Q4 2023 MSA Safety Inc Earnings Call
Operator: Good day, and welcome to the MSA Safety fourth quarter and full year 2023 Earnings Conference Call. All participants will be in a listen-only mode.
Good day, and welcome to the MSA safety fourth quarter and full year 2023 earnings conference call.
All participants will be in a listen only mode.
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Operator: To withdraw your questions, please press star and two. Please note, this event is being recorded. I would now like to turn the conference over to Chris Hepler. Please do so.
Please note this event is being recorded.
I'd now like to turn the conference over to Chris Heckler.
Chris Heckler: Please go ahead.
Chris Hepler: Thank you. Good morning, and welcome to MSA Safety's fourth quarter and full year 2023 earnings conference call. This is Chris Hepler, Executive Director of Corporate Development and Investor Relations. With me today are Nish Vartanian, Chairman and CEO, Steve Blanco, President and COO, and Lee McChesney, Senior Vice President and CFO. Before we begin, I would like to remind everyone that matters discussed during this call may include 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 a number of risks, uncertainties, and other factors that may cause our actual results to differ materially from those discussed today. These risks, uncertainties, and other factors are detailed in our SEC filing. MSA Safety undertakes no duty to publicly update any forward-looking statements made in this call, except as required by law.
Chris Heckler: Thank you good morning, and welcome to the MSA safety fourth quarter and full year of 2023 earnings Conference call. This is Chris that blur executive director of corporate development and Investor Relations with me today are Nish, Vartanian, Chairman and CEO, Steve Blanco, President and C O O N.
Chris Heckler: Leaving at Chesney, Senior Vice President and CFO.
Chris Heckler: Before we begin I would like to remind everyone that matters discussed during this call may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Chris Heckler: Forward looking statements include but are not limited to all projections and anticipated levels of future performance.
Chris Heckler: Forward looking statements involve a number of risks uncertainties and other factors that may cause our actual results to differ materially from those discussed today.
Chris Heckler: Risks uncertainties and other factors are detailed in our SEC filings MSA.
Chris Heckler: The MSA safety undertakes no duty to publicly update any forward looking statements made on this call except as required by law.
Chris Hepler: We have included certain non-GAAP financial measures as part of our discussion this morning. The non-GAAP reconciliations are available in the appendix of today's presentation. The presentation and press release are available on our investor relations website at investors.msasafety.com. Moving on to today's agenda, First, Nish and Steve will discuss key highlights of the fourth quarter and full year 2023. Lee will then review our financial performance and outlook. To conclude, Nish will provide closing comments, at which time we will open up the call for your questions. With that, I'll turn the call over to Nish. Thanks, Chris. Good morning, everyone.
Chris Heckler: We have included certain non-GAAP financial measures as part of our discussion this morning.
Chris Heckler: non-GAAP reconciliations are available in the appendix of today's presentation.
Chris Heckler: Presentation and press release are available on our Investor Relations website at investors thought MSA safety Dot com.
Chris Heckler: Moving on to today's agenda first mission, Steve will discuss key highlights of the fourth quarter and full year 2023.
Chris Heckler: We will then review our financial performance and outlook to conclude initial will provide closing comments at which time, we will open up the call for your questions with that I'll turn the call over to Nish.
Nish: Thanks, Chris Good morning, everyone and thank you for your interest in the work we do it.
Nishan J. Vartanian: And thank you for your interest in the work we do. I'll start on slide four. Our team delivered excellent results in the fourth quarter with strong growth and operational performance, wrapping up an outstanding 2023 for MSA. Our results are a testament to our passion for our mission and dedication to addressing our customers' toughest safety challenges. Despite the lingering pandemic effects on global supply chains, rising interest rates, and dynamic macroeconomic conditions, our team outperformed throughout the year. I'm very proud of our execution and achievements in 2023, and we're carrying that momentum into 2024. Moving on to slide five, MSA's sole purpose and mission over its 110-year history has been to protect workers' lives and critical infrastructure in high-hazard environments, and our customers recognize that we at MSA know what's at stake when they put their lives on the line each and every day. This provides us with a unique bond with our customers, and being alongside them on the safety journey allows us to be a true partner in the development of products and solutions Across our many leading firefighter safety, detection, and industrial PPE technologies, we protect more than 40 million workers around the world.
Nish: I'll start on slide four.
Nish: Our team delivered excellent results in the fourth quarter with strong growth and operational performance wrapping up an outstanding 2023 for MSA.
Nish: Our results are a testament to our passion for our mission and dedication to addressing our customers' toughest safety challenges.
Nish: Despite the lingering pandemic effects on global supply chain rising interest rates and dynamic macroeconomic conditions, our team outperformed throughout the year.
Nish: I'm very proud of our execution and achievements in 2023, and we're carrying that momentum into 2024.
Nish: Moving on to slide five MSA sole purpose and mission over 110 year history has been to protect workers' lives and critical infrastructure and high hazard environments.
Nish: Our customers recognize that we had MSA know what's at stake when they put their lives on the line each and every day.
Nish: This provides us with a unique bond with our customers and being alongside them on the safety journey allows us to be a true partner in the development of products and solutions like few other companies.
Nish: Across our many leading firefighter safety detection and industrial P. P technologies, we protect more than 40 million workers around the world.
Nishan J. Vartanian: We do not take this responsibility lightly. It drives our passion for continuous innovation. Now on slide six.
Nish: Do not take this responsibility lightly it drives our passion for continuous innovation.
Nish: Now on slide six over the past several years, we've been diligently working to build MSA into a higher growth more profitable company with greater resiliency and durability.
Nishan J. Vartanian: Over the past several years, we've been diligently working to build MSA into a higher growth, more profitable company with greater resiliency and durability. With customer centricity at its core, our strategy has focused on accelerating our innovation engine, enhancing our go-to-market strategies and customer facing activities, and increasing productivity and driving efficiency to complement our organic efforts. We've effectively deployed capital across several acquisitions to better serve our customers, expand and diversify our end markets, and win in regions where we've been under penetrated. These deliberate actions have resulted in a high performing, more agile company, with an even greater ability to drive stakeholder value over the long term. Slide 7 summarizes the financial impact of these actions.
Nish: With customer centric tourist city at its core our strategy has focused on accelerating our innovation engine enhancing our go to market strategy and customer facing activities and increasing productivity and driving efficiency.
Nish: Complement our organic efforts, we have effectively deployed capital across several acquisitions to better serve our customers expand and diversify our end markets and win in regions, where we've been under penetrated.
Our deliberate actions resulted in a high performing more agile company.
Nish: With an even greater ability to drive stakeholder value over the long term.
Nish: Slide seven summarizes the financial impact of these actions.
Nishan J. Vartanian: We have executed on our financial commitments to deliver solid mid-single digit growth and 490 basis points of margin expansion while compounding earnings at an attractive rate. We've also added to our high-performance talent while continuing to reinforce our culture, putting us in a tremendous position to build on this performance. I'm incredibly proud of our team's accomplishments, which have MSA well positioned as we move forward. I'll now turn the call over to Steve, who will take you through the key highlights from the quarter and year. Thanks, Nish, and good morning. I'm on slide 8.
Nish: We have executed on our financial commitments to deliver solid mid single digit growth and 490 basis points of margin expansion, while compounding earnings at an attractive rate.
Nish: We've also added to our high performance talent, while continuing to reinforce our culture, putting us in a tremendous position to build on this performance.
Nish: I'm incredibly proud of our team's accomplishments, which have MSA well positioned as we move forward.
Nish: With that.
Nish: I'll now turn the call over to Steve who will take you through the key highlights from the quarter and year.
