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Item 2. Management’s Discussion and Analysis

2024-07-25 compared with 2024-04-30 · 202 added, 78 removed, 118 unchanged (70% of the section changed)

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The Company's comprehensive product line, which is governed by rigorous safety standards across highly regulated industries, is used to protect workers and facility infrastructures around the world in a broad range of markets, including fire service, energy, utility, construction and industrial manufacturing applications as well as heating, ventilation, air conditioning and refrigeration ("HVAC-R").

The Company's product portfolio includes firefighter safety gear where core products include self-contained breathing apparatus ("SCBA"), protective apparel and helmets;

The Company's product portfolio includes fire service where core products include self-contained breathing apparatus ("SCBA"), protective apparel and helmets;

detection where core products include fixed gas and flame detection ("FGFD") systems and portable gas detection instruments;

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Our International segment includes companies in Europe, the Middle East and Africa ("EMEA") and the Asia Pacific region.

In our largest International subsidiaries (in Germany, France, U.K., Ireland and China), we develop, manufacture and sell a wide variety of products.

In our largest International subsidiaries (Germany, France, U.K., Ireland and China), we develop, manufacture and sell a wide variety of products.

In China, the products manufactured are sold primarily in China as well as in regional markets.

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RESULTS OF OPERATIONS

Three Months Ended March 31, 2024, Compared to Three Months Ended March 31, 2023

Net sales for the three months ended March 31, 2024, were $413.3 million, an increase of $15.0 million, or 3.8%, compared to $398.3 million in the same period last year.

Three Months Ended June 30, 2024, Compared to Three Months Ended June 30, 2023

Net sales for the three months ended June 30, 2024, were $462.5 million, an increase of $15.2 million, or 3.4%, compared to $447.3 million in the same period last year.

Please refer to the Net Sales table for a reconciliation of the quarter over quarter sales change.

Net Sales Three Months Ended March 31, Dollar

Net Sales Three Months Ended June 30, Dollar

Increase Percent

(In millions) 2024 2023

(In millions, except percentage change) 2024 2023

Consolidated $462.5 $447.3 $15.2 3.4%

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Net Sales Three Months Ended

March 31, 2024 versus March 31, 2023

June 30, 2024 versus June 30, 2023

(Percent Change) Americas International Consolidated

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Currency translation effects 0.4% 0.8% 0.5%

Constant currency sales change 4.8% (1.1)% 3.1%

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.

Constant currency sales change is calculated by deducting the percentage impact from currency translation effects from the overall percentage change in net sales.

Net sales for the Americas segment were $295.5 million in the first quarter of 2024, an increase of $15.2 million, or 5.4%, compared to $280.3 million in the first quarter of 2023.

Constant currency sales in the Americas segment increased 4.8%.

This growth was driven by an increase in firefighter safety products, partially offset by declines in detection and industrial PPE.

Net sales for the International segment were $117.8 million in the first quarter of 2024, a decrease of $0.2 million, or 0.2%, compared to $118.0 million for the first quarter of 2023.

Constant currency sales in the International segment decreased 1.1% during the quarter.

Growth in our EMEA region was offset by a decline in our APAC region, particularly in Industrial PPE.

Organic constant currency sales change 2.4% 7.2% 3.9%

Organic constant currency sales change is a non-GAAP financial measure.

See the "Non-GAAP Financial Measures" section below.

Net sales for the Americas segment were $314.7 million in the second quarter of 2024, an increase of $6.3 million, or 2.0%, compared to $308.4 million in the second quarter of 2023.

Organic constant currency sales in the Americas segment increased 2.4%.

This growth was driven by increases in detection and industrial PPE, partially offset by a decline in fire service.

Net sales for the International segment were $147.8 million in the second quarter of 2024, an increase of $8.9 million, or 6.4%, compared to $138.9 million for the second quarter of 2023.

Organic constant currency sales in the International segment increased 7.2% during the quarter.

Growth in fire service and detection was partially offset by a decline in industrial PPE.

The operating environment remains dynamic, and we continue to navigate these challenges to continue delivering solutions to our customers.

Backlog continued to be slightly elevated, specifically in Detection and Industrial PPE, due to certain supply chain challenges.

While the supply chain continues to be volatile, we’re working closely with our suppliers and now expect backlog to normalize by the end of the year.

Orders were healthy in the quarter and through April.

