Good day, ladies and gentlemen, and welcome to the MSA first quarter earnings call. [Operator Instructions] At this time, it is my pleasure to introduce your host, Mark Deasy. Please begin.

Thank you, Joe, and good morning, everybody. I too would like to welcome you to our first quarter earnings conference call for 2016. Joining me this morning are Bill Lambert, Chairman, President and Chief Executive Officer; Ken Krause, Vice President, Chief Financial Officer and Treasurer; Ron Herring, Senior Vice President and President of MSA International; and Nish Vartanian, Senior Vice President and President for MSA Americas. Our first quarter press release was issued last night and it is available on our website at www.msasafety.com. Before we begin, I need to remind everybody 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 filings with the Securities and Exchange Commission including our most recent Form 10-K, which was filed on February 29 of this year. You are strongly urged to review all such filings for a more detailed discussion of such risks. Our SEC filings can be obtained at no charge at www.sec.gov and on our own website in the Investor Relations section. MSA undertakes no duty to publicly update any forward-looking statements made on this call, except as required by law. In addition, I need to note that we have included certain non-GAAP financial measures as part of our discussion today. These non-GAAP financial measures should not be considered replacements for GAAP results. Reconciliations to the most directly comparable GAAP measures are available on our Investor Relations website at investors.msasafety.com. You will find this information in our Quarterly Results section, which is located under the Financial Information header. That concludes our forward-looking statement. So with that, I will turn the call over to our Chairman, President and Chief Executive Officer, Bill Lambert. Bill?

Thank you, Mark, and good morning, everyone. As always, I want to begin by saying thank you for joining us this morning and for your continued interest in MSA. As you saw in our press release issued last night, we are off to a good start in 2016. We had solid revenue growth, our cost reduction efforts are yielding margin expansion and our recent acquisition is helping contribute to our overall earnings growth. I'm pleased by how the MSA team is executing well, despite external headwinds that continue to impact our business. Most notably the stronger U.S. dollar, the challenging economic conditions in certain emerging markets, and of course, lower oil prices that continue to adversely impact employment levels and investment levels in the oil and gas industry, which in turn directly impacts demand for some of our core product lines. Ken will give you additional insight on these macro trends as well as our outlook ahead in his more detailed commentary about the quarter. What I would like to do now is give you an update on two particular areas where we've made strategic investments to drive growth in our business. First and foremost is the fire service market, and in that context I want to tell you about some new technologies we showcased at last week's Fire Department Instructors Conference held in Indianapolis. Then I'd like to give you an update on the progress we are making with Latchways, a highly strategic fall protection acquisition we made last fall. After that, I'll turn it over to Ken for his financial review. It's evident that our SCBA product line continues to be a top performer within our core product portfolio. In local currency, quarterly breathing apparatus revenue was up 57% in the Americas segment, driving consolidated breathing apparatus growth…

Thanks, Bill, and good morning, everyone. I'd like to take some time to walk you through our first quarter financial results and to provide more insight into the drivers of performance. Additional information will be available, when we file our Form 10-Q with the Securities and Exchange Commission. We had a strong start to the year. Although market conditions continued to be challenging, we executed well with a strong focus on driving growth in core product revenue, while closely managing our cost structure, driving improvements in both profitability and margins. To touch on a few highlights. We grew local currency sales by 13% and 7%, excluding Latchways. Local currency core product revenues increased 15% and 8%, excluding Latchways. The restructuring program we executed in 2015 as well as the discretionary cost controls that we continue to implement are yielding solid results. Excluding Latchways, related operating costs local currency SG&A expense was down 5% year-over-year on the 7% increase in local currency organic revenue that helped drive 330 basis points of operating leverage on SG&A. Lastly, our integration efforts of our most recent acquisition are progressing well. The acquisition was accretive to both operating margins and earnings in the quarter, while local currency revenue in this business was up 19%. As you know, this was our first full quarter post-acquisition, so I'm quite pleased that we're seeing accretion so early in the integration process. Let's take a closer look at the quarterly financial results. Sales from continuing operations in the first quarter were $279 million, which include $16 million of Latchways sales. Sales, excluding Latchways, were up 3% on a reported basis and 7% on a local currency basis in the quarter, reflecting a 4% headwind associated with FX. Looking at the drivers of the foreign exchange headwind, about 20% of…