Steven C. Blanco: Thanks, Nish and good morning, I'm on slide eight.
Steven C. Blanco: I'm pleased with our performance in the fourth quarter and the year. The team delivered on our growth, margin, and cash commitments through effective collaboration and excellent execution. Our Continuous Improvement Efforts and MSA Business System, or MBS, initiatives continue to take hold across our global footprint, and we're seeing results. Our team continues to develop and introduce innovative safety solutions. We can secure new business opportunities and operate with greater efficiency and purpose. [inaudible] That puts innovation front and center in everything we do. As part of our differentiated development program, we work closely with our customers to deeply understand their processes, Paying Points, and Desired Outcomes. We're committed to utilizing the latest technologies, cloud connectivity, and AI to develop and deliver products and solutions that delight our customers and have a material impact on efficiency, transparency, and effectiveness of safety programs around the world.
Steven C. Blanco: I'm pleased with our performance in the fourth quarter and the year. The team delivered on our growth margin and cash commitments through effective collaboration and excellent execution.
Steven C. Blanco: Our continuous improvement efforts and MSA business system or M. B S initiatives continue to take hold across our global footprint and we're seeing results. Our team continues to develop and introduce innovative safety solutions secure new business opportunities and operate with greater efficiency.
Steven C. Blanco: <unk> seen purpose.
Steven C. Blanco: We exist to serve our customers and help them solve their safety and compliance challenges that puts innovation front and center in everything we do as part of our differentiated development program. We work closely with our customers to deeply understand their processes pain points and desired outcomes.
We're committed to utilizing the latest technologies cloud connectivity and AI to develop and deliver products and solutions that delight, our customers and have a material impact on efficiency transparency.
Steven C. Blanco: And effectiveness of safety programs around the world.
Steven C. Blanco: With the recent supply chain constraints, our team has done a nice job of being agile and pivoting between product redesign and new product development. Driven by engagement and flexibility, we've been able to work through the supply chain challenges to meet both existing customer demand and deliver on our NPD commitments, introducing several exciting new products like the Century IO controller and M8-MSCBA and achieving 37% product vitality for the year. On the commercial side, we had solid execution across the portfolio and several exciting wins, and in Firefighter Safety, we announced significant contract wins, such as Los Angeles City Fire Department, Pittsburgh Bureau of Fire, the U.S. Air Force, and several U.K. fire authorities, including West Midlands Fire and Rescue Authority. We had healthy growth in our firefighter protective apparel and helmets business as well. We also made solid progress in our detection. We landed new business across our fixed detection products, including BACRAC's multi-year win with the U.S. Navy. We have also expanded into new geographies with our recently introduced Altair I04 portable gas detector.
Steven C. Blanco: With the recent supply chain constraints, our team has done a nice job of being agile and pivoting between product redesign and new product development, driven by engagement and flexibility we've been able to work through the supply chain challenges to meet both existing customer demand and deliver on our N. P D commitments.
Steven C. Blanco: <unk> several exciting new products like the century, Io controller and M. A C D E and achieving 37% product vitality for the year.
Steven C. Blanco: On the commercial side, we had solid execution across the portfolio and several exciting wins in firefighter safety, we announced significant contract wins, such as Los Angeles City Fire Department Pittsburgh Euro of fire. The U S Air Force and several U K fire authorities, including.
Steven C. Blanco: <unk> West Midlands fire and rescue authority.
Steven C. Blanco: We had healthy growth in our firefighter protective apparel and helmets business as well.
Steven C. Blanco: We also made solid progress in our detection business, we landed new business across our fixed protection products, including back racks multiyear win with the U S. Navy. We also expanded into new geographies with our recently introduced Altair Io for portable gas detector.
Steven C. Blanco: Additionally, we continue to see strong interest in our solutions in the energy markets, including LNG and hydrogen applications. Within industrial PPE, our team drove double-digit growth for the year. Our differentiated fall protection solutions, like the V-Shock series, continue to garner strong customer interest and gain share.
Steven C. Blanco: Additionally, we continue to see strong interest in our solutions and the energy markets, including LNG and hydrogen applications.
Steven C. Blanco: Within industrial PPE, our teams drove double digit growth for the year.
Steven C. Blanco: Our differentiated fall protection solutions like the V shock series continue to garner strong customer interest and gained share and we secured attractive wins and our head protection business.
Steven C. Blanco: And we secured attractive wins in our head protection business. In support of our growth, we drove process improvements supported by our business system to enhance fill rates and get product in the hands of our customers. We also continued our multi-year journey to optimize our global footprint, and most recently opened a new, modernized manufacturing facility in Morocco to support future growth in our international business.
Steven C. Blanco: In support of our growth we drove process improvement supported by our business system to enhance fill rates and get product in the hands of our customers.
Steven C. Blanco: We also continued our multi year journey to optimize our global footprint and most recently opened a new modernized manufacturing facility in Morocco to support future growth in our international business.
Steven C. Blanco: We're seeing results of deliberate actions to enhance efficiency and productivity across our global operations. Moving to slide 9, we had a strong finish to the year, demonstrating our ability to execute in dynamic market conditions. The combination of strong execution, our highly differentiated portfolio, and resilient demand resulted in double-digit sales growth, strong margin improvement, and robust cash flow. Demand for our firefighter safety, detection, and industrial PPE solutions remained healthy throughout the year, and we were better able to serve our demand as supply chains began to normalize.
Steven C. Blanco: We're seeing results of the deliberate actions to enhance efficiency and productivity across our global operations.
Steven C. Blanco: Moving to slide nine we had a strong finish to the year, demonstrating our ability to execute and dynamic market conditions. The combination of strong execution, our highly differentiated portfolio and resilient demand, resulting in double digit sales growth strong margin improvement and robust cash flow to me.
And for our firefighter safety detection and industrial PPE solutions remained healthy throughout the year, and we were better able to serve our demand and supply chains began to normalize.
Lee B. McChesney: We continue to operate in a market with secular growth tailwinds, and our unique portfolio positions us to capitalize on these trends. Our enhanced focus on margins and cash conversion provides us with ample resources to invest in attractive growth opportunities and drive sustainable, profitable growth. Leveraging our core values, the MSA team continues to raise the bar on performance with strong commercial execution, product innovation, and operational performance, all while deepening our talent bench. We have a clear trajectory for future growth and margin enhancement, and we will build on our already strong foundation. Before concluding, I want to thank our more than 5,000 associates around the world for their steadfast commitment to advance our mission and drive improvement across our company. I'll now turn the call over to Lee to review our financial results and outlook. Thank you, Steve. And good morning, everyone.
Steven C. Blanco: We continue to operate in a market with secular growth tailwind and our unique portfolio positions us to capitalize on these trends.
Steven C. Blanco: Our enhanced focus on margins and cash conversion provides us with ample resources to invest in attractive growth opportunities and drive sustainable profitable growth.
Steven C. Blanco: Leveraging our core values. The MSA team continues to raise the bar on performance with strong commercial execution product innovation and operational performance, all while deepening our talent bench.
Steven C. Blanco: We have a clear trajectory for future growth and margin enhancement and we will build on our already strong foundation.
Steven C. Blanco: Before concluding I want to thank our more than 5000 associates around the world for their steadfast commitment to advance our mission and drive improvement across our company I'll now turn the call over to Lee to review, our financial results and outlook.
Lee: Thank you, Steve and good morning, everyone. We appreciate you joining the call today.
Lee B. McChesney: We appreciate you joining the call today. I will now review our differentiated performance in the fourth quarter and full year 2023 and provide color on our 2024 outlook. Let's get started on slide 10 with the quarterly financial highlights. Sales were $495 million, an increase of 12% over the prior year, with positive contributions across our product categories and regions.
