MSA Safety Incorporated (MSA) Q1 2017 Earnings Report, Transcript and Summary

Good day, and welcome to the MSA First Quarter Earnings Call. At this time, all lines are in a 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 Mark Deasy, Director of Corporate Communications. Mark, please begin.

Thank you, Jamie, and good morning, everybody. I too would like to welcome you to our first quarter earnings conference call for 2017. Leading our call today are Bill Lambert, Chairman, President and Chief Executive Officer; and Ken Krause, Vice President, Chief Financial Officer, and Treasurer. Our first quarter press release was issued last night and it is available on the MSA 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 February 28 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 as part of our discussion this morning we have included certain non-GAAP financial measures. These measures should not be considered replacements for GAAP results. Reconciliations to the 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 with that, 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. As you saw in our press release that was issued last night, in the first quarter, we were able to drive 24% growth in adjusted earnings despite a 5% decline in reported revenue. It's certainly worth noting there were a number of difficult comparisons across several of our product groups, most notably SCBA, and I will provide more insight into the drivers of our revenue performance in just a moment. While the top line comparison was challenging overall in the quarter there were several bright spots that reflect continued strong execution by our team. For instance, we continue to see good order flow in the industrial areas of our business with portable gas detection and industrial head production posting double-digit revenue increases in the first quarter. Gross margins showed meaningful improvements as well, as we saw strengthening in substantially all of our product categories. Operating margins continued to show good improvements as we continued our focus on improving the efficiency in our business and realigning our cost structure, and we continue to make good progress in improving free cash flow, while driving improvements in working capital and making good strides in collecting our insurance receivable balance. Ken Krause will cover these areas in more detail in his commentary. Today, I will discuss the trends we're seeing across our core product business and give you some more insight into one of our recent product launches in the fire service market, the G1 Integrated Thermal Imaging Camera or what we more commonly called the MSA ITIC. It’s expected to be the star of the show at this year's Fire Department Instructors Conference in Indianapolis or FDIC, which begins tomorrow. I will talk more about our FDIC plans in just a moment, but before I do I’d like to take a broader look at MSA's revenue performance in the quarter. Looking closer at our first quarter results in core products, we saw a 3% decline in constant currency compared to a year ago. As I mentioned, it’s important to take into consideration various product trends we saw in our key end markets when looking at the total revenue line. Starting with industrial products, we continue to gain momentum in portable gas detection and industrial head production this quarter. As we indicated on the February earnings call, we saw strong order trends in the first several weeks of the year, which provided us with a sense of confidence around our low-to-mid single-digit organic constant currency revenue growth target that we discussed with you on that call. I am pleased to say that the robust order pace has continued and as a result we were able to recognize a 13% increase in portable gas detection revenue and a 16% increase in industrial head protection revenue in this first quarter. The strengthening industrial landscape is supporting a higher level of base business in these areas and this is providing a nice mix tailwind to our product margins. Fall protection revenue was down 7% in the quarter, impacted largely by the timing of large shipments in the first quarter of 2016. However, we saw a strong order pace in the quarter, up 10% versus the same quarter a year ago. In fact, our overall fall protection backlog was about 40% higher at the end of the first quarter, compared to year end. And we have the pipeline to continue growing this business. As we’ve mentioned in the past, our integration plan for Latchways includes continued expansion of their base business. Building on our success from 2016 we are seeing some nice wins across attractive industries like aerospace, utilities, and renewable energy. In addition to the pickup we're seeing across industrial markets, solid demand from the fire services is also benefiting our order book with our backlog for self-contained breathing apparatus increasing from year-end. I’m pleased to note that this quarter we achieved our second highest SCBA incoming order total, since we began taking orders for the G1 SCBA. However, that trend is difficult to see in the revenue line, due to the tough SCBA comparisons against prior year. If you remember, we mentioned on the February earnings call that we expected to see difficult comparisons in the first quarter as a result of large orders that we shipped in the first quarter of 2016. While I am a little disappointed to see the revenue decline this quarter, there are a number of large G1 orders in the backlog for cities like Chicago, San Bernardino, and Des Moines, Iowa. Our competitive conversion rate for the G1 continues to trend at just over 50% this year continuing the trend that we saw throughout 2016, and I am pleased to say we are not sacrificing profitability for market share gains. Gross margin on SCBA in the Americas segment increased 560 basis points in the quarter. In addition to realizing benefits from ongoing value engineering activities and strategic sourcing, we began invoicing for the Integrated Thermal Imaging Camera during the quarter, which is accretive to the G1’s gross margin and MSA’s overall gross margin. For those of you on the call who may not have heard us talk about this new technology, the MSA Integrated Thermal Imaging Camera for our G1 SCBA platform makes the concept of personal thermal imaging a reality. First and foremost, it is the only unit on the market that is built directly into our firefighters SCBA. This design provides multiple advantages for the fire fighter, such as an auto on feature that activates the camera once the SCBA is pressurized. Second, the ITIC is driven by the G1 SCBA single integrated power source, which eliminates the need for additional batteries, which further reduces the fire departments total cost of ownership over the life of the SCBA, which is obviously a key value proposition for us. But perhaps most importantly, this revolutionary product gives fire department the opportunity to cost effectively equip every firefighter with thermal imaging technology. As I have mentioned in the past, we do not view the G1 SCBA as just a product. Our strategy in this area is all about leveraging the versatile and adaptable G1 platform in ways that allow us to bring new technologies to the market, faster while expanding our market share. At the FDIC show this week, this new ITIC offering will be the more major focal point of the MSA exhibit. With over 30,000 firefighters expected to attend the show, the FDIC conference provides the ultimate stage for demonstrating how MSAs ITIC can save lives, while changing the way fires are fought. In fact they help our customers appreciate and see the potential of this new technology. We will be providing show attendees with a fully immersive virtual reality experience featuring the G1 ITIC and a number of firefighting scenarios. As our marketing team for the FDIC conveys, our goal is to provide vision and safety for all. With this new innovation and we are proud to be at the forefront of the revolutionary technology. So whether we're bringing advanced technologies to the fire service market or developing new state-of-the-art FGFD platforms, like our Ultima X5000 and S5000 gas monitors for the energy and industrial sectors, which just launched this week. Our associates around the world live by MSAs core values every day. And at the centre of this culture is our foundational core value of integrity. Because of our associate’s commitment to our values, we were once again recognized by the Ethisphere Institute as a World's Most Ethical Company for 2017, marking the third consecutive year of MSA has earned this distinction. And of the 124 companies recognized this year, MSA is one of only four US industrial manufacturing companies to be honored and we were the only company recognized in the security and protective services category. This award truly belongs to our 4,300 associates around the world who personify MSAs values each and every day, and to them, I say thank you. With that, I’d like to turn the call over to Ken for his financial review. Ken?

