Brady Corporation

Thank you for standing by and welcome to the Q1 2022 Brady Corporation earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentations, there will be a question and answer session. To ask a question at that time, please press star then 1 on your touchtone 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.

Ma'am, you may begin. Thank you. Good morning and welcome to the Brady Corporation Fiscal 2022 First Quarter Earnings Conference Calls. 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 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, Michael Nauman. Michael?

Thank you, Anne. Good morning, and thank you all for joining us today. This morning, we released our fiscal 2022 first quarter financial results, which showed strong sales growth and profitability. Even in this challenging environment caused by the ongoing impacts of the COVID-19 virus and the associated inflation and logistical challenges, the Brady team once again performed quite well. I'm proud of how the team was able to navigate this challenging economic environment and deliver for both our customers and our shareholders. This quarter, we grew sales by a very healthy 16%, and we increased earnings per share by 4.7%. If you exclude the impact of amortization, then our APS was up even more significantly at 9.1%. In addition to this solid revenue and earnings growth, we have a rock-solid balance sheet. This quarter, we returned more than $30 million to our shareholders in the form of dividends and buybacks, and we're still in a net cash position of more than $90 million. And our WPS business sales were down by 7.8%. This sales reduction was almost exclusively the result of very challenging comparables. Last year, our WPS team did an excellent job of providing COVID-related products to our customers. The sale of these products, which included social distance signage and personal protective equipment, has since waned, thus resulting in challenging comparables. The best way to look at our WPS business is to compare sales to the pre-COVID period of fiscal 2020, which would show that our current sales levels exceeded those historic pre-COVID levels. In our identification solutions business, we continue to post excellent results with sales growth of 25.4% and segment profit growth of 21.2%. And if you exclude the impact of amortization expense, segment profit would have been up a robust 26.4%. Our identification solution business is a very strong franchise, and continues to perform extremely well. As we look ahead, our priorities are to first drive organic sales growth and ensure we are serving our customers extremely well during this period of challenging logistics. Second, it is to take the necessary cost and pricing actions to offset the impacts of this inflationary environment and return to pre-pandemic gross margin levels. Third is to integrate our recent acquisitions, and finally, to deploy our capital to drive long-term shareholder value. In our IDE solutions business, we're embracing these priorities by increasing our investments in R&D, including the incremental R&D necessary to fully realize the benefits from our recent acquisitions. We are certainly seeing benefits from our historical R&D focus as we're launching new products at an increasing rate and we're continuing to distance ourselves from our competitors who neither have the scale nor financial wherewithal to invest as heavily in R&D. We're also improving our online presence by upgrading our websites and investing more in digital marketing talent, all while expanding our sales force and expanding geographically into underserved markets. We're driving significant automation enhancements within our factories and distribution centers, which in a period marked by scarcity of labor and rising costs, this continuous push to drive automation is critical. Our strong new product lineup, investments to drive sales, and our positive momentum in driving efficiencies give us confidence that our ID Solutions business will continue to generate strong organic sales growth with very healthy margins 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 to changing market dynamics. We've increased our investments in new product development and the pace of new product launches in an effort to increase the percentage of proprietary high-value products sold to our customers, which will have a positive impact on our profit margins. And we're intentionally increasing our advertising spend and our headcount in certain businesses that have lagged in an effort to drive future revenues. These investments resulted in reduced segment profit this quarter, but will result in increased revenues as we progress throughout the fiscal year. Our workplace safety business is headed in the right direction, and I'm confident that the changes we've been implementing and the investments we've been making will help drive long-term sales and profit growth. While we're investing in organic sales, we're also working to streamline our SG&A cost structures 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 by automating wherever we can. In addition to our focus on driving organic sales growth and becoming a more efficient organization, we're also actively integrating the three acquisitions that we completed in the fourth quarter last year which includes building out our industrial track and trace solution set. Much of the increased R&D that you see relates to the investments necessary to build out a comprehensive solution that will help move us into faster growing in markets and accelerate sales growth for years to come. I'm confident we'll continue to see revenue growth in future quarters. However, we're seeing inflationary pressures across many different cost categories. from wages to freight to raw materials, and we've had challenges securing supply of certain products, including chips and selected products where our supply chain originates in Asia. In general, we've been overcoming these shortages, but it has resulted in increased freight charges as we've used air freight more than we have in the past. Even with these inflationary pressures, our gross profit margin was still an enviable 48.2%, which was right in line with the 48.2% experience in the fourth quarter of last year. But our cost increases have neither been large enough nor fast enough to fully keep up with rising costs, resulting in our gross margins being down around 70 basis points on a year-over-year basis. As such, we're putting through additional price increases across many of our product lines to try to catch up with the rapidly increasing costs. We believe that these gross margin challenges are temporary and that in the near term, we'll return to our historical gross margin levels of close to 50%. Even with this challenging logistical environment, Brady's well positioned as we look to the rest of this fiscal year and beyond. I'm confident in our ability to deliver results to 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.