Lee: Now I'll review, our differentiated performance in the fourth quarter and full year 2023, and provide color on our 2020 for outlook.
Lee: Let's get started on slide 10, with the quarterly financial highlights sales are $495 million, an increase of 12% over the prior year with positive contributions across our product categories and regions.
Lee B. McChesney: We had a healthy balance of volume and pricing in the quarter, and currency translation added two points to the overall growth. Orders also remain solid in the fourth quarter, up mid-single digits, and we are seeing similar trends so far in 2024. Market conditions are generally healthy, and our new business pipeline is very active. Consistent with the normal patterns we see in our business, in the fourth quarter, our book-to-bill was below one times, and we continue to reduce our backlog closer to normal levels. Backlog reduction was largely in our firefighter safety business and to a lesser degree in detection.
Lee: A healthy balance of volume and pricing in the quarter and currency translation added two points to the overall growth.
Whereas also remained solid in the fourth quarter up mid single digits, and we're seeing similar trends so far in 2024.
Lee: Market conditions are generally healthy and our new business pipeline is very active cancer.
Lee: Consistent with the normal patterns, we see in our business in the fourth quarter. Our book to Bill was below one times and we continue to reduce our backlog closer to normal levels.
Lee: Backlog reduction was largely in our firefighter safety business and to a lesser degree in detection.
Lee B. McChesney: As supply chains began to improve, our team, through the implementation of the Lean Principles of MBS, recognized an opportunity to improve our processes and increase customer fulfillment while converting past-due backlog and sustainably reducing inventory. As a result, we are seeing meaningful benefits. Including Improved On-Time and In-Full Thrill Rates, reduced inventory levels, and higher cash comp... Now moving on to margins, gross profit in the fourth quarter was 48.1%, up 360 basis points over the prior year. Operating margin on a gap basis was 20.6% in the quarter.
Lee: As supply change began to improve our team through the implementation of the lean principles of M. B S recognized an opportunity to improve our processes and increase customer fulfillment, while converting past due backlog and sustainably reducing inventories as a result, we are seeing meaningful.
Lee: Benefits, including improved on time and in full fill rates reduced inventory levels and higher cash conversion.
Lee: Now moving onto margins gross profit in the fourth quarter was 48, 1% up 360 basis points over the prior year.
Lee: Operating margin on a GAAP basis was 26% in the quarter.
Lee B. McChesney: Adjusted operating margin was 23.3%, up 170 basis points over the prior year, and incremental operating margin in the quarter was 37%, at the higher end of our target range. Margin increases were largely due to volume leverage, price-cost benefits, improved productivity, and innovation. Our laser focus on driving sustainable margin improvements across all elements of the P&L continues to yield results. Gap net income in the quarter totaled $76 million, or $1.93 per diluted share.
Lee: Adjusted operating margin was 23, 3% up 170 basis points over the prior year and incremental operating margin in the quarter was 37% at the higher end of our target range.
Lee: Margin increases were largely due to volume leverage price cost benefits improved productivity and innovation.
Lee: Laser focus on driving sustainable margin improvements across all elements of the P&L continue to yield results.
Lee: GAAP net income in the quarter totaled $76 million or $1 93 per diluted share.
Lee B. McChesney: On an adjusted basis, diluted earnings per share were $2.06, up 14% over the prior year. The increase was largely due to higher operating profit, which is partially offset by higher interest expense and a higher adjusted tax rate in the. Now I'd like to review our segment performance. In our America segment, sales increased 15% year-over-year with growth across the product portfolio, including double digits of growth in firefighter safety and detection. Courtesy translation was also a 1% benefit.
Lee: On an adjusted basis diluted earnings per share were $2 six up 14% over the prior year.
Lee: Increase was largely due to higher operating profit, which was partially offset by the higher interest expense and a higher adjusted tax rate in the quarter.
Lee: Now I'd like to review our segment performance in our Americas segment sales increased 15% year over year with growth across the product portfolio, including double digit growth in firefighter safety and detection.
Lee: Currency translation was also a 1% benefit in the quarter.
Lee B. McChesney: Adjusted operating margin was 29.8%, up 120 basis points year over year. Margin expansion was largely driven by volume leverage, price realization, and productivity. We also had solid results in our international segment, where growth was up 6% year-over-year and was well-balanced across product categories and regions. Currency translation was a 3% benefit in the quarter.
Lee: Adjusted operating margin was 29, 8% up 120 basis points year over year.
Lee: Margin expansion was largely driven by volume leverage price realization and productivity.
Lee: We also had solid results in our international segment.
Lee: Our growth was up 6% year over year, it was well balanced across product categories and regions.
Lee: Currency translation was a 3% benefit in the quarter.
Lee B. McChesney: Adjusted operating margin of 18.2%, improved by 120 basis points year over year. Produced by Volume Leverage, Price Cost Management, and a favorable, Now moving on to slide 11, where our review is fully a result. Broad-based demand drove total net sales of $1.8 billion, up 17% versus last year.
Lee: Adjusted operating margin of 18, 2% improved by 120 basis points year over year.
Lee: Driven by volume leverage price cost management, and a favorable mix.
Lee: Now moving on to Slide 11, where I'll review, our full year results broad based demand drove total net sales of $1 8 billion up 17% versus last year.
Lee B. McChesney: We saw double-digit growth in both segments, with healthy contributions from price and volume across our product category. For the year, Adjusted Operating Margin was 22.2%, up 320 basis points from last year. Incremental operating margin was 41%. Adjusted earnings per share were $7.03, up 24% over the prior year.
Lee: We saw double digit growth in both segments with healthy contributions from price and volume across our product categories.
Lee: For the year adjusted operating margin was 22, 2% up 320 basis points from last year.
Lee: Incremental operating margin was 41%.
Lee: Adjusted diluted earnings per share were $7 three up 24% over the prior year.
Lee B. McChesney: Overall, MSA's performance was very strong, and we continue to identify opportunities to drive further improvement in the years ahead. Now turning to slide 12, free cash flow in the quarter was $147 million, representing a conversion rate of 180%. Free cash flow growth benefited from higher earnings and solid execution with working capital, which was reduced by 760 basis points from the prior year. We invested $12 million in CapEx, repaid $145 million in debt, and returned $18 million in dividends to shareholders. For the full year, adjusting for the divestiture we completed in January, free cash flow was $397 million compared to $115 million in the prior year.
Lee: Overall Msa's performance was very strong and we continue to identify opportunities to drive further improvement in the years ahead.
Lee: Now turning to slide 12 free cash flow in the quarter was 147 million, representing a conversion rate of 180%.
Lee: Free cash flow growth benefited from higher earnings and solid execution with working capital, which was reduced by 760 basis points from the prior year.
Lee: We invested 12 million Capex repaid 145 million in debt and returned $18 million in dividends to shareholders.
Lee: For the full year adjusting for the divestiture, we can put it in January free cash flow was $397 million compared to $115 million in the prior year.
Lee B. McChesney: We significantly strengthened our financial position in 2023. At the start of the year, in conjunction with the divestiture of our legacy liability subsidiary, we communicated our intention to prioritize debt reduction in the subsequent 12-18 months. Through strong teamwork and collaboration across the company in the use of our MBS principles, we exceeded our commitment, finishing the year at 1.0 net leverage. Additionally, we repaid $289 million of debt since the divestiture as a result of robust cash generation, profitable growth, and disciplined investment strategies. Net debt at the end of the year was $455 million, and cash was $146 million.
Lee: We significantly strengthened our financial position in 2023.
