Msa Safety Announces Fourth Quarter Results

PITTSBURGH, Feb. 17, 2022 /PRNewswire/ — Global safety equipment manufacturer MSA Safety Incorporated (NYSE: MSA) today reported financial results for the fourth quarter and year ended December 31, 2021.

Quarterly Highlights

Quarterly revenues were a record at $410 million, increasing 6% from a year ago. Core product revenue increased 9% from a year ago.
GAAP operating loss was $89 million, compared to operating income of $22 million in the same period a year ago. Adjusted operating income was $80 million or 19.5% of sales, compared to $70 million or 18.0% of sales in the same period a year ago.
GAAP net loss was $61 million or $1.57 per diluted share, compared to net income of $15 million or $0.38 per diluted share in the same period a year ago. Adjusted earnings were $66 million or $1.67 per diluted share, compared to $52 million or $1.33 per diluted share in the same period a year ago.
GAAP operating and net loss includes a pre-tax charge of $160 million associated with an increase to MSA LLC’s cumulative trauma product liability reserve, compared to a pre-tax charge of $34 million in the same period a year ago. The increase in the reserve was driven by an increase in claims activity and reflects the estimated liability through 2074.
Operating cash flow was $69 million. MSA deployed $13 million for capital expenditures, $16 million for debt repayments and funded $17 million of dividends to shareholders.

Annual Highlights

Revenue finished at $1.40 billion, increasing 4% from a year ago. Core product revenue increased 9% from a year ago.
GAAP operating income was $23 million, compared to $172 million in the same period a year ago. Adjusted operating income was $241 million or 17.2% of sales, compared to $248 million or 18.4% of sales in the same period a year ago.
GAAP earnings were $21 million or $0.54 per diluted share, compared to $124 million or $3.15 per diluted share in the same period a year ago. Adjusted earnings were $185 million or $4.68 per diluted share, compared to $181 million or $4.60 per diluted share in the same period a year ago.
GAAP operating income and earnings includes a pre-tax charge of $185 million associated with an increase to MSA LLC’s cumulative trauma product liability reserve, compared to a pre-tax charge of $39 million in the same period a year ago. The increase in the reserve was driven by an increase in claims activity and reflects the estimated liability through 2074.
Operating cash flow was $199 million. MSA deployed $392 million for strategic acquisitions, $44 million for capital expenditures and funded $69 million of dividends to shareholders. Net leverage was 1.6x adjusted EBITDA at December 31, 2021.

Comments from Management

“Our team’s disciplined execution enabled MSA to finish out a challenging year with very strong performance,” commented Nish Vartanian, MSA Chairman, President and CEO. “While we reported record revenues, incoming order trends were also strong throughout the quarter, reflecting momentum across our end markets and driving our book-to-bill ratio above 1x. Robust demand and record backlog levels at year end positions us well going into 2022.”

Mr. Vartanian continued, “We achieved 150 basis points of adjusted operating margin expansion in the quarter, driven by improved gross margin from price realization and productivity programs. We remain focused on driving further improvements in profitability heading into 2022.”

MSA deployed more than $500 million of capital in the year on strategic acquisitions, capital expenditure projects and shareholder dividends. “I’m pleased with the progress we are making with our recent acquisitions. The integration of Bacharach and Bristol Uniforms are on track, and each transaction has successfully expanded our reach into attractive markets. Our balance sheet remains strong and we will continue to maintain a balanced capital allocation strategy focused on growing our business and returning value to shareholders.”

“Despite the ongoing supply chain challenges and economic uncertainties, I remain confident in our ability to drive value for our stakeholders. We continue to invest in and launch innovative safety solutions for our customers, and our employees remain highly engaged. We exited 2021 with record backlog levels, a strong balance sheet, and a focus on executing our long-term growth strategy that has driven significant value for our stakeholders” Mr. Vartanian concluded.

