Q3 2020 MSA Safety Inc Earnings Call

[music].

Good day, and welcome to the and I say third quarter 2020 earnings Conference call. All participants will be listen only mode should you need assistance. Please signal a conference specialist I crossing the Starkey.

By zero.

After todays presentation, there will be an opportunity to ask questions. Laci question you'd be press Star then one on your Touchtone phone.

Withdraw your question. Please press Star then two please.

Please note. This event is being recorded I would now like to turn the conference over to release forms Oddo. Please go ahead.

Thank you drew good morning, everyone and welcome to Anastasia <unk> third quarter earnings Conference call for 2020, joining me today are nish, Vartanian, Chairman, President and CEO and Ken crowd Senior Vice President CFO and Treasurer before we begin I'd like to remind everyone that the matters discussed on this call excluding just.

So we are taking to position MSC for continued value creation.

In both the near term and long term.

Ken will then provide a quarterly financial review and give more texture on various demand trends, we're seeing across our portfolio.

After that we'll start to Q and a session.

The COVID-19, pandemic and ripple effects on employment and the economy continue to impact our business in the third quarter with revenue contraction of 13%.

From an incoming order standpoint, we were disappointed with the overall order pace in the months of July and August.

The greatest weakness coming from short cycle products related to the oil and gas in commercial construction markets.

We did see significant order pace improvement in September and October.

In fact, we were pleased with the last week eight weeks of incoming business, which was up versus 2019.

While we are hopeful the worst is behind us it's difficult to say that definitively with reports of rising cobot cases, and concerns that our customers might experience future job site shutdowns or slowing of reemployment.

While it was a challenging quarter, we continue to see a number of benefits from investments we are making.

We also believe the steps we are taking during this pandemic will create an even stronger MSA as we emerge from this environment.

I want to highlight five key areas that gives me a great deal of confidence in our future.

First the importance of safety has never been more evident than the than it is today.

And and essays mission of protecting worker health and safety through innovative product solutions and services continues to grow in relevance and importance.

Second.

His point.

Unfortunately falls remain as the number one cause of death on construction sites and many of those falls involve individuals who are wearing fall protection equipment, but are not tied off to an anchor point. This technology helps customers to address this issue.

And already the VTEC iowan smartphone FL is being used by one large us customer with significant upside potential.

We foresee many applications for this type of smart compliance product all over the world today, our VTEC Iowan fall squarely in the center of two important and evolving global Mega trends.

Protecting the safety of worker at Heights and.

The growing use of connected data to provide insights that that that will make worker safe safer.

Over time, we expect to expand the use of the VTEC Io one across industries and applications.

Third our balance sheet remains very strong with leverage less than onetime on a net basis, we're well positioned to use that to drive inorganic growth both in our existing product lines as well as expanding our addressable market in areas that align with our safety mission.

Inorganic growth remains an important part of our strategy.

So it's a it's great to see the M&A market opening back up Weve been very active in recent months with pipeline development and can continue to engage with a number of attractive targets in our core markets and as always we will stay disciplined.

Fourth the MSC team is executing well and driving improved productivity.

Despite the revenue contraction of 13%, we were able to maintain very healthy margins.

Strong SGN a leverage continues to reflect these programs and notably our international segment margins continue to see nice expansion up 230 basis points year to date. Despite the challenges we continue to see on the revenue line.

As you know our restructuring programs have been largely focused on the international segment.

And we have accelerated our cost reduction roadmap in that segment as a result of Covance.

Bob Lean in the entire international team have made great progress against the European cost reduction roadmap that we laid out at our last Investor day, which includes footprint rationalization leveraging their shared service centers manufacturing optimization and other areas of improvement.

While we have additional programs that we will continue to execute in international we're now taking a global approach to drive structural cost reduction during this downturn.

The restructuring investments in the third quarter are expected to drive improvements in our business model for the long term across all of our reporting segments.

And last but certainly not least we have a very strong team at MSC, you put a great deal of effort and employee engagement talent development and motivating our motivating our team to drive results as.

As many of you have seen on our website MSA was recently named Western Pennsylvania is top workplace among large companies by the Pittsburgh Post Gazette the.

The post because that program assesses employee perceptions on engagement leadership effectiveness connection to an organization's mission and values and benefits program.

