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spk03: And welcome to Brady Corporation's third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. I would now like to hand the call over to Chief Financial Officer Anne Thornton. Please go ahead.
spk00: Thank you. Good morning and welcome to the Brady Corporation fiscal 2023 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 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 2022 form 10-K, which was filed with the SEC in September of 2022. 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 Schaller. Russell?
spk01: Thank you, Anne. Thank you all for joining us today. First of all, I'd like to congratulate Anne for becoming Brady's new CFO. Many of you know her already as our leader for investor relations, and now I'm delighted to see Anne step up to this new challenge as CFO. Thank you. This morning, we released our fiscal 2023 third quarter financial results, which marked another quarter of strong results throughout our global businesses. This is the direct result of the hard work and dedication of the entire Brady organization. We have a culture that focuses on innovation and puts the customer first. As a result, we have a team of fantastic professionals who are providing the best possible customer experience while delivering innovative products that differentiate us from our competition. This quarter we once again improved profitability while continuing to invest in R&D, expanding our sales force, and improving our digital capabilities. These are the types of long-term investments that we expect will help us keep our momentum going. We not only had record earnings per share this quarter, we also had outstanding cash generation with operating cash flow of 151% of net income and free cash flow of 141% of net income. Brady's global footprint and sales into many end markets give us a unique view of the macroeconomic environment. Let us share a few recent observations. Our ability to hire and retain high-quality personnel continues to improve in most geographies, but this still remains somewhat challenging in areas such as research and development and IT where skill sets remain in high demand. International shipping rates have normalized and have nearly returned to pre-pandemic levels. Additionally, our supply chain is also returning to normal. You can see some of this in our improved gross margins this quarter. As it relates to overall inflation, although shipping rates have come down and we've seen some incredibly high semiconductor costs moderate, we're still experiencing inflation above pre-pandemic levels, which we expect to continue through the rest of this year. Wage rates continue to increase at a greater rate than we expected, excuse me, experienced before the pandemic and certain material costs continue to increase as well. But at the same time, we are seeing a few commodities stabilize or decrease in terms of year over year costs. From a geographic perspective, we grew sales organically in all of our major regions, with the exception of Asia. Our business in China has improved from the lows we experienced during December and January due to COVID related shutdowns throughout the country. But in Southeast Asia, many of our customers are in the consumer electronics industry, and we've seen a decline in demand in this end market. If we look at order patterns throughout the quarter, we started to see a slowdown in our rate of organic sales growth each month, with April being the slowest month of growth in the quarter. One month doesn't make a trend, but we believe this is a combination of reductions in stock throughout our distribution network, as well as a slight slowdown in some of our geographies and end markets. Fortunately, the diversity of our end markets and customers in the geographies in which we operate allow us to continue growing sales and profit even in certain end markets aren't growing at the same pace as others. Our cash generation, balance sheet, and access to capital give us the flexibility to keep investing in our organic business throughout the economic cycle. Our priorities remain unchanged. First, our number one priority is to continue our evolution into a faster growing company, which means that we'll continue innovating and we will continue launching new products faster than ever before. We launched three new printers this quarter. The first is the M610, which is a significant update to one of our handheld industrial label printers. This printer is a must-have for on-site asset tracking and electrical product labeling. The M610 can print up to 4,500 labels on a single charge on hundreds of different types of materials. The second printer is the M611, which is another significant update to one of our portable printers. Some of the unique features of this printer is that it allows the customer to store more than 1,000 different types of labels on the printer itself, and it's military-grade shock-resistant. It's rugged and built to last. And the third printer is the M710 portable printer. The M710 is our fastest, most advanced portable printer yet. It's versatile, easy to use, and can be controlled using a built-in keyboard, desktop software, or with a smartphone. There are also hundreds of material operation options for this printer, along with connectivity via Bluetooth and Wi-Fi. I've been looking forward to the launch of these new printers, and I'm really proud of the creativity and the level of innovation that our team has put into them. We also have a strong pipeline of more new products that we'll be bringing to market over the next year. We have a great R&D pipeline full of products that bring value to our customers and will continue to keep us ahead of the competition. Our second priority is to improve our capabilities to assist with our customers' automation initiatives. The acquisitions of code and Nordic ID are key in this effort. Helping our customers improve productivity is an essential part of reshoring of manufacturing that's underway in North America and Europe. Third is to take actions to offset the impact of the inflationary environment that we're in while meeting customer demand and providing our products at market competitive prices. We believe we provide value to our customers and we pride ourselves on our ability to customize our solutions based on exactly what our customers need. We're navigating this challenging inflationary environment by continuing to push for operational efficiencies throughout our global business. This has served us well for many years, and we know it will continue to drive value over the long term. And our final priority is to deploy our capital strategically in order to drive long-term shareholder value through organic investments, acquisitions, and returning funds to our shareholders. We're in a great position. We're leaders in many of the niche markets where we operate. We just launched several. excellent new products, and we have a pipeline of highly innovative solutions on the way. We're continuing to make investments in our future, we have a cash-positive balance sheet, and we have a fantastic team that delivers for our customers each and every single day. Now I'd like to turn the call over to Anne to cover our financial results. Anne? Thank you, Russell.