Lee: At the start of the year in conjunction with the divestiture of our legacy liability subsidiary, we communicated our intention to prioritize debt reduction and the subsequent 12 to 18 months for.
Lee: Through strong teamwork and collaboration across the company and the use of her M. B S principles, we exceeded our commitment finishing the year at 1.0 net leverage we repaid $289 million of debt just the divestiture as a result of robust cash generation and profitable growth and disciplined.
Lee: Investment strategies.
Lee: Net debt at the end of the year was $455 million in cash was $146 million.
Lee B. McChesney: Adjusted EBITDA for the full year was $449 million, or 25.1% of net sales. Our overall financial strength enables us to continue investing in the business to drive long-term profitable growth and return excess capital to our shareholders. Now I'd like to move to our 2024 outlook on slide 13. We've taken a balanced approach in our outlook based on the positive sector dynamics in our industry that underpin demand, the essential nature of our differentiated products and solutions, the stability and diversity of our portfolio, and NMARK. However, the operating environment continues to be dynamic with an increasingly uncertain macroeconomic and geopolitical climate. With this backdrop, we remain responsibly optimistic in our outlook, which balances the opportunities and risks we see ahead of us.
Lee: Adjusted EBIT for the full year was $449 million or 25, 1% of net sales or.
Lee: Our overall financial strength enables us to continue investing in the business to drive long term profitable growth and return excess capital to our shareholders.
Lee: Now I'd like to move to our 'twenty 'twenty four outlook on slide 13, we've taken a balanced approach in our outlook based on the positive sector dynamics in our industry that underpin demand.
Lee: The essential nature of our differentiated products and solutions and the stability and diversity of our portfolio and end markets.
Lee: However, the operating environment continues to be dynamic with an increasingly uncertain macroeconomic and geopolitical climate.
Lee: With this backdrop, we remain responsibly optimistic in our outlook, which balances the opportunities and risks we see ahead of us.
Lee B. McChesney: We expect to generate mid-single digit sales growth in 2024 with incremental margin and cash flow conversion aligned with our long-term targets of 30 to 40% incremental and near 100% free cash flow. We expect to have greater visibility in the first half of the year, and we will continue to be agile in the event the operating environment differs meaningfully from our expectations. For modeling purposes, I will provide our view on the below-the-line drivers that impact earnings. We expect our tax rate to be between 24.5% and 25.5%. Based on current rates, interest expense is expected to be approximately $40 million.
Lee: We expect to generate mid single digit sales growth in 2024 with incremental margin and cash flow conversion aligned with our long term targets of 30% to 40% Incrementals and near 100% free cash flow conversion.
We expect to have greater visibility in the first half of the year and we will continue to be agile in the event the operating environment differs meaningfully from our expectations.
Lee: For modeling purposes.
Lee: We'll provide our view on the below the line drivers that impact earnings.
Lee: We expect our tax rate to be between 24, 5% and $25 five in 2024.
Lee: Based on current rates interest expense is expected to be approximately $40 million.
Lee B. McChesney: Finally, pension and other non-operating income will be similar to 2023 levels. As I now look forward, I'd also like to share my warm congratulations and gratitude to our global team for their solid execution in 2023 and for achieving excellent performance across sales, profitability, and cash. We are well positioned, entering 2024, and are firmly focused on delivering on our financial commitments, while creating sustainable value for our shareholders. I now turn the call back to Nish for his closing remarks. Thanks, Lee. I'm on slide 14. Thanks, Lee. I'm on slide 14.
Finally pension and other nonoperating income will be similar to 2023 levels.
Speaker Change: As I now look forward I'd also like to share my warm congratulations and gratitude to our global team for their solid execution in 2023 and on achieving excellent performance across sales profitability and cash flow.
Speaker Change: We are well positioned entering 2024 and are firmly focused on delivering on our financial commitments and creating sustainable value for our shareholders.
Speaker Change: And now I'll turn the call back to niche for closing remarks.
Niche: Thanks, Lee I'm on slide 14.
Nishan J. Vartanian: Our team delivered a strong quarter to close out an outstanding year in 2023. We continued our purposeful investment across all aspects of our business, while also delivering on our growth, margin, and cash flow commitments. These actions and the divestiture we made last January further improved our strong financial position and have provided for greater capital deployment optionality. We have a team of high-performing associates around the world who are driven by our mission. Their commitment to continuous improvement enables MSA to better serve our customers and advance our mission.
Niche: <unk> delivered a strong quarter to close out an outstanding year in 2023, we continued our purposeful investment across all aspects of our business. While also delivering on our growth margin and cash flow commitments. These actions and the divestiture. We made last January further improved our strong financial position in that.
Niche: Provided for greater capital deployment Optionality.
Niche: We have a team of high performing associates around the world, who are driven by our mission there.
Niche: Our commitment to continuous improvement enables MSA to better serve our customers and advance our mission.
Nishan J. Vartanian: I'm confident our focus and determination will help drive long-term value creation for our shareholders and continue to make MSA Safety the preferred choice for our customers around the world. One last thing before I wrap up. Now on slide 15. We'll be hosting an Investor Day in New York and via webcast on May 22, where we'll provide a detailed review of our business strategy and financial goals. I'm excited about this event, and I look forward to seeing many of you in New York.
Niche: Confident our focus and determination will help drive long term value creation for our shareholders and continue to make MSA safety the preferred choice for our customers around the world.
Speaker Change: One last thing before I wrap up now on slide 15.
Speaker Change: We'll be hosting an investor day in New York and via webcast on May 22nd.
Speaker Change: Where it will provide a detailed review of our business strategy and financial goals.
Speaker Change: Cited about this event and I look forward to seeing many of you in New York.
Operator: With that, I'll turn the call back to the operator for a Q&A. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: With that I'll turn the call back to the operator for Q&A.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Stanley Stoker Elliott: To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our rocket. The first question today comes from Stanley Elliott with D'Youville. Please go ahead. Good morning, everyone.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Oh gosh.
Speaker Change: Yeah.
The first question today comes from Stanley Elliott with Stifel. Please go ahead.
Stanley Stoker Elliott: Hey, good morning, everyone and thank you for the question congratulations on the very strong 2023.
Stanley Stoker Elliott: Thank you for the question. Congratulations on the very strong 2023. Thank you, Stanley. Could you all help us, you know, kind of with what you're seeing in the business? You talk about maybe not as much visibility in the second half of the year, and I get it, it's still pretty dynamic. But how should we think about the cadence, I guess, of maybe first half versus second half?
Stanley Stoker Elliott: Thank you Stanley.
Stanley Stoker Elliott: Could you help us kind of with what Youre seeing in the business you talk about maybe not as much visibility in the second half of the year and I get it is still pretty dynamic how should we think about the cadence I guess of of maybe first half versus second half.
Nishan J. Vartanian: You know, then any color you might could share in terms of how you're thinking about your growth in the Americas or international or even within the new reporting segment structure? Great. Hey Stanley.
Stanley Stoker Elliott: And then any color you might could share in terms of how you're thinking about your growth in the Americas or international or even within the new reporting segment structure.
Stanley Stoker Elliott: Right, Hey, Stanley I'll, just one one thing too is Stephanie Schuller, our president of the Americas has joined us.
Steven C. Blanco: Just one thing, too; Stephanie Shula, our President of the Americas, has joined us for the Q&A section of the call. But why don't I make one point real quick on the business and the business pace, and then I'll flip things over to Steve and Lee to add a little more color on what we're seeing with the business. You know, one of the things you probably saw in the takeaway is the industrial business slowdown of 2%, the way we described it in the earnings release. And, you know, underneath that number, which is somewhat surprising to me, is the strength that we saw in the core industrial products. So when you think about hard hats and fall protection, when you look at those two categories in Q4, there was strong growth in those areas, double-digit growth in those areas in Q4. And we're seeing a good order of pace through February in those areas, too. So we're, you know, pleased to see that. Actually, all year, as we talked about that industrial business we thought would slow down, we were all waiting for a recession, which never occurred.