Our end markets are generally healthy, demand trends lean positive, and we have executed initiatives to bring our backlog down to more normalized levels.

Timing of orders can be a factor but we expect growth rates for the second half of 2024 to be similar to the first half.

Looking forward, we continue to expect to generate mid-single digit sales growth in 2024.

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Gross profit .

Gross profit for the first quarter of 2024 was $195.5 million, an increase of $14.1 million or 7.8%, compared to $181.4 million for the first quarter of 2023.

The ratio of gross profit to net sales was 47.3% in the first quarter of 2024 compared to 45.5% in the same quarter last year.

Improved productivity and price/cost management are the leading drivers of the increase year over year.

Gross profit for the second quarter of 2024 was $223.0 million, an increase of $9.2 million or 4.3%, compared to $213.8 million for the second quarter of 2023.

The ratio of gross profit to net sales was 48.2% in the second quarter of 2024 compared to 47.8% in the same quarter last year.

Improved productivity, price/cost management and favorable mix of higher margin products are the leading drivers of the increase year over year.

Selling, general and administrative expenses.

Selling, general and administrative ("SG&A") expenses were $94.2 million during the first quarter of 2024, an increase of $3.1 million or 3.4%, compared to $91.1 million for the same period a year ago.

Overall, SG&A expenses were 22.8% of net sales during the first quarter of 2024, compared to 22.9% of net sales during the same period in 2023.

Constant currency SG&A increased by approximately $2.7 million or 3.0%.

The increase in SG&A was driven by the higher level of sales and inflation partially offset by lower variable compensation.

Selling, general and administrative ("SG&A") expenses were $105.1 million during the second quarter of 2024, an increase of $8.8 million or 9.1%, compared to $96.3 million for the same period a year ago.

Overall, SG&A expenses were 22.7% of net sales during the second quarter of 2024, compared to 21.5% of net sales during the same period in 2023.

Organic constant currency SG&A increased by approximately $9.3 million or 9.7%.

The increase in SG&A was driven by the higher level of sales, inflation, net cost for product related legal matter and higher professional service expense related to strategic initiatives partially offset by lower variable compensation.

Please refer to the SG&A expenses table for a reconciliation of the quarter over quarter expense change.

Selling, general, and administrative expenses Three Months Ended

March 31, 2024 versus March 31, 2023

June 30, 2024 versus June 30, 2023

(Percent Change) Consolidated

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Currency translation effects 0.6%

Constant currency change 3.0%

Organic Constant currency change 9.7%

Organic constant currency SG&A change is a non-GAAP financial measure.

See the "Non-GAAP Financial Measures" section below.

Research and development expense .

Research and development expense was $15.9 million during the first quarter of 2024, an increase of $0.7 million, compared to $15.2 million during the first quarter of 2023.

Research and development expense was 3.9% of net sales in the first quarter of 2024 and 3.8% in the first quarter of 2023.

During the first quarter of 2024 and 2023, we capitalized $3.4 million and $3.0 million of software development costs, respectively.

Depreciation expense for capitalized software development cost of $2.7 million and $2.3 million during the first quarter of 2024 and 2023, respectively, was recorded in costs of products sold on the unaudited Condensed Consolidated Statements of Operations.

Research and development expense was $17.1 million during the second quarter of 2024, an increase of $1.1 million, compared to $16.0 million during the second quarter of 2023.

Research and development expense was 3.7% of net sales in the second quarter of 2024 and 3.6% in the second quarter of 2023.

During the second quarter of 2024 and 2023, we capitalized $3.4 million and $3.1 million of software development costs, respectively.

Depreciation expense for capitalized software development costs of $2.8 million and $2.5 million during the second quarter of 2024 and 2023, respectively, was recorded in costs of products sold on the unaudited Condensed Consolidated Statements of Operations.

MSA remains committed to dedicating significant resources to research and development activities, including the development of technology-based safety solutions.

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however, we do not anticipate reductions in the relative level of total spend on research and development activities on an annual basis.

Total spend on both software development and research and development activities was $19.3 million and $18.2 million during the first quarter of March 31, 2024, and 2023, respectively.

Total spend on both software development and research and development activities was $20.5 million and $19.1 million during the second quarter of June 30, 2024, and 2023, respectively.

Restructuring charges .

Restructuring charges of $3.0 million during the first quarter of 2024 were primarily related to management restructuring and initiatives to adjust our cost structure and optimize our manufacturing footprint.