MSA Safety Incorporated

Condensed Consolidated Statement of Income (Unaudited)

(In thousands, except per share amounts)

Three Months Ended December 31,

Twelve Months Ended December 31,

2021

2020

Net sales

$ 410,268

$ 388,248

$1,400,182

$1,348,223

Cost of products sold

232,144

226,087

784,834

752,731

Gross profit

178,124

162,161

615,348

595,492

Selling, general and administrative

86,523

76,268

332,862

290,334

Research and development

15,643

16,545

57,793

58,268

Restructuring charges

4,194

8,906

16,433

27,381

Currency exchange losses, net

575

4,757

216

8,578

Product liability and other operating expense

160,029

34,158

185,264

39,036

Operating (loss) income

(88,840)

21,527

22,780

171,895

Interest expense

2,911

1,525

10,758

9,432

Other income, net

(2,810)

(1,308)

(11,582)

(5,684)

Total other expense (income), net

101

217

(824)

3,748

(Loss) income before income taxes

(88,941)

21,310

23,604

168,147

(Benefit) provision for income taxes

(27,465)

6,139

1,816

43,009

Net (loss) income

(61,476)

15,171

21,788

125,138

Net income attributable to noncontrolling interests

—

(393)

(448)

(1,061)

Net (loss) income attributable to MSA Safety Incorporated

$ (61,476)

$ 14,778

$ 21,340

$ 124,077

Earnings (loss) per share attributable to MSA Safety Incorporated common shareholders:

Basic

$ (1.57)

$ 0.39

$ 0.54

$ 3.19

Diluted

$ 0.38

$ 3.15

Basic shares outstanding

39,236

38,981

39,173

38,885

Diluted shares outstanding

39,335

39,449

39,286

During the fourth quarter of 2021, the company voluntarily changed its method of accounting for certain domestic inventory previously valued by the LIFO method to the FIFO method. The effects of the change in accounting principle from LIFO to FIFO have been retrospectively applied to all periods presented in the financial tables of this press release.

MSA Safety IncorporatedCondensed Consolidated Balance Sheet (Unaudited)(In thousands)

December 31, 2021

December 31, 2020

Assets

Cash and cash equivalents

140,895

$ 160,672

Trade receivables, net

254,187

252,283

Inventories

280,617

244,966

Notes receivable, insurance companies

3,914

3,796

Other current assets

113,191

139,708

Total current assets

792,804

801,425

Property, plant and equipment, net

207,793

189,620

Prepaid pension cost

163,283

97,545

Goodwill

636,858

443,272

Intangible assets, net

306,948

161,051

Notes receivable, insurance companies, noncurrent

44,626

48,540

Insurance receivable, noncurrent

121,609

85,077

Other noncurrent assets

122,475

93,101

Total assets

2,396,396

$ 1,919,631

Liabilities and shareholders’ equity

Notes payable and current portion of long-term debt, net

$ 20,000

Accounts payable

106,780

86,854

Other current liabilities

223,826

203,691

Total current liabilities

330,606

310,545

Long-term debt, net

597,651

287,157

Pensions and other employee benefits

189,973

208,068

Deferred tax liabilities

33,337

20,760

Product liability and other noncurrent liabilities

410,441

245,907

Total shareholders’ equity

834,388

847,194

Total liabilities and shareholders’ equity

Condensed Consolidated Statement of Cash Flows (Unaudited) (In thousands)

$ 15,171

$ 21,788

$ 125,138

Depreciation and amortization

14,047

10,390

50,317

39,674

Product liability expense

Change in working capital and other operating

(43,598)

36,681

(58,224)

2,707

Cash flow from operating activities

69,002

96,400

199,145

206,555

Capital expenditures

(12,874)

(16,207)

(43,837)

(48,905)

Acquisition, net of cash acquired

(392,437)

Change in short-term investments

(4,981)

26,087

(24,318)

Property disposals and other investing

(37)

120

(5,286)

454

Cash flow used in investing activities

(12,886)

