Good day, and welcome to the MSA Fourth Quarter Earnings Call. At this time, all lines are in listen-only mode and the floor will be open for questions following the presentation. [Operator Instructions]. It is now my pleasure to introduce your host, Director of Corporate Communications, Mark Deasy. Welcome Mark, please begin.

Thank you, Anne, and good morning, everybody. And I too would like to welcome you to our fourth quarter and year-end earnings conference call for 2016. Leading our call today are Bill Lambert, Chairman, President and Chief Executive Officer; and Ken Krause, Vice President, Chief Financial Officer and Treasurer. Our fourth 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 our 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 on our filings with the SEC including our most recent Form 10-Q which was filed on October 28, 2016. You are strongly urged to review all such filings for more detailed discussion of such risks. Our SEC filings can be obtained at no charge at www.sec.gov or 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 most directly comparable GAAP measures are likewise available in the Investor Relations section of the MSA website. You can find this information in the Quarterly Results section, which is located under the Financial Information header. That concludes our forward-looking statements. So at this point, it's my pleasure to turn the call over to our Chairman, President and CEO, 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. I trust you have all reviewed the press release that was issued last evening. For the full year, adjusted operating income grew 24% on a 2% reported sales increase. Net income of $92 million for the full year reflects a record high for MSA and an increase of 30% when compared to 2015. I'm also happy to report that we converted well over 100% of net income to free cash flow in the quarter and the year. Ken will provide much more detail on our financial performance and free cash flow conversion in his comments. Without a question, 2016 was a strong year of financial performance for our company. When I consider the challenging macro environment that we faced in the oil and gas market, those results are a tribute to the dedication and perseverance of our MSA team around the world. This morning I'd like to provide a bit more insight into the major areas that contributed to that earnings growth in 2016. I'll start our discussion with an update on our performance in the fire service market and provide some insight into the underlying trends that due to some tougher revenue comparisons are not as easy to spot in our financial results. I'll then provide an overview of our operating results at Latchways, the fall protection company that we acquired in the fourth quarter of 2015 and was an area of focus for us throughout 2016. With one full year now under our belt, the value of our combined organization is certainly evident and we are executing well in this high growth area of the global safety market. And…

Thanks Bill, and good morning everyone. I'd like to take some time to walk you through our fourth quarter and full year financial results and to provide more insight into the drivers of performance. Additional information will be available when we file our Form 10-K with the Securities and Exchange Commission. Let's start with a few highlights and then we'll take a closer look at the quarterly performance drivers. Quite a challenging comparison in revenue in the fourth quarter that resulted from the reduction in SCBA backlog in 2015, full year revenue finished up 2% on a reported basis and 4% in constant currency. Annual gross profit of 45.6% reflects 130 basis point improvement from a year ago. Primarily due to the 400 basis point increase in a SCBA gross margins in the Americas and a stronger leverage of indirect costs. We took action to address our cost structure and exceeded our $10 million SG&A reduction target, while improving SG&A as a percentage just sells by 130 basis points. We made great progress in streamlining the organization in 2016 with a focus on productivity and efficiency. The higher gross profit and cost savings through full year operating margins of 14.8% on a reported basis improving 270 basis points from a year ago. We hit 15% operating margin for the full year when you exclude deal costs and the dilution associated was Senscient, the acquisition we closed late in Q3. As you know, 15% operating margin has been elected key long term goal for MSA. And I'm pleased that we got there in 2016. Net income was a record at $92 million for the year growing 30% and full year free cash flow was $109 Million compared to $19 million a year ago, just as I had indicated to you on…