Restructuring charges of $1.7 million during the first quarter of 2023 were related to manufacturing footprint optimization activities.

We remain focused on executing programs to further optimize our cost structure.

Restructuring charges of $1.5 million during the second quarter of 2024 were primarily related to initiatives to optimize our manufacturing footprint and improve productivity.

Restructuring charges of $3.4 million during the second quarter of 2023 were primarily related to our initiatives to adjust our cost structure and improve productivity.

Currency exchange .

Currency exchange losses were $2.3 million in the first quarter of 2024 compared to $4.2 million in the first quarter of 2023.

Currency exchange activity for both periods related primarily to foreign currency exposure on unsettled inter-company balances and recognized exchange loss for our Argentina affiliate operating in a hyper-inflationary environment.

Currency exchange gains were $0.6 million in the second quarter of 2024 compared to losses of $3.1 million in the second quarter of 2023.

During the second quarter of 2024, we recognized non-cash net cumulative translation gains of $1.2 million associated with certain foreign subsidiaries.

The remaining currency exchange activity for both periods related primarily to foreign currency exposure on unsettled inter-company balances and recognized exchange loss for our Argentina affiliate operating in a hyper-inflationary environment.

Refer to Note 15—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.

GAAP operating income.

Consolidated operating income for the second quarter of 2024 was $99.9 million compared to $95.0 million in the same period last year.

The increase in operating income was primarily driven by higher sales and gross profit partially offset by increased SG&A.

Adjusted operating income.

Americas adjusted operating income for the second quarter of 2024 was $98.5 million, an increase of $3.7 million or 3.9% compared to $94.8 million in the prior year second quarter.

The increase in adjusted operating income is attributable to higher sales and gross profit, partially offset by higher SG&A expenses to support business growth.

International adjusted operating income for the second quarter of 2024 was $24.3 million, an increase of $2.6 million, or 11.7%, compared to $21.7 million in the prior year second quarter.

The increase in adjusted operating income is attributable to higher sales and gross profit, partially offset by higher SG&A expenses to support business growth.

Corporate segment adjusted operating loss for the second quarter of 2024 was $14.6 million, an increase of $1.8 million in comparison to an adjusted operating loss of $12.8 million in the second quarter of 2023, driven by inflation and increased professional service fees associated with various strategic initiatives partially offset by lower variable compensation.

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.

Adjusted operating income (loss) Three Months Ended June 30, 2024

(In thousands) Americas International Corporate Consolidated

Net sales to external customers $ 314,711 $ 147,752 $ — $ 462,463

Operating income 99,944

Restructuring charges (Note 3) 1,543

Currency exchange gains, net (603)

Net cost for product related legal matter 5,000

Amortization of acquisition-related intangible assets 2,306

Adjusted operating income (loss) 98,468 24,285 (14,563) 108,190

Adjusted operating margin % 31.3 % 16.4 %

Depreciation and amortization 13,741

Adjusted EBITDA 108,230 28,052 (14,351) 121,931

Adjusted EBITDA margin % 34.4 % 19.0 %

Adjusted operating income (loss) Three Months Ended June 30, 2023

(In thousands) Americas International Corporate Consolidated

Net sales to external customers $ 308,378 $ 138,921 $ — $ 447,299

Operating income 95,008

Restructuring charges (Note 3) 3,350

Currency exchange losses, net 3,110

Amortization of acquisition-related intangible assets 2,315

Adjusted operating income (loss) 94,816 21,743 (12,776) 103,783

Adjusted operating margin % 30.7 % 15.7 %

Depreciation and amortization 12,574

Adjusted EBITDA 103,977 24,949 (12,569) 116,357

Adjusted EBITDA margin % 33.7 % 18.0 %

Adjusted operating income (loss), adjusted operating margin %, adjusted EBITDA and adjusted EBITDA margin % are non-GAAP financial measures.

See the "Non-GAAP Financial Measures" section below.

Total other expense, net.

Total other expense, net, for the second quarter of 2024 was $5.5 million, compared to $7.5 million for the same period in 2023, driven primarily by decreased interest expense related to reduced debt balances related to prior year borrowings associated with the MSA LLC divestiture as well as increased pension income driven by a higher expected rate of return partially offset by pension settlement expense recognized in the current year.

Income taxes.

