UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 8-K
________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 28, 2020
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (Commission File Number) | (IRS Employer Identification Number) | ||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
Registrant’s telephone number, including area code: 724 -776-8600
Former name or former address, if changed since last report: N/A
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||||||||
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||||||||
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||||||||
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | ||||||||
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 | Results of Operations and Financial Condition | ||||
On October 28, 2020 , the Company issued a press release announcing its financial results for the quarter ended September 30, 2020. A copy of the press release is furnished herewith as Exhibit 99.1 to this report.
Item 9.01 | Financial Statements and Exhibits | ||||
(d) Exhibits
99.1 MSA Safety Incorporated Press Release dated October 28, 2020 , announcing financial results for the quarter ended September 30, 2020.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
MSA SAFETY INCORPORATED | |||||||||||
(Registrant) | |||||||||||
By | /s/ Kenneth D. Krause | ||||||||||
Kenneth D. Krause | |||||||||||
| Sr. Vice President, Chief Financial Officer and Treasurer | |||||||||||
EXHIBIT INDEX
Exhibit No. Description
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
FROM: MSA Safety Incorporated
Ticker: MSA (NYSE)
Media Relations Contact: Mark Deasy (412) 559 - 8154
Investor Relations Contact: Elyse Lorenzato (412) 352 -1423
MSA Safety Announces Third Quarter Results
PITTSBURGH, October 28, 2020 - Global safety equipment manufacturer MSA Safety Incorporated (NYSE: MSA) today reported results for the third quarter of 2020.
Quarterly Highlights
•Revenue was $304 million, decreasing 13 percent from a year ago on both a reported and constant currency basis.
•Following weak demand in key markets in July and August, business conditions improved in September with monthly incoming orders growing on a sequential and year over year basis.
•GAAP operating income was $41 million or 13.5 percent of sales, compared to $60 million or 17.0 percent of sales in the same period a year ago. Adjusted operating income was $54 million or 17.6 percent of sales, compared to $63 million or 18.0 percent of sales in the same period a year ago.
•GAAP earnings were $28 million or $0.71 per diluted share, compared to $42 million or $1.08 per diluted share in the same period a year ago. Adjusted earnings were $37 million or $0.94 per diluted share, compared to $45 million or $1.15 per diluted share in the same period a year ago.
•MSA's debt balance was $342 million at quarter end, reflecting 1.2x adjusted EBITDA on a gross basis or 0.7x adjusted EBITDA on a net basis. With $133 million in cash and significant room available under its current debt covenants, the company has ample liquidity and flexibility to maintain its balanced capital allocation strategy.
Comments from Management
“The global pandemic and its ripple effects on employment and the economy certainly had an impact on our third quarter results,” said Nish Vartanian, MSA Chairman, President and CEO. “Our team, however, executed well and our results reflect the benefits of previous restructuring programs as well as our actions to lower discretionary costs throughout the year,” he said.
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“It was a tough July and August from a demand perspective, particularly in the energy and commercial construction markets in the Americas segment,” Mr. Vartanian said, adding that the COVID-19 resurgence in the summer across the Gulf Coast of the U.S. negatively impacted a number of the company's key markets. “In September, we saw significant improvement in orders and revenue across nearly every area of our business.”
Mr. Vartanian noted that despite the quarterly revenue contraction of 13 percent, the company maintained a healthy margin profile. "Our restructuring investments are yielding results and the strong improvement in International segment margins is especially encouraging,” he said. Adjusted operating margin in the company’s International segment increased 240 basis points in the quarter and 230 basis points for the year to date.
MSA is taking further action to reduce its cost structure in response to the recession. Mr. Vartanian indicated that the company has started executing a global restructuring program that is expected to deliver $10-15 million of cost savings in 2021. “While we’re taking steps to streamline our cost structure and improve our business model through this downturn, we remain very committed to investing in our new product development pipeline to drive long term growth and enhance our market leadership positions.”
“Our organization remains very well positioned and dedicated to advancing MSA’s mission, which has never been more important, or more relevant. Our team remains highly engaged and we are focused on leveraging our strong balance sheet to make investments that create long term value for all MSA stakeholders,” Mr. Vartanian concluded.
