MSA Safety, Inc. Aktie

Good morning, everyone. Welcome to the session for MSA Safety. I'm Quinn Fredrickson, senior research analyst at Baird, covering advanced industrial technology. Many of you know MSA Safety is a pure-play provider of sophisticated safety equipment globally and market leader across a large portion of product lines in the sophisticated personal safety field, including fire service, fixed and portable gas detection, industrial PPE and fall protection. We're pleased to have Gustavo and Larry here with us this morning to discuss MSA. Gustavo Lopez is the Senior Vice President of Product Strategy and Development; and Larry De Maria is the Executive Director of Investor Relations. So I'm going to hand it over to Larry first to provide us with some opening remarks, and then we'll come back for Q&A.

Thanks, Glenn. Just going to go through the safe harbor statements here and then put up our business. I don't know how familiar everybody is with our business, but we're a mission-driven company around safety and with about 2/3 of our business in the Americas and 1/3 international, which encompasses Europe, the Middle East and Asia Pacific. The Americas business is all North America as well as South America. Over time, the mix has shifted a little bit. Now 41% of our business is detection, which is really high-value instrumentation, both fixed, which goes on into infrastructure and portables. And within there, there's connected portables as well. That's become 41% of the business. And we just announced recently a deal to buy a company called Autronica based in Norway. So pro forma, that 41% will go to 45%.

So you're really seeing that mix shift into the higher growth, higher-margin businesses margin businesses. Fire service has always been core to our company, now in the mid-30s. We have the flagship premier G1 SCBA, best product in the marketplace and a very, very strong position. Industrial PPE is really part of our heritage as well. We have the iconic V-Gard for head protection. We have fall protection to our categories, and it tends to be a bit more short cycle. But about $2 billion in sales, over 5,000 employees. And we spent over 4% every year in R&D. We've never cut that even during the COVID times when things are a bit more challenged. The company has really always been -- because of that mission, the way we meet that mission through innovation, and we're always investing in the company, both R&D and obviously, capital, CapEx and things like that.

The balance sheet is very strong. As of 1Q, we're 0.9x levered. It's going to go up a little bit to 2x, which is within our 1.5 to 2.5x target net leverage range post close of Autronica. But maybe I'll leave it there. We consider ourselves a very high-quality, strong compounding industrial company. And the 3 product categories really balance each other out. And over time, if you look back in history, we've been a mid-single-digit organic grower with 30% to 40% profit pull-through. And if you look forward, we expect to be a mid-single-digit organic company with that strong incremental margin profile. So leave it there, and thanks for having us.

Yes. Thank you, Larry. For the audience, any questions, you can raise your hand or it's also a [email protected]. Larry, maybe we could just start off by talking a little bit about the current state of the business. First quarter core growth was 3%. You're guiding to mid-single-digit growth for the full year, implies a little bit of acceleration from here. Can you talk about across detection, fire service, industrial PPE, how you think that mid-single-digit growth will come together this year?

Yes. Thanks. We delivered a 3% organic in 1Q. And at the time, we said that 2Q should look a little bit similar to that, which does imply a little bit better of a second half to hit that mid-single-digit organic number. But overall, when we think about the 3 product categories, not too much of a diversion, relatively similar growth levels and a little bit skewed towards the second half, but that's driven in part by the strength we've seen in detection, which last year, organically, we grew detection 12%, and we expect to grow that again this year, even on top of that tough number given the strength of that business.

Fire service is healthy. There's been some noise around some of the timing and things like that, a little bit more noise than normal last year into this year with the DHS shutdown and things like that. But overall, that business is very healthy. There's some really great targets that are out there. And I think we're encouraged by the industrial PP&E business as well. We're seeing some strength in our short-cycle businesses, which should portend well for the industrial complex broadly, but we're seeing it. It's coming in, especially in North America. So yes, it does imply a little bit of growth in the second half, but that's not abnormal either.

Okay. Can you double-click a little bit on within Detection, the International Detection business, understandably weak in the first quarter with some of what's going on in the Middle East and Europe. What are some of the indicators you track to inform your view that the International segment should see some sequential improvement from here? And secondarily, I mentioned the Middle East, have there been any discussions with customers at this stage about potential rebuilding opportunities that you could benefit from?

Yes. International has clearly been challenged, driven in large part by the Middle East, right? When the war started, it became very difficult even to just simply deliver things, right? So that slowed down, and then there was deleverage on top of that when the business slowed. And that reverberated a little bit even beyond the Middle East because some companies are buying things in other regions to -- that are ultimately going to the Middle East.

And Europe, in general, has been kind of slower growth, less consistent on the macro front than the Americas and some other regions. So I think there's still some choppiness out there. I think some of the things we're looking at, though, are backlog cancellation rates. Frankly, we haven't seen cancellations, right? It's just more around logistical challenges and backlog has grown. So we're encouraged in the Middle East, especially, but you need some resolution, right? So things are happening, but not at the same rate that would have happened, obviously, a year ago. And Gustavo, please add a few.

No, I think the other thing is just to think about it is we are in close contact with all those end users and customers there. So as certainly this conflict really either comes to an end or we get a little bit of resolution in there, we'll be able to see some rebuilding activities. It will take a little bit of time, but we're doing our best to stay close to the customers and help them through this difficult time.

Gustavo, Larry mentioned in his opening remarks that detection now post Autronica is going to be 45% of the business. Clearly, that portion has been moving up. And the last 3 deals you have done have all been in the fixed gas arena. Can you expand a little bit from your seat leading product strategy, how you've evolved the product road map and commercial go-to-market to be able to better address the fixed asset opportunities, maybe where the channel synergies reside and where you're making some incremental investment?

Sure. That's a great question. So Electronica, which is a company out of Norway that was founded in 1957, really a leader in the space. And their product portfolio is they're very, very strong in the fire detection business, where we're very strong in the gas detection business. So those 2 components do kind of work hand-in-hand with one another. Their portfolio really plays earlier in the design process. So it's going to give us the opportunity to participate a little bit more on the FEED stage or the front-end engineering and design phase of those projects. just because of the basket of goods and the capabilities that we offer from a solution selling provider aspect of it.

So when you look at that, combined with our gas detection expertise, we feel like there's going to be some nice opportunities in there to bundle the solutions together because, again, they do work hand-in-hand. Fire detection is a market that, quite frankly, we don't really participate in. So that is where the $3 billion total addressable market expansion that we commented on during the acquisition comes into play. And the other thing that's pretty interesting is that geographically, there's not a lot of overlap. They're very, very strong in the Nordics where, quite frankly, we're not. We're very strong here in the Americas, and their presence really is limited. So there's going to be a nice opportunity for us to leverage our channels, our structure and our breadth, our brand equity along with theirs to kind of have some nice growth opportunities in this particular area.

Staying with detection, you've also rolled out this year the ALTAIR io 6 portable gas detector. You talked about using voice of customer to develop your products. So can you give us a feel for what pain points that this product solves for the customer? And can this be a significant driver for you?

Yes. So I mean the io 6 really builds on the connectivity and the connected worker strategy that we've had for the last couple of years or 3 to 5 years that we started with MSA+ and the io 4. So if you think of our voice of customer efforts with the IO 6, it's a product that's really used for sampling in confined spaces, sampling for fugitive emissions, whether it's in a refinery or any type of industrial facility. So it's really the perfect complement to the io 4, which is a wearable device, so which is the device that most workers were aware and then just needed as they're doing their day-to-day activity, where the io 6 really becomes more of a tool.

So that product really wasn't connected before. So now it's going to have the same level of connectivity, all on the grid platform, allowing customers to not only understand what's happening to the worker when they're just performing the day-to-day activity, but what's happening as they're measuring those different assets and points of fugitive emissions or confined space entry work that's going to happen within facilities. So we're pretty excited because it does complement the whole MSA+ ecosystem, and we're getting some really nice interest from our customers in all sorts of industries.

Where would you grade MSA plus that effort today? How do you view the competitive landscape and your value proposition in connected portables compared to some of your other competitors that are out there?

Yes. So first of all, we have great competitors. We have really good competitors that we respect and they've really helped kind of raise the bar with our customers, which is, again, good for everybody because we provide better solutions for our customers. I think when you look at our strategy versus our competitors, we really took what's in our DNA, and we didn't really change that as we made this transition into the connected side of things.

So a lot of the things that made us great is the tool itself, the durability, the sensor performance, all those things. We didn't give any of those things up as we made this transition into a much more connected ecosystem. And it's an area that we protect through IP and also through our design, and it's why we're known in the brand marketplace. Whereas our competitors really are coming at it from slightly different angles, trying to push their strengths. But altogether, it's kind of raising the bar in the market, making it for a safer environment for everybody. And really, when you look at the top competitors in this space, we can all offer unique solutions in a particular part of the market that's growing quite fast as people are expecting more out of their gas detection equipment.

Switching gears to the fire services side of the business. Can you speak to a little bit about how the G1 XR addition is differentiated in the marketplace. I was at FDIC this year, and you were showing it off there, but for maybe investors that haven't had a chance to see that, just discuss some of the key features and why you feel that, that is differentiated.

Sure. So the G1 really is a platform that we've built over time. We're pretty excited about what it's going to do in the marketplace. So it really is a platform for the future. So it's one platform that not only did we launch it last year, we're going to continue to add to it because it's a platform that you can add more technology to it. So there's IP around power management systems. So it is got central power, which is unique and something that we have control with IP. So if you think of a fire department, if you think of the self-contained breathing apparatus to get a lot of the electronics, in a lot of cases, they have the power distributed around the SCBA.

We have a central power all within the control module. So it's one battery that you replace and you can charge and keep it on charge. That's a big deal for fire departments. I think some of the other things that may be a little bit more on the wearable side is we added some nice lumber support in terms of how the SCBAs mounted onto the firefighter itself, which helps with the weight distribution. And that's just what we did here. The other thing that I'd be remiss to say, but because it is a platform for the future and one of the reasons we get very excited about it is we have some follow-up additional accessories and things that we're going to continue to add to the platform over the next couple of years that we believe are going to get us some nice uptick in the market as well.

Maybe this would be a good point to talk about just where we are in the replacement cycle for SCBAs in the U.S. I think you've described it as being at a lower level. Is there any way to frame up from a unit standpoint, how far we are below peak shipments for MSA or the industry? And any reason the next peak wouldn't mirror the prior peak?

Maybe I'll start. Yes. So the SCBAs in the fire business broadly is not an overly cyclical business from a macro standpoint, right? It's not very economically sensitive. There is some cyclicality to replacement cycles, of course. And if you go back in time, post 9/11, there's AFG funding grants, which sort of accelerated an upgrade cycle. And then we've sort of been dealing with those fluctuations since then. But the average SCBA gets replaced every 12 to 14 years. So if you go back in time, 2010 to 2014 were relatively low years from a replacement standpoint. Right now, we're kind of replacing those years. The business is still healthy. There's plenty of business, big opportunities, but it's a lower replacement from the prior period, but still very healthy.

If you go to 2014 and '15, 2014, we started taking orders for the G1 and 2015, we started delivering them commercially. In that period of time, that was a post NFPA standards change. So there's some folks waiting and the cycle really picked up, number one. Number two, with our G1 product, we picked up a lot of market share, right? Even one of the premier competitors actually left the business. So we invested heavily in that G1. Now you fast forward in that 12- to 14-year replacement cycle, you start to think about the second half of this decade, right? So -- it went higher in '15 pretty substantially and stayed high for a number of years.

If you think about that 12-year time period, maybe you start to see some in '27. I wouldn't overpromise that '27 is a big up year, but it should accelerate in the latter part of this decade. So we do anticipate a nice volume cycle going forward in the industry. As Gustavo just talked about, we have a lot more technology and bringing a lot more value. So the price point is higher on the units than it was back then as well. So the industry will increase. We're going to obviously focus on replacing our like-for-like [AirGreen] and then going out to win some more. I don't know that you'll see the level of the increase that we saw in 2015 was very, very high. We wouldn't promise that's going to happen. It might be a little bit more orderly. So -- but we do expect a nice uptick.

Maybe we could talk a little bit about FireGrid. Could you just give an overview of your capabilities there? And then what do you think the key is driving a greater rate of adoption for FireGrid? I think you said it's a little bit more early in the game in terms of adoption and the recurring revenue piece there. So what do you think is key to driving that higher?

Yes. So it's a little bit earlier in the game. Just the dynamics of a fire department is maybe a little bit -- so FireGrid is our cloud platform that really has different modules, one on live monitoring and another one really on asset management itself. So we're seeing a decent amount of usage on both, but it is very early in the game from a pure recurring revenue perspective. Right now, one of the main use cases where our fire departments really are using it is if you think of the incident command experience. So when a fire is happening and a fire truck comes in, rolls in and you have to obviously fight the fire, you need to understand where the groups of firefighters are, the level of air that they have and help the incident commander make better decisions, something that we offer through FireGrid right now.

It enables a lot of the hardware sales of the SCBA because you now are connected to the standard operating procedure. So as we continue to add more connectivity, as we continue to add more integration into other software that are really being used in the fire scene, we expect that it's going to be a nice accretive solution for us. But it's going to make us that much more valuable within the fire department and in turn, also allow us to increase our wallet share with those fire departments, adding more value and more solutions to them.

Okay. And the monetization of that, can you describe how that would work?

Yes. So the way that it works today, it's probably going to look a little different than it does on traditional gas detection where you're bundling the device and the software together. We do charge the software license, and we work on an asset-based perspective. So we're still kind of working through that. It's a little bit more challenging to provide a full-blown solution just based on how budgets are really structured from a municipality perspective and how funding really is deployed on the self-contained breathing apparatus per se.

Okay. And industrial PPE, another product segment where you're making some significant investments to drive growth, I think specifically around fall protection. Can you start off just give us an overview of your differentiation in the fall protection space?

Yes. So fall protection, it's a unique space. It's an interesting one for us because it is the fastest-growing market in the PPE space. The #1 OSHA recordables is still adherence to fall protection or fall from heights. So it is something that we are pretty focused on because we're also really a #3 player. So the one area that we believe we can pick up some market share. So we're excited about that. I think when you look at our differentiation, we have a lot of differentiation in our mechanicals and a lot of the design there through an acquisition we made in 2016 in Latchways in the U.K. We've taken a lot of those designs and adding them to it.

Comfort is a big deal for us as well, how you sell the devices, how we have IP on that. And we're also making a little bit of inroads into connected fall protection as well. So ensuring that how do you know that people are tied off. Admittedly, that's a little bit earlier in the process, and it's going to take some time to develop, but we're going to -- we're really taking all of the technologies that we have to try to solve a real customer need in this particular case, how do you know that somebody is actually tied off while working at heights, which is a really big challenge for safety managers to keep an eye on. So as we look at that, we believe there's opportunities for us to provide more value in those type of solutions.

There any ambitions that investors should be thinking about in terms of growth or market share for that business?

Yes. I mean I think in fall protection, it's really one of the -- like I said, fastest-growing market, is a mid- to high single-digit grower in general for the market, ebbs and flows a little bit. I think that's an area that I would continue to think that we can grow faster than the market because, again, we are a #3 market player right now, and we believe there's ample room for us to grow there.

Okay. How about from an end market perspective aside from just industrial PPE, I think you've called out diversifying end markets as a piece of the growth strategy, including areas like food and beverage. Are there any specific product initiatives underway that can help you better penetrate into some of those higher-growth markets? And what specific -- what markets would you be targeting?

So food and beverage is a good one. That one was one that -- while we made the acquisition in 2021 of Bacharach, which is HVAC refrigeration -- leak refrigerant provider that was actually based out of Pittsburgh, so right in our backyard. That diversified us. It gave us a little bit more of an inroad into that market. And over that time, we've also been kind of looking at balancing the entire portfolio because Bacharach really gave us additional channels into that space. We just launched a new product called the X30, X50, taking that Bacharach brand and adding some of the products that MSA has into it. So that's something that we're very excited about.

And there's also a little bit of a play for the data center build-out that's happening as well. Those data centers require chillers, require all those things, require refrigerant leak detection solutions that we're now able to offer. And it plays really well with some of the other acquisitions that we've done in 2019 as well with Sierra Monitor, so some industrial IoT gateways that are also used in some of those capabilities. So one of the beauties about the MSA story is that our product categories really are used in a variety of different applications across different segments and diversifying is a really important piece of the strategy for us.

I guess I have to try and ask this, how big is data center?

How big is data centers. We were talking about it earlier, right? So I mean it's an interesting topic. It's we participate in it. For us, it's good to participate in it, but we're not -- in the value chain of things, we're not one of the bigger suppliers to it. So we participate in the build phase. In the build phase, they're going to use some of our fixed gas detection and some of that equipment. But bear in mind that once the data center is built, for the most part, it is unmanned. So it doesn't have people working in there. So there's not a ton of need for some of the other products. But we're excited about the halo effect. So the data centers then creates additional needs around the energy sector and so forth. And we participate in all of those value chains. So that's where we see a lot of opportunities to kind of grow the MSA portfolio and the MSA sales.

Sure. How about as we think about what the product road map might look like for the next 12 to 24 months, what new product cycles should investors really be watching for?

So R&D is something that we spend a lot of time, money and effort on, right? So we want to get into a continuous iterative approach of launching new products. We just launched the G1 XR. I was just in Germany this week at INTERSCHUTZ, one of the biggest fire trade shows in the International segment, and we launched our F1 Gallet helmet -- fire helmet.

So we are getting into a rhythm. We had a lot of launches in the first quarter. And you're going to see that continue to develop for us, right? We are, as a whole, wanting to always change the mark. The only area that is maybe a little bit more programmatic based on regulations is the self-contained breathing apparatus or the SCBA for the North American market or the NFPA market since that tends to be in a 5- to 6-year standard cycle. So every 5 to 6 years, because of that, we are certainly introducing something to meet the new standard. But as a whole, you're going to see a lot of launches, rolling launches in all the categories that we have.

Okay. Probably should spend a few minutes talking about margins. Larry, gross margin was a real standout for you in the first quarter, 170 basis points of year-over-year expansion with price/cost favorability in the quarter. Can you just unpack for us some of the key factors that enabled that expansion despite what we talked about earlier with some headwinds in Europe and the Middle East?

Yes. I mean, when we laid out our ACCELERATE strategy back in 2024, we noted that we would target 30 to 50 basis points of operating margin expansion through 2028, and that comes at the gross and the SG&A line. Last year, gross margin took a little bit of a step back during the -- with the tariffs and the inflation. And we did put some pricing in, but what we didn't do was put in surcharges because we don't like to put in surcharges because customers don't like it, distribution doesn't like it, and we like to put in our annual price increases and then put in other ad hoc price increases when they're necessary, but more permanent.

So you fast forward to 1Q, we got on the right side of that and it came through in the gross margins up to 48.6%. So now we're executing which is much more normal for MSA. A number of factors in there. Obviously, getting on the right side of price cost was a big one.

Sure. How about on the input cost side? What are some of the key raw materials that you're monitoring? And just what are you seeing on that front?

So I mean, I think a couple of things. One, obviously, electronics is something that we always look at. I think that affects really the detection portfolio and some of the self-contained breathing apparatus. So we work very close with our suppliers on that. And we've also have a task force internally that is looking at VAV opportunities wherever we can and trying to be proactive about that. We learned a lot from that during the supply chain crisis. I think the other one that we're keeping a close eye on is just how resins and things like that are an inflation and how some of those costs in there, and that really would affect some of our head protection and some of our maybe more industrial PPE type of products. But again, we feel pretty good in terms of the line of sight that we have, and we're very proactive with our pricing as well if we see something get completely out of whack.

Okay. About on the capital allocation front, I think pro forma leverage post Autronica is about 2x, so still well within your range. But obviously, a larger deal for you to integrate. So should we -- I mean, should we think about capital allocation shifting more towards share buyback and organic investment? Or could acquisitions still remain on the priority list.

Yes. So we have a very disciplined and balanced capital allocation strategy. That hasn't changed with the deal or not. First priority is always growth and organic growth, be it that R&D, I talked about earlier, capital investments where we need to for capacity and things like that. So organic growth, number one, followed by M&A because we are an industrial company that's focused on growth. And M&A has been very important for us going back for decades, but the detection business really accelerated with general monitors more than 15 years ago. But beyond the M&A, you've seen that for the 56th year in a row, we raised our dividend.

