Brady Corporation

Thank you for standing by, and welcome to the Q4 2021 Brady Corporation Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question at that time, please press star then 1 on your touch-tone telephone. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host, Ms. Anne Thorne, Chief Accounting Officer. You may begin.

Thank you. Good morning and welcome to the Brady Corporation Fiscal 2021 Fourth 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, 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 2021 Form 10-K, which was filed with the SEC this morning. 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, Anne. Good morning, and thank you all for joining us today. This morning, we released our fiscal 2021 fourth quarter financial results, capping off a record earnings per share year. I'm proud of how the Brady team was able to navigate this challenging economic environment and deliver for both our customers and our shareholders. Brady played a very important role in the global fight against this pandemic throughout the last year and a half. In our WPS business, we work tirelessly to manufacture, source, and deliver many of the products that our customers needed to aid in social distancing or to help provide a more hygienic environment for employees returning to work. We provided support to first responders, healthcare workers, food processing companies, logistics companies, retail establishments, schools, and virtually every other essential industry by helping solve their safety and identification needs to ensure that they could fulfill their missions. Our floor markings, safety signs, and many other products were used throughout the world. In our identification solutions business, we also provided many products into the healthcare industry and laboratories to identify and track samples and to help keep patients safe. Brady's safety and identification products were in demand, and our team stepped up to deliver the products that helped make the world a safer place. To put it mildly, this was a challenging year as we navigated through a rapidly evolving environment. all while never wavering from our primary goals of keeping our employees safe and ensuring that we meet the demands of our customers. It's clear that this pandemic is not yet behind us as new variants have emerged, and COVID cases are still high and rising in many countries around the globe. Plus, we and many other companies are dealing with supply chain disruptions caused by the abrupt shutdowns and then the rapid reopenings, which resulted in inflation in areas such as resin, freight, paper-based materials, certain services, and wages. Some of these cost increases may be temporary, but we see many of these cost increases as almost certainly permanent. As you can see, we continue to maintain a healthy gross profit margin. Our gross profit margin was up 110 basis points versus the same quarter last year because we never slowed down on our push to automate our facilities and drive sustainable efficiency gains, which, when combined with targeted price increases, are offsetting most input cost increases. As I said, fiscal 2021 was a challenging year, but Brady did its part, and we will continue to do our part to make the world a safer place. This quarter, revenues were up a robust 21.6%. We had growth of 35% in our identification solutions business and a decline of 6.8% in our workplace safety business. The revenue decline in our workplace safety business was primarily due to tough comparables as Q4 of last year was when we experienced peak COVID-related product sales. Earnings were also very strong this quarter with earnings per share up 32.1% on a non-GAAP basis. And cash generated from operating activities was also very robust this quarter, finishing at $50.8 million this and capping off a year where cash flow from operating activities exceeded $200 million. Overall, our fourth quarter financial results were once again very strong and provide a strong jumping off point as we enter fiscal 22 with positive momentum. As we look ahead, our priorities are to drive organic sales growth, continue to become a more efficient manufacturer, integrate our recent acquisitions, and to deploy our capital to drive long-term shareholder value. To drive organic sales, we're upgrading our websites, we're improving our marketing capabilities, we're developing new products, we're investing in capital-enhancing machinery, and we're making the marketing investments necessary to grow our top line now and into the future. Profitable sales growth is definitely our number one financial priority in fiscal 2022. For instance, in our ID Solutions business, we've been increasing our R&D spend and seeing the fruits of that labor as we're launching new products at increasing rate and we're continuing to distance ourselves from our competitors who don't have the scale or financial wherewithal to invest this heavily in R&D, particularly during a downturn. We're improving our inline presence by upgrading our websites and investing more in digital marketing talent. We're also expanding our sales force and expanding geographically into underserved markets with strong future growth potential in areas such as Southeast Asia and Eastern Europe. Our strong new product lineup combined with investments in sales, marketing, and our online presence gives us confidence that our IT solutions business will continue to generate strong organic sales growth in fiscal 2022 and beyond. In our workplace safety business, we're capitalizing on our common web platform by using our much stronger market intelligence to quickly adapt and pivot 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 by WPS. 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 is paying off. We also believe that we will soon see another leg up in organic sales growth as some of our other end markets improve. For instance, in our IDS business, we sell in the mini-niche identification markets aimed at identifying people in workplace and 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 in the U.S. has 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 increase in organic sales. While we're investing in organic sales growth, we're also working to streamline our SG&A cost structure so that we can fund our sales growth initiatives while still driving down SG&A expense. And we're focused on becoming a more efficient manufacturer. We're automating wherever we can in an effort to reduce manufacturing costs in a sustainable manner and to protect our strong gross profit margins. In addition to our focus on driving organic sales growth and becoming a more efficient organization, we're also in the process of integrating the three acquisitions that we completed last quarter. As it relates to the acquisitions of Nordic ID and Code, we're building out our track and trace solution set, which is an important initiative to help us move into faster growing in markets. With the addition of barcode scanning technology and NordicID's RFID scanning technology, we will create a portfolio of industrial readers that are fully integrated with our printers and our existing software. Driven by the adoption of Industry 4.0 and the trend of onshoring to reduce supply chain vulnerabilities, the barcode and RFID markets are growing quickly as a result of merging use cases to provide better workflow visibility. The value of code and NordicID come from their strong technology and complementary products that will help us expand in track and trace applications within industrial settings. So there are natural synergy opportunities once combined with Brady's global footprint. We're very excited about how these acquisitions combined with additional R&D efforts will help us develop global solutions in the industrial track and trace space. We also completed the acquisition of MagiCard last quarter. MagiCard is a well-known globally for its innovative and differentiated products in the ID card printing space as they have a full range of desktop devices to meet local, on-demand, secure ID card issuance requirements. They specialize in ID card printers and consumables with high resolution, full-color image capabilities that have built-in security features and the ability to encode smart cards. There are natural synergies with our people identification product offerings. Previously, we lacked rigid card printers in our product portfolio, and MagiCard absolutely helps fill the gap. It's a combination of technology acquisitions such as NordicID, code, and MagiCard, the investments we've made through 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 workplace safety businesses. I'm confident we will see continued revenue growth in future quarters as a result of our focus on growing organic sales. Our rock-solid balance sheet and strong cash flow give us significant dry powder to accelerate growth through further R&D efforts and additional business acquisitions, all while continuing to return funds to our shareholders. Brady is well-positioned as we look to fiscal 2022 and beyond. Yesterday, we announced an increase in our annual dividend for the 36th consecutive year, And today we announced an increase in the amount of authorized shares available for repurchase that are coming out with guidance for fiscal 2022. As you can see from our guidance, we expect fiscal 2022 to be another all-time records earning per share year for Brady. 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 a little more detail on our financial results. Then I'll return to provide specific commentary about our identification solutions and workplace safety businesses. Aaron?