The reported effective tax rate for the second quarter of 2024 was 23.5% compared to 23.3% for the second quarter of 2023.

This increase from the prior year is related to a one-time benefit recorded in the second quarter of 2023 related to prior year foreign tax returns, partially offset by a decrease in nondeductible compensation.

We are subject to regular review and audit by both foreign and domestic tax authorities.

While we believe our tax positions will be sustained, the final outcome of tax audits and related litigation may differ materially from the tax amounts recorded in our unaudited condensed consolidated financial statements.

Net income was $72.2 million for the second quarter of 2024, or $1.83 per diluted share compared to $67.1 million, or $1.70 per diluted share, for the same period last year.

Six Months Ended June 30, 2024, Compared to Six Months Ended June 30, 2023

Net sales for the six months ended June 30, 2024, were $875.8 million, an increase of $30.2 million, or 3.6%, compared to $845.6 million in the same period last year, driven by volume growth and price realization.

Please refer to the Net Sales table for a reconciliation of the period over period sales change.

Net Sales Six Months Ended June 30, Dollar

Increase Percent

(In millions, except percentage change) 2024 2023

Consolidated $875.8 $845.6 $30.2 3.6%

Americas 610.2 588.6 21.6 3.7%

International 265.5 256.9 8.6 3.3%

Net Sales Six Months Ended

June 30, 2024 versus June 30, 2023

(Percent Change) Americas International Consolidated

GAAP reported sales change 3.7% 3.3% 3.6%

Currency translation effects (0.1)% —% (0.1)%

Organic constant currency sales change 3.6% 3.3% 3.5%

Organic constant currency sales change is a non-GAAP financial measure.

See the "Non-GAAP Financial Measures" section below.

Net sales for the Americas segment were $610.2 million in the six months ended June 30, 2024, an increase of $21.6 million, or 3.7%, compared to $588.6 million in the same period last year.

Organic constant currency sales in the Americas segment increased 3.6% compared to the prior year period.

This growth was driven by increases in most products, particularly across fire service and FGFD partially offset by a decrease in portable instruments.

Net sales for the International segment were $265.5 million in the six months ended June 30, 2024, an increase of $8.6 million, or 3.3%, compared to $256.9 million in the same period last year.

Organic constant currency sales in the International segment increased 3.3% during the period.

This growth was driven by strength across fire service and FGFD, partially offset by decreases in portable instruments and industrial PPE.

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.

Gross profit .

Gross profit for the six months ended June 30, 2024, was $418.6 million, an increase of $23.4 million or 5.9%, compared to $395.2 million during the same period last year.

The ratio of gross profit to net sales was 47.8% during the six months ended June 30, 2024 compared to 46.7% during the same period last year.

Volume leverage, price/cost management and productivity efforts contributed to the gross profit improvement.

Selling, general and administrative expenses.

SG&A expenses were $199.2 million during the six months ended June 30, 2024, an increase of $11.8 million or 6.3%, compared to $187.4 million during the same period last year.

Overall, SG&A expenses were 22.7% of net sales during the six months ended June 30, 2024, compared to 22.2% of net sales during the same period in 2023.

Organic constant currency SG&A increased $12.0 million or 6.4%.

The increase in SG&A was driven by the higher level of sales, inflation, net cost for product related legal matter and higher professional service expense partially offset by lower variable compensation.

Please refer to the selling, general, and administrative expenses table for a reconciliation of the period over period expense change.

Selling, general, and administrative expenses Six Months Ended

June 30, 2024 versus June 30, 2023

(Percent Change) Consolidated

GAAP reported change 6.3%

Currency translation effects 0.1%

Organic constant currency change 6.4%

Organic constant currency SG&A change is a non-GAAP financial measure.

See the "Non-GAAP Financial Measures" section below.

Research and development expense .

Research and development expense was $33.0 million during the six months ended June 30, 2024, an increase of $1.8 million, compared to $31.2 million during the same period last year.

Research and development expense was 3.8% of net sales in the first six months ended June 30, 2024 and 3.7% in the same period of 2023.

During the six months ended June 30, 2024 and 2023, we capitalized $6.8 million and $6.1 million of software development costs, respectively.

Depreciation expense for capitalized software development costs of $5.5 million and $4.8 million during the six months ended June 30, 2024 and 2023, respectively, was recorded in costs of products sold on the unaudited Condensed Consolidated Statements of Operations.