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MSA Safety Incorporated
Condensed Consolidated Statement of Income (Unaudited)
(In thousands, except per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Net sales | $ | 304,392 | $ | 351,014 | $ | 959,975 | $ | 1,026,726 | |||||||||||||||
Cost of products sold | 172,160 | 192,313 | 528,799 | 556,959 | |||||||||||||||||||
Gross profit | 132,232 | 158,701 | 431,176 | 469,767 | |||||||||||||||||||
Selling, general and administrative | 64,793 | 82,900 | 214,066 | 245,337 | |||||||||||||||||||
Research and development | 13,851 | 13,520 | 41,723 | 41,482 | |||||||||||||||||||
Restructuring charges | 7,603 | 1,850 | 18,475 | 11,203 | |||||||||||||||||||
Currency exchange losses (gains), net (a) | 2,759 | (913) | 3,821 | 17,338 | |||||||||||||||||||
Product liability expense | 2,077 | 1,730 | 4,878 | 8,155 | |||||||||||||||||||
Operating income | 41,149 | 59,614 | 148,213 | 146,252 | |||||||||||||||||||
| Interest expense | 2,305 | 4,259 | 7,907 | 11,089 | |||||||||||||||||||
| Other income, net | (1,117) | (2,929) | (4,376) | (8,850) | |||||||||||||||||||
| Total other expense, net | 1,188 | 1,330 | 3,531 | 2,239 | |||||||||||||||||||
| Income before income taxes | 39,961 | 58,284 | 144,682 | 144,013 | |||||||||||||||||||
| Provision for income taxes | 11,727 | 15,673 | 36,251 | 37,913 | |||||||||||||||||||
Net income | 28,234 | 42,611 | 108,431 | 106,100 | |||||||||||||||||||
| Net income attributable to noncontrolling interests | (200) | (372) | (668) | (822) | |||||||||||||||||||
| Net income attributable to MSA Safety Incorporated | $ | 28,034 | $ | 42,239 | $ | 107,763 | $ | 105,278 | |||||||||||||||
| Earnings per share attributable to MSA Safety Incorporated common shareholders: | |||||||||||||||||||||||
Basic | $ | 0.72 | $ | 1.09 | $ | 2.77 | $ | 2.72 | |||||||||||||||
Diluted | $ | 0.71 | $ | 1.08 | $ | 2.74 | $ | 2.69 | |||||||||||||||
Basic shares outstanding | 38,906 | 38,649 | 38,853 | 38,617 | |||||||||||||||||||
Diluted shares outstanding | 39,260 | 39,144 | 39,269 | 39,130 | |||||||||||||||||||
(a) Currency exchange losses for the nine months ended September 30, 2019 includes a $15.4 million non-cash charge related to the recognition of currency translation adjustments associated with the closure of MSA's South Africa affiliates.
