth for 2019. The Americas underlying sg&a improved by a hundred basis points on Mid single-digit Revenue growth and international segment sg&a improved by 90 basis points on 1% constant currency Revenue growth ongoing productivity programs drove the Improvement in the Americas segment while the progress and international reflect savings from restructuring programs that were action throughout 2018 and 2019 our productivity and restructuring programs remain on track and it is great to see the improvements across our business and most notably in Europe where sg&a was down 10% in the quarter dead.

Well, we're very focused on rationalizing back office costs and increasing productivity. We're investing heavily in growth programs, including new product development to reiterate nicias comments. Totally R&D was 4.4% of Revenue increasing 80 basis points as a percentage of Revenue on the three million dollar or 26% increase in spending the spelling of reflective of our progress and key areas as we move closer to the launch of some new some exciting new technologies like lunar and the Altar io-360. And we also completed the launch of the New Jersey safety helmet while our R&D investment pressured are incremental margins in the quarter. We are committed to taking a long-term oriented approach in R&D in continuing to fund projects that support long-term growth.

gaap operating

Million dollars in the quarter which includes $18 of product liability expense for the full year. We had expensive $27 compared to $45 a year ago. As I needed with self-insured product liability and related defense costs. The quarterly expenses. Mostly related to incurred but not reported or I be in our claims as we've indicated in our filings in the past. We review our cumulative trauma product liability reserve on an ongoing basis. The IBN. Our portion of the reserve is based on a set of facts and circumstances that we review with our actuaries and National Council as part of that review We reflected changes in underlying assumptions in our model and recognized the charge in the fourth quarter. Our total product liability Reserve is $168 million dollars a year end just about equal to our insurance related assets of approximately 170 million dollars those assets consist of receivables notes and short-term Investments dead.

all the timing of cash flows for product lights

And insurance receivable can and do vary from quarter-to-quarter. We've been very successful in establishing cash flow streams that have allowed us to fund these liabilities without a material impact on our Capital allocation priorities more specifically over the past four years. Our average cash conversion has exceeded 100% of net income both with and without the impact of product liability and insurance receivables wage.

Excluding foreign currency restructuring strategic transaction costs and product liability expense quarterly adjusted operating margin was 17.3% while we discuss the non-cash inventory charge associated with The lifo Adjustment and higher R&D investment that impacted margin expansion this quarter to the tune of almost a hundred and thirty basis points. We remain committed to delivering 30 to 40% incremental margin for the business hour gap effective tax rate was about 20% in the quarter and 25% for the year while we realize the lower quarterly tax rate are full. Yep, just it effective tax rate which neutralizes for the impact of certain non-cash related items finished at 23.8% slightly more favorable than our expectations of 24 to 25%

gaap net income was

You want a million dollars in quarterly adjusted earnings were impacted by the non-cash inventory item. I mentioned and higher R&D Investments finishing at fifty 1 million dollars or a dollar $29 per share month for the year adjusted earnings were up 7% on the 3% increase in reported revenue and five-per-cent increase in constant currency Revenue. Our long-term expectation of growing profitability multiple sales is very much intact with that in mind. I do want to clarify than 20/20. We expect lower discount rates on our pension to present an eight million dollar headwind to non-cash pension expense compared to 2019. This impact will be included in the other income of the p&l and it will affect gaap. Net income in 2020 quarterly free cash flow with sixty four million dollars, which includes about eight million dollars of net outflows for product liability conversion was well above 100% in the quarter reflecting our continued focus on working Capital Management working capital finishing.

here at 25% of sales or

down 170 basis points from the third quarter

the stronger cash flow enabled us to fund a $16 dividend and pay pay down $30 of debt in the quarter, which puts us our debt-to-ebitda at one point two times on a gross basis. Our balance sheet provides us with the flexibility to continue investing in our business and pursuing Acquisitions in summary for the full year. We achieved mid-single digit Revenue growth drove 60 basis points of operating margin expansion and generated healthy levels of cash flow while continuing to invest in our business. We had a good finish to the year in terms of order activity and our backlog us to continue to deliver mid-single digit Revenue growth and twenty-twenty while there were quarterly specific items that pressured our fourth-quarter incremental margins those items. Do not change our long-term outlook for this business. We remain committed to the growth margin Improvement and cash flow targets that we discussed at our investor day in November with that. I'll turn the call back over to Nish for some Club.