Thank you, Ken. Looking at our 2016 revenue growth, operating margin expansion and record net income, it's clear that the strategic investments we've made in R&D, acquisitions and productivity initiatives have been successful in driving value during a challenging economic cycle. As Ken mentioned we've seen up fix in our income in order pace in our short cycle PPE business, product lines like head protection and portable instruments that echo the improving macro conditions we're seeing across our end markets. The industrial landscape seems to also be strengthening. The U.S. rate count continues to increase and was up 25% in the fourth quarter around and U.S. drillers expect increased capital investment budgets in 2017. Utilities are also expected to expand capital spending including grid modernization and upgrading and aging infrastructure and those activities all require personal protective equipment. While it's too early to say we are moving away from a slower growth industrial environment, these trends along with recent incoming order pace activity point to improving fundamentals as we head into 2017 and bind with the investments we've made in growth initiatives while improving our cost structure, I believe MSA is well positioned to continue creating shareholder value in 2017 and beyond. Thank you for your attention this morning at this time, Ron Herring, Nish Vartanian have joined Ken and me and we will be happy to take any questions that you might have. Please remember that MSA does not give guidance and that precludes most discussion related to our expectations for the future sales and earnings. Having said that, we now open the call up for your questions.

[Operator Instructions] We will go ahead with our first question from Richard.

Yes good morning. I can turn off a little bit, am I right [ph].

You are Rick, thanks.

Okay, thank you and good morning. Although it may not sound like guidance, I think I actually heard a little bit of commentary there involved with the course sales might actually look like in some clean so I'll take that as a gift. To just - a quick question go maybe around you know, the core growth rate here for the new products in the fourth quarter, I know we had the tough company SCBA side but you know, we saw -- you know, fire helmets [ph] kind of backed off this non-core revenue also kind of declined meaningfully. I presume that might be the ballistic helmets but the fourth quarter you know, in total come in at Plan despite the tough comparison and maybe you could just maybe flag does a soft spot or two if in fact there was one.

Yes, I think fire helmets is a bit of a soft spot to us. The fourth quarter was impacted by large orders and shipments of the previous year but fire and rescue helmets is a bit of soft spot for us, we were a little bit disappointed with the 5% decline in sales for the full year looking at the organic constant currency change there. Then on course sales is really driven more not so much by the ballistic helmet orders. Although that was an impact there but by some of the other areas where we're deemphasizing our efforts. But I think that you know, offsetting that we held pretty constant in fixed gas and flame detection which was good to see in a challenging environment. Portable gas detection actually leveled off and we actually saw 3% growth for the year and that was good to see in our incoming order pace there is looking a bit better. And the same with industrial head protection, Ken gave some pretty meaningful improvements that we're seeing on the industrial head protection side so you know, SCBA was the big ticket item and if there is an area of concern if you will, our soft spot as you indicated Rick it would be fire and rescue helmets and a bit of our organic growth and fire protection we didn't see quite what we wanted to see outside of the Latchways area which was a great success. Some of the other fall protection areas of our business were of concern.

In just you know, with the SCBA and again I understand the tough comp with the fire helmets, there isn't any issue on the municipal funding side, are the dollars there. And it sounds like the orders were there on the SBCA side so was there any municipal funding you know, lockup period or with the election or anything like that that maybe influence the fire helmet SCBA business in the quarter?

Rick, this is Nish. We didn't see that you know, what we saw was in the third quarter there was a little sluggishness in order pace and that was really a function of fire departments waiting to see if they would get some federal grants and once that settled out business picked up as you heard the bookings pace for the fourth quarter was very strong and the pipeline continues to be robust force. So the funding for the breathing apparatus and replacement units, we don't see that as being an issue.

Okay. And the last question, fire helmets?

Up now on fire helmets I think it was just a little choppiness in the business and that's what you saw on the fourth quarter with the general slowdown but business in general with overall in the funding we're in pretty good shape.

And just the last question, any update on, it kind of the new product that's expected on the fix gas and flame side of the business.

We do Rick. We are launching our X5000 and S5000 instruments here. The approval cycle there has been extensive and it's taken a bit longer than what we had expected but we are really you know, within the next month certainly we expect to be shipping that products so the approval cycle took a little bit longer than what we thought it would but there are literally thousands of tests that had to be done through the approval agencies around the world and in getting those approvals through just took longer than thought but we're very close to launching that that new product line.

