Good day, and welcome to the MSA Safety Fourth Quarter and Full Year 2024 Earnings Conference Call. All participants will be in a listen-only mode. Please note that this event is being recorded. I would now like to turn the conference over to Larry De Maria, Please go ahead.

Thank you. Good morning and welcome to MSA Safety's fourth quarter and full year 2024 earnings conference call. This is Larry De Maria, Executive Director of Investor Relations. I am joined by Steve Blanco, President and CEO, Lee McChesney, Senior Vice President, CFO, and Stephanie Schulow, President of our America segment. During today's call, we will discuss MSA Safety Incorporated's fourth quarter and full year financial results along with our full year 2025 outlook. Before we begin, I would like to remind everyone that the 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 not limited to, or 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 Incorporated undertakes no duty publically 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. 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, Steve will highlight the importance of our mission and provide a business update from the fourth quarter and full year 2024. We will then review our financial performance 2025 outlook. To conclude, Steve will outline our 2025 strategic priorities before providing closing comments. Then open the call for your questions. With that, I'll turn the call over to Steve Blanco. Steve?

Thanks, Larry, and good morning, everyone. Thank you for your continued interest in MSA Safety Incorporated. 2024 marked MSA Safety's 110th year as a purpose-driven company. Over that time, we've remained dedicated to our mission that men and women may work in safety, and their families and their communities may live in health throughout the world. Today, we are better positioned than ever to help our customers solve their toughest safety challenges. As we move forward into 2025, we remain focused on fulfilling our mission and protecting the more than 40 million workers around the world that place their trust in the MSA brand. I want to personally thank all our associates for their continued commitment to our singular mission of safety. Before we get into our recent performance, I would like to acknowledge and thank the more than 15,000 first responders, including our customers from the Los Angeles County and Los Angeles City fire departments, who have been heroically fighting to end the devastating fires in Southern California. As we have done with past disasters, MSA is partnering with the American Red Cross to help those directly impacted, and our team continues to monitor the situation for additional opportunities to provide support. Now on slide five, to provide a business update on the quarter and full year. Our team executed well against the backdrop of a dynamic operating environment to conclude 2024. Financial results for the quarter were mixed as we achieved margin expansion through SG&A management, earnings growth, and solid free cash flow generation despite sales growth being lower than expectations. Sales were impacted by pockets of industrial market weakness, softer US fire service demand, as well as foreign exchange headwinds. That said, overall demand was resilient across our top product categories as evidenced by healthy order pace…

Thank you, Steve, and good day, everyone. We appreciate you joining the call. Let's start on slide seven with the quarterly financial highlights. Fourth quarter sales were $500 million, an increase of 1% on a reported basis and 2% organic over the prior year. Healthy growth in the fire service was partially offset by a low single-digit contraction in detection and a mid-single-digit contraction in industrial PPE. We made contributions from volume and pricing in the quarter, and currency translation was a 1% headwind to overall growth. Order pace remained solid in the fourth quarter, up 14% year over year, and second-half orders are up 10% versus the same prior year period. While macro and geopolitical conditions remain dynamic, we continue to see mixed but generally resilient market conditions and retain an active new business pipeline. Consistent with normal seasonal patterns, our book to bill is slightly below one times, and as we anticipated, we reduced backlog. Backlog conversion was largely in fire service, more specifically related to the G1 SCBA. Now moving on to margins, gross profit in the fourth quarter was resilient at 46.9%, down 120 basis points over the prior year. Gross margin contraction was attributable to inflation and large project mix, which was partially offset by price and productivity programs. GAAP operating margin was 23.5%, with adjusted operating margin of 24.0%, up 70 basis points over the prior year, an incremental operating margin of 113%. The margin increase was largely due to effective SG&A management and lower variable compensation expense, along with our sustained price inflation focus and continued productivity execution. Our laser focus on driving sustainable margin improvements continues to yield results. GAAP net income in the quarter totaled $88 million, or $2.22 per diluted share. On an adjusted basis, diluted earnings per share were…

Thanks, Lee, and I'm on slide twelve. As I look ahead into 2025, our team around the world continues to maintain and execute our strategy while controlling what we can control. Our 2025 initiatives strongly emphasize growth and extending our leadership position in safety technology through innovation, implementing the MSA business system, delivering continued improvements in operations, and maintaining our disciplined approach to capital allocation. On slide thirteen, overall, we executed well in what we see as a dynamic environment in 2024, a tribute to the team's focus on serving that mission and the inherent resiliency of our business. As we turn to 2025, we remain focused on driving profitable growth and building on the foundational work we completed in 2024 for our Accelerate strategy. I'm confident our focus and determination will help drive long-term value creation for our shareholders and continue to make MSA Safety Incorporated the preferred choice for our customers around the world. With that, I'll turn the call back over to the operator for Q&A.

Thank you. We will now begin the question and answer session. Your first question today will come from Ross Sparenblak with William Blair. Please go ahead.