spk00: This quarter we grew organic sales, we increased our gross profit margins, and we grew our bottom line nicely. Putting it all together, we reported third quarter GAAP EPS of 96 cents compared to 78 cents in the third quarter of last year, an increase of 23.1%. And non-GAAP EPS, which is calculated as our GAAP EPS, excluding the 2.3 million after-tax gain on the sale of our premises business and the after-tax impact of amortization expense, was 95 cents this quarter, which was up 10.5% over Q3 of last year. The key financial takeaways this quarter are another quarter of organic sales growth, nicely improved EPS, organic sales growth and segment profit growth in each of our two regions, and significantly improved cash flow, all of which helped us overcome the year-over-year appreciation of the US dollar and deliver fantastic financial results. Let's move to slide number four for our quarterly sales trends. Organic sales grew 1.9% this quarter, But foreign currency translation reduced sales by 2.1%, and the impact of our premises divestiture reduced sales by another 0.2%, resulting in a sales decline of 0.4% in total. Foreign currency had a much larger impact on our Europe and Australia segment, where we saw a reduction of 4.8% from currency translation in the quarter. However, with the recent strengthening of currencies such as the euro versus the U.S. dollar, We expect the headwind from foreign currency to subside as we progress through our fourth quarter. Based on April 30th exchange rates, we expect foreign currency to have a minimal impact on Q4 and then to turn positive in Q1 of next year. On slide number five, you can see our gross profit margin trending. Our gross profit margin increased 190 basis points to 50.3% compared to 48.4% in the third quarter of last year. As we were able to offset, the majority of our input cost increases through efficiency gains, pricing actions, and reduced freight charges. Our strong gross profit margins really show the value that we can bring to our customers. Slide number six is our SG&A expense trending. SG&A was $91 million this quarter compared to $96.2 million in the third quarter of last year. As a percent of sales, SG&A declined to 27% compared to 28.4% in the third quarter of last year. If you exclude amortization expense from each of the periods presented, exclude the non-routine charges from last year's third quarter, and exclude the gain on the sale of our premises business from this quarter, then SG&A would have increased from 26.8% of sales in Q3 of last year to 27.4% of sales this quarter. On a year-to-date basis, we continue to reduce SG&A both in absolute dollars and as a percent of sales through our continual focus on becoming a more efficient organization. Slide number seven is the trending of our investments in research and development. This quarter, we invested $15.7 million in R&D, which was 4.7% of sales. We remain committed to new product development. We have opportunities throughout our global businesses, including the development of our newest lines of printers. As Russell mentioned, we launched three excellent new printers this quarter, and a pipeline of additional printers are scheduled for launch over the next several quarters. On slide number eight, you can see that pre-tax earnings increased 23% on a GAAP basis. GAAP earnings this quarter include a pre-tax gain of $3.8 million from the sale of our premises business. If you exclude this gain, exclude amortization expense from both the current year and the prior year, and exclude last year's non-routine charges that we recognized in our workplace safety business, then our non-GAAP pre-tax earnings would have increased by 8.6%, from 56.8 million in Q3 of last year to 61.7 million this quarter. Slide number nine outlines the trending of earnings and EPS on an after-tax basis. Looking at these charts, you can see a clear trend of increasing earnings, and you can also see that Q3 is our strongest quarter on record. ON BOTH A GAP AND NON-GAP BASIS, OUR Q3 EPS WAS AN ALL-TIME RECORD HIGH. AND ON A YEAR-TO-DATE BASIS, EPS IS UP 23.1% VERSUS LAST YEAR ON A GAP BASIS AND UP 10.5% OVER LAST YEAR ON A NON-GAP BASIS. ONE OTHER ITEM TO POINT OUT IS THAT WE DID HAVE A HIGHER INCOME TAX RATE THAN NORMAL AT 23.8% THIS QUARTER. THIS HIGHER THAN NORMAL TAX RATE WAS DUE TO CERTAIN STATUTE LAPSES THAT OCCURRED LAST YEAR AND DIDN'T REPEAT THIS YEAR. So we still expect that our annual tax rate will be approximately 21%, and we still expect that our long-term tax rate will be approximately 21% as well. On slide number 10, you'll find a summary of our cash generation. Operating cash flow increased substantially this quarter from 40.9 million in Q3 of last year to 72.5 million this quarter. For the quarter, operating cash flow was 151% of net income, and free cash flow was 141% of net income. So if you look at the first three quarters of this year, operating cash flow was up nearly 100% over the prior year to 129.9 million, and we expect to finish the year with another strong quarter of cash generation in Q4. Turning to slide number 11, you can see the impact that Brady's historical cash generation has had on our balance sheet. We're currently in a net cash position of $84.9 million. To put this in perspective, even with returning more than $23.3 million to our shareholders in the form of dividends and buybacks this quarter, we still reduced our outstanding debt by more than $26 million, and we increased our net cash position by more than $53 million. Our approach to capital allocation 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, and