Q2 2024 MSA Safety Inc Earnings Call
Operator: Good day, and welcome to the MSA Safety second quarter 2024 earnings conference call. All participants will be in listen-only mode.
Speaker Change: Good day and welcome to the MSA Safety second quarter 2024 earnings conference call. All participants will be in listen only mode.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touchtone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Larry DeMaria. Please go ahead. Thank you.
Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touchtone phone. To withdraw your question, please press star, then 2.
Speaker Change: Please note, this event is being recorded.
Lawrence Tighe De Maria: Thank you. Good morning and welcome to MSA Safety's second quarter 2024 earnings conference call. This is Larry DiMaria, Executive Director, Investor Relations. I'm joined by Steve Blanco, President and CEO, Lee McChesney, Senior Vice President and CFO, and Stephanie Sciullo, President of our America Segment.
Lawrence Tighe De Maria: During today's call, we will discuss MSA's second quarter financial results and provide an update on our full year 2024 outlook. On slide two, I'd like to remind everyone that the matters discussed during this call may include forward-looking statements within the meaning of the Private Security 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.
Lawrence Tighe De Maria: 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 on this call, except as required by law. Turning to slide 3, we've included certain non-GAAP financial measures as part of our discussions this morning. The non-GAAP reconciliations are available in the appendix of today's presentation. The presentation and press release are available on our investment relations website at investors.msasafety.com. I'd now like to turn the call over to Steve Blanco.
Speaker Change: The presentation and press release are available on our Investor Relations website at www.investors.mssafety.com. I would now like to turn the call over to Steve Blanco. Steve?
Steven C. Blanco: Thanks Larry, and good morning everyone. I'm on slide four.
Steven C. Blanco: In June, we celebrated our 110th year as a purpose-driven company. Over that time, we've remained steadfast in our mission that men and women may work in safety, and they, their families, and their communities may live in health throughout the world. And I'd like to thank our more than 5,000 associates around the world who are inspired by the singular purpose of safety for our customers each and every day. This was an exciting quarter.
Steven C. Blanco: Driven by our mission, we delivered solid commercial and operational results in the business through excellent execution and utilization of the MSA business. I'm pleased with the continued work on our product launches and operational accomplishments. In May, we held our Investor Day, where we discussed our strategy for profitable growth and capital deployment going forward, as well as identifying our long-term targets for 2028. Also, earlier this week, we released our 2023 impact report, which I will highlight in a couple minutes. First, let's review some highlights from the quarter. During our earnings call in April, we discussed supply chain issues that resulted in an elevated backlog for detection and industrial PPE.
Steven C. Blanco: This was an exciting quarter. Driven by our mission, we delivered solid commercial and operational results in the business through excellent execution and utilization of the MSA business system.
Steven C. Blanco: I'm pleased with the continued work on our product launches and operational accomplishments.
Steven C. Blanco: Also, earlier this week, we released our 2023 Impact Report, which I will highlight in a couple minutes.
Steve Blanco: First, let's review some highlights from the quarter.
Steve Blanco: During our earnings call in April , we discussed supply chain issues that resulted in an elevated backlog for detection and industrial PPE.
Steven C. Blanco: I'm pleased to report that the team overcame these challenges during the second quarter and reduced our backlog to normalized levels. Previously, we discussed our efforts to optimize our manufacturing footprint as part of our operational excellence. This quarter, we made significant progress in production transfers at some of our factories in the UK, Morocco, and Mexico. These changes better position us for growth by enabling a more efficient and productive structure to deliver and serve our customers across the globe. All of these efforts resulted in our ability to maintain our positive momentum through the first half of the year.
Steve Blanco: I'm pleased to report that the team overcame these challenges during the second quarter and reduced our backlog to normalized levels.
Steven Blanco: Previously, we discussed our efforts to optimize our manufacturing footprint as part of our operational excellence initiatives. This quarter we made significant progress in production transfers at some of our factories in the UK, Morocco, and Mexico. These changes better positioned us for growth by enabling a more efficient and productive structure to deliver and serve our customers across the globe. All of these efforts resulted in our ability to maintain our positive momentum through the first half of the year. This is building on strong performance from recent years. The team executed well and delivered net sales growth to 3% organic, constant currency sales growth of 4%, and adjusted earnings growth of 10%.
Steve Blanco: This quarter we made significant progress in production transfers at some of our factories in the UK, Morocco, and Mexico.
Steve Blanco: These changes better position us for growth by enabling a more efficient and productive structure to deliver and serve our customers across the globe.
Steve Blanco: All of these efforts resulted in our ability to maintain our positive momentum through the first half of the year.
Steven C. Blanco: This is building on strong performance from recent years. The team executed well and delivered net sales growth of 3%, organic constant currency sales growth of 4%, and adjusted earnings growth of 10%. Moving to our product categories and innovation, sales and fire service were up big single digits in the quarter, with notable growth in turnout here and fire health. The new Carnes 1836 is being very well received by the market, and performance at Globe and Bristol continues to strengthen.
Steve Blanco: This is building on strong performance from recent years. The team executed well and delivered net sales growth of 3%, organic constant currency sales growth of 4%, and adjusted earnings growth of 10%.
Steven Blanco: Moving to our product categories and innovation, sales and fire service, we're up at single digits in the quarter with notable growth and turnout here and fire on us. The new car in 1836 is being very well received by the market, and performance of Globe and Bristol continue to strengthen. We continue to see excellent momentum and international markets with our M1FCBA and have a solid global commercial pipeline going into the second half of the year. The fire service market remains resilient in the environment for funding around the world is healthy.
Steve Blanco: Moving to our product categories and innovation, sales and fire service were up big single digits in the quarter with notable growth in turnout here and fire helmets. The new Carnes 1836 is being very well received by the market and performance at Globe and Bristol continue to strengthen.
Steven C. Blanco: We continue to see excellent momentum in international markets with our M1 SEBA and have a solid global commercial pipeline going into the second half of the year. The fire service market remains resilient, and the environment for funding around the world is healthy. I'm pleased to note that this month we were awarded the second tranche of the U.S. Air Force Order, which is about $28 million. Our sales and detection were up high single digits, with solid growth in both fixed and portable detection. The new FL5000 multispectrum flame detector launch continues to go well, with positive customer feedback leading to a strong start in sales. Portable detection continues to grow both in traditional and connected devices.
Steve Blanco: We continue to see excellent momentum in international markets with our M1 SCBA and have a solid global commercial pipeline going into the second half of the year.
Steve Blanco: The fire service market remains resilient and the environment for funding around the world is healthy. I'm pleased to note that this month we were awarded the second tranche of the U.S. Air Force Order, which is about $28 million.
Steven Blanco: I'm pleased to note that this month we were awarded the second trance of the US Air Force order, which is about $28 million. Our sales and detection were up high single digits with solid growth in both fixed and portable detection. The new FL 5000 multi spectrum flame detector launch continues to go well, with positive customer feedback leading to a strong certain orders. Portable detection continues to grow both in traditional and connected devices. The IO4 continues to gain traction with the expansion in new geographies and new customers, both existing and for new applications. Industrial PPE sales overall were slightly negative on a year-over-year basis.