This marks the seventh time MSS MSS safety has achieved a post gazette top workplace designation, but the first time, we have risen to the number one spot.

For us what makes this recognition, particularly meaningful is the fact that the results are based exclusively on feedback from employees.

This kind of an associate engagement is always important to us, but it's taken on an even greater level of significance. This year given the challenges weve all faced during this pandemic.

It's a tribute to the culture at MSC.

As an organization we are executing on a number of strategic programs to position MSC for continued success and none of that happens without attracting developing and retaining the brightest talent.

With worker safety being more important than ever we continue to invest in growth and productivity programs to enhance our market leadership positions provide an exceptional customer experience and expand our margin profile.

To achieve to achieve those goals, we focused on the five areas I discussed today, which included leaning into the secular trend of safety investing in R&D and organic growth driving global productivity programs and retaining and developing our talent.

And I'm confident these programs will position MSA as an even stronger company as we navigate and emerge from the economic recession.

With that I'll now turn the call over to Ken to take you through our financial results Ken.

Thanks niche and good morning, everyone. A few high level observations before I discuss the quarterly financial results in a bit more detail.

Economic conditions in the quarter presented a challenge, especially in areas, where we saw a resurgence in cove in 19, although macro related challenges presented us with a number of hurdles the team executed very well. Despite the revenue decline of 13% we maintained a decremental operating margin of about 20%.

Our focus on productivity and improving our business model has never been any greater than during this downturn.

Thus this focus is yielding nice results and I'm very pleased with this progress, especially in our international segment, where margins are up 240 basis points in the third quarter and 230 basis points year to date, despite the quarterly constant currency revenue being down 9% for the segment, we saw a meaningful improve.

Hunts in profitability.

We felt the biggest impact from Cove, it in the Americas, and notably in the United States quarterly revenues were down 15% in the Americas and off more significantly in the U.S., our most profitable segment red.

Revenues in September were up 3% in the U.S., but finished the quarter down versus the same quarter a year ago. After a very challenging summer.

As we discussed with you on our last earnings call and again in September on public Webcasts, we need to keep a close eye on the resurgence of co bid and the impact the resurgence is having in our key markets, notably the oil and gas and commercial construction markets as that certainly had an impact on our business over the summer months.

As Nick said mentioned, we are implementing global structural cost reduction programs that will help us emerge from this downturn with a stronger margin profile I'll review the associated restructuring investments and savings goals with you today, let's.

Let's take a closer look at the financial results in the quarter.

Quarterly revenue was down 13% on weakness across much of our portfolio, partially offset by growth in respirators and ballistic helmets, we saw revenue declines of 15% in the Americas segment and 9% in our international segment.

While currency was neutral to consolidated revenue overall, it provided a headwind of 2% in the Americas and a tailwind of 4% in our international segment.

This as I had indicated on a public webcast in mid September it was a very tough summer we had a very challenging July and August in our employment based industrial pp, especially in the US which includes fall protection head protection and portable gas detection.

These products are sold into a variety of industries, including oil and gas and commercial construction both of which are feeling the impact of a slower growth environment brought on by the cobot virus. The resurgence we saw during the summer presented a number of challenges in Q3.

We were encouraged by the improvement in September with a sequential uptick in both orders and sales across nearly every area of our business.

Similar to the second quarter, the employment based industrial PE area of our business is where we saw the greatest challenges in the quarter down 25%, while it is difficult to forecast demand for these products in the coming months in quarters. It was good to see some reprieve in September relative to the weakness we saw over the summer.

Yeah.

In the fire service market, our business was softer in Q3 based on the delays in FCB evaluations that we had mentioned in the spring due to social distancing measures as a AFG funds begin to flow in August and into September we built SCB, a backlog and inventories we had some very large competitive convert.

Surgeons across the us in September our pipeline and competitive advantage continues to be very strong both in the us with the GE, one and internationally with the M. S. CBVA.

The globe business continues to perform well from the main from the demand side, we built backlog and inventory in this area in the third quarter, while we've had some production constraints at globe due to Covidien social distancing turnout gear is a steady state defensive piece of the portfolio.

Our HCR line continue to drive growth in the in the quarter, increasing 24% from a year ago. This growth is masked a bit in the press release by lower shipments of thermal imaging cameras in the us and declines and other non core revenue in Latin America as I had indicated on public webcast throughout the <unk>.