Thanks Bill and good morning everyone. I’d like to take some time to walk you through our financial results and to provide more insights into the drivers of performance. Additional information will be available when we file our Form 10 Q with the Securities and Exchange Commission. Let’s start with a few highlights and then we will take a closer look at the quarterly performance drivers. Despite the challenging comparison in revenue in the first quarter, resulting from large SCBA and ballistic helmet orders a year ago, we saw strong improvements in some of the most profitable areas of our business in the quarter. Revenue from portable gas detection and industrial head protection were up 13% and 16% respectively in the quarter on strengthening conditions across the industrial sector. Gross profit of 45% increased to 180 basis points from a year ago. As bill indicated, we saw improvements across substantially all of our core product areas. As we have talked about on prior calls, we made great progress in streamlining the organization in 2016 with a sharp focus on productivity and efficiency and we continue to build on that strong foundation in the first quarter. SG&A expense continued to reflect that focus, decreasing by $3 million or 4% from a year ago despite higher spending of about $3 million associated with strategic projects, stock compensation and legal expense related to the insurance recovery program. The focus on value creation across our business drove an improvement of 110 basis points in operating margins from a year ago, and an improvement of 14% in net income, and a 24% increase in adjusted earnings. Quarterly free cash flow was $95 million, compared to a use of cash of $17 million a year ago, while collections on our insurance related receivables drove a portion of this, we continue to see good progress on the working capital front. Looking closer at the insurance related receivables, we continue to make great strides in collecting these in the quarter. TO give you a better sense to our progress, let’s walk through the receivable balance over the past several quarters. If you remember, at the end of the third quarter of last year, we had $155 million in insurance receivables and $104 million in notes, equating to total receivables related to this matter of just under $260 million. Since then we have made solid progress and have insurance receivables of just under $60 million and notes of just over $80 million at the end of the first quarter, or approximately $140 million in total receivables related to this issue. From a cash standpoint, we have collected $125 million from insurance recoveries, since the third quarter of 2016. Additionally, earlier this month, we resolved through negotiated settlements, certain coverage litigation with multiple carriers and will receive cash payments of $14 million in the first quarter of 2018. Those amounts will be reported as reductions from the insurance receivable in the second quarter of 2017. These recent settlements combined with past settlements should provide cash flow of $20 million to $25 million for the remainder of 2017 and another $20 million to $25 million in 2018. Now let me walk you through the quarterly financial results. Constant currency sales were down 4% in the first quarter. We expected a difficult comparison in SCBA and ballistic helmets on large orders shipped in the prior year, and that is exactly what we saw. Offsetting the declines in SCBA and ballistic helmets were strong improvements in the industrial sector, notably within head protection and portable gas detection. We saw double-digit increases in revenue in these areas in the quarter and order pace has remained strong through April. As we’ve mentioned in the past, these products have shorter lead times and have historically been a solid indicator of trends to come in the industrial sector. First-quarter orders in short cycle industrial products like head protection and portable gas detection reach their highest point since the first quarter of 2014. If you recall, oil was close to $100 a barrel at that time. Certainly good to see orders in these areas coming in and starting to show sustainable signs of recovery, and while these products are leading indicators, FGFD can be thought of as a lagging indicator. Demand in the Americas segment remained soft in this area on sluggish project spending, but we continue to see strong trends in parts of the road where the cost of oil extraction is lower, like the Middle East. In fact, while revenue in this area was down in the quarter, our backlog is healthy with quarterly FGFD orders in the Middle East increasing 30%. Gross profit continues to be a bright spot in our results finishing 180 basis points higher than a year ago. We saw a nice tailwind from mix on the uptick in industrial related products, but we also saw margin improvements across nearly all of our core products in the quarter. As Bill mentioned, one of the more notable increases within the Americas