Steve Blanco: Our sales and detection were up high single digits, with solid growth in both fixed and portable detection. The new FL5000 multispectrum flame detector launch continues to go well, with positive customer feedback leading to a strong start in orders.
Steve Blanco: Portable detection continues to grow both in traditional and connected devices. The IO4 continues to gain traction with the expansion of new geographies and new customers, both existing and for new applications.
Steven C. Blanco: The I04 continues to gain traction with the expansion of new geographies and new customers, both existing and for new applications. However, industrial PPE sales overall were slightly negative on a year over year basis. Our head and fall protection products continue to grow and are offset by headwinds in other PPE products such as ballistic helmets and international, as well as respirators. I'm excited by our opportunity to grow our fall protection business, where we continue to see healthy demand.
Steve Blanco: Industrial PPE sales overall were slightly negative on a year-over-year basis. Our head and fall protection products continue to grow and are offset by headwinds in other PPE products such as ballistic helmets and international as well as respirators.
Steven Blanco: Our hidden fall protection products continue to grow and are offset by headwinds and other PPE products such as ballistic helmets and international as well as respirators. I'm excited by our opportunity to grow our fall protection business where we continue to see healthy demand. The footprint changes I mentioned earlier will help us better serve our customers in this specific growing category.
Steve Blanco: I'm excited by our opportunity to grow our fall protection business where we continue to see healthy demand.
Steven C. Blanco: The footprint changes I mentioned earlier will help us better serve our customers in this specific growing category. In May, we continued our leadership in head protection with the launch of the new V-Guard H2 Safety Helmet, which provides superior comfort and versatility while incorporating the latest technology to help protect against lateral impacts and features the optional MIPS technology. Turning to slide 5, I would like to review some of the key points from our 2023 impact report, which I noted earlier. This was released this week.
Steve Blanco: The footprint changes I mentioned earlier will help us better serve our customers in this specific growing category.
Steven Blanco: In May, we continue to our leadership and head protection with the launch of the new the guard H2 safety helmet, which provides superior comfort and versatility while incorporating the latest technology to help protect against lateral impacts and features the optional MIPS technology.
Steve Blanco: In May, we continued our leadership in head protection with the launch of the new V-Guard H2 Safety Helmet, which provides superior comfort and versatility while incorporating the latest technology to help protect against lateral impacts and features the optional MIPS technology.
Steven Blanco: Turning to slide five, I would like to review some of the key points from our 2023 impact report, which I noted earlier. This was released this week. As the safety company, our commitment to operating as a sustainable business is evidenced by our initiatives across the MSA safety pillars of products and solutions, people and planet, and is captured in the MSA impact metric. This impact metric represents the average number of global workers that use our products and solutions each year. We estimate an MSA helps to protect more than 40 million people in. Here are a few examples of what can be found in the report.
Steve Blanco: Turning to slide 5, I would like to review some of the key points from our 2023 impact report, which I noted earlier.
Steven C. Blanco: As a safety company, our commitment to operating as a sustainable business is evidenced by our initiatives across the MSA safety pillars of products and solutions, People, and Planet and is captured in the MSA Impact Metric. This impact metric represents the average number of global workers that use our products and solutions each year. We estimate that MSA helps to protect more than 40 million people annually. Here are a few examples of what can be found in the report.
Steve Blanco: This was released this week.
Steve Blanco: As the safety company, our commitment to operating as a sustainable business is evidenced by our initiatives across the MSA safety pillars of products and solutions, people, and planet, and is captured in the MSA impact metric.
Steve Blanco: This impact metric represents the average number of global workers that use our products and solutions each year. We estimate that MSA helps to protect more than 40 million people annually.
Steven C. Blanco: The products and solutions we develop are at the core of our approach to creating positive impact. Our solutions use technology to connect and detect for safety and sustainability, helping to make work safer and easier, as well as more productive. For example, our SCBA simplifies maintenance and reduces waste, and VACORAC refrigeration detection solutions help food and beverage customers reduce their carbon footprint and operating costs.
Steven Blanco: The products and solutions we develop are at the core of our approach to creating positive impact. Our solutions use technology and connecting to tech for safety and sustainability, helping to make work safer and easier, as well as more productive. For example, our SCBA simplifies maintenance and reduces waste, and backerack refrigeration detection solutions help food and beverage customers reduce the carbon footprint and operating costs. We're also on track to meet our commitments towards our 2030 emissions goals. As you would expect from MSA Safety, we maintain world-class employee safety metrics within our facilities. Additionally, we collectively shared that MSA Safety was recognized as one of Newsweek's most responsible companies.
Steve Blanco: Here are a few examples of what can be found in the report.
Steve Blanco: The products and solutions we develop are at the core of our approach to creating positive impact.
Steve Blanco: Our solutions use technology and connect and detect for safety and sustainability, helping to make work safer and easier, as well as more productive.
Steve Blanco: For example, our SCBA simplifies maintenance and reduces waste, and VACORAC refrigeration detection solutions help food and beverage customers reduce their carbon footprint and operating costs.
Steven C. Blanco: We're also on track to meet our commitments towards our 2030 emissions goal. And, as you would expect from MSA Safety, we maintain world-class employee safety metrics within our facility. Additionally, we collectively shared that MSA Safety was recognized as one of Newsweek's most responsible companies, USA Today's America's climate leaders, and Forbes Best Employers for Diversity. There are many more highlights in this report, so please visit our Corporate Responsibility section on our website to learn more.
Steve Blanco: We're also on track to meet our commitments towards our 2030 emissions goals.
Steve Blanco: As you would expect from MSA Safety, we maintain world-class employee safety metrics within our facilities.
Steve Blanco: Additionally, we collectively shared that MSA Safety was recognized as one of Newsweek's most responsible companies, USA Today America's climate leaders, and Forbes Best Employers for Diversity.
Steven Blanco: USA Today America's Climate Leaders and Forbes Best Employers for Diversity.
Steven Blanco: There are many more highlights in this report, so please visit our Corporate Responsibility section on our website to learn more.
Steve Blanco: There are many more highlights in this report, so please visit our Corporate Responsibility section on our website to learn more.
Steven C. Blanco: On slide 6, I also note to you the 2028 financial targets we launched in May at our Investor Day. Underpinned by our strategy to drive profitable growth and create value for our customers and shareholders, we highlighted a set of actions that we believe will enable us to continue to grow the top and bottom lines over the near and long term by leveraging such key enablers as the MSA business. These include capitalizing on secular trends, targeting growth accelerators, developing additional solutions with recurring revenue streams, and utilizing our strong balance sheet for strategic capital deployment. We look forward to sharing our progress against these targets over the coming years. With that, I will turn the call over to Lee, who will discuss our financial results for the second quarter. Lee?
Steven Blanco: On slide six, I also note to you that in the 2021 financial targets we launched and made our Investor Day. Underpinned by our strategy to drive profitable growth and create value for our customers and shareholders. We highlighted a set of actions that we believe will enable us to continue to grow the top and bottom line over the near and long term by leveraging such key inablers as the MSA business system. These include capitalizing of secular trends, targeting growth accelerators, developing additional solutions with recurring revenue streams, and utilizing our strong balance sheet for strategic capital deployment.
Speaker Change: On slide 6, I also note to you the 2028 financial targets we launched in May at our Investor Day.
