Q4 2020 MSA Safety Inc Earnings Call
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Port through the downturn.
Despite the revenue challenges in certain areas, our annual adjusted operating margin reached 18%.
It's up 10 basis points from a year ago we've.
We've talked about our long term aspiration to get our operating margins into the 20% range over the coming years are.
Our performance.
In this challenging environment provides me with the great deal of optimism for the future.
With that in mind, there are three key areas I'd like to discuss today that support my confidence.
First MSA innovation engine is stronger than ever.
We're launching safety technologies.
Of form of all of our customers toughest safety challenges.
Our continuous improvement culture across all areas of our business is yielding strong results, especially in the international segment.
Third we're committed to using our balance sheet to make strategic acquisitions that strengthen our leadership positions in key markets.
Is that starting with the first area MSA innovation engine and R&D pipeline the accomplishments of our founders back of $19 14 reflects what happens every day and MSA product development labs around the world at the turn of the century, they partnered with Thomas Edison.
<unk> developed a battery powered miners Kathleen.
This electric lamp help reduce mining fatalities by 75% over the next 25 years.
At the same passion for innovation exists throughout MSA today, as we continue to invest in new product development to drive organic growth.
We do this to provide our customers with leading safety technology.
<unk> of solve complex challenges and.
In 2020, we invested nearly $70 million on R&D to bring the most advanced safety solutions to our global customer base.
One example is our new advantaged $2 90, reusable respirator, the advantaged to 90 as the first government approved reusable respirator designed without an.
<unk> that's from Val.
It filters, both inhaled and exhaled breath that gives health care workers increased flexibility, adding yet another option to the available supply of respiratory protection.
And it can be stored from long periods of time.
The work we're doing in the fire service is another Great example.
<unk> MSA connected firefighter platform includes the breakthrough G. One of our <unk> CBA as well as our soon to be launched lunar system.
Luna is the handheld device that uses cloud technology to deliver breakthrough fire seeing management capabilities for incident commanders. It also uses real time direction and distance.
Since data to help search and rescue teams located of separated firefighter.
And it's a personal thermal imaging camera.
While system oriented products like lunar can have a longer adoption period, we continue to be very excited about the future possibilities that this technology has to offer on a global scale.
Quite simply our goal is to protect firefighters from head to toe. The same passion for innovation that led to the <unk>. The M. One and our lunar system is being applied the firefighters software solutions elements turnout gear on boots.
At the end of the day it comes down to this.
We.
So our customers at a deep level, we listen watch and learn from them.
With this knowledge, we use the latest technology to keep them safe solve their problems and simplify their day.
Looking beyond the fire service I'm also encouraged by the trends associated with our safety mission.
<unk> I believe is more relevant than ever.
As an example in one of his first acts on office President of <unk> signed an executive order, calling on Osha to issue guidelines related to COVID-19 in the workplace.
It's reflective of where COVID-19 is bringing safety to the forefront of the national discussion.
My second area I want to highlight this morning is our continuous improvement culture and how it is yielding strong results across our business.
An example is our international segment.
Our entire international team continues to execute our playbook focused on three areas driving growth in select markets optimizing our channels approach.
And delivering efficiencies.
We've been executing on this international playbook for three years now and it's encouraging to see the continued margin improvement.
As an example of our long.
Long term goal was to improve operating margin in the international segment by 500 basis points over 2017.
On May 20, the international segment operating margin rose to 15%.
This is of 270 basis point improvement compared to 2019, despite the 3% revenue decline.
And to date, we've achieved 400 basis points of segment margin expansion.
But the pipeline of.
In <unk>, we have in place, we're very confident in our ability to surpass our original goal over time.
And that leads me to the third area I want to discuss today, which is our balance sheet.
To make strategic acquisitions that strengthen our leadership position in key markets.
In January of this year, we closed the acquisition of first of all.
The programs Bristol is D U K leader for firefighter turnout gear and so Bristol enhances our position as a global leader in fire service PPE.
This acquisition builds on our 2017 of North American turnout gear leader Globe.
So, it's a great fit strategically and culturally.