segment, SCBA margins and that builds on the strong progress we made in 2016 in this area. We continue to take costs out of our products and find new ways to add value through technology with the integrated TIC being a prime example. Despite spending $3 million more on legal expense, stock compensation, and diligence related cost SG&A expenses was down 4% or $3 million from a year ago. We continue to plan for $10 million of cost savings in 2017 as a result of the steps we took in 2016 to reduce our cost structure. In connection with those activities, you may have noticed restructuring spend of $13 million in our income statement for the quarter, primarily related to the voluntary retirement program we offer to employees late last year and completed in February. Nearly all of this program was funded through our overfunded North American pension plan, making it a non-cash charge. While we continue to evaluate additional streamlining opportunities moving forward, we remain highly committed to making investments that drive leadership positions in our core areas like R&D. We continue to fund those activities at 4.1% of sales in the quarter, right in the target range of 4% to 4.5% of sales that we have communicated to you in the past. GAAP operating income was 7.3% of sales in the quarter, which includes the restructuring charges I mentioned a moment ago. Adjusted operating margin, excluding restructuring, and currency exchange net losses in the first quarter was 12.3% of sales improving 110 basis points from a year ago. Our effective tax rate this quarter was 10.9% on a reported basis, which includes a $3 million tax benefit associated with changes in accounting standards for share-based compensation. Excluding this windfall tax from the current year and exit taxes associated with our European reorganization from the prior year, our adjusted tax rate was approximately 28% in the quarter, compared to 34.7%, a year ago, improving on a more favorable projected profitability profile and non-recurring tax expense associated with asset sales in the prior year. We expect the ETR to approximate 32% to 33% for the year, down about 100 basis points to 200 basis points from a year ago as we see improvements in the geographic profile of profitability. Net income from continuing operations was $14 million in the quarter on a GAAP basis, compared to $13 million in the same period a year ago, up 14%. Adjusted net income was $22 million, increasing 24% from a year ago on the higher gross profit, the lower cost structure, and a more favorable underlying tax rate. This equates to adjusted diluted EPS of $0.58 in the quarter. Free cash flow performance continues to reflect our ongoing focus on collecting our insurance receivable and improving working capital. Our current year free cash flow includes $85 million of net inflows from insurance collections, while the prior year includes the use of cash of $20 million in this area. While insurance receipts were a significant driver of the quarterly performance, we also continue to see solid working capital management contributing to higher levels of cash flow. Working capital was 23% of sales at the end of the quarter, improving 300 basis points from this time a year ago. Our debt balance was $295 million, which is down $95 million from year-end 2016 and down over $180 million from this same quarter a year ago. As we indicated in our recent 8-K filing, we use the $81 million insurance payment we received in the quarter to service outstanding debt on our revolver, lowering debt-to-EBITDA to 1.3 times at the end of the quarter, compared to 1.8 times at year end. Our capital allocation priorities remain consistent moving forward. We will use cash first and foremost to grow our business, while continuing to fund an increasing dividend and servicing debt obligations. We are evaluating a number of growth strategies and look forward to using our additional capacity to make investments that help capture market share and drive value. Before I turn back over to bill, I wanted to make a few concluding comments. While there were challenges in the quarterly revenue comparison, as expected and communicated to you in February, we saw very positive trends in order activity and industrial related markets. Our backlog is healthy to start the second quarter and order activity in industrial products continues to provide a sense of optimism. Also, we continue to make good progress in improving productivity. The continued gross margin expansion and ongoing SG&A reduction drove growth of 24% in adjusted earnings in the quarter and provides opportunities for further profitability improvements. Driving free cash flow remains a top priority in 2017 and we are off to a great start. We’ve made good strides in securing and receiving payment on our insurance related receivables and continue to build momentum in improving the management of working capital. I will now turn the call back over to Bill for some concluding commentary. Bill?