Quarter, we saw orders moderate for respirators over the summer. So we expected the growth rate in the second half a step down from the first half while we have made good progress reducing lead times over the past few months, we still carry elevated backlog in inventories in this area. We expect to see continued improvements through year end.

From an overall backlog level, we exited the quarter with backlog that approximated Q2 levels backlog is up considerably versus the same time, a year ago on higher backlog in EPS CBVA turnout gear and air Purifying respirators.

Gross profit declined 180 basis points from a year ago, as we incurred about $9 million of higher costs in the quarter associated predominantly with inefficiencies.

Associated with the lower throughput in our factories and to a much lesser degree implementing measures associated with Covance safety protocols. These items had a significant impact on our Americas segment margin.

I do want to note that price realization remained healthy across the business, we're capturing the pricing we expected when we set our price list around this time last year, we continue to ramp up our focus on pricing across our business and are seeing some very nice results, especially in our international segment.

SGN a expense of $65 million was down 22% from a year ago, we delivered $8 million to $10 million of savings from discretionary cost savings and previously executed restructuring programs in the quarter. We also reduced our variable compensation accruals by about $6 million in the quarter based on the trends.

As we saw in the third quarter.

Additionally, we saw favorable adjustments on other accruals like medical costs that reduced quarterly SGN, a by about $3 million.

As I as I had indicated earlier, we've been aggressive on the cost side to improve our business model and keep MSC on track toward our long term margin expansion goals that we have shared with you in the past we.

We incurred just under $8 million of quarterly restructuring expense to accrue for cost reduction programs across all of our reporting segments.

We've invested or accrued $18 million of restructuring through the first nine months of 2020 in total we expect these programs to collectively deliver $10 million to $15 million of savings across the income statement in 2021, and expect annual savings of $15 million to $20 million thereafter. These.

Savings should help to partially offset the impact of variable compensation resets and other discretionary costs coming back into the personnel and 2021.

Our goal in this front is aimed at improving the business and the downturn, which will position us to emerge from these challenges as a stronger more profitable company.

Quarterly adjusted operating margin was down 40 basis points versus the same quarter a year ago year to date adjusted operating margin in 18 for 18.4% up 30 basis points. Despite the revenue contraction of 5% from the pandemic and related recession.

Year to date decremental margins are about 15% as we discussed earlier in the year, we expected our decremental margins to be better than our incremental margins and it's good to see that being reflected in our quarterly results.

Quarterly adjusted EPS was 94 cents down 18% versus the same quarter a year ago. The effective tax rate was 29.5% up 240 basis points versus the same quarter a year ago on a less favorable mix of profitability nondeductible compensation and statutory rate increases internationally.

While adjusted operating margins were healthy.

The lower revenue and the higher tax rate weighed on quarterly EPS.

Quarterly free cash flow conversion was pressured on higher inventory levels. Additionally, we paid taxes that approximated $14 million in Q3 that normally would have been paid in the first half but were deferred into Q3 under the cares Act let.

Let me dissect working capital in a bit more detail for you.

Inventory was the largest use of cash in the quarter as we saw an increase in order pace in backlog late in the quarter, while the higher backlog is driving a portion of the increase we also are preparing and ensuring we have sufficient inventory on hand to respond to customers as business conditions improve as we've indicated in the past.

We're always looking to strike the balance of investing in inventory to position MSA for share gain upon a rebound while also being mindful of cash flow our strong balance sheet provides us with flexibility in this area. Nonetheless based on our working capital planning and most recent forecast we would expect to see improvements in the inventory balance going for.

Forward.

We continue to apply best practices to receivables and continue to see very good results on this front receivables provided a source of cash and we saw improved collection days.

HP and accrued expenses used cash in the quarter as we paid the taxes I spoke about a few moments ago.

Stepping back and looking at the first nine months of the year, we generated $78 million of free cash flow versus $65 million in the same period a year ago. We use this free cash flow to fund our dividend and the buyback shares while maintaining very healthy leverage ratios looking at our balance sheet. The balance sheet remains very strong and our cat.

No allocation priorities remained balanced with leverage of 1.2 times on a gross basis at quarter end or less than one times on a net basis, we remain well positioned to continue investing in our business. In addition to R&D restructuring and manufacturing optimization projects that are ongoing we continue to pursue M&A.

