Good day, and thank you for standing by. Welcome to the 2025 First Quarter Brady Corporation Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ann Thornton, CFO. Please go ahead.

Thank you. Good morning, and welcome to the Brady Corporation Fiscal 2025 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 #3. 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 2024 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 thanks, everyone, for joining us today. This morning, we released our fiscal 2025 first quarter financial results, and I'm pleased to report another strong quarter and a great start to 2025. We grew organic sales by 3.6%. We grew adjusted pretax earnings by 11%, and we grew adjusted earnings per share by 12%. Our Americas and Asia region did an excellent job with organic sales growth of 5.1%, and our Europe and Australia region returned to growth in this quarter. Our teams executed incredibly well and delivered great results in light of current macro conditions. This quarter, we launched a product that bundles one of our top-selling printers, the I-5300, with our V-4500 barcode scanner. These two products allow our customers to seamlessly connect the scanner and printer, which allows for fast and efficient scanning and printing with zero setup, zero adjustments, and zero wasted labels. This is the first bundled set of products incorporating technology we acquired with the Code Corp. acquisition, along with Brady's printing technology and specialty adhesive materials. Our proprietary Cortex decoder technology equips our scanners with the ability to easily read a wide variety of different barcodes, from incredibly small barcodes to barcodes on hard-to-read surfaces that are shiny or curved. Our automated keyboard device and dynamic user interface allows the user to go from setup to first scan in just seconds. These types of integrated solutions are a primary focus of our R&D efforts, which are designed to provide our customers with products that solve their problems and make their everyday jobs easier. This also marks the first quarter following our acquisition of Gravotech. We are looking forward to adding their laser and mechanical part marking capabilities to our existing portfolio of identification products. Brady's long-term goal is to create an ecosystem of interoperable part marking and reading solutions for our customers. This quarter was an excellent start to 2025. We continue to engage with our diverse set of customers to create niche solutions tailored to their needs. With no single product or customer responsible for a material economic impact to Brady, we have the ability to emphasize growing markets and invest in our most promising technologies. This has enabled Brady to thrive for the last 110 years. And now I'll turn the call over to Ann to provide more details on our financial results. Ann?