Thank you, Ken. Our quarterly results were strong and provide a solid foundation as we head into the second quarter and begin to thing about the back half of the year. And looking back on the quarter, I'm pleased we exceeded our local currency sales target range, we drove operating leverage through our reduced cost structure, and we're seeing a return on the investments and commitment to R&D in our core product areas. And while I'm encouraged by the results we posted this quarter, my optimism is balanced by the challenges that we continue to face in some of our key industrial markets and geographies. As we navigate these macro headwinds, we're keeping a keen focus on managing our cost structure, while also making strategic investments to capture market share, drive profitable growth and enhance value for all MSA stakeholders. Thank you for your attention this morning. And at this time, Ron Herring and Nish Vartanian have joined Ken and me and we will be happy to take any questions that you may have. Please remember that MSA does not give guidance and that precludes most discussion related to our expectations for future sales and earnings. Having said that, we will now open the call to your questions.

[Operator Instructions] Our first question is from Richard Eastman of Robert W. Baird.

Bill, could you maybe elaborate maybe a little bit further on just the tone in the SCBA market and G1, it sounds like, again, order rates are continuing at a very good pace, your conversion number is pretty interesting and impressive. But again, is that product line kind of plays out through the year. We do hit the tough comps, but it seems like the momentum is there and the conversions are there to drive growth for the full year on the SCBA side? And then second part of that question would just be have we seen any traction in Europe on the G1, which was approved to, I think, about six to nine months ago?

Answering the first part of your question, Rick, we do see opportunity to continue to grow the business in the SCBA area, especially through the G1 and especially here in the U.S. and North America. So I think when we look back at full year, we'll see nice growth -- we'll see continued and strong growth in the SCBA area for the business. We are in the midst of that replacement cycle that we've talked to you about in the past. And we would expect that replacement cycle to last at least another two to three years. And so when thinking about that market opportunity, remember there was probably $3 billion of firefighters grants that were pumped into the market from 2002 to 2006 or 2007 in that range. And we estimated that about 30% to maybe a higher 50% of that total amount was used to purchase SCBA. So the opportunity is quite significant, not just for replacement of MSA SCBA, but replacement of competitive SCBA that was purchased during that time period. So a lot of those units are coming out of service. And so the comps will become more difficult and we just want to temper some of that expectation as we go forward, but that does not diminish at all our belief and the strength of G1 and what we might be able to do to continue to capture SCBA market share in this U.S. fire service business. The answer to the second part of your question regarding Europe, the G1 has some limited opportunity in Europe. Some the advancements we've made on the G1 have moved into Europe. But remember, the European market does not have that same replenishment or replacement cycle that I talked about here in the U.S. So there's a fairly significant difference in that regard and the price point of the G1 is quite a bit higher than what's normal for the European market. So in Europe, the G1 is approved. It is getting attention. It does provide us with opportunity to bid in certain areas. And while it also offer a lower cost option, that's a product that we produce out of our German factory. But the G1 in Europe probably doesn't have anyone near the same growth potential, at least at this moment that we see in the U.S. Where we do see the G1 though internationally is in the Middle East where we're seeing some success, and in South America, as I think Ken mentioned in his commentary, where we're having great success in Chile.

And at this moment there's no question, and perhaps I'll direct this one to Ken. But when you look at the fix gas and flame business, can you maybe just remind us what the Americas versus International mix of that businesses is in terms of revenue. I mean is it two-thirds, one-third or just a general sense of that.

Yes, sure, Rick. It's a fairly global business for us, just like many of our product categories are, and so when you look at the breakout between the new Americas segment and International, it would probably be something like 60-40 between Americas and rest of the world, if you will. So I'd like to say, it's a very global business, and that's why in the quarter when you look at the revenue performance we were down 5% in the Americas, but I think in the International segment we were up 5% and overall we were down 1%, so it's a global portfolio for us.

Is the profit margin roughly equal -- the gross margin roughly equal on fixed gas and flame irrespective of the market that it goes into?

It is, I mean when we look around the world, it certainly is a very profitable line for us globally. Where the distinction comes in though, Rick, as we've talked about in the past is between the project business and the recurring revenue stream, and so that's why in the quarter you saw a lot of project business ship and you saw some pressure on the gross profit margin.