Opportunities in our core markets.

To wrap up order pace improved in September and October compared to the very weak results in July and August there continues to be bright spots throughout the business, but with the economic challenges and very dynamic environment, it's difficult to put a fine point on the fourth quarter and 2021 at this point what I can tell you is that we have seen nice and.

Improvement in September and October versus what we saw in July and August at.

At this point, we are planning for sequential improvement from Q4 from Q3 to Q4, mostly driven by our fire service business, which is directionally aligned with normal seasonal trends.

On a year over year basis, we will be up against a very difficult comparison overall based upon the softness in the industrial PE business and the very strong performance and EPS Cfd in Q4 of last year.

As we look ahead, we are actively executing on a portfolio of margin expansion projects across all of our geographies with a particular focus on structural cost takeout the drive 2021 savings.

I've often said MSC success is not reliant on any one product line acquisition or restructuring program and that continues to be the case and we see plenty of opportunities to drive long term growth and ARPU and improve our business model over the coming years. So while we are managing through a challenging environment and recession in the near term and the.

The shape and timing of economic recovery remains remains unclear to all of us the long term growth and value creation opportunities for our business has not changed with that I will turn the call back over to initial for some concluding commentary Nash. Thank you Ken.

It's certainly been a very challenging year I have a tremendous amount of confidence in our strategy and the team we have executing it.

As we have noted both today and on webcast through the through the quarter Q3 started very weak and although we saw signs of improvement in September it was not enough to offset the weaker July and August even with that MSR business model is showing resilience as evidenced by our strong margin profile, despite the economic and revenue challenges in key Mark.

Yes.

Our balance sheet positions us well to invest in acquisitions and were very active on that front.

And lastly, we're pushing forward with structural cost take out to support and improve upon a very strong incremental margin profile as we emerge from this pandemic.

At this time, Ken and I will be glad to take any questions. You may have please.

Please remember that MSA does not give guidance, having said that we'll now open up the call for your questions.

We will now begin the question and answer assumption Slansky question. The press Star then one on your Touchtone phone.

We are using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two asset.

At this time, we will pause momentarily to assemble our roster.

Approves question homes from Stanley Elliott of Stifel. Please go ahead.

Hey, good morning, everybody. Thank you guys for taking the question.

You talked a little bit about October trends, improving is there any way you could kind of help us a little bit more about that you mentioned some of the products, but I'd love to see kind of how the cadence has improved from September.

We are thinking about the back back half of the year or is that part of the year.

Sure Good morning Stanley how are you.

Yes. So so we saw very strong improvement in September and that was really led by the fire service products. So so we talked about.

AFG grants being released and that business coming through and that came through as we anticipated it was very strong.

Both as Ken mentioned with the glow products SCB and across the board. So the fire service was very strong what was a little surprising to us is how strong and how quickly the pp industrial products snap back in September.

And that strength continued into October in both areas. So it's encouraging to see while we were disappointed with what we saw in July and August we weren't surprised by that we talked about that during some calls earlier with job sites shutting down in the southeast and down on the Gulf Coast.

We had a feeling that we would see our PDP business contract along with that we.

We were a little surprised with how quickly things snap back and so we just don't know whats going to happen going in the future and churches next question.

You know with Cobot cases, popping up others, a lot of uncertainty out there, but what was very encouraging is how the business came back and I don't if you want to add some more color to that the only thing I would add initiatives. A couple of things. So September was a was a good month for us and it was the first time quite frankly that we saw core business growth since the.

Early part of this pandemic, our core business was actually up about 11% in September. So it was a really good really good month for us and really nice to see the run rate of the business step up its hard to compare our business today in October of 2021 to October of 2020, because so many things have changed but what I can tell you.

Is that the run rate of businesses has improved nicely from what we saw in July and August earlier in the year.

And could you update us on the Jacksonville facility. How is how is that coming along and then as it relates to the a pure demand I mean, I understand that its going to step down, but I am curious to find out if you if you're seeing any customer cancellations.

Kind of what the market sizing opportunity if thats changed in your view.

Given given kind of where we are six eight months after the start of the pandemic.

Sure Stanley I, we're right on schedule with the ramp up of our Jacksonville facility. The team's done a nice job and and ramping up production at with the Capex expense there and were near.