Speaker Change: Underpinned by our strategy to drive profitable growth and create value for our customers and shareholders.
Speaker Change: We highlighted a set of actions that we believe will enable us to continue to grow the top and bottom line over the near and long term by leveraging such key enablers as the MSA business system.
Steven Blanco: We look forward to sharing our progress against these targets over the coming years.
Steven Blanco: With that, I will turn the call over to Lee, who will discuss our financial results for the second quarter.
Speaker Change: We look forward to sharing our progress against these targets over the coming years.
Speaker Change: With that, I will turn the call over to Lee, who will discuss our financial results for the second quarter. Lee?
Lee McChesney: Lee.
Lee B. McChesney: Thank you, Steve, and good morning everyone. We appreciate you joining us on the call today. I will now review our performance in the second quarter and provide an update on our full year outlook. Let's get started on slide 7 with the quarterly results. Sales were $462 million, up 4% on an organic, constant currency basis and 3% on a reported basis over the prior year, with a balanced contribution for volume and price. Currency translation was a 1% headwind.
Lee McChesney: Thank you, Steve, and good morning, everyone. We appreciate you joining the call today. I will now review our performance in the second quarter and provide an update on our full year outlook. Let's get started on slide seven with the corner results. Sales are 462 million, up 4% on an organic constant currency basis and 3% on a reported basis over the prior year, with a balanced contribution for volume and price. Currency translation was a 1% headwind. Across our product categories, detection and fire services contributed healthy growth, up 8% and 4% respectively. Partially offset by 2% contraction in industrial PPE globally, was also encouraging to see these sales trends fueling our Americas and international results.
Lee: Thank you, Steve, and good morning, everyone. We appreciate you joining the call today. I will now review our performance in the second quarter and provide an update on our full-year outlook.
Lee B. McChesney: Across our product categories, detection and fire services contributed healthy growth of 8% and 4%, respectively, partially offset by 2% contraction in industrial PPE. Globally, it was also encouraging to see these sales trends. Fueling our Americas in the International Market Overall, orders are healthy in the quarter across our business.
Lee: Let's get started on slide 7 with the quarterly results.
Lee: Sales were $462 million, up 4% on an organic constant currency basis and 3% on a reported basis over the prior year, with a balanced contribution from volume and price.
Speaker Change: Currency Translation was a 1% headwind.
Speaker Change: Across our product categories, detection and fire services contributed healthy growth of 8% and 4% respectively.
Speaker Change: partially offset by 2% contraction in industrial PPE.
Speaker Change: Globally, it was also encouraging to see these sales trends.
Lee McChesney: Overall, orders are healthy in the quarter across our business, though there were some trend changes within the months. As I've noted in the past, this is not unusual for our business, and orders can vary from quarter to quarter. Our commercial pipeline is encouraging across our product categories and in most of our regions, and we have a nice continuation of activity for seeing so far in July. In the second quarter, our book to bill is slightly below one times, but above the prior period, and is just below one times for the first half of the year.
Speaker Change: Fueling our Americas and International Results.
Speaker Change: Overall, orders are healthy in the quarter across our business, though there were some trend changes within the months.
Lee B. McChesney: As I have noted in the past, this is not unusual for our business, and orders can vary from quarter to quarter. However, our commercial pipeline is encouraging across our product categories and in most of our regions. And we have a nice continuation of activity we're seeing so far in July. In the second quarter, our book-to-bill is slightly below one-times, but above the prior period, and is just below one-times for the first half of the year. As we had hoped, our backlog was reduced in the quarter to more normalized levels, principally due to good progress in fire services and detection.
Speaker Change: As I have noted in the past, this is not unusual for our business and orders can vary from quarter to quarter.
Speaker Change: Our commercial pipeline is encouraging across our product categories and in most of our regions.
Speaker Change: And we have a nice continuation of activity we're seeing so far in July .
Speaker Change: In the second quarter, our book-to-bill is slightly below one times, but above the prior period, and is just below one times for the first half of the year.
Lee McChesney: As we had hoped, our backlog was reduced in the quarter to more normalized levels, previously due to good progress in fire services and detection. Our margin performance continues to be very resilient, and our team's commitment to the MSA Business System is evident from our results. Growth's profit margin in the quarter was 48.2% of 40 basis points over the prior year. Offering margin on a gap basis was 21.6% in the quarter, up 40 basis points over the prior year. Slightly higher SNA reflects volume, inflation, investment, and professional services, and a one-time cost per limited to a legal matter.
Speaker Change: As we had hoped, our backlog was reduced in the quarter to more normalized levels, principally due to good progress in fire services and detection.
Lee B. McChesney: Our margin performance continues to be very resilient, and our team's commitment to the MSA business system is evident from our results. Gross profit margin in the quarter was 48.2%, up 40 basis points over the prior year. Operating margin on a gap basis was 21.6% in the quarter, up 40 basis points over the prior year. Slightly higher SG&A reflects volume, inflation, investments in professional services, and a one-time cost related to a legal matter.
Speaker Change: Our margin performance continues to be very resilient, and our team's commitment to the MSA business system is evident from our results.
Speaker Change: Gross profit margin in the quarter was 48.2%, up 40 basis points over the prior year.
Speaker Change: Operating margin on a gap basis was 21.6% in the quarter, up 40 basis points over the prior year.
Speaker Change: Slightly higher SG&A reflects volume, inflation, investments in professional services, and a one-time cost related to a legal matter.
Lee B. McChesney: Adjusted Operating Margin was 23.4%, up 20 basis points over the prior year, and Incremental Operating Margin was 29%. Margin expansion was largely driven by volume leverage, productivity, and cost-price. Yeah, net income in the quarter was $72 million, or $1.83 per diluted share. On an adjusted basis, diluted earnings per share were $2.01, up 10% over the prior year. The increase is primarily due to operating profit and lower non-operating expenses. Now, moving on to our segment performers.
Lee McChesney: Adjusted operating margin was 23.4%, up 20 basis points over the prior year, and incremental operating margin was 29%. margin expansion was largely driven by volume leverage, productivity, and cost-priced management. Gap net income in the quarter was $17 million, or $1.83 per due to share. On an adjusted basis, due to earnings per share were $2.1% up 10% over the prior year. The increase is permanently due to operating profit and lower non-operating expenses.
Speaker Change: Adjusted operating margin was 23.4 percent up 20 basis points over the prior year and incremental operating margin was 29 percent.
Speaker Change: Margin expansion was largely driven by volume leverage, productivity, and cost-price management.
Speaker Change: Yeah, net income in the quarter was $72 million or $1.83 per diluted share.
Speaker Change: On an adjusted basis, diluted earnings per share were $2.01, up 10% over the prior year.
Speaker Change: The increase is primarily due to operating profit and lower non-operating expenses.
Lee McChesney: Now, moving on to our segment performance. In our America segment, sales increased 2% year over year, with high single-digit growth in detection and mid-single-digit growth in our industrial PPE, partially offset by modest decline in fire services. The adjusted operating margin was 31.3%, up 60 basis points compared to the prior year. margin expansion was driven largely by volume leverage, productivity, and cost-priced dynamics. In our international segment, sales increased 6% year over year. Strong double-digit growth in fire services and detection was partially offset by declines in industrial PPE. Currency transition was a 1% headwind in the quarter.
