Episode Transcript
[00:00:03] Speaker A: Welcome to INa Insights, where prominent leaders and influencers shaping the industrial and industrial technology sector discuss topics that are critical for executives, boards and investors. InA Insights is brought to you by Ina AI, a firm focused on working with industrial companies to make them unrivaled. Segment of one leaders to learn more about Ina Aihdev, please visit our website at www. Dot ina dot AI.
[00:00:40] Speaker B: Good morning everybody, and welcome to another exciting episode of the Titanium economy podcast series hosted by Ina today. We are honored to have with us Mister Lee McChesney, senior vice president and chief financial officer at MSA Safety. For those who don't know, MSc Safety is 110 year old company that has been focused on the same mission of keeping workers across the globe safe and returning home to their families and communities each and every day.
Lee joined MSCI Safety in October 2022, bringing with him a wealth of experience from a distinguished career in finance and corporate leadership nearly spanning three decades. Before joining MSA safety, Lee spent nearly two decades at Stanley, Black and Decker, which included several leadership roles in finance and general management, including serving as the president of SPD's hand tools, accessories and storage business.
Lee's career began at United Technologies as an associate in their highly regarded financial management development program.
His focus on the success of the business, along with his financial and strategic acumen, has driven significant value creation and sustained operational improvement throughout his career. Lee, we are delighted to have you with us today. Welcome.
[00:01:51] Speaker C: Thank you. Happy to join you, Lee.
[00:01:53] Speaker B: So, Lee, maybe we get started by talking about MSA safety. Could you start by providing an overview of MSA safety, its focus areas, products and end markets to serve?
[00:02:02] Speaker C: Yeah, I will do so again. Thank you. So, MSA safety, unique company and someone im proud to be a part of here. So 110 years, there's Oak. So we'll start off with that. But go back to this origins, and I go back there because it's still what fuels us today. So 110 years ago, John Ryan Sr. And George Dyke were mine engineers, and they were bothered by the safety and some things that were going on in mine. So they got together with Thomas Edison and helped invent the first flameless light for mines. So basically an electric light that you could wear on your body and had a substantial reduction in really, you know, the risk of explosions, things like that in mind. So at the time, it really became a passion. And it's still what we follow today that, you know, if we can keep people safe so that they return home to their families and the communities, you know, we've done a good job. And that is that same vision is what we follow today. We didn't have to have an off site and figure out what our purpose was. We know what our purpose is. So fast forward to today, we are focused in three areas. We've decided to spend our time in these areas. We think they're great places to orient. They're definitely towards the more premium, more technology led side of safety. So really three businesses. The first, I'll say today, is just detection. It's about just over a third of the business today. This is what people could wear. It could be attached to a building, could be attached to a shift. It's looking, sniffing, going through the air, looking for, again, things that could be combustible or things that people shouldn't breathe. So we spent a lot of time in that business, a lot of innovation going on there. We also spent over a third of our business is in the fire services. So this is what a firefighter wears head, feet on their body, and what they use to breathe. So in a self contained breathing apparatus is a key product there, a product we have a leadership position in today. And then finally industrial PPE, and we have our iconic Vguard, which you see really all over the world. So we've been in that business for decades, but also we do fall protection systems as well. It's been a focus area for the last ten years to really build out that business. So it is three unique product areas which gives us a nice diversity of just really how we participate in the marketplace. A lot of positives to that. But there's also some nice commonality through as businesses we're able to leverage, particularly on the technology. On the connected side, if you step back one thing, we again bring it back to the mission. We keep 40 million people safe each and every year. It's a number we really rally the organization around. Again, if we keep focused on keeping people safe, we do that well, we'll get to protect even more. But we certainly have, we know we make a big impact each and every day, really. I credit our new CEO, Steve Blanco, the CEO's before them. We really focus these three areas. And today we are a stronger business than we've ever been.
[00:05:15] Speaker B: Actually, I think it's tough to come with a better example of something which could be a good business, but also mission focused in such a way that, yeah, as you said, you don't even need any offsites to get people. It's a worthy cause from the start. Thank you, Lee, for that introduction. Lee, one topic I wanted to dig a little deeper on. You mentioned about diversity and how that helps you. I think typical business, at least traditional business we look at in industrial technology end up suffering from cyclicality. Speak about how the diverse end markets focus. Kind of helps MSA with that.