Near capacity, where we anticipate it to be at this point. So so good progress there as as you mentioned the PR products in the pipeline for business, that's moderated up as as we signaled in the past and but we do expect to see solid growth through the balance of the year based on the backlog, we have and we'll work that backlog down through to fourth quarter.

We continue to work on opportunities opportunities within healthcare and first responders have for our products as well as the pandemic as the numbers rise there could be some more opportunity for that so were certainly prepared to respond to that.

But the pipeline remains pretty good and as we mentioned we will shift that through the balance of this year.

Perfect and then and then you mentioned a global restructuring opportunity here do we think that is more than north American based is it more international just trying to get a flavor you as we think about the margin opportunity side here.

Sure Stanley So the so obviously, we're continuing to execute on our international.

Restructuring programs and really proud of what the team's done in international specialty specifically in Europe.

As shown some nice margin expansion through the year, and we think that theres more upside to that we talked about the 15% operating margin and certainly there is some upside to that as we go forward and news and we're identifying opportunity and other parts of the world. So were really taking a global approach can.

Ken mentioned the cost take out that we have and we're executing on that.

Here and we'll see some benefit of that in 2021 and in future years. So there's some nice opportunity to to leverage our systems and business processes, where we can find greater efficiencies I fully expect to see our margins continued to do well as we go in the future others. There is some.

Nice upside, it's great to see the margins hold up around 18%.

Year to date were above 18% and certainly we have some opportunity as we go forward as we realized good execution around pricing and our cost controls.

Great guys. Thanks for the time excellent.

Okay. Thank you.

The next question comes from Dan Moore from CJS Securities. Please go ahead.

Hey, guys. This is Brendan on for Dan I, just wanted to ask with.

Just looking at your non core products.

Obviously, we've had a lot of volatility this year with respirators in India and other products in there how should we think about that going into next quarter and beyond do you think.

Our 2019 levels more what you'd expect or do you think the baseline has increased but maybe not.

I mean, maybe not obviously quite with 2020 was the respirators.

Sure Thats, a brand and then make sure that thats hard to put a finger on because there are some moving parts. Obviously the fourth quarter, we expect to see some decent growth year over year growth in 2024th quarter for the hbr products or the adjacent products.

But as we go forward are there could be some opportunity with with HCR products with stockpile opportunities with the last Amir respirators up possibly powered air purifying products.

So it's really hard to put a finger on where that's going to land in level out for us as we get into 2021 other certainly some opportunity, but we don't have enough certainty around that to put a number on that.

It's a lumpy business Brendan the noncore business can be a bit lumpy from time to time and we look at what's in that business not only are we talking about our respirator line, but we also have our ballistic helmet line that's in Europe, and so so oftentimes, you'll see large contracts come and go and so it it can be lumpy from time to time, but generally it's.

We would we feel like the portfolio is fairly well optimized at this point and the products that are left in that part of the portfolio are value, creating for our customers and our shareholders.

Great. Thanks, and then looking at thorough funding coming in the fire safety. Obviously, you guys have said, you're starting to see that which is great any updates on on anything else. I know there is some talk of potentially more obviously, we you.

But mostly dependent on how things go next week with the election or is everything just kind of in limbo. At this point are there any updates there would be great.

Well our outlook for the fire service business remains very positive.

Where where we anticipated being at this time of the year with with the order pace in the business with fire service, we continue to compete well in the marketplace as Ken mentioned, the CLO business is a real consistent business that business never we.

We didn't have a hiccup in that business whatsoever from a booking standpoint, the onus on us to get product out the door and work through production.

And reduce that backlog.

As we go into the future our pipeline for breathing apparatus opportunities in the overall business remains good.

During during the Republican administration of Federal funding was was respectable for the fire service and we had some good years here and.

Theres a lot of talk if we got a different administration in there that we could see even more funding for the fire service. So there could potentially be some upside under a Democratic administration.

Where there could be some more federal funds flowing into the fire service and other municipal markets.

So so the outlook for fire service remains fairly solid for us as we go into 2000 22021, if you step back and look at what was in the draft to Bill's earlier in the year, both sides year, regardless of Democrats or Republicans had broad based support for the firefighter community and there was a tremendous amount of support in those bills both.

Both coming out of the Democratic side.

Side as well as the Republican side, so regardless of who's in the White House, we feel like there will be real good support for our firefighters.

