Good day and thank you for standing by. Welcome to Brady Corporation's First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the call over to Brady Corporation's Chief Financial Officer, Ann Thornton.

Thank you. Good morning, and welcome to the Brady Corporation Fiscal 2024 First Quarter Earnings Conference Call. The slides for this morning's call are located on our website at www.bradycorp.com/investors. We will begin our prepared remarks on slide number three. Please note that during this call, we may make comments about forward-looking information. Words such as expect, will, may, believe, forecast, and anticipate are just a few examples of words identifying a forward-looking statement. It's important to note that forward-looking information is subject to various risk factors and uncertainties, which could significantly impact expected results. Risk factors were noted in our news release this morning and in Brady's fiscal 2023 Form 10-K, which was filed with the SEC in September. Also, please note that this teleconference is copyrighted by Brady Corporation and may not be rebroadcast without the consent of Brady. We will be recording this call and broadcasting it on the Internet. As such, your participation in the Q&A session will constitute your consent to being recorded. I'll now turn the call over to Brady's President and Chief Executive Officer, Russell Shaller. Russell?

Thank you, Ann, and thank you all for joining us today. This morning, we released our fiscal 2024 First Quarter Financial results, which was another great quarter of execution and improved profitability. Our non-GAAP earnings per share increased 19% this quarter on organic sales growth of 2.7%. We continue to invest in our business through our expanded R&D and digital capabilities while at the same time, growing earnings and strengthening our balance sheet. Our change to a regional structure last fiscal year has increased our ability to generate improved earnings and cash flow. This reinforces our ability to focus on new products and sales-generating investments so that we can continue to grow organic sales over the long term. This quarter, we launched an exciting new portable printer called the M511. This printer is incredibly versatile and is designed for use in a wide variety of end markets. It's Bluetooth enabled and allows five simultaneous connections through an easy-to-use app. It's extremely durable and wastes less material because it can print edge-to-edge with text, graphics, and barcodes. This printer is ideal for wire identification in data centers, electrical, laboratory settings, as well as anywhere safety and facility identification is essential. It can identify each of the hundreds of different Brady manufactured materials, which enables real-time customization for the end user. We have a fantastic line of printers in custom materials with a pipeline of innovative products on the way. Combined with our work in the safety and identification space, Brady has multiple leadership positions that deliver value to our customers. We're continuing to make investments in our future. Our financial position is strong, and we have a fantastic team that is delivering for our customers every day. I'll now turn the call over to Ann to provide more detail on our financial results. Ann?