Obviously, that's not something people want to change going forward. And then we return excess cash to shareholders via share repurchases. We did accelerate the repurchases last year. We did about $80 million, $40 million in fourth quarter and then $50 million in Q1. Going forward, post Autronica close sometime potentially in the third quarter, the first priority, of course, is going to be to delever, which we can do fairly rapidly, and it's obviously accretive. But we can also do both, a little of both, right? So I don't -- you would not expect to see the levels of share repurchases you saw in the first quarter, but it's going to become much more -- it seems to become much more right, and consistent with the excess cash.

Now the overall leverage target range is 1.5 to 2.5x. As you said, that gets us to 2x. So -- and the faster we delever, the more opportunity we have to deploy towards more accretive M&A. And maybe Gustavo can welcome to talk to the pipeline, but we maintain a very active pipeline, and we're committed to be much more programmatic on the M&A front and being disciplined stewards of our capital.

What would be some of the priorities if you do reengage on the M&A front? Is it mostly in detection or different geographies filling in the map a little bit more?

I think in general, right, we look at strategic fit, what does the portfolio do for us? Is it going to expand our market? Is there a cultural fit of the organization? Is it going to work? Those are kind of the levers. And is there a competitive advantage that the organization is going to give us, right? So we look at all of those together when we really look at the various targets out there.

Great. Well, I think we're out of time. So please join me in thanking the team for being here.

To begin, I'm reminded to inform you that for a full list of research disclosures and potential conflicts of interest, you can visit our website at williamblair.com. Today from MSA, we have Julie Beck, CFO; and Larry De Maria, Chief Executive Director of IR. As a brief background, MSA is a leading manufacturer of safety products across the firefighter, gas detection and broader industrials globally.

So with that, I'll turn it over to Julie for some opening remarks before moving to Q&A. Thank you.

Thanks, everyone. Good morning. Thanks for your interest in MSA Safety. I'm privileged to be here on the behalf of all of the MSA employees and team members. Really excited to -- it's an honor to be the CFO of MSA. I started there in August of last year. So I've been here about 9 to 10 months. So it's very exciting.

I start off with our legal language, disclaimer language, and please become familiar with that. And now I'm going to go forward and with me today is Larry De Maria. He is our Vice President of Investor Relations.

So it's really important to talk about MSA. The really important thing is the mission. The mission is incredibly important. It's been in existence since 1914, that men and women can go home safely to their communities and live productive lives and good lives in their communities. And we are dedicated to that mission, and you feel it when you come to our offices, everyone takes this responsibility extremely, extremely personally. And it's our privilege to do this.

And so it started in 1914 with 2 founders that were at a mining accident and dedicated their lives to making that better. And so they partnered with Thomas Edison, and they came up with the first lighted safety helmet, mining helmet and deaths went down over 70% in the next 15 years. And Thomas Edison would go on to say it was the most meaningful invention of his career because it impacted and saved the most lives. And so we're dedicated to that, our mission, we take seriously, and we protect over 40 million workers in the workforce.

We have driven this company from a safety equipment company to a safety technology company, and that's a really important feature. And so we -- innovation is how we started the company. Innovation and the voice of the customer continues to be the strength of our company. We invest over 4.6% of our sales in R&D. And we -- and our innovation, it results in a higher price point and higher margins, and it saves our customers, and that's what's really important. And so overall, we're about $1.9 billion in revenues in 2025, about 5,300 associates that work with me at MSA with Larry and I. And we have gross margins of 46.8%. Operating margins adjusted of 22.3%. We generate lots of free cash flow. So it was 106% of free cash flow last year generation. And so we -- it's a really terrific story.

We have -- we -- our segments are 2. Our Americas segment consists of North America, Latin America, Mexico and South America, and the rest of the world is international. About 67% of our sales go through the Americas and about 1/3 outside. We go to -- we have 3 main product categories that we're going to talk to you about today. Our Detection business represented about 41%. Our Fire Service business is 34% and industrial PPE is roughly 25%. So that's MSA at a glance. We are building -- we're an industrial compounder is what we are. So we're compounding, we're compounding from a sales perspective, from an earnings perspective and from an M&A, a flywheel as well. And so if you look at our sales, you'll see that over the 10-year period, we had about a 6% CAGR over the last 10 years. We've had a 700 basis point -- over 700 basis point improvement in margins. That's due to many things. It's due to new innovations, it's due to productivity and lots of initiatives in our factories and in our SG&A.

We have continuous improvement is part of our DNA. We have an MSA business system, and that's absolutely critical to how we operate. So at any one point in time, we have hundreds-plus projects that we're tracking in our MSA business system in order to improve margins. And so it's been a really nice successful story. And we've migrated our sales over time where detection, which is our highest margin products, becomes a larger portion of the pie over time. And so that's helped us as well. We also have a really nice adjusted return on invested capital where we have over 20%. And so we're really proud of the returns that we've been able to generate. We have targets out there where we want to improve our margins 30 to 50 basis points every year. We want to have cash flow generation of 90% to 100% every year, and we have an incremental margin target between 30% and 40%. So it's a really fantastic story financially.

One of the things that attracted me to MSA was a strong balance sheet. So it's an incredibly strong balance sheet with plenty of liquidity, low leverage, which gives us optionality, and we can choose to do what we do -- what we want to invest in over time. We have an Accelerate strategy. So in 2024, the management team had an Investor Day, and we talked about our accelerator strategy. And so we want to continue to be the leader in premium safety solutions, okay? So we're getting more and more into systems and solutions, again, moving away from just being products, but going into a technology marketplace. We want to implement targeted growth accelerators. So you talk about us talking about a connected worker or a connected fire service and technology advancements and all of that, which makes us -- which accelerates our growth. We've also redesigned our fall protection product line, which has allowed us to become larger and larger, and that's been a fast-growing marketplace for us.

We also announced a type 2 head protection, which instead of just providing protection at the top like our traditional V-Gard, which is the market industry leader, it also allows for protection of the side. So those types of things that are part of our Accelerate growth strategy that's going to allow us to outgrow the market over time.

And then we talk about our MSA Business System, MBS, we call it, MSA business system. Really important. It's how we do business. It's how our cadence goes with our meeting cadence, how we monitor things, the KPIs that we track, the continuous improvement and all of the initiatives that we have going on in the business, which enables that. And we can deploy capital effectively. So those are -- and I talked about our nice balance sheet. So we have an organic target of $2.1 billion to $2.3 billion in 2028 as well as operating margins approaching 25%. Continued EPS compounding, which we've seen and our capital deployment gives us lots of optionality, $1.5 billion of liquidity at the end of the year. So we're really, really pleased -- $1.5 billion of cash generated over that time. So it's a great story, and we reconfirm our 2028 targets. We're going to meet or beat those targets at this point.

So we want to -- capital allocation an important part of our strategy. We're very disciplined. And when we think about our capital allocation strategy, we prioritize growth. So again, we invest in new product development and innovation, which is absolutely critical. We'll invest in high-growth capital expenditures that allow us to grow. And we also have an M&A pipeline, and that pipeline is really strong, and we continue to monitor it every single -- we talk about it as a management team on a monthly basis. And we have lots of things in the pipeline. And we've been very disciplined in our M&A. And that M&A story, if you look at our MSA recently, 3 of the last 4 acquisitions, including the one that we just announced with our earnings call in May, have been in the detection space, where we have some of the highest margins and think that we can grow faster and accelerate our growth.

We have lots of -- we have financial strength even with the acquisition when we closed on that, which we have not closed on yet, we expect to close in Q3. Our pro forma leverage would be about 2x. We talk about being comfortable in a leverage target of 1.5 to 2.5x. So we have capacity to do more.

In addition, we want to return capital to our shareholders. So we have the privilege of increasing our dividend every year for 56 years. So it's a really fantastic story. And we also buy back shares. So in 2025, we bought back $80 million worth of shares. In the first quarter, we bought back $50 million shares, and we launched a new share buyback of $500 million. So really a tremendous capacity in our balance sheet, which is a great strength for us and provides us optionality.

We announced the acquisition in our earnings call. This is Autronica. This is a company we've had our eye on for quite some time. So we were really pleased that it became available. It's in an adjacent marketplace. So we are in the flame detection business and fixed detection business, and this opens up a new total addressable market for us of about $3 billion. It is in the fire detection business, and it also has the control systems that bring all this fire detection together. And it's a really important addressable market that's just adjacent to us. And so we're going to be able to use our current sales channels to increase the sales. If you look at their markets, I'll show you in a minute, it's a great mix for us because they are really strong in the European markets. They have a presence in North America and the Middle East, but we have a stronger presence there. And so we're going to be able to use our existing channels to sell this product.

We were able to -- we're in a regulatory approval period right now. We expect to be able to close on this transaction in the third quarter. We're going to fund this transaction with existing cash on hand in the balance sheet as well as the revolver, which is terrific. And we have identified about 6% of the purchase price in synergies. And those are just the cost synergies. We didn't underwrite any of the sales synergies. Any sales synergies that we expect to get are above and beyond that. And when we think about the synergies, we think about the traditional, whether it's operational, whether it's supply chain synergies, whether it's certain offices, back office kinds of things, that's the 6%.

And really important as well, as I talked about our mission, is their mission as well. Their culture fits really nicely. That's an important criteria for us when we're evaluating an M&A candidate, and they have a zero harm, zero-safety-incident culture as well. So that was really important to us. They're a leading manufacturer. They've been in business since the 1950s. They're based in Trondheim, Norway, which is -- has an outstanding university in terms of technology and a leading technology in that part of the world. They are very big in the Nordic countries. And as I mentioned before, a little bit smaller in the U.S. and North America, Latin America, South America and the Middle East. So we're really excited.

Our salespeople are really excited about this. And so what it does is it allows us for some of these big project works. It allows us to be able to get earlier in the EPC bidding process because fire detection starts earlier than some of our other fixed gas detection. So if we can get in some of these projects earlier, we can pull in other MSA products as we go through in some of these bids, which is really important. The business also operates in the marine segment, and that is one where MSA is not as strong as well. And so that opens up another new marketplace for us. We expect these margins to be accretive with the synergies. And we expect that, that's going to improve our international margins significantly as we go forward as well. So really excited about this ecosystem and this fire protection and really excited to welcome the Autronica family to MSA going forward.

So we had a great first quarter, and a big thanks to my MSA associates for that. It's a privilege. We were able to bring in sales up about 10%. Part of that was an M&C acquisition that we did. We did an acquisition in Detection just about a year ago at this time in May of 2025. That is a new -- was a new market for us as well. They're based in Germany, and they're a process Detection business, our first entry into process. And so it's adjacent to us, but something that we didn't have before in the detection business. We are really pleased. They're ahead in the first year of ownership. They're ahead of our business model that we went -- that we created at the time of the acquisition, and they're performing extremely well.

And then we had growth -- organic growth as well in the first quarter, so comprised of all of those. Our adjusted operating income up nicely. And so we have -- we're in margin expansion. We've recovered from all the tariffs and all of those things, and we're in margin expansion, which is what we expect. We had nice strong adjusted operating margins. EPS, earnings per share was up 18%, and our free cash flow conversion was terrific in the first quarter and was significantly higher as well. And we also had a 32% incremental margin. So we made that target as well. So all of those things that we talked about for our 2028 targets, we did really well in the first quarter. So it was a nice start. And so we were able to maintain our mid-single digits.

So again, we want to be that industrial compounder. We want to bring in increased sales. And every year, we want to increase our margins by 30 or 50 basis points, have 30% to 40% incremental margins, and we're well on our way as well as some nice free cash flow conversion in that 90% to 100% range.

So here we are, just to end up, we have a -- we're really a mission-driven innovation company. We always listen to our customers. Our customers -- we don't innovate for the sake of innovation. We innovate because our customer wants it and needs something. And we do -- we take our responsibility to society to keep our workers safe very, very, very seriously. We have lots of stories of save stories where customers will write into our team members and tell us about how our equipment performed, which is very well, and that motivates all of us to -- and it's a strong motivation to keep continuing. It's a great story. Our Accelerate strategy is working, and we're showing that growth and on our way to meeting those financial targets. And so -- and we -- our innovation is also making us a safety technology company.

Moving from an equipment manufacturer to a safety technology company. We have leading positions in our market share. We're #1 and #2 in most of our major -- all of our major markets for probably one, which is fall protection, and that's a really fast-growing market for us and was one of our accelerators in our Accelerate strategy and growing nicely for us.

And we have the MBS MSA business system, which promotes that continuous improvement mindset. So one of the great things that I love about the culture is that we performed well, but we all know we can do better and people are open to doing things differently and making it better, which is terrific, a great place to be. And we have a nice disciplined capital allocation strategy and the capital to make sure that we have choices. We can choose what we want to do, whether we want to buy back shares, whether we want to do M&A. Now with our leverage going up to about 2, we will -- we purchased $50 million in the first quarter. We will concentrate -- we'll continue to buy shares but we will also concentrate on paying down debt, which we can do with our free cash flow generation.

So it's a great story, and I'm happy to be here. And with that, I guess I'll go back to Ross.

So maybe kicking off with the Autronica acquisition. This is your second acquisition in 2 years, and you guys are clearly making progress on executing towards the M&A component of your 2028 targets. But can you maybe just help us think through how your understanding has evolved of the broader white space opportunity for M&A as we think about your ability to build that pipeline and that M&A working muscle?

Sure. So we have an outstanding individual in corporate development, who knows our business extremely well. And he has a pipeline, and he monitors it on an ongoing basis. Our sales force brings in ideas of things for M&A as well as our engineering groups and watching technology. And so there's a deliberate process and effort. It's another process that's part of our MDS system, which is evaluating M&A alternatives. And I would say that the pipeline is really big and active. Not everything, of course, is actionable. And as you know, we all know that you have to look at various different things to make sure things fit. And so we -- our CEO, Steve, has been vocal about one that we looked at where the culture just didn't work. And so we take all that seriously. We're disciplined.

So when we think about an M&A target, we think we want a well-running business. We don't particularly like to do fixer uppers. We wanted to have a nice management team. We wanted to increase our -- either expand us into a product line that's important to us whether it's a geography that's important to us, the technology that's important to us. We want to make sure that it's accretive from an EPS perspective and an EBITDA margin perspective and that it outearns its cost of capital in a relatively short time, a 3- to 4-year period or so is the criteria. And so there are things out there, and we'll continue to monitor them, and we want to be known as a compounder in M&A as well and doing things more systematically than sporadically like it may have been in the past.

Well, I mean it's still pending, so you haven't had time under the hood, but can you maybe just help us think through the synergy targets on the cost side, some of those buckets and also R&D and cross-selling opportunities? I mean, just high level, it feels like they're pretty conservative targets.

Sure. So from a synergies perspective, we identified 6% of sales as being a cost synergy. And so those cost synergies include everything from supply chain savings to maybe some operational improvements, some back-office consolidation. Maybe there might be a sales office or a service office that might be in the same markets where we can share those types of things. And so when we think about -- and so that's the 6%. That 6% doesn't include any revenue synergies. And so the revenue synergies are very exciting. And I love it because when we announced this acquisition, our sales folks from all over the world saying, "Hey, when can we sell it? When can we get together?" Well, of course, we can't yet, but the enthusiasm for this acquisition is incredibly strong internally, and that's really important for a successful acquisition as well.

So we're well on our way. But remember, we haven't -- there's only so much we can do right now. We haven't closed on the transaction. So -- and we can't -- there are regulatory approvals that we need. And as we go through that, we'll be talking about those more later.

All right. There was some disruption on the fire side last year, and we're starting to move past that. But just any updates on if you're seeing this government funding start to flow? SCBAs.

So the SCBA is -- we think that our brand, the MSA brand means something and means quality, and we have a really leading market position in SCBAs. And we think we have the best product and probably the best distribution network. So it's really important to say that. After September 11, the government created a fund for firefighters to make sure that our firefighters were protected after September 11. And the value of that funding is roughly $300 million per year from the federal government. Of that $300 million, about $100 million relates to PPE for a fire department. And so that would include the SCBA.

And remember, we are one of the only product. I think we are the only fire provider that services our firefighters head to toe, the SCBA, the hat, the turnout gear, the boots, the whole thing. And so this funding goes primarily to more rural departments for funding of theirs and about $100 million of it relates to that PPE for the firefighter. And so we would estimate that, that means $30 million to $40 million of revenue per year to MSA if you just take our relative market share in SCBA. And so what happened is that the government was late to announce who got AFG funding last year in fiscal 2025. They announced on the last day of the fiscal year, which departments got the funding.

So these fire departments apply and they announced who got it. But then the fire, if you remember correctly, that the government shut down for 6 weeks or so. So normally, they would announce who gets these awards in the summertime, the early fall, and then we would ship a lot of things in the fourth quarter. But in the fourth quarter, we weren't able to ship because people weren't able to access their funds. And so what happens is when a fire department gets notified that they received a fund, they need to cut a purchase order with their supplier and then they need to submit it to get the funding, and they weren't able to do that process with the government being shut down.

So that does not impact demand for our product at all. It just impacted the timing of when we receive it because we didn't receive as much in Q3 and Q4 as we would have anticipated, and that has pushed into 2026. So we think we got about 1/3 of that in the first quarter of this year, and we would expect to get the rest of the 2/3 of it in the second and third quarter.

I think, Ross, what we've seen is a little bit more choppiness than we've seen historically in the fire service, but that's been all driven by -- mostly driven by the government shutdown, AFG grant situation and things beyond our control. The message we've seen, we want to get across is it's a very healthy business with a good pipeline. So there can be short-term timing challenges and things like this, but it's a very healthy business. And now the DHS is open and now for the next grant year, fire departments are putting in their applications for grants now. So things are operating a little bit more normally going forward, which tends to lead towards obviously a second half sales cycle.

Yes. Maybe just speaking to the visibility there. Not impacted. Do you think 2/3 are going to catch up? But we do have a replacement cycle coming just based off the last standard changes. So maybe just speak to kind of that go-to-market and what provides that confidence on.

So we announced a really industry-leading product in -- called the G1 in 2014 and 2015. And we gained some nice market share at that point. And when you think about an SCBA, it has a useful life of somewhere between 12 and 15 years. And so that -- and it's important also to know that fire departments don't want to be more than 2 standards behind. And so a new standard comes out about every 5 years. And so that puts you in that replacement cycle and the cylinders last about that useful life as well. And so if you look at the volumes that we got in a 3- or 4-year period after that announcement, those units would be coming up for renewal. And so we would think that, that would happen in '27, '28, '29 and that we would see a nice bump in our Fire Service sales just for replacement cycle alone.

I think our expectation is maintain a relatively lower expectation on '27 bump, but it should accelerate into the latter part of the decade as we replace those aging units at obviously a higher price point.

Yes. I mean there's been some competitive developments in the market in North America with some of your large competitors. And then also, we're hearing that there's a recent push from your large European competitor as well. Can you maybe just speak to how you see the landscape evolving there?

So when we think about the North America fire department, U.S. and Canada, you would think about 3 major players. It would be -- it would be MSA and Scott, which would lead in market share. Scott, a very good competitor. Scott has been owned by 3M recently, and they're going to be spun out in part of Bain Capital with Madison Safety. And then you think about Drager and Drager is a German competitor that we see in Europe. Drager has not historically been strong in the U.S., primarily because they haven't had as strong a distribution channel as Scott or MSA has had. They have announced a new product. They've added some technology, and they displayed a new product in April. We still think ours is superior. We understand that they have increased their selling price on that to be closer to ours. They also are signed a distribution agreement with MES and MES also distributes Scott. So MES will be selling and servicing both Scott and Drager. We -- our distributors are all exclusive to us, and we think that, that's a great advantage.

All right. We're about out of time here. Thank you again for joining us, and we'll be holding a breakout session in Ginnie A beginning at 10:40.

Thank you so much for your interest, everyone. Appreciate you being here.

Good day, and welcome to the MSA Safety First Quarter 2026 Earnings Conference Call.

[Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Larry De Maria. Please go ahead.