Thank you, Ken. Despite some of the challenges we faced in the quarter on the top line, as Ken indicated we were able to grow adjusted earnings by 24% and drive higher levels of free cash flow. I was really pleased by this. Looking forward, we are seeing encouraging signs across our industrial markets, and our order book nears the positive macro trends we are tracking with our channel partners. Energy markets appear to have stabilized and rig count continues to increase. Downstream refiners are projecting higher levels of turnaround investment for 2017, and utilities are expected to continue investing in grid modernization and infrastructure upgrade projects. Overall, the fundamentals and key drivers of MSA's business are starting to point in the right direction. That said, we operate across a number of end markets and geographies that remain uneven, and a bit volatile. And with this perspective in mind, we continue to feel that low-to-mid single digit revenue growth for 2017 is a reasonable target in this environment and we will be working diligently towards that goal throughout the year. As I noted in my letter to shareholders in our recently released annual report, we made great strides in 2016 and increasing shareholder value and generating top quartile of shareholder returns, compared to our benchmark growth. We're certainly proud of that performance, but there is more work ahead and we're not taking our foot off the accelerator. We have a sharp focus on driving profitable growth, while continuing to increase value for all of our stakeholder in 2017. With those comments, thank you for your attention this morning. And at this time, Ken and I 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 future sales and earnings. Having said that, we will now open up the call for your questions.