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MSA Safety Incorporated
Condensed Consolidated Balance Sheet (Unaudited)
(In thousands)
| September 30, 2020 | December 31, 2019 | ||||||||||
Assets | |||||||||||
Cash and cash equivalents | $ | 132,830 | $ | 152,195 | |||||||
Trade receivables, net | 229,293 | 255,082 | |||||||||
Inventories | 252,856 | 185,027 | |||||||||
Notes receivable, insurance companies | 3,766 | 3,676 | |||||||||
Other current assets | 125,344 | 97,383 | |||||||||
Total current assets | 744,089 | 693,363 | |||||||||
Property, net | 178,064 | 167,038 | |||||||||
Prepaid pension cost | 83,447 | 75,066 | |||||||||
Operating lease assets, net | 52,331 | 51,675 | |||||||||
Goodwill | 436,273 | 436,679 | |||||||||
Notes receivable, insurance companies, noncurrent | 48,214 | 52,336 | |||||||||
Insurance receivable, noncurrent | 51,419 | 56,169 | |||||||||
Other noncurrent assets | 198,828 | 207,367 | |||||||||
Total assets | $ | 1,792,665 | $ | 1,739,693 | |||||||
| Liabilities and shareholders' equity | |||||||||||
Notes payable and current portion of long-term debt, net | $ | 20,000 | $ | 20,000 | |||||||
Accounts payable | 79,774 | 89,120 | |||||||||
Other current liabilities | 184,884 | 168,389 | |||||||||
Total current liabilities | 284,658 | 277,509 | |||||||||
Long-term debt, net | 321,694 | 328,394 | |||||||||
Pensions and other employee benefits | 190,073 | 186,697 | |||||||||
Noncurrent operating lease liabilities | 43,639 | 42,632 | |||||||||
Deferred tax liabilities | 11,425 | 9,787 | |||||||||
Product liability and other noncurrent liabilities | 161,073 | 162,101 | |||||||||
Total shareholders' equity | 780,103 | 732,573 | |||||||||
Total liabilities and shareholders' equity | $ | 1,792,665 | $ | 1,739,693 | |||||||
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MSA Safety Incorporated
Condensed Consolidated Statement of Cash Flows (Unaudited)
(In thousands)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Net income | $ | 28,234 | $ | 42,611 | $ | 108,431 | $ | 106,100 | |||||||||||||||
Depreciation and amortization | 9,856 | 9,547 | 29,284 | 28,339 | |||||||||||||||||||
Change in working capital and other operating | (10,954) | (1,453) | (27,560) | (46,189) | |||||||||||||||||||
Cash flow from operating activities | 27,136 | 50,705 | 110,155 | 88,250 | |||||||||||||||||||
Capital expenditures | (12,864) | (9,998) | (32,698) | (23,523) | |||||||||||||||||||
Acquisition, net of cash acquired | — | — | — | (33,196) | |||||||||||||||||||
Change in short-term investments | (9,935) | 113 | (19,337) | (17,189) | |||||||||||||||||||
| Property disposals | 251 | 42 | 334 | 123 | |||||||||||||||||||
Cash flow used in investing activities | (22,548) | (9,843) | (51,701) | (73,785) | |||||||||||||||||||
Change in debt | 4,000 | (24,127) | (5,000) | 12,937 | |||||||||||||||||||
Cash dividends paid | (16,771) | (16,281) | (49,811) | (47,215) | |||||||||||||||||||
Other financing | 2,792 | 836 | (21,332) | (6,555) | |||||||||||||||||||
Cash flow used in financing activities | (9,979) | (39,572) | (76,143) | (40,833) | |||||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 1,986 | (4,393) | (1,668) | (5,378) | |||||||||||||||||||
| Decrease in cash, cash equivalents and restricted cash | $ | (3,405) | $ | (3,103) | $ | (19,357) | $ | (31,746) | |||||||||||||||
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MSA Safety Incorporated
Segment Information (Unaudited)
(In thousands, except percentage amounts)
| Americas | International | Corporate | Consolidated | ||||||||||||||||||||
| Three Months Ended September 30, 2020 | |||||||||||||||||||||||
| Sales to external customers | $ | 194,303 | $ | 110,089 | $ | — | $ | 304,392 | |||||||||||||||
| Operating income | 41,149 | ||||||||||||||||||||||
| Operating margin % | 13.5 | % | |||||||||||||||||||||
| Restructuring charges | 7,603 | ||||||||||||||||||||||
| Currency exchange losses, net | 2,759 | ||||||||||||||||||||||
| Product liability expense | 2,077 | ||||||||||||||||||||||
| Strategic transaction costs | 41 | ||||||||||||||||||||||
| Adjusted operating income (loss) | 40,898 | 15,658 | (2,927) | 53,629 | |||||||||||||||||||
| Adjusted operating margin % | 21.0 | % | 14.2 | % | 17.6 | % | |||||||||||||||||
| Depreciation and amortization | 9,856 | ||||||||||||||||||||||
| Adjusted EBITDA | 47,465 | 18,848 | (2,828) | 63,485 | |||||||||||||||||||
| Adjusted EBITDA % | 24.4 | % | 17.1 | % | 20.9 | % | |||||||||||||||||
| Three Months Ended September 30, 2019 | |||||||||||||||||||||||
| Sales to external customers | $ | 234,624 | $ | 116,390 | $ | — | $ | 351,014 | |||||||||||||||
| Operating income | 59,614 | ||||||||||||||||||||||
| Operating margin % | 17.0 | % | |||||||||||||||||||||
| Restructuring charges | 1,850 | ||||||||||||||||||||||