Okay, great. Thank you.

Our next question is from Edward Marshall with Sidoti and Company. Go ahead.

Good morning. So I wanted to talk about the fire equipment growth that you saw in the quarter especially from the organic basis. I'm curious if that growth is you know, attributable to your standalone business, your core business of fire equipment or are you getting some sales synergies from the -- although there were some geographic and product are specific energies that you were anticipating with the acquisition. I wanted to kind of get your thoughts on the differences there.

Well, you know, the fire protection piece we look at for 2016 kind of in two major segments that is the organic piece that we had prior to the latter is acquisition and then we look at a latch ways and then we look at the combined synergy of the two organizations coming together throughout 2016. So let's take those, I talked a lot in my commentary about the latch ways piece sales up 23% year-over-year for latch ways just phenomenal performance there all the things that we thought we might get out of that organization. We got out of it, we exceeded a lot of our profitability targets there and we exceeded our cost synergy targets. On a sales synergy side we did a good job as well so bringing the latch ways line into the MSA sales organization on a global basis we saw some nice growth and cost synergies there. So that only then leaves the organic piece of MSA's fire protection and there we did not hit the targets that we had established for ourselves in 2016. In the North American market we were - we saw increased price competition from international imports and the price competition was severe on some of the textile goods that we produced. A lot of our harnesses in the organic side of fire protection are produced in Mexico and we know that the cost and I should say that the pace of devaluation throughout 2016 had an impact on us so that was a little on the concerning side and as I indicated in the previous question, that was a soft spot for us and we've taken some steps here for 2017 to correct them.

So to be clear the 18% growth which you saw on 4Q on a constant currency basis organically, that's mainly from the sales synergies that you receive throughout ways and I know it's a fine line whether that's acquired growth or organic growth. But I just wanted to be clear on that and it looks like that process is actually working out for you quite well.

Yes, I think that the last part of your statement there is absolutely true. No question about it.

You had nice growth in fixed gas and flame detection for the quarter in the year and I want to know if you would talk about that business related to new products or is there also a recovery in the market as you might assume based on the way energy commodities are trading and maybe talk about the backlog and what you anticipate for 2017.

Well, I think that the market is certainly improving there especially when we look at the U.S. market for oil and gas and petrochem those are the major industries for our fixed gas and flame detection line. The highlight for 2016 for FGFD was really the Middle East in our international segment. We didn't see near the softness or declines in business in the international side as we saw in the US market with the sharp declines in oil and gas prices from say 2014 onward. So, the outlook is improving as I said in my commentary, we have certainly bottomed -- the US market has certainly bottomed since the May 2016 lows that we've seen on oil rig count and that sort of thing. So we see an improving outlook. We do have new products that are coming to market I mentioned earlier the X5000, S5000. This is a complete new line fixed gas and flame detection instruments revolutionary in many new ways. This is a slower cycle market so I don't want to kind of overhype its impact on 2017 results but getting it introduced, getting it into field trials with large oil and gas customers is important and we've got great optimism for it based on all the alpha testing beta testing that we've done. So we're really excited about that new product. It's taken us a little bit longer to get it to market than we expected but we think we're in fine position here as the oil and gas market begins to improve.

Got it. And I know a lot of your SCBA or direct sales and I'm curious if any of the improvement that you saw in 4Q is related to any volume incentives with vendors.

No, not at all; really no volume incentives with partners or just good old pricing in the marketplace and some value engineering in operations and better buying products on good variances within the plants and sourcing of some of the components that go into that breathing apparatus. So, just good healthy improvement overall in the business and no reason why we don't see that continuing in the '17.

Okay, got it. I appreciate your comments guys, thank you.

Thanks, Ed.

Next question comes from Rudy Hokanson from Barrington Research.