You doing commentary mesh. Thanks guys.

I'm pleased with them essays performance in 2019 and the progress against our long-term goals for 2020. We continue to plan for mid-single digit Revenue growth based on our current backlog and Order and we're confident in our Market positions. It remains a great deal of macro uncertainty. So we're approaching twenty twenty and particularly the second half of the caution. We've been active or defying a number of initiatives that we can Implement if the business were too slow in a second half of the year. However, we remain focused on enhancing our Market leadership positions through disruptive technology and customer-driven foundation and executing ongoing productivity programs to maintain a strong incremental margin profile.

Thank you for your attention this morning. And at this time Ken and I would be glad to take any questions you may have. Please remember that MSA does not give guidance having said that will now open up the call for your questions.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone now, please pick up your handset before pressing the keys to withdraw your question, please press * then two.

at this

Time we will pause momentarily to assemble our roster.

The first question comes from Stanley Elliot of stifel, please. Go ahead. Hey, good morning everybody. Thank you for taking my question.

Good morning, Stanley initial kind of certain off. I mean you you mentioned the mid single-digit growth and then you also mentioned caution in the back half. I mean is that implying that there's a a difference in terms of the Cadence of how the year should progress? I know you don't want to give guidance. But but since you brought that up, I thought it would just ask for a clarification right the week. We expect by year-end mid-single-digit Stanley, you know, I don't know how the year will play out. There's you know, obviously some disruption here in the first quarter with China and then you have the election at the back half back end of the year and and maybe some tightness and spending but we took it as we see things today with the backlog we have and and and the pipeline of business that by year-end just like this past year. We could see mid single-digit growth and and continue to leverage that perfect. And then you know, you talked a little bit about the R&D expenses you can you give us a little more color kind of where the allocation was your why the need for the acceleration and and what sort of level of of spending should we think about em,

in 2020

As these these programs and the products come to Market. You may see an uptick in spent in on a quarter-to-quarter basis. And periodically, you might even see us dip below 4% So it's just a matter of whether we are and and the development of a product and and and as we get closer to the launch of a product so, you know, fourth quarter was fairly heavy heavy but you know, we expect to be somewhere in that four to four and a half percent range in in life. And then lastly can you guys talk about the m&a environment notice the transaction costs continue to move up kind of higher what are some of the characteristics I guess that you're looking for in a a set and then maybe talk a little bit about the leverage capacity or potential deal size out there that you're exploring.

I'll I'll answer initially and then flip it over to Ken for some more color. But you know as we talked about in the past we're we're very active when it comes to looking at some inorganic opportunities are our balance sheet allows for some nice opportunity there. We've had a lot of success with Acquisitions in the past, you know will continue to stay very disciplined with with our approach to Acquisitions to ensure that we continue to add assets that that support and enhance our position in the marketplace around our mission and and and what we do so we continue to look at our markets that we serve those core product lines possible extensions to that to that core product line and we've been very active, you know to be quite honestly the the results that we've seen to date really don't equate to age effort that we put in there's been a lot of effort around looking at Acquisitions and and and exploration and you know, the valuations are fairly high and as you know from from our past activity, we're we're pretty dead.

you don't stay only we've always talked about excuse me between 4 and 4 and a half percent on R&D spend and we're you know, the upper end of that for the fourth quarter and and

discipline to make sure that we can make Acquisitions that are a good fit for the organization from a

Cultural standpoint from a product standpoint or within the markets we serve and and provide a good return for our shareholders. So we're going to continue to be disciplined in in in that manner as we go forward and continue to look for those opportunities, but that'll turn over to can if you want to add some color. Yeah. The only thing I would add their Niche is the that we do certainly have opportunities in our balance sheet to continue to be active on the m&a front. I've talked consistently about the expectation that we would be very willing to lever up the two and half times in this current environment for for a deal that would that would strategically make sense for us. We're very much mindful of where we are in the cycle and and and also very mindful of of continuing and committed to continuing to maintain an investment-grade balance sheet. And so that's certainly top of mine with us. But with that said, we're we we've have a strong track record of bringing on past Deming a that is that is dead.