Our next question is from Stanley Elliott, Stifel.

So Latchways, so far you did $0.03 in the quarter, you had another strong kind of part of the quarter where you owned it last time around. I mean are we thinking that maybe the $0.05 to $0.10 might end up being a little conservative given how quickly this is ramped in sales, like its exceeded expectations from revenue opportunities as well?

Latchways is off to a good solid start, there is no question about it. We're pleased by that 19% local currency revenue growth rate. I am pleased as I indicated in my commentary on how the integration efforts are going and how we're melding these two organizations together. I think it's a little bit early for us to claim victory, and so I think that the range that Ken has provided to investors in the past regarding accretion is still our target.

In the past we've kind of talked about maybe pick up in North American MRO activity. Certainly comps do get easier for industrial head protection and then also on the portable gas. Is that still the outlook that we could see a pickup at some of this activity, which might help drive some of this business in the back half of the year?

That's our expectation, Stanley. I think that we look closely at the U.S. spring and fall refinery turnaround activity. We've got a pretty good expectation of what that activity might be. This spring was a little bit stronger than last year's turnaround activity, but not quite as strong as some of the expectations we had maybe last year. So I would expect that unplanned turnaround activity and the fall turnaround activity, we continue to think that that should be fairly strong. And if that's strong, I will certainly help our industrial head protection business and our portable gas protection business.

And I apologize if you missed this, but did you all give the SCBA backlog come out of quarter? And maybe you can include any commentary coming out of the FDIC Show as it relates to that product?

We did not give that backlog, but what we said in our last call that was the backlog had returned to more normalized levels. I think in our last call, we said about $45 million was the backlog level and we're still in that $45 million to $50 million SCBA global backlog, which is typical for us and that provides us with a good healthy amount of activity through our factories and we're quite pleased by that.

And last question. When we talked about kind of a mid single-digit sort of a growth for the business expectation for you, I know you don't like to give guidance per se. But is that framework still reasonable when we think about how this year might unfold, given how strong Q1 has been?

I think that as I indicated in my closing comments, certainly pleased by the strong start to the year, but there are challenges, we recognize some of those challenges and I was pleased that we exceeded those mid-to-high single digit growth rate, so we have talked about in the past, but I would not get too exuberant about it, and were maintaining some caution here going forward and just trying to control what we can in the way of cost to make sure that the sales that we do achieve flow nicely into operating margin and earnings.

Our next question is from Rudy Hokanson.

Question on the China. Was that something was above expectations? The sale of the unit that you've made for them; was that a one-time deal or is that a market that you see is growing now?

That's a product area that we've been working on and trying to provide additional focus to the SCBA market within fire service, within China. There have been some new standards that have come about in that area and our new breathing apparatus for the China market developed in China really hit a homerun in the first quarter. We think that's another platform product for us. We see great opportunity for it within the Chinese market and we're really pleased. We think we're just getting started over there with that product.

And then in terms of activity with FGFD in the Middle East, as you were mentioning, and some of the other emerging markets right now, is this an acceleration of growth or is it just that these markets have not been hurt the way that the North American market was with the drop in oil prices?

I would think that it's a little more of the latter than the former. I don't think those markets, as we talked about, where the cost of extraction is quite a bit lower than it is in other parts of the world, those markets have not been hurt as severely, as say, the U.S. market or the Canadian market has been hurt. And so we continue to see investment. We continue to see opportunities for growth and we're trying to hard to win that business everyday.

And looking at the refinery turnarounds part of that activity, the spring turnaround, that will be in your second quarter, correct? Is it went into April?

Right. Any spring turnaround activity would most likely we'll be able to report that in the second quarter results. And probably talk about that in our second quarter call on what we've seen in the way of increased activity associated with turnarounds here in the U.S. market.

And with the new product -- this is my last question. On the new technology you're talking about that can go along with the G1, when you were talking about the camera. You started off talking about technologies in the plural. Are there number of product lines that you're going to be pushing out this year that are ready for the market or should be ready for the market this year besides the camera?

Are you talking really specifically with regard to SCBA or more generally across all product lines?

No. I'm thinking more generally, I'm thinking, the camera was the example with the G1?

Right.