Thank you. Several questions; one is there any particular focus on your working capital for 2017, you did a really good job in 2016. Are there any particular relationships or metrics that you're focused on?

Hi Rudy, it's Ken, I'll take that question. I would I would say that you know,2016 first starting with 2016, I think a major change that we had with respect to working capital is in some of our incentive compensation metrics and focusing in the organization and on working capital as a percentage of sales it was a first year that we implemented that metric and I think that that really raised the focus area for the organization. That coupled with enhanced reporting, enhanced focus with respect to both receivables and inventory across finance supply and supply chain. I think has really yielded some good results. I would be reluctant to say that we would expect the same level of improvement going into 2017, but we certainly are managing it to see slight improvements in terms and in DSO performance. So we look forward to continuing to focus in on this area and continue to manage it in order to keep levels commensurate with our growth expectations.

Okay. And then in terms of your balance sheet, right now is there anything you're looking at in terms of either refinancing on the debt or paying down of the debt over the next 12 months?

Rudy, we actually went through a pretty robust process in December of 2015 on a revolver; and then in January of '16 with a long term note associated with Latchways. At this point, we're positioned fairly well with a fixed to variable interest rate profile at about 50 to 50 and so we're positioned pretty well. We don't see any major changes to the capital structure going forward at least at this point.

OK thank you. Can you give any indication as to the growth of Latchways fall protection in 2017 since Latchways did so well in 2016 from the first full year under MSA. Is there this kind of momentum behind just the market for what Latchway has to offer and we talked about the fire protection market growing, you know, mid to maybe high single digit but you know, Latchway's been double digit. Is Latchways has something to keep that type of momentum in 2017?

We've talked often in the past about fall protection, we think that's a sub-segment within the safety industry that is growing at among the highest rates. It's certainly the - when you look at injuries statistics, fire in the workplace are among the highest, has the highest incidence of work related injuries and OSHA compliance violations. So fall protection has a lot of growth opportunity associated with it and we continue to believe that it's got great opportunities going forward. Latchways had a spectacular year in 2016, there's no question about that. Can we achieve those kinds of growth rates going forward, what I'd like to say - I would like to see that but I'm not so sure that our -- in fact, I'm certain; our internal plans do not show that kind of continued high level of growth but the underlying fundamentals are wonderful, the synergy opportunity that we had hoped to see among our sales organization on global basis adopting Latchways product line was certainly there in 2016 and we still have fairly aggressive growth woes for our overall fall protection business as we look to the future and there's a lot of support for that optimism.

Okay, thank you. On the SCBA side, you've talked a big deal about ancillary products and in fact you're talking, you let off talking about the thermal imaging device camera and that you have a lot of hopes for can you give us an idea on what maybe what percentage of growth or what percentage of sales in SCBA can be viewed as more ancillaries and maybe even basic unit understanding that you know, everybody can sort of order around customized but what you might think of is you know, ancillary or you know, something that may be part of that customization. As we look at the total sales how much of it's due to you know, innovative additional products.

Rudy, that's part of the business as the accessories as we as we get more accessories approved with the breathing apparatus, are those are added to the unit which obviously drive higher levels of you know, dollars that we will bring in for each product that we sell and also improve the gross margin. So you know, as we get closer with the integrated TIC approval which as we expect to get any day now, we're starting to see greater interest in that product. And so you know, we're targeting we think that you know, reasonably maybe get 20% of the breathing apparatus with that integrated TIC on there which drives obviously more dollars and a little better margin. So there's a nice opportunity there going forward.

Okay, those were my questions.

Thank you. Our last question is from Walter [ph] at Seaport. Go ahead with your question.

Hi, thank you, good morning everyone. I wanted to see if we could go back to the 2017 revenue outlook. And then maybe just to start off, you know at the end of 2016 what percentage of your sales are energy related?