A lot of sense. It's been strategic and has added value to the portfolio and we intend to continue to follow that course as we move forward.

Perfect.

Thank you very much for the time. Appreciate it. Thank you Stanley. The next question comes from Richard Eastman of Robert, please go ahead Thursday morning Rick. I'll start with a simple one for Ken. Could you could you talk in the adjusted off margin number? Could you just repeat I believed that includes the lifo charge and also could you just give us a sense of what the Sierra monitor op-ex was in the quarter? Yeah. That's a good question Rick. And so when we look at the the margin performance in the quarter, it was around 17.3% on an adjusted basis. We had about forty basis points off the Aleutian associated with Sierra monitors in that in that margin profile. The lifo impact was around fifty basis points. And then R&D of course was about eighty. So if you add those three dead

Or if you can.

Cetera those in the analysis. The margin was around 19% on a more consistently reported basis. Okay, and then as we as we move forward 10 mm you the thought again the business seems to be structured and kind of pushing towards this, you know, kind of consistent Thirty 35% incremental and so we should we should assume on an adjusted profit basis that maybe we could, you know, Target fifty to seventy five basis points of improvement for 428.

You know, that's a when we look at the overall profitability profile. You're you're you're correct and X expecting and continuing to expect incremental as at 30 to 40% off. I'll let you go through and model what that might mean on an operating margin basis, but but with mid single-digit growth and with Thirty to forty percent incrementals, we should expect to see improved operating margins for 2020.

Yeah.

Again, I just I truly adjusted in there because so we'll easier to work with but then it's no reason to assume that any of the operating expense metrics, you know fall out of line to deliver that type of incremental now, we are still very much structured to provide Thirty to forty percent incremental is in fact in the quarter when we look at the the office waiting income that we generated and you consider the fact that we had two million of life. Oh and you had three million of R&D higher if you add those or consider those in the analysis, your margin incremental margin was around 35% So so we very much are and what's what's good to see in the business is the international margins coming on, you know with 14 + percent operating margins off on 1% growth. It's hard for me to find a time and go back in in time to find a point where we had that type of profitability performance and that's really being driven by all dead.

To work. We're seeing on the cost.

Structure side the productivity side if positions as well to continue to improve our our business and bring on higher levels of profitability.

And I think I I actually personally probably oh you you do on International. That's because I asked a question. We were going the other direction. So I need to acknowledge the fact that I'm doing a great job and Bob is certainly doing a great job special. You just one more question if I might miss when you look at 2012 and you know, we're we're tearing for this kind of mid-single Digit growth rate. If I if I look up and down the product categories, you know from your perspective, you know, the short turns businesses state state challenged here. Is that is that maybe where you know, there's more risk than you know in some of the other businesses where you have a new project driver or you have you know, some backlog. I mean, why should we think that the product lines do you do you enter the year thinking each will be just kind of informal Target to Rome is

single digits by product line

That's a fair assessment record as you look at, you know, the short-term or short Cycle Products, especially, you know, heavily focused around industrial being the hard hats right the hard hat stick out to you. I'm sure came in and so that's been very choppy for us and we don't have any indications that that is going to turn around in 2020. So do we expect head protection industrial head protection and continue to be somewhat choppy as we as we go into the year. We're excited about the new age one helmet, you know that has a nice cell point on it but the volume on that it's not going to be tremendous, you know, overall the market for that is odd, but it's not a huge Market but you know some of that will offset a bit of it and but but we do see some choppiness around around industrial head protection any adoption of the ulterior 366-8360. That'll a little be a little slower ramp-up a lot like the 5000 series gas detector. So, you know, we'll probably see some significant numbers on that around in twenty twenty two twenty twenty Twenty-One wage.

4020 will be a ramp up here for that product. So I think that that's a fair assessment, you know, when the in the oil and gas markets the backlog for fdfd remains really strong the backlog for breathing apparatus is good coming into the year. So some of those other products were in pretty good shape with this this attraction around the m one again give you comfort with a mid-single-digit for SUV a month for the for the year. It really does, you know, and we don't have the the the large order that we had in in 2018 Offset, you know, we had that very large order in 2018 and you know that's out of the system. So, you know, we're going against some normal comparables year-over-year and and we're getting some nice traction and good feedback on the product and evaluation. So, you know that that certainly will will give us some help going out for

Chris

I'm sorry. I promise just two more questions and see you're on the monitor. What kind of Revenue did it contribute?