Thank you, Russell. This quarter, we grew organic sales 2.7%, while improving our gross profit margin and our overall profitability. This once again resulted in earnings growth this quarter with GAAP EPS of $0.97 per share, which was up 22.8% compared to the first quarter of last year. Non-GAAP EPS, which is calculated as our GAAP EPS, excluding the after-tax impact of amortization expense, was $1 per share this quarter, which was up 19% over the first quarter of last year. Our Americas and Asia region grew organic sales 3.3% and increased segment profit by 21.3% compared to last year's first quarter. We're executing well, and our overall improvement in gross profit margin was primarily due to the Americas and Asia region as we continue to execute operational efficiencies and realize benefits from manufacturing costs returning to more normalized levels. Our Europe and Australia region grew organic sales 1.4% with effectively flat segment profit. The economic environment in Europe has become more challenging this quarter, which had an impact on our rate of organic sales growth. However, we're still investing in our sales force as well as other organic growth opportunities while driving operational efficiencies to ensure that we're set up for the long term. So the key financial takeaways this quarter are continued organic revenue growth, non-GAAP EPS growth of 19%, significant improvement in gross profit margin, and a continued commitment to return funds to our shareholders. Now we'll turn to slide number four for our quarterly sales trends. Organic sales grew 2.7% and foreign currency translation increased sales 1.5% this quarter while the impact of a divestiture from last year as well as another small non-core business that we sold this quarter reduced sales by 1.3%, resulting in total sales growth of 2.9%. Turning to slide number five, you'll find our quarterly gross profit margin trending. Our gross profit margin increased 360 basis points to 51.7% compared to 48.1% in the first quarter of last year. This significant improvement in our gross margin was the result of several factors in combination as we continue to execute efficiency gains throughout our manufacturing facilities globally. Our product mix was favorable, and we're realizing benefits from reduced manufacturing costs this quarter compared to last year's first quarter. Slide number six details our SG&A expense trending. SG&A was $96.3 million this quarter compared to $89.9 million in the first quarter of last year. As a percentage of sales, SG&A was 29% this quarter compared to 27.9% in last year's first quarter. Inflation and other cost increases continued to impact primarily our European businesses, and we did see some of these effects this quarter. We continue to work on our cost structure and we know that we have more opportunities ahead of us, but the timing of various projects typically does vary from quarter to quarter. Turning to slide number seven, you'll find our investments in research and development. This quarter, we once again increased our investment in R&D from $13.9 million to $15.7 million, which was 4.7% of sales. We believe that the investments with the best ROI are almost always organic investments, research and development, in particular. So we're committed to new product development and we have a great pipeline of new products set to launch this fiscal year. Slide number eight details our pre-tax earnings, which increased 18% on a GAAP basis from $50.3 million to $59.4 million in the first quarter. And if you exclude amortization from both periods, pre-tax earnings increased 14.4% on a non-GAAP basis from $54 million to $61.8 million. Moving along to slide number nine, you'll find the trending of our earnings and EPS. You can see a consistent trend of increasing earnings on a quarter-over-quarter basis. This quarter's GAAP EPS increased by 22.8%. And if you exclude the after-tax impact of amortization from both periods, our first quarter non-GAAP EPS increased by 19% compared to last year. On slide number 10, you'll find a summary of our cash generation. Operating cash flow increased significantly this quarter from $28 million in the first quarter of last year to $62.3 million this quarter. Operating cash flow was 132% of net income, and free cash flow was 108% of net income this quarter. Moving to slide number 11, you can see the impacts that our consistently strong cash generation has had on our balance sheet. We are currently in a net cash position of $123 million. So even with returning over $25 million to our shareholders in the form of dividends and share buybacks this quarter, we still increased our net cash position by more than $21 million. Our capital allocation approach remains consistent, which is to first use our cash to fully fund organic sales and efficiency opportunities. This includes investing in new product development, sales-generating resources, capability-enhancing capital expenditures, as well as automation-focused CapEx. We will continue to deploy capital to productivity and sales growth opportunities despite any economic uncertainty. And second, we focus on consistently increasing our dividends. Last quarter, we announced our 38th consecutive annual increase in our dividend, which is a streak that we're very proud of. After fully funding our organic investments and our dividends, we then deploy our cash in a disciplined manner for either acquisitions where we have clear synergies or for opportunistic share buybacks when we see a disconnect between our intrinsic value and our trading price. Our strong balance sheet puts us in a position to be able to execute additional value-enhancing activities such as R&D investments and other organic sales opportunities or to acquire companies strategically when the price is right and the synergies are clear, and to return funds to our shareholders through dividends and share buybacks. Turning to slide number 12, you'll find our fiscal 2024 guidance. We are maintaining our full-year fiscal 2024 previously established EPS guidance range of $3.85 per share to $4.10 per share on a non-GAAP basis and $3.70 per share to $3.95 per share on a GAAP basis. Our outlook is based upon October 31st foreign currency exchange rates and it assumes continued economic expansion. Macroeconomic conditions have slowed in some end markets and parts of Europe and China in general. Nonetheless, we are seeing strength in other areas. So we do expect that our organic sales growth will remain consistent with our initial guidance range of mid-single-digit percentage growth for the full year fiscal 2024. The other elements of our guidance also remain unchanged and include an income tax rate of approximately 22%, depreciation and amortization of approximately $32 million to $34 million, and capital expenditures of approximately $75 million. Our CapEx estimate is inclusive of the purchase of a previously leased facility as well as the build-out of a new facility totaling approximately $55 million. Potential risks to our guidance, among others, include potential strengthening of the US dollar, inflationary pressures that we are unable to offset in a timely manner, or an overall slowdown in economic activity.