Stephanie Schuller: For the Q&A section of the call.
Stephanie Schuller: But why don't I, Oh, there's one point I want to make a real quick on the business and the business pace and then I'll flip things over to Steven Leigh.
Steven C. Blanco: To add a little more color on what we're seeing with the business you know one of the things that you probably saw it takeaway is the industrial business slowed down about 2% the way we described it.
Steven C. Blanco: In the earnings release, and the you know underneath that number which is somewhat surprising to me is the strength that we saw.
Steven C. Blanco: In the core industrial products. So when you think about our hard hats and fall protection.
Steven C. Blanco: When you when you look at those two categories. In Q4, there was a strong growth in those areas are double digit growth in those areas in Q4, and we're seeing good order pace through February and in those areas too so up or you know.
Steven C. Blanco: I'm pleased to see that I actually all year as we talked about that industrial business. We thought it would slow down we were all waiting for a recession, which never occurred and it's good to see good order pace in the core industrial products as we kick off 2024, which gives us more confidence in the business as we go forward with that I'll flip.
Nishan J. Vartanian: And it's good to see good order pace in the core industrial products as we kick off 2024, which gives us more confidence in the business as we go forward. With that, I'll flip things over to Steve to talk a little bit more about the business on a broad basis. Hey, good morning, Stanley.
Steven C. Blanco: Over to Steve to talk a little bit more about the business on a broad basis.
Speaker Change: Hey, good morning Stanley.
Steven C. Blanco: So when you look at it, I guess I'd back up a little bit and think about our markets. And you know, we talk about the diversity of businesses. So when you look at that and you think of the industrial space specifically, specifically to start because of Nishan's commentary, it's really interesting. So it has moderated, but we've seen the strength as Nishan talked about. The end markets are a bit mixed, but energy and utilities have been strong. You know, and the construction's on and off.
Steven C. Blanco: So when you look at our I guess I'd I'd back up a little bit and think about our markets and you know we talk about diversity in their businesses. So when you look at that and you think of the industrial space, specifically to start because emissions commentary.
Stanley: It's really interesting so it has moderated but we've seen the strength business you talked about.
Stanley: The end markets are a bit mixed energy and utilities have been strong you know in our constructions on and off there's some strength in certain areas of the country in the U S. For example, we're seeing some nice strength in Asia Pacific.
Steven C. Blanco: There's some strength in certain areas of the country. In the U.S., for example, we're seeing some nice strength in Asia Pacific, excluding China, which we think is stabilized. But overall, that market, we feel pretty good about it. Actually, the income has been pretty good even year-to-date this year globally. And then you look at detection.
Stanley: Excluding China, which we think it stabilized, but overall that market, we feel pretty good about it's actually the income and it's been pretty good even year to date. This year globally and then you look at detection detection has been very strong the pipeline looks very very good.
Steven C. Blanco: Detection has been very strong. The pipeline looks very, very good. Fire Service.
Stanley: Fire service.
Steven C. Blanco: Again, we feel good about that as well. As you know, the funding comes from governments and municipalities, and that pipeline is solid. Visibility for the first six months, really strong visibility. Second half, we just don't have as much there yet, which is kind of why we've commented the way we have. Lee, do you have anything?
Stanley: Again, we feel good about that as well as you know the funding comes from governments municipalities and that pipeline solid so visibility for the first six months really strong visibility second half.
Stanley: Don't have as much as much there yet which is kind of why we've commented the way we have.
Lee B. McChesney: Yeah, I've got a couple of numbers, Stanley. We talked about orders being up mid-single digits in the fourth quarter. If you put on the, as I like to do sometimes, talk about it even farther than 90 days through the second half of the year, we were up mid-single digits. As I noted in my remarks, we're seeing the same type of start to the 24-year period as well. So that
Speaker Change: But do you have any yeah, maybe I'll just add a couple of numbers. They all yours. So we talked about orders being up mid single digits in the fourth quarter. If you put on the as I like to do sometimes talk about it even over brought over 90 days through the second half of the year, we were up mid single digits and as I noted in my remarks, we're seeing the same type of <unk>.
Speaker Change: Dark to rub 24 here as well so.
Speaker Change: That's a positive.
Lee B. McChesney: As we've also noted, the backlog is getting closer to normal. We think that will normalize as we go through the year, so that's probably a little bit of an opportunity in the first half. But just generally, let's see how the year plays out. Spending Bills and things like that.
Speaker Change: As we've also noted the backlog is getting closer to normal we think that will normalize as we go through the year. So that's probably a little bit of an opportunity in the first half, but just generally.
Speaker Change: Let's see how the year plays out in the U S. It's an election year.
Speaker Change: <unk>.
Speaker Change: Spending bills and things like that let's just see how that plays out that served us well last year to watch that happen and we'll update accordingly, as we go through the year.
Lee B. McChesney: Let's just see how that plays out. It served us well last year to watch that happen, and we'll update accordingly as we go through the year. Great. And can you all talk about the Connected Worker platform, how that's progressing, what the reception in the marketplace has been, and how are you all thinking about kind of monetizing that on a go-forward basis? Yeah, I'm sorry.
Speaker Change: Great and can you talk about.
Speaker Change: The connected worker platform, how that's progressing what's been the reception in the marketplace.
Speaker Change: How are you all thinking about kind of monetizing that on a go forward basis.
Speaker Change: Yeah Okay.
Steven C. Blanco: Yes, go ahead and take that. Yeah. Yeah, sure. So, when you think of connected work, I would tell you, and we talked about it, I think, in my prepared remarks, I talked about the io4, which is around connected work.
Speaker Change: Yeah, I'm sorry, Yes go ahead and take that.
Speaker Change: Sure. So so when you think of connected work I would tell you and then we talked about it I think in my prepared remarks, I talked about the I O four which is around connected work.
Steven C. Blanco: We have, as you know, we have two different categories of connected work. We look at that inside of the fire service, where we've seen some really nice progress with a lot more of our fire departments and firefighters now on that connected platform, and that utilization we expect to continue to increase. Now, I would tell you that from a revenue perspective, it's pretty low because the maturity there takes time to really kick in on the fire service side. On the industrial space, when you think of that, that's really what we call MSA Plus. We sell it predominantly as a subscription service, and we had a really nice take rate of 23 in the U.S., specifically because that's where we launched first.
We have as you know we have two different categories of connected work when we look at that inside of fire service, which we've seen some really nice progress with a lot more of our fire departments and firefighters now on that connected platform and that utilization, we expect to continue to increase now.
Speaker Change: With that I would tell you that from a from a revenue perspective, its pretty low because the maturity. There. It takes time to really kick in on the fire service side on the industrial space. When you think of that that's really what we call MSA plus.
Speaker Change: We sell it predominantly as a subscription service and we had a really nice take rate I and 23 in the U S. Specifically, because that's where we launch first what's really nice now is we've continued to expand market coverage.
Steven C. Blanco: What's really nice now is we've continued to expand market coverage, and we've got it available in over 80 percent of the markets we serve, and certainly the bigger ones now as we enter 24, so we're expecting that to continue to grow. And the customer response has been really, really solid. So it's a longer sales cycle, and the base continues to be a little smaller, but it's becoming a very meaningful piece of our detection base. And I guess, you know, with kind of what you're seeing in the backlog, it sounds like the outlook will be favorable again from a mixed standpoint. Is there any reason to say, based on what you're seeing in that book of business, that we shouldn't see margins expand again and think about, you know, nice incremental margins, and incremental flow through again in 2024? Hey, Lee, why don't you take that?