Thank you. Good morning, and welcome to MSA Safety's First Quarter 2026 Earnings Conference Call. This is Larry De Maria, Executive Director of Investor Relations. I'm joined by Steve Blanco, President and CEO; Julie Beck, Senior Vice President and CFO; and Gustavo Lopez, Vice President, Product Strategy and Development. During today's call, we will discuss MSA's first quarter 2026 financial results and provide an update on our full year 2026 outlook.

Before we begin, I'd like to remind everyone that the matters discussed today during this call may include 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 a number of risks, uncertainties and other factors that may cause our results to differ materially from those discussed today. These risks, uncertainties and other factors are detailed in our SEC filings. MSA Safety undertakes no duty to publicly update any forward-looking statements made on this call, except as required by law.

We've included certain non-GAAP financial measures as part of our discussion this morning. These non-GAAP reconciliations are available in the appendix of today's presentation. The presentation and press release are available on our Investor Relations website at investors.msasafety.com.

Moving on to today's agenda. Steve will first provide an update on the business. Julie will then review our first quarter 2026 financial performance and 2026 outlook. Steve will then provide closing remarks. He will then open the call for your questions.

With that, I'll turn the call over to Steve Blanco. Steve?

Thanks, Larry, and good morning, everyone. Again, we appreciate your continued interest in MSA Safety. I'd like to start with a brief comment on the conflict in the Middle East, which I'll discuss in more detail in a few minutes. While the situation remains volatile, our top priority is the health and safety of our associates in the region. We have an outstanding team, and I'm pleased to report that our employees are safe, and we remain close to our customers to ensure their safety needs. We'll continue to prioritize our team's safety while serving our customers and managing the inherent business risks.

I'm on Slide 6. The team achieved a solid start to the year as we continue to execute and deliver on the commitments outlined in our Accelerate strategy. Our first quarter results included consolidated reported sales growth of 10% with a 3% organic increase and adjusted earnings per share of $1.99, up 18% from last year. Organic sales performance in the quarter was driven by high single-digit performance in the Americas, which was partially offset by a decline in the International segment.

Geographically, we saw strong growth in North and Latin America and weakness across our European and Middle Eastern markets. Our results reflect the resilience of our diversified business despite the lower growth environment in Europe and the potential impact due to the Middle East conflict.

Looking at sales by product category, organic sales in Detection were consistent with the prior year as double-digit growth in portable gas detection was offset by double-digit declines in fixed monitoring solutions in International. This decline reflects the impact of softer European and Middle Eastern markets. The M&C TechGroup acquisition contributed $15 million to the quarter. Organic sales in fire service increased 3% year-over-year, driven by strength in the Americas. As we expected, SCBA sales partially benefited from AFG funding related to the U.S. government shutdown in late 2025.

Organic sales of industrial PPE were up 7% on continued momentum in fall protection and growth in industrial head protection, reflecting healthy performance in our short-cycle businesses and nice momentum in our new H2 hard hat. In international, growth in protective ballistic helmets provided additional tailwinds. Organic orders were also healthy and in line with normal seasonality and book-to-bill was above 1. We're pleased to see the reopening of the Department of Homeland Security, which should further enable fire departments to access the AFG grants that were approved in 2025. Strength was notable in our industrial PPE business, supporting broad-based strength across our short-cycle businesses.

Moving to Slide 7. We continue to execute our Accelerate strategy to drive value for our stakeholders and serve our mission. We're encouraged by the solid start to the year, especially given the challenging operating environment in certain areas of the world. The business demonstrated resilience through top line growth and margin expansion with Americas strength outpacing international results. We also achieved positive price/cost in the first quarter.

I'd now like to provide some context on the impact of the conflict in the Middle East. While we've not seen any meaningful business cancellations in the short term, it's been affecting customer order and delivery patterns in the region. While the Middle East is a long-term growth market for the MSA, for reference, sales represent about mid-single-digit percentages for our overall business.

Now let's pivot to discuss a few strategic highlights from the start of 2026. We continue to innovate and bring industry-leading products and solutions to market. We began shipping our newly launched ALTAIR io 6 portable gas detector, which joins the io 4 for expanding our MSA+ connected ecosystem. The io 6 is a long-term growth opportunity for the business.

We continue to see strong demand for both traditional and connected portable offerings. We also announced the launch of the Bacharach X30 and X50 refrigerant monitoring solutions. These fixed gas detectors were designed to help customers comply with regulations around refrigerant gas monitoring and leak detection. The launch of these new solutions expand upon our end-to-end refrigerant management and monitoring offerings in the HVAC-R market. From a financial perspective, we announced a new $500 million share repurchase authorization in February, which we began to execute on in the first quarter. This authorization reflects our commitment to our disciplined and balanced capital allocation strategy.

Finally, I recently attended the Fire Department Instructors Conference, FDIC, in Indianapolis, where it was my pleasure to interact with our customers, channel partners and the MSA Fire Service team. It was inspiring to showcase MSA's extensive solutions for the fire service and our commitment to continued innovation through the connected firefighter platform of the future. Along with our Globe apparel business and Cairns Protective helmets, we once again demonstrated the strength of our market-leading head-to-toe fire service solutions. Industry feedback was excellent.

Moving to Slide 8. I'm pleased to share that we've signed a definitive agreement to acquire Autronica Fire & Security in a transaction valued of $555 million. We expect the deal to close in the third quarter. Autronica is a leader in fire and gas detection systems and is highly complementary to our existing fixed detection portfolio. The acquisition is well aligned with MSA's mission and Accelerate strategy, including our financial and strategic M&A objectives.

With a history of mid-single-digit plus sales growth, the company generated 2025 sales of approximately $160 million and adjusted EBITDA margins of about 20%. Through numerous synergy opportunities, we expect to increase adjusted EBITDA margin to meet or exceed the corporate average over the next several years. From a balance sheet perspective, the transaction implies pro forma net leverage of approximately 2x at close, well within our target range. We expect to finance the acquisition through a combination of cash on hand and our revolving credit facility. And we remain well positioned to invest in our business and delever post close while maintaining a healthy M&A pipeline.

Strategically, this business is a great fit with our existing fixed detection platform. It is accretive to growth and enhances MSA's ability to participate earlier in project design to deliver more integrated fixed gas and flame detection solutions. It also expands our addressable market by $3 billion and is similar to our existing detection business from a customer, technology, distribution and regulatory perspective.

Moving to Slide 9. Autronica is a leader in mission-critical gas and flame detection technologies used across diverse end markets, including critical infrastructure, energy and marine. Headquartered in Trondheim, Norway, the company was founded in 1957 and is known for its technology leadership and growth mindset, deep customer intimacy and a large installed base, underpinned by a mission of safety. These attributes align closely with MSA's culture and our strategy. Autronica serves markets around the world with a strong footprint across the Nordic countries and the rest of Europe with other businesses across the globe. And it complements and strengthens our global footprint with its world-class brands.

And like M&C, we expect to enable growth in markets where MSA is stronger, most notably in the Americas by leveraging distribution and relationships. I look forward to welcoming the Autronica team to the MSA family upon closing the deal sometime in the third quarter.

With that, I'd like to turn the call over to Julie to walk us through the financial results for the first quarter in more detail and our 2026 outlook.

Thank you, Steve, and good morning, everyone. We appreciate you joining the call this morning. Starting on Slide 11 with the quarterly financial highlights. First quarter sales were $464 million, an increase of 10% on a reported basis over the prior year. Sales were up 3% on an organic basis, while currency translation was a 4% tailwind, and M&C added 3% to overall growth. The foreign exchange benefit was primarily related to the euro, Mexican peso and Brazilian real. As expected, GAAP gross margins improved, rising to 47.4%, an increase of 50 basis points sequentially and 150 basis points over the prior year. Year-over-year gross margin reflects strong operational performance from our team, including strategic pricing, productivity, as well as positive mix and favorable transactional foreign exchange, which offset pressures from tariffs and inflation.

On an adjusted basis, gross margin increased 170 basis points year-over-year to 48.1%. GAAP operating margin was 20.1%, a 160 basis point increase driven by the gross margin expansion. Adjusted operating margin was 21.8%, up 100 basis points over last year, with an adjusted incremental operating margin of 32% within our annual target range.

We continue to invest in our innovative safety products and solutions with R&D expenses of $16 million in the quarter. SG&A increased from the prior year due to the addition of M&C as well as foreign exchange. Quarterly GAAP net income increased 20% to $71 million from the prior year, while diluted earnings per share increased 21% to $1.83. Revenue growth and margin expansion were primary drivers of earnings per share growth with incremental benefits from foreign exchange, M&C, share repurchases and a lower year-over-year effective tax rate. On an adjusted basis, diluted earnings per share were $1.99, up 18% from last year.

Now I'd like to review our segment performance. In our Americas segment, sales increased 11% year-over-year on a reported basis, 7% of that was organic. We delivered broad-based organic growth across our product categories with high single-digit contributions from fire service and detection, along with mid-single-digit performance in Industrial PPE. M&C contributed 2 points to total growth and currency translation added a 2% tailwind.

The adjusted operating margin was 30.2%, a 340 basis point increase compared to the previous year. The margin improvement was primarily due to strong execution from the team, including strategic pricing, productivity, favorable transactional foreign exchange and positive mix.

In our International segment, sales increased by 8% year-over-year on a reported basis with an 8% contribution from M&C and a 7% tailwind from foreign exchange. Organic sales declined 7% on a double-digit contraction in detection and fire service, partially offset by double-digit growth in Industrial PPE. Organic growth headwinds, especially in detection, were primarily attributable to softer economic conditions in Europe and headwinds associated with the Middle East conflict. Fire service was temporarily unfavorably impacted by order timing. Growth in industrial PPE was primarily due to strength in fall protection and protective ballistic helmets.

Adjusted operating margin was 10.5%, 410 basis points below last year. Margin contraction was mainly due to inflation, tariff pressures and lower volumes, partially offset by strategic pricing and favorable transactional foreign exchange.

Now turning to Slide 12. We generated free cash flow of $65 million, which was 91% of earnings, marking a 28% increase in free cash flow generation compared to a year ago. Free cash flow was strong relative to normal first quarter seasonality, driven primarily by the year-over-year increase in net income. Returning capital to our shareholders is an important part of our disciplined capital allocation. We returned $71 million to shareholders via $50 million of share repurchases, fully offsetting expected dilution for the year and $21 million of dividends. Capital expenditures returned to a more normalized level of $11 million.

In addition to repurchasing shares, we also announced the authorization of a new $500 million share repurchase program in February, our largest ever. The program replaces the previous $200 million program authorized in 2024. There is no set termination date and $475 million remains under the new program as of quarter end, with half of our repurchases in the first quarter under the prior authorization. Yesterday, we also announced our 56th consecutive annual dividend increase.

We ended the quarter with net leverage of 0.9x and a weighted average interest rate of 3.8%, both consistent with fourth quarter levels. Our strong balance sheet and ample liquidity of $1.2 billion at quarter end continue to provide significant strategic capital allocation optionality within the framework of our Accelerate strategy. As Steve discussed with the acquisition of Autronica, we are actively deploying capital as part of our M&A strategy. We expect our pro forma weighted average interest rate post-acquisition to be approximately 4.5%.

We expect the $555 million acquisition to add approximately 1 turn of net leverage and be accretive to adjusted earnings per share in year 1. Following the transaction, we expect net leverage to be approximately 2x. With Autronica, our 2025 pro forma detection revenues increased to approximately 45% of our total sales mix. The acquisition adds scale to our European business and is accretive to our international adjusted EBITDA margin. We expect to begin realizing the benefits of the synergies in the second half of the first year of ownership with a full run rate value to be realized over the next 3 years.

Let's turn to our 2026 outlook on Slide 13. Our outlook does not reflect any impact from the Autronica acquisition. Given the solid start to the year and the overall health of our business, we are reaffirming our mid-single-digit organic sales growth outlook for 2026. Broadly speaking, our full year assumptions remain unchanged from the outlook we provided in February. However, we do recognize and are proactively managing the potential challenges posed by the volatile tariff, geopolitical and macroeconomic landscape.

While we are encouraged by the reopening of the Department of Homeland Security, we are mindful that AFG grants previously awarded to our fire service customers were suspended during the shutdown and may face continued short-term delays as DHS reopens. That being said, our outlook assumes continued strength in our Americas segment and an improvement in our international results from the first quarter. Our outlook is supported by a mid-single-digit year-over-year order increase and a double-digit backlog increase sequentially in our International segment. For modeling purposes, below-the-line items also remain unchanged from our previous outlook.

In conclusion, although the macro and geopolitical environment backdrop remains fluid and continues to shape a dynamic operating environment, we executed well to begin the year and remain laser-focused on delivering our traditional growth algorithm, including mid-single-digit organic sales growth in 2026, consistent with our Accelerate strategy.

With that, I'd like to pass it back to Steve.

Thank you, Julie. I'm on Slide 15. To close, I'm proud of our team's execution to begin the year and thank all of our associates for their continued commitment to serving our customers.

With that, I'll turn the call back over to the operator for Q&A.

[Operator Instructions] And the first question will come from Tomo Sano with JPMorgan.

Congrats on the quarter.

Thanks, Tomo.

And could you talk about the guidance regarding the mid-single-digit organic growth? For the remainder of the year, do you expect the strong momentum in the Americas to continue? Or will the recovery in international be necessary to achieve your full year guidance, please?

Yes. Thanks for the question. I think you'll see both of those businesses perform. If you think of international, as Julie said in the prepared remarks, the fire service piece was really planned given tender timing. The major market activity in the pipeline comes in the second half of the year. Certainly, the detection with what's going on in the Middle East and Europe was challenged. But even that, you look at the Middle East, our incoming business is higher through April this year than last year. It's just a matter of us getting that invoiced. So we expect that to turn. And by and large, we're expecting a nice recovery in the international markets while we continue to see Americas perform.

So I think it's going to be broad-based across the business and the incoming supports that to date.

And then just one follow-up on the acquisitions of Autronica. How do you assess the cultural fit between MSA and Autronica? And what measures are you taking to ensure successful integrations, both operationally and culturally, please?

Yes. Thanks for the question. So that's critically important to us. If we look back even last year, we -- as we got close to some opportunities, culture was so important to us. It's not just about looking at the business growth. It's really about how do we fit for the long term because this is a long term -- we like to use the term New Member Of The Family, and how they integrate culturally is just as important as how the business looks. We feel really good. The team was just super stoked about what we saw there, the leadership there, their engagement and their focus on safety, Tomo, it's really nice.

I would also add, if you think about how we look at the synergies here and we look at the forward multiple, we're looking at that, that's cost only. But most of our upside, which we haven't modeled in that, frankly, is what we see in the revenue side. So long term, we expect this business to grow, help MSA grow, and we expect it to be a nice fit.

And if you look back as you talk about our success or how effectively -- confidence, I guess, in effective execution, we've done a really nice job with M&C, which obviously, we've done nice on some acquisitions previous to that. But I think the business system really comes alive with these acquisitions. And we saw that with M&C, we'll see that with Autronica.

The next question will come from Quinn Fredrickson with Baird.

First, just on fire service. Any way to quantify how much recapture the deferred fourth quarter sales you saw this quarter? Just wondering how much of that $20 million recapture opportunity remains? And then perhaps any color you can give us on the near-term outlook as well since you mentioned some order timing influences from the DHS shutdown?

Yes, sure. So again, thanks for the question. But if we look at fire, it was solid. We only realized roughly 1/3 of the AFG-related delayed orders coming through. So that implies a little over 2/3 are left. And that expected timing, we had hoped kind of the first half, we expect some in the second quarter. But certainly, with the government shutdown, that has put some pressure on them getting access to their grants. Probably plays out in late the second quarter into the third quarter at this point. So you'll see, I think, that 2/3 kind of play out in those 2 quarters. That's how we're seeing it right now.

Okay. Julie, one for you. I think you mentioned being positive price/cost in the quarter. Just any way to quantify? And then for the year overall, do you now anticipate being price/cost positive?

We're on track. We talked about sequential margin improvement, which we saw, and we continue to expect margins to improve. We reaffirm our 30% incrementals and I think it's going to be a nice year for us.

The next question will come from Steve Volkmann with Jefferies.

This is James on for Steve. I wanted to touch on the acquisition. You talked about there is a potential for revenue synergy, which is not baked in. But can you kind of just talk about the mechanism there? And on the cost synergy, what's the kind of timing of realization after close?

I'll let Julie jump into the cost. I mean it's a multiyear plan. But I think when you think of the acquisition broadly, it really helps us. It expands our capability to participate earlier in designs. You think about the engineering design work that goes on very early that fire detection is integral for, that's key in our view. It's a business that's highly engineered and they really are in a highly regulated business, not dissimilar to us, but they have a solution for complex applications with their product portfolio. So I think for us, it's the ability to participate in markets where we're strong and they're not. So we can take those solution sets and expand that into those markets. That's part of that addressable market we talked about. If you think about a couple of markets we have real strength, one in the Americas, where they don't. I mean they just don't have that coverage there. They want to, and we're going to help them do that.

And the Middle East, which they're starting to grow in, we're very strong in those. And that's representative of over 2/3 of that addressable market growth we talked about. So you think their solution set, you combine that with ours, you now have the full suite that our end customers really look for, and we can get earlier access when they're really designing out based on the regulatory requirements, they're designing out that platform for fire and gas detection. We think that's going to be a real big win here.

And just a follow-up on the cost synergies. Just we see those starting maybe in the second half of the first year of ownership, and we expect to fully realize them all within about 3 years. They consist of various things, typical operational and supply chain items, maybe a little bit of back office but it's those types of things, and we're just really excited about the potential and margin expansions going forward.

Great. And I guess I wanted to touch on the international detection here. Again, kind of -- I mean, organic sales came in weaker and you talked about like the weakness in Middle East and Europe. So like what's embedded in guidance? Like when do you think those will normalize? And kind of what gives you confidence that they will normalize kind of going forward? And I think also there was kind of onetime like large detection orders in Latin America that gave a tough comp. So can you also size that like for us so that we can kind of think about like the impact by components?

Certainly. So last year, we did have -- we had a couple of points of what would have been 2026 growth, which we executed in '25 based on the customer funding availability. And so they pulled that forward. So it is certainly a tough comp there because that gave us, I think, 12% growth overall. But when you look at '26 as we are in now, we still expect nice growth overall. The first quarter with what's happened with the conflict and really some of the related pausing that we saw in Europe certainly put a bit of a crimp for a quarter. But as I noted, we're seeing some nice incoming and the pipeline is really strong.

What's happened is you've seen a delay and slowdown in project business. So the project awards have really slowed. So that's affected certainly the Middle East, but also Europe. And even though Asia Pacific performed well in the first quarter, their detection business was affected to some degree because of those projects. What I would say is the Middle East adds uncertainty, certainly, and we know that. And most importantly, I would note that for our employees and customers and all there, our thoughts and prayers are with them. But our expectations is if we get past this by midyear, we have pretty good line of sight for the year and confidence with where we're at.

And just to add just a point of clarification, the large order that Steve was referring to is in the Americas segment, not in the International segment.

Yes, right, the Latin America.

[Operator Instructions] The next question will come from Brian Brophy with Stifel.

Just following up on the Middle East discussion. I guess we've heard anecdotally about some damaged equipment over there in need of a replacement. Are you guys having conversations with customers on the topic -- on this topic at this point? And how should we be thinking about this potentially translating into a tailwind for your business at some point in the future?

Yes. Thanks for the question. Well, I think, broadly speaking, it has been difficult for our end customers to operate on a normal condition. with what you talked about. And certainly, that damage is part of it and just the normal operation. We've seen the day-to-day business and replacement component business in the Middle East really slowed down in the first quarter, which is indicative of what you just talked about. We are certainly staying close to the customers and ensuring that we are ready and able to support them as they come back up to speed.

And obviously, they're already trying to figure out how to do that. And that's part of what we hope to see some of that. There might be some tailwinds in the second half of the year as we try to support that, and we'll be prepared for that. At this stage, that's an added piece to the business. But at this stage, I would say it would be upside.

Yes. That's helpful. And then just wanted to ask about gross margins. Obviously, some nice improvement from the first quarter a year ago. I guess I'm curious how much -- yes, how much of the benefit was transactional FX related? Was this really more just a price/cost tailwind? And just any updated thoughts on how you're thinking about gross margins this year?