| Currency exchange gains, net | (913) | ||||||||||||||||||||||
| Product liability expense | 1,730 | ||||||||||||||||||||||
| Strategic transaction costs | 952 | ||||||||||||||||||||||
| Adjusted operating income (loss) | 58,971 | 13,776 | (9,514) | 63,233 | |||||||||||||||||||
| Adjusted operating margin % | 25.1 | % | 11.8 | % | 18.0 | % | |||||||||||||||||
| Depreciation and amortization | 9,547 | ||||||||||||||||||||||
| Adjusted EBITDA | 65,342 | 16,854 | (9,416) | 72,780 | |||||||||||||||||||
| Adjusted EBITDA % | 27.8 | % | 14.5 | % | 20.7 | % | |||||||||||||||||
The Americas segment is comprised of our operations in North America and Latin America geographies. The International segment is comprised of our operations in all geographies outside of the Americas. Certain global expenses are allocated to each segment in a manner consistent with where the benefits from the expenses are derived.
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Adjusted operating income (loss), adjusted operating margin, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA margin are the measures used by the chief operating decision maker to evaluate segment performance and allocate resources. As such, management believes that adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin are useful metrics for investors. Adjusted operating income (loss) is defined as operating income excluding restructuring charges, currency exchange gains / losses, product liability expense, strategic transaction costs and COVID-19 related costs, and adjusted operating margin is defined as adjusted operating income (loss) divided by segment sales to external customers. Adjusted EBITDA is defined as adjusted operating income (loss) plus depreciation and amortization and adjusted EBITDA margin is defined as adjusted EBITDA divided by segment sales to external customers. Adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin are not recognized terms under GAAP and therefore do not purport to be alternatives to operating income or operating margin as a measure of operating performance. The Company's definition of adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin may not be comparable to similarly titled measures of other companies. As such, management believes that it is appropriate to consider operating income determined on a GAAP basis in addition to these non-GAAP measures.
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MSA Safety Incorporated
Segment Information (Unaudited)
(In thousands, except percentage amounts)
| Americas | International | Corporate | Consolidated | ||||||||||||||||||||
| Nine Months Ended September 30, 2020 | |||||||||||||||||||||||
| Sales to external customers | $ | 629,787 | $ | 330,188 | $ | — | $ | 959,975 | |||||||||||||||
| Operating income | 148,213 | ||||||||||||||||||||||
| Operating margin % | 15.4 | % | |||||||||||||||||||||
| Restructuring charges | 18,475 | ||||||||||||||||||||||
| Currency exchange losses, net | 3,821 | ||||||||||||||||||||||
| Product liability expense | 4,878 | ||||||||||||||||||||||
| Strategic transaction costs | 202 | ||||||||||||||||||||||
| COVID-19 related costs | 757 | ||||||||||||||||||||||
| Adjusted operating income (loss) | 149,708 | 45,719 | (19,081) | 176,346 | |||||||||||||||||||
| Adjusted operating margin % | 23.8 | % | 13.8 | % | 18.4 | % | |||||||||||||||||
| Depreciation and amortization | 29,284 | ||||||||||||||||||||||
| Adjusted EBITDA | 169,343 | 55,075 | (18,788) | 205,630 | |||||||||||||||||||
| Adjusted EBITDA % | 26.9 | % | 16.7 | % | 21.4 | % | |||||||||||||||||
| Nine Months Ended September 30, 2019 | |||||||||||||||||||||||
| Sales to external customers | $ | 679,699 | $ | 347,027 | $ | — | $ | 1,026,726 | |||||||||||||||
| Operating income | 146,252 | ||||||||||||||||||||||
| Operating margin % | 14.2 | % | |||||||||||||||||||||
| Restructuring charges | 11,203 | ||||||||||||||||||||||
| Currency exchange losses, net | 17,338 | ||||||||||||||||||||||
| Product liability expense | 8,155 | ||||||||||||||||||||||
| Strategic transaction costs | 2,937 | ||||||||||||||||||||||
| Adjusted operating income (loss) | 171,463 | 39,888 | (25,466) | 185,885 | |||||||||||||||||||
| Adjusted operating margin % | 25.2 | % | 11.5 | % | 18.1 | % | |||||||||||||||||
| Depreciation and amortization | 28,339 | ||||||||||||||||||||||
| Adjusted EBITDA | 190,084 | 49,313 | (25,173) | 214,224 | |||||||||||||||||||
| Adjusted EBITDA % | 28.0 | % | 14.2 | % | 20.9 | % | |||||||||||||||||
The Americas segment is comprised of our operations in North America and Latin America geographies. The International segment is comprised of our operations in all geographies outside of the Americas. Certain global expenses are allocated to each segment in a manner consistent with where the benefits from the expenses are derived.