Speaker Change: And we've got it available in over 80% of the markets, we serve and certainly the bigger ones now as we as we enter 24, so we're expecting that to continue to grow.
And the customer response has been really really solid so it's a longer sales cycle and the base continues to be a little smaller, but it's becoming a very meaningful piece of our detection business.
Speaker Change: And then I guess lastly.
Speaker Change: Hum.
Speaker Change: Just kind of what you're seeing in the backlog it sounds like the outlook it will be favorable again from a mixed standpoint.
Speaker Change: Is there any reason to see kind of what youre seeing in that book of business that we shouldn't see margins expand again.
Speaker Change: Think about you know a nice incremental margin decremental flow through again in 2024.
Speaker Change: Hey, Lee why don't you take that.
Speaker Change: No.
Lee: So it's a good question I appreciate it here so.
Lee B. McChesney: So Stanley, good question. I appreciate it here. So, we certainly have made some nice progress with operating margins. We've moved forward from this 44-45 zone now to this 47-48% gross margin zone. I talked about this last quarter, that's certainly powered by MVS. So whether it's our commitment and focus on productivity, or New York, we do with price and cost.
Lee: We certainly have made some nice progress with operating margin and it's certainly been powered more recently with <unk>.
Lee: Gross margin and then obviously you're continue to match them with SG&A. So you're right. We've moved forward from this 44 45 zone now to this 47, 48% gross margin zone.
Lee: This last quarter, that's certainly powered by M. B S. So whether it's our commitment and focus on productivity continue work, we do with with price and costs or just overall you know the best form of are driving all of this is innovation and new products things like that so that's what we found.
Lee B. McChesney: Overall, the best form of driving all this is innovation and new products. So that's the foundation. I think when you think about 24 here, it's about really cementing that base. So, you know, I think we're pretty comfortable with this 48-ish zone for 2024. You know, there are some differences by quarter. Certainly, the first quarter is always going to be lower than the exit rate. MSWordDoc Word
Asian, I think when you think about.
24 here, it's about really cementing that that base.
Lee: So I think we're pretty comfortable with this 48 ish zone.
Lee: For 2024, you know there is some differences by quarter certainly the first quarter is always going to be lower than the exit rate. We just we just saw here in the back half and then you'll see a step up as we go through the year. So.
Stanley Stoker Elliott: Document.8, The work is in, we have a nice set of plans, and I think this year you'll just see even more on the productivity front and on the innovation front because we do think the inflation environment is moderating, it's still not, it's not deflation, you have things like that. We've taken the appropriate price actions, and now it's really just down to us executing MVF. Commenting at 4. Perfect. Thanks so much for your time and best of luck.
Lee: Work is advantage that we have a nice set of plans and I think this year, you'll just see even more on the productivity front.
Lee: Asian front, because we do think the inflation environment.
It is moderating it's still not it's not deflation you know things like <unk>.
Lee: You know freight and labor is still pretty sticky but.
Lee: We've taken the appropriate price actions and then now it's really just down to us executing MBS.
Lee: Renting at 48 ish percent gross margin.
Speaker Change: Perfect. Thanks, so much for time and best of luck.
Stanley Stoker Elliott: Thank you, Stanley. The next question comes from Larry DeMaria with William Blair. Please go ahead. Thanks. Good morning everybody. Good morning Larry.
Speaker Change: Thank you Stanley.
Speaker Change: The next question comes from Larry de Maria with William Blair. Please go ahead.
Speaker Change: Thanks, Good morning, everybody.
Speaker Change: Good morning, Larry.
Lawrence Tighe De Maria: Hey guys, I'm going to start with fire. Can you talk about the potential for new fire winds and tenders? Have we seen any winds following these big pillar cities?
Speaker Change: Hey, guys. Good morning, just maybe start with fire.
Speaker Change: Can you talk about maybe the outlook for potential for new fire wings and tenders have we seen some wins following big pillar cities I know you mentioned perm in the U K, but are there more to come and related to that can you speak to the air force win whats been in the numbers already what might still happen and if theres a phase two and if that's in the gut.
Lawrence Tighe De Maria: I know you mentioned some in the UK, but are there more to come? And related to that, can you speak to the Air Force about what's been, you know, in the numbers already, what might still happen? And if there's a phase two, and if that's in the guide, thank you. Steve, why don't you take that? Yeah, sure. Good morning, Larry.
Speaker Change: Got it thank you.
Speaker Change: Steve why don't you take that.
Steven C. Blanco: Yeah sure good morning, Larry So when you when you look at fire I guess I'd start with the comments on new tenders. There. There's certainly as you know our pipelines and some really nice opportunities and I would speak international maybe a little bit more with what we see going on there and the.
Steven C. Blanco: So when you look at FHIR, I guess I'd start with the comments on new tenders. There certainly are some really nice opportunities in our pipeline. And I would speak about international affairs maybe a little bit more with what we see going on there and the expectations that we have with the M1.
Steven C. Blanco: Patients that we have with the M. One they're there's a lot of large opportunities over the next 24 months.
Steven C. Blanco: There are a lot of large opportunities over the next 24 months that are coming to bear, and the connected platform that I was talking about earlier is really important to those customers in their ability to solve problems and have really strong incident command and awareness. So, we feel really good about where we are at there, and we feel pretty good about the overall international market. You know, same thing in the U.S. We've got really nice scale, but the base is a little bit different here compared to, you know, growth opportunities. So, I think that's a really good thing for us. We believe the market continues to be solid going forward, and, you know, all of the pipeline information we have is telling us that the market in the North American area is intact, and the rest of the world is a Great, thanks. Any color on the Air Force?
Steven C. Blanco: That are coming to bear and the connected platform that I was talking about earlier.
Steven C. Blanco: It's really important to those customers.
Speaker Change: And their ability to solve the problems and have really a strong incident command and awareness. So we feel really good about where we're at there and we feel pretty good about the overall international market same thing in the U S. U S. We've got really nice scale, but the base is a little bit defer.
You're comparing it to growth opportunities. So I think that's a really for US we believe the market continues to be solid.
Speaker Change: Going forward in <unk>.
Speaker Change: You know all of the pipeline information, we have is telling us that the market in the North American area is intact and the rest of the world is a really nice opportunity going forward.
Speaker Change: Great Thanks, and any color on the airports, yeah, yeah, a little bit on the Air Force. So you know we had the we did I don't know maybe Lee can talk to the specific numbers, but I think we have about a third of that left to invoice.
Steven C. Blanco: Yeah, yeah, a little bit on the Air Force. So, you know, we had the we did, I don't know, maybe Lee can talk about the specific numbers, but I think we have about a third of that left to invoice for the remainder. And that's going to come in the first half. Most of that's in Q1. Lee, can you kind of get the specifics? So yeah, so Larry, to your point, we have the first win, which you saw benefit of in 3Q and 4Q of 23. Nishan Vartanian, Steven Blanco, Lawrence Maria, Lee McChesney, Chris Hepler, Unknown Executive: Okay, that's perfect.
For the remainder and that's going to come in the first half most of that is in Q1 can you kind of yes sure. If the specifics. So yeah. So you probably have we have the first win which you saw a benefit of <unk> <unk> and <unk> 23.
Lee: You'll see that the remaining portion of that come through in <unk>, primarily.
Lee: And then you know there is an opportunity for phase two.