Yes. Thanks for the question. Yes, I would say that the gross margin expansion is really a bulk of it comes from price/cost but we also saw some nice productivity and some nice initiatives from our ops folks contributing as well. And the FX piece is a smaller portion of the total pie. It really was operational primarily.

Yes, Brian, if you remember, what we talked about last year is that we were going to manage these inputs and combine our productivity with the appropriate strategic pricing to help manage our customers' needs and impacts with the value. And that's exactly what the team has done. So getting those efficiencies and productivity flow through along with the pricing actions have resulted in what we had expected and certainly where we're at.

Yes. And we're on track for those 30% incrementals and gross margins in that 47%, 48% range for the year, just to follow up.

The next question will come from Jeff Van Sinderen with B. Riley FBR.

Let me add my congratulations on the Autronica acquisition. It sounds great and I understand it's a multiyear plan. Just wanted to clarify, should we anticipate that it would be dilutive to consolidated EBITDA margins in the first few quarters? Or how should we think about that?

Yes, slightly. Yes. Yes. Their margins are -- we disclosed it approximately 20% EBITDA margins, slightly under but they will improve over time, and we'll have gross margin expansion there as well.

Okay. And then just thinking about that, do you think we're looking at -- I realize there's a lot of inputs there, but do you think we're looking at something that's like a few hundred basis points or because there's a pretty sizable gap between the 20% and where you guys are running. I'm just wondering sort of order of magnitude we should anticipate?

Not terribly much, point or something like that, 50 basis points, not a huge impact.

Okay. That's helpful. Terrific. And then just, I guess, kind of looking at the supply chain, I know there's disruption, there are certain supply chain things that are a challenge for some folks. Just wondering kind of considering the geopolitical backdrop and so forth, and where there are some constraints out there, are you guys seeing any of that, anything that's challenging that you're watching for supply chain?

We certainly are. And I would say that, that's likely to continue. We've actually -- in some of our inventory positions, we've added on an electronic basis to protect ourselves. Supply chain hasn't -- I don't think we've had any normalization of supply chain since COVID. But we have seen some. We haven't seen it to have a material impact on the business. I mean we've had costs that we're watching and managing from a logistics perspective, especially with what's going on in the Middle East, which may necessitate some pricing actions, but we're watching that closely.

The other thing that we would have an impact on is resins, just to add to that, that we're watching those as well.

Showing no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Larry De Maria for any closing remarks.

Thank you. We appreciate you joining the call this morning and for your continued interest in MSA Safety. If you missed the portion of today's call, an audio replay will be made available later today on our Investor Relations website and will be available for the next 90 days. We look forward to updating you on our continued progress again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the MSA Safety Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Larry De Maria. Please go ahead.

Thank you. Good morning, and welcome to MSA Safety's Fourth Quarter and Full Year 2025 Earnings Conference Call. This is Larry De Maria, Executive Director of Investor Relations. I'm joined by Steve Blanco, President and CEO; Julie Beck, Senior Vice President and CFO; and Stephanie Sciullo, President of our Americas segment. During today's call, we will discuss MSA's Fourth quarter and full year 2025 financial results and provide our full year 2026 outlook.

Before we begin, I'd like to remind everyone that the matters discussed during this call may include 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 a number of risks, uncertainties and other factors that may cause our actual results to differ materially from those discussed today. These risks, uncertainties and other factors are detailed in our SEC filings. MSA Safety undertakes no duty to publicly update any forward-looking statements made on this call, except as required by law.

We have included certain non-GAAP financial measures as part of our discussion this morning. The non-GAAP reconciliations are available in the appendix of today's presentation. The presentation and press release are available on our Investor Relations website at investors.msasafety.com.

Moving on to today's agenda. Steve will first provide an update on the business. Julie will then review the fourth quarter and full year 2025 financial performance and 2026 outlook. Steve will then provide his strategic priorities for 2026 before giving closing remarks. We will then open the call for your questions.

With that, I'll turn the call over to Steve Blanco. Steve?

Thanks, Larry, and good morning, everyone. Thank you for your continued interest in MSA Safety. I'm on Slide 6. We executed well within a challenging environment for 2025. We had a solid finish to the year, guided by our Accelerate strategy, centered on serving MSA's mission for our customers and protecting over 40 million workers worldwide who trust the MSA brand.

Just within the last month, I've learned about 2 separate customer save stories where our solutions helped save lives. First, a worker at a water treatment facility was alerted to a flammable gas alarm via ALTAIR 5X portable gas detector, enabling evacuation before the fire occurred. It's why customers count on the MSA brand, fast response, reliability and durability in the real world. We also heard directly from a firefighter wearing our Globe turnout gear when he was engulfed by a flashover as he entered a structure. As he told us afterwards, "In a moment where everything went wrong, your gear did exactly what it was designed to do, and did it when it mattered most." Save stories like these remind us all at MSA, the importance of fulfilling our mission.

Now for our business update on the fourth quarter and full year. Our fourth quarter results reflected strong free cash flow, low single-digit reported sales growth, mid-single-digit adjusted earnings growth and sequential improvement in operating margins. Quarterly consolidated reported sales growth was 2%, with a 3% organic decline, a 3% contribution from M&A and 2% favorable FX. Adjusted earnings per share were $2.38. Organic sales performance in the quarter was driven by continued strength in detection, which was offset by a decline in the fire service, while industrial PPE was up modestly. The M&C TechGroup acquisition contributed $15 million to the quarter.

Looking at sales by product categories. Detection's 17% organic growth was driven especially by strength in [ fixed ], while portable instruments also continued their growth. This growth was primarily driven by excellent performance in the Americas as we completed delivery of several large orders. Organic sales in Fire Service declined 21% year-over-year. The U.S. market dynamics surrounding AFG funding and the U.S. government shutdown impacted the timing of SCBA sales in the quarter as expected. We also faced the final tough year-over-year comparisons with U.S. Air Force deliveries. Organic sales of industrial PPE were up 1%. Fall protection moderated from the strong pace we saw in the previous quarters, though it retains a positive outlook.

From a full year perspective, we effectively executed our strategy against a volatile operating environment. Net sales growth for the year was 4% on a reported basis, with 1% on an organic basis and a 2% contribution from M&A. We remain very pleased with M&C's performance and its integration into the MSA family. Order pace across our product categories was healthy, albeit mixed, in the low single digits year-over-year and reflected the timing dynamics in the fire service. Detection orders were about flat versus the strong FGFD comparison last year and industrial PPE orders decreased by low single digits, with fire service orders increasing by low single digits. Order flow improved from the third quarter following an NFPA approval of our newest G1 SCBA, the release of AFG grants and the reopening of the U.S. government in mid-November. Overall, backlog remains healthy and consistent with historical levels, and we have a solid commercial pipeline. Our overall book-to-bill was slightly below 1 and above the year ago period.

Turning to Slide 7. You know how dedicated we are to serving our mission for our customers in delivering innovative products and solutions. As you can imagine, we also have our own MSA culture of safety that we live every day. I'd like to share a couple of highlights. In 2025, we delivered world-class safety levels across our organization, finishing the year with 0 lost time incidents. In addition, our total recordable incident rate was 0.25, the best rate we've achieved ever. These metrics demonstrate that we live our mission every day at MSA at every facility around the world, and further emphasize how doing so enables us to strengthen our culture of safety. I'm extremely proud of the MSA team. A sincere thank you to the team for their dedication and commitment in our endless journey of improvement.

Moving to Slide 8. we expected 2025 to be a dynamic year when we outlined our Accelerate strategy and long-term targets in 2024, and it proved to be just that and more. However, we maintained our diligent focus on strategic execution.

I'd like to share a few of our 2025 achievements. First, as we committed to, we delivered above-market growth in our key strategic growth accelerators, with detection up organically low double digits and fall protection up high single digits. Detection is now our largest product category, representing 41% of sales. In addition to the exceptional fixed detection performance, we continue to see growth in both MSA+ connected and traditional portable solutions.

Second, we continue to innovate and bring industry-leading products and solutions to market. This included launch announcements for the ALTAIR io 6 portable gas detector, which advances our MSA+ ecosystem, the new H2 full brim type 2 hard hat, our newest Globe turnout gear, the, G-XTREME PRO jacket, and our latest generation 2025 G1 SCBA, which received NFPA approval in November.

Finally, from a financial perspective, we utilized our consistent free cash flow to deploy nearly $0.5 billion into growth investments and returns to our shareholders. We welcome M&C into the MSA family, increased our share repurchases, raised our dividend for the 55th consecutive year.

Going to Slide 9. Moving into 2026, we remain confident in our expectations for a number of key markets. That includes fire service for both our domestic and international segments. In North America, we're optimistic about the pipeline of opportunities and continued use of AFG grants in the U.S., which we expect customers to access throughout the first half of the year. Internationally, we continue to see opportunities to gain market share across our regions as our pipeline for our fire service solutions remain strong. In the energy sector, we anticipate strong underlying global demand in 2026 and beyond. We expect to leverage the various investments in this area as well as in the industrial markets. We are well positioned for opportunities across the entire detection portfolio as well as in fall and head protection.

With that, I'd now like to turn the call over to Julie to walk through our fourth quarter and full year 2025 results in more detail and our '26 outlook. Julie?

Thank you, Steve, and good day, everyone. We appreciate you joining the call this morning. Starting on Slide 11 with the quarterly financial highlights. Fourth quarter sales were $511 million, an increase of 2% on a reported basis over the prior year. Sales were down 3% on an organic basis from the prior year, while M&C added 3% to overall growth and currency translation was a 2% tailwind. As expected, GAAP gross margins improved sequentially, rising to 46.9%, an increase of 40 basis points from the third quarter and remaining consistent with the previous year. Year-over-year gross margin reflects the mitigating effect of our pricing strategy on tariffs and inflation as well as positive mix and favorable transactional FX. As we have previously communicated, we remain focused on achieving price cost neutrality in the first half of 2026.

GAAP operating margin was 22.3%, with an adjusted operating margin of 23.9%, which was consistent from a year ago, as lower volume and gross margin pressures were largely offset by mitigating pricing actions, positive mix and favorable transactional FX. Sequentially, adjusted operating margins were up 180 basis points from the third quarter. Entering 2026, we remain diligently focused on SG&A productivity, pricing and tariff mitigation plans to counter headwinds and return to margin expansion.

Quarterly GAAP net income totaled $87 million or $2.21 per diluted share. On an adjusted basis, diluted earnings per share were $2.38, up 6% from last year, which included a favorable adjusted effective tax rate of 23.2%, primarily due to a reduction in state income taxes.

Now I'd like to review our segment performance. In our Americas segment, sales declined 1% year-over-year on a reported basis or 3% organic as mid-20s organic growth in detection was offset by a low 20s contraction in fire service. As Steve mentioned earlier, sales in the fire service were negatively affected by timing-related market conditions, while organic sales in our industrial PPE business were relatively consistent. M&C contributed to [ 1 point ] to total growth and currency translation added a 1% tailwind for the quarter. The adjusted operating margin was 31%, a 30 basis point increase compared to the previous year. The margin improvement was primarily due to pricing, favorable mix and effective SG&A management, partially offset by lower volumes, inflation and tariff pressures.

In our International segment, sales increased by 8% year-over-year on a reported basis, with a 6% contribution from M&C and a 5% tailwind from FX. Organic sales declined 3% as mid-single-digit growth in detection and industrial PPE was offset by a double-digit contraction in fire service, which was primarily driven by orders being pushed into 2026. Adjusted operating margin was 16.8%, 80 basis points below last year. Margin contraction was mainly due to inflation, tariff pressures and volume, partially offset by pricing and SG&A management.

Now moving on to Slide 12, where I'll review our full year results. Total net sales were $1.9 billion, up 4% or 1% on an organic basis versus last year. M&C contributed 2 points to overall growth and currency translation was a 1% tailwind. We saw double-digit growth in detection and low single-digit growth in industrial PPE. Growth in industrial PPE was primarily driven by strong performance in fall protection. Sales in fire service contracted due to the challenging market conditions we have talked about.

Adjusted operating margin was 22.1%, down 80 basis points from last year on tariff, inflation and transactional FX pressures, partially offset by strategic pricing actions, positive mix and improve productivity. Adjusted diluted earnings per share were $7.93, up 3% over the prior year. M&C contributed $0.09 to adjusted earnings per share. We delivered a strong return on invested capital of 20%, which included the overall impact from our acquisition of M&C and far exceeds our cost of capital. Overall, MSA's financial performance was solid, given the challenging prior year comp and the dynamic operating environment that persisted throughout 2025.

Now turning to Slide 13. We generated a strong free cash flow of $106 million in the fourth quarter, which is 122% of earnings, marking a 13% increase compared to a year ago. For the full year, free cash flow reached $295 million, up $53 million from last year, with 106% conversion rate that surpassed our annual target range of 90% to 100%.

In the quarter, we returned $61 million to shareholders via $21 million of dividends and $40 million of share repurchases, in line with the increase we communicated last quarter. Repurchases in the fourth quarter were equal to our total repurchases throughout the first 3 quarters of the year. In addition to returning cash to shareholders, we invested $16 million in capital expenditures.

For the year, capital deployment, excluding R&D investments, totaled approximately $420 million and included $189 million spent on the M&C acquisition. $162 million returned to our shareholders via share repurchases and dividends, and $68 million in CapEx, which includes our Cranberry expansion that will further support our Accelerate strategy priorities for growth and footprint optimization. We continue to reinvest in R&D, which represented 4.3% of 2025 sales, reinforcing our commitment to being a leading safety technology provider.

Net debt at the end of the year totaled $416 million, down $43 million sequentially. As of year-end, we have repaid approximately $100 million of the $140 million we borrowed for the acquisition of M&C, and we ended the quarter with net leverage of 0.9x. Our weighted average interest rate at quarter end was 3.9%. Our strong balance sheet and ample liquidity of $1.2 billion continues to provide optionality and position us well to support our Accelerate strategy and invest in our business, while we maintain an active M&A pipeline entering 2026.

Let's turn to our 2026 outlook on Slide 14. We are projecting mid-single-digit full year organic growth. Overall, our business remains healthy, and the pipeline is solid. Although the fourth quarter was affected by timing issues in the fire service and the U.S. government shutdown, we expect those delays to favorably impact the year as we carry over about 1% of annual business that was delayed. We anticipate ongoing momentum in detection and fall protection as key growth drivers, while pricing actions taken throughout 2025 and 2026 will be realized alongside moderate volume growth. We expect normal seasonal patterns throughout the year, including M&C, with the first quarter typically being the lowest of the year, implying approximately high 40s to low 50s sales split between the first and second half. In addition to our mid-single-digit organic growth outlook, we expect M&C to contribute approximately 1 percentage point to full year revenue growth. Other items below the line included interest expense of $28 million to $31 million and a tax rate in the mid-20s percent.

In conclusion, there is no question that further uncertainty and volatility exists into 2026. We remain confident in our resilient business, our pipeline and our ability to navigate macro uncertainty and timing challenges as we execute our strategy and work towards our 2028 targets.

With that, I'd like to pass it back to Steve.

Thank you, Julie. I'm on Slide 16. Overall, we executed well in a very dynamic 2025. As we move into 2026, our strategic priorities remain rooted in our mission and disciplined execution of our strategy. We retain our focus on driving profitable growth while extending our leadership in the markets we serve. We continue to apply the principles of the MSA business system to drive continuous improvement in all we do. Our strong financial profile and balance sheet enabled effective capital allocation through organic and inorganic growth investments and returning capital to shareholders. We remain active and highly disciplined in our M&A approach as we continue to evaluate inorganic growth opportunities that meet our strategic and financial targets.

Moving to Slide 17. I'm proud of our team's execution and thank all of our associates for their continued commitment to serving our singular mission of safety. While there are always new challenges, I'm optimistic that we will continue to grow both organically and through acquisitions. And then we have begun to exit some of the most difficult quarterly comparisons.

With that, I'll turn the call back over to the operator for Q&A.

[Operator Instructions] And the first question today will come from Rob Mason with Baird.

On detection, really strong quarter, obviously, and able to get some of these larger orders out the door before year-end. Steve, I seem to recall, we were thinking about that business being in the high single digit for '25 and I guess it grew 12 over on a local currency basis. Does that delta -- is that explained by the large orders? Or did you have some other things come in, in the fourth quarter?

Yes. Thanks for the question, Rob. I would say it was explained by the large orders. We had a couple of really nice orders come in. We had a customer in late Q3 that we -- that ask us to execute on an order that would have been this year. So we had an additional large order that came in. So if you took that out, it probably would have been a 10-ish number for the year instead of the 12. Obviously, very strong. We said high single digits, I think, pretty early in the year, and I think the team executed very well in that. But the underlying demand continues to be super strong across most of our regions, and we're expecting the investment category for some of the end markets to continue. I mean we're not going to have that same kind of year this year, certainly, but a really solid year.

Yes. Yes. And then trying to get past some of the well-documented headwinds in fire service in the fourth quarter. How do you see maybe the cadence in fire service playing out through the year? I'm sure those don't go away just on January 1, but between the first quarter and maybe you get by the midyear, what -- how does that play out, do you think?

Yes. Thanks. It's going to be interesting. So we really -- when you think of the delay, typically the fire service, when they receive the funding, they've got this built-in time horizon of year-end. And part of that is they recognize there's an opportunity, they've got funding and they want to get in their orders before the price increases than most manufacturers put in, in the first quarter. So that didn't transpire, right? They didn't have the funding, they weren't able to do that.

So we have that pipeline. We're working through that with our customers. That's why we think most of those orders probably play out sometime in the first half for the ones that had the government delays. And then the remainder, it's probably going to be more like a normal fire service year, what you would typically expect, which would say that you would lean towards the second half again on the overall demand cycle here. So that's how we see this playing out -- excuse me, this year. I think that's the best way to look at it. Except that AFG delay, some of those will come in. We'll see some of that in the first half of the year. But the overall picture is more of a standard year, I think.

I see.

Just to add on to that, I would say that we would expect pretty consistent growth throughout the year in terms of the revenue growth for fire service.

The next question will come from Mike Shlisky with D.A. Davidson.

I'll follow up on that on your [indiscernible] detection, very impressive in the quarter here. And it's been a trend, you've had some good numbers. Could you maybe comment on the order of [indiscernible] growth you'll be seeing here in 2026 for detection? Is there, at some point, where you start seeing tough comps? Or is there enough new product coming out here that there can be a strong tailwind this year?

Yes. Thanks for the question, Mike. I think that last year, certainly, especially as you look at the latter half of the year, the fourth quarter, that's certainly going to be tough comps. And as I talked about with Rob's question, a couple of points that probably would have been in this year. We look at -- this is going to be a good year for detection. I probably -- it's early. But we would expect -- we'd probably look at this in -- at this stage in the mid-single-digit revenue growth year, even with the comps we had last year. And I think at this stage in the game in February, mid-Feb, that's how we would think about it and how we're looking at it for the year. And so the growth is there. We think the macro environment supports that. And certainly, our solutions in both categories of the fixed and the portable detection support that with our customer base.

Great. And I also wanted to turn to the margin outlook. When I think back, you've got that longer term 30 to 50 basis points a year margin goal to gain every year through '28. Now that goal was released prior to the tariffs and things coming out more recently. But you did end up down a bit in 2025. Is there a catch-up that happens here in 2026 and then you add on top of that the 30 to 50 basis points of margin just as pricing catches up? Just some thoughts as to whether you could be seeing 100 basis points plus margin in 2026, especially the run rate to exit the year.

Well, it was a dynamic 2025, for sure. The tariff situation certainly played out to impact that as we talked about last year. I would just tell you, our overall approach on that continues to be a combination of efficiency and pricing. I think the business system has helped us. But as we've noted, as we noted last year, we've implemented some price increases, and we really -- for us, our focus was the long term and executing in a way that we position ourselves for neutralizing on the price cost in the first half of this year. And we are right where we anticipated we'd be. So you should see that continue to improve. You saw it sequentially in the fourth quarter. So you'll see that continue to go as we look forward.

Yes. I would expect -- just to add on to that, I would expect that our margins improve sequentially. So we recover that price cost neutrality at the end of the second half, and we would expect to return to those 30% incremental margin targets this year.

The next question will come from Ross Sparenblek with William Blair.