Thank you. [Operator Instructions] And our first call is coming in from Richard Eastman with Robert W. Baird. And Richard please go ahead when you hear your phone is unmuted.

Yes good morning. Good morning Bill, good morning Ken.

Good morning Rick.

Good morning Rick.

Very quickly, could you just kind of speak to the fixed gas and flame business a little bit here, could you just may be parse out how the equipment side of that did versus the MRO side? And then also, you did allude to the backlog being - order flow being stronger in the quarter, could you just give us a sense of, is the backlog at the end of the first quarter, is it up down and maybe just give us a sense of where that business, what that business looks like a right now?

Yes, Rick let me you a little bit of texture and then Ken can give you the actual numbers here. I think as Ken indicated, we were seeing some nice strong growth in international for FGFD, particularly in the Middle East where, I think Ken indicated the cost of oil extraction seems to be lower and while there are a fewer projects than in previous years there is still projects that are being bid and that we are winning in. Our incoming order book for the Middle East Africa/India region for FGFD was up 28% versus a year ago. So, we are seeing some really strong activity I think internationally for FGFD. Ken maybe you have the actual numbers on backlog and what we have seen in the way of backlog in FGFD.

Yes, sure. So Rick what we historically see on the backlog side of the business is, the fourth quarter certainly comes down considerably as we ship on projects and then in the first quarter we see it come back and so what we saw that exact same pattern this year, you know the first quarter is back at levels that we have seen historically. So the business is, I would say is very much still intact with what we have seen over the recent term in terms of performance.

Rick, I think the answer to your question on the split between MRO and actual new projects, I don't have that level of detail here, but perhaps in a follow-up conversation with Ken you can take a look at that.

Okay. And then just a question around the international revenue, I think the core organic revenue was down like 9% high-single-digits, can you just give us a perspective on where the - the tough comps I believe there was a China SCBA comp that was tough, but how does the underlying tone of business there, is it better than the 9% core decline year-over-year looks?

Yes, I think it is. International was driven primarily by softness that we saw in Europe quite frankly. And Europe is off to a slower start than what we had expected and the year-over-year comparison in the first quarter is disappointing. We are seeing some lift in the industrial products like gas detection and head protection over there, where our orders were up 11% in Europe for head protection, excuse me in gas detection and up 40% in industrial head protection, but the government funding cycle in Europe has been clearly challenging and it’s creating a whole lot of uncertainty in the fire service market, particularly in Germany and then in the military business that we have over in Europe. So that’s a little bit behind plan and we are a little bit disappointed with what we have seen there, Rick, but are when I look more broadly at international, I don't think I have that same level of concern. Our order book in China was up 18% versus a year ago, which was great to see, I indicated already Middle East Africa region is growing nicely and we are seeing a nice backlog of business start there. So, I think and at least Ron is unable to be here today, Ron is travelling to provide more commentary on the international, but I think this was kind of a slow out of the gates for Europe in the first quarter, but we don't expect to see that continue for the balance of the year. Ken anything else you want to add?

The only thing also I would add is we have talked about Europe on a number of occasions with respect to the ballistic business and that certainly as you see the non-core number coming in weaker, that is certainly what we felt in the first quarter of 2017 was just a weaker environment on the ballistic helmet business, and so that’s what drove the significant decline in that side.

I understand. And then just - and then China sales again - were China's sales in the quarter, I understand your comments about orders Bill, but were China sales also lower given the SCBA comps, is that part of what we're seeing?

They were lower. They very lower and it was driven by breathing apparatus sales, you're exactly right.

That’s exactly right. I mean the business in China was down predominantly because of the breathing apparatus. When you look at the other core products, specifically head protection and fire helmets, portable gas, we saw good growth in those businesses in China in the quarter.

Okay, and then just…

Double-digit growth.

Double-digit, okay. And then just last question from me, I apologize. The SG&A line, Ken how does that look for the balance of the year, do we kind of, do we essentially work higher off the call it 75 million of a SG&A number and how do we think about that number because the biggest piece here was the early retirement program that steps down in total. So, do we work higher of the quarters from the 75 million level or?

Well we have taken solid steps in the SG&A front and if we go back to what we have provided in terms of guidance around our cost reduction program. We had talked about our reduction, our program was targeted at taking out $10 million of cost out of our cost structure in 2017, again. So a majority of that $10 million is expected to come out of the SG&A line of the P&L Rick. So, I think is it would be safe to include that in the modeling that you would use going forward.

