The following discussion and analysis should be read in conjunction with the historical financial statements and other financial information included elsewhere in this quarterly report on Form 10-Q. This discussion may contain forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in the sections of our annual report entitled "Forward-Looking Statements" and "Risk Factors," and those discussed in our Form 10-Q quarterly reports filed after such annual report (such as in Part II, Item 1A, "Risk Factors.")
BUSINESS OVERVIEW
MSA is a global leader in the development, manufacture and supply of safety products that protect people and facility infrastructures. Recognized for their market leading innovation, 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, which is governed by rigorous safety standards across highly regulated industries, is used by workers around the world in a broad range of markets, including fire service, oil, gas and petrochemical industry, construction, industrial manufacturing applications, utilities, mining and the military. MSA's core products include 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. We are committed to providing our customers with service unmatched in the safety industry and, in the process, enhancing our ability to provide a growing line of safety solutions for customers in key global markets.
Our customers include first responders, who are tasked with keeping citizens
safe, and include industrial and utility workers tasked with maintaining
critical infrastructure. For this reason, in order to successfully fulfill our
mission as
We tailor our product offerings and distribution strategy to satisfy distinct
customer preferences that vary across geographic regions. To best serve these
customer preferences, we have organized our business into four geographical
operating segments that are aggregated into three reportable geographic
segments:
International. Our International segment includes companies in
Corporate. The Corporate segment primarily consists of general and administrative expenses incurred in our corporate headquarters, costs associated with corporate development initiatives, legal expense, interest expense, foreign exchange gains or losses and other centrally-managed costs. Corporate general and administrative costs comprise the majority of the expense in the Corporate segment.
Within the International segment, during the first quarter, due to military
conflict in
During the fourth quarter of 2021, the Company changed its method of accounting
for certain inventory in the
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consolidated financial statements in Part II Item 8 of our Annual Report on Form
10-K for the year ended
PRINCIPAL PRODUCTS
The following is a brief description of each of our principal product categories:
MSA's corporate strategy includes a focus on driving sales of core products
where we have leading market positions and a distinct competitive advantage.
Core products, as mentioned above, include breathing apparatus in which SCBA is
the principal product, fixed gas and flame detection systems, portable gas
detection instruments, industrial head protection products, firefighter helmets
and protective apparel, and fall protection devices. Core products comprised
approximately 91% and 88% of sales for the three months ended
MSA maintains a diversified portfolio of safety products that protect workers and facility infrastructure across a broad array of end markets. While the company sells its products through distribution, which can limit end-user visibility, the Company provides estimated ranges of end market exposure to facilitate understanding of its growth drivers. The Company estimates that approximately 35%-40% of its overall revenue is derived from the fire service market and 25%-30% of its revenue is derived from the energy market. The remaining 30%-40% is split among construction, utilities, general industrial applications, military and mining.
A detailed listing of our significant product offerings in the aforementioned
product groups above is included in MSA's Annual Report on Form 10-K for the
year ended
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RESULTS OF OPERATIONS
Three Months Ended
Net Sales Three Months Ended March 31, Dollar Percent (In millions) 2022 2021 Increase Increase Consolidated$330.7 $308.4 $22.3 7.2% Americas 225.7 208.3 17.4 8.4% International 105.0 100.1 4.9 4.9% Three Months Ended Net Sales March 31, 2022 versus March 31, 2021 (Percent Change) Americas International Consolidated GAAP reported sales change 8.4% 4.9% 7.2% Currency translation effects 0.6% 5.0% 2.1% Constant currency sales change 9.0% 9.9% 9.3% Less: Acquisitions(a) (5.9)% (4.5)% (5.5)% Organic constant currency change 3.1% 5.4% 3.8%
(a) -
Note: 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.
Net sales for the
Net sales for the International segment were
Order activity continued to show year-over-year improvements and increased 22% compared to the first quarter of 2021. Organic growth in orders was 16% while acquisitions drove 6% growth. We continued to see strong order growth in April. Our backlog increased to record levels as a result of an uptick in order pace and ongoing supply chain constraints, most notably in electronic components and labor at select locations.
Looking ahead, we continue to operate in a very dynamic environment. There are a number of other evolving factors that will continue to influence our revenue and earnings outlook. These factors include, among other things, supply chain constraints, raw material availability, the risk of additional COVID lockdowns, industrial employment rates, military conflict and geopolitical risk and the pace of economic recovery. While we expect sequential improvement in revenue and earnings in the second quarter of 2022, these conditions could impact our future results and growth expectations.
Refer to Note 8-Segment Information to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q, for information regarding sales by product group.
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Gross profit. Gross profit for the first quarter of 2022 was
We have implemented price increases in response to the inflation we are seeing in electronic components, resins and other inputs. While there could be a number of scenarios on the length of time that these challenges may persist, we could see these impact our business for the foreseeable future with more meaningful impact over the coming quarters. We will continue to evaluate additional pricing opportunities as we continue to navigate inflationary pressures.
Selling, general and administrative expenses. Selling, general and
administrative ("SG&A") expenses were
Please refer to the Selling, general and administrative expenses table for a reconciliation of the quarter over quarter expense change.
Three Months Ended Selling, general, and administrative expensesMarch 31, 2022 versusMarch 31, 2021 (Percent Change) Consolidated GAAP reported change 4.1% Currency translation effects 1.6% Constant currency change 5.7% Less: Acquisitions and related strategic transaction costs (4.3)% Organic constant currency change 1.4%
Research and development expense. Research and development expense was
Restructuring charges. Restructuring charges during the first quarter of 2022,
were
Currency exchange. Currency exchange losses were
Refer to Note 16-Derivative Financial Instruments to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q, for information regarding our currency exchange rate risk management strategy.
Product liability expense. Product liability expense for both the three months
ended
GAAP operating income. Consolidated operating income for the first quarter of
2022 was
Adjusted operating income.
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International adjusted operating income for the first quarter of 2022 was
Corporate segment adjusted operating loss for the first quarter of 2022 was
The following tables represent a reconciliation from GAAP operating income to adjusted operating income (loss) and adjusted EBITDA. Adjusted operating margin % is calculated as adjusted operating income (loss) divided by net sales and adjusted EBITDA margin % is calculated as adjusted EBITDA divided by net sales.
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