Truly it also expands our footprint and of defensive area of our portfolio.
Our fire service business increased 10% in the fourth quarter of 2020, even in the face of the pandemic.
We're very excited to welcome bristle to the MSA family and look forward to serving our European and international customers with.
The unit greater range of head to toe solutions.
So the summarized there are three key areas that give me confidence in MSA future first MSA innovation engine is stronger than ever.
Second our continuous improvement culture across all areas of our business is yielding strong results, especially in the international segment and third.
EBIT effectively using our balance sheet to make strategic acquisitions that strengthen our leadership positions in key markets.
Our integration plan for Bristol is well underway and we continue to move forward with an M&A pipeline focused on evaluating assets that align with our safety mission.
With that I'll now turn the call over to Ken to take it.
Through our financial results and he'll also give more texture on the trends and assumptions, we're making for 2021 Ken.
Thanks, Nish and good morning, everyone I'll start the discussion this morning with annual financial highlights centered on our growth profitability and cash flow before getting into more detail on the fourth quarter.
Quarter.
First looking at overall growth I was very pleased to see the team execute well and deliver record revenue for the fourth quarter. Despite the challenges we all face throughout the year.
Second our profitability was strong as adjusted operating margin expanded by 10 basis points. This.
This equates to a 14% decremental operating margin we delivered on our goal to manage the decremental margins at a lower rate than our incremental margins improving overall operating margins to 18% on lower revenue volume is another step in the right direction for reaching our long term margin aspiration.
Aspirations.
And third we generated more than $200 million of operating cash flow in 2020, or 25% higher than a year ago through.
Through the downturn, we've continued to execute a balanced capital allocation strategy focused on growing our business and returns.
To our shareholders, we invested $49 million in Capex projects, we paid down $44 million of debt, we funded $67 million in dividends to our shareholders and deployed $20 million for share repurchases and just last month, we deployed.
Approximately $60 million for the acquisition of Russell uniforms, or net leverage continues to track below one times as we enter 2021.
So all of those 2020 was the year. Unlike any other our growth profitability and cash flow demonstrated the resilience of our business model.
And the disciplined execution of our teams around the world.
Now, let's take a closer look at the financial results in the quarter.
Let's start with a focus on growth.
<unk> revenue was a record high of $388 million growing over 3% from a year ago or two person.
In constant currency.
From a geographic perspective revenue increased 5% in the Americas segment and decreased 2% in the international segment in constant currency.
As I had indicated on the October call, we entered the third quarter with a large backlog in <unk>.
And air Purifying Respirators, we started the receipt of recovery in our business, especially in the fire service in the latter part of Q3. The carried into Q4 order activity was healthy to finish the year and we exited the quarter with a very healthy book to bill ratio and in overall backlog.
<unk> consistent with the end of Q3, despite the record invoicing.
The fire service market was a key driver of results in the fourth quarter on strong ex CBA growth. We continue to convert competitive S. CBA accounts in the U S and had good order flow in key geographies around.
Around the world, including Germany, China, and Latin America.
While we've had production constraints of globe due to Covid, we continue to focus on driving operational improvements and it's great to see continued wins with key pillar cities in the United States buyer.
Firefighter safety is a resilient business and.
But we performed well through various business cycles, we continue to extend the breadth and depth of our market position in fire service through organic <unk> inorganic investments like the upcoming launch of lunar and the recent acquisition of Bristol.
Shifting gears to the employment based industrial.
The <unk> products, which were down 4% year over year after declining by 25% in the third quarter.
While we are most likely not out of the woods just yet it was good to see such sequential growth versus the third quarter.
Our <unk> business was down seven.
<unk> order on tough comparisons in both the Americas and international segments for the full year, we had of 2% decline in <unk>, reflecting the support from net recurring revenue streams in the product line that we've discussed with you previously with that said, while we have seen of recent uptick in oil prices.
Prices, which could provide some support for projects going forward, we have a challenging comparison to start the first quarter of 2021.
Revenues from Air Purifying Respirator lines increased 32% from a year ago as expected we have largely delivered on our backlog from the pandemic surge of 2000.