Okay, great. Thank you. I will follow-up later. Thank you.

Thank you, Richard. And our next question is from Stanley Elliott with Stifel. Go ahead. Stanley when you hear your phone is unmuted.

Hi everyone, good morning. Okay, here we go. Good morning and thank you guys for taking my question. Quick question on that SG&A piece, we are not seeing - the 10 million is just what you all have done from a cost restructuring perspective and that does not include lower legal expense, is that correct? And when would the lower legal expense start to flow through to?

That’s correct. And as I talked about Stanley on my prepared comments, we had talked about $3 million higher of certain costs, a part of that is the legal cost that we have incurred in our insurance recovery program. It’s really hard for us to say when those costs will come down, what we would say is that we are making a really good progress at securing payment in the insurance arena, but in terms of providing guidance on legal costs coming down that’s challenging and where we sit currently in this environment.

That’s fine. And as far as the new fixed gas products, when can you guys start shipping those? Is that what was driving the big backlog increase in the Middle East, just curious to what you guys could say about that?

I assume you are referring to the new X5000 and S5000 products that we launched this week. Those products are already shipping Stanley. So when we launched those this week we were immediately shipping certain backorder that we had built up in that area. To answer the second part of your question, no I would not say that those, that large backorder that we're building up and solid order pace that we are seeing in the Middle East is because of these new gas detectors, the X5000 or S5000. I think that's more base business than some of the existing product line, but I will say that our sales organizations are really excited about this next generation of product, and as we are now ramping up into full production, I would expect to see that have all greater and greater impact over time.

Perfect and then on the margin piece in North America you mentioned that kind of SCBA was a big driver, does that include the ability to ship the new thermal imaging camera in the hand piece or is it just you guys have gotten better in terms of sourcing and throughput and then just general blocking and tackling if you will?

Well I think it is a bit of both of the items that you discussed and also better blocking and tackling. Ken mentioned in his comments, improvements in productivity that we are seeing. America's operating margin was around 23% as I remember, up over 400 basis points over the prior year, which was terrific to see and some of that is driven by the new ITIC that is shipping with SCBA that’s allowing us to corner a much higher average selling price for the SCBA that we're selling, it is the kits that we are sending out where we have the ability to upgrade G1 SCBA that have been sold over the past two years, and include the ITIC there, as well as just improved vendor relations, supply chain management activities, and productivity on the factory floor. So, we're seeing the benefit of all of those measures. I don't have, I can’t parse it for you, but maybe in the future we can give you a better sense there of what’s happening.

The only thing I would add is on the gross margin line, from a consolidated perspective, we did see nice performance with 180 basis points of improvement. About 40 basis points or so of that improvement is mix, about 100 basis points of that is the SCBA, but we did see meaningful improvement across all of the core, and so it was a good quarter with respect to margin performance.

No doubt. And then lastly in terms of M&A or potential to grow the business in other avenues, you obviously had a lot of financial flexibility capacity, what is the market looking like right now, there has been some larger deals that have happened in the space, has that pushed up multiples, pushed up expectations, kind of change a thought process on when and where and how to proceed with deals, any color there would be great?

Well, I think during this past quarter you saw a recent very strategic acquisition made by one of our competitors and as you noted, our balance sheet is in a very strong position. I will tell you that we continually review the acquisition pipeline in many of our core areas and we evaluate how certain targets could add value to MSA. And we continue that process and we remain focused on that area. We look at opportunities across our core areas and our core end markets and you can see that from the strategic transaction costs that we incurred in the quarter, we are actively looking at opportunities to find the right investments that are going to grow our business. So, I think it is safe to say that we can and we will use our additional debt capacity and improve cash flow. First and foremost to grow the business and part of that is looking very closely at and carefully at acquisitions in this space. Multiples are higher, I think in this space then generally seen in the industrial space, and so that becomes a factor.

Sounds good. Thank you very much, and best of luck.

Thanks Stanley.

Thanks Stanley.

Thank you Stanley and our next question is coming in from Edward Marshall from Sidoti & Company. And go ahead Edward when you hear your line is unmuted please.