Well, we estimated between 25% and 30% of our businesses is tied in the energy sector across the FGFD and across some of the more personal protective equipment, head protection, fall protection and portable gas protection.

Okay, great. And so when you look at the 2017, year-to-date numbers, you know I think fall protection up 18%, can you - have you been able to dive it into their energy markets?

I would say as Bill had indicated earlier that the rebound that we saw in fall protection was not related to energy, it was primarily related to our access in the utilities or space and other industrial, other industries and markets.

Okay, and so at this point how would you guys characterize the energy sectors, is that recovering for you. I know you talked about, Bill you talked about recounts picking up and another things; is there any quote activity or indications from customers that there might be better capital budgets is here?

How about if I ask Ron to comment on that from an international perspective since the Middle East was such a strong contributor to performance last year and also Nish -- so Ron, what are you saying?

Sure. I mean, when we talked about the Middle East, I think what we're seeing really is we expected it to have bottomed out at this point. And we're still seeing a pretty healthy order pace for FGFD products going through there and interest in SCBA and portable gas protection. So our expectation is actually reasonably strong for 2000, you know looking forward for the FGFD, for the oil and gas market. Europe's a little bit different. I mean it's a higher extraction cost and the North Sea is much more challenging area but the bulk of our business is coming out of the Middle East and our expectation is that'll continue to improve. The China, as another example is one area where it really was very flat for the year, we moved a lot of our resources over into fire service because of that and we're seeing some uptick in China. So we're feeling better about the FGFD, of the oil and gas market in China as well. So fire recovery I'd probably put it out you know, from where we were in '16 and '15.

Yes so in Americas we saw a nice turnaround with head protection and portable gas protection. And those two we look at a somewhat leading indicators of what's going on in the industrial business overall in oil and gas is a big part of that segment so we saw good strong improvement in the fourth quarter, good bookings since August of last year that continues here and in the first quarter. So, those leading indicators on portable instruments and head protection are doing very nicely, it's good to see. On FGFD for the Americas, you know, we're tied into Pemex and some other players and as those capital equipment budgets improve, we will see that business turn around. We're not seeing a lot of that, we're seeing some projects in the US being released and some funding there for pipeline projects and some other areas which will help us. But we don't have a strong indication at this point for fixed gas and flame but certainly as the business improves that will come along at a later date, maybe later in 2017.

Okay, great. Okay, thank you for that and I wonder if I could switch gears and ask about you know, the maybe next level of where you think you can get your streamlining you know, congratulations getting to that 15% early and in 2017 there's still 10 million from an out from the voluntary retirement and how there are but and then you set new target you know, if you have your 15% goal, you're there you know, what's next as you look out.

You know, we actually are looking in that right now. And so we're assessing that and contemplating our next target and so as we go through the first half of 2017,we're analyzing that and it's some point most likely in to the end of the first half or beginning of the second half, we'll probably put some new targets out longer term targets associated with our expectations for the business.

Okay, great. All right, thank you.

Thank you. Would you have an additional question from Richard Eastman at Robert W. Baird. Go ahead, please.

Thanks for putting me back in the queue here. Bill could you kind of speak for a minute or two, you know, as you're going to listen to the commentary here a lot of the - maybe positive bright spots here in terms of orders whether it be on the head protection side, G1 side, recount, even the short term business seemed you know, reasonably focused on the Americas and I'm curious you know, as you look into '17, are you seeing you know, some of these kind of early uptick you know, points in the international markets and would you, you know, how do you think about the growth in '17, would the US likely outgrow the international markets or are we also seeing some green shoots in international?

I'll provide some high level commentary then I'd like to ask Ron to comment more specifically on what he is seeing so far this year. I mean certainly it's early in the year and China is just coming off its Chinese New Year. And that's all -- it's always difficult to make commentary on just how well China does or doesn't do on an order basis early in the year. But I think we're right about where we had put our time face plant to be, our seasonal plants to be in that regard. As Ron indicated, we had some terrific performance out of the Middle East last year and we see continued optimism there for full year growth out of the Middle East. But maybe Ron, you can provide some other commentary on other elements of Asia and Europe, in particular in what you're seeing.