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Adjusted operating income (loss), adjusted operating margin, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA margin are the measures used by the chief operating decision maker to evaluate segment performance and allocate resources. As such, management believes that adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin are useful metrics for investors. Adjusted operating income (loss) is defined as operating income excluding restructuring charges, currency exchange gains / losses, product liability expense, strategic transaction costs and COVID-19 related costs, and adjusted operating margin is defined as adjusted operating income (loss) divided by segment sales to external customers. Adjusted EBITDA is defined as adjusted operating income (loss) plus depreciation and amortization and adjusted EBITDA margin is defined as adjusted EBITDA divided by segment sales to external customers. Adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin are not recognized terms under GAAP and therefore do not purport to be alternatives to operating income or operating margin as a measure of operating performance. The Company's definition of adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin may not be comparable to similarly titled measures of other companies. As such, management believes that it is appropriate to consider operating income determined on a GAAP basis in addition to these non-GAAP measures.
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MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Constant currency revenue growth (Unaudited)
Consolidated
| Three Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||
| Breathing Apparatus | Firefighter Helmets and Protective Apparel | Industrial Head Protection | Portable Gas Detection | Fixed Gas and Flame Detection | Fall Protection | Core Sales | Non-Core Sales | Net Sales | |||||||||||||||||||||||||||
| GAAP reported sales change | (12) | % | (9) | % | (22) | % | (26) | % | (8) | % | (29) | % | (16) | % | 4 | % | (13) | % | |||||||||||||||||
| Plus: Currency translation effects | (1) | % | (1) | % | 3 | % | — | % | — | % | — | % | — | % | 1 | % | — | % | |||||||||||||||||
| Constant currency sales change | (13) | % | (10) | % | (19) | % | (26) | % | (8) | % | (29) | % | (16) | % | 5 | % | (13) | % | |||||||||||||||||
| Nine Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||
| Breathing Apparatus | Firefighter Helmets and Protective Apparel | Industrial Head Protection | Portable Gas Detection | Fixed Gas and Flame Detection | Fall Protection | Core Sales | Non-Core Sales | Net Sales | |||||||||||||||||||||||||||
| GAAP reported sales change | (3) | % | (10) | % | (15) | % | (20) | % | (1) | % | (24) | % | (10) | % | 16 | % | (7) | % | |||||||||||||||||
| Plus: Currency translation effects | — | % | — | % | 4 | % | 2 | % | 1 | % | 2 | % | 2 | % | 3 | % | 2 | % | |||||||||||||||||
| Constant currency sales change | (3) | % | (10) | % | (11) | % | (18) | % | — | % | (22) | % | (8) | % | 19 | % | (5) | % | |||||||||||||||||
Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control. There can be no assurances that MSA's definition of constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to this non-GAAP financial measure.