automation focused CapEx. Despite the economic uncertainty, we'll continue to deploy capital to drive productivity and sales growth into the future. And second, we focus on consistently increasing our dividends. We've increased our dividends annually for 37 consecutive years, which is a streak that we're very, very proud of. After fully funding organic investments and dividends, we then deploy our cash in a disciplined manner for either acquisitions where we have clear synergistic opportunities or for buybacks in an opportunistic manner when we see a disconnect between intrinsic value and Brady's trading price. Our balance sheet puts us in a position to really drive value by investing in R&D and other organic sales opportunities, completing acquisitions when the price is right and the synergies are clear, and returning funds to our shareholders through dividends and buybacks. As we look to the future, we're confident that our strong balance sheet and our positive momentum set us up for success, even in this uncertain macro environment, which brings us to our guidance on slide number 12. We're raising the low end of our fiscal 2023 EPS guidance range of $3.40 to $3.60 per share on a non-GAAP basis and $3.23 to $3.43 per share on a GAAP basis, to our new range of $3.45 to $3.60 on a non-GAAP basis, and $3.32 to $3.47 per share on a GAAP basis. Our outlook is based on exchange rates as of April 30th and assumes continued economic expansion. Although we're concerned about the stability of the global economy, we're still experiencing organic sales growth in most of our businesses outside of Asia. Because of this, we still expect full year organic sales growth to be approximately in the mid single digit percentage range for the year ending July 31st, 2023. Other elements of our guidance include an income tax rate of approximately 21%, depreciation and amortization expense of approximately 32 to 34 million, and capital expenditures of approximately 20 million. We also expect our fourth quarter to be another strong cash-generating quarter. Potential risks to this guidance, among others, include strengthening of the U.S. dollar, inflationary pressures that we can't offset in a timely enough manner through price increases, destocking and inventory reductions at our distributor partners, and an overall slowdown in economic activity. Now I'll turn it back over to Russell to cover our performance by region. Russell? Thanks, Anne.
spk01: Effective with the beginning of this quarter, on February 1st, we changed our reporting structure from a global product lines to more geographically aligned organization. This change was all about creating a structure that sets us up for the future by taking advantage of the synergies that exist between identification solutions and workplace safety, by utilizing our best go-to-market strategies in each of our key geographies, and by using our increased geographic scale to accelerate new product development while delivering tailored solutions that meet the unique needs of each region. We're also providing sales information for our former segments to assist with the transition through this fiscal year. As part of this transition, we are incurring certain costs, such as severance. However, these one-off severance charges are effectively being offset by reduced personnel costs so these charges aren't significant enough to talk about or break out separately. Slide 13 illustrates the financial results of our Americas and Asia region. Sales were $222.8 million this quarter, and organic sales growth was 1.2%. Foreign currency reduced sales by 0.8%. We also sold a small business this quarter that reduced our regional sales by 0.3%. The $2.3 million after-tax gain on the sale of this business is not included in the segment financial results. Adding this up, total sales increased by 0.1% this quarter in the Americas and Asia region, and segment profit increased by 9.3% to $49.2 million. Approximately 90% of the revenue in our Americas and Asia region consists of our historical identification solutions business and the remaining 10% of this region is our historical workplace safety division. Our historical IDS business in the Americas performed well this quarter. Our increased investments in R&D and excellent new product launches are making a difference. Our productivity solutions and our focus on providing complete solutions that combine products, software, and services to help our customers improve safety and get their job done in a more cost-effective manner should help us capitalize on secular tailwinds. as companies continue to push for efficiency gains and increased productivity from their employees. Our business in Asia struggled this quarter with a slight organic sales decline of 0.3% as a result of weak demand from our consumer electronics customers. However, India continued to do well, and they helped to mitigate some weaker demand in other countries in the region. In fact, we are expanding our footprint in India by adding a new plant in Delhi We expect this will become operational by the second quarter of next fiscal year. Moving to slide 14, you'll find a summary of the Q3 financial performance of our Europe and Australia region. Sales were $114.3 million this quarter, organic sales growth was 3.4%, and foreign currency reduced sales by 4.8%. Comparing to our former product line segments, Slightly more than half of the European and Australian business is our historical identification solutions business, and the remainder is workplace safety. Our business in Australia continues to perform very