On 'twenty and we are well prepared to pursue new opportunities with health care and government end markets in the near term we are planning for a difficult comparison in the first quarter of 2021, if you recall, our Q1 results a year ago included approximately $10 million of incremental revenue.
Of APR at the onset of the pandemic. The landscape continues to evolve as stimulus packages are allocated to enhanced PPE supply for workers in a range of industries, and we stand ready to help and fulfill our mission of protecting workers life and health.
Turning to profit.
From a D and earnings gross profit declined 350 basis points from a year ago, as we incurred about $11 million of higher costs in the quarter.
$5 million of these costs were associated with lower throughput in certain factories and $6 million is primarily associated with inventory related charges.
<unk>, which we don't expect to continue into 2021 to a much lesser degree the less favorable revenue mix was a headwind the margins there.
These items had the most significant impact on our Americas segment margin in the quarter and for the full year.
SG&A expense of $76 million was down.
<unk> percent from a year ago.
We delivered $6 million to $8 million of savings from previously executed restructuring programs and discretionary cost savings in the quarter associated with reduced travel controlled hiring professional services and other costs and $3 million of savings from variable compensation.
<unk> 10 of year over year basis.
Similar to past cycles, we invested in restructuring programs throughout 2020 to improve our margin profile in the downturn and to position MSA for strong incremental margins during the recovery.
We incurred $9 million of quarterly restructuring expense.
On the roof for cost reduction programs related to footprint rationalization and business model optimization, primarily in the international segment, where operating margin is up 270 basis points for the year.
Together with the programs we have discussed throughout 2020.
We expect to deliver approximately $15 million of savings across the income statement in 2021 and annual savings of $20 million thereafter.
These savings will partially offset the impact of variable compensation resets and other discretionary costs coming back.
And of the P&L in 2021.
Quarterly adjusted operating margin was flat with the prior year at 17, 3% as the cost discipline on SG&A was offset by the gross profit headwinds Inc.
<unk> margins were up 320 basis points and were 17.
The 17, 5% in the quarter, which very much reflects the results of the team are driving and pricing and cost reduction initiatives.
Americas margins were down 260 basis points and were 28%.
The $11 million of higher cost and gross profit that I mentioned a moment.
<unk> ago was incurred primarily in the Americas segment pricing is holding up well and we expect improvements in this segment margin going forward.
Just stepping back and looking at margins over the long term. It is good to see improvements each and every year on operating margins since 2015, despite some challenging economic.
Cycles, along the way.
From a cash flow and capital allocation perspective quarterly free cash flow conversion was well north of 100%.
We saw strong performance across working capital, which declined 320 basis points as a percentage of sales.
As I had indicated on.
Economic of recall, we were planning for improvements in the inventory balance through year end.
Our strong balance sheet and inventory position at the end of the third quarter enabled us to deliver record high revenue in the fourth quarter. We continue to focus on improving our performance in AR and AP and are seeing very strong results.
On that front as well.
Consistent with past years, we completed our annual cumulative trauma evaluation in the fourth quarter as part of that review, we reflected changes in underlying assumptions in our model that increase our product liability reserve and resulted in a pretax charge of $34 million.
Results net of insurance recoveries on the income statement.
While the timing of cash flows for product liability and insurance receivable vary from quarter to quarter and MSA LLC. We've been successful in establishing cash flow streams that have allowed us the fund these liabilities without a material impact on our capital allocation priorities.
For example over the past five years, our average cash conversion has exceeded 100% of net income both with and without the impact of product liability and insurance receivables.
We continue to focus on growth as our primary capital allocation priority. Most recently completing the acquisition.
The Bristol uniforms in January we're excited about the opportunity to build our position in turnout gear and expand msas addressable market globally. We're also well positioned to realize a range of synergies from the transaction over the coming years.
From a financial standpoint, the acquisition provides attractive returns.
And aligns with the criteria we've shared in the past.
While we are in the midst of finalizing our purchase accounting for the acquisition, we expect earnings accretion in the first year of ownership excluding acquisition related amortization of about 3% to five per share with the closing date of January 25th wheel.