[00:05:43] Speaker C: Yeah it's a good point. It's really one of our advantages. So as I said, we have these three businesses were in a strong market position really in all of them, either leading position number one or number two. Really almost all of our businesses, but it is quite diverse. So really you span the economy with maybe the exception of residential construction. We're really participating in all markets again, whether it's commercial construction, whether it's manufacturing, whether it's the creation of energy, the processes and waste, you really see our products as a result. We are clearly an industrial. We like to talk about being industrial, but we are a bit unique in that we do not have the cyclicality typically that can come with the industrial businesses.
We talked about mid single digit growth as a common goal for us. It's certainly what our track record has shown. But the positive also is we dont swing significantly down in a pressured economic cycle today. So that fire services business really no matter whats going on in the economy, its usually supported to a high degree the detection business. Yes, projects are important to us and certainly employment council things are important to us. But broadly a large proportion of that is its installed and it's doing its job again no matter what's going on with the economy. So over 60% of business is very resilient. And then over the last decade we've really mixed even more into that. So the industrial PPE business we love, it's bigger than it was ten years ago, but as opposed to being over 40% of our sales today, it's more in the twenties and things like that. And it is an advantage. And this enables when things have been challenging economically, to still invest in innovation. So I go back to Covid, I go back to the 2007 2008 era. We were still investing in innovation because we didn't have to manage such large dramatic swings and again to our advantage. And it keeps us again continuing focused on the mission.
[00:07:54] Speaker B: That makes a lot of sense. And Lee, I think that's clear to see in at least MSc's financial performance over the last several years, maybe spanning decades. One question I want to ask you, Lee was with obviously such a fantastic financial record, the pressure of performing in the future even better, always ramps up. I think during your recent investor day you talked about introducing the next phase of strategy to take MSA towards profitable growth or continue on the path of profitable growth. Could you elaborate a little bit on that as to what that next phase entails? What are the key pillars of that strategy?
[00:08:24] Speaker C: Yeah, absolutely. Maybe ill even spend a minute just on process as well, too. As I noted a couple of times here, we are focused on the premium side of safety. We've decided to focus in these three business areas. That was a decision we made over a decade ago with really a clear strategy. And what we try to do is continually see where we are in that journey. So we're just going through a process of a CEO transition that's happened. And leading up to that, we really did a deep dive of what do we say we were going to do five years ago and where are we? And it's unique. The last five years has not been normal. So someone could have said, well, jeeze, that strategy document you had in 2019, just ignore it and start over. We didn't. We looked back and actually by and large, we were very much on track, which was great to see which number one confirms. All right, we picked the right areas and again, we just talked about resiliency. Well, you couldn't think of a more point where that was helpful and things like that. So we dove into that. But we also found areas where maybe not everything was quite playing out as we expected. And we've made some adjustments there. And then we really also stepped back and looked at the macro and how's that going to play out. So we can go anywhere today. We can talk about AI, we can talk about mega trends and things like that going on in the industry. We tried to bring all those into the fold and the takeaway is, hey, again, we're on a good path. So we're going to continue to focus in really being a leader in premium safety solutions again following our mission. But we really see some nice innovations that we can bring to market and drive us forward here. They're going to be really accelerating. So continuing to deliver on this conversion from being a product company to a solutions company, software and really the evolution of providing connected solutions has become part of our journey. But we certainly think it's going to be even more so over time here. Thats all part of our driving or recurring revenue business, up to a higher percentage than this today through services and solutions. And then obviously behind all this, again is this broader connection into connected solutions. We spend a lot of time standing up our business system, we say were in the early innings there. So we think that will be a further catalyst to drive really the efficiency in driving out ill say waste, but also identifying more, the bigger things to focus on that drive even more value. And then one of the other pieces, Greg was m and a, has been an important part of our journey over the past decade. It's finding the right opportunities. We've been very disciplined, but we think it's going to be of equal importance or even more so. And the nice thing is, our balance sheet has never been stronger as we look forward here. So, as you said, the last ten years has been quite transformational.