Looking at Slide 9 on the end market assumptions. First of all, thanks for providing that. I was curious to see that the infrastructure bucket is expected to be neutral this year. Energy and chemicals are up. Can you maybe just provide a little more color on the project activity you're seeing in the funnel? And anything else you can speak to that kind of underwrite those assumptions for the year?

Yes. Thanks for the question, Ross. When we think of 2026 -- certainly '25 was choppy in industrial. We did see chemical and energy had continued investment. And the thesis was pretty good in most of the regions around the world. I would anticipate, and the team believes, what we're hearing and seeing is '26 will be similar. A couple of the margin -- or a couple of the regions, you'll probably see it build up in the second half. We know of some announced investments. If you think of Europe, for example there, they really haven't had as much investment going on, but we do see some of that playing out in the second half, probably some improvement in China with that regard. Middle East was strong all year. Expect that to continue most of this year, if not all. And the Americas is in a similar story as well.

So we see that as some tailwinds. From a market dynamic perspective, there's a need for energy across the globe. And certainly, most of the players that our customers and others are really trying to make sure they're well prepared for that. And I just would say, the overall, at least in our view, when you compare or put together our activity in the Accelerate strategy along with the market dynamics we're expecting, we feel like we're in a pretty good place for '26.

Okay. And then maybe just on the portables, it seems like it was a little more measured growth in the quarter. Anything stand out there as we think about maybe perhaps tougher comps? Or is it just switch over to io 6 that's called in a pause? Just any updates around portable gas?

Well, thanks. The portable business again, continue to grow in both categories, both -- when I say both categories, both for gas categories. So again, portables includes single dual gas and then the [ 5 ] gas, which we'll see the io 6 come out later to replace our 5X or be an option for the 5XR.

So the forecast has been growing exceptionally well. Last year was our best year ever for units. And what's interesting is -- we're on revenue for -- the revenue for the year, the io 4, the MSA+ piece of the business is in just over 10% of portables. But when you look at units, you're close to twice that, which gives you a little bit of color of that being something that's going to continue to pay dividends because of the subscriptions as we go forward. So that grew at a really nice rate. It was a fantastic business for us, and it's shaping up to do the same in 2026.

The next question will come from Tomo Sano with JPMorgan Chase.

This is Ethan on for Tomo. My question would be -- how should we view the mid-single-digit growth outlook on pricing and a volume standpoint, considering roughly like [ 1 point ] of it is from the fire services delay?

I guess we're going to get contribution from both. So I would say you're going to see both probably lean more towards the price side, right, Julie? But you'll get contribution from both. A little bit more on the pricing side.

And would we expect this to be more of a first half weighted on a volume standpoint versus price? Or can we see like pricing due to tariffs flow through kind of in the first half?

Yes. So we'll have some more pricing early on because we have a carryover from last year and pricing actions that we took that are going to start to flow through at the beginning of the year here in the first 6 months, as we talked about. So we'll see it in the first half.

The next question will come from Jeff Van Sinderen with B. Riley FBR.

Most of my questions were answered. But I guess, when you look at the competitive landscape, how are you seeing that evolve in detection? What do you think the key factors are that are driving new business wins for you in detection? In other words, why do you believe your customers are choosing you versus competitors and latest wins? And then anything more you can say about product innovation that could drive upgrades or new business wins in detection?

Yes. Thanks for the questions. So if I start with the landscape, there's some really strong competitors in this space. What we really -- I feel like have done a nice job of is try to stay close to the customer in understanding our VOC, the voice of the customer, in a way where we create solutions based on the challenges they have. So when you look at our portfolio and you think about detection -- I'll break it out because I think it's a really interesting storyline.

Detection and fixed, we've expanded through some great acquisition activity as well as matching up the needs from the voice of customers. So we've got this traditional gas detection that's been really a strength for the company. But then you add to that, last year, we launched a new flame detector that has really taken off and done very well. We've got the field server and the controller business that came from an SMC acquisition a few years ago. Now that's integrated with our platform. So it's now a holistic solution for the customer on how they can communicate for a site.

And now you're adding to that, we're seeing some growth, and you should see more of that this year with our refrigeration businesses from [indiscernible], and then last year, of course, we added M&C from the processing side. So the fixed side, we've continued to build out a business that has expanded some our TAM and also created an opportunity for us to have more holistic solutions for our customers. So it's really somewhat of a one-stop shop that they're able to access. And I think that's an advantage, and that's something that our customers appreciate.

The portable side, this is a space where predominantly, most of them buy the street product, they have for a long time. We expect the piece of that business is to continue doing that. But then this connected work, the MSA+ we have on the io 4. There's not many competitors that have that. There are some that certainly are in the connected space, but we feel like our solutions match that VOC I talked about, ease of use, durable, very reliable product that's very accurate, and that's really what our customers are gravitating to. We're not the low cost, but we are really, when you look at it from a customer's size, we're typically the best when it comes to cost of ownership over the long term.

So I think that's what we kind of look at and hopefully continue to do going forward, which really feeds into the second half of your question, the innovation. I talked about in the prepared remarks, a number of new product launches we had, all of those being informed by what our customers are telling us, and you'll see that continue to roll forward into 2026. As we think of how we allocate capital, it all starts with organic growth and rolls out from there, and we'll continue to do that. I think this year, our capital investments, 2/3 or more are related to growth investments, right, Julie? So that -- hopefully, that helps give you a little color on that.

No, that's great. And then just as a follow-up to that, I know you mentioned Bacharach. Is there anything, just in the refrigerant area, and I think about HVAC there, is there anything that you're doing there that's being applied in the data center area for new data center builds or even retrofits?

There is a bit. I mean, we -- yes. The short answer is yes. When we think of data center build-out, certainly, for us, it would be more on the fixed monitoring and you hit the key area in the Bacharach area. So we do have opportunities there. We also have it in some other fixed monitoring, but that's the key category. We had a nice order a couple of weeks ago. It's not going to be the big change in our growth story, but it certainly is complementary to what we do. When they build those sites, that's certainly an opportunity for us on the industrial PPE as well.

Next question will come from Brian Brophy with Stifel.

So just a modeling question. SG&A, how should we be thinking about that this year?

Yes. So SG&A, I would say, in the first quarter, kind of consistent with the fourth quarter. And I would say SG&A as a percentage of sales is relatively consistent for 2025 to 2026. We're going to have some nice growth projects that we're going to fund in SG&A this year, and so we're excited about that.

Okay. That's helpful. And then just wanted to get an update on what you're seeing from some of your shorter cycle businesses. Obviously, we've seen PMI flip back above 50, but then there's some more mixed signals from an employment standpoint. So just kind of curious what you're seeing there near term?

Yes. Thanks for the question. So the fourth quarter was similar to '25, overall choppy. You have a good month and kind of choppy and it decelerate a little bit. We see '26 cautiously optimistic when it comes to that industrial space on the short cycle. We've seen improving demand so far play out, which actually is a really good thing. We're hoping that holds. The PMI you talked about is certainly -- we were pleased to see that. But the indicators from the channel seem to be that as well. There seems to be some building optimism of perhaps getting out of this, I'll just say, this choppiness that we've seen for, what, the last 18-plus months. So we're hopeful that's the case. Early indicators seem to support that.

Okay. And then one last one, more of a big picture question. You touched on this a little bit, but obviously, you've had a lot of success with portables on the connectivity side. Curious how you're thinking about expanding connectivity across additional product lines and how we should be thinking about any progress on that front this year?

Well, we -- thanks for the question. So we look at it as how do we interact in a way that the customer wants us to interact. It all starts with the customer as we think about how we're addressing those challenges I referenced earlier. We have -- every one of our G1 SCBAs is connected right now for availability for the customer to access. It's a matter of making sure that we continue to kind of build out that ecosystem in a way that enables value for the customer that we can support. I would expect that would be the next horizon that you might see some growth in, but it's really a longer-term play, Brian, as you think forward, I think we start with detection, portable specifically, and we're really we're having a lot of discussions where we're pulling customers for some of these workshops, some VOC workshops on where they want it to be informed in the longer term, for sure. And we'll be well prepared for that.

This concludes our question-and-answer session. I would like to turn the conference back over to Larry De Maria for any closing remarks.

Thank you. We appreciate you joining the call this morning and for continued interest in MSA Safety. If you miss the portion of today's call, an audio replay will be made available later today on our Investor Relations website and will be available for the next 90 days. We look forward to updating you on our continued progress again next quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Okay. Good morning. We're going to go ahead and get started. Thanks for coming out for the MSA Safety session. I'm Rob Mason, the senior analyst at Baird that covers advanced industrial technology. Many of you may know MSA Safety is a pure-play provider of sophisticated safety equipment globally and a market leader across most of the portions it competes in. Very glad to have Steve Blanco, the CEO, with us here today; as well as Julie Beck, CFO. Steve is going to open with a few remarks, and then we'll go to Q&A. I'll hand it off to you.

Thanks, Rob. Thanks for having us, and thanks for everybody's interest in MSA. I appreciate it. I'll just go through a couple of things to help everybody understand the company a little bit if we can get this technology to work. So MSA is a pure-play purpose-driven safety company. And what you think about with that is we've had the same mission for 111 years. And that mission is the men and women may work in safety, they, their families and communities may live in health throughout the world. We got them. So start with the safe harbor stuff. You know that. So -- and given that mission, I think what I'd start with, and some of you have heard this story, but we're really proud of this and the entire family of associates at MSA is grounded in this. And when we were founded 111 years ago was by 2 mining engineers who continue to see and have to go to a number of mining disasters where there are explosions.

Those explosions were caused by flames, right? And everybody at the time had flames on their caps because that's how they were able to see. But that, obviously, when you had high levels of methane or coal dust, you create an explosion and the canary wouldn't necessarily save them. So these 2 gentlemen worked with a guy you may have heard of named Thomas Edison and convinced him that they needed to design an electric cap lamp. So that electric cap lamp once it was implemented over the next 10 years, mining deaths went down over 75%. And MSA has been innovating ever since. And it's all focused on that mission of how we protect people across the world. And so what that's turned into is an industrial safety technology company. We innovate to lead across our different product categories. As you can see in the center, we have 2 segments we report to. One is the Americas, which is a little over 2/3 and then international, which is everything outside of the Americas.

Our product categories of detection, fire service and industrial PPE and really how we go to market. So we've got a very resilient business, detection includes instrumentation that people would wear. So we would call it wearable detection or portable and then instrumentation that's fixed. It protects assets, refrigeration, monitoring and the like. Fire service is just what you would expect. It's head-to-toe protective apparel for the firefighters as well as the breathing apparatus and then certainly the helmets. And then industrial PPEs, a number of different product categories. The ones that we center on strategically are head protection and fall protection. We have a couple of other categories where we have some nice margin and cash generation.

Doing that helps us protect over 40 million people annually across the globe. So we're really proud of that. And if you look at our strategy, we've got 4 key pillars that we'll probably talk a little bit about here, and I won't go through the details, except that this is how we believe we can set ourselves up for continual growth into the future and leverage the technology that we have and our voice of customer to really take advantage of the market position we have and where we see the macroeconomic and market dynamics taking us into the future. We'll continue to allocate capital as we have very effectively. We've leaned into this with this strategy that we announced in mid '24 to really focus more on M&A as well as the organic growth we have been focused on. And certainly, we'll continue to return back to the shareholders through our dividend and obviously, share buybacks, which we're in the middle of right now as well.

We're active on the market in that category. And then lastly, if you look at this year, I would just reference that what we said a couple of weeks ago in the earnings call, we've about 2% organic growth year-to-date. We have about a 1% for the year headwind with the government shutdown because of the fire service, which we continue to expect to be around that ZIP code. Fortunately, we did receive NFPA approval, which we announced which was a really nice milestone that the team is excited about, and we are now capable of taking orders from our customers. So with that we'll go to Q&A.

Again, if you have any questions, send those up and we'll work those in the discussion. Steve, maybe just we'll start where you kind of left off there in the fourth quarter. Typically, you do see some seasonal lift in the business, fire service is usually a component of that. So maybe just setting that aside, given some timing dynamics. How about the rest of the business in terms of what you're seeing as you go into the fourth quarter, what looks normal, abnormal, anything you'd call out?

I think if we look at the rest of the business, I'd start with detection. And as we've talked detection, it's been a really good business for us. And I would reference the ACCELERATE strategy. We talked then that we thought that '25 would be a challenging year on the fire service. But as we leaned into some of the activities we have going on in detection, we thought we'd accelerate growth there. And we've intentionally focused on what the customer needs are. Again, this is that solution base I talk about. And when we've done that and how we've done that has enabled us to have really nice growth in detection matching up with that strategy. And I think that's going to continue. If we look at the market dynamics in detection, we're outgrowing the markets at this stage. We're really pleased with the growth we've seen across the globe, the portable detection, MSA+, it's been a fantastic grower, small base.

Certainly, it's about 10% of the portables, which is about 1/3 of the overall detection space. But it's been a really nice catalyst in so much as it's also helped the rest of the portable business continue to grow. The customer base, even when they choose the existing platform, they've got the choice from us and they look at us as a trusted adviser and say, "Hey, you guys have all of the solutions we need." So they're -- we're getting growth on the core traditional platform as well, which we frankly thought we might cannibalize more than we have. The market dynamics are pretty good. I mean they're choppy. I would say the industrial PPE, we're continuing to see somewhat choppy market dynamics. The growth there, which we expect to continue in the fourth quarter has been really centered on our fall protection strategy and how we've really put a laser focus on what we believe is a nice set of solutions for the customer. So I think we think that's going to continue, and we're seeing that thus far.

Okay. And just maybe speak to -- we're still discussing it just as we're playing still maybe a little bit of catch-up around tariffs and price contribution. How do you see that rolling in both the second half of this year, first part of next year is often when you take a normal price increase and bring us up to date on price cost effectively.

Yes. So it's a good question. When we looked at the year and we talked earlier in the year, we indicated and have seen that there's acceleration in that cost impact to our P&L in the second half of the year, and we saw that in the third quarter. We'll see that in the fourth quarter. We have instituted some targeted price increases throughout the year in both segments, off-cycle is what we would call them because we typically do them in the first quarter. Those price increases haven't been the same in each region. And what we've tried to do, we really take the long view on this. So when we do a price increase, our intent is that stays. So we tried to make sure we see some normalization of what that tariff rate might be so that when we go to the market, it stays in there. And so -- then the second piece of that is when do you think you kind of get this rightsized and get rid of the noise we've had in '25. And we think the first half of '26, you should see that. We expect to -- and we'll continue to see that improve early in '26. But we believe we're in a good position where that's going to rightsize itself and we'll be in the right space.

Okay. You just -- you made mention earlier just around the government shutdown dynamics. Any noise in other parts of your business besides fire service?

A little but not -- I mean, not as significant as fire services. I mean we have a couple of orders that we know have been pushed, but minor.

Okay. And then on fire service, you made mention NFPA approvals are out. I would assume that's the case across all of the vendors in the industry.

Well, we know ours are out, we know 1 others is out. We would assume the other one will announce their approval at some point. But we're focused on ours and how we compete.

Now you can move forward with the NFPA compliant product.

Correct.

How does that kind of impact the order dynamics here in the fourth quarter then. Have there been some customers holding back?

Well, there certainly are customers that were waiting for the new approval -- the new standard approval. As we've expected sometime late this year, early next. We were really pleased with when it did come out because it allows us, we've got certainly customers that have already indicated and have ordered the current version, but we think that this is going to help customers really think about, okay, now I can get this new version. There's no more noise for them to worry about. Now the timing with, again, the government shutdown and the AFG funding has kind of held a little bit, probably not much of an impact in the fourth quarter. It's still going to be what we expect for next year.

Okay. But just the mechanics, I mean, if we do have line of sight on a reopening maybe in the next week or two, the mechanics of what needs to happen around AFG is you would expect those. The awards have been made, you would expect then what the submissions for those awards into AFG and then they reimburse and start the dollar.

Right. So the process is, if you're a fire department, you receive a notification that you have an award. So that happened at the end of September, last few days. And then it's -- the government shut down. And so you can't get on the website and go and basically...

Claim your award.

Accept this award and then to receive the funding, you have to have a purchase order to give back to -- basically, here's my PO and then you'll get the funding based on that PO. So fire departments first can't go in there to check and sign off and say, "Yes, I received my award or I'm accepting it." So that, obviously, once the government comes back, they'll be able to do that. And then the next piece is the time line of them then issuing the PO. Some of them will go through an evaluation and planned to do that. Some of them have already determined the manufacturer that they're going to choose, and they'll just move through that process.

That's -- we're still in the same ZIP code with what we expected a couple of weeks ago. I don't think that changes with what we've seen. On the time line, I would say that next year, you're probably going to see as that kind of rolls back in, right, it's because it's all about timing. So that point is probably a first half. It's probably not all going to drop in the first quarter, again, based on those dynamics I just talked about. It's important to realize that the funding, the award notifications were the end of September, which is the latest historically we've ever seen, and they did it in a very short window. So typically, you see that occur through August and September. September is lighter. Usually, you get the big tranche in August or even typically, it starts in July. But the big tranche is usually early mid-August. So that -- all that timing I'm talking about is going through the process of them going through the process is happening in late October or late August, September and October. So that's going to be delayed into the future.

And just on your last call as you were framing out the maybe setting the timing dynamics aside, just the pace of demand in that environment or that market, at least domestically anyway, kind of steady -- underneath that kind of steady through '26, but you seem to have some optimism beyond '26.

I do. I think we're in a place where we're having kind of a solid state kind of consistent market size currently. We expect similar dynamics next year with a little bit of movement based on this funding thing perhaps. But as you look forward, the cycle and the quantity of SCBA that the market had the market size of SCBAs shipped in 2015, '16, '17, '18 was really large. And now we're really at that I'd say, a little bit of a normalized lower point. There's kind of like the -- we call it that replacement cycle, which you're very familiar with. You've talked to us a lot about. And we didn't see it drop off precipitously like maybe in the past, and part of that is because of the value of the SCBA has helped with that, right, because the value of our SCBA is much different than it was 10-plus years ago. But as you think about the time line of a fire department, they replace them every 12 to 15 years. So you get into '28, '29, '30, then you've got these large volumes coming back and yes, so we're prepared for that. We're planning for that. And it's certainly something, I think, bodes well for the future of the fire service.

Going back to the detection. Again, that's -- you've been pleased with the performance there. And that has been a market that you've targeted market outgrowth in as well. And you talked a little bit about why that is. Just -- but again, those markets can be diverse. I think externally from our standpoint, RC is sometimes hard to understand exactly what's driving that market. Any couple of items that you would call out from a market standpoint and then where you think you been particularly successful?

Sure. Well, energy has continued to be a really strong market for us. Traditionally, the oil and gas industry, we've done well in that industry. But that industry has not gone away. So it's continued to be solid for us, not as big of a contributor because a lot of this outgrowth is us expanding our market coverage to other places, other markets, quite frankly. Energy has expanded first and foremost, as we've talked about clean energy, some of this carbon capture has been very beneficial in some of the activity. And there's areas, for example, in Europe, they really are in the early stages of some of the activity they're doing on carbon capture, but are needing to do that. And they're recognizing the need to do that. So that clean -- that total energy package, if you will, of business has been really strong, and we think will continue to be strong even with the oil prices hovering around the 6-ish spot because I would expect from what we've seen and what we're hearing that there's going to be continued investment, especially in the Middle East and North America. And Latin America is not far behind. They're investing heavily too.

So those markets are investing. Europe is really more of a maintain at best from an investment perspective. There's a little more investment expected next year. But those big markets really, we're looking at those as a growing category into the future. Probably when you add all those things up, you probably have oil and gas traditionally growing at 2% to 3%, then you have the clean energy on top of that, you're looking at a market growth that's high mid-single digit or up or high-single-digit growth in the next 5 to 7 years. And that's just becoming more of an issue because of what we're seeing with the data centers, right, with AI and we play in that, too. It's a nice space for our Bacharach business. We've had some nice wins on a couple of data centers that we're leaning into, and we expect that to be a nice tailwind as well. So it's been really cross functional. We've got some activity that we recently won in the pharmaceutical side on fixed gas business. These are things that we identified to really open up the aperture of opportunities when we went through the strategy. So we're really good at this stuff. We have solution sets that can hit these other markets, we've got to be intentional about these markets and show the customer our solutions to do that, and that's paying off.