MSA remains committed to dedicating significant resources to research and development activities, including the development of technology-based safety solutions.

As we continue to invest a significant portion of our new product development into technology-based safety solutions, we anticipate that the historical relationship of research and development expense to net sales will continue to evolve;

however, we do not anticipate reductions in the relative level of total spend on research and development activities on an annual basis.

Total spend on both software development and research and development activities was $39.8 million and $37.3 million during the six months ended June 30, 2024, and 2023, respectively.

Restructuring charges .

Restructuring charges of $4.6 million during the six months ended June 30, 2024 were primarily related to ongoing initiatives to optimize our manufacturing footprint and improve productivity as well as management restructuring.

Restructuring charges of $5.1 million during six months ended June 30, 2023 related to our ongoing initiatives to adjust our cost structure and improve productivity.

We remain focused on executing programs to optimize our cost structure.

Currency exchange .

Currency exchange losses were $1.7 million during the six months ended June 30, 2024, compared to $7.3 million in the same period of 2023.

During 2024, we recognized non-cash net cumulative translation gains of $1.2 million associated with certain foreign subsidiaries.

The remaining currency exchange activity for both periods related primarily due to foreign currency exposure on unsettled inter-company balances.

Product liability expense.

Product liability expense for the first quarter of both 2024 and 2023 was minimal due to our divestiture of MSA LLC in January 2023, as discussed further in Note 17—Commitments and Contingencies to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q.

Product liability expense for the six months ended June 30, 2024, and 2023, was minimal due to our divestiture of MSA LLC in January 2023, as discussed further in Note 17—Commitments and Contingencies to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q.

Loss on divestiture of MSA LLC.

The $129.2 million pre-tax loss on divestiture of MSA LLC for the first quarter of 2023

relates to the derecognition of all legacy cumulative trauma product liability reserves and related insurance assets of the divested subsidiary during the first quarter of 2023.

The $129.2 million pre-tax loss on divestiture of MSA LLC for the six months ended June 30, 2023, relates to the derecognition of all legacy cumulative trauma product liability reserves and related insurance assets of the divested subsidiary during the first quarter of 2023.

The loss also includes a $341.2 million contribution of cash and cash equivalents, as well as transaction related costs of $5.6 million.

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GAAP operating income.

Consolidated operating income for the first quarter of 2024 was $80.1 million compared to loss of $60.1 million in the same period last year.

The increase in operating income was primarily driven by the loss on divestiture of MSA LLC in the prior year as well as higher sales and gross margin in the Americas segment partially offset by increased SG&A.

Consolidated operating income for the six months ended June 30, 2024, was $180.1 million compared to $34.9 million in the same period last year.

The increase in operating results was driven by the higher sales and gross profit as well as the absence of loss on divestiture of MSA LLC that was recognized in 2023, partially offset by increased SG&A expense.

Adjusted operating income.

Americas adjusted operating income for the first quarter of 2024 was $86.2 million, an increase of $14.5 million or 20.3% compared to $71.7 million in the prior year first quarter.

The increase in adjusted operating income is attributable to higher sales and gross profit, partially offset by higher SG&A expenses to support business growth.

International adjusted operating income for the first quarter of 2024 was $13.5 million, a decrease of $2.3 million, or 14.5%, compared to $15.8 million in the prior year first quarter.

The decrease in adjusted operating income is primarily attributable to lower gross profit due to unfavorable geographical mix and higher inflationary pressures.

Corporate segment adjusted operating loss for the first quarter of 2024 was $11.7 million, an increase of $1.6 million in comparison to an adjusted operating loss of $10.1 million in the first quarter of 2023, driven by inflation and increased professional service fees associated with various strategic initiatives.

Americas adjusted operating income for the six months ended June 30, 2024 was $184.7 million, an increase of $18.2 million, or 10.9%, compared to $166.5 million in the prior year.

The increase in adjusted operating income is primarily attributable to higher sales and gross profit, partially offset by higher SG&A expense to support business growth.

International adjusted operating income for the six months ended June 30, 2024, was $37.8 million, an increase of $0.3 million, or 0.7%, compared to $37.5 million in the prior year.

The increase in adjusted operating income is primarily attributable to higher sales.

Corporate segment adjusted operating loss for the six months ended June 30, 2024, was $26.3 million, an increase of $3.4 million compared to an adjusted operating loss of $22.9 million in the same period of 2023 driven by inflation and increased professional service fees associated with various strategic initiatives partially offset by lower variable compensation.