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MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Constant currency revenue growth (Unaudited)
Americas Segment
| Three Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||
| Breathing Apparatus | Firefighter Helmets and Protective Apparel | Industrial Head Protection | Portable Gas Detection | Fixed Gas and Flame Detection | Fall Protection | Core Sales | Non-Core Sales | Net Sales | |||||||||||||||||||||||||||
| GAAP reported sales change | (16) | % | (6) | % | (26) | % | (31) | % | (8) | % | (43) | % | (19) | % | (2) | % | (17) | % | |||||||||||||||||
| Plus: Currency translation effects | 1 | % | — | % | 4 | % | 2 | % | 1 | % | 2 | % | 1 | % | 4 | % | 2 | % | |||||||||||||||||
| Constant currency sales change | (15) | % | (6) | % | (22) | % | (29) | % | (7) | % | (41) | % | (18) | % | 2 | % | (15) | % | |||||||||||||||||
| Nine Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||
| Breathing Apparatus | Firefighter Helmets and Protective Apparel | Industrial Head Protection | Portable Gas Detection | Fixed Gas and Flame Detection | Fall Protection | Core Sales | Non-Core Sales | Net Sales | |||||||||||||||||||||||||||
| GAAP reported sales change | (4) | % | (7) | % | (20) | % | (23) | % | 2 | % | (29) | % | (11) | % | 22 | % | (7) | % | |||||||||||||||||
| Plus: Currency translation effects | 1 | % | — | % | 4 | % | 2 | % | 1 | % | 2 | % | 2 | % | 4 | % | 2 | % | |||||||||||||||||
| Constant currency sales change | (3) | % | (7) | % | (16) | % | (21) | % | 3 | % | (27) | % | (9) | % | 26 | % | (5) | % | |||||||||||||||||
Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control. There can be no assurances that MSA's definition of constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to this non-GAAP financial measure.
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MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Constant currency revenue growth (Unaudited)
International Segment
| Three Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||
| Breathing Apparatus | Firefighter Helmets and Protective Apparel | Industrial Head Protection | Portable Gas Detection | Fixed Gas and Flame Detection | Fall Protection | Core Sales | Non-Core Sales | Net Sales | |||||||||||||||||||||||||||
| GAAP reported sales change | (6) | % | (26) | % | (8) | % | (16) | % | (7) | % | (1) | % | (9) | % | 15 | % | (5) | % | |||||||||||||||||
| Plus: Currency translation effects | (3) | % | (2) | % | (2) | % | (2) | % | (3) | % | (4) | % | (3) | % | (4) | % | (4) | % | |||||||||||||||||
| Constant currency sales change | (9) | % | (28) | % | (10) | % | (18) | % | (10) | % | (5) | % | (12) | % | 11 | % | (9) | % | |||||||||||||||||
| Nine Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||
| Breathing Apparatus | Firefighter Helmets and Protective Apparel | Industrial Head Protection | Portable Gas Detection | Fixed Gas and Flame Detection | Fall Protection | Core Sales | Non-Core Sales | Net Sales | |||||||||||||||||||||||||||
| GAAP reported sales change | (2) | % | (24) | % | 3 | % | (13) | % | (4) | % | (14) | % | (7) | % | 8 | % | (5) | % | |||||||||||||||||
| Plus: Currency translation effects | 1 | % | 1 | % | 2 | % | 1 | % | — | % | — | % | 1 | % | 1 | % | 1 | % | |||||||||||||||||
| Constant currency sales change | (1) | % | (23) | % | 5 | % | (12) | % | (4) | % | (14) | % | (6) | % | 9 | % | (4) | % | |||||||||||||||||
Management believes that constant currency revenue growth is a useful metric for investors, as foreign currency translation can have a material impact on revenue growth trends. Constant currency revenue growth highlights ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of management's control. There can be no assurances that MSA's definition of constant currency revenue growth is consistent with that of other companies. As such, management believes that it is appropriate to consider revenue growth determined on a GAAP basis in addition to this non-GAAP financial measure.