We've maintained mid single digit growth despite all the crazy things going on in the world. We've almost doubled our operating margin. And we continue to have really a nice strong return on capital employed. And our message is we're ready for the next ten years and we know what we need to do. Again, when you have the mission we have, we're not going to get distracted, we're going to focus in those areas. And when we focus on keeping people safe, the business comes with it. And that's a little bit of the subtlety of really, I mean, the synergy.
[00:11:51] Speaker B: Is actually incredible there, the more we think about it. I think one thing I've noticed about MSA safety, lien in particular, is we do our analysis on our end. We find that companies who beat the indexes or not follow the normal lagging kind of performance, which industries are typically painted with. One of the key characteristics of these companies is they manage cash incredibly well at a completely different level. I think MSA qualified in the same boat as well as being a company, which is maniacal about how you do cash management. You spoke a little bit about introducing the business system and growing it crispy, shared a little bit more about what that entails and how you manage working capital to keep it at such a high level of performance.
[00:12:27] Speaker C: Yeah, it's really important. Well, I mean, I think, number one, go back in time and I think performance with return on capital employed, or ROIC, whatever version you want to use. There is a high correlation to companies that have, number one, have a high value, number one, respective to their industry and that they are focused on improving. And so why there? Well, it talks about control, it talks about driving sales momentum, talks about really a focus on bringing margin to life, and ultimately the balance sheet comes with it as well. And you're truly driving it, and not just for a year, but on a sustained basis. So it's always in part of our DNA.
It's interesting the business systems, like we talked about more recently, but his origins go back a decade for us, and it started with actually people like Steve. Steve was head of operations. We had good processes, but as always, you're never done. There's always more opportunity. He certainly brought it to that team there and we didn't actually actively talk about it externally, but it really built some nice momentum there and it's really now spread across the entire organization.
And actually one thing I thought was, boy, we should share this message more externally. The numbers are there, the team's been doing it, but we really haven't been sharing it. But I would say the nuance for us is, yes, we're looking for the best practices internally, we're looking for best practices externally, but making sure we do it with the MSA mission in mind. So one of the things I talk about oftentimes is, yes, we were very focused on inventory. For example, last year, like a lot of companies, a lot of people had gone through the COVID period. Let's just say there was a lot of disruption, a lot of challenges in the supply chain.
And generally people said, well, I'm going to increase my inventory because I just need to, because the supply chain's gotten longer and things like that. And we were one of them as well. But there was some best practices to bring to life internally and frankly, for some insights from the external world as well. And we brought those to life, but we definitely did an at pace. And one of our key criteria was we are not doing things at the expense of any fill rate. In the end, fill rates should go up from this effort, not accept something lower. And it actually led to us being even more focused on delivering sustainable improvements. You see a lot of companies sometimes say, I need to work on inventory magically next quarter there's a big change. You didn't see it. A gradual improvement in like, it's a fight to do Siob correctly. You know, the world's challenging things like that, but bring that information in, rally the organization around it and then make smart decisions that are, you know, that you're good for the year. For example, in 2024, we're also going to put us in a good place for 25. And as I said, we're only middle phases, whatever you want to say for deploying of our business system. But the good thing is it seems rallied around lean. I love seeing each quarter the people's projects that they've certified that they got bronze or they're going after silver and things like that. It just says that these best practices are making it further across our 5000 associates each and every day, but we are doing it again. With sustainable mindset. In the end, we'll be happy with the total p and L. We'll also be happy with the long term p and L as well, not just what happens in any time period as such.
[00:16:06] Speaker B: And that's incredible to Harleet that, I mean, your transformation or this improvement is kind of taking root at the frontline level, not just at the leadership levels. So, LEed, speaking of the long term, maybe we cover a couple of macro aspects. I think we just are coming out of the Covid-19 pandemic wave that clearly heightened awareness of workplace safety. How did that impact mscs business? And what long term change do you expect in the industry coming out of that?
[00:16:30] Speaker C: Yeah, so it's a couple of different ways I can go there. I mean, number one, we're a safety company.