Yes. the M&C acquisition that you did as well. I mean we think about your M&A history here, maybe not the typical personal safety acquisition that you would have done it gets you somewhat into the process stream, just maybe talk about what that brings. And again, you kind of open the aperture around a market that it plays in, what does it present in terms of expansion adjacencies, bolt-on type opportunities?

When we think of M&A, we're still going to stay true to that mission that I talked about earlier. So the mission really grounds us in everything we do. And if you remember what I said, it's men and women may work in safety and they, their families and communities live in health throughout the world. So that, for us, provides a nice foundation of how we look at M&A and opportunities to expand the addressable markets we participate in. So M&C is an extension of that similar to what Bacharach was. So Bacharach is an example where we understood the technologies very well. They're very well aligned with MSA's technologies and solutions set. And it was a market we participated in, in a very small way. And so we've expanded that. This is this refrigeration market and HVAC markets that we're now in with Bacharach, M&C is a similar example of that. Now we had not done much on the processing side and now the processing analysis side. And we saw M&C is a really, really good opportunity because it's managing and measuring processes in ways to ensure that you have the right controls in place.

And so this is, again, around instrumentation in the fixed monitoring space that we felt was -- we know the technology really well. We know some of the customer base pretty well, but it's in a different space that we don't participate in. So it's been a really nice add. It's -- the M&C family is doing a great job with the integration. Our team is doing a great job. We're really pleased with where it's at, halfway through 1 year, but it's doing really nice. And foundationally, it allows us now to really launch off that platform because there's a lot of space in this processing model. And there's a lot of opportunistic areas, we think we can go after and expand that.

Yes. Okay. We'll just maybe touch quickly on the industrial PP&E side. You said it's been choppy, but you've leaned into the fall protection. Just talk about kind of what's enabled some -- what looks like market share gains, market outgrowth anyway there. It's been somewhat my sense on the innovation side, but also just kind of execution, supply chain and the like.

You're right. It's really -- it's around how we've innovated the suite of products and solutions we have in fall protection, we've turned over and really done a nice job putting our innovation engine to work on fall protection. Commercially, the way we go to market with our customer support has been a big play in this and the brand equity we have. And then third is how we have improved our ability to deliver to the customer. This is one where we've had nice double-digit growth for, I think, 7 years, minus 1 in North America, and we're really trying to do that globally as well in which we have, and you saw that in the third quarter.

The interesting thing for fall protection is it's really -- as we look at it, the customer needs it right now. They don't typically plan ahead in many cases for fall protection when they want it, they expect it right away. So it's a shorter cycle requirement for the customer. And if you don't have the appropriate inventory on hand, you're not going to get that order even if you have the best solution. So we've really leaned into making sure we have the availability for those products for the customer. What's interesting, though, is we've stumbled on that a couple of times, right, where we certainly, part of it was as we came back with the supply chain challenges post COVID. So we stumbled there. And so we had this great growth, and then we stepped back and the customer went elsewhere, right?

And then we had last year, we had the same thing we closed the factory intentionally as we moved production to a different facility and rationalized our footprint. And the same thing happened. The customer came back. It's still -- it's a real testament to the brand and the capability of how we have that connection to the customer. I've never seen a category where they come back multiple times. You usually can lose them once. But if they can't -- if you can't build that trust, coming back that second or third time, it's very difficult. So what we've done now has been very intentional to say we're going to put this in play. We're going to make sure we have all of the required inventory to ensure we keep it. And now we've built that credibility because they've seen it stay and it's just building momentum on that entire business front.

Yes. What about some of the other areas within industrial PPE, the head protection ballistics is kind of a noncore business, but it does cycle up and down. And actually, I think, has been little healthier for you.

Ballistics we expect to continue to be healthier. Ballistics is an area. It's protective ballistic helmets. And it's a European business that a lot of the European countries and governments have really leaned in to try to increase their defense spending. And that's an area, certainly, we're on the protective side of that. We expect that business to continue to do well. It's doing well now. We think it will continue to do well into the foreseeable future with a little bit of lift of this funding transition that the governments have made in that area. Our traditional head protection has been a solid business. We just launched the Type 2 Hard Hat, the H2 Full Brim in the United States, and we expect that market to continue to be a nice contributor. The thing about the Type 2 helmet is the price point's like 3.5x of the Type 1. So if the market continues to shift, as we're starting to see to a Type 2 solution, that could be a really nice tailwind on the revenue growth in industrial PPE.

What would drive kind of that shift?

The customer -- there's a belief by the customers that while 1 -- both of them meet the standard and are protected for that individual, there are some applications where customers want that side impact protection, which is a Type 2 versus the head -- the top impact protection. And so there are some organizations that are moving to, hey, I don't want to have 2 different helmets on site. I really want to make sure I streamline and if I'm going to streamline, I have to go to the 1 solution that is able to take care of every situation I'm in.

Okay. Just wanted to shift to your profitability, your margin profile and basically kind of the margin algorithm that you've set out, kind of 30% to 40% type incrementals what we're striving for. It will help to get on the positive side of the tariff equation, FX as well. Maybe that's just a matter of timing as long as currency stays stable. But just maybe Julie comment on where you think margin pathway looks as we exit the year?

Yes.. So we improved margins from the third quarter from the second quarter, and we expect the margins to improve in the fourth quarter as well as some of these pricing actions take place. So we expect that we will be in that 47% margin -- gross margin range, which is a nice margin. And in 2026, we expect improvement going forward as well.

Okay. Have you -- we get this question a lot around AI. Any early implementations of AI internally that you've been able to execute on?

We've been doing -- the teams -- well, we love innovation. So we've done some really cool things on both how we interact with the customer and how we drive efficiency internally. We're -- and I believe we're in the early stages like most people. The things we've done around our SIOP process and how we evaluate inventory using AI tools is fantastic. As a matter of fact, our supply chain team was awarded innovation, something -- use of technology award, Jose Sanchez and his team just did a phenomenal job with implementing that and taking technology to make us more effective in the fall protection is a great example of that.

We have -- with our MSA+, we just went out with our first pilot of a large language model for our customers to use to help them on how they are able to take a fleet of io 4s and utilize those effectively and communicate with MSA on any questions they have and things that they want to learn more about. And then we've launched what we call Edison internally, which is something that enables our teams to look at innovation and use AI to help streamline any work flow that they have going on. So we see it as an opportunity. I mean, AI, we're still learning. But as I'm sure everybody knows, AI is really that understanding and utilization of data and it's becoming much, much more effective and more streamlined, and we wanted to make sure we take advantage of that.

Absolutely. Real quickly is maybe speed round here. The -- you've already made mention eyes on, at least with respect to M&A detection, focus area. Any other areas of the portfolio that you're evaluating for inorganic?

All of them, if they're core.

Even fire service?

Well, even fire service, I would say the fire service in the spaces we're in, it would have to be very -- it's very difficult because we have leading position. We have to expand that, but we know the markets very well. So I wouldn't say no. We're looking for categories that we believe can minimum meet our growth expectations for the future or add to those growth expectations. Again, it's either going to be technologies that we understand and/or markets we feel very, very comfortable with. If it's both, great, but that's what we look at.

All right. Fantastic. We're at time. We'll stop there. There is a breakout session upstairs in the Chestnut room. So if you have any questions, meet us up there. Thank you.

Thank you.

Good day, and welcome to the MSA Safety Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Larry De Maria. Please go ahead.

Thank you. Good morning, and welcome to MSA Safety's Third Quarter 2025 Earnings Conference Call. This is Larry De Maria, Executive Director of Investor Relations. I'm joined by Steve Blanco, President and CEO; Julie Beck, Senior Vice President and CFO; and Stephanie Sciullo, President of our Americas segment. During today's call, we'll discuss MSA's third quarter financial results and provide an update on our full year 2025 outlook. Before we begin, I'd like to remind everyone that the matters discussed during this call may include 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 a number of risks, uncertainties and other factors that may cause our actual results to differ materially from those discussed today. These risks, uncertainties and other factors are detailed in our SEC filings. MSA Safety undertakes no duty to publicly update any forward-looking statements made on this call, except as required by law. We've included certain non-GAAP financial measures as part of our discussion this morning. The non-GAAP reconciliations are available in the appendix of today's presentation. The presentation and press release are available on our Investor Relations website at investors.msasafety.com.

Moving on to today's agenda. Steve will first provide an update on the business. Julie will then review our third quarter financial performance and 2025 outlook. Steve will then provide closing remarks and open the call for your questions. With that, I'll turn the call over to Steve Blanco. Steve?

Thanks, Larry, and good morning, everyone. Thank you for your continued interest in MSA Safety. Before we start, first, I'd like to welcome Julie Beck to MSA. Julie brings extensive experience across all aspects of finance from her previous public and private company experiences. Her leadership and financial acumen will be a tremendous asset to our team, and I'm excited to partner with her in the next chapter of serving our mission of safety for our customers. I also want to extend my heartfelt thanks to Elyse Brody for her outstanding leadership and dedication while serving as interim CFO. Elyse stepped into the role with grace and professionalism and her contributions during this transition have been invaluable. So on behalf of the Board and the executive team, we're deeply grateful for her continued commitment and support. Please join me in welcoming Julie and thanking Elyse for her exceptional work.

Now let's move on to our review of the third quarter. I'm on Slide 4. In the third quarter, consolidated reported sales growth was 8% with 3% organic and adjusted earnings per share were $1.94. Our team continued to perform well, delivering a solid quarter despite encountering stronger-than-expected near-term headwinds in the fire service. This was based on sustained strength in detection, along with healthy expansion of industrial PPE driven by fall protection. A decline in the fire service partially offset growth. The M&C TechGroup acquisition contributed $15 million for the quarter. We're pleased with M&C's performance thus far and its integration into the MSA business.

Looking at sales by product categories, Detection's 6% organic growth was driven by strength in both fixed and portable instruments. More than half of absolute growth in portables came from connected devices. Organic sales in fire service declined 3% year-over-year. In the U.S., the market dynamics surrounding AFG funding and NFPA standard change had a moderate impact on the quarter, while international markets were mixed. Organic sales of industrial PPE increased 7% with growth across all main categories. Fall protection continued its recent strength with double-digit organic growth.

Moving to orders. Order pace across our product categories was encouraging, albeit mixed. Detection orders were up double digits and industrial PPE orders increased mid-single digits. A double-digit decline in fire service orders was principally due to the near-term market dynamics in the Americas as well as the U.S. Air Force comp. I'll address these in more detail in a few minutes. Sequentially, the backlog declined in the third quarter due entirely to timing in the fire service. Overall, backlog remains within normalized levels.

Moving forward, we expect to see a near-term negative impact from the fire service order pace in the Americas following the U.S. government shutdown. Our overall book-to-bill was slightly below 1. Turning to Slide 5. I want to provide some notable progress we've made across the pillars of the ACCELERATE Strategy in the third quarter before providing an update on the current dynamics surrounding the fire service. First, we continue to strengthen our leadership in industrial safety technology through customer-driven new product development and continued momentum in these key growth accelerators. I'm pleased to note that we recently introduced the ALTAIR io 6 multi-gas connected portable device and the new H2 V-Gard safety helmet at this year's National Safety Congress. The io 6 is the latest example and addition to the MSA+ platform and is designed for confined space monitoring and sampling solutions.

While we do not expect it to provide a significant near-term lift in revenue, we see it as a valuable product that will contribute to the long-term build-out of our connected ecosystem in portable gas detection. The H2 helmet is a Full Brim type 2 helmet that joins our extensive market-leading lineup of industrial safety helmets. And from a growth perspective, we continue to experience the benefits of our investments in our needed now inventory within fall protection, leading to excellent performance in this strategic growth accelerator for the second straight quarter. Centered on customer experience, the organization has been able to decrease lead times and secure new business with better availability. Year-to-date, sales in fall protection are up double digits organically.

Second, on the operational and commercial side, we continue to execute our tariff mitigation programs in the third quarter. As a reminder, we are targeting price/cost neutrality in the first half of 2026. We also had another strong quarter for MSA+. I'm pleased to note that not only did we win a sizable competitive tender, but another large customer served as a reference, further emphasizing our solutions benefits and why we remain optimistic about this new customer adoption. Finally, our M&A pipeline remains active, and our strong balance sheet positions us well for growth-oriented deployment and cash returns to shareholders as part of our disciplined capital allocation strategy.

Turning to Slide 6. I'd like to take a moment to provide some insights into the current conditions affecting the fire service market in the Americas, including the timing of AFG funding here in the U.S., our largest market for this product category. As we approach year-end, there are 2 dynamics for consideration in this market: the NFPA certification process, which usually occurs every 5 or so years and the annual release of federal assistance to firefighter grants, or AFG, which is typically released in the summer months through September. As we've mentioned, NFPA standard years often see increased short-term volatility as customers decide when to renew their fleets. Nothing has changed here, and we still expect to see approval sometime by early 2026, if not sooner.

What is different this year is the timing of the funds release from the AFG program. This program, as always, has been fully funded, but award notifications were issued historically late this year coming at the very end of September. Then the U.S. government shutdown has slowed funding for the awarded departments, creating additional layers of complexity. This had a moderate effect on our revenue in the third quarter. The larger impact is on order timing in the fire service. The delays in receiving the orders will shift some revenue into 2026. Again, our pipeline remains strong. It's a matter of timing.

We successfully navigated the approval processes before and seen similar market conditions, and we're fully prepared to serve our customers in the fire service and to deliver the products and solutions they need to keep themselves and our communities safe. With that, it's now my pleasure to turn the call over to Julie to discuss our financial performance in the third quarter. Julie?

Thank you, Steve, and good morning, everyone. We appreciate you joining the call. Thank you for those kind words, Steve, and thank you to the entire MSA team for doing such a great job in my orientation to MSA. This is a wonderful opportunity to work with a company that offers innovative products and solutions, great people with a continuous improvement mindset and a strong balance sheet, providing the optionality to create shareholder value. I am truly grateful for the chance to join MSA and support the mission of safety, which has been a central theme in my career.

Anyone who knows me understands I am passionate about what I do, and MSA is a perfect fit for me with a fantastic culture. I see tremendous opportunity to work with the team here, continue MSA's journey and make a meaningful contribution. I have been so impressed with the commitment that everyone here displays for the work they do and the mission we serve. I look forward to meeting all of you over time.

With that, let's start on Slide 7 with the quarterly financial highlights. Third quarter sales were $468 million, an increase of 8% on a reported basis or 3% organic over the prior year. M&C added 4% to overall growth and currency translation was a 1% tailwind based on the strengthening euro. As expected, GAAP gross margins continue to face pressure this quarter, declining to 46.5%, down 140 basis points from last year. Gross margins reflect inflation, tariff and transactional FX increases, partly offset by price increases and productivity gains. We are beginning to see the tariff impact become more noticeable in the second half, aligning with our mitigating pricing strategies, and our aim remains to balance this by the first half of 2026.

GAAP operating margin was 20.1%, with an adjusted operating margin of 22.1%, which was down 50 basis points from a year ago due to the contraction in gross margins, partially offset by effective SG&A management and variable compensation adjustments. However, our adjusted operating margins increased 70 basis points from the second quarter. We are diligently focused on SG&A productivity, pricing and tariff mitigation plans to counter headwinds. Quarterly GAAP net income totaled $70 million or $1.77 per diluted share. On an adjusted basis, diluted earnings per share were $1.94, up 6% from last year.

Now I'd like to review our segment performance. In our Americas segment, sales increased 5% year-over-year on a reported basis or 3% organic as high single-digit organic growth in Detection and low single-digit growth in Industrial PPE was partially offset by a low single-digit contraction in fire service. Currency translation was less than 1% tailwind in the quarter. Adjusted operating margin was 28.3%, down 240 basis points year-over-year. Margin contraction was mainly due to inflation, tariffs and FX, partially offset by price and effective SG&A management and variable compensation adjustments. In our International segment, sales increased by 16% year-over-year on a reported basis with a 7% contribution from M&C, a 5% increase on an organic basis and a tailwind from FX.

Double-digit organic growth in Industrial PPE and mid-single-digit growth in Detection was partially offset by a low single-digit contraction in fire service. Adjusted operating margin was 16%, 240 basis points above last year, driven by higher volume, effective SG&A management and the impact of M&C.

Now turning to Slide 8. We delivered robust free cash flow of $100 million or 144% of earnings. Quarterly operating cash flow was up 33% from a year ago. As expected, CapEx returned to our normal range following the increase in the second quarter. Year-to-date, free cash flow was $189 million, up $41 million from last year, representing 99% conversion. As for capital allocation actions taken in the quarter, we returned $21 million to shareholders through dividends and invested $12 million in CapEx. Our year-to-date share buybacks offset dilution for the full year. We have $130 million remaining on the current authorization, and we expect to repurchase shares in the fourth quarter following the strong free cash flow generation we have delivered so far this year.

We also repaid $50 million of debt in the quarter as net debt was $459 million compared to $532 million in the second quarter. We ended the quarter with net leverage of 1x, and our weighted average interest rate was 4.1%. As Steve mentioned earlier, our balance sheet and ample liquidity of $1.1 billion continue to position us well to invest in our business, and we maintain an active M&A pipeline.

Let's turn to our 2025 outlook on Slide 9. We maintain our low single-digit full year organic growth outlook. Overall, our business remains healthy. Certainly, the fourth quarter is impacted by timing in the fire service and the U.S. government shutdown, but the fundamentals there are healthy as we work through current events. The timing of AFG funds being released and approval of the next NFPA standard remain key variables for the balance of the year that are beyond our control. We believe that the AFG timing delay and the ongoing U.S. government shutdown will impact a portion of our fourth quarter sales. However, we expect continued momentum in fall protection and detection as key performance tailwinds.

Given some of the moving pieces out there, I'd like to help your modeling a little bit. We have delivered 4% reported growth, including 2% organic growth year-to-date through September and remain on track to be within our low single-digit organic outlook. However, the later-than-normal AFG grant awards and subsequent U.S. government shutdown will impact us in the fourth quarter. While this is dynamic, we now anticipate that the shutdown will take roughly 1% of growth off the full year organic pace we were on, mostly in fire service. In the event of a prolonged government shutdown, we could see additional sales shift from the fourth quarter to 2026.

Again, this is simply a timing issue, and we remain confident in our fire service business. In addition to our low single-digit organic growth outlook, we continue to expect M&C to add approximately 2 points to full year revenue growth and FX to be about 1% positive. Our below-the-line items are unchanged from our previous outlook. In conclusion, we remain confident in our business and our ability to navigate macro uncertainty and timing challenges. Our resiliency is truly a strength. With that, I'll now turn the call back to Steve.

Thank you, Julie. I'm on Slide 10. To close, I'm proud of our team's execution and thank all of our associates for their continued commitment to serving our mission of safety in the third quarter. I remain encouraged that we will continue to deliver strong shareholder value as we execute our Accelerate strategy to drive long-term profitable growth. With that, I'll turn the call back to the operator for Q&A.

[Operator Instructions] Our first question is from Rob Mason with Baird.

Hi Julie, thanks for the additional color around thinking about the fourth quarter. I was trying to do some quick math here. But if I think I interpreted your comments correctly, it sounds like we probably won't see much of the normal seasonal uplift in the fourth quarter. I assume that's all just due to the fire service. Is my math correct?

Correct. That's correct. That's correct. We're relatively consistent between Q3 and Q4, maybe a slight uptick.

Yes. And then, Steve, how should -- so we've tracked the awards coming at the very end of September. Does that -- but the dollars are slower to follow behind that, I guess. Does that preclude your customers from placing orders? Do they wait until they have the dollars in hand? Just -- I'm just curious maybe to parse the timing a little further.

Yes, Rob. I mean, typically, when FEMA releases these funds, they have up to a year to actually go spend the money. But what usually happens is a pretty large contingent of the fire departments act pretty quickly when they get the funds, when they get the awards. And so they have to -- they go through a process, certainly, and we can walk through that. But they go through the process and then they action that. But with the government shutdown, there's a step they have to take where they have to go in and basically, I guess, you could say, accept the award from the government. So that's a little slower. And plus, I mean, historically, we've always had the funding sooner than this. This was just at the very end of September right before the shutdown. So that really -- usually, what you'd see is you'd see a buildup in incoming, as you know, of the order pace in late Q3 and certainly into early Q4, which was delayed a little bit.