It's just over two months of Bristol results in our first quarter 2021 financial statements within our international business segment.
The acquisition does not have a material impact on our leverage so we remain very active in pursuing opportunities as well as funding organic R&D.
We recommend capex projects that drive long term growth for MSA.
As we turn the page the 2021, we're operating in a very dynamic environment.
There's a number of evolving macro level of factors that will have an impact on our revenue outlook in 2021. These factors.
D <unk> amongst other things the effectiveness of the vaccine rollout risk of additional COVID-19 lockdowns, the pace of economic recovery as well as the potential for government stimulus.
While the outcome is certainly hard to predict the steps we are taking to improve our business model positions us to emerge.
<unk> as the much stronger company as macro conditions improve our investments in organic and inorganic growth programs are driving an improved market position and that will be beneficial helping us return to growth as we see conditions improve.
Our ability to deliver.
<unk> and revenue growth in 2021 is very much influenced by a range of external factors. As a result, we are approaching the first half cautiously and are positioned for a stronger second half of 2021 as compared to the first half.
With that said, we remain committed to executing our strategy.
Liver and advancing our mission, which has never been any more important we remain confident in our ability to maintain and grow our market share positions improve our margin profile and drive strong cash flow performance with that I'll turn the call back over to nish for some concluding commentary nish.
Thanks, Ken and the team delivered a strong Q4 with record revenue and strong working capital improvement.
Throughout the year, we funded the R&D portfolio and strategic Capex projects. We also executed on our restructuring programs to make sustainable improvements in our business model and.
And most recently we completed in the acquisition.
And of that positions us as the global leader in firefighter turnout gear.
I am very confident that MSA is well positioned to advance our mission and create value for Allstate all of our stakeholders 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 we'll now open up the call for your questions.
We will now begin the question and answer session.
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At this time, we will pause momentarily.
Please to assemble our roster.
The first question comes from Stanley Elliott of Stifel. Please go ahead.
Hey, good morning, everyone. Congratulations on the strong finish to the year.
Thanks, Dan with you.
Okay, great progress.
The international I know you've been working hard on the cost side, you was something in there with mix of so I think it was the fall protection was up a little bit.
Flow through and then the other piece you had mentioned kind of of getting that additional 100 basis points of margin opportunity.
Is do you have everything in place that you need to get that last.
Kind of piece over over the.
The initial target the jewel headset or kind of help us bridge debt if you could.
Sure. We do certainly we've been working on this as you know from setting that goal in 2017.
And we started working actively then the first year or.
I guess on the well.
We got off to a slow start because some of these programs we put in place take time to execute and to actually see of come through the P&L and that's exactly what we're seeing today. We are seeing the results of a lot of hard work that we put forth on 18, and 19 and continued into 2000, and we think we're very well positioned to get the last 100.
So so to speak they get to our goal of 500 basis points and then once we get there we'll start to set some targets for the future.
We don't believe when you look at the 2017 I believe it was about 17, 5% of op margin in the fourth quarter.
When you look at that that just gives us encouragement that we can go beyond the.
The the initial targets that we set.
We will set those goals at a later date, but we think we're very well positioned to pick up the 100 basis points.
Great and then sort of sitting here today I know you don't want to give specific guidance, but looking at kind of what's in the orders coming down the pipe or in the backlog do we think mix is actually going to be of tail.
The point in the coming year.
When things improve Stanley certainly when the economy comes back on us.
As Ken mentioned.
Looking at the second half of the year to see that improvement, especially around the PPE products. That's when you see some strong mix coming through right. The hard hats portable gas detection from the fall protection products you get the.
In the industrial PPE products coming through the pipeline and that mix certainly helps our margin profile. So so there could certainly be some wind to our back there and we're very confident we're going to see that never before.
Do I remember us, having a better position in the marketplace.
Better pipeline of products coming through our MPD process.
Our sales our marketing teams customer service training all of the customer facing parts of the organization are just doing a fantastic job of executing so when the customers get back in a position to start buying back in quantity.