Our end users by and large, nothing changed other than they were exposed to all these risks and things like that. And in many cases used our products to help stay safe, which was great. We were pretty early as a company, we obviously had some roles we deemed to be remote work and things like that pretty quickly came back to we need to be in the office more frequently, but we have flexibility and it really depends where you are in the world and what your role is. But by and large, I think it's been a big advantage. And I know when I joined, I saw the linkage that was still there that it's just a lot easier to have conversations when you bump into people even a couple of times a week, as opposed to just these virtual sessions. So I think we managed through that as well. And I think the future will be more of this flexible, hybrid world. So that's okay. But the biggest thing that happened is I think there was even more focus on the safety of employees. And some companies have been doing this for decades. It's great. Those are companies that we have wonderful partnerships with, but we've also found a lot of expanded relationships over the last several years. And so, number one, I think you don't really see too many companies not talk about the safety of their employees. If you think about some of these regulations and reporting things coming, your companies are going to speak about it even more, whether it's what's happening in Europe or something's happening in other parts of the world. And as we all know, you will not improve safety or you won't improve anything unless you focus on it and then change something. And one of the challenges with safety is innovating new solutions, but also making it easier for people to use because one of the challenges we have with safety products is people have to use it and you have to make it comfortable. And it's all part of the equation we're trying to solve for in innovation. But I think what you are seeing as a next evolution of that is, yes, we want people to have the right safety gear on, but this is a really nice positive for our detection business is how do we really use data and prevent these incidents from ever occurring. So one of the things we've done over the last five years in particular is really build out a connected platform to use across our business. And there's going to be a natural evolution of what the adoption rate is, whether it's a firefighter, whether it's in the industrial PPE space. But certainly in our detection business, particularly the portable side, there's a strong interest in connected solutions. So we recently, just about two years ago, came out with a connected, portable monitor. So in the past you had a monitor, again, looking through the air sniffing, making sure you're not in the dangerous thing. But imagine throughout the day you go all over the job site, as long as it doesn't detect contaminants up to a certain level, you come back, all that information is lost. The connected solution today, this is our IO four connected device, is constantly connected. I know where the worker is. I know when they, you know, they hooked in. I know you know what even the slightest detection is monitoring that. Imagine I can combine that with my other employees and, you know, you start thinking about, hey, this, there's an area here that for some reason there's a higher detection level here. You know, you can imagine that this arrows area just, just remind, this happens a lot in this. We have a large company testing this device now and they go into really confined spaces. And this just happened last week. A person felt sick. They thought they had the cold or Covid or something like that, came back to work the next day. Because people need a job, they work hard, they go into these tough spaces and the next day the monitor went way off. But you can imagine that on a larger scale, that was a dangerous situation and it wasn't. A person wasn't sick, didn't have Covid, there was improper ventilation and they were exposed to that. So I mean, there's just, you can see how this is going to evolve. So yes, the solution from a safety perspective is better, but now let's also think about it from a perspective of how to have all that data, all the data that can mine for future solutions. But I also have record keeping a lot of today, people are doing all these things manually recording when they take it in, when they take it out. Today I can just tap my badge to this in and out. I know when to do calibration, when I need to change the sensors out. That's the future. Again, industrial pp is still going to be important. If something happens, they got to be safe. But how do we keep workers safe and detect these things so they don't happen? So I think that's going to be certainly a big trend to come. Just the macro environment is also going to be very supportive of really seeing that come to life, maybe even a faster pace than it would have been for.
[00:21:35] Speaker B: So, no, it's incredible to see, and I think good to bring this to life. So the examples you talked about, Lee, I'm assuming to bring these products and services lively, you're bringing in more of this technology angle. You hear about AI today, we hear about digitization Iot today. What's been your learning? Because at least from my vantage point, it feels like a mixed success, like some companies have done. Well, a lot of companies have actually also struggle to be, to really embed these kind of technologies in their products and services. So what's been your learning so far on this journey?
[00:22:04] Speaker C: Yeah, well, I think it goes back to number one, Liz. The core of everything we do from an innovation perspective, innovation is how we serve that mission, keeping people safe. It all goes down and you hear this, you gotta actually do it. You can see it in success, what really provides value for the end users. So I could say, like we just talked about from a safety perspective, is that clearly this protects them. But if you can also then bring in the administrative side, you can bring in the productivity. This is really what the connected solutions can do. It can really go into three areas, I think. It can't be just a really cool idea that someone's had and you bring to market.
I've done this for a few decades now. I've seen some really exciting things I got all enamored about, but then they don't go well, and it comes back to well, did it really solve something for the customer?