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MSA Safety Incorporated
Supplemental Segment Information (Unaudited)
Summary of constant currency revenue growth by segment and product group
| Three Months Ended September 30, 2020 | |||||||||||||||||
| Consolidated | Americas | International | |||||||||||||||
| Fixed Gas and Flame Detection | (8) | % | (7) | % | (10) | % | |||||||||||
| Firefighter Helmets and Protective Apparel | (10) | % | (6) | % | (28) | % | |||||||||||
| Breathing Apparatus | (13) | % | (15) | % | (9) | % | |||||||||||
| Industrial Head Protection | (19) | % | (22) | % | (10) | % | |||||||||||
| Portable Gas Detection | (26) | % | (29) | % | (18) | % | |||||||||||
| Fall Protection | (29) | % | (41) | % | (5) | % | |||||||||||
| Core Sales | (16) | % | (18) | % | (12) | % | |||||||||||
| Non-Core Sales | 5 | % | 2 | % | 11 | % | |||||||||||
| Net Sales | (13) | % | (15) | % | (9) | % | |||||||||||
| Nine Months Ended September 30, 2020 | |||||||||||||||||
| Consolidated | Americas | International | |||||||||||||||
| Fixed Gas and Flame Detection | — | % | 3 | % | (4) | % | |||||||||||
| Firefighter Helmets and Protective Apparel | (10) | % | (7) | % | (23) | % | |||||||||||
| Breathing Apparatus | (3) | % | (3) | % | (1) | % | |||||||||||
| Industrial Head Protection | (11) | % | (16) | % | 5 | % | |||||||||||
| Portable Gas Detection | (18) | % | (21) | % | (12) | % | |||||||||||
| Fall Protection | (22) | % | (27) | % | (14) | % | |||||||||||
| Core Sales | (8) | % | (9) | % | (6) | % | |||||||||||
| Non-Core Sales | 19 | % | 26 | % | 9 | % | |||||||||||
| Net Sales | (5) | % | (5) | % | (4) | % | |||||||||||
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MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Adjusted earnings (Unaudited)
Adjusted earnings per diluted share (Unaudited)
(In thousands, except per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||||||||||||||||
Net income attributable to MSA Safety Incorporated | $ | 28,034 | $ | 42,239 | (34)% | $ | 107,763 | $ | 105,278 | 2% | |||||||||||||||||||||||||
Non-deductible non-cash charge related to the recognition of currency translation adjustments (a) | — | — | — | 15,359 | |||||||||||||||||||||||||||||||
Tax benefit associated with ASU 2016-09: Improvements to employee share-based payment accounting | (80) | (187) | (1,699) | (2,180) | |||||||||||||||||||||||||||||||
Subtotal | 27,954 | 42,052 | (34)% | 106,064 | 118,457 | (10)% | |||||||||||||||||||||||||||||
Restructuring charges | 7,603 | 1,850 | 18,475 | 11,203 | |||||||||||||||||||||||||||||||
Currency exchange losses (gains), net | 2,759 | (913) | 3,821 | 1,979 | |||||||||||||||||||||||||||||||
Product liability expense | 2,077 | 1,730 | 4,878 | 8,155 | |||||||||||||||||||||||||||||||
Asset related losses, net | 62 | 38 | 189 | 271 | |||||||||||||||||||||||||||||||
Strategic transaction costs | 41 | 952 | 202 | 2,937 | |||||||||||||||||||||||||||||||
COVID-19 related costs | — | — | 757 | — | |||||||||||||||||||||||||||||||
Income tax expense on adjustments | (3,700) | (878) | (7,614) | (5,912) | |||||||||||||||||||||||||||||||
Adjusted earnings | $ | 36,796 | $ | 44,831 | (18)% | $ | 126,772 | $ | 137,090 | (8)% | |||||||||||||||||||||||||
Adjusted earnings per diluted share | $ | 0.94 | $ | 1.15 | (18)% | $ | 3.23 | $ | 3.50 | (8)% | |||||||||||||||||||||||||
(a) Included in Currency exchange losses, net on the Condensed Consolidated Statement of Income.
Management believes that adjusted earnings and adjusted earnings per diluted share are useful measures for investors, as management uses these measures to internally assess the company’s performance and ongoing operating trends. There can be no assurances that additional special items will not occur in future periods, nor that MSA's definition of adjusted earnings is consistent with that of other companies. As such, management believes that it is appropriate to consider both net income determined on a GAAP basis as well as adjusted earnings.
