MSA Safety Incorporated

Good day, and welcome to the MSA Safety Second Quarter 2023 Earnings Conference Call. All participants will be in 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, this event is being recorded. I would now like to turn the conference over to Chris Hepler.

Thank you. Good morning, and welcome to MSA Safety's second quarter 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, Lee McChesney, Senior Vice President and CFO, and Steve Blanco, President and COO. Before we begin, I'd 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 filings. MSA Safety undertakes no duty to publicly update any forward-looking statements made on this call except as required by law. 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 will discuss the key highlights of the quarter. He will then turn the call over to Steve to make a few remarks. 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. And thank you for your interest in the work we do. I'll start on slide four. MSA is a purpose-led company with the single mission of safety. We protect people, assets, and the planet. In June, we celebrated our 109th year anniversary, and the entrepreneurial spirit of our founders continues today. MSA has established itself as a global leader in the safety industry with strong market positions across our portfolio and around the world. Our success is based on our innovation and passion for solving our customer safety challenges. We've made great progress over the years in delivering on our mission and living our purpose. As we look ahead, I believe our future is bright. Moving on to slide five, we delivered another quarter of strong results with double digit growth, healthy margin expansion, and robust cash flow generation. I want to thank our team for their outstanding execution. which drove balanced growth across our business and regions. I want to provide an update on what we're seeing in our end markets. Our largest business, firefighter safety, has proven to be resilient over many years. Funding in this market is stable and largely comes from federal, state, and local governments. The pipeline for business across our head-to-toe firefighter solutions remains strong, and the outlook is healthy. Recently, we spoke about self-contained breathing apparatus wins in both London and Los Angeles, and I'm pleased to see additional large orders in these geographies with fire departments in the UK, including West Midlands, and in California, where we recently won Fresno. We've also made meaningful progress, reducing lead times in our globe firefighter protective apparel business as a result of improved labor and material availability, as well as operational execution. Our team's commitment to continuous improvement and the application of the MSA business system has resulted in sustainable improvements in our execution and positive outcomes for our customers. To summarize, our firefighter safety business is performing well and positioned for future growth. In the second quarter, growth was nearly 20% year over year, driven by 36% growth in firefighter helmets and protective clothing, and 10% growth in breathing apparatus. Now moving on to our gas detection business. In the quarter, we saw double-digit growth in both fixed gas and flame detection and portable gas detection, helped in part by an improving supply chain. Fixed gas and flame detection was up 32% year over year, and portable gas detection grew by 17%. Our end markets continue to be stable across our gas detection business, and our pipeline is solid. Finally, in our industrial PPE business, which includes head protection, fall protection, and related safety products, we saw healthy growth in sales and orders in a quarter. Fall protection sales increased 27% year over year, and head protection grew by 8%. While we're pleased with our growth in industrial PPE, we're seeing macroeconomic variance across the broad range of end markets we serve. Demand in process industries and utilities remain stable, while non-residential construction and general industrial have been mixed. A common theme we hear from our customers is that labor continues to be a challenge. Given that our industrial PPE products and solutions are closely tied to industrial employment and general economic activity, we continue to be measured in our near-term outlook. I'll next provide an update on BACARAC. Last month marked the second anniversary of our acquisition of the company, and we're in the final stages of integration activities. Baccarat is performing well, and the margins in the business are accretive. Baccarat is a leader in gas and leak detection technologies for heating, ventilation, air conditioning, and refrigeration markets. With Baccarat, we've been able to add scale to our HVAC and refrigeration product lines, further diversifying our gas detection business. I've also been impressed with the talent on the Baccarat team. The team is inspired by our values and mission, and several associates have taken on new and expanded roles at MSA. Baccarat participates in a broad range of end markets, and the evolving regulatory landscape for greenhouse gas emissions and customers' need to preserve refrigerants has been supportive to growth, which we expect to continue. We've had positive momentum with blue chip customers in the food retail and quick service restaurant sectors. And recently, we signed a $25 million multi-year contract with the US Navy. I'm very pleased with the value this acquisition has brought to our customers and organization. Turning to slide six, I want to say a few words about our recent leadership changes. Steve Blanco, who many of you on this call have met, was named our President and Chief Operating Officer. Succeeding him as president of our America segment is Stephanie Shulo. Finally, Rick Rhoda has assumed the position of chief legal officer. MSA continues to evolve as a company, and these senior leadership changes reflect our deep bench of talent and our commitment to grow our leaders. Steve, Stephanie, and Rick have made a tremendous impact on MSA, and I'm confident in their ability to deliver results for our stakeholders going forward. These leaders are supported in their new roles by highly experienced and talented teams around the world. Before moving to the financial review, I'll ask Steve to say a few words regarding his new role and near-term priorities.