Thank you, Russell. We had a very strong quarter and a great start to 2025. We grew our organic sales by 3.6% in the quarter, which was led by our Americas and Asia region with excellent growth of 5.1%, while our Europe and Australia region returned to growth this quarter at 0.7%. We also reported strong growth in our adjusted pretax income as well as our adjusted diluted earnings per share in the quarter, all while funding an increase in R&D and expanding our sales force. We finished in a net cash position even after funding acquisitions, so we're off to a great start this year. We'll start on Slide #4 for our quarterly sales trends. Organic sales grew by 3.6% in the quarter. Acquisitions, net of divestitures, added 8.8%, and foreign currency translation increased sales by 1.2% for total sales growth of 13.6% in the quarter. Turning to Slide #5. This details our quarterly gross margin trending. Our gross profit margin was 50.3% this quarter compared to 51.7% in the first quarter of last year. We closed on the acquisition of Gravotech this quarter, which Russell just mentioned, and this resulted in purchase accounting adjustments to recognize the fair value of inventory acquired, which reduced our gross profit margin by approximately 110 basis points in the quarter. Without this nonrecurring adjustment, our gross profit margin would have been 51.4%, which is approximately in line with the prior year. Our gross profit margin continues to be strong as we realized benefits from our sales growth being led by our highest gross profit margin products. Moving to Slide #6, you'll find our SG&A expense trending. SG&A was $111.8 million this quarter compared to $96.3 million in the first quarter of last year. As a percent of sales, SG&A increased to 29.7% compared to 29% last Q1. If you exclude amortization expense from each of the periods presented, as well as other nonrecurring acquisition-related costs incurred in the current quarter, SG&A would have been 28.3% of sales, both this quarter and in the first quarter of last year. We continue to invest in growth by expanding our sales force, enhancing our digital capabilities, and broadening our omnichannel strategies, while identifying efficiencies throughout our back-end sales and other support functions. On Slide #7, you'll find the trending of our investments in research and development. We continue to increase our investment in R&D within our organic business and through the acquisition of Gravotech. R&D expense was $18.9 million, which was 5% of sales this quarter, an increase from $15.7 million or 4.7% of sales last year. Our best ROI almost always comes from our highly engineered products, and we really do have a very exciting line of products set to launch this year. Moving along to Slide #8, you'll find the trending of our pretax earnings. Pretax earnings on a GAAP basis decreased slightly from $59.4 million to $58.8 million in the quarter. But if you exclude amortization from both periods and other acquisition-related charges incurred in the current quarter, pretax earnings increased 11% from $61.8 million to $68.6 million. Turning to Slide #9, you'll find the trending of our net earnings and EPS. Similar to pretax earnings, our net income decreased slightly due to the incremental amortization and other nonrecurring acquisition-related charges that we incurred in the quarter. Our reported GAAP diluted earnings per share was consistent with the prior year at $0.97 per share. But if you exclude amortization from both periods, as well as the other acquisition-related charges from the current period, our adjusted net income grew from $49.1 million to $54.2 million, which is an increase of 10.4%, and our adjusted diluted EPS grew from $1 per share to $1.12 per share, an increase of 12%. So we had another strong earnings quarter resulting from our organic sales growth and our ongoing focus on efficiencies. On Slide #10, you'll find a summary of our cash generation. Operating cash flow was $23.4 million in the first quarter this year compared to $62.3 million in the first quarter last year. Free cash flow was $16.1 million in Q1 of this year compared to $51 million in last year's Q1. Operating cash flow was down this quarter mainly due to a timing shift in certain vendor payments, some of which were within Gravotech. We were also reducing inventory at this time last year, which provided a larger working capital benefit than we would typically expect to realize. We've returned to more normalized levels of inventory following the supply chain challenges from a couple of years ago, so we don't expect large working capital changes apart from periodic short-term timing items like we saw this quarter. Slide #11 details the impact that our historical cash generation has had on our balance sheet. As of October 31, we were in a net cash position of $29 million. Our approach to capital allocation is consistent: to first use our cash to fund organic sales growth and efficiency opportunities. This includes investing in new product development, sales generating resources, capability-enhancing CapEx, and automation-focused CapEx. We have the ability to invest throughout the economic cycle so that we're always positioned to drive future sales growth and profit improvements. Second, we focus on consistently increasing our dividends. In September, we announced our 39th consecutive year of annual dividend increase, which is a streak that we're very proud of. After funding organic investments and dividends, we then deploy our cash in a disciplined manner for acquisitions, where there are synergies, and for opportunistic share buybacks. Our strong balance sheet puts us in a position to be able to increase our investment in R&D and other organic sales opportunities to acquire companies strategically and to return funds to our shareholders through dividends and share buybacks. Turning to Slide #12, you'll find our fiscal 2025 guidance. We're maintaining our full year fiscal 2025 previously announced adjusted diluted EPS guidance range of $4.40 per share to $4.70 per share. Our GAAP EPS guidance range was adjusted for amortization and other acquisition-related charges, which we now expect to range from $4.02 to $4.32 per share. Our adjusted diluted EPS guidance range represents growth of between 4.3% to 11.4% over 2024. We also anticipate organic sales growth in the low single-digit percentages for the year ending July 31, 2025. Other elements of our guidance include an income tax rate of approximately 20%, depreciation and amortization expense of approximately $40 million, and capital expenditures of approximately $35 million. Potential risks to our guidance, among others, include the potential strengthening of the U.S. dollar, inflationary pressures that we're unable to offset in a timely enough manner, or an overall slowdown in economic activity. I'll now turn the call back over to Russell to cover our regional results and to provide some closing thoughts before Q&A. Russell?