Or the SCBA?

We will be introducing new technologies in one of our other core product areas and I think that will be a subject of the second quarter call in July.

Our last question is coming from Ed Marshall of Sidoti.

So I wanted to kind of look at Latchways for a second, and I know you have added chance to digest some of it probably very early still, but I'm kind of curious as to what you found. I think when you acquire the business, you understood that there were probably some distribution issues to resolve. I'm wondering what kind of cost opportunities with the existing power protection facilities that you might already have and kind of how that all comes together, say, over the next two to three years?

Well, the channels of distribution in MSA are much more established, much more mature than what Latchways had. And so as that mature, that's part of our revenue synergy aspect to the acquisition, was that we'd be able to take these great products and product lines that Latchways has, and there are some new products that they are introducing, have introduced, and will continue introduce throughout the year that we can then take broadly to and through our distribution channels into the utilities market, into aviation market, as well as oil and gas and construction where we are strong.

And the distribution channels, you're establishing some of these newer regions such as like wind technology and things of that nature that that's been moving relatively fluid?

Well, we're certainly established in Europe in those areas. In North America here, it's a little bit earlier. But we do have access in selling our other product lines into those utilities, whether that'd be hard hats and hard hat protection or respiratory protection. So we've got those channels of distribution. We've got those relationships. Latchways simply did not have that fully developed; while they were working on it, but they hadn't developed it fully.

I wanted to talk about thermal imaging camera, as it relates to the SCBA. I think that's important product line for you rolling out. And remind me, I know you have handheld thermal imaging cameras. I'm assuming this takes the place of it, so there is some probably cannibalization, but I don't think it's a big product line for you? And then I also wanted to kind of ask it from a different angle too. Do you think it's going to help you and assist you in making some market share gains on the SCBA, it's relatively unique, I don't think anyone else has thermal imaging camera incorporated within their SCBA unit?

No one has a thermal imaging camera integrated into the SCBA the way that we have done it. We did a lot of market research on that product before introducing it. And we introduced the concept last year. We made a lot of refinements to it. Went out, tested, in the marketplace, got a lot of feedback and made those adjustments. And we think we have a real winner. There is no question about it. There is one other major competitor who also introduced at the FDIC a thermal imaging camera, which is integrated into the SCBA. But they took a very different approach. They added a, what we think is, a lot of weight to the face piece, and additionally it requires five batteries to be mounted to the face piece, we just don't think it is quite the elegant solution that we have provided. And that's some of the feedback that we're getting from the fire service markets. So Ed, to your point, we think it will help us to convert accounts and gain share. And the answer is, yes, we absolutely believe that to be the case.

And then the last question I had, and you touched on the selling expense quite a bit, Ken, and I appreciate it. But my question, I guess, is, generally Q1 is seasonally high quarter. It didn't occur in this year. Was there a physical change or was there is something that I missed that from a currency perspective that would have made that adjustment there in Q1? And do you anticipate Q2 to follow normal seasonal patterns or is this the new run rate?

The significant change in SG&A in the quarter has certainly had to do with our restructuring efforts. And so we've talked about our target of $10 million year-over-year of improvement in operating costs and overall costs. And so that's certainly had an impact and you saw that in the first quarter. I think year-over-year local currency SG&A was down something like $4 million. I wouldn't say all of that is restructuring effort, but a part of it is. The other part of it is, is just general delay in certain projects. They'll come back as we move throughout the year. And I think that theme is very consistent with the theme you see in R&D. Well, R&D it's somewhat low here in the first quarter, but as you think about the next several quarters, you would expect us to be back into that 4% to 4.5% range in terms of spending for R&D. So good improvements, good results from restructuring, but there is also just some timing that's going on there.

That does conclude the question-and-answer session. I'd like to turn it back to Mark Deasy for any final or closing remarks. End of Q&A

Thank you, Joe. Well, since we have no more questions that we'll formally conclude today's call. If you missed the portion of the conference, I want to remind everybody that an audio replay and a transcript will be available on our website for the next 90 days. So on behalf of our entire team here, I want to thank you again for joining us this morning and we look forward to talking with you again soon. Have a great day.

Ladies and gentlemen, on behalf of MSA, we'd like to thank you for your participation. You may now disconnect. And have a wonderful day.