Hey, good morning, gentlemen.

Good morning, Ross.

Hey, Steve. You called out firming orders in your commentary there. Can you maybe just help us size the cadence as we move through the quarter and into January? And maybe just frame some of the puts and takes when you think about the growth expectations throughout 2025.

Yeah. For you mean, the order pace we've seen thus far?

Exactly.

Yeah. Yeah. So so if we if we looked at the the overall fourth quarter, we started out we would say, where we hope to be in fourth quarter. December was lighter than we anticipated. A lot of that industrial wise, slower December than we thought. I think it it fit that thesis of that choppiness in industrial which, you know, our distributors kinda shared with as well. So we weren't, you know, weren't seeing what we thought maybe in December, but as we looked into year to date, thus far, it's been a a really solid start. Across the board, especially in in our detection business. Fire service has been good. So as we look at it, overall, I think we look at the twenty five story, the incoming and the pipeline. Really matching up with what we anticipated? You know, as we talked even back to Investor Day, I think it fits really well But what we initially thought strategically we'd focus on and how we've kinda move forward. The detection space and fall protection is is clearly a category as well. So so far, I'd say the the order pace is just Just as as we hoped it would be, and the pipeline is the same.

Okay. I mean, with the coming NFPA standard change, I mean, do you get the sense that there's been any deferred ordering anticipation of the new product launches?

Yeah. That's a good question too. So the you know, this first, the fire service business continues to be resilient, and the pipeline's good. I would say that the pace of ordering wasn't to the level we anticipate the Air Force order, which was nice, but we actually expected it to be a little stronger. Now again, we're not seeing any competitive accounts take those orders from us but a slower pace. As we look into 2025, you know, we are cautious because of the NFPA standards change in, you know, the latter part of the year. The promulgates probably early 2026, but I think we're really well positioned. You know, our team's done a nice job really talking to the customer base on who will potentially wait and who won't. And in our view, we got a pretty good base of business that won't wait but there were certainly are customers that are gonna consider hey, I wanna wait and see what the new standard is.

Okay. Yeah. That's very helpful. And just one more for me. You know, you also referenced a large MSA plus order. You know, forgive me if I missed it. Was this a new or existing customer? Just like to better understand some of the competitive dynamics and

This was new. This was raised.

Yeah. Thanks for the question. So this was a competitive conversion. The large customer in North America great competitive conversion where we competed against all of the primary competitors you might expect. And the team did a fantastic job.

That's great to hear. Alright. I'll jump back in queue. Thanks, Chris.

Thanks, Ross.

Your next question today will come from Sarim BoraDietzki with Jefferies. Please go ahead.

Hi, good morning. Thanks for taking the questions. Maybe just focusing a little bit on the margins America margins exiting the year at almost thirty-one percent. Like, how does this set you up you think about the margin potential heading into 2025?

Yep. So good morning. Well, I probably bring you back to, you know, our goal each year is to target thirty to fifty basis points of improvement. You know, that's certainly what we're gonna do each year. I would say when we think about twenty five, that will be a bit harder. You know, certainly, FX is out there. You know, I've I've showed this a number of times. We we go after that type of improvement, and if something goes wrong, you got something combat it. So, I mean, right now, I'm not gonna get into the game with predicting FX, but we certainly know it's if I look at the rates today, it's it's at least a point and, you know, times even in the last few weeks has been more than that. But I still think, you know, for for the year, we're looking to to to move the margins up, and it's gonna be more in the gross margin area than in the SG As you think about our outlook for 2025.

That's helpful. Then maybe switching to international, a similar question. Can you just talk through the variability in international margins as we head into 2025? How do you think about the step down into the first quarter sequentially? And then how should margins trend through the remainder of the year?

Yes. Good question. And I think for international, but also just for the entire portfolio, there's definitely a step down in one Q just just simply because of volume leverage. You know, and that's how we see it. We made a comment about just the outlook for the year. You're gonna see a more normal seasonal pattern in our sales. The last couple of years, you've had some anomalies because of large orders or backlog and things like that. But Right. There is a variability in international. It doesn't have the same you know, market position or market dynamics that we do in North America, We are working on the same things. You know, we're working on productivity, launching NPD, you know, we certainly have done restructuring over time to attack our cost base. And I think, you know, it's more of a long term play. There are structural differences between the international markets in North America, so there'll be a difference. But certainly, you know, we have these margin objectives, you know, we're going after it across the globe. Sure.

I appreciate that. And then just one more. You mentioned just the normal seasonality for the year, but if we just kind of focus on Americas and fire service, just talk about how you're thinking about the cadence to the fire service sales given the challenging comp in the fourth quarter.