I think we're going to be positioned real world going forward and Ken do you want to add to the yes.
The only thing that I would add nish are just two or three.
Key points the specifics.
Specifically, when we think about the first quarter or maybe even the first half the.
The first and foremost the employment related products as I said in my script, we've seen some improvement in the fourth quarter, but I don't know that.
Yes, the deal of Woods, just yet if you remember last year, we didn't enter of the recession until say the second quarter. So our business held in pretty well during the first quarter. So that will provide a pretty challenging comparison period on the employment related products on the <unk> as well as I had pointed out on in my prepared comments.
We're out of the and then we have the respirator line, which is which is rolling off as well, but on the positive we have Bristol coming in and so theres a number of puts and takes but the first quarter because we didn't enter the recession until and the pandemic really didn't have a significant impact on our business until the second quarter.
Comments, the first quarter might be a bit of a tough comparison.
Great and then lastly from me are you all seeing anything on the supply chain side that should be of concern I mean, you've done such a nice job of adding sensors and chips et cetera into the products to make them more advanced.
With with the kind of the dynamics there.
<unk> should we be concerned about the available availability to get those sorts of the technological products.
Good question Stanley we're watching that closely there is obviously some of it's tightened the supply chain around some of the chips and components.
That has not hampered our production. So we have not had any issue with production.
To that whatsoever, we're staying close to it obviously and have been able to manage through it and we expect to do so into the future.
Great guys. Thanks, so much best of luck.
Thank you Stanley.
The next question comes from Richard Eastman of Baird.
On release go ahead.
Yes. Thank you.
Mr. Ken could you, perhaps just the gross maybe throw a little bit more color around your backlog comments.
At the end of the fourth quarter were you referencing the strength in the backlog around the CBA.
The fire service.
Or just generally speaking how does the backlog look in the fixed gas and flame.
The business as well.
Sure Rick So I'll kick it off from Ken can add some comments, but that's what we've seen you kind of described it on the fire service product backlog.
<unk> was was up significantly as we went into the fourth quarter. We had we had a nice we did a nice job in getting product out the door, but we also came into January with a nice backlog of breathing apparatus. The turnout gear. We continue to have a very good backlog, there and thats been a production issue on our debt.
It goes back to the protection.
A few of our employees and contact tracing we've done.
<unk> had some people out and did not get the volume out the door. We had hoped to on the fourth quarter. So we'll certainly be working hard to make that up here as we go through 2021.
In fixed gas and flame detection of backlog there did come down some so we.
We saw that natural rotation, we anticipated as we've always talked about <unk> is that business that lags going into a recession, and then lags a bit coming out of the recession and so thats exactly what we saw that business softened up from a bookings standpoint, as we went into the fourth quarter, we shipped some backlog.
But we do.
And so you feel confident that that business will also come out of.
Sometime in 'twenty, one where we'll start to see those projects book in that business begin to build again as we go forward kind of.
Yes, you've covered the key points. The only thing I'd say is our book to Bill remained pretty healthy in the fourth quarter of about one times.
But as <unk>.
Do the cadence some of those orders will come out of backlog throughout 2021 of its.
Some of the business that went in it takes a little bit of time to come out.
Gotcha, Okay, and what was just out of curiosity the strength.
In international in the in the portable gas business was that.
Michigan.
The large order the.
The thing or what was the.
Not necessarily true there was an easy comp, but I'm just curious.
That was a pleasant surprise.
We picked up a significant piece of business in international and we ship that product out the door, but when you look at the at the.
But really the PPE.
The products in the fourth quarter were a little stronger than anticipated. If you look at our full year finish on those PPE products in the fourth quarter you saw some strength there so that was that was.
A little bit of a surprise for us as you know those products come in and go out the door typically in the same quarter and so we were encouraged by that but we've had some tough.
Comparable as Ken mentioned tough comparable is coming of a head here in the first quarter.
Sure.
Just the last question from me.
Just Ken could you maybe.
Maybe.
Give a little more perspective around the opex.
Opex as we track through 'twenty one.
We're looking for the cost save here that you referenced from.