Lee: I'm here with the timing of that is still TBD.
Lee: Certainly are expecting success, there and certainly its part of our outlook for the back half.
Lee: But that's one of those things, we'll just have to see how the timing of that works out. That's one of the reasons why are your fantasy speaking a little bit hesitant on the back half, but it's certainly not an insignificant amount if it does come in as well.
Lawrence Tighe De Maria: And then, you know, you've talked about Morocco a little bit. I'm just kind of curious if we can sort of flesh it out a little bit. Have we seen the gross margin impact from Morocco?
Speaker Change: Okay. That's perfect. Thank you and then.
Speaker Change: You've talked about Morocco, a little bit.
I'm curious if we could.
Speaker Change: Flesh it out a little bit if we see the gross margin impact from Morocco, or does that still need to ramp and drive more volume and efficiency through there. So just can you kind of just talk to delineation of the existing footprint.
Lawrence Tighe De Maria: Or does that still need to ramp up and drive more volume and efficiency through there? So can you kind of just talk about the delineation of the existing, you know, footprint that serves the international market and adding in Morocco and kind of what that means and whether we've seen it or not? Lee, why don't you take that?
Speaker Change: <unk> footprint this year international and now, adding in Morocco, and kind of what that means and what we've seen it or not.
Speaker Change: So Lee why don't you take that.
Lee B. McChesney: Yeah, sure. So, number one, I appreciate the question. It's on operations.
Lee: Sure. So number one I appreciate the question was on ops.
Lee B. McChesney: Number one. I mentioned it because, as I just said earlier, with gross margin, you're going to see productivity even being a bigger part of the story as we go forward here, Larry. So what we did is we opened the site. We're still in, I'll say, the final transition from the workplace where things are coming from and going to. But, you know, it's part of... What we're doing at Crossops is pursuing a higher level of productivity to enable even more commercial success. So I think about Morocco in particular.
Lee: Number one.
Lee: I mentioned it because as I, just said earlier with gross margin you're going to see productivity, they even being a bigger part of the story as we go forward here, Larry So we get it reopened a site.
Lee: We're still in I'll say final transition from their workplace, where things are coming from it too, but you know it's part of what.
Lee: What we're doing across upstream pursuing at the higher level of productivity.
Lee: To enable even more commercial success, so I think about Morocco in particular.
Lee B. McChesney: It's a really nice example for our fall protection. So we love the growth we're seeing there, double-digit growth consistently across the globe. But we want to serve the customers better, and we want to work on the cost. And so that's, you know, just one example of many that we have in our outlook for 24. But it was a nice kickoff.
Lee: Nice example for our fall protection business. So we loved the growth, we're seeing there double digit growth consistently across the globe.
Lee: But we wanted to serve the customers better and we want to work on the costs.
Lee: And so that's just one example of many that we have in our outlook for 'twenty for but often running for sure. It was a a nice kick off a very energized team there.
Lee B. McChesney: Very energized team there, ready to take on 24. Okay, that's good to hear. Thanks a lot for visiting it.
Lee: I'm ready to take on 24.
Speaker Change: Okay. That's good to hear thanks to visit it and then if I could just sneak in one last month.
Lawrence Tighe De Maria: And then if I can just speak on one last one, can you just talk about the pipeline of inorganic, you know, options out there? You know, things are real actionable this year and competition, multiples, etc. Surely, go ahead. For more information, visit www.fema.gov. I love this question because I can only answer it in a certain way, so I'll start off this way.
Speaker Change: Can you just talk about the pipeline of inorganic.
Speaker Change: Options out there.
Speaker Change: If things are real actionable and.
Speaker Change: This year in competition multiple et cetera.
Speaker Change: Sure Lee go ahead.
Lee: Yeah sure.
I Love. This question because you know I can only answer it in a certain way.
Lee: I'll start off this way.
Lee: We've shown again in 'twenty three.
Lee B. McChesney: Hey, we have shown again in 23. [inaudible] and it puts us with really a lot. So, obviously, the first place we focus, Larry, is on the organic side. Innovation, Activation, and Market. Investing in our abilities, and analytics. Accelerate EMVS, that's where it goes first.
Lee: Our inherent ability to generate cash.
Lee: And it puts us with really a lot of options, which is which is good.
So obviously the first place we focus Larry is on the organic side, so whether it's innovation activation in a market.
Investing in our abilities of analytics accelerating M b assets, that's where the where it goes first.
Lee: We have a great trajectory on them on dividends a wonderful track record there, you'll probably see at some point some action on on share buyback like we typically would do I wish we didn't do last year because of the divestiture.
Lee B. McChesney: Certainly, we have a great trajectory for dividends, and that leads us to this optionality with M&A. You know, the entire team is certainly engaged in the market. We've never stepped back from that. I'll say what I would always do here, and it shows up in our track record. We've done four deals in six years, and all in, we beat the odds. We've done better than most companies do there because we're very disciplined in what we are willing to take on. It's got to be a strategic fit. You've got to hit the financial threshold, do that, and will certainly participate in the process. Unknown Speaker We'll see how it works out.
Lee: And then that that leaves us to this optionality with M&A.
Lee: The entire team is certainly engaged in the market, we've never stepped back from that.
Lee: All I'll say, what I would always be here and it shows up in our track record we've done four deals in six years and I'll end with.
Lee: Beat the odds you know we've done better than most companies do there because we're very disciplined in what we are willing to take on.
Lee: It's got to be a strategic fit.
Lee: Got to hit the financial thresholds. If it does that you know we will certainly participate in the process and we'll see how it works out but again, we're not going to go over overpay.
Lee B. McChesney: But again, we're not going to go overboard and overpay. So we're certainly engaged. I do think, you know, over the next couple years, something will come to life and, If it happens this year, great, but it doesn't have to happen for us. Okay, perfect. Thank you very much and good luck this year, everybody.
Lee: So we're certainly engaged I do think over the next couple of years, you know something will come to life.
Lee: It happens this year, great, but it doesn't have to happen for us to be successful this year.
Speaker Change: Okay perfect. Thank you very much and good luck this year everybody.
Lawrence Tighe De Maria: Thank you, Larry. The next question comes from Rob Mason with Baird; please go ahead. Good morning, and thanks for taking the question.
Speaker Change: Thank you Larry.
Speaker Change: Yeah.
Speaker Change: The next question comes from Rob Mason with Baird. Please go ahead.
Robert W. Mason: Good morning, and thanks for taking the question.
Robert W. Mason: I just want to circle back to the, you know, the commentary around the cadence through the year. If we think, if you think mid single-digit growth for the full year at this point, I mean, it's fair to assume just where your confidence level is that, you know, the first half would be some level above that, and right now, the planning would have the second half below that. Hey, Lee, why don't you take this?
Robert W. Mason: I just wanted to circle back to the you know the.
Robert W. Mason: Commentary around the cadence through the year, if we think if.
Robert W. Mason: If you think mid single digit growth.
Robert W. Mason: For the full year at this point I.
Speaker Change: I mean, it's fair to assume just where your confidence level is that you know the first half would be some level above that and right now the planning would have second half below that.
Speaker Change: Hey, Lee why don't you take that.
Lee B. McChesney: Yes, I appreciate that. Yeah, that's we're going to approach 24 a little bit like we did 20, You certainly have a better view into the first half of the So your math, right Rob, that we would be, Higher End of the Mid-Single District Road. First half.
Speaker Change: Yes.
Speaker Change: Yeah.
Lee: We're going to approach 24, a little bit like we did 23, you certainly have a better view into the first half of the year. So your math right, Rob Rob that we would be.