(21,068)

(415,473)

(72,769)

Change in debt

(15,683)

(39,000)

293,176

(44,000)

Cash dividends paid

(17,264)

(16,767)

(68,586)

(66,578)

Other financing

3,441

5,381

(20,665)

(15,951)

Cash flow (used in) from financing activities

(29,506)

(50,386)

203,925

(126,529)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(3,016)

2,902

(7,193)

1,234

Increase (decrease) in cash, cash equivalents and restricted cash

$ 23,594

$ 27,848

$ (19,596)

$ 8,491

MSA Safety Incorporated Segment Information (Unaudited)

(In thousands, except percentage amounts)

Americas

International

Corporate

Consolidated

Three Months Ended December 31, 2021

Sales to external customers

$ 252,945

$ 157,323

$ —

Operating loss

Operating margin %

(21.7)%

Acquisition related costs (a)

3,993

Adjusted operating income (loss)

60,334

31,297

(11,680)

79,951

Adjusted operating margin %

23.9 %

19.9 %

19.5 %

Depreciation and amortization (b)

11,702

Adjusted EBITDA

68,488

34,714

(11,549)

91,653

Adjusted EBITDA %

27.1 %

22.1 %

22.3 %

Three Months Ended December 31, 2020

$ 244,518

$ 143,730

Operating income

5.5 %

515

53,558

25,304

(8,999)

$ 69,863

21.9 %

17.6 %

18.0 %

60,686

28,468

(8,901)

80,253

24.8 %

19.8 %

20.7 %

(a) Acquisition related costs include advisory, legal, accounting, valuation, and other professional or consulting fees incurred during due diligence and integration. These costs are included in selling, general and administrative expense in the Consolidated Statements of Income. Acquisition related costs also include the acquisition related amortization, which is included in cost of products sold in the Consolidated Statements of Income.

(b) Excludes acquisition related amortization, which is included in acquisition related costs above.

The Americas segment is comprised of our operations in North America and Latin America geographies. The International segment is comprised of our operations in all geographies outside of the Americas. Certain global expenses are allocated to each segment in a manner consistent with where the benefits from the expenses are derived.

Adjusted operating income (loss), adjusted operating margin, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA margin are the measures used by the chief operating decision maker to evaluate segment performance and allocate resources. As such, management believes that adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin are useful metrics for investors. Adjusted operating income (loss) is defined as operating income excluding restructuring charges, currency exchange gains / losses, product liability expense and strategic transaction costs, and adjusted operating margin is defined as adjusted operating income (loss) divided by segment sales to external customers. Adjusted EBITDA is defined as adjusted operating income (loss) plus depreciation and amortization and adjusted EBITDA margin is defined as adjusted EBITDA divided by segment sales to external customers. Adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin are not recognized terms under GAAP and therefore do not purport to be alternatives to operating income or operating margin as a measure of operating performance. The Company’s definition of adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin may not be comparable to similarly titled measures of other companies. As such, management believes that it is appropriate to consider operating income determined on a GAAP basis in addition to these non-GAAP measures.

MSA Safety Incorporated Segment Information (Unaudited)(In thousands, except percentage amounts)

Twelve Months Ended December 31, 2021

$ 908,068

$ 492,114

1.6 %

15,884

202,496

73,279

(35,198)

240,577

14.9 %

17.2 %

45,417

233,732

86,997

(34,735)

285,994

25.7 %

17.7 %

20.4 %

Twelve Months Ended December 31, 2020

$ 874,305

$ 473,918

12.7 %

717

COVID-19 related costs

757

205,304

71,140

(28,080)

248,364

23.5 %

15.0 %

18.4 %

232,066

83,661

(27,689)