Some of the realignment efforts.
Largely volume sides.
The comp expense and some of the the trial, which means the things that will come back on the P&L. So are we looking at kind of.
On the.
Adjusted Opex number that's in dollars that's roughly flat.
For the year is that is that what you were trying to maybe signal.
So when you step back and look at the SG&A operating expenses I think we did around $290 million for the full year.
There's two or three major buckets.
It's there Rick.
One there was a $15 million cost save associated with just performance related comp.
That kind of debt comes back there's really not much control over that coming back of that resets.
There's $15 million of discretionary cost saves, which don't come back until we start the travel until we start to see.
The business conditions improve and so that's something we're definitely keeping a tight rein on and then there is the restructuring that I talked about the $15 million now that 15 million of not all SG&A. Some of that $15 million is associated with footprint rationalization. Some of it's related to affiliate closures.
And then some of it is more traditional head count in SG&A related and so so we're looking to really offset that 15 that comes back immediately.
If that makes sense to you.
Yeah.
And then there'll be some again as the year progresses, there'll still be some inflation.
That shows up but I'm on the terminal ablation in the in the context.
On the travel and some of the discretionary that comes back in so there won't be a complete.
Offset there and then.
This is what I'm hearing and then also can you just give us a sense of what the Bristol.
SG&A.
<unk> might be.
Just a rough.
Yeah. That's a good question the $1 of certainly.
On a percentage basis of much higher than than the MSA overall average I want to say the Bristol SG&A as a percentage of sales of something close to 30%.
And so so it's a much higher ratio than what you see at MSA, but theres an opportunity there that can help them improve their business model through the sharing of some of our resources and so so we're looking at that much closer in and should give us some opportunity to drive accretion that I spoke about in my prepared comments.
Okay.
Okay.
Alright, very good well things in the.
Nice work on the on a challenging fourth quarter, but non Switzerland.
Thank you Rick.
The next question comes from Larry de Maria of William Blair.
Please go ahead.
Thanks, Paul and good morning.
I guess my question is on firefighter obviously.
Of that market, especially late in the year it'll be a function of the timing of when.
Mr. Mitch balance its forget their money to spend and also maybe carriage funding.
Et cetera, ultimately the pretty big number and it sounds like you still have backlog. So can you kind of delineate how much was there.
Unusual surprise, maybe one time boost and does that create a kind of tough comp or is it a nice to the normal number which we can grow off of the I'm just trying to deconstruct debt that number if there was any of you know.
The less money in there.
And Dave pull forward, but then you said you had obviously some more backlog coming into this year.
Yes, good morning, Larry Yeah, No. That's the fire service number we anticipated that we had talked through the year that the fire service, we have confidence in the fire service build business holding up through the pandemic.
Those products of firefighters.
The other buying are necessary products for them to do their jobs are not nice to have items.
So we anticipated that coming in we did maybe a little better job than we anticipated from a delivery standpoint on the breathing apparatus. The operations team and sales team did a really good job.
In planning and knowing the orders that were coming in the door and getting those.
Fighters out so we I would characterize it as we finished up where we expected the big and expect it to have a nice backlog going into the first part of the year and we expect to see a similar pattern as we go into 2021 of the municipalities do have money to buy those necessary products and.
Back products, we sell to them for the fire service are required.
Okay. Thanks, that's good.
Okay.
I guess can you.
Maybe just talk about the energy market is a little bit more.
The other do you see any signs of life other than just normal replacement.
Obviously oil prices moving higher.
Hey, you know what gives you confidence there.
The better outlook over there and the energy side.
We do we do we do when we look at our pipeline of business and the opportunities in that pipeline.
The beginning to see some some price.
Projects.
Resurface and net pipeline build a bit, especially in the middle East.
There is some activity there thats beginning to.
FERC up a bit we believe that youre going to get back into stronger levels of employment.
As demand increases for oil and gas.
And that will just drive hard hats fault protection, and we're really well positioned to pick that business up because of our share strong in those areas. So and continues to grow with fall protection. So so we're optimistic that that will.