Hello.

Hi good morning Ed.

Hi guys, how are you?

Very well, thanks.

So, you have already made the comments on the comparable from the fall protection equipment in the quarter, I was curious as I parse through the different, the Americas versus the international business, obviously the weakness was international. I am wondering if there is also some seasonality that you didn't see last year in that business that might have flown through in the first quarter. And then secondarily I think year after integration I am wondering about the crossbar pollination of your products, your brand and the technologies and is any of that playing off into the Americas division as well?

Yes, I will address the last part of that question first Ed. We are absolutely seeing nice cross-pollination of Latchways acquisition into the Americas. In fact, the Americas saw a 13% increase in fall protection in the first quarter versus a year ago. So we're seeing a lot of that cross-pollination that we had hoped to see and gaining strides there and seeing a nice uptick in our market share performance in the Americas. International was down quite considerably in fall protection. I think down 21% or in that range. A lot of that was related to some large orders and backlog that we had in the UK and it was all Latchways product. So we just want to - we were able to overcome some of that, but I don't think that that in any way throws cold water on our optimism for this product line in Europe, and we’ve got some exciting new products planned for this year in Europe and we expect to see some continued strong growth across our fall protection line, maybe not 20% plus, like we were able to see last year, but we still have a good solid expectations for fall protection in this business.

Got it. And you mentioned the thermal imaging cameras designed for the G1, it works well with that system, battery packs, et cetera. I’m assuming it also works with prior generation equipment, just wanted to be clear?

No Ed it does not, it only works with the G1 SCBA.

Got it. And then the acquisition and the space that we’ve talked about, they are hinted to, I am kind of curious about how you see that development around the SCBA product in particular, do you think it helps or hurts your continued market share gains with the new G1 and the thermal imaging camera?

Well I think that the - our experience in developing the G1 was that it took a very significant amount of investment and took us five years to bring that to market with the amount of voice of customer research that we did in order to hit the bulls-eye the way we did. I think that the G1 has now been on the market and been sold into the market for two years, so certainly the competitive landscape has had an opportunity to look at the G1 and to identify the great features of it, and features that they think that they could improve upon, but we continue to innovate around the G1. The ITIC is the latest, most visible example, but we have other activities in process here to build off of that platform, it’s just not a standalone product the way previous generations of SCBA have been. This is a product that we are viewing as a platform for the fire service that integrates various activities, including communication, and thermal imaging, vision capability, as well as other integration capability with say gas detection instruments and firefighters location capabilities that can come in the future, and I think it becomes a challenging target for our competitors and that makes us feel pretty good, but we’re not at all sitting still and taking great comfort in it. There is still a lot of work to do and there is still a lot of market share to be gained.

Okay, good to hear. Thanks guys.

Thank you Edward and our next question comes from Brian Rafn from Morgan Dempsey Capital Management. Go ahead Brian when you hear your phone unmuted please. Brian, are you there? Brian, can you hear us?

Yes, hello can you hear me?

Yes they can now, thank you.

Good morning guys, I am on the road, I am on a cell phone, can you guys hear me at all?

Yes Brian we can hear you.

Okay, I wanted to ask Bill if you look at, you talked about the SCBA the G1, the new platform, you guys have certainly put a major amount of technology you have constant reiteration, [indiscernible] if you look at the lifespan of that G1 is that the next generation where you might keep the G1 as a dual product, and if you have a 10 year or 12 year lifespan on this product, does at some point you guys spend [ph] new technology iterations to go to the next generation?

Well I think that, if I heard your question completely Brian, we look at the G1 SCBA as a platform that we can drive at least 15 years, 10 to 15 years of life out of, with all the software enhancements that can be made to the product, and some of the integration capability that that platform provides us we think that can be extended somewhat. You know the fire service is a very, very demanding environment and so it is not as simple as bringing new technology to the fire service market as it might be to bringing new technology to the consumer market, and iterations of smart phones may be very, very fast, but for the fire service that iteration is not as fast and it requires a lot of market research and understanding of what happens on the fire ground and I think the G1 represents the very best of technology that’s available today and the path that we're following is to add to that platform with technologies that I talked about with the previous caller. And that should give us I think 10 year to 15 year runaway for this product line, which we just introduced two years ago.