And then there's usually something to customers, good for your bottom line as well, or does it also help your bottom line? There could be something there as well. But in the end, that's got to be the key focus. So I think whether it's new products, whether it's, what does generative AI do and things like that, I'm excited about what they can do. If I bring it back to the finance area.
My team today, my teams in the past, they work so hard to get the information, to clean the information, and then there's a portion of time left for the insights, for the analytics, and if we can improve that, I'd rather go faster than slower. And I've been doing this for a while. I remember when we used to type our numbers into little machine, and you'd take off your paper and staple it to your.
That was a lot of change, but we're better for it. So I think it's another example where it's going to come at different paces. Different industries are going to go at different paces here, but it's lovely to see what's going on in industrial and to imagine where it's going to go. But we see the benefits. Really coming to all of our three businesses is just a case of pace. But again, keep coming back to, it's all about the end user. And does it help your customer, does it help your distributor do what they need to do? Because then what they're doing is really supporting the entire world. And all the products, all the services are done by people, and we need to keep them safe so they go home each day.
[00:24:41] Speaker B: I think that's an excellent motive to keep in mind that is it solving a problem for your end customer? Because I feel that many times, we don't lose sight of that. And to your point, the excitement and enthusiasm kind of takes over. Lee, maybe move a little bit towards your own personal journey and some of the lessons your peers can derive from your experiences. Lee, I think you're one of the very unique senior executives who's had a fantastic career, not just in the financial side, but also in general management. Obviously, you've been in marquee industrial, diversified companies like currently, MSA, Stanley Black and Decker, and United Technologies.
What would be some of the key lessons you've learned which have shaped your leadership style?
[00:25:16] Speaker C: We could spend a good amount of time here. Well, I'll speak from a finance background, because that is a bulk of my career. So, number one, I'm a big proponent that whether you come from the accounting background, you come from the finance perspective, you got to have a business hat on. And if you are just focused on presenting the numbers, that's fine, that's fine. But to really be a highly valued individual and frankly, to lead a team is bringing it back to the business. How does that information connect with the business? What's the insights from that? How do we change your course forward? And more importantly, in a timely, in a timing manner. I spent my whole life I've been involved in business, accounting and finance. Became kind of the path in, but I've just seen that and really mix it up. Maybe you love commercial, but go spend time in accounting. Go spend time in operations.
To be a true senior leader in these areas, you have to be prepared for everything. And I think one of my, the best things I ever did is I spent time in operations early in my career, and operations one of those areas. When it goes well, you can almost be a CFO and not know that, but when it didn't go well, you could be really exposed. I'm very fortunate I got that experience early on site. It's one of the things I try to tell everyone is there's always a fear to go into the op space or the operations space. If you want to be a senior finance leader, go spend time in that space there. Yeah, I think I'll go broader now. I mean, I'm just always looking for best practices, whether that's, you know, I see someone in my organization early in my career, I go spend time with them and figure out what was a takeaway from there. But also see sometimes things not to do and, but also look outside.
There is so many other ideas out there. But do figure out what's right for your company, but do not stand still. Do not convince yourself that you're different. You have to do it a different way. Continue to evolve. It's honestly probably been my secret is, like, I see a good practice, and I try to bring it to life in the organization I'm in. And because the most basic example, if you don't keep changing, don't keep evolving, how are you going to improve? And that's always kind of been my mindset, not to rest on your laurels there. So easier said than done, because the trick with all of this is you still got to do what you normally do, and you got to find time to bring these new things to life, but it's powerful. And then I would just say, overall, I'm always a big proponent of this. I used to say, make sure you have the facts, not just don't make decisions based on the loudest voice. Today, we're almost clouded with too many facts. And so I probably have evolved my answer to say, hey, make sure you're filtering through and getting to what really matters and using that to make your decision.
Honestly, that mindset has probably been the biggest thing my entire career, because there's a lot of noise, and you got to find a way to filter through that noise and then make good business decisions. And when you can do that, I'll put my finance hat on again. You become an incredibly valuable partner to the business, and you just become a better finance person because you also understand what's going on in the business more, and it's kind of this nice increasing.
