Brady Corporation

Good day, and thank you for standing by. Welcome to the third quarter 2021 Brady Corporation earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ann Thornton, Chief Accounting Officer. Please go ahead.

Thank you. Good morning and welcome to the Brady Corporation Fiscal 2021 Third Quarter Earnings Conference Call. The slides for this morning's call are located on our website at www.bradycorp.com slash investors. We will begin our prepared remarks on slide number three. Please note that during this call, you 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 2020 Form 10-K, which was filed with the SEC in September of 2020. 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, Michael Nauman.

Thank you, Ann. Good morning, and thank you all for joining us today. This morning, we released our fiscal 2021 third quarter financial results, which was a very strong quarter in a challenging but improving economic environment. The Brady team is executing well, innovating for our customers, and providing many of the products that are needed to help fight this pandemic. I'm proud of the accomplishments of the entire Brady team. Although this pandemic isn't yet quite behind us, as COVID cases are still high in many countries around the globe and businesses continue to have many people working remotely, demand has increased. Our salespeople are starting to travel again, and there are pockets where our business is growing beyond 2019. The cost side of this recovery has definitely been swift and has absolutely resulted in inflation in areas such as resin, freight, paper, base materials, and wages. As you can see, we continue to maintain a healthy gross profit margin around 50%, as we've never slowed down our push to automate our facilities and drive sustainable efficiency gains, which, when combined with target price increases, are offsetting input cost increases. Driving efficiencies is a never-ending focus for us at Brady. However, what's more important at this junction is ensuring that we're taking aggressive actions to accelerate sales growth. We're upgrading our websites. We're improving our marketing capabilities. We're developing new products, and we're investing in capacity-enhancing machinery. We're making the investments necessary to grow our top line now and into the future. Profitable sales growth is our number one financial priority. For instance, in our ID Solutions business, We've been increasing our R&D spend, and we're seeing the positive results as we launch new products at an increasing rate, and we're continuing to distance ourselves from our competitors who don't have the scale to invest as heavily in R&D. We're also expanding our sales force and expanding geographically into underserved markets with strong future growth potential, including India, as well as certain other markets in Southeast Asia and Eastern Europe. We're also improving our online presence by upgrading our website's and investing more in digital marketing talent. Our strong new product lineup, combined with our investments in sales, marketing, and online presence, gives us confidence that our ID Solutions business will continue to accelerate in growth as we progress through the rest of the fiscal year and into fiscal 2022. In our workplace safety business, we're also investing in accelerated sales growth. Throughout the pandemic, we ratcheted up our online marketing campaigns which helped us reach many new customers and expand our customer base. We're capitalizing on our common web platform by using a much stronger market intelligence to quickly adapt to changing market dynamics. We're increasing our investments in new product development, and we're increasing the pace of new product launches in an effort to increase the percentage of proprietary, high-value products sold to our customers. And we're adding new salespeople around the globe, to accelerate our sales even further. Our focus on serving our customers extremely well and aggressively working to increase our customer base throughout the pandemic is paying off as we return to healthy organic sales growth this quarter. We also believe that we'll eventually see another leg in this organic growth as some of our other end markets improve. For instance, in our IDS business, we sell in the many small niche identification markets aimed at identifying people in the workplace and at entertainment venues. These markets have remained depressed and have not yet recovered quite like our core industrial markets have. In addition, our product offering focused on micro-businesses have remained depressed as these businesses have been impacted the most. So when these markets bounce back, which we believe they will, we should see another level of acceleration in organic sales growth. In addition to our focus on driving organic sales growth, we're also in the process of working through the acquisition of NordicID, which is summarized on slide number four. NordicID is a small publicly traded company in Finland that specializes in RFID readers, scanners, and associated software to help power track and trace applications. Brady is firmly positioned as a leader in high-performance niche application industrial printers and materials, and Brady also has a leading position in aerospace RFID tags. Until now, we've used off-the-shelf RFID readers, which can sometimes compromise the performance of the RFID tag. With the addition of Nordic ID technology, we will create a portfolio of industrial readers that are fully integrated with our printers and our software. Driven by the adoption of Industry 4.0, the RFID market is growing quickly as a result of emerging use cases to provide better workflow visibility. The acquisition of NordicID, when completed, will cement Brady as a full-service provider in these niche applications where we can marry our strong printer and material expertise with NordicID scanners and software, thus giving us the ability to expand in this faster-growing segment of our ID Solutions business. At the core of Brady, we're an identification company focused on industrial markets. Our vision is to expand and diversify our presence in RFID into attractive new markets with fast organic growth rates. Nordic ID fits squarely within this vision by filling a known gap in our product portfolio. We are approaching Nordic ID as a strategic growth area for Brady. We're not trying to extract every last cost synergy. In fact, the only significant cost synergies are removing the cost of being a publicly traded company in Finland and some minor back office synergies. The value of NordicID comes from its strong technology and complementary products that will help us to expand and track and trace applications within industrial settings. We intend to increase the RMD efforts at NordicID to help accelerate new product introductions and help us expand this product offering outside of Europe. The vast majority of NordicID sales are currently in Europe, so there are natural synergistic opportunities when we combine them with Brady's global footprint. We're very excited about how the acquisition, combined with additional R&D efforts, will help us to develop a complete global solution in the industrial track and trace space. As we've not yet closed the Nordic ID transaction, we have not included this in our fiscal 2021 earnings guidance. However, if we would close this acquisition in May, we would expect it to be diluted for the remainder of the fiscal 2021, primarily as a result of the normal purchase accounting items, such as grossing up inventory values to fair value, the transaction and legal costs to close the acquisition, and the amortization of intangible assets. We expect dilution to our EPS of approximately two to four cents in our fourth quarter, and we expect Nordic ID to be slightly dilutive in fiscal 2022 as well. As I mentioned, we're not buying Nordic ID with a short-term goal of immediately extracting as much value as we can. Our goal is to further invest in this technology and to help expand our product offering in industrial track and trace applications. It's a combination of technology acquisitions such as Nordic ID, the investments we've made throughout the pandemic in R&D, sales and marketing, and our recently expanded customer base that results in a strong future for both our ID solutions and our workplace safety businesses. I'm confident we'll see strong revenue growth in future quarters as a result of our focus on growing organic sales. Plus, our rock-solid balance sheet and strong cash flow give us significant dry powder to accelerate growth further through R&D efforts and additional business acquisitions. Brady is well-positioned as we close our fiscal 2021 and look forward to next year. And today, we increased our guidance for the rest of this fiscal year as a result of this increased optimism. Overall, I'm confident in our ability to deliver results for our customers, our employees, and, of course, our shareholders. I'll now turn the call over to Aaron to give you a bit more detail on our financial results. Then I'll return to provide specific commentary about our identification solutions and workplace safety businesses.