Bounce back hopefully a little quicker than we anticipate maybe the back half of 'twenty one.
Okay.
Last question, sorry from my Mark, but you had mentioned in your prepared to use the balance sheet can you give us the handle on whats the upside of the.
Let's say upside on the deal how big would you go are there deals out there a good pipeline and the tough competition from Spacs P. J et cetera, just trying to kind of calibrate expectations here.
Yes. Thank.
Thank you for the question, Larry and we have been very disciplined with the balance sheet over a number of cycles not just the current cycle that we're in and we're committed the remaining very disciplined with that said, we will be opportunistic as we were with Bristol and we were with past.
The acquisitions.
When we see an opportunity to acquire a good business, we will bring it into the fold.
And and help enhance our position with that investment.
And so we're certainly looking at that as I had mentioned our balance sheet has about one times leverage on it today.
During past cycles.
<unk>, we've seen that go up to two to three times, depending on where you are in the cycle, but again, we're certainly going to be disciplined and go after the right opportunity. We don't feel of pressure to use the balance sheet, but we certainly when we do see the opportunity to use it we will.
Perfect. Thanks, and good luck.
Thank you.
The next question comes from Brendan Pops of <unk> of CJS Securities. Please go ahead.
Good morning.
I just wanted to ask a quick question on on the firefighting business.
On the obviously.
<unk> were really strong and I'm on.
Understand the bit different of the sales process I'm sure to the helmets on apparel, but can you just talk about about that is there do you expect the strong bounce back there as well.
It seems to not quite have that bounce back yet.
And then obviously Bristol will play into that too, but could you just talk some of that space.
Sure Brandon Thank you up.
Yes, when you look at the rest of the fire service business outside of the CBA.
Of the helmets break it in the two pieces the helmet part of it we just didn't see any many large tenders are large orders.
<unk> or the helmets throughout 2020, so that drives that.
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The next question comes from Chris Mcginnis of Sidoti <unk> Company.
Please go ahead.
Hi, good morning, Thanks for taking my questions nice quarter.
That's the two quick questions. One just if I missed this I apologize but.
Just the rising raw material.
On the touch on any impact as you look out into 'twenty one.
Any concern around that thank you.
Okay. Thanks, Chris Yeah, we watch that closely obviously, we have our eye on on the supply chain and material costs.
We've done a really nice job on the past and offsetting that with price and other ex.
Cereals activities within operations.
No.
We always look at that as somewhat of an opportunity for price increases in and we're pretty effective there. So we haven't seen it at this point, but certainly we're watching that closely and we'll react as that occurs.
Great. Thanks.
And then the second question just.
Maybe applicable for some of the businesses and maybe not others, but as you look at it.
Across the different geographies economies are opening up earlier is there any lessons you might be able to take away the to use where the economy is opening up later to better position yourself for gross to take advantage of that those opening economies. Thanks.
Yeah, that's a good point we have.
And the team some some of that shift so to speak.
<unk>.
China went into their Covid shutdown, we saw that business, obviously slow down quickly and then when they came back to work we saw a bounce back.
And then we've had some some starts and stops here in the U S. When the U S. We started to see things bounce back a bit and then when COVID-19.
<unk> down through the south.
Through the oil patch, we saw that business drop off and then things picked back up so.
And right now you are seeing things tightened up in Europe.
But we do expect all of that to loosen up over the during the second half lesson learned is try to get ourselves in a position from an inventory.
The spread as I've mentioned, those PPE products all of those orders come in and go out on the same quarter, we have very strong market share in parts of the world with some of those products and we just want to make sure that we have the product on the shelf to respond to those customer needs. So we're watching that supply chain very closely where we're staying on top of the order.
The endpoint line from our from our sales organization and making sure we prepare for ourselves for that when the economy bounces back.
Great. Thanks for taking my questions and good luck on Q1.
Thank you. Thank you.
Order pipe of the next question is a follow up from Richard Eastman of Baird.
Please go ahead.
Yes. Thanks again, I think we've got to get this conference call service attached the lunar there we've got to get them.
You are absolutely right Brian.