Thanks, Ann. Slide 13 details the financial results of our Americas and Asia region. Sales were $245.4 million this quarter, and organic sales growth was a strong 5.1%. Acquisitions, net of divestitures, increased sales by 5.8%, and foreign currency translation decreased sales by 0.2%, resulting in total sales growth of 10.7% this quarter. Our organic growth was driven by all of our product lines, with most growth coming from Product ID, Wire ID, and Safety and Facility ID. October was our strongest month in the quarter. Our Asia business performed well with total organic sales growth of 6.3%, which was driven by growth in every country, except for China. Our business in China declined by just over 6% in the quarter, so outside of China, our business combined for nearly 18% organic growth. We continue to see fantastic growth in India, and we believe we have a very bright future throughout Southeast Asia. Our reported segment profit in the Americas and Asia increased by 10% to $54.9 million, and segment profit as a percentage of sales was 22.4%. If you exclude the impact of amortization in both the current quarter and last year's Q1, as well as other nonrecurring acquisition-related expenses in the current quarter, segment profit increased 15% compared to the prior year. These results are testament to the hard work of our incredibly dedicated team and the ongoing adoption of our recent product launches. Moving to Slide 14, you'll find the financial results for our Europe and Australia region. Sales were $131.6 million this quarter. Acquisitions added 15% to our organic growth of 0.7%, and the impact of foreign currency translation increased sales by 3.6% for a total growth of 19.3% in the region this quarter. Our European business returned to organic growth following only one quarter of decline out of the last 14, which is a significant result in light of the sluggish macro conditions in this region. Our reported segment profit in Europe and Australia declined 21.7% in the quarter to $13.1 million, and segment profit as a percentage of sales was 10%. If you exclude the impact of amortization in both the current quarter and last year's Q1, as well as other nonrecurring acquisition-related expenses in the quarter, segment profit increased 4.3% compared to the prior year. Economic conditions have slowed in Europe, 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 our people ID product line, as well as within most of our other key geographies, by maintaining our focus on niche opportunities. Within Europe, we see a diversity of outcomes, with France, in particular, doing well. We believe that our European business will benefit from many of the similar trends that we're seeing in the U.S., such as the shortening of 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. With that, I'd like to turn it over for Q&A. Operator, would you please provide instructions to our listeners?

Our first question comes from Steve Ferazani of Sidoti.

Thanks for the detailed information on the call. Russell, I was surprised by the strong organic growth in the Americas and Asia. Could you elaborate on that? How much of the growth in the Americas was driven by new products? What is contributing to the 5% growth in a market where industrials aren't performing well? Also, regarding Asia, is the growth largely due to increased penetration in India and Southeast Asia?

Yes. So a couple of things. And I think I touched on it briefly in the call. One of the strengths of Brady is the ability to really focus on product areas, markets, and segments that are doing better than others. Certainly, if I take all of industrial manufacturing as a whole in the United States, I think the best you could say is it's languishing in terms of growth. But within that, there are still pockets. There are data centers and there are some aerospace applications, as well as some really unusual niche applications that Brady is pretty good at servicing our customers. So when you look at that and you look at our ability to really hone in and target maybe a micro-niche within the U.S. economy, there are still small pockets that are doing well. I think it says a lot about our salespeople in the U.S. and our product people in the U.S. for being able to chase down those opportunities. Turning to Southeast Asia, I think you're seeing that they're benefiting from some of the issues related to China and corporations setting up additional factories in Southeast Asia. So most of that is a combination of increased penetration, but also just sheer increase in demand in the underlying countries. I would say that's most true of India, which has been a great place for us for the last half dozen years.

That's helpful. Want to ask about how the integration with Gravotech was going? And I also wanted to ask about that smaller AB&R acquisition you made in October and how that fits?

Yes, there are a few points to mention. I visited Gravotech two weeks ago and we achieved our goal of expanding our portfolio to include direct part marking. While Brady has always been recognized for labels and printing technology, we previously lacked the capability for direct part marking, which is essential for product traceability, especially in applications requiring laser solutions. Now that we can offer this capability, it enhances our portfolio. During my visit, we toured their factories. I have been aware of this company for about six years, and we've had discussions off and on. Fortunately, everything came together this year for the acquisition. I'm optimistic about the process, although significant acquisitions do take time to integrate ERP systems and overall processes. So far, I'm pleased with how things are unfolding. Regarding AB&R, yes, it's a smaller company that I have known personally for around six years. They are a niche integrated go-to-market firm that offers highly customized solutions. Recruiting sales talent with that specialized approach can be challenging. Therefore, with this acquisition, we were able to add over a dozen salespeople and some of their proprietary technology, making it a small but advantageous fit for our tailored solutions.