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.

Adjusted operating income (loss) Three Months Ended March 31, 2024

Adjusted operating income (loss) Six Months Ended June 30, 2024

(In thousands) Americas International Corporate Consolidated

Net sales to external customers $ 610,249 $ 265,516 $ — $ 875,765

Operating income 80,112

GAAP operating income 180,056

Restructuring charges (Note 3) 4,560

Currency exchange losses, net 1,730

Net cost for product related legal matter 5,000

Amortization of acquisition-related intangible assets 4,620

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These costs are included in selling, general and administrative expense in the unaudited Condensed Consolidated Statements of Operations.

Adjusted operating income (loss) Three Months Ended March 31, 2023

Adjusted operating income (loss) Six Months Ended June 30, 2023

(In thousands) Americas International Corporate Consolidated

Net sales to external customers $ 588,645 $ 256,916 $ — $ 845,561

Operating loss (60,061)

GAAP operating income 34,947

Restructuring charges (Note 3) 5,097

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Adjusted EBITDA margin % 31.3 % 17.1 %

Adjusted operating income (loss) and adjusted EBITDA are non-GAAP financial measures.

Adjusted operating income (loss) is reconciled above to the nearest GAAP financial measure, Operating income (loss), and excludes restructuring, currency exchange, product liability expense, loss on divestiture of MSA LLC, transaction costs and acquisition-related amortization.

Adjusted EBITDA is reconciled above to the nearest GAAP financial measure, Operating income (loss) and excludes depreciation and amortization expense.

Adjusted operating margin % and Adjusted EBITDA % are operating ratios derived from non-GAAP financial measures.

Adjusted operating income (loss), adjusted operating margin %, adjusted EBITDA and adjusted EBITDA margin % are non-GAAP financial measures.

See the "Non-GAAP Financial Measures" section below.

Total other expense, net.

Total other expense, net, for the first quarter of 2024 was $4.5 million, compared to $7.7 million for the same period in 2023, driven primarily by decreased interest expense related to reduced debt balances related to prior year borrowings associated with the MSA LLC divestiture as well as increased pension income driven by a higher expected rate of return.

Total other expense, net, for the six months ended June 30, 2024 was $10.0 million, compared to total other income, net, of $15.2 million for the same period in 2023 due to decreased interest expense related to reduced debt balances related to prior year borrowings associated with the MSA LLC divestiture as well as increased pension income driven by a higher expected rate of return partially offset by pension settlement expense recognized in the current year.

Income taxes.

The reported effective tax rate for the first quarter of 2024 was 23.1% compared to (121.7)% for the first quarter of 2023.

This significant variance from the prior year is primarily due to the divestiture of MSA LLC and the non deductible loss recorded on the derecognition of the product liability reserves and related assets.

Refer to Note 17—Commitments and Contingencies to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q for further information on the MSA LLC divestiture.

The reported effective tax rate for the six months ended June 30, 2024 was 23.3% compared to 520.8% for the same period in 2023.

This significant variance is primarily due to the divestiture of MSA LLC and the non-deductible loss recorded on the derecognition of the product liability reserves and related assets in the prior year .

Refer to Note 17—Commitments and Contingencies to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q for further information on this transaction.

We are subject to regular review and audit by both foreign and domestic tax authorities.

Net income was $58.1 million for the first quarter of 2024, or $1.47 per diluted share compared to net loss of $150.2 million, or $(3.83) per diluted share, for the same period last year.

Net income (loss) attributable to MSA Safety Incorporated .

Net income was $130.4 million for the six months ended June 30, 2024, or $3.30 per diluted share compared to net loss of $83.1 million, or $(2.12) per diluted share, for the same period last year.

Non-GAAP Financial Measures

This report includes certain non-GAAP financial measures and operating ratios derived from non-GAAP financial measures.

These financial measures and ratios include organic constant currency revenue growth, organic constant currency SG&A change, adjusted operating income (loss), adjusted operating margin %, adjusted EBITDA and adjusted EBITDA margin %.

Organic constant currency sales and SG&A change are non-GAAP financial measures provided by the Company to give a better understanding of the Company's underlying business performance.

Organic constant currency sales and SG&A change are calculated by deducting the percentage impact from currency translation effects from the overall percentage change in net sales and SG&A.