Thanks, Ann. Slide 13 details the financial results of our Americas and Asia region. Sales were $221.6 million this quarter and organic sales growth was 3.3%. The sale of a business last year as well as a small divestiture we closed this quarter reduced sales by 1.9%, resulting in total sales growth of 1.4% in the region. We grew in most of our major product lines and end markets, except for our health care identification product line. The effects of the pandemic are still being felt in the health care ecosystem, which suffers from lower reimbursement rates, coupled with increased cost pressure. Our Asian business reported mid-single-digit decline primarily due to weakness in China as well as in consumer electronics in Southeast Asia. The exception in Asia continues to be our business in India, which once again reported strong growth of nearly 16% in the quarter. Segment profit in Americas and Asia increased by 21.3% to $49.9 million and segment profitability improved from 18.8% of sales to 22.5% of sales this quarter. Our improvement in the gross profit margin was primarily within the Americas and Asia region, where we continue to execute efficiency gains throughout our manufacturing processes. We had a favorable product mix, and we're realizing benefits from reduced freight rates this year compared to last year. Moving to slide 14, you'll find a summary of the performance of our Europe and Australia region. Sales were $110.4 million this quarter. Organic sales growth was 1.4%, and foreign currency increased sales by 4.6% for a total growth of 6%. Economic conditions have slowed in Europe this quarter, and our rate of organic growth reflects this environment. Still, we were able to grow sales within our Safety and Facility Identification product line and within most of our geographies by focusing on niche opportunities. We still believe that our European business will benefit from many of the similar trends that we're seeing in the US, such as shortening supply chains by moving manufacturing closer to Europe as well as challenges in finding workers, both of which result in consistent demand for our productivity solutions. In total, Europe and Australia segment profit was effectively flat this quarter at $16.7 million. Inflation continues to impact Europe as it's occurred slightly later than the impact of inflation in the US, which resulted in segment profit as a percentage of sales decreasing from 16.1% to 15.2% this quarter. We're actively working to address these cost pressures through operational efficiencies and selective price increases, but inflation is resulting in profitability challenges in the near term.

Thank you. Certainly. And our first question comes from the line of Steve Ferazani with Sidoti. Please proceed.

Good morning, Russell. Good morning, Ann. I appreciate the detail on the call. Wanted to ask about the gross margin. EPS came in significantly better than we were looking entirely on the gross margin line. It sounded like you said there was some benefit from mix, sustainability of that margin. And anything you can point out to the real strength this quarter?

Yes. It was certainly a high watermark for Brady in the contemporary path. So we had a couple of things that were to our benefit. Some of the price increases have been fully realized as well as we saw some raw material input costs go down. And as we mentioned, shipping was also down compared to where it was a few quarters ago. The sustainability of 52%, I think, is probably unlikely. We've continuously guided to the 50%-ish range. And I think that's where we'll settle out. But for the time being, it's a net benefit to us, and we're excited to have it.

When I think about the strength of this quarter, at least to strength from our view, trying to consider how it came out compared to your expectations? And if it was better, why not raise guidance a little bit here?

Well, as I said, there's some input costs that have been a significant benefit to us. We're continuously looking to modulate our pricing and our sales growth. So while I was absolutely excited about our earnings, I was a little disappointed in the sales growth. And we continue to look at what is the appropriate mix of getting new accounts versus keeping gross margin up. So obviously, the long-term goal is to maximize our cash and our long-term profit generation. And so we continue to look at that. The long and short of it is I feel great that we got 52% gross margin. I feel great about the quarter, but I would like to see a little bit more growth coming in, in the future.

We had another solid cash flow quarter. Capital expenditures were likely lighter this quarter compared to your guidance. It seemed like you were more active in buying back shares in August when the stock was below 50. I understand you take a more opportunistic approach rather than a systematic one. How should we view cash flow and share repurchases going forward?

Yes. So we closed out the initial $100 million in authorization, and we restarted another round of share repurchasing up to $100 million. We are opportunistic. It's kind of a mixed bag. I love buying the shares because I think they're a discount to intrinsic value. But at the same time, I'm disappointed they're at a discount to intrinsic value. So we continue to look at it. I would say we're systematic in looking at our valuation and when we purchase. So obviously, if the shares get to a certain point, we'll stop buying. And at other times, if we feel like it is less than what we think it's worth, we'll continue purchasing.