288,038

26.5 %

21.4 %

Adjusted operating income (loss), adjusted operating margin, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA margin are the measures used by the chief operating decision maker to evaluate segment performance and allocate resources. As such, management believes that adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin are useful metrics for investors. Adjusted operating income (loss) is defined as operating income excluding restructuring charges, currency exchange gains / losses, product liability expense, strategic transaction costs and COVID-19 related costs, and adjusted operating margin is defined as adjusted operating income (loss) divided by segment sales to external customers. Adjusted EBITDA is defined as adjusted operating income (loss) plus depreciation and amortization and adjusted EBITDA margin is defined as adjusted EBITDA divided by segment sales to external customers. Adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin are not recognized terms under GAAP and therefore do not purport to be alternatives to operating income or operating margin as a measure of operating performance. The Company’s definition of adjusted operating income (loss), adjusted operating margin, adjusted EBITDA and adjusted EBITDA margin may not be comparable to similarly titled measures of other companies. As such, management believes that it is appropriate to consider operating income determined on a GAAP basis in addition to these non-GAAP measures.

Organic constant currency sales change is a non-GAAP financial measure provided by the Company to give a better understanding of the Company’s underlying business performance. Organic constant currency sales change is calculated by deducting the percentage impact from acquisitions and currency translation effects from the overall percentage change in net sales.

Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures Constant currency revenue growth (Unaudited)

Breathing Apparatus

Firefighter Helmets and Protective Apparel*

Industrial Head Protection

Portable Gas Detection

Fixed Gas and Flame Detection*

Fall

Protection

Core Sales

Non-Core

Sales

Net Sales

GAAP reported sales change

(8)%

37 %

17 %

10 %

15 %

11 %

9 %

(16)%

6 %

Plus: Currency translation effects

— %

(2)%

2 %

1 %

Constant currency sales change

35 %

19 %

16 %

12 %

(15)%

Less: Acquisitions

32 %

20 %

7 %

Organic constant currency sales change

3 %

(4)%

(1)%

Sales

Net Sales

26 %

14 %

4 %

(24)%

(3)%

23 %

13 %

(25)%

Less:

Acquisitions

5 %

Organic constant currency sales change

*Firefighter Helmets and Protective Apparel and Fixed Gas and Flame Detection include the impact of the Bristol and Bacharach acquisitions completed on January 25, 2021 and July 1, 2021, respectively.

MSA Safety Incorporated Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures Constant currency revenue growth (Unaudited)

Americas Segment

Three Months Ended December 31, 2021

Firefighter Helmets and Protective Apparel

Fall Protection

Non-Core Sales

(10)%

18 %

34 %

8 %

(27)%

(26)%

33 %

Twelve Months Ended December 31,2021

Firefighter Helmets and Protective Apparel

Protection

Sales

21 %

(31)%

*Fixed Gas and Flame Detection includes the impact of the Bacharach acquisition completed on July 1, 2021.

International Segment

Firefighter Helmets and Protective Apparel*

(5)%

173 %

172 %

24 %

153 %

134 %

(9)%

(13)%

(6)%

121 %

(11)%

(17)%

114 %

MSA Safety Incorporated

Supplemental Segment Information (Unaudited)

Summary of constant currency revenue growth by segment and product group

Fixed Gas and Flame Detection*

Net Sales excluding Acquisitions

Management believes that adjusted earnings and adjusted earnings per diluted share are useful measures for investors, as management uses these measures to internally assess the company’s performance and ongoing operating trends. There can be no assurances that additional special items will not occur in future periods, nor that MSA’s definition of adjusted earnings is consistent with that of other companies. As such, management believes that it is appropriate to consider both net income determined on a GAAP basis as well as adjusted earnings.

Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures Adjusted earnings (Unaudited)

Adjusted earnings per diluted share (Unaudited) (In thousands, except per share amounts)

Three Months Ended December 31,

Twelve Months Ended December 31,

%Change

Net (loss) income attributable to MSA Safety Incorporated

$ (61,476)

$ 14,778

$ 21,340

Asset related losses and other

365

788

993

Income tax expense on adjustments

(41,676)

(10,863)

(55,180)

(20,176)

Adjusted earnings

$ 66,004

$ 52,298

26%

$ 184,745

$ 180,606

Adjusted earnings per diluted share

$ 1.67

$ 1.33

$ 4.68

$ 4.60

Management believes that Debt to Adjusted EBITDA and Net Debt to Adjusted EBITDA are useful measures for investors, as management uses these measures to internally assess the company’s liquidity and balance sheet strength. There can be no assurances that that MSA’s definition of Debt to Adjusted EBITDA and Net Debt to Adjusted EBITDA is consistent with that of other companies.

Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures Debt to adjusted EBITDA / Net debt to adjusted EBITDA (Unaudited)

(In thousands)

Depreciation and amortization (a)

Acquisition related costs (b)

Total end-of-period debt

Debt to adjusted EBITDA

2.1

Total end-of-period cash and cash equivalents

Net debt

456,756

Net debt to adjusted EBITDA

1.6

(a) Excludes acquisition related amortization, which is included in acquisition related costs above. (b) Acquisition related costs include advisory, legal, accounting, valuation, and other professional or consulting fees incurred during due diligence and integration. These costs are included in selling, general and administrative expense in the Consolidated Statements of Income. Acquisition related costs also include the acquisition related amortization, which is included in cost of products sold in the Consolidated Statements of Income.

About MSA:

Established in 1914, MSA Safety Incorporated is the global leader in the development, manufacture and supply of safety products that protect people and facility infrastructures. Many MSA products integrate a combination of electronics, mechanical systems and advanced materials to protect users against hazardous or life-threatening situations. The company’s comprehensive product line is used by workers around the world in a broad range of markets, including the oil, gas and petrochemical industry,

the fire service, the construction industry, mining and the military. MSA’s core products include self- contained breathing apparatus, fixed gas and flame detection systems, portable gas detection instruments, industrial head protection products, firefighter helmets and protective apparel, and fall protection devices. With 2021 revenues of $1.4 billion, MSA employs approximately 4,800 people worldwide. The company is headquartered north of Pittsburgh in Cranberry Township, Pa., and has manufacturing operations in the United States, Europe, Asia and Latin America. With more than 40 international locations, MSA realizes approximately half of its revenue from outside North America. For more information visit MSA’s web site at www.MSAsafety.com.

Cautionary Statement Regarding Forward-Looking Statements:

Except for historical information, certain matters discussed in this press release may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include but are not limited to all projections and anticipated levels of future performance.

Forward looking statements involve risks, uncertainties and other factors that may cause our actual results to differ materially from those discussed herein. Any number of factors could cause actual results to differ materially from projections or forward looking statements, including without limitation global economic conditions, spending patterns of government agencies, competitive pressures, the impact of acquisitions and related integration activities, product liability claims, the success of new product introductions, currency exchange rate fluctuations and the risks of doing business in foreign countries. A full listing of these risks, uncertainties and other factors are detailed from time-to-time in our filings with the United States Securities and Exchange Commission (“SEC”), including our most recent Form 10-K filed on February 19, 2021. You are strongly urged to review all such filings for a more detailed discussion of such risks and uncertainties. MSA’s SEC filings are readily obtainable at no charge at www.sec.gov, as well as on its own investor relations website at http://investors.MSAsafety.com. MSA undertakes no duty to publicly update any forward looking statements contained herein, except as required by law.

Non-GAAP Financial Measures:

This press release includes certain non-GAAP financial measures. These financial measures include constant currency revenue growth, adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted earnings, and adjusted earnings per diluted share. The presentation of these financial measures does not comply with U.S. generally accepted accounting principles (“GAAP”). For an explanation of these measures, together with a reconciliation to the most directly comparable GAAP financial measure, see the Reconciliation of As Reported Financial Measures to Non-GAAP Financial Measures in the financial tables section above.

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SOURCE MSA Safety

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