That's great. And if I could add one more. Just who is the customer base for the I-5300, and what is the plan with that? It sounds like you're incorporating it with the code technology. Tell me how that's going to work and who you're targeting?

Yes, we target what I would say are midsized manufacturers. We don't do anything in distribution centers. That's kind of Zebra and Honeywell's territory. If you're a couple of hundred million-dollar manufacturer and you want to provide direct marking on parts with labels, and then you want to scan at the same time to make sure that it works with your ERP system, we're providing that solution. If you step back, the original thesis behind getting Code Corporation is we've always printed the labels, but we've had to use somebody else's reader to do the scanning and verifying the labels, which was the whole point of putting them there in the first place. Now with a lot of software and some hardware development, we have industrial versions, and you're going to see more of those products roll out in the coming year.

Our next question comes from the line of Keith Housum of Northcoast Research.

A quick question for you, Russell. In terms of Gravotech and the seasonality of the business, does Gravotech change Brady's seasonality throughout the year?

Not materially. I mean, I would say that in general, August is always pretty weak for Brady because of Europe. The same impact will be there with Gravotech and then we traditionally see a strong fall and a strong spring before you get into the slower summer months. So I would say Gravotech is going to see a similar effect as Brady, maybe slightly more pronounced in Europe in the August timeframe, where, as you all know, they take a decent vacation.

I did notice in your script you talked about October being the strongest month of the quarter for you guys. Can you perhaps touch on the cadence of the sales in the quarter and how November started out for you?

Yes. Again, for Brady, August is always somewhat light due to several reasons, both even in North America and in Europe. Not typically the strongest month, as people take their holidays. We usually see momentum start to build in the middle of September towards the end of September. This year was a little later than what we normally see, and then October came back very strong, more than what we expected. Some of it is catch-up from what I would say are lighter months. People go on vacation, and when they return, they start placing purchase orders. That takes some time to get through the system. We were really happy with how we finished in October, and we hope the momentum carries through for the rest of the year. Personally, and I did say it in the notes, I think there's a decent amount of investment that's sitting on the sidelines in the U.S. due to election uncertainty. Now that it is resolved, we think there's going to be a decent amount of capital freed up for industrial production, and that is really the target of Brady Corporation.

I appreciate that. In terms of your gross profitability, obviously, I know it's a very strong quarter for gross margins for you even with the charges that you took this quarter. Before the Gravotech acquisition, you were talking about 50% being the goal for gross profitability. Gravotech, I understand, is going to be a little bit lower for you guys. Are you still thinking, even with the acquisition, post-acquisition, you could be at 50% for gross margins as your target?

Yes. It may take a little bit of time to get there for Gravotech, which is not quite at 50%. But we can see a line of sight in terms of how we produce products and the types of things we can do to drive through efficiencies to get it to the middle of the pack of our portfolio. It probably will never be our best gross margin, but it certainly won't be our worst either. Again, I think we're going to be in a good place of 50%, maybe slightly above it as a corporation.

And the last question for me in terms of volume versus price this quarter. What was the biggest driver of the growth?

All volume, no price.

I'm showing no further questions at this time. I would now like to turn it back to Russell Shaller for closing remarks.

Perfect. 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 believe that with the clear result in the U.S. elections, we can expect to see increased industrial capital investment, which is favorable to Brady. We have also added capabilities of direct part marking from our acquisition of Gravotech, which fills the gap in the Identification Solutions portfolio and provides us with additional technical know-how. The macroeconomic environment is dynamic and rapidly changing. Therefore, we're focused on controlling what we can control, so we can continue to deliver on our priorities. These priorities include continuing to invest internally to grow the top line, further developing our product offerings to support our customers' automation initiatives, executing operational efficiencies, ensuring that we grow profitably, and effectively deploying 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 can see areas to reduce our cost structure while we continue to invest in R&D to help us launch new products. Meanwhile, we will periodically review our portfolio to ensure all of Brady meets our financial objectives. I'm optimistic about the future, and I know that we will overcome challenges and continue to deliver results. Thank you for your time this morning and for your interest in Brady. Operator, you may disconnect the call.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.