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MSA Safety Incorporated
Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures
Debt to adjusted EBITDA / Net debt to adjusted EBITDA (Unaudited)
(In thousands)
| Twelve Months Ended September 30, | ||||||||
| 2020 | ||||||||
| Operating income | $ | 188,191 | ||||||
| Depreciation and amortization | 38,963 | |||||||
| Product liability expense | 23,343 | |||||||
| Restructuring charges | 21,118 | |||||||
| Currency exchange losses, net | 6,298 | |||||||
| Strategic transaction costs | 1,665 | |||||||
| COVID-19 related costs | 757 | |||||||
| Adjusted EBITDA | $ | 280,335 | ||||||
| Total end-of-period debt | 341,694 | |||||||
| Debt to adjusted EBITDA | 1.2 | |||||||
| Total end-of-period debt | 341,694 | |||||||
| Total end-of-period cash and cash equivalents | 132,830 | |||||||
| Net debt | $ | 208,864 | ||||||
| Net debt to adjusted EBITDA | 0.7 | |||||||
Management believes that Debt to Adjusted EBITDA and Net Debt to Adjusted EBITDA are useful measures for investors, as management uses these measures to internally assess the company’s liquidity and balance sheet strength. There can be no assurances that that MSA's definition of Debt to Adjusted EBITDA and Net Debt to Adjusted EBITDA is consistent with that of other companies.
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About MSA:
Established in 1914, MSA Safety Incorporated is the global leader in the development, manufacture and supply of safety products that protect people and facility infrastructures. Many MSA products integrate a combination of electronics, mechanical systems and advanced materials to protect users against hazardous or life-threatening situations. The company's comprehensive product line is used by workers around the world in a broad range of markets, including the oil, gas and petrochemical industry, the fire service, the construction industry, mining and the military. MSA's core products include self-contained breathing apparatus, fixed gas and flame detection systems, portable gas detection instruments, industrial head protection products, firefighter helmets and protective apparel, and fall protection devices. With 2019 revenues of $1.4 billion, MSA employs approximately 5,000 people worldwide. The company is headquartered north of Pittsburgh in Cranberry Township, Pa., and has manufacturing operations in the United States, Europe, Asia and Latin America. With more than 40 international locations, MSA realizes approximately half of its revenue from outside North America. For more information visit MSA's web site at www.MSAsafety.com.
Cautionary Statement Regarding Forward-Looking Statements:
Except for historical information, certain matters discussed in this press release may be 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 herein. Any number of factors could cause actual results to differ materially from projections or forward looking statements, including without limitation global economic conditions, spending patterns of government agencies, competitive pressures, the impact of acquisitions and related integration activities, product liability claims, the success of new product introductions, currency exchange rate fluctuations and the risks of doing business in foreign countries. A full listing of these risks, uncertainties and other factors are detailed from time-to-time in our filings with the United States Securities and Exchange Commission ("SEC"), including our most recent Form 10-K filed on February 20, 2020. You are strongly urged to review all such filings for a more detailed discussion of such risks and uncertainties. MSA’s SEC filings are readily obtainable at no charge at www.sec.gov, as well as on its own investor relations website at http://investors.MSAsafety.com. MSA undertakes no duty to publicly update any forward looking statements contained herein, except as required by law.
Non-GAAP Financial Measures:
This press release includes certain non-GAAP financial measures. These financial measures include constant currency revenue growth, adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, debt to adjusted EBITDA ratio, net debt to adjusted EBITDA ratio, adjusted earnings, and adjusted earnings per diluted share. The presentation of these financial measures does not comply with U.S. generally accepted accounting principles ("GAAP"). For an explanation of these measures, together with a reconciliation to the most directly comparable GAAP financial measure, see the Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures in the financial tables section above.
This press release includes certain non-GAAP financial measures. These financial measures include constant currency revenue growth, adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, debt to adjusted EBITDA ratio, net debt to adjusted EBITDA ratio, adjusted earnings, and adjusted earnings per diluted share. The presentation of these financial measures does not comply with U.S. generally accepted accounting principles ("GAAP"). For an explanation of these measures, together with a reconciliation to the most directly comparable GAAP financial measure, see the Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures in the financial tables section above.
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