Lee: You know on the higher end of it of the mid single digit growth for the first half. We mentioned earlier, we certainly think backlog will normalize the pricing environment continues to normalize. So it's more about just you know executing in the market there's things out there like we mentioned earlier.
Lee B. McChesney: As mentioned earlier, we certainly think backlog will normalize. Unknown Speaker The pricing environment continues to normalize. So it's more about just executing in the market. Things out there, like we mentioned earlier, you will see what the timing is of some of these larger win opportunities. We're certainly confident in some of them, but not all of them. And we just know it's an election year, so I'm even a little bit more cautious in the back half, just how the timing of things could play out. But that's our baseline, and that enables us to be in a 30 to 40. Ingrowth, and you see us at the higher end.
Lee: See what the timing is of some of these larger win opportunities.
Lee: We're certainly confident in some of them, but not all of them.
Lee: We just know it's an election year, so I'm, even a little bit more cautious in the back half just how the timing of things could play out but.
Lee: That's our that's our baseline.
Lee: As we talked about you know that's that's also supported by a pretty good view with with margins.
Lee: And he wants to be in the 30% to 40% incremental range. If we're on the lower side, you know sales wise it will be in the lower side of the incrementals or not we'd be on the higher side. Just just like what played out in the fourth quarter. You know, we certainly ended up a little bit higher and growth and you see you saw us in the higher end of Incrementals, but you know that's.
Lee B. McChesney: We're going to take that approach right now because just the macro environment is challenging, so it's just proven to be a smart way to navigate each year. Transcribed by https://otter.ai. Yeah, yeah, makes sense. I want to drill into the detection business a little bit further.
Lee: We're going to take that approach right now because it's just the macro environment.
Lee: It is challenging.
Lee: It's just proven to be a smart way to navigate each year.
Lee: The agile.
Speaker Change: Yeah, Yeah, it makes sense.
Speaker Change: I want to drill into the detection business a little bit further Steve I know you commented that the pipeline looks good there but.
Robert W. Mason: Steve, I know you commented that the pipeline looks good here. But, you know, could you kind of walk through the various portions of that business, thinking about how replacement activity may be positioned in that pipeline versus more of a CapEx portion versus, you know, even some of these newer markets, I say newer, but like hydrogen, and LNG, I guess is more in an expansionary mode, but just if you could put a little more color around what's driving detection. Yeah, I'd be glad to, Rob. I mean, I think we talked a little bit about portable space.
Steven C. Blanco: Could you kind of walk through the various.
Steven C. Blanco: Portions of that business.
Steven C. Blanco: Thinking about how replacement activity may be.
Steven C. Blanco: Be positioned in that pipeline versus more of a capex portion versus even some of these newer markets, that's a newer but like hydrogen.
Steven C. Blanco: LNG I guess is more in an expansionary mode, but just if you could put a little more color around what's driving detection.
Speaker Change: Yeah, I'd be glad to Rob I mean, I think we talked a little bit about the portable.
Steven C. Blanco: We continue to see opportunities there. You know, that goes to markets similar to the industrial PPE, but the energy comments you made and what we talked about, and how strong those markets are, and they're very solid, really play well for the portable business. And we think we're going to continue to see appreciation for our connected work platforms that I referenced earlier. You know, if you go to the fixed monitoring solutions, you know, our fixed detection space, you're right.
Space, we continue to see opportunities there.
Speaker Change: And that goes to market similar to the industrial P. P. But the energy comments, you made and what we talked about and how strong those markets are in their very solid really played well for the portable affordable business and we think we're going to continue to see our appreciation with our connected work platforms.
Speaker Change: I referenced earlier, if you'll go to the fixed monitoring solutions, you know our fixed detection space Youre right. We have seen certainly we have that base business. That's very strong. The project business has been good I wouldn't see it it has not tailed off necessarily I mean going forward what we.
Steven C. Blanco: We've seen certainly that we have that base business that's very strong. The project business has been good, I wouldn't see it – it has not tailed off necessarily. I mean, going forward, what we've seen is a little bit of a pivot to some of those clean energy opportunities, hydrogen, LNG, and some – you know, there's some real work going on around decarbonization. So the carbon capture utilization and storage, or CCUS, which has been around a while, but it's gaining traction now. We're seeing a lot of activity and interest there internationally.
Speaker Change: You've seen is a little bit of a pivot to some of those clean energy opportunities the hydrogen LNG and some you know there's some real work going on around de carbonization. So the carbon capture utilization and storage that C. T U S, which it's been around a while but it's gaining traction now we're seeing a lot.
Speaker Change: Activity and interest there internationally.
Steven C. Blanco: So we expect that to be a really nice opportunity as well. So the detection, you know, to Lee's point earlier, as we look forward and we think of the pipeline there, fixed monitoring is an area that we think is a really strong growth platform, and we think portables is right behind it. Very good. Very good indeed. Just maybe a follow-up with the last question. Steve, your commentary around international opportunities on the fire safety side certainly makes sense, given the runway, but I'm just curious if you circle back to the G1, which I guess we're coming up on 10 years since that was launched in the market and, in the first year, seeded a lot of that product into the market.
Speaker Change: So we expect that to be a really nice opportunity as well so the detection.
You know to at least point earlier as we look forward and we think of the pipeline. There fixed monitoring is an area that we think is a really strong growth platform and we think portables is right behind it.
Speaker Change: Very good very good just maybe a follow up with the last question.
Speaker Change: Steve your commentary around international opportunities on the fire safety side, certainly makes sense given the runway, but I'm just curious you circle back to the.
Speaker Change: The G. One it's you know that I guess, we're coming up on 10 years of when that was launched in the market and the.
Speaker Change: The first year of seeded a lot of that product into the market are you starting to see replacement. Those those units initial units start to come up for replacement yet or is it still too early for that.
Steven C. Blanco: Are you starting to see, you know, replacement units, those initial units start to come up for replacement yet, or is it still too early for that to happen? Yeah, the life cycle, that's a really good question. So we watch that very closely. And, you know, the life cycle is typically around 13-ish years on average. You know, some certainly go sooner than that. Some leak out a little bit longer than that, and you may see them pass 15. Typically, our team averages around 13-ish years, so you wouldn't see that play out for a couple more years, likely.
That's a really good question. So we watch that very closely.
Speaker Change: The lifecycle typically is around 13 ish years on average.
Speaker Change: Some some certainly go sooner than that some some leak out a little bit longer than that and you may see in past 15, but.
Speaker Change: Typically our team averages out around 13 ish years. So you wouldn't see that play out for a couple more years likely and we don't have a lot in our pipeline.
Steven C. Blanco: And we don't have a lot in our pipeline that shows those initial customers coming back quite so quickly. Okay, very good. Thank you. You bet.
Speaker Change: That shows those initial customers coming back up quite yet.
Speaker Change: Okay very good thank you.
Chris Hepler: This concludes our question and answer session. I would like to turn the conference back over to Chris Hepler for any closing remarks. Thanks, Betsy. We appreciate you joining the call this morning and for your continued interest in MSA Safety. If you missed a portion of today's call, an audio replay will be made available later today on our Investor Relations website and will be available for the next 90 days. We look forward to updating you on our continued progress again next quarter. Thanks. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: You bet.
Speaker Change: This concludes our question and answer session.
Speaker Change: I'd like to turn the conference back over to Chris Marr for any closing remarks.
Chris Marr: Thanks, Betsy we appreciate you joining the call. This morning and for your continued interest in MSA safety. If you Miss the portion of today's call. An audio replay will be made available later today on our Investor Relations website and will be available for the next 90 days, we look forward to updating you on our continued progress again next quarter. Thanks.
Chris Marr: Yeah.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].