Lee B. McChesney: In our America segment, sales increased 2% year-over-year with high single-digit growth in detection and mid-single-digit growth in our industrial PPE, partially offset by a modest decline in fire service. The adjusted operating margin was 31.3%, up 60 basis points compared to the prior year. Margin expansion was driven largely by volume leverage, productivity, and cost-price dynamics. In our international segment, sales increased 6% year-over-year. Strong double-digit growth in fire services and detection was partially offset by declines in industrial PPE. Currency translation was a 1% headwind in the quarter.
Speaker Change: Now, moving on to our segment performance.
Lee B. McChesney: In our America segment, sales increased 2% year-over-year with high single-digit growth in detection and mid-single-digit growth in our industrial PPE, partially offset by a modest decline in fire services.
Speaker Change: The adjusted operating margin was 31.3 percent, up 60 basis points compared to the prior year. Margin expansion was driven largely by volume leverage, productivity, and cost-price dynamics.
Speaker Change: In our international segment, sales increased 6% year-over-year.
Speaker Change: Strong double-digit growth in fire services and detection was partially offset by declines in industrial PPE.
Lee B. McChesney: Adjusted Operating Margin was 16.4%, a strong increase of 70 basis points year-over-year driven by volume and SG&A leverage, partially offset by modest FX. Now turning to slide 8, free cash flow in the quarter was $39 million, representing a conversion rate of 49% of adjusted earnings. Second quarter cash flow reflected inventory investments and increased capital expenditures.
Lee McChesney: Adjusted operating margin was 16.4%, a strong increase of 70 basis points year over year, driven by volume and SGNA leverage, partially offset by modest effects headwinds.
Speaker Change: Currency Translation was a 1% headwind in the quarter.
Speaker Change: Adjusted operating margin was 16.4%, a strong increase of 70 basis points year over year, driven by volume and SG&A leverage, partially offset by modest FX headwinds.
Lee McChesney: Now, turning to slide 8, free cash flow in the quarter was 39 million, representing a conversion rate of 49% of adjust earnings. Second quarter cash flow reflected inventory investments and increased capital expenditures. And we remain on track to deliver a full-year cash flow objectives of 90 to 100%. As a reminder, we typically generate more cash flow in the second half of each year. Consistent with our strong capital allocation history in our investor day goals, capital expenditures were $14 million in the second quarter, including investments to drive productivity and execute production transfers as part of our strategic manufacturing programs. We also repaid $8 million in debt, returned $20 million in dividends to shareholders, and repurchased $10 million in common stock.
Speaker Change: Now turning to slide 8, free cash flow in the quarter was $39 million, representing a conversion rate of 49% of adjusted earnings.
Speaker Change: Second quarter cash flow reflected inventory investments and increased capital expenditures.
Lee B. McChesney: And we remain on track to deliver our full-year cash flow objectives of 90 to 100%. As a reminder, we typically generate more cash flow in the second half of each year. Consistent with our strong capital allocation history and our Investor Day goals, capital expenditures were $14 million in the second quarter, including investments to drive productivity and execute production transfers as part of our strategic manufacturing program. We also repaid $8 million in debt, returned $20 million in dividends to shareholders, and repurchased $10 million in common stock. Net debt at the end of the quarter was $441 million, and our cash balance was $147 million.
Speaker Change: And we remain on track to deliver our full year cash flow objectives of 90 to 100%.
Speaker Change: As a reminder, we typically generate more cash flow in the second half of each year.
Speaker Change: Consistent with our strong capital allocation history and our Investor Day goals, capital expenditures were $14 million in the second quarter, including investments to drive productivity and execute production transfers as part of our strategic manufacturing programs.
Speaker Change: We also repaid $8 million in debt, returned $20 million in dividends to shareholders, and repurchased $10 million in common stock.
Speaker Change: Net debt at the end of the quarter was $441 million and our cash balance was $147 million.
Lee B. McChesney: Our net leverage ratio at the quarter end further improved to 0.9 times Adjusted EBITDA for the trailing 12 months and to June 30th, 466 million, or 25.7% of net sales.
Speaker Change: Our net leverage ratio at the quarter end further improved to 0.9 times.
Speaker Change: Adjusted EBITDA for the trailing 12 months and to June 30th at $466 million or 25.7% of net sales.
Lee B. McChesney: Now, I'd like to move to our full year outlook on slide 9. We enter the second half with good momentum but are mindful of the dynamics of order timing and macro and geopolitical risks. Our end markets are generally healthy, demand trends lean positive, and we've executed initiatives to bring our backlog down to more normalized levels. Our business has broad diversification across products, geographic regions, and markets. And there remain attractive underlying market trends in the safety industry, leading to the resilience we have delivered over time. We remain close to our customers. Disciplined on cost, we focus on executing our strategy to deliver profitable growth. MS WordDoc Word.
Speaker Change: Now, I'd like to move to our full year outlook on slide 9.
Speaker Change: We enter the second half with good momentum, but are mindful of the dynamics of order timing and macro and geopolitical risks.
Lee B. McChesney: Our end markets are generally healthy, demand trends lean positive, and we've executed initiatives to bring our backlog down to more normalized levels.
Lee B. McChesney: Our business has broad diversification across products, geographic regions, and markets, and there remains attractive underlying market trends in the safety industry, leading to the resilience we have delivered over time.
Speaker Change: We remain close to our customers, disciplined on costs, and focused on executing our strategy to deliver profitable growth and generate strong cash flow.
Lee B. McChesney: Document.8, Should macro conditions change, we will adapt as needed. As we look forward to full year 2024, we are maintaining our sales outlook of mid-single-digit growth, which compounds on top of the 17% growth we delivered in 2023. We believe our second half growth rates will likely be similar to the first half. However, we do have to be cognizant of the timing of orders, primarily related to the EFG funding cycle and customer delivery timing as we work through details of large orders like the U.S. Air Force order, which implies growth may be skewed toward the latter part of the year.
Lee B. McChesney: Should macro conditions change, we will adapt as needed.
Speaker Change: As we look forward to full year 2024, we are maintaining our sales outlook of mid-single-digit growth, which compounds on top of the 17% growth we delivered in 2023.
Lee B. McChesney: We believe our second half growth rates will likely be similar to the first half.
Speaker Change: We do have to be cognizant of the timing of orders, primarily related to the EFG funding cycle and customer delivery timing as we work through details of large orders like the U.S. Air Force order.
Lee B. McChesney: Our business is healthy, our pipeline is strong, and we look forward to executing our second half plans in the long-term profitable growth strategy outlined in our investment. With that said, I also want to reiterate my thanks to our associates across the globe who are focused on supporting our customers passionately each and every day. Your continued focus on driving improvement is yielding significant results for all of our stakeholders. Well done. With that, I'll now turn the call back over to Steve for his concluding remarks.
Steve: Which implies growth may be skewed towards the latter part of the year.
Lee B. McChesney: Our business is healthy, our pipeline is strong, and we look forward to executing our second half plans in the long-term profitable growth strategy outlined at our Investor Day.
Speaker Change: With that said, I also want to reiterate my thanks to our associates across the globe who are focused on supporting our customers passionately each and every day.
Speaker Change: Your continued focus on driving improvement is yielding significant impacts for all of our stakeholders. Well done. With that, I'll now turn the call back over to Steve for concluding remarks.
Lee B. McChesney: Thank you, Lee. I want to reiterate the resiliency of our business, which continues to benefit from the broad diversity of our products, geographies, and markets, with Attractive Industry Fundamentals, our Proven Innovation Process, and Leading Positions in Our Markets. I'm excited about our future. I believe we have the best team in the industry, and with our mindset around continuous improvement and our commitment to the MSA business system, we're well positioned to create value over the long term for all of our states. With that, I'll now turn the call back over to the operator for questions. We will now begin the question and answer session.
Lee B. McChesney: Thank you, Lee. I want to reiterate the resiliency of our business, which continues to benefit from the broad diversity of our products, geographies, and markets.
Lee B. McChesney: With attractive industry fundamentals, our proven innovation process, and leading positions in our markets, I'm excited by our future.
Speaker Change: I believe we have the best team in the industry, and with our mindset around continuous improvement and the commitment to the MSA business system, we're well positioned to create value over the long term for all of our stakeholders.
Speaker Change: With that, I'll now turn the call back over to the operator for questions.
Operator: To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your touch tone phone.
Operator: If you are using a speakerphone, please pick up your handset before pressing the keys.
Operator: To withdraw your question, please press star then 2.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Stanley Stoker Elliott: The first question comes from Stanley Elliott with Stiefel; please go ahead.
Speaker Change: The first question comes from Stanley Elliott with Stiefel. Please go ahead.
Stanley Stoker Elliott: Hey, good morning, everybody. Thank you for taking the question. Could you talk a little bit more about kind of the full year, you know, the mid-single-digit guide kind of implies you mentioned kind of a consistent run rate, maybe a slight acceleration in the second half. I know seasonally business picks up in 4Q, but it sounds like, not necessarily for you all, but other data points we've been watching, the overall economy might be slowing a little bit, and your order book' Where's the confidence kind of coming in to be able to hit that second half sort of run rate?
Stanley Stoker Elliott: Hey, good morning, everybody. Thank you for taking the question. Could you guys talk a little bit more about kind of the full year? The mid-single-digit guide kind of implies, you mentioned, kind of a consistent run rate, maybe a slight acceleration in the second half. I know seasonally the business picks up in 4Q, but it does, it sounds like, not necessarily for you all, but other data points that we've been watching, the overall economy might be slowing a little bit.
Speaker Change: In your older books, a little more normalized, where's the confidence kind of coming in to be able to hit that second half sort of run rate?
Steven C. Blanco: Yeah, thanks for the question, Stanley. And maybe I'll start there.
Lee B. McChesney: And Lee, you can jump in if you have some commentary again. I think it's the diversity of the business that really helps us. You know, we're a little different than maybe most industrials, as you know. But when we look at our business, I would say that the demand in the end markets remains healthy. You know, certainly fire service energy and utilities are healthy and stable, and we see a really solid pipeline for fire service and detection.
Speaker Change: Yeah, thanks for the questions, Stanley, and maybe I'll start here, and Lee, you can jump in if you have some commentary at the end. I think it's the diversity of the business that really helps us.
Lee B. McChesney: We're a little different than maybe most industrials, as you know, but when we look at our business, I would say that the demand in the end markets remains healthy. Certainly fire service energy and utilities are healthy and stable, and we see a really solid pipeline in fire service and detection.
Lee B. McChesney: You know, timing can be lumpy, as we've seen before, but the fundamentals are good, and the pipeline is solid. From a macro perspective, we think these markets are resilient. We've seen that in the past. They've been resilient.
Lee B. McChesney: You know, timing can be lumpy, as we've seen before, but the fundamentals are good and the pipeline is solid. From a macro, we think these markets are resilient.
Steven C. Blanco: We've been comfortable with that. You know, industrial PPE is certainly a bit more cyclical, as we saw in the first half, and that's likely to continue. But it's really where the diversity of our markets and geographies helps. So if the performance continues, if we're able to turn that pipeline into orders, you know, we feel really good about the second half continuing to be a growth category. Lee, do you have anything you want to add?
Lee: We've seen that in the past. They've been resilient. We've been comfortable with that. You know, industrial PPE is certainly a bit more cyclical as we saw in the first half.
Lee: And that's likely to continue.
Steven C. Blanco: But it's really where the diversity of our markets and geographies help. So, if the performance continues, if we're able to turn that pipeline into orders, then we feel really good about the second half continuing to be a growth category.
Steven C. Blanco: Lee, you got anything you want to add? Yeah, I think it's a good summary. I mean, Stanley, as I said in my comments there, we think the back half will be similar to the first half.
Lee B. McChesney: Yeah, I think it's a good summary. Stanley, as I said in my comments there, we think the second half will be similar to the first half. I think if we were going back to the beginning of the year, maybe our hope would be even better than that, but that's just the reality of some of the things you just mentioned. But we're still in a good place. I do think you'll see what we just experienced in the first half, where some segments will be really strong in one quarter and maybe be a bit weaker in the other quarter.
Lee B. McChesney: I think if we were going back to the beginning of the year, maybe our hope will be even better than that. But that's just the reality of some of the things you just mentioned. But we're still in a good place. I do think you'll see what we just experienced in the first half where you have some segments.
Lee B. McChesney: So we can manage that. We'll probably lean a little bit towards the fourth quarter being a stronger VPY than the third quarter. And it's just, as Steve said, we're in a good place. We're a nice, diverse mix. But we also, I've said this all year, when we deliver 3% growth, 4% growth, we're doing it on top of the 17% growth last year. So I just think that puts it in perspective. What we're doing this year is compensating for that, so it actually says we're even doing better on the orders front than we are on the sales front.
Lee B. McChesney: Be really strong in one quarter. Maybe be a bit weaker in the other quarter. So we can manage that. We'll probably lean a little bit towards the fourth quarter being stronger VPY.
Speaker Change: in the third quarter.
Lee B. McChesney: And it's just, as Steve said, we're in a good place for a nice diverse mix.
Lee B. McChesney: But, you know, we also, I've said this all year.
Lee B. McChesney: When we deliver, you know, a 3% growth, 4% growth, we're doing it on top of the 17% growth last year. So, I just think that puts it in perspective, you know, everything we're doing this year is compensating for that, so, you know, it actually says we're even doing better on the orders front than we are on the sales front.
Stanley Stoker Elliott: Yeah, no doubt. It kind of speaks to the breadth of the portfolio. You know, you did mention one thing interesting. You know, if the macro conditions change, you guys could adapt as needed. How quickly could you react if we were to see something? I mean, I think now with the market kind of looking more towards some rate cuts in the back part of this year into next year. I'm not sure that we would see that, but just give us kind of like the playbook in terms of how you would react.
Stanley Stoker Elliott: Yeah, no doubt. It kind of speaks to the breadth of the portfolio. You know, you did mention one thing interesting. If the macro conditions change, you guys could adapt as needed. How quickly could you react if we were to see something? I mean, I think now with the market kind of looking more towards some rate cuts.
Stanley Stoker Elliott: and the back part of this year into next year. I'm not sure that necessarily we would see that, but just give us kind of like the playbook in terms of how you would react.
Steven C. Blanco: Yeah, it's a good question, Stanley. I mean, we've done that in the past. I would say it'd be pretty quick.
Steven C. Blanco: Yeah, it's a good question, Stanley. I mean, we we've done that in the past, I would say it'd be pretty quick. Certainly, we're going to protect our profitability and margin profile.
Steven C. Blanco: Certainly, we're going to protect our profitability and margin profile, and we have a list of levers that we could pull if we needed to pull to make sure we protected ourselves. And I think we've talked before about, you know, our incrementals are 30 to 40 percent, but we manage our decrements at a lower level. And we would expect that to be the same if we needed to pivot.
Steven C. Blanco: And we have a list of levers that we could pull if we needed to pull to make sure we protected ourselves. And I think we talked before about, you know, our incrementals are 30 to 40 percent, but we manage our decrementals at a lower level, and we would expect that to be the same if we needed to pivot.
Stanley Stoker Elliott: And you know, the very strong quarter in the detection side of the business. What's driving these gains? Is that more just kind of product availability and the backlogs getting worked down? And then you all said some interesting comments around some of the new revenue models and traditional versus connected devices. You're really interested to see how this connected device platform is starting to shape up.
Stanley Stoker Elliott: And, you know, the very strong quarter in the detection side of the business, what's driving these gains? Is that more just kind of the product availability and the backlogs getting worked down? And then, you know, you all said some interesting comments around, you know, some of the new revenue models and the traditional versus connected devices. You're really interested to see how this connected device platform is starting to shape up.
Steven C. Blanco: Well, we have, thanks for that question as well, so we have, we did see a little bit of a backlog, you know, certainly we were pleased that we were able to ship that elevated backlog to deliver to our customers. You know that business, when you think of detection, and I talked a little bit about it earlier when you asked about our confidence in the second half, but if you break it down, that longer cycle fixed monitoring, our position's really good.
Steven C. Blanco: Well, we have, thanks for that question as well, so we have, we did see a little bit of back, you know, certainly we were pleased that we were able to ship.
Steven C. Blanco: A strong installed base supported by energy needs, including, as we've discussed, the future clean energy needs we have, and the pipeline of business is really solid there. For portables, a little more cyclical because it's tied to employment levels, but we feel like our approach of providing the market different options with the traditional platforms through our 4XR and our 5X, added by the connected IO4, is just a tremendous combination for our customers to choose from, and that's what we're seeing.
Steven C. Blanco: Strong installed base supported by the energy needs, including, as we've discussed, the future clean energy needs we have.
Steven C. Blanco: with the traditional platforms through our 4XR and our 5X added by the connected IO4, just a tremendous combination for our customers to choose from. And that's what we're seeing. We're seeing this IO4.
Steven C. Blanco: I think the take rate right now is we're still seeing 50 plus percent of the take rate from customers that are new to us, which has really been a nice add, but you put those two together, and that's why we have confidence in the technology.
Stanley Stoker Elliott: Great guys, nice to hear, congrats and best of luck in the second half.
Speaker Change: Great guys. Nice to hear. Congrats and best of luck in the second half.
Robert W. Mason: The next question is from Rob Mason with Baird. Please go ahead.
Robert W. Mason: Thank you, Stanley.
Robert W. Mason: So yes, good morning. Thanks for taking the time to ask the question.
Speaker Change: The next question is from Rob Mason with Baird. Please go ahead.
Robert W. Mason: Yes, good morning. Thanks for taking the question. Steve, you kind of made mention of
Robert W. Mason: Your incrementals at this 30 to 40 percent range, is that, you know, just given the growth profile that you're expecting in the second half? I'm just curious how your confidence level is either around the upper or lower bounds of that that range? Is that the expectation?
Robert W. Mason: Steve, you kind of made mention of your incrementals at this 30 to 40 percent range. Is that, you know, just given the growth profile that you're expecting in the second half? I'm just curious how your confidence level is either around the upper or lower bounds of that range? Lee, do you want to hit that? Yeah, absolutely. Good morning.
Lee B. McChesney: Yeah, I think, like we said throughout the first half of this year, you do have some interesting confidence. So, a reminder that we had this incremental 70% in the first quarter, 29% in the second quarter. You're going to see that same type of volatility in the back half. I mean, the third quarter was a very strong quarter.
Lee B. McChesney: Good morning. I think like we said throughout the first half of this year, you do have some interesting comps.
Lee B. McChesney: Very good revenue quarter, but... MS WordDoc Word. Document.8, You know, and based on where we are so far in the year. Slightly higher, but we'll see. And I'm just curious how you feel about this current scaling of those operations and the potential opportunity to see more leverage from those specific ones. Hey Rob, maybe I'll take a stab at that.
Speaker Change: It's a very good revenue quarter, but...
Speaker Change: MSA Safety our absolute highest margin. There was some some backlog and mixed help that went into that last year that you won't see this year so you'll see a lower incremental in 3q and then you'll see a nice rebound in 4q. I mean overall, you know we keep coming back to with a 30 to 40 percent goal.
Rob: And we're certainly on track to being in that range. And based on where we are so far in the year, maybe slightly higher, but we'll see how it plays out.
Rob: Sure. Maybe relatedly, you made mention of the progress that you've made getting some of your manufacturing footprint reconfigured.
Speaker Change: Is all of the work that's...
Speaker Change: InMotion. Is that complete? And I'm just curious how you feel about, you know, this current scaling of those operations and, you know, potential opportunity to see more leverage from those specific modes.
Steven C. Blanco: So, it's not complete yet. We're more than halfway through that activity, but there's still a lot of work to be done on that in the second half. What we're doing is really trying to make sure that we continue with our strategy of manufacturing in region for region and providing the opportunity for us to have kind of a best cost and best delivery option available for the customer base through our manufacturing footprint and operational performance.
Steven C. Blanco: Hey Rob, maybe I'll take a stab at that. So it's not complete yet. We're more than halfway through that activity, but there's still a lot of work to be done on that in the second half. You know, what we're doing is really trying to make sure that we
Steven C. Blanco: continue on our strategy of manufacturing in-region, for-region, and providing the opportunity for us to have kind of a best cost
Steven C. Blanco: and Best Delivery Option available for the customer base through our manufacturing footprint and operational performance. So this is really a big part of what we're doing with this and, you know, it's really going to have a nice impact especially in things like fall protection.
Steven C. Blanco: So, this is really a big part of what we're doing with this, and it's really going to have a nice impact, especially on things like fall protection, with the moves to Mexico and the plant transitions or shutdowns that we've had. So it's better than halfway, but we're not quite done yet. We've got more work to do through the second phase. I see. And just one last question.
Steven C. Blanco: with the moves to Mexico and in the plant transitions or shutdowns that we've had so it's it's better than halfway but we're not quite done yet we got more work to do through the second half.
Steven C. Blanco: You mentioned your price. Volume of prices was roughly equal in the quarter. I'm curious, as you got to mid-year, did you do anything different on price, mid-year price adjustments, or how you're viewing the inflationary impacts right now? We had our price increase at the beginning of the year. One region did a price increase early in Q2, but typically, that's consistent where we're at. This year, it's more of a normalized pricing.
Speaker Change: I see.
Speaker Change: And just the last question, the...
Steven C. Blanco: You mentioned your price. Price volume was roughly equal in the quarter. I'm curious, as you got to mid-year, did you do anything different on price, mid-year price adjustments?
Steven C. Blanco: We're following the inflationary environment and the potential for any tariffs. Certainly, we're going to continue to monitor them. And as we've done in the past, if we need to pivot and adjust, we will. And I would add, that's part of the – for us, part of the reason we continue to lean in on the business system and continuous improvement, and these operational footprint changes bear that in mind, is to make sure that if we need to offset, we'll offset internally and get what we need to in price to make sure we protect our margins, Excellent. Well, thanks for taking the time to answer the question. Thank you.
Speaker Change: We have had our price increase at the beginning of the year. One region did a price increase.
Steven C. Blanco: Q2, but typically that's consistent, where we're at this year is more of a normalized pricing. You know, we're following the inflationary environment, the potential of any tariff, certainly we're going to continue to track.
Steven C. Blanco: And as we've done in the past, if we need to pivot and adjust, we will. That's, I would, I would add, that's part of the, for us, part of the reason we continue to lean in on the, you know, business system and continuous improvement and these operational footprint changes.
Steven C. Blanco: Bear that in mind is to make sure that if we need to offset We'll offset internally and get what we need to in price to make sure we protect our margins Which which I think we've done a nice job of in the past
Speaker Change: Excellent. Well, thanks for taking the questions.
Speaker Change: Thank you. No problem.
Operator: Again, if you have a question, please press star then 1. The next question is from Ross Sparenblek with William Blair. Please go ahead.
Speaker Change: Again, if you have a question, please press star then 1.
Speaker Change: The next question is from Ross Sparenblek with William Blair. Please go ahead.
Ross Riley Sparenblek: Okay, coming back to the second half revenue guidance, you know, we're seeing positive read-throughs on order rates for the detection and fire business. I mean, it's implying a re-acceleration in the second half, and you guys are clearly taking share. So, can we maybe just further delineate what some of these watch items are and what is maybe tempering your expectations for the second half?
Ross Riley Sparenblek: Hey, good morning guys. Morning, Ross.
Ross Riley Sparenblek: Okay, coming back to the the second half revenue guidance, you know, we're seeing positive read-throughs on order rates for the detection and fire business. I mean, it's implying a re-acceleration in the second half and you guys are clearly taking share, so can we just further delineate what some of these watch items are and what is maybe tempering your expectations for the second half?
Ross Riley Sparenblek: Yeah, thanks for the question, Ross. So we do feel, you know, good about where we are in the market in both of those spaces, and we think the pipeline is solid. Part of it is just timing. The timing of the order can be lumpy, as we've seen in past years. So, you know, we think that there's a good opportunity if we get some of that order, the pipeline to flush through the orders. But, you know, part of it is the funding environment. Do they have the funds? The environment's good.
Ross Riley Sparenblek: Thanks for the question, Ross. So we do feel good about where we're at in the market in both of those spaces, and we think the pipeline is solid. Part of it is just timing. The order timing can be lumpy, as we've seen in past years.
Ross Riley Sparenblek: So, you know, we think that there's good opportunity if we if we get some of that over the pipeline to flush through in the orders. But, you know, part of it is
Steven C. Blanco: But for example, AFG, the assistant for firefighter grants. Last year, they started releasing funds much earlier than this year. This year, they just did the first couple tranches last week. So about $62 million of the $325 million available has been released. So obviously, for those that are expecting to use that funding vehicle, they have to have that available to them.
Steven C. Blanco: Is the funding environment, do they have the funds, the environment's good, but for example, AFG, the assistance for firefighter grants
Steven C. Blanco: Last year they started releasing funds much earlier than this year. This year they just did the first couple tranches last week. So about $62 million of the $325 million available has been released.
Steven C. Blanco: So obviously for those that are expecting to use that funding vehicle, they have to have that available to them. So that's the thing, we just want to make sure those things come through.
Steven C. Blanco: So that's the thing that we just want to make sure those things come through. I would look at that. Lee? Yeah. Ross, I just want to add a couple of things.
Lee B. McChesney: So again, you have a dynamic in the back half of last year. We had some really nice wins. If you remember things like we were shipping to LA last year in the third quarter on the SBA side. On the back rack, we had nice large wins that had some big chunky orders attached to them. This year, it looks like some of those things will be more in the fourth quarter than the third quarter. So that's just a subtlety to some of those things. The Outlook being a little bit more back half of the second half, just to counter it. Kind of look at your model.
Speaker Change: You know, I would look at that.
Speaker Change: I just want to add a couple of things.
Lee B. McChesney: a dynamic in the back half for last year we had some really nice wins if you remember things like you know we were shipping LA last year in third quarter on the SBA side in back rack we had a nice nice large wins
Lee B. McChesney: that had some big, chunky orders to it. This year, it looks like some of those things will be more in the fourth quarter than the third quarter, so that's just a subtlety to some of the...
Lee B. McChesney: The Outlook being a little bit more back half of the second half, just to counter it as you kind of look at your model.
Ross Riley Sparenblek: Okay, I mean, can you maybe just update us on the supply chain bottlenecks of the first quarter? You know, I believe that there are maybe 100 basis points slipping in the second half, and then maybe just on that fourth quarter comment, and we can dig into the margins there because it almost seems to imply the guidance that we could see. A nice little step down in the third quarter in gross margins.
Ross Riley Sparenblek: Okay. I mean, can you maybe just update us on the supply chain bottlenecks of the first quarter? You know, I believe that there may be...
Speaker Change: A hundred basis points slipping in the second half, uh, and then maybe just on that fourth quarter comment, and we can dig into, uh, the margins there because it almost seems implied with the guidance that we could see, you know.
Lee B. McChesney: Yeah, I mean, obviously, lots of moving pieces. I think as you talk about the back half, you know, in terms of maintaining the kind of similar levels of growth, that includes all of that in there. I think in terms of margins, you have a nice continuation of what we've talked about.
Speaker Change: A nice little step down in the third quarter on gross margins.
Lee B. McChesney: Yeah, I mean, obviously lots of moving pieces. I think as you talk about the back half, you know, in terms of maintaining the kind of similar levels of growth, that includes all of that in there.
Lee B. McChesney: I think in terms of margins, you have a nice
Lee B. McChesney: Continuation, we've talked about this.
Lee B. McChesney: 48, you know, type of level, kind of being in the plus or minus of that for the year.
Lee B. McChesney: Our outlook for the back half is, you know, we will maintain that. You know, last year you had a very strong third quarter. You know, that won't repeat itself, but, you know, if you look at where we are in the second quarter,
Lee B. McChesney: in the mid-48s.
Lee B. McChesney: You'll have a step down because you have things like Europe holidays and things like that that factor in, and then you'll have an improvement again in the fourth quarter. So we're in a good place, I think, to the question earlier on the incrementals, you know, obviously we're...
Lee B. McChesney: The halfway point is slightly higher than our range on incrementals, and we'll still be in a good place in the back half. But the back half comp on margin is harder than the first half.