The Company believes that organic constant currency revenue growth and SG&A change are useful metrics for investors, as foreign currency translation can have a material impact on revenue and SG&A trends.

Organic constant currency revenue growth and SG&A change highlight ongoing business performance excluding the impact of fluctuating foreign currencies, which is outside of the Company's control.

Adjusted operating income (loss), adjusted operating margin %, adjusted EBITDA and adjusted EBITDA margin % are non-GAAP financial measures and operating ratios derived from non-GAAP measures.

Adjusted operating income (loss) is reconciled above to the nearest GAAP financial measure, Operating income (loss), and excludes restructuring, currency exchange, product liability expense, loss on divestiture of MSA LLC, net cost for product related legal matter, transaction costs and acquisition-related amortization.

Adjusted EBITDA is reconciled above to the nearest GAAP financial measure, Operating income (loss) and excludes depreciation and amortization expense.

Adjusted operating margin % is defined as adjusted operating income (loss) divided by segment net sales to external customers and adjusted EBITDA margin % is defined as adjusted EBITDA divided by segment net sales to external customers.

These metrics are consistent with how the Company's chief operating decision maker ("CODM") evaluates segment results and makes strategic decisions about the business.

Additionally, these non-gaap financial measures provide information useful to investors in understanding our operating performance and trends, and to facilitate comparisons with the performance of our peers.

Management uses these measures internally to assess and better understand our underlying business performance and trends related to core business activities as well as to allocate resources.

The non-GAAP financial measures and key performance indicators we use, and computational methods with respect thereto, may differ from the non-GAAP financial measures and key performance indicators, and computational methods, that our peers use to assess their performance and trends.

The presentation of these non-GAAP financial measures does not comply with U.S.

These non-GAAP financial measures should be viewed as supplemental in nature, and not as a substitute for, or superior to, our reported results prepared in accordance with GAAP.

LIQUIDITY AND CAPITAL RESOURCES

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Our principal liquidity requirements are for working capital, capital expenditures, principal and interest payments on debt, declared dividend payments and acquisitions.

At March 31, 2024, approximately 51% of our long-term debt is at fixed interest rates with repayment schedules through 2036.

At June 30, 2024, approximately 52% of our long-term debt is at fixed interest rates with repayment schedules through 2036.

The remainder of our long-term debt is at variable rates on an unsecured revolving credit facility and a term loan, both due in 2026.

At March 31, 2024, approximately 85% of our borrowings are denominated in U.S.

At June 30, 2024, approximately 84% of our borrowings are denominated in U.S.

dollars, which limits our exposure to currency exchange rate fluctuations.

At March 31, 2024, the Company had cash and cash equivalents totaling $148.3 million and access to sufficient capital, providing ample liquidity and flexibility to continue to maintain our balanced capital allocation strategy that prioritizes growth investments, funding our dividends and servicing debt obligations.

Cash, cash equivalents and restricted cash increased $1.9 million during the three months ended March 31, 2024 compared to cash decreasing $23.8 million during the same period in 2023.

We believe MSA's healthy balance sheet and access to significant capital at March 31, 2024, positions us well to navigate through challenging business conditions, supply chain constraints or other unexpected events.

At June 30, 2024, the Company had cash and cash equivalents totaling $146.8 million and access to sufficient capital, providing ample liquidity and flexibility to continue to maintain our balanced capital allocation strategy that prioritizes growth investments, funding our dividends and servicing debt obligations.

Cash, cash equivalents and restricted cash increased $0.4 million during the six months ended June 30, 2024 compared to cash decreasing $15.6 million during the same period in 2023.

We believe MSA's healthy balance sheet and access to significant capital at June 30, 2024, positions us well to navigate through challenging business conditions, supply chain constraints or other unexpected events.

Operating activities.

Operating activities provided cash of $50.9 million during the three months ended March 31, 2024, compared to using cash of $285.9 million during the same period in 2023.

The improved cash flow from operating activities as compared to the same period in 2023 was primarily related to the prior year contribution of $341.2 in the divestiture of MSA LLC.

Operating activities provided cash of $104.2 million during the six months ended June 30, 2024, compared to using cash of $190.8 million during the same period in 2023.

The improved cash flow from operating activities as compared to the same period in 2023 was primarily related to the prior year contribution of $341.2 million in the divestiture of MSA LLC.