Okay, I appreciate the color bill. With the [indiscernible] technology in the G1 [indiscernible] do you assume it is going to be [indiscernible] trend with the regulators that it is, you know I think there were some delays and you guys think that that’s probably going forward, that type of evaluation is going to be more of a [indiscernible]?

Again Brian, it is a little bit difficult to hear you, but what I think what you were asking had to do with getting it through the regulations and the approval agencies and do I see that as getting any worse or getting any better, I don’t think it has changed much, it is still a challenge to get it through government approval agencies, the time constraints there continue to be challenging, but it’s not getting any worse is the good news, let it put it that way.

Okay, and then one final question maybe for Ken, Ken what from a standpoint of M&A, what kind of deal size would you guys be looking at [indiscernible]?

If I understood it correctly, I think you are asking around deals size and capital allocation and what we have done historically is, we’ve certainly have used our balance sheet, we’ve put our balance sheet to work for the general monitors acquisition we made several years ago. I think we levered up between 3.5 and 4 times, recently, more recently with Latchways we were between 2 and 3 times. So, we certainly have the capacity and the capability to follow what we have done in the past and use our balance sheet and put it to work in order to find growth opportunities.

Thanks guys, appreciate it.

Okay Brian.

Thank you, Brian. And our next caller is Richard Eastman with Robert W. Baird. Go ahead Richard when you hear your phone is unmuted please.

Thank you, again. I just wanted double back, Bill in your commentary around the core product revenue performance in Q1, it strikes me that the soft spots fall protection FGF and then SCBA you did comment that the order performance in all three of those categories, as well as I think you suggested the backlog was up at the end of the first quarter, is that the right take here and also is that where you get your confidence that even if we started with this core products down 3% in the first quarter that we are still comfortable with this low-single to mid-single, did I put the pieces together properly here?

Yes, I think you did Rick.

Just adding some texture there Rick, I mean on the fall protection side, I know we called out head protection and portable gas growing order growth of 24% and 19% respectively. Well fall protection also and we saw 10% order growth in the quarter, so we build a little backlog in the fall protection area. The fixed gas and flame detection is coming in right around where we thought it would so it is fitting our plans, and the SCBA as Bill talked about on his prepared comments, the order flow was that - was certainly good for us and so, yes I think we were positioned well to continue to track towards that guidance that we had previously issued.

Was the fixed gas and flame business - was there any impact from the impending introduction of the X5000 and S5000, I mean just any reluctance to order, I wouldn't say all the product, but did that impact either international or domestic sales for FGFD?

Rick it is hard to put a firm number on it, but the sense is it does. We have talked about the X5000 and S5000 now for at least the past two quarters and we are also talked about some of the challenges in getting it through the approval agencies and getting the product launched and shipping. We finally overcame those, but I think the amount of enthusiasm that we built up with that product line undoubtedly has a bit of an impact where rep organizations that sell our product and our sales force tends to be looking towards this next generation of product and maybe they are a little bit more hesitant, but for us to put up, for me to give you a firm number I really can't do that, but it is my belief that that does have an adverse impact.

Okay. And then just last question, this past month or so Granger took some, announced some very aggressive pricing actions to enhance its competitive position against I think Amazon in the industrial distribution area, is there any reason to be concerned that Granger is doing on the pricing side may get pushed back to the vendor's that use Granger as a channel meaning MSA?

Well, yes. The short answer is yes. There is always that risk. Granger is very aggressive in pricing negotiations with us, but we also have relationships with Amazon and Fastenal and other major industrial distributors to secure those channels of distribution. So, I would say yes, it is always a concern, pricing negotiations are always tough, but with some of the improvements we have seen in gross margin and the offsets in cost and improvements in productivity we’ve been able to weather that storm to this point in time.

Okay, okay. Thank you. Thank you again.

Okay Rick.

And thank you Richard. And now back to Mark for further remarks.