Sure. Well, we get into Pacific Asia, we have seen some reasonable recovery, particularly in fall protection in Australia and the Pacific Asia region. We had nice large orders out of there last year, recently received a nice one early this year. And so we were feeling better about Australia and as China begins to level off a little bit here or it begin to improve slightly, our expectation is that some of those other markets will follow along with it. In regards to Europe, the industrial side of Europe is where we are more bullish than perhaps the government side; and so we're tracking some of that business and looking to see how that -- the recovery in Europe, we're seeing some better growth rates out of Germany than expected. And so our hope here is that we see a particular recovery out of Europe in the industrial economy in Europe as well. And then Bill already covered the Middle East, that's really, primarily oil and gas but there are other industries that we're tracking and other geographies within the Middle East that we're tracking. Even some of the gold mines in Africa are starting to show some opportunity for us. So generally, it is obviously a bit of a patchwork quilt of economies and geographies and what's impacting it but I think we're feeling stronger than we have been in previous years and probably across the board seeing better economic conditions than we've seen in previous years.

The only thing I would add there Rick, this is Ken; is the helmet number -- the industrial helmet number I spoke about earlier. We all know that we have a really strong brand here in the U.S. but we're also seeing good performance in Brazil of late. And so across Latin America, we're seeing a bit of an improvement with respect to head protection. And then looking at Ron's segment, we're seeing some similar trends in head protection and those areas and head protection is often times a leading indicator for recovery in the industrial sector. So we're -- it gives us a sense of optimism as we start the year; as we think about the global industrial market.

I see. And does -- I'm assuming it's a very good progress in the international op-profit contribution. And I'm curious -- you know, as we move into '17, is that an area of particular focus or is the op-profit there expected to improve relative to incremental margins with the sales improvement?

I'll take that. And looking at the international segment, you're right, we've made some good progress there but we are certainly not happy with where we currently are and we certainly are looking at further improvement initiatives across that segment. Obviously sales and revenue growth helps but if you look at the performance in that segment, in 2016, a lot of the performance that we saw actually came through better leveraging of SG&A restructuring and executing some cost takeout. And so we continue to look at that segment of our business, we continue to discuss and develop plans to continue to improve the profitability profile of that business; not just through a leveraging of the revenue growth but through some specific actions on the restructuring side.

Okay. And just one last question; I want to circle back for a second, just on the fall protection business; Latchway has done quite well, their product line is in my mind more equipment oriented than MSA's core fall protection product line which as you mentioned Bill is a little bit more harness-related, more competitive. Is there any shift in strategy with Latchway now for instance getting more of their product to the U.S. and competing harder on the equipment side here than perhaps more commoditized harness side?

Well, it was an area of opportunity that we identified in our fall protection strategy years ago that on that hard goods side or mechanicals side, that you're talking about Rick, you know, when you talk about fall protection equipment, it was an area of opportunity we identified and that's what the Latchway's acquisition helped us to fill. It's not so much a shift in strategy per say but you're seeing kind of the results of the execution of that strategy, and there are more legs to that strategy. The engineered fall protection solutions side of the business is an opportunity that we have identified and others have identified and the Latchways acquisition is one element of that and there are more legs to that. So it's much more than just the harnesses, the soft goods side; it's more of the equipment, it's more of the engineering solutions and bringing even service and training into that mix as well.

I understand. Okay, great. And thank you again for the follow-up.

Thank you, gentlemen. We have no further questions.

Okay, thank you, Anne. Given that we have no more questions that we'll conclude today's call. Again, I want to remind everybody that if you missed a portion of the call, a replay and 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 once again for joining us today. And we look forward to talking with you soon. Good bye.

Thank you for using the conferencing center.