[00:28:51] Speaker B: Loop of knowledge makes a lot of sense. Lee, thank you so much for those insights. Lee, one other thing I wanted to call out was, I know M and A is a big topic for industrial companies. I think depending on what study you look at, two out of three, four out of five, mergers and acquisitions end up going to not the path which was intended initially. You have nearly 40 m and merge and acquisition under your belt, and you play leadership roles in several of them. What's your approach to m and A and integration? Like, how does one kind of stay to the more greener side of that outcome rather than the red side?
[00:29:25] Speaker C: Yeah.
Well, hey, I've been fortunate. I've been part of several businesses where I think M and A is playing a role. Think of one comes down to how does M and a help your respective business? How does it, you know, not just, you know, not all. You have to have a really good discipline of where will m and a play. So that's number one. So I think, you know, I've learned how to do that well. You know, I can't say every one of those deals hit a filter, but I've learned how to do that. You obviously have to have great diligence. Can't fall in love. You know, whether it's M and a, a house, a car. You can't fall in love with any of those items. You got to go through and have good diligence and make sure it's what you think it is. And then obviously what I found is very helpful is the people involved in the diligence have to have a role in the executions, too. Simply some groups split it. It's really important to bring a lot of overlap between that because it's really easy to come up with ideas what you're going to do, everything to go do them. So making sure the same people are involved has been helpful. With that said, again, your right to do M and a comes from running the core business well. If you're not running the core business, well, I'd say generally don't add MNA on. There's exceptions to that. But generally you're running your business well. This gives you the checkbook to go do the other deals.
Conversely, once you've done the m and A. Do not get overly distracted by what you purchased. You've got to make sure the core is protected. And whether that's the way you run businesses, the way you allocate resources, people dollars, make sure you're supporting both, because in the end the equation is about both of them performing not one or the other.
Again, I think if you use that filter to make decisions, typically you won't get over your skis either on running the core or in terms of what you do in the m and a space.
[00:31:23] Speaker B: Thank you so much. That's incredible to hear coming from you because I think on the face of it just sound very simple, but having the discipline to be able to do it on a day to day basis and on deals which are multibillion dollars, sometimes tough to maintain. So appreciate that. So, Lee, maybe coming to the final question I have for you. In the book we wrote, titanium economy, we were arguing that the industrial sector is misunderstood, undervalued, underappreciated. But there is this sector, which kind of sector within industrial, I think MSA is a part of that, given the performance they have shown, which is which we are calling the titanium economy as a contrary to the Rust Belt connotation, we associate industries and we urge there again investors to look at the segment differently. Think about the value it adds and the true long term value, both for the industry as well as the economy as a whole. So what is your take on, on the outlook for the sector and how should investors and other stakeholders think about this?
[00:32:22] Speaker C: I think the concept is right on track that you have. It's interesting. I mean, on the surface, if you go to a cocktail party and you say you work at this industrial company, it doesn't have the same reaction as a consumer products company, for example. But if you step back and look at the industrials and look at what they've done on a three, a five and a ten year basis, theyre driving the economy. And if you run those businesses well, you typically have a very healthy relationship with your end users and one that is more of a medium and a long term version, not one thats tied to some type of fat or something like that. So again, you control a lot of your own destiny, probably just like you are.
If there's one thing I try to share with people younger in their career, is to look in the industrial space again. If you run your business well, the business will thrive and you'll get the opportunity to do that on a sustained basis. And so I think you look at history and I look at our history over the last ten years. The world's been incredibly volatile, but we've really persevered through that. But if you look at a lot of industrials, there's some that have done it as well, again, ones that run their business well.
You control your own destiny, as I said earlier. So I think the premise is right. As they look forward, I think it's going to be even more important. So the concept of an industrial, an industrial with technology helping accelerate its rate of improvement, we're certainly in the early stages of that as well. And you can certainly see some other kind of high, fast performing peers doing the same as well. So my advertising, again, share the story with as many people as possible, but I think you help influence people into careers that can last decades of success.
[00:34:10] Speaker B: Absolutely. And that's pertly, thank you so much for taking the time, because I think your words carry a lot more weight to people who are listening. So appreciate you at least sharing your story and MSA's message with us. Thank you so much for your time. Lee today.
[00:34:21] Speaker C: Hey, thank you for the time as well. Thank you.
[00:34:29] Speaker A: Thanks for listening to Ina Insights. Please visit Ina AI for more podcasts, publications and events on developments shaping the industrial and industrial technology sector.