I just got one last one in on that note. What's the M&A pipeline looking like?

It's getting better. And I mean by that, the valuations that we're seeing out there are getting better. There's still some disconnect between what we think something is worth and what the sellers think something is worth. Now compared to where it was a year ago, it is much better territory. And we continue to look at M&A. I don't think it's necessary at this point to execute our growth plans, but there's a few properties out there that I'll put in the nice-to-have category. So if we can close that gap between what we think something is worth and what the sellers think something is worth, we'll selectively do M&A.

Thanks, Russell.

Thank you. And our next question comes from the line of Keith Housum with Northcoast Research. Please proceed.

Good morning, Russell. Good morning, Ann. Russell, in terms of some of your initiatives you guys have talked about over the past year, adding salespeople has been one of them. Perhaps can you talk about how many people you've added perhaps over the last year as well as some of the investments you're making in driving sales growth?

Yes. I'm not going to get into specific numbers of people. You can see from our year-over-year change in sales. We are in a blended way, adding to our resource pool. But it's not only salespeople, but it's a commitment to digital, a commitment to web. We're working on AI tools as I think other companies are doing as well. I see there's tremendous opportunity, continues to be opportunity for us to make sure that we are presenting products to our customers in the way they want to see them. And I've said before and continue to say, our biggest competitor is non-consumption. So having our salespeople in front of customers and showing them a solution that they might not even know exists, that is our biggest opportunity for growth because unfortunately, not everybody in the world buys Brady products, but we think they should.

Great. I appreciate that. In terms of Europe, I appreciate the inflationary pressures. One, I assume that is inflationary pressures are primarily wage-related? And then two, had you already raised prices there, so there might be a more limited impact to raising prices and offsetting some of the pressures you're seeing there?

Yes. So we raised prices based on market conditions. And we're not a cost-based pricer. So we don't necessarily look at input costs as a direct correlation to increasing prices. With that said, some of the inflation conditions in Europe and some of the lockstep increases in wages also alter customer perception about what price increases they should see. So we do it throughout the year. We tend to be more systematic in January-ish of the year. So we'll notify some customers prior to price increases. We don't actually pull the trigger until it gets very close. And so we look at a variety of factors, both competitive landscape and input costs to decide where to go. What you're seeing in Europe right now, some of which is price increases that have already happened and then we'll be reevaluating it come the beginning of the calendar year to decide whether additional increases are warranted.

I appreciate that. Next, could you provide an update on your track and trace initiative regarding the R&D efforts and how close you are to commercializing that product set?

Yes, we are making progress. I have prototypes on my desk, and I believe we are quite close. However, we are still a few quarters away. Currently, the sector is a bit slow, which can actually work to our advantage as it provides us with the opportunity to ensure our offering is perfect before launching it to the market. We expect to have our complete suite of products ready and available for our customers in the second half of next calendar year.

Great. And then last question for me. The organic growth you did see during the quarter, was that more volume-based versus price?

It was volume.

Thank you, and this concludes the Q&A session for today. I will turn it back over to Russell Shaller for final remarks.

Great. Thanks, everyone, for your time today and for your questions. Our first quarter was a good start to the year. We performed well, and we have positive momentum throughout the organization. We're in an extremely strong financial position. We increased our net cash position in the quarter while returning funds to our shareholders through dividends and share buybacks, which provides us with continued opportunities to invest both organically and inorganically to drive long-term shareholder value. The macroeconomic environment is dynamic and rapidly changing. So we're focused on controlling what we can control so that we can continue to deliver on our priorities, which are to invest and grow the top line, to further develop our product offering to support our customers' automation initiatives, to execute operational efficiencies and ensure that we grow profitably, and to effectively deploy our capital to drive long-term shareholder value through organic investments, acquisitions, and returning funds to our shareholders through dividends and share buybacks. Looking ahead, we'll continue to drive profit improvements, and we'll continue to evaluate our products and our portfolio of businesses. I'm optimistic about the future. I know that our team has the ability to overcome challenges and continue to deliver results. Thank you for your time this morning and for your interest in Brady.

Thank you, everyone, for joining our call. You may now disconnect.