For the quarter. Yeah, the number on that that was about 1% Revenue growth in the quarter wreck is what we saw in that in that business. Okay, and then last month I know did this disaster in Australia with the wildfires did that influence the business, you know, I'm thinking more negative wage then, you know, nothing there's no positives to come out of that. But were there any pluses and minuses your top-line from, you know, Australia, which is you know, always historically been a Choice market for you.

No, there wasn't at all Rick, you know really did impact our business at all. Okay, perfect. Thank you. Thank you.

The next question comes from Edward Marshall of sidoti & Company, please go ahead. Hey guys, good morning. So you talked about I think we were at the volt the investor day. We talked about higher spend of of R&D. I know you're well within your target of Ford four and a half percent. I'm curious as we kind of look forward. Do you think I should continue as the sophistication of the products that you're targeting and the new role ads do you think this will stay at kind of the higher end end of the range for a while or do you think that'll normalize back down to wash it or low end of the range for for R&D?

You know, I think it'll normalize.

Down a bit to the normal normal level. I you know, I really don't see us in 2020 going much over 4.2 but it could I mean there could be some opportunities and we could accelerate some project if we see some opportunity to bring some things to Market sooner or or some new opportunities, but I really don't see us.

Getting too far outside that range that you've seen in the past and and I guess if you just north of you just look at the average of the past two quarters, it's kind of at that 4.2 range. Anyway was there less spend maybe a few more and four Q is it just kind of more timing than than maybe anything? Yeah, it's all a matter of timing on on where we are in a project and and some different aspects of it. Got it off. When when I when I look at the bill, which is which consistently been pretty good. I'm wondering if there's anything if it's pretty even across the board or was there some chunkiness maybe in in certain business life, you know for instance sdscpa because you know, this is a a pretty decent backlog number given the circumstances changed in events, but the Outlook I think overall it's been a little more cautious or uncertain around certain periods in 2020 than than normal. So I just want to try to get an understanding as to what maybe you're seeing maybe from the short-cycle Versa long cycle businesses and how

That might be be reflected in the book The Bill.

Sure. So so the backlogs really built around it. So I think you mentioned the breathing apparatus. We talked about earlier on self contained breathing apparatus. We're coming into 2020 with a nice-sized backlog for both the American and international predominantly in the Americas and and then fixed gas inflamed detection fix gas inflamed detection. We saw a nice build of business going into the fourth quarter and and that that business continues to be nice and strong but 5000 series gas monitor really is really gaining great Traction in the marketplace and and we believe we're taking some share there and and they're still real life expand on on these major projects that we're seeing, you know both in the US and stuff some pipeline activity and and refineries and then also internationally, so there's there's some nice opportunity there the backlogs picked up a bit with within Globe. So the globe product line had some nice backlog built up. We we had some some nice strength and business.

In the fourth quarter, and we had a bit of a supplier.

Even a fourth quarter that slow things down and then also things compounded a bit and that we gave the employees there the week of Christmas off which was something different this year. So we had a we've got a real nice backlog in our Global business coming into twenty-twenty, but the other businesses, you know that most of its fairly short term in in the backlogs are our normal.

Garden, and then if you look at the international margin, I'm trying to get a sense as to how much we've always seen kind of a pickup in the fourth quarter and it's been excessively long this year. I'm curious, you know, there's a couple of initiatives that you've been working on in particular the Emerging Markets versus developed Nations growth and then obviously Channel optimization. I'm curious if there's been any inroads in those particular businesses that might have helped. There's this purely operational instructional operational changes. You've already implemented enrolled through or is it something seasonal that happens in the fourth quarter?

It's it's more of the operational changes in and improvements that we've made in the business that you're starting to see roll-forward and you know, we have more of those coming in 2020. We as we talked about wage We Believe over a five-year period we talked about about a five hundred basis point Improvement. And and you know, it's a It's a Grind, you know, we just keep have to grind through as as wage structure. We focus on our channels of distribution and focus on some improvement in our pricing and then obviously some of the restructuring and how we go to market and and our back office operations and and Bob and his team confirmed to do a really nice job of that and you're starting to see some of those savings come through in the fourth quarter and and, you know, certainly have some more on a go-forward basis. So so we're really pleased with where we are on our program there.

Great, it's good to see.

Good job on that on that business line. It's it's uh long overdue I guess. Um, thanks guys appreciate your comments. Thank you. If you have a question, please press * then 1 on a touch-tone phone. The next question comes from Larry demaria of William Blair, please go ahead with hi. Good morning. Everybody first thing that qualification obviously you talk a little bit about possibility the second so I can have slowed down the election. They said Iraq. Are you seeing anything or hearing anything questions from your customers project pipeline et cetera that would back up your kind of Parental caution, which may be prudent, but just anything change throughout their suggest a slow down and as you mentioned like the mid single-digit growth by the by year end or the application that we could be flattish overall by year end and that would bring the entire month.

A year. Is that how we think about it?

Through our sales organization and and and a lot of other data points. We're we're not getting any real strong or clear indication that there will definitely be a slow down in the back half or even a fourth quarter but that being said there's an awful lot of talk and you and you you hear a lot of people in the business Community talk about the uncertainty going into the election and possibly tightening down on budgets and type pull back on some spend and so if there is some pull back on spend for a short period of time and 1/4 quarter or in a second half of the year due to the election, you know, that will certainly impact our business in in certain segments wage. I don't think it'll impact things such as breathing apparatus. I I fully expect, you know, the fire service grants to flow as they normally would and and we'll see in a normal flow of fire service business flow, but I know you might see some project business slowed down or or some people stop or or or tap on the brakes a bit on some projects that are releasing towards the back half of the year. And that's why we have some caution. And and that's yep.

That comes from so we're just preparing ourselves for that. You know, we do expect, you know, China side. We do expect our business through the first half of the year to to to follow its normal pattern of

Well, first of all the first part of your question, we're not getting any indication from our customers or even our pipeline when we look at our pipeline of business.

It's just that that back half of the Year. We're just a little cautious about it as we go into twenty-twenty.

Okay, fair enough secondly obviously mentioned lunar lunar for a while now getting closer to the launch don't have questions about how you think about the actual Market opportunity. Just looking at a few years, you know, is this a half a billion dollar market from zero today or out of you think about this, you know looking out maybe three years five years.

Right. So, you know, it's a nice opportunity for us. You know, we're still we still haven't settled on pricing for the device. You know, it's it's not a $500 unit. It's not not a $5,000 unit. So the pricing will be somewhere down in in between there, you know the market opportunity. It could be significant, you know, it could be a significant as the thermal imaging camera Market where you could have bought several of these devices on fire trucks and and so, you know, we we we've sized the market and looked at it but we just really don't want to State a number until we get more comfortable with the adoption and as we get into more of this and twenty twenty and twenty Twenty-One, but it could be a fairly significant market for us. You know, you look at the thermal imaging camera Market that grew to be a significant market and in this club so to speak and and display some of those devices.

How what what were the size of thermal imaging Market at then?

You know the thermal imaging market for MSA was in that 25 million dollar range at at at the peak time for us. You mentioned China as far as I missed the filter I jumped on late, but what's the impact that you're expecting? Because obviously trying to get a source of growth recently. How you kind of quantify in Chinatown?

Yes, we talked about China trying to see about represents about 5% of our business. And you know, we we expect to see some disruption here in the first quarter and hopefully that'll be about it. You know, we're ramping up production as well. But there has been some disruption obviously in in our in our production here in the first quarter and hopefully that short-lived and and we'll be able to offset that as we go through the year, you know, my fully expect that, you know, once once we get this this situation behind us, I would expect the government to to turn up spending in and try to stimulate the economy. So, you know that could help the back half of the Year overall for our business office because you know, we've had some nice growth in the past in China. So, you know, we're we we don't look at China as being negative this year. It could be fairly positive in the back half of the year if off if things continue to improve and and the government turns up the the the heat on spending so there could be some opportunity to receive go forward.

Okay. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to at least Lawrence Auto for any closing remarks. Thank you on behalf of our entire team here. We wanna thank you again for joining us this morning. If you missed the portion of the conference call an audio replay and transcript will be available on our investor relations website for the next ninety days. We look forward to talking with you again soon.

The conference has now concluded thank you for attending today's presentation. You may now disconnect.

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