Refer to Note 17—Commitments and Contingencies to the unaudited condensed consolidated financial statements in Part I Item 1 of this Form 10-Q for further information.

Cash flow provided by operating activities decreased slightly excluding the cash flow impact of the MSA LLC divestiture as higher cash usage for bonus and incentive payouts related to prior year performance was mostly offset by improved operating results.

Cash flow provided by operating activities decreased slightly excluding the cash flow impact of the MSA LLC divestiture.

Improved operating results were offset by higher cash usage for working capital needs, primarily inventory partially offset by improved accounts payable cash flow as well as higher cash usage for variable compensation payouts and tax prepayments both driven by prior year performance.

Investing activities.

Investing activities used cash of $11.2 million during the three months ended March 31, 2024, compared to using $8.4 million during the same period in 2023.

Investing activities used cash of $25.5 million during the six months ended June 30, 2024, compared to using $15.6 million during the same period in 2023.

The increase in cash used in investing activities as compared to the same period in 2023 was related to increased capital expenditures to support our manufacturing footprint optimization activities.

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Financing activities.

Financing activities used cash of $29.1 million during the three months ended March 31, 2024, compared to providing cash of $272.8 million during the same period in 2023.

During the three months ended March 31, 2024, we had net payments on long-term debt of $5.0 million as compared to net proceeds from long-term debt of $295.4 million during the same period in 2023 to fund the MSA LLC divestiture.

Financing activities used cash of $67.7 million during the six months ended June 30, 2024, compared to providing cash of $196.6 million during the same period in 2023.

During the six months ended June 30, 2024, we had net payments on long-term debt of $13.3 million as compared to net proceeds from long-term debt of $236.9 million during the same period in 2023 to fund the MSA LLC divestiture.

Since the MSA LLC divestiture in January 2023, we have paid down $302.3 million of our outstanding borrowings.

We paid cash dividends of $18.5 million during the three months ended March 31, 2024, compared to $18.0 million in the same period in 2023.

We used cash of $5.8 million during the three months ended March 31, 2024 to repurchase shares related to our employee stock compensation transactions compared to $3.7 million in the same period in 2023.

We paid cash dividends of $38.6 million during the six months ended June 30, 2024, compared to $36.5 million in the same period in 2023.

We used cash of $16.8 million during the six months ended June 30, 2024, to repurchase shares, including $10.0 million related to our share repurchase program and the remainder related to our employee stock compensation transactions compared to $3.9 million in the same period in 2023, all of which related to our employee stock compensation transactions.

CUMULATIVE TRANSLATION ADJUSTMENTS

The position of the U.S.

dollar relative to international currencies, primarily the euro, at March 31, 2024, resulted in a translation loss of $10.7 million being recorded to the cumulative translation adjustments shareholders' equity account during the three months ended March 31, 2024, compared to a $11.2 million translation gain being recorded to the cumulative translation adjustments shareholders' equity account during the same period in 2023.

dollar relative to international currencies, primarily the euro, at June 30, 2024, resulted in a translation loss of $19.5 million being recorded to the cumulative translation adjustments shareholders' equity account during the six months ended June 30, 2024, compared to a $16.2 million translation gain being recorded to the cumulative translation adjustments shareholders' equity account during the same period in 2023.

COMMITMENTS AND CONTINGENCIES

We made contributions of $1.3 million to our pension plans during the three months ended March 31, 2024.

We made contributions of $2.6 million to our pension plans during the six months ended June 30, 2024.

We expect to make total contributions of approximately $5.3 million to our pension plans in 2024 primarily associated with statutorily required plans in the International segment.

The Company had outstanding bank guarantees and standby letters of credit with banks as of March 31, 2024, totaling $9.3 million, of which $1.1 million relate to the senior revolving credit facility.

The Company had outstanding bank guarantees and standby letters of credit with banks as of June 30, 2024, totaling $10.2 million, of which $1.1 million relate to the senior revolving credit facility.

These letters of credit serve to cover customer requirements in connection with certain sales orders and insurance companies.

The Company is also required to provide cash collateral in connection with certain arrangements.

At March 31, 2024, the Company has $2.0 million of restricted cash in support of these arrangements.

At June 30, 2024, the Company has $2.0 million of restricted cash in support of these arrangements.

We have purchase commitments for materials, supplies, services, and property, plant and equipment as part of our ordinary conduct of business.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis