MSA Safety Incorporated

Good day and welcome to the MSA second quarter 2021 earnings conference call. All participants will be in a listen-only mode. 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 one on your touch-tone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Elise Lorenzato. Please go ahead.

Thank you, Cole. Good morning, everyone, and welcome to MSA's second quarter earnings conference call for 2021. Joining me on the call today are Nish Vartanian, Chairman, President, and CEO, and Ken Krause, Senior Vice President, CFO, and Treasurer. Before we begin, I'd like to remind everyone that the matters discussed on this call, excluding historical information, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include but are not limited to all projections and anticipated levels of future performance. Forward-looking statements involve risks, uncertainties, and other factors that may cause our actual results to differ materially from those discussed here. These risks, uncertainties, and other factors are detailed in our Form 10-K filings with the SEC. MSA undertakes no duty to publicly update any forward-looking statements made on this call except as required by law. We've included certain non-GAAP financial measures as part of our discussion this morning, and the non-GAAP reconciliations, as well as our earnings press release, are available on our Investor Relations website at investors.msasafety.com. With that, I'll turn the call over to our Chairman, President, and CEO, Nish Vartanian.

Thanks, Elise, and good morning, everyone. As you've seen, we've accomplished a lot in the second quarter. Most importantly, we closed the acquisition of Baccarat on July 1st, which I'll discuss after a brief overview of the quarter. We had a pretty good quarter. Our revenue returned to growth up 5% from a year ago. Core product revenue is up 12%. Margins are on track as we effectively manage through inflation we see in our supply chain. I mentioned on the April call that we were optimistic that the worst was behind us from a demand perspective. I'm glad to reiterate that sentiment today. Not only did revenue come in a bit higher than our expectations, our order book continued to strengthen throughout the quarter and drove significant increase in backlog. Our fire service business remains strong and we're seeing improved demand for gas detection and industrial products. Overall, our U.S. business continues to lead to recovery. Europe is starting to recover as the vaccine situation improves. Like everyone, We continue to manage through supply chain issues, which is a dynamic situation that requires daily attention. Our most challenging areas are electronic components used in our SCBA and gas detection products. Our level of revenue indicates we've done a good job of managing through these issues. Still, we did have pockets of production starts and stops and extended lead times that contributed to our backlog build. But even with those challenges, I remain very confident in our ability to enhance our market positions as business conditions improve. Ken will provide more color on the quarter. I'd like to now provide more insight into three areas that support my confidence in the long-term future of MSA as the leader in advanced safety technology. First, we continue to launch safety technologies that solve our customers' toughest safety challenges, and I'll talk about those in a moment. Our continuous improvement culture is driving efficiencies for our organization. The strong execution of our international margin expansion roadmap is one example. And third, we're using our balance sheet to make strategic acquisitions and investments that strengthen our leadership positions in key markets. We recently closed the acquisition of Bacharach and the integration of our two organizations is off to a strong start. Starting with the first area, our innovation engine and R&D pipeline. We're bringing innovation to the fire service market in the form of connected technologies. We officially launched LUNR this spring and our Q2 results include about a million dollars of revenue related to product sales. LUNR, for those of you who haven't seen or read about it, is a handheld device that uses cloud technology to deliver fire scene management capabilities for incident commanders. The feedback we're getting from early adopters provides encouragement that we've hit the mark with this new technology. We're also using our strong balance sheet to invest in other forward-thinking organizations who share a similar mission to protect firefighters. And as you may have seen in our press release earlier this month, we established a joint development agreement with a Swiss autonomous drone technology company called Photokite. We established this partnership to improve firefighter safety and enhance their capabilities when it comes to fire scene situational awareness and decision making. PhotoKite is the brand name for a tethered drone system that gives incident commanders a bird's eye perspective of a fire scene without requiring a pilot. This collaboration is an exciting venture for us because it represents a new avenue to advance the MSA mission The second area I want to highlight is our culture of continuous improvement and our margin expansion progress in the international business segment. Our entire international team continues to execute a playbook focused on three areas, driving growth in select markets, optimizing our channels approach, and delivering operational efficiencies. We've been executing this playbook for three years now, and it's encouraging to see the margin improvement as revenue starts to recover from the pandemic. In the second quarter, the international segment operating margin rose 70 basis points to 16.5%. And looking back to Q2 of 2019, segment margin is up more than 350 basis points. With the pipeline of programs we have in place, we remain confident in our ability to continue driving margin expansion in international. The third area I want to highlight is how we use our balance sheet to make acquisitions that strengthen our leadership position in key markets. On July 1st, we closed the acquisition of Baccarat. Baccarat is a leader in gas detection technologies which is used in the HVAC refrigeration markets with annual revenue of about $70 million. It's headquartered here in Pittsburgh, not far from our Gas Detection Center of Excellence, where we've recently made significant investments. Acorac aligns well with our product and manufacturing expertise. Moreover, it provides a strong brand and access to attractive end markets that build further diversification in our gas detection business. From an integration perspective, we'll be focused broadly on growing the business and reducing complexity. I'm very confident in our team's ability to capture value from the acquisition while strengthening the brands at both Baccarat and MSA. From the balance sheet perspective, our leverage remains healthy. If we add Baccarat into our quarter end net leverage, the pro forma would be about 1.7 times net. So we're well positioned to continue investing in our business. One additional topic I'd like to mention is our approach to ESG. Social responsibility is not new to MSA. For 107 years, we've been dedicated to helping protect the world's workers. So we help our customers achieve their own ESG goals by enhancing workplace safety. But we also focus internally on ESG objectives that help us to build greater resiliency and adaptability into our overall business model to safeguard the value that we've created. It's become clear to me that our investments in worker safety, talent, environmental sustainability, supply chain resiliency, and various risk mitigation programs all help to create a better business model. And I believe that companies who do these things effectively will be the ones to prosper and be fit for the future. For prioritizing areas specific to our strategy, For example, we know that attracting and retaining a quality workforce through broad talent pipelines is not just a top business challenge for any organization today, but particularly for manufacturing companies. For that reason, we invest a lot of time and resources into talent development and retention. And for the first time, MSA was recently recognized by Forbes as one of the best employers for diversity in 2021. This recognition was based on a survey of more than 50,000 employees around the country. We were also ranked number 16 on the Forbes Best Midsize Employers list, and we were number one for engineering and manufacturing industry category. So it's encouraging to see further recognition of our efforts to create a top workplace. To summarize, there are three areas that give me confidence in MSA's future. Our innovation engine is very strong and it continues to power new and exciting developments in safety technology. Our continuous improvement culture across all areas of our business is yielding strong results, especially in the international segment. And we're effectively using our balance sheet to grow and strengthen our business. With that, I'll turn the call over to Ken to take you through more detail on our financial results. Ken?