Great. Thank you I appreciate it.

Thank you the next.

The next question comes from Richard Eastman of Robert W. Baird. Please go ahead.

Fewer workdays. So traditionally those are weak months for us, but was what was really encouraging for US is the fact that those pp products came back really strong in September and October and so it remains to be seen how the business trends as we go forward Thats.

Thats Thats the one thing that we're watching very closely on a day to day basis.

And just just speaking of backlog I mean globe Globes revenue I think is tracked down like 23% you know so.

They must have a pretty substantial backlog of product.

Is it possible I mean, I don't know what the the manufacturing you know the time to you know to deliver product, but how quickly can that business ramp back up and from a manufacturing standpoint supply chain standpoint, how quickly can they turnaround ship.

Yes, so that just the backlog there and that business there Rick is.

Is down about 6%.

So so when you look quarter over quarter is that correct and about 6%, 6% on the Americas for fire helmets, and a cloak turnout gear, which we combine in what we report so it's not it's not down that significant what what is up year over year is our bookings our bookings are up year over year year to date and the business was very very strong we have the.

Largest backlog, we've ever had with globe and really the onus is on us to get that out to door that business is very consistent and the EPS more yes, yes, yes, I just want to clarify so the numbers.

Our fighter helmets in protective apparel for the first nine months or so the year or down about 10% globally, 7% in the in in the Americas segment and the globe product is down much lower than that it's low single digits and so so we're still seeing good performance there are still seeing good demand there.

Some of the things we talked about in our prepared commentary around the Cove added a virus in the <unk> and the social distancing aspects of the production facility are certainly hampering our efficiencies there, but we're doing some things to adjust that we feel good about that business. Okay. So so globe was down kind of high single digits.

So this is this 23% increase in constant currency were on fire helmets and protective apparel footwear.

Helmets are down much more.

When you look at so back to what we talked about globe is not down high it's low single digits. The globe is down okay. The fire fighter helmets are down more significantly and those are down more significantly in international and so there were some large shipments that came out last year that didnt.

Worker and it's as much smaller business, but the globe business is doing much better than than what you're seeing there I mean, if you look at the press release in the tables three months ended firefighter helmet and protective apparel down about 10% globally, driven a lot by the fire helmet issue.

Okay, Okay, and then Ken your comments around the restructuring actions and the savings into 21.

When you look at the.

Maybe you think about Opex in 21, I presume that savings would would offset what might be some inflationary pressures and when the balance of of.

Of the overhead in the in the business. So would you expect opex.

Still inflate in 21 by few percentage points, despite the offset that the restructuring will will contribute.

There if you step back and look at the first nine months of the year Rick.

We have had a reduction in performance related compensation.

And we've had a reduction of course and discretionary costs. The performance related compensation is working exactly the way it should work when the business contracts the contracts when it grows it pays for itself, but but that'll that'll reset as we go into next year and so that will certainly be a headwind the discretionary costs were doing everything we can to manage to manage those.

Cost coming back into the business next year, and so you might see a bit of a tickup in SGN may next year because of all the resets, but we are doing a lot on the restructuring side not only on SGN, a but up in the up and the operations area as well. So we feel like there is a nice nice opportunity to to improve the business.

Going forward and really improve our cost structure, but you're probably correct in assuming and thinking that there might be a bit of a tickup in ESG any because of the resets, yes, yes, okay understood. Okay. Thank you.

Again, if you have a question. Please press Star then one on your Touchtone phone.

Your next question comes from Larry de Maria of William Blair. Please go ahead.

Great. Thanks.

Morning, everybody.

Obviously, you talked about the remarks.

Over.

Just to clarify did not.

Over grow sequentially from number or is that kind of flatten out and how would you kind of.

At the time.

Well I'm curious if you could split it up between Americas and in Nash.

I think there is international now that they're moving toward.

So Larry or a little softer on your question I think I understood I understood. It. So when you look at the September to October business.

From from a year over year standpoint October is slightly better than October a year ago to.

To date, so so what we're looking at as an October that's.

Better than 2019 from a booking standpoint.

Not quite I believe I'm correct in this case not quite at the level of September September.

September was a little bit stronger in some areas and I believe the business. When you look at the business from an international and Americas standpoint, It was strong across both segments. We saw a nice bounce back across both segments.