Yeah. Sure. Yeah. So I'll give you a couple of dynamics to think about. So we're talking about low single-digit organic growth is our target for the year. It's certainly when I say you have a normal seasonal pattern, you know, that's, you know, it's always gonna again have that lower first quarter little bit step up for the second quarter, and there's there's a a larger back half. You know, typically, our sales overall know, probably about forty-seven to forty-eight percent the first half of the year, and remainder is in the back half. So when you drop that in, into 2025, that's gonna give you just a a different view because in the first half of 2024, we had Air Force. We also had a, you know, kind of our final rundown of extra backlog. In fire overall, you know, we've as we share, we think for the year, it will be a negative growth year because of those comps. And certainly the harder comp isn't is in the first half of the year. Versus the second half. I'll just add to that because, you know, beyond that, you know, that's we've talked about that since May. We still have our focus on, you know, detection being our leading growth segment. That's still our view for 2025 as well. And then, you know, industrial PPE, certainly default protections are focused to get that into a positive as well in 2025.

I appreciate the color. Thanks so much.

And your next question today will come from Jeff Van Sinderen with B. Riley FBR.

Good morning, everyone. You touched a little bit about this on your prepared comments, but wondering if you can speak a little bit more about what you're doing in terms of product innovation in 2025 and, I guess, even into 2026. And then could some of those innovation initiatives create demand for replacements and upgrades in the detection segment. Just curious about what you're seeing there.

Yeah. Thanks for the question. So, I mean, broadly speaking, as you know, and we talked a bit about this in the prepared comments, but innovation is where we lead, and it helps us differentiate who we are in the market. We spend a lot of time with our customers, a lot of VOC or voice customer activity to inform us and gain the insights to really come up with solutions to the challenges they identify. So I would look at 2025 and 2026. You know, 2025, you think about what we talked with fire service. We've taken advantage of this switch to enhance the G1 specifically with what we see as the next generation G1 that will showcase at this year's FDIC. And that's focused on optimizing comfort, functionality, ergonomics, etcetera. And then if you lean in the detection space a little bit more, I think what's really good for us, and I'll talk about this in two categories, because we see detection as a fixed monitoring, and then we look at the portable side of this. So if you look at the portable side of this business, we really are leaning into the connected platform a lot. We have the iO4. We also have a robust plan for product software updates and cloud capabilities that will continue to roll out throughout 2025 and beyond, so you'll see some of that show up this year. Certainly, that does have that's part of our strategic initiative set, the Accelerate strategy we talked about in May. That's coming to fruition and should see some really nice benefits. A lot of that might be the latter half of the year, as far as when you see the revenue side of that, but really good progress there. And in the fixed side, you know, that fixed monitoring space. It's a really strong business, great diversity in the portfolio, we've got an expanded solution set because of our HVAC refrigeration and automation that came through Bacharach that came through the MSA SMC acquisitions. That adds to the strong base in energy that we already have including clean, including the best storage space where we play in, and that strong installed base. So I think we think of detection, it's really fitting out or filling out really well with what we expected and it's gonna be a a key growth driver into the future.

Okay. Terrific. And then just wanted to follow up a little bit on the new NFPA standard change this year. As you think about that, what do you feel needs to happen for that business to normalize under the new standard? And then I guess, I know this is a tough question, but how do you see sort of the time frame of that playing out?

Well, these standards come out usually every five to six years. So this is something that's not new. So we do have a lot of experience with this. Typically, what you see is you see customers evaluate where they're at in the buying cycle, and a lot of customers can't wait. And then they also evaluate what's changing in the standard and how do they view that relative to the needs they have as a specific department. So the 2025 standard, which, you know, the timing is really up to the NFPA when they get through all of the approval processes, they have to do all the testing. We've submitted our platform, and certainly, our competitors we think are doing the same. But they have to go through all of that process and then they validate those different platforms for approval. And we would expect that to promulgate probably early 2026. You know, again, we don't know the timing exactly, but that would be likely. But if you look at that standard, the changes on it relative to typical standard changes are fairly minor. They're not significant in nature. So that's kind of the the thoughts our team has. There certainly will be customers that wait. We expect that to happen. There always are. But it's a fairly normalized standard change in our view. And we did as I said, I think we we look at our G1 platform, and we've continued to enhance that for our customers. So including the 2018 standard, we've each taken advantage of each standard change opportunity to really upgrade that. But this latest enhancement for the G1 and what we've done on the next Gen, we think the timing's perfect. So next year when it promulgates, the 2025 standard, we'll be twelve years out from that. First, fourteen, 2014 G1. Perfect timing for those first units to come back up. So we feel really good as we go into the future on this. 2025 is gonna be a little choppy the comp for Air Force and certainly the standard change, but we think we're well prepared.

Good to hear. Thanks for taking my questions.

This concludes our question and answer session. I would like to turn the conference back over to Larry De Maria for any closing remarks.

Thank you. We appreciate you joining the call this morning, and thank you for your continued interest in MSA Safety Incorporated. If you miss a portion of today's call, an audio replay will be made available later today on our Investor Relations website and will be available for the next ninety days. We look forward to updating you on our continued progress again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.