Ross Riley Sparenblek: Okay, that's helpful. And then maybe, can you just give us a sense of where the recurring revenue shook out as a contribution in the quarter and maybe help parse out also, you know, what those growth rates look like? It sounded like it was pretty meaningful.
Speaker Change: That's just one of the factors.
Ross Riley Sparenblek: Okay, that's helpful. And then maybe, can you just give us a sense of where the recurring revenue shook out as a, you know, contribution in the quarter and maybe help parse out also, you know, what those growth rates look like? It sounds like it's pretty meaningful.
Lee B. McChesney: I appreciate the question. Well, I would tell you this. We've shared that we sit today in the 15% zone. We obviously have a lot of initiatives to drive that into a better place. We talked about it yesterday, eventually getting into the 20% zone.
Lee B. McChesney: I appreciate the question. Well, I would tell you this, you know, we've shared that we sit today in the 15% zone.
Lee B. McChesney: We obviously have a lot of initiatives to drive that into a better place. We talked about it yesterday, eventually getting into the 20% zone. I would say there wasn't a material change in the third quarter towards that, but we had some nice wins.
Lee B. McChesney: I would say there wasn't a material change in the third quarter towards that, but we had some nice wins in the I04 space, in the MSA plus space, just globally. We continue to make progress and keep building out that book of business. It certainly helped the growth rate in portables for the first half of the year. It certainly is one of those factors that again goes into why be optimistic. Well, we booked for the last year and a half. Good about a 3 and 4 year contract on the IO4.
Lee B. McChesney: in the IO4 space, in the MSA plus space, just globally. So we continue to make progress and keep building out that book of business and
Lee B. McChesney: It certainly helped the growth rate in portables for the first half of the year, and certainly it's one of those factors that again goes into why be optimistic. Well, we booked for the last year and a half.
Lee B. McChesney: This is a good about a three and four year contract on the IO4.
Ross Riley Sparenblek: Okay, I mean, maybe then just on the mix, if we can get a sense of what the impact was from international, it does sound like the recurring might have offset a bit of that on the gross margin side.
Speaker Change: Okay I mean maybe then just on the mix if we get a sense of what the impact was from international it does sound like the recurring might have offset a bit of that
Lee B. McChesney: Yeah, I would say Mix is a pretty neutral story. I mean, it's interesting.
Gregory L. Martin: On the Grace Martin slide.
Lee B. McChesney: Think about the margins in the second quarter. They are our record. MS WordDoc
Lee B. McChesney: Yeah, I would say mix is a pretty neutral story. I mean, it's interesting. Think about the margins in the second quarter. They are our record.
Lee B. McChesney: Document.8, The focus on productivity, continued management of price and cost, and then certainly new product innovation being a nice lift as well. So it's those elements mixed together, again pretty neutral for us. It will be, I think it's going to be a bit of a headwind in the back half again because we had a really strong lean into detection last year as we cleared that back. I do think you're Ross, you're pointing to something on the international as you think of what we've been doing at the least point on the innovation front.
Speaker Change: margin rate, record in America as ever in any quarter. So that's really coming from the business system.
Lee B. McChesney: The focus on productivity, continued management of price and cost.
Lee B. McChesney: And then certainly, you know, the new product innovation, I think, being a nice, you know, nice lift as well. So it's those elements mixed, again, pretty neutral for us. It will be, you know, I think it's going to be a bit of a headwind in the back half, again, because we had a really strong...
Steven Blanco: Thank you, Ross. You're pointing to something on international, as you think of what we've been doing at the least point on the innovation front, and we're seeing the fire service do what we expect it. So fire service and detection in international has been really nice growth categories that we expect in the coming years will kind of shift that mix while we're growing industrial. We expect those to really play a nice role in international growth. So industrial should probably have a seasonally higher step up to the second half, despite the ballistic helmets, the second course. I wouldn't say, I wouldn't expect it to have. I mean, it's going to be market driven.
Lee B. McChesney: Leading to detection last year as we cleared that backlog
Lee B. McChesney: I do think, Ross, you're pointing to something on international as you think of what we've been doing at the least point on the innovation front.
Lee B. McChesney: And we're seeing the fire service do what we expected. So fire service and detection in international have been really nice growth categories that we expect in the coming years will kind of shift that mix. While we'll grow in industrial, we expect those to really play a nice role in international.
Lee B. McChesney: And we're seeing the fire service do what we expected. So fire service and detection in international has been really nice growth categories that we expect in the coming years will kind of shift that mix. While we'll grow in industrial, we expect those to really play a nice role in international's growth.
Lee B. McChesney: So Industrial should probably have a seasonally higher step up to the second half despite the ballistic helmet.
Speaker Change: Got it. So industrial should probably have a seasonally higher step up in the second half, despite the ballistic helmets.
Lee B. McChesney: I wouldn't say, I wouldn't expect it to have, I mean, it's going to be market driven. I wouldn't necessarily expect the industrial space to have a higher lift in the second half. You know, we're expecting that it's probably going to be somewhat similar to the first half. Unless the economy accelerates or changes materially, I would expect it to be fairly or very consistent with the first half. You know, we had some tough comps on the ballistic side for international, the ballistic helmet business there. So I would say it's probably going to be fairly consistent.
Lee B. McChesney: I wouldn't say, I wouldn't expect it to have, I mean, it's going to be market driven, I wouldn't necessarily expect the industrial space to have a higher lift in the second half.
Steven Blanco: I wouldn't necessarily expect the industrial space to have a higher lift in the second half. You know, we're expected it's probably going to be somewhat similar to the first half, unless the economy, you know, accelerators changes. Materially, I would expect it to be fairly, fairly or very consistent with the first half. You know, we had some tough cops on the ballistic side for international, the ballistic helmet business there. So I would say it's probably going to be fairly consistent.
Lee B. McChesney: You know, we're expecting it. It's probably going to be somewhat similar to the first half unless the economy, you know, accelerates or changes materially. I would expect it to be fairly or very consistent with the first half.
Lee B. McChesney: You know, we had some tough comps on the ballistic side for International, the ballistic helmet business there. So, I would say it's probably going to be fairly consistent.
Operator: Thanks for watching!
Unknown Executive: Got it. All right.
Unknown Executive: Well, congratulations. Thank you. Thanks, Ross.
Got it. All right. Well, congrats on the quarter, guys. Thank you. Thanks, Ross.
Larry Demerio: This concludes our question and answer session.
Lawrence Tighe De Maria: This concludes our question and answer session. I would like to turn the conference back over to Larry DiMaria for any closing remarks.
Larry Demerio: I would like to turn the conference back over to Larry Demerio for any closing remarks. Thank you. We appreciate you joining the call this morning and for 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 rest of relations website and will be available for the next 90 days. We look forward to updating you on our continued progress again next quarter.
This concludes our question and answer session. I would like to turn the conference back over to Larry DiMaria for any closing remarks.
Lawrence Tighe De Maria: Thank you. 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 Arrested Relations website and will be available for the next 90 days. We look forward to updating you on our continued progress again next quarter.
Lawrence Tighe De Maria: Thank you. 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 Arrested Relations website and will be available for the next 90 days. We look forward to updating you on our continued progress again next quarter.
Unknown Executive: The conference is now concluded. Thank you for attending today's presentation.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Unknown Executive: You may now disconnect.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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