Yes. Okay. And maybe just last question, I'll get back in the queue. Julie, again, nice work and team on the operating expense controls in the quarter. There was the mention around maybe some variable comp adjustments. The thought was maybe we're tracking to $108 million per quarter type SG&A number. It was below that, obviously, in the third. But is that more of a normalized rate? Or have you made some adjustments to that?

Yes. We would expect that our fourth quarter SG&A would return to more normal levels.

The next question is from Ross Sparenblek with William Blair.

Maybe just touching on margins here. FX has recently flipped to a tailwind as you guys called out. Can you maybe just remind us of the cross currents with that transactional risk and then also maybe some of the other moving parts?

Yes. So we had some transactional FX that was negative in the quarter. But really, we've seen some overall inflation in the supply chain as well as we saw a much higher tariff impact in Q3 as the tariffs are hitting the income statement now in Q3. I would say that our costs are up primarily in inflation and tariffs and just a slight bit more in transactional FX.

Okay. And then just on that inflation, I mean, anything specific to call out like steel or...

I would say that when you look at general inflation, you see that overall in the supply chain, wage inflation through the various tiers of the supply chain are causing general inflation to go up. We'd also see some inflation in electronic components. We'd see inflation in metallics and some of those things that are impacting our costs.

The next question is from Saree Boroditsky with Jefferies.

This is James on for Saree. Kind of going back to fire service here. You noted that pipeline remains strong here. So I believe there are a lot of pent-up demand here. It's just like near-term uncertainties kind of impacting kind of conversion here. So how should we think about like fire service kind of going into 2026 once all this kind of near-term headwind kind of clears out?

Yes. Thanks for the question. So if you look at it first on the short-term basis, we typically have a really strong end of the year because of the assistance for firefighter grant releases that we talked about earlier. So that typically rolls into fire departments placing orders. And certainly, we want to get the equipment to them so they can do their jobs. So that makes the end of the year typically pretty strong. The nuance here, as we already talked, is that's pushed a little bit, at least for some of it depending on the timing. As you get into '26, I would say you're probably going to have -- excluding when the firefighter grant awards occur, we should have a consistent year with what we'd expect this year to be on -- as far as the demand cycle.

Globally, there's some nice things going on in certain regions like we had some international pressure based on some delays in Asia, specifically Mainland China that I think get fixed maybe a little bit in 2026. Certainly, we expect that. North America and our big market, we would expect to be fairly consistent year-over-year. I think what you'll start seeing as we get into the out years, you'll start to see some pace actually, we're really optimistic of the fire service. You get '27, '28, '29, it's going to be -- should be a really good business. Next year should be solid. But beyond that, I think it should be a really good business.

Got it. Great color. And as a follow-up, I think you guys are still expecting kind of the early 2026 for NFPA approval timing. But are there any risk that this could be further delayed? Or is that pretty -- what is it constant like kind of time line?

Yes. Our expect -- again, this is a government agency. We don't control when they decide to pull the trigger here. But we certainly have gotten a lot of feedback from the market and others that they expect to really come through with the approval early next year at the latest. It might be yet this year. I think they're lining those things up. And as we've talked before, we've gone through all the process. We're ready -- we certainly know our product is ready. We don't know what the competitive landscape is. But I think there's a relatively high confidence that, that should be taken care of and the approval issued no later than early '26. Again, we don't have control over that, but that's our expectation.

The next question is from Mike Shlisky with D.A. Davidson.

This is Linda Umwali on for Mike Shlisky. I'll start with this. Should we be concerned about the federal government shutdown? And I know Julie touched on that more broadly affecting your military business or the federal government -- other federal department. Will any of the demand that may be held up by the shutdown eventually be made up once it is all over? And if you could quantify that for us, that would be great.

We do have some additional impact outside of the fire service, not as meaningful, but some from a detection perspective where we see some delays occurring. I wouldn't say it's something that we're overly concerned, assuming this thing gets settled at sometime in the next few weeks. It's not -- for us, we're managing it. We would expect that then to come through after the fact. But again, from a quantification, it's just a much smaller scale, certainly impactful to the business in the U.S. to some degree, but not significant other than the fire service. So in most of the demand we have, I think we're okay when we come -- when we think about the defense side or government spending.

And just to clarify, we are forecasting that we will have growth -- sales growth in the fourth quarter, and we're forecasting that we will have a slight margin uptick in the fourth quarter as well as sales are up for the whole fiscal year, just to clarify that.

And then I was wondering if you guys could update us on the MSA+ subscriptions. Has that ramped up through 2025?

Another strong quarter for MSA+. It continues to be performing very well in the market. We had a few signature wins, which we didn't ship a couple of them in the third quarter, but they came in. Very pleased with that. As we noted, I noted in the prepared remarks, over half of the growth in portable instruments are from MSA+. So it's performing right where we hoped it would. It continues to do really well. I think what's really for us, exciting and really cool is the fact that we have this full portfolio, we have this diversity of capability for the customer. It actually has allowed us and enabled the customer to choose these different options, which then has allowed us to grow share in detection, in the portable gas detection space, not just with the MSA+ connected solution, but with our continued best-in-market traditional solution.

So I think that total suite of solutions, the customer gets to see it all from us, and we want them to pick the best solution for their needs, and it's really played out well in both cases.

Got it. Nice. And then, yes, I wanted to click back on the fire service business. So the Americas portion was -- the organic growth was negative, but the international fire was also negative and the international business did not have a similar NFPA and shutdown issues. Can you provide more commentary on what's happening there? And could it stay negative in the fourth quarter after last year's, I think, double-digit gain?

So when you think of the international fire service, there's a couple of dynamics that we're playing out -- or we're seeing play out. One is in Asia Pacific, we have seen some delays in order timing especially in Mainland China, they're doing some activities -- have delayed some activity. We expect that to come in probably later in this quarter as well as into 2026. So order pace should improve there, and we expect those orders to start flowing in. And then in Europe, there has been some funding shift from fire to defense for some European countries. Again, really, we see some of that on the larger tenders. So you might see 10-ish percent, 15% fewer units.

The interesting thing is it's because they're trying to add investment and funding for defense. So what that means for us is inside the industrial business, if you think of the protective ballistic helmet business, in Europe, that has been very strong, and we're seeing the benefits of that. And a little bit of softness on the international for fire service that the team is going to work through. And that's really the -- I'd say you put those 2 together, that's what you saw in international in Q3. I think Q4, you'll see a little bit, I think, some uptick in international as some of those orders come in we just talked about. And then '26, we're pretty optimistic with.

That's great. And then one last one. So one area of the 3Q results that were a little surprising was that you did not have many restructuring costs, which were close to 0 after being like $1 million or $2 million a quarter on average for quite some time. Do you have any major restructuring plans for the next few quarters that we should include in our model going forward?

No, thanks for your question. No, we don't have any major restructurings to include in the model.

The next question is from Jeff Van Sinderen with B. Riley.

This is Richard Magnusen in for Jeff Van Sinderen. My question goes back regarding the ALTAIR, the detection io 6 that you introduced recently. So the io 6 and io 4 detectors, they address different needs. Are there any other detector applications situations that you're working on where you can give us more detail where you see this MSA+ family going? And maybe can you elaborate on expanding software applications and even how to accelerate subscription revenue growth?

So thanks for the question. So if I think of io 6, certainly, it will provide nice long-term coverage. It's really a great solution for confined space and the sampling, applications our customers have. Your comment about innovation, absolutely, we continue to innovate in this space. And I think the team is doing a nice job really looking at how we continue to expand capabilities. Nothing to speak of today that we would share publicly on what the next one or when that might be. But the connected solutions we have in portables, we feel really good about, and we think the io 6 will build upon that. When you think of it outside of that space, we have other solutions that allow us to have this expansion in the recurring revenue model. And I think the team is doing a nice job really trying to match the customer with where they're at and their buying behaviors.

So that's a focus the team has. And as we talked with our ACCELERATE Strategy, it's a focus that we continue to lean in on. And I think what I like and what we've talked about is we mentioned this during the Investor Day when we launched the ACCELERATE Strategy, but we said, hey, the key categories here where we know we can compete and win very effectively and have the right to really compete is detection, fall protection and certainly, we're going to get through the hump on fire service. That's the communication we had.

And you look at the performance the team has delivered, and it's matched that up exactly, right? We've continued to grow the detection business. We're doing that through share growth and addressing some growth in TAM and then fall protection has been a nice tailwind as well, and we expect that both of those to continue.

The next question is from Brian Brophy with Stifel.

Curious the latest you're seeing on some of your short-cycle businesses, hard hats, anything else to comment on? Curious what you're seeing from that perspective.

Yes. Thanks for the question, Brian. PPE was strong for the quarter, specifically because of the fall protection I just mentioned, but we're also seeing some growth in the protective ballistic helmets we talked about. The markets are still mixed. Head protection in some areas, pretty solid. Other areas, it's just kind of choppy. It's really been a similar story throughout the year, Brian. We haven't seen that change a heck of a lot yet. It's not down significantly. It's not up significantly. It's just from quarter-to-quarter, we're just seeing it kind of continue on as the employment has been fairly stable overall. And it's market specific. So if you think of the markets we participate in, some markets such as manufacturing, nonresidential construction, a little softer and have been.

Energy is okay. It depends on which piece of energy. If you look at downstream, midstream, pretty solid, and we compete pretty well. And then the upstream side, softer, and we don't expect that to change too much. I think the nice thing as we look forward, there's some sentiment that seems to be improving in this regard, and the channel seems to be sharing that as well. So we'll see how that plays out. But it's a continuation of what we've seen really throughout 2025.

Understood. That's helpful. And then maybe just a little bit more color on how the M&C integration is going and maybe some of your latest thoughts on potentially moving some of that product through your U.S. distribution and when we might start to see some benefits there from some cross-sell activity?

Yes. So the M&C business, we're really pleased with. They've done a nice job. I think the whole team, it's been a great fit and really pleased with how our team and their team have embraced each other to work together. They're laser-focused on integrating this and looking at opportunities for growth. And we had a nice cross-functional discussion with the team here in the U.S. in the third quarter, and they've identified some really nice growth areas.

The third quarter was pretty nice here. U.S., we've unlocked some nice opportunities that the team thinks long term, we can do really well with. I think that's going to be a great business that we'll see continued tailwinds going into the long-term future. Europe, also strong, typically Germany. But as far as growth, I think the Americas is really going to shine there.

Okay. That's helpful. And then I guess last one for me. Leverage down about 1x, obviously below your long-term target. You talked about some buybacks in the fourth quarter. But just curious how you're -- what you're seeing from an M&A pipeline perspective? Has there been any notable change there? And just kind of curious how active you guys have been there generally.

Yes. I think we're very -- we remain very active. I would say the pipeline is solid. We were pleased to action M&C in May, and our intent is to continue to look at deals, which we have and continue to evaluate those deals to make sure they're the right fit for MSA and for our strategy. And we've got a great pipeline to do that with. So you talked about the leverage. We gave you kind of as part of the ACCELERATE Strategy, where we think the sweet spot is. So it should give you some idea of what we think we can continue to do, and we expect to continue to move forward with that.

Again, timing is -- you got to have the right fit where the seller has the right idea of price that the buyer has and sometimes those don't fit. But if they do, we certainly want to continue to action those. And the pipeline says we can do that.

The next question is a follow-up from Ross Sparenblek with William Blair.

Just back to the price dynamic, can you maybe give us a sense of where the year-to-date price sits across the 3 segments? I mean, has it been broad-based? Or is it more selective?

Yes. We'll hit this 2 ways. I'll talk about kind of strategically where we're at and then maybe Julie can give some color on the specifics in the pricing side. We really look at the price side. I think, Ross, we did one targeted price increase in the first half of the year in the U.S. and the Americas. We did another one in Asia in the summer and a little bit more broad-based in October based on the sustained visibility to the tariff regime and some of the inflationary environment that Julie talked about. So that's really where we're at. So some of those, you've got to get some flow-through certainly from those tariffs and what's in the inventory and how that processes through and the order book that we have.

And then next year, we would expect to get back on the normal cycle where we'd have our January 1 price increase, and we'll manage that. The team also continues to work on efficiencies. I think the nice thing is you saw some of those come through. We did quarter-to-quarter. And sequentially, even with the heavier pressure we had on cost, the team managed that pretty well. And I think we've got a laser focus on how we do that going forward. But maybe, Julie, you can quantify that more.

Yes. I think when you think about our organic growth in the third quarter, it was primarily price. So we're seeing that price hit. We had margin improvement sequentially from Q2 to Q3, and we would expect to have a slight sequential improvement from Q3 to Q4 as well in margins. So -- and part of that will be pricing activities, of course. And so I hope that helps.

That's very helpful. And then just quickly on the fire side, I mean, 1% in the fourth quarter from the U.S. shutdowns the AFG and NFPA slippage into '26 potentially. I mean, can you just give us a sense of what that pipeline looks like relative to the backlog? I mean are we talking a couple of points of growth? Or is it several points of growth going into 2026 when everything straightens out?

Well, it's difficult to say whether it's going to be -- whether some of this stuff will come through in Q4 or Q1 or Q2 of next year into 2026. But we believe that demand is strong and believe in the business going forward. But it's difficult to tell. That's why we gave a range that it may -- the fourth quarter would be impacted, and we would expect that to come back in 2026.

Ross, if you think about it, that point that Julie referenced, you certainly would -- we see enough pressure there that we think that's a fourth quarter challenge that will push into Q1, Q2, Q3. Now again, you can't -- it all is predicated on when the fire departments, especially with this NFPA standards change, they might -- that might change their thought process of when they want to buy. But it will be sometime in 2026 for that specific point. It's just a matter you can't really lock it down one quarter to the next.

Well, I think -- I mean, instead of just looking at the organic decline this year and taking out some of the large orders for the comps, there's probably some other pent-up demand that's in that pipeline that's just kind of hard to visualize right now. Do you think that's fair?

Yes. I think the Air Force comp was tough. I think I would look at the demand if I looked at it the way you could think about this is '26 demand-wise is probably going to be similar to a normal year '24, '25 demand, excluding [indiscernible] AFG grant thing. That's how I kind of look at it. You get past '26, you probably are going to start to see a bit different quantified demand curve start to tick up, I would anticipate in the latter half of the decade. But '26 is going to be probably pretty solid and consistent with what we would expect in the '24, '25 demand outside of, as you noted, those extremely large orders.

Yes. That's extremely helpful. And then just one last one on the detection side. Could you help us quantify the split of growth between the fixed and portable?

Fixed was double digit. Portable was single digit. And again, portable, great strength as we've talked just before the question before is really good growth in the connected space. The fixed business has been really solid. I think what we look at and what we try to come back to on the fixed business, it's another example of the diversity we have. We really like when we get some nice capital investment in some big projects. But even when you don't on that fixed business, you've got this continuation and that's what we're seeing. You see this day-to-day business continue on because we have such a strong, large installed base.

So when a customer expands their site and they don't necessarily have a large project spend, we're still seeing the benefit of that. And the fixed is playing out that way. It's a great diverse business that continues to perform very well.

Okay. I mean almost in the sense that fixed has kind of stepped up and structurally higher now. Is that fair or is it just kind of a lumpy project activity?

I think fixed is -- if you think -- it's certainly the project business is going to be a bit lumpy. And I'll tell you, right now, project business, capital investment-wise, the world is an interesting place. The Middle East is still pretty heavy on some project business, but it's super competitive. In the U.S., the U.S. should be -- we see a lot of things coming into the future on this that I think is going to be good. The rest of the world is a little more challenged.

But when you look at the fixed business, it's similar to what we said during the strategy cycle. I think the business is going to be solid. It's going to continue to grow, and we diversified it. You've got the SMC acquisition. You've got the Bacharach acquisition, along with our solutions that are good for mainstream energy as well as clean energy. So I think it's really good. Now add to that, M&C. So it should be a good space.

This concludes our question-and-answer session. I would like to turn the conference back over to Larry De Maria for any closing remarks.

Okay. Thank you. We appreciate you joining the call this morning and for your continued interest in MSA Safety. If you missed a portion of today's call, an audio replay will be made available later today on our Investor Relations website and will be available for the next 90 days. We look forward to updating you on our continued progress again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the MSA Safety Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Larry De Maria. Please go ahead.

Thank you. Good morning, and welcome to MSA Safety's Second Quarter 2025 Earnings Conference Call. This is Larry De Maria, Executive Director of Investor Relations. I'm joined by Steve Blanco, President and CEO; Elyse Brody, Interim CFO; and Stephanie Sciullo, President of our Americas segment.

During today's call, we will discuss MSA's second quarter financial results and provide an update on our full year 2025 outlook.

Before we begin, I'd like to remind everyone that the matters discussed during this call may include 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 a number of risks, uncertainties and other factors that may cause our actual results to differ materially from those discussed today. These risks, uncertainties and other factors are detailed in our SEC filings. MSA Safety undertakes no duty to publicly update any forward-looking statements made on this call, except as required by law.

We've included certain non-GAAP financial measures as part of our discussion this morning. The non-GAAP reconciliations are available in the appendix of today's presentation. The presentation and press release are available at our Investor Relations website at investors.msasafety.com.

Moving on to today's agenda. Steve will provide an update on the business. Elyse will then review our second quarter financial performance and 2025 outlook. Steve will then provide closing remarks and open the call for your questions.

With that, I'll turn the call over to Steve Blanco. Steve?

Thanks, Larry, and good morning, everyone. Thank you for your continued interest in MSA Safety. I'm on Slide 4. In the second quarter, consolidated reported sales growth was 3% or flat organic and adjusted earnings per share were $1.93.

Our team continued to execute well in a dynamic environment. Financial results for the second quarter exceeded our original expectations. This was primarily due to the better-than-expected backlog conversion in Fire Service and Detection. The M&C TechGroup acquisition contributed $11 million to reported sales for the quarter. Operating margins declined compared to last year due to gross margin pressures, primarily from transactional foreign currency headwinds and inflation. We also saw the impacts of lower organic volume as well as the early impacts of tariffs on input costs. These pressures were partially offset by pricing and improved productivity.

Overall demand was stable and varied across our product categories. A decline in Fire Service was offset by growth in Detection and Industrial PPE. Sequentially, the backlog declined more than expected in the second quarter, though it remains within normalized levels. Consistent with seasonal patterns, our book-to-bill was slightly below 1. Moving to our product categories. Detection's mid-single-digit organic growth was driven by expansion in both fixed and portable gas detection despite a challenging year-over-year comparison.

Detection grew 6% organically on top of high single-digit growth in 2024. Organic sales in Fire Service declined mid-single digits year-over-year. We were pleased to ship several large orders from our backlog and get product into the hands of our customers, notably the Orange County Fire Department order. Domestically, market dynamics surrounding the NFPA standard change began to impact order pace towards the end of the quarter. As we've discussed in the past, NFPA standard years often carry short-term volatility as customers evaluate when to renew their fleets. The pipeline of business opportunities remain intact. It's a matter of customer timing.

As a reminder, we continue to expect the NFPA standard to promulgate sometime later this year or early next. We've managed through approval cycles before and successfully navigated similar market dynamics. I'm confident we will continue to be well prepared to serve our customers in the Fire Service. Industrial PPE organic sales were down low single digits as contractions in head protection and ballistic helmets offset strength in fall protection. We've invested in fall protection as part of our Accelerate strategy to capitalize on the strong market growth, and it's encouraging to see double-digit growth in this area in the second quarter, which remains one of the fastest-growing areas of the safety market.

Turning to Slide 5. As we move through the year, we continue to utilize the principles of the MSA Business System and lean into our ACCELERATE strategy actions to drive long-term value creation. Let me highlight a few strategic actions and commercial successes in the quarter before I delve deeper into our capital allocation progress and strategy on the next slide. First, we continue to expand our leadership in industrial safety technology while making a positive impact. I'm proud to share that we recently published our annual impact report for 2024. You can see some report highlights in the appendix on Slide 15.