We will be able to we've got a rig hour with you.
Sorry, guys.
Will also be on the cloud.
Sorry for the inconvenience.
Just I just wanted to clarify some comments you made maybe a little bit earlier around the international adjusted Op.
You know I have that I think for the year. It came in at about 15%.
<unk>.
Again, maybe maybe I'm thinking that was more at target at this point, what kind of expectations you have for them.
In 'twenty one.
On the revenue somewhat revenue dependent but is there is there are another 50 to 100 basis points in that international.
P for 'twenty one.
I'm curious if you're seeing any pricing traction there as you've started to look at that mid year 'twenty.
Yes, so Rick it's it's Ken.
I'll take that one if that's okay.
On the the business continues to do exceptionally well and international.
On the team in international.
Is laser focused in on all aspects of the P&L from gross margin improvements. We saw this year despite revenue declines to leveraging the SG&A. The team is really doing an exceptional job.
We do expect continuous to.
Improvement in our business. That's one of the key areas that we have in our strategy is operational excellence and continuous improvement and so we certainly are looking for further improvement as we move forward.
But from time to time, you do have a consolidation period, where youre regrouping and Youre resetting and Youre, making.
The additional investments and so.
We do expect to see improvement, but it's hard to see two to 300 basis points each and every year.
Mhm.
Okay, Alright, and then just a quick one and then I am done here.
With all of the weather related issues in the.
The gas and oil.
In the energy infrastructure shutdown and the and the types of surgery. I mean, that's that seems to be a more of a calamity, but theres been a lot of.
There's been some comments.
On a circulating about the infrastructure around the energy infrastructure being.
Being potentially damage you know with the cold temperatures in the.
On the extended cold temperatures, there, but I guess, what I'm curious about is in your fixed gas and flame business. You know there is a solid consumables.
Consumables element to that business is there.
Any any trigger there with these events you know for some replacement demand around.
On the consumables and if there is can that be more than a blip in terms of your revenue in the short term.
Yeah, Rick you know there is to a degree but you know what what you're dealing with here is as cold extreme cold in the fixed gas and flame detection product is designed for and holds up exceptionally well on.
Much colder temperatures in their face, but there were up in Alaska and other parts of the world that have extreme temperatures.
What does drive it of times as Hurricanes.
And when you have some hurricanes and they don't have the opportunity to lock some things down that that will drive sensor replacement a lot of times they'll go through and just replace all of their sensors after a hurricane.
I felt suite Inc.
On to see that from from this cold snap, but because of the products designed to handle that without a problem.
Perfect Alright, great. Thank you. Thank you Ken.
You bet.
And we have Brendan pops in to resume too please.
Restate any.
Ken that was not answered.
Thank you.
Yeah. Thank you yeah, I just wanted to ask real quick on.
Just on the gross margin.
You know I did.
It seems like the the mix wasn't it wasn't quite as strong in the past couple of quarters and looking out to.
The question of FY 'twenty one.
Adjusted.
How quickly should we expect it to kind of asked that kind of mid <unk> debt.
You guys normally do and.
And just the cadence there for that.
Yes, Brendan it's it's Ken.
That's that era.
It's an area that we're focused in on you know.
In my prepared comments I talked about inventory charges that we took in the quarter.
And we did we took the inventory charges and they're primarily related to an investment that we had made the serve one large customer in response to the pandemic.
Early on we received the pretty.
Area of sizable contracting vehicle from a large potential customer.
And the respiratory products, we invested in inventory to prepare for what we expected would be a meaningful order and unfortunately and ultimately the customer did not pursue the orders. So we took a charge.
Associated with inventory this.
Big of the weighed down our result of I think it was $6 million roughly in the quarter roughly $10 million or so for the year and so that'll that'll certainly we don't expect that the repeat as we move forward and go into the the new year and so we feel like we feel like that gross margin should certainly come back going forward.
Okay, great. Thank you.
Thank you. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Elyse Lawrence auto for any closing remarks.
On behalf of our entire team here, we want to thank you again for joining US. This morning, if you missed a portion of the.
This year of 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.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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