A little stronger bounce back obviously in the in the North American Fire service market segment because of the release of the grants so.

So kind of is there some more color on that the only I want to clarify that in September we had really robust year over year growth little less robust year over year growth in October, but the run rate of the business still remains pretty healthy and comparable to where it wasn't finished the third quarter in September. So so thats certainly nice to say well.

It is a challenge is and we all we're all seeing it is some of the European economies and the resurgence of Cove. It until we're certainly keeping a close eye on that but generally the businesses is pretty good in October.

Okay. So it would.

And to go beyond just catch up.

July and August and then some.

Ketchup business in September, but you think it's more it's in excess of just ketchup business, it's more of a sustained pattern, but the caveat being obviously coal that could change things.

Yes, yes, Larry absolutely I mean, that's one thing we watch closely and Thats a good pick up on your part there was there might have been some catch up business in September so to speak.

As we talked about in the in the second quarter and early part of the summer was tough to get out in front of customers for valuations and other type work. So there was probably some ketchup business in September what was encouraging is and what is encouraging is how the business has held up especially that day to day business on the pp products.

Through October and into October. So so that I think we're just a reflection of the fact that job sites reopened people were coming back to work.

They were equipping those workers with fall protection product and head protection and we saw that business come back through that that came back through very quickly and.

Surprisingly the part of the business on that pp side at strongest for US is fall protection.

Tempur in October have been really strong months for fall protection products.

So which is a pretty good signal that people are getting back to the job sites art has recovered and portable gas detection.

At a little lower pace, but but it was really encouraging to see to fall protection products snapped back the way they did.

Great. Thank you.

Now you talked about a sequential increase in sales into Fourq you.

Obviously, we tend to think about decrementals year over year and being high 35, 40% right.

But if we how should we think about incremental sequentially, usually threeq to fourq.

They're not quite as robust as youre with your numbers so.

They are somewhere in between are they should we think about historical patterns or how should we think about maybe sequential.

Come into which might be more relevant.

Hard to put a fine point on it right now Larry when we think about the outlook and so im a little hesitant to give guidance around what our expectations are for fourth quarter, whether it be volume or incremental is because they are so closely related and so I would say.

Back and if I look at the third quarter, we certainly had a number of things that came through the business, which we would hope would not repeat but at the same time, we just don't know where the markets are going in the fourth quarter, especially in light of some of the challenges you're seeing in Europe with resurgence of cobot.

Okay, but is it mix or anything else, a big issue I bit firefighter getting maybe better in fourth quarter is there just a high at a higher mix discussion you can have.

The mix doesn't have that big of an impact we've done a nice job of improving the margins in the fire service products and so the mix Doesnt have a significant impact maybe maybe a slight impact on the fire service slightly lower profitability in some of the industrial products, but it's.

It certainly should move it in a significant manner, one way or the other in the fourth quarter of this year.

Okay. Thanks, and then last question.

M&A outlook I know you guys have been talking for a while year to to allocate capital in the downturn.

Good at spreads getting a little bit closer valuations are more reasonable or is there any stress out there that you guys would take advantage of some overarching comments and on the environment would be helpful.

So Larry we continue to be very active in this area and there's a number of opportunities we continue to work on and and stay close with.

Yes I.

I was hopeful that we would have something through the summer, but obviously the M&A type work really really shut down for a period of time and now lets open back up and so we're back at it with some opportunities and hopefully we'll have have something to report on here in the near future I just.

We're very active in this area. It's a key part of our strategy, but the key is staying disciplined weve been very successful from an M&A standpoint, and bringing on the appropriate bolt ons or expansions into some other product areas like low.

We've been very successful with with our returns on those acquisitions and the way we've we've integrated those and so we're going to make sure that we use our capital appropriately.

Because the balance sheets in great shape doesn't mean, we're going to run out and chase after some opportunities just to get a sugar high and.

And get short term reward we were going to be disciplined in our approach and add value to this organization and continue to drive our mission through acquisition.

Okay. Thanks, very much good luck.

Thank you.

This concludes our question and answer session I would like to turn the conference back over Q elite Laurens auto for any closing remarks.

On behalf of our entire team here I want to thank you again for joining US. This morning, if you Miss the portion of the conference call an audio replay and transcript will be available on our Investor Relations website for the next 90 days, we look forward to talking with you again soon thank you.

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

[music].