I want to draw your attention to the call out of 40 million workers protected, which we reaffirmed with this report. This demonstrates our scale and commitment to our mission. Second, on the operational side, we implemented targeted price increases in the second quarter and continued to build our pipeline of tariff mitigation and productivity actions. We plan to take further actions in the second half based on the tariff developments. Third, strong commercial and operating performance enabled us to fulfill some customer needs ahead of schedule, leading to similar levels of backlog conversion as last year. I'm also pleased to see our strategies in Detection and fall protection yielding results.

Turning to Slide 6. Now that we are more than a year removed from our 2024 Investor Day, I'd like to update you on our recent actions regarding capital deployment and the investments we're making for our future. As you know, we have a disciplined growth-oriented approach to capital allocation that focuses on organic growth, M&A and cash returns to shareholders through dividends and share repurchases. Fundamentally, we continue investing in our business and people to achieve profitable organic growth.

Our R&D investments support new product development and contribute to our mid-30s product vitality index. This proven R&D engine focuses on delivering market-leading innovation to our customers in the industrial safety technology markets we serve. Here are 2 examples of this engine yielding results. First, we've seen exponential growth in our connected portables business. And for the past couple of quarters, over half of our absolute growth in portables has come from our MSA+ solutions, driven by the ALTAIR io 4. Second, we've been very intentional with our lean into fall protection.

Our recent launches of the V-TEC and V-Shock platforms are performing well in the market and have been major catalyst for our double-digit growth in the area. During the second quarter, we also strategically invested in our future at Cranberry Township, Pennsylvania, which is home to our Detection manufacturing center of excellence and our largest R&D center. This footprint investment supports our Accelerate strategy by enabling us to scale our R&D efforts effectively and provide flexibility on additional manufacturing expansion over time. It also aligns with our plan to foster a more collaborative in-person workforce and keeps us well positioned to attract and retain top talent.

On the inorganic front, I'm excited to welcome M&C TechGroup to the MSA family. M&C is a German-based manufacturer of gas analysis solutions and technologies that enhance our fixed gas offerings. Their technology complements our fixed gas detection business and expands our TAM by $500 million. The team is doing a great job engaging for our collective success, and we're on track with our integration plans. Slide 14 in the appendix provides more details on the transaction. We maintain an active pipeline of potential strategic targets focused on high-growth and differentiated product categories. We continue to build out our capabilities to enable a more consistent M&A flywheel.

Finally, we also returned cash to shareholders. For the 55th consecutive year, we increased our annual dividend. We also repurchased $30 million of stock this quarter and $40 million year-to-date. Increased share repurchases were enabled by our strong balance sheet, expected cash flow generation and having our net leverage remain below our target range following the acquisition of M&C. I'll reiterate what I said at last year's Investor Day. You can count on us to be responsible stewards of capital, focused on allocating effectively to create value for our stakeholders, all focused on advancing our mission of safety.

I'd like to now turn the call over to Elyse to discuss our financial performance in the second quarter. Elyse?

Thank you, Steve, and good morning, everyone. We appreciate you joining the call. Let's start on Slide 7 with the quarterly financial highlights. Second quarter sales were $474 million, an increase of 3% on a reported basis or flat organic over the prior year. Revenue was supported by stronger backlog conversion.

M&C added 2% to overall growth and currency translation was less than a 1% tailwind based on the strengthening euro. As expected, gross margins continued to be pressured in the quarter at 46.6%, down 170 basis points from last year. Gross margins primarily reflect transactional FX and inflation headwinds and to a lesser degree, volume and the early impacts of tariffs, which were partially offset by price and improved productivity. We will start to see the tariff impact become more pronounced in the second half, coinciding with our mitigating pricing actions. We expect FX pressure on gross margins to continue in the second half due to Latin American currencies.

GAAP operating margin was 18.1% with adjusted operating margin of 21.4%, down 200 basis points from a year ago due to the contraction in gross margins. We are diligently focused on controlling the controllables through SG&A productivity, pricing and tariff mitigation plans to counter the pressure on raw material costs. While operating margins were pressured compared to 2024, the longer-term trend is indicative of the operational and commercial capabilities that we've built through the MSA business system deployment and customer-led innovation.

Compared to 2019, first half operating margins are up 300 basis points. Quarterly GAAP net income totaled $63 million or $1.59 per diluted share. On an adjusted basis, diluted earnings per share were $1.93, down 4% from last year and includes $0.03 of accretion from M&C. Now I'd like to review our segment performance. In our Americas segment, sales increased 2% year-over-year on a reported and organic basis as double-digit growth in Detection was offset by a mid-single-digit contraction in fire service and a low single-digit contraction in Industrial PPE.

Currency translation was a 1% headwind in the quarter. Adjusted operating margin was 29.1%, down 220 basis points year-over-year. Margin contraction was mainly due to inflation, transactional FX headwinds in Latin America and tariffs, partially offset by price and improved productivity. In our International segment, sales increased 4% year-over-year on a reported basis with the contribution of M&C and tailwind from FX and decreased 4% on an organic basis on a mid-single-digit decline in Fire Service and low single-digit declines in Detection and Industrial PPE.

Adjusted operating margin was 13.1%, 330 basis points below last year due to lower organic volume and inflation, partially offset by price and improved productivity. Now turning to Slide 8. Free cash flow was $38 million or 60% of earnings. Quarterly operating cash flow increased more than 25% from a year ago, which provided support to fund the footprint investment that Steve highlighted. As far as CapEx, we'd expect the second half to return to a more normalized range following the strategic investment that we made in the second quarter. Year-to-date, free cash flow is $89 million, up $10 million from last year.

As Steve highlighted earlier, we took additional steps to deploy capital in the second quarter, in line with our ACCELERATE strategy. These growth investments demonstrate our confidence in the future as well as our dedication to a disciplined M&A approach and returning cash to shareholders. Specifically, we paid $188 million net of cash acquired for M&C, invested $29 million in CapEx and returned more than $50 million to shareholders through stock repurchases and dividends. Net debt at the end of the quarter was $532 million compared to $331 million in the first quarter. The increase is primarily due to the acquisition.

We were able to utilize cash on hand and a mix of euro and USD-denominated borrowings from our newly upsized revolver to fund the transaction. We ended the quarter with net leverage of 1.1x. Our balance sheet continues to position us well to invest in our business, and we maintain an active M&A pipeline. Let's turn to our 2025 outlook on Slide 9. We maintain our low single-digit full year organic growth outlook and have had a solid start in 2025 with first half organic sales up 2%. While the business remains healthy, there are some dynamics to watch. We're encouraged by the continued robust performance in detection and momentum in fall protection.

In contrast, Fire Service execution in the second half will be predicated on the timing of the NFPA approval and AFG funding release. Additionally, industrial head protection demand has generally been soft due to weaker market conditions. In addition to our low single-digit organic growth outlook, we'd expect M&C to add approximately 2 points to full year revenue growth and be approximately $0.10 accretive to adjusted EPS. We retain our confidence in the resilience of our business and ability to navigate macro uncertainty.

For modeling purposes, our revenue expectations for the full year are unchanged outside of the M&C contribution and more favorable FX translation impact of 0% to 1% tailwind. Though we realized a bit more sales in the first half based on first quarter order acceleration and second quarter backlog execution. We expect interest expense to be approximately $29 million to $32 million, which includes the acquisition.

With that, I'll now turn the call back to Steve.

Thanks, Elyse. I'm on Slide 10. To close, I'm proud of our team's execution and thank all of our associates for their continued commitment to serving our mission and advancing our ACCELERATE strategy in the second quarter. With that, I'll turn the call back to the operator for Q&A.

[Operator Instructions]

Our first question is from Ross Sparenblek with William Blair.

This is Sam Karlov on for Ross.

I want to start with Detection. Can you break out and quantify the growth between fixed gas, nonconnected portables and connected portables in the quarter? And then maybe provide some color on the adoption of the MSA+ software platform between new and existing customers?

Sure. I'd be glad to. Thanks for the question. So if you look at Detection overall, it was another strong quarter for us. We talked about a little bit in the first quarter. We expected this to continue in throughout the year, and it really leans into our ACCELERATE strategy. And Q2 really was led by fixed and the MSA+ connected portables activity. So the fixed strength just continues in most regions.

I would say the energy has been strong from a fixed side. Our diversity in the portfolio is really good. You think of the traditional fix we've had. And the renewables, the clean energy continues to play well in fixed. And then our Bacharach business with the HVAC-R. So that diversity has helped that fixed business continue to perform really well. And now we've added to it, as you know, with M&C.

So we're really excited and optimistic about fix continuing to play well going forward. The MSA+ connected story, gosh, we really appreciate what the customers have come back with on this and how they've embraced this technology. We had great growth here, another strong quarter. And when we parse out total portables to your question, most of the growth in the second quarter absolute growth in a dollar -- absolute dollar category was on MSA+ . So it really played well and the customer base continues to lean in on this. So we expect that to continue in the second half, certainly. Portables, the traditional portables was up, but very mildly. So most of the growth we saw in that portable space was MSA+ to your question.

Got it. That's super helpful. And then keeping on the topic of portable gas detection, is there anything you can share on the timing of the launch of io 6? And any color on what this could mean for the portable gas detection business?

Well, we've got a number of R&D activities ongoing and some upcoming launches. And certainly, the MSA+, the connected work is one that we hope to talk to in the not-too-distant future. I would add that even as we've had this io 4, we've had a number of iterations even inside that technology. So while you don't hear of a different io 4 recently, that technology has refined itself over the last 12 months significantly. So it's a different product today than it was 12 months ago. But going forward, I would say you'll see some announcements probably in the next few months.

Next question is from Saree Boroditsky with Jefferies.

This is James on for Saree. I wanted to start with the pricing actions that you guys talked about. So how have like customers responded to those increases? And what was the magnitude of the pricing actions? And like could you kind of elaborate on how the price/cost dynamic kind of played out and your expectation for second half?

Yes. I'll talk about the customer a little bit, and then I'll ask Elyse to talk about the numbers and quantify this a bit, James. But one of the things we said -- and I said this in the first quarter is when we think about this, we're really trying to look at how we minimize the impact for our customers and for MSA. So this is a combination of efficiencies as well as price. So we did take action, though, in -- earlier in the year in the first half for some targeted price increases, which we can parse out here in a bit.

But we're also going to take further action in the second half. We've got a little more clarity on the tariffs. They are impacting certainly the cost inputs we have. And so we need to go back and get more pricing in place to ensure that we're well prepared for the future. And as I said before, I would just add, all of this will probably shake out where we will be in a good position sometime in early '26 from a cost price balance for tariffs, but it's got to shake out through the rest of the year. The customer, how they've accepted it, remember, we had a -- few years ago, we had a lot of inflation. So the customers absorb that, and then this certainly is playing into that. My concern isn't that the customer accepts it or not. It's really what it does to demand over the longer period of time. And right now, our expectations are we're going to raise price effectively to manage the cost inputs as we would expect our competitors to do the same.

But maybe, Elyse, you can parse out the numbers.

Thanks, Steve. James, gross margins came in right about where we expected in the second quarter. Price added a couple of points to revenue growth in the second quarter. So we saw the impacts of inflation and transactional FX headwinds continue from the first quarter, and we were able to partially offset with price and improved productivity. We also saw some early impacts from tariffs and the impact of lower organic volume. So as we move into the second half, we'd expect that tariff impact to ramp up as it works through the backlog, and that's why we took the mitigating pricing actions that we did in the second quarter. We've talked before about a gross margin range for our business currently in the 47% to 48% range, and we are still on track for that this year. And as Steve mentioned, we're looking at additional actions, both on the pricing and productivity front for the second half that we think will put us in a good position early 2026.

Got it. Great. And I guess now I kind of want to touch on the Fire Services. So I just want to get a better understanding like what percentage of your like current pipeline consists of customers like committed to purchasing like before the new standard versus like those kind of waiting? Because I think you guys mentioned that G1 SCBA XR addition kind of let customer buy before the standard. So I just want to understand that dynamic better.

Yes. Thanks for the question again. We don't disclose actual percentages of what the customers say for a couple of reasons, but one of the most critical is competitive reasons and how competitors respond to that in the market. I would say that we do have line of sight to what the customers have told us. Now they have the prerogative to change their mind and select one or the other. But that's the reason we went and did the redesign on the XR prior to the new standard coming out and make sure we're prepared for that. So we have that available today. And we do expect many fire departments to take advantage of it. And we also -- for those that do wait, we have the next-gen XR ready once it's approved.

So I think in both cases, we're well prepared based on what the dynamics play out for the fire departments and how they want to look at this. I would say either way, we feel like we're well positioned here in the fire service. Those that have followed us for a while, you know that quarter-to-quarter, it can be a little lumpy, and that's something that just comes with this market. But pipeline is solid. We expect our strategy to continue to pay off. And by the way, the Orange County order, I think, is a great example of that as that was a follow-on to some really nice orders we had with L.A. County and L.A. City.

So the strategy that we have in place, we feel good about. I think you'll see some little variability perhaps in the second half, depending on what some of the timing categories are with NFPA and AFG, but pipeline is good. So once that funding is available, once the standard clarity is there, we should be in great shape.

The next question is from Shubham Srivastava with R.W. Baird.

Just curious as to how you're thinking about timing and disbursement of AFG funding. You mentioned it before Fire Service. Just looking -- it doesn't look like those awards have started rolling out yet. So just kind of wondering any ideas to how the funding environment has changed?

Yes. Thanks for the question. The funding is approved. So that's the important first point I would add to the color here. We expect the AFG funding releases to begin here in August. They haven't yet, but the expectation we have is that they'll come through sometime in August. They have to have those done by the end of September. So typically, the sooner they can get started on that, get some of those tranches out to the customer base, I think that helps. But the funding is approved, fire departments are just waiting for its release.

Got it. Got it. And then one more. Just how do you guys feel about fourth quarter seasonality? Is it being influenced by lack of SCBA shipments or detection backlog conversion?

Typically, our fourth quarter is a strong quarter for us. I don't think that's going to be any different in 2025. So we would expect that to be the case. It typically is a strong quarter in the Fire Service. It's typically strong in detection. And I would say that you could expect that for 2025 as well.

[Operator Instructions]

The next question is from Brian Brophy with Stifel.

I think in the opening comments, you mentioned book-to-bill was slightly below 1 in the quarter. Can you touch on some of the areas where you're seeing relative strength versus some softness in the order book?

Yes. Thanks for the question, Brian. I would look at from an order pace, Industrial and our Detection business orders were up in the quarter. Fire Service was down, and that really matched our expectations. So -- and it kind of matches the market. You heard in our prepared remarks some commentary around some of the different product categories. Industrial markets right now are challenged. There are some that are bright spots. Utilities is a good example. I think some of the early in North American infrastructure investment is good.

And there's others like manufacturing and to some degree, non-resi construction that are softer. So it's choppy, but we see our diversity in the portfolio really playing out here and helping us do really well. So that -- the product categories, markets and geographies help us perform throughout the cycle, and that's playing out in 2025 for sure. I would also say that we talked about the ACCELERATE strategy, the 2 key categories that we expected to grow more significantly this year, especially with the comps in fire service are detection and fall protection, and that's playing out exactly as we had planned and hoped. So a big part of that is share change as well. So we're gaining some nice share in detection. We're gaining nice share in fall protection. And I think that helps us out in this dynamic we're playing in right now.

Yes, that's helpful. I guess just following up on that. You just mentioned relative strength in fall protection. You mentioned that in some of your comments as well. Just any more color on what's driving this? Is this some of the new product introductions and how you're thinking about growth there in the back half?

Yes, it is. I think when we think fall protection, we went through a period where we had some nice growth specific to North America with some strategy we had a few years ago. We stumbled, frankly, coming out of COVID with some supply chain issues. And then we've done a lot of innovation in this space, which I referenced in the prepared remarks.

Now we've got a really nice inventory position with our channel, with the customers. We're leaning into markets that the customers really have a high level of interest for our solutions. And this is a segment we think we can really compete in very effectively. We're resourcing it appropriately. And it is a combination of what we've done commercially as well as the innovation we put in place. And we do expect this to continue in the second half and beyond.

The next question is from Jeff Van Sinderen with B. Riley Securities.

Just wanted to circle back to Fire for a minute, if we could. What are the overall elements of timing that you're watching around the new standard? Just wondering, are there milestones that you say, gee, okay, this has happened now. We think it's going to be 3 months from now that it really ramps? Or just wondering about that, how you think about that?

Well, it's a -- thanks for the question. The NFPA standard change, it's a government approval process. So we -- there's a couple of key milestones we look at. First of all, when is testing completed, right? And once testing is completed, that certainly is a milestone that we can validate, okay, they've got the next key stage that you will walk through the process. But -- to be fair, we know when our testing is completed. We don't necessarily get complete visibility on some of the other categories for competitive situations or any of the discussions they may have. There are some discussions that they would be -- that would be privy to them and NFPA.

But by and large, when you see the testing completed and you recognize that you've got what you need, this body, the NFPA will go through a process where they'll need to validate the approvals, then they'll have to get all the documentation done. And that takes some time with the government. So that's why we don't have specific line of sight. But based on historical context, it tells us that we would expect that approval. It could be any time between now and the early 2026, which we kind of talked about, I think I did a call in May as well. And we continue to believe that. I don't have much better clarity than that. We tried to put a finer point before, and we've missed it because it is the NFPA and they've got processes they have to work through, quite frankly.

Okay. And just as a follow-up to that, there's nothing that makes you think that with [ Doge ] or anything else that it would be different this time versus other times as far as the timing?

Not now. I think they've been put back to work and they're fully engaged.

Okay. Good to know. And then possible maybe to touch a little bit more, delve a little bit more into the margin benefit from MSA+ since that seems to be working really well for you.

Sure. Thanks for the question, Jeff. We did see a positive impact from mix in the quarter from MSA+ and the other detection growth. It wasn't overly meaningful, but it certainly does help a bit.

Okay. And then anything else -- I know this is -- these are tough questions, but anything else to add on kind of the quarterly progression we should expect for gross margin given kind of tariffs and some of the pricing actions you're taking? And then anything around SG&A for second half? I guess what I'm trying to get at is, is it feasible here based on everything you're seeing for EBITDA to inflect year-over-year in Q3?

Sure, Jeff. So thinking about the quarterly gross margin first, we do expect the tariff impact to be more pronounced in the second half, and that's why we took the pricing actions that we did in the second quarter. So we'll see those both start to come through in the second half. You may see stronger performance as the volume continues to grow. We typically see that when volume is higher, the margin is better leveraged. On SG&A, we don't expect anything out of the ordinary. What you saw in the second quarter on an organic basis is probably a good run rate to think about for the second half.

And then, of course, you'll have M&C come in on top of that. And then you expect something like $5 million to $6 million per quarter. So $107 million to $109 million per quarter is probably a good range to think about.

$5 million to $6 million for M&C. And then is there -- I don't know if you've talked about this enough, but what is sort of the organic growth rate of M&C?

M&C is a mid-single-digit type of grower.

The next question is from Mike Shlisky with D.A. Davidson.

I hopped on a little bit late. So if I'm asking anything that said, feel free to have me go to the transcript. I guess, first off, M&C TechGroup, I see it's going to be accretive to EPS. I just wanted to see -- make sure the business as it stands today, is it also accretive to margins?

Sure, Mike. Thanks for the question. The margins of M&C are relatively similar to overall MSA. So it didn't have an impact on margins in the second quarter, and that's what we'd expect for the remainder of the year, really relatively neutral on margins, but we do expect about $0.10 of accretion for the year in EPS.

Great. And then just following up there, and again, I apologize if you already said this, but the geographic mix from M&C, do you have that handy? Like are they mostly Europe? And is there any opportunity to globalize their sales mix and get some synergies that way over the next couple of years?

It is Europe. I mean they're a German-based company with about 1/3 of their sales there. And our -- what we anticipate is over time, we're going to leverage our scale and the channels we have, and the team is very excited by doing that. We think this is a great business in providing premium solutions. So we absolutely expect this to scale over time in some of our other key markets.

This concludes our question-and-answer session. I would like to turn the conference back over to Larry De Maria for any closing remarks.

Thank you. We appreciate you joining the call this morning and for your continued interest in MSA Safety. If you missed a portion of today's call, an audio replay will be made available later today on our Investor Relations website and will be available for the next 90 days. We look forward to updating you on our continued progress again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.