well with both organic sales growth of approximately 13% and a solid improvement in profit. And in Europe, we continue to experience organic growth across both our historical IDS business and our workplace safety business. In Europe, our ID Solutions business is benefiting from many of the same trends we're seeing in the U.S. As companies work to shorten their supply chain and struggle to find personnel, there's a clear demand for Brady's productivity solutions. Meanwhile, our workplace safety business in Europe grew organically in the mid-single digits this quarter. Our team is doing a great job ensuring that our products are relevant to our customers and that we're helping them to identify the right solutions. At the same time, we're increasing spend on our websites and on our online advertising while de-emphasizing our catalog spend. The strength of our European and Australian businesses shows in the increase in segment profit this quarter. Even with the tough economic background and foreign currency headwinds, segment profit increased by 6.5% this quarter to 17.1 million. And segment profit as a percentage of sales increased from 13.8% in Q3 of last year to 15% this year. Lastly, I want to share what our sales results would have looked like by product line if we hadn't reorganized our structure in the regions with the understanding that we have incurred both costs and benefits in the restructuring. Our global ID solutions would have had organic sales growth of 1.5%, and our global workplace safety business would have had organic sales growth of 3.5%. And with that, we'd like to start the Q&A session. Operator, would you please provide instructions to our listeners?
spk03: Yes, sir. As a reminder, to ask a question, you will need to press star 11 on your telephone. Again, that's star 11 on your telephone to ask a question. Please stand by while we compile the Q&A roster. Stand by for our first question. which comes from the line of George Staffos of Bank of America Securities. Your question, please, George.
spk05: Yeah, hi. Good morning. This is actually Cash and Keillor sitting in for George this morning. Thanks for all the color. So I guess you discussed that April slowed in the quarter. So I was just wondering if you're able to quantify trends maybe in February and March relative to April. And then as you sit here today, are you able to provide any color on exit rates or, I guess, how things are trending to start the fourth quarter? Thanks.
spk01: Yeah, sure. So, you know, it's hard to take too much into one month because we do see a fair amount of – volatility you know from month to month but you know one of the things that I think is being talked about pretty significantly is what is the right level of inventory to have that our distributors and that's not just Brady that is I think a question that's happening throughout the industrials worldwide so we have seen a little bit of a de-stocking effect that happened in April and We didn't see the same effect in February and March. But more interestingly, we do track direct customer demand. And with the exception of our business tied to consumer electronics, most of the point of sale purchases seem to be pretty robust. So, you know, not necessarily in every last segment or every last region, but the primary demand seems to be holding up. I think what we're seeing largely is a transitory effect of stocking levels in the supply chain, which is that going to be a headwind for a month or two or a headwind for the next four months? I think it's just very premature for us to tell. But we do see a little bit of that, and we saw it in April. And the likelihood, of course, is that it will spill into May. Whether it goes past that, we just can't predict.
spk05: Got it. That's a helpful color. And then, I guess, just going back about a year ago, Russell, you laid out a number of initiatives in terms of skew rationalization, better addressing competitiveness, and some other items. So, I guess, can you just help us understand where we are in terms of the stages of that, how much more needs to be done? And relatedly, you know, you invested some business here in the quarter, so ultimately are there more opportunities to do some more pruning of the portfolio?
spk01: Yeah, I would say it is, I'll call it a light nip and tuck that is self-funding. So, yeah, clearly we're going through our portfolio. It wasn't in bad shape. there were just some parts that either we felt we weren't the best parent or had become sufficiently commoditized that we no longer saw them as an office, you know, as an opportunity for really profitable growth. So in the case of Access Control, it was actually a good business, very small, but it was distinct from the rest of the businesses within Brady and really wasn't a fit, hence the reason we divested it. And I think it's gone off to a much better parent at this point. We do have some other businesses. I don't immediately anticipate any further divestitures given the climate out there. And what I would again say in terms of skew rationalization, that is an ongoing effort that we have and will continue to do so. But again, self-funded and not to the level that you'd see a dramatic impact to either top or bottom line.
spk03: Great, thanks. Thank you. Please stand by for our next question. Our next question comes from the line of Steve Farazani of Sudoti. Your question, please, Steve.
spk02: Morning, Russell. Congratulations. Wanted to ask about gross margin, obviously got it back over 50%. Where do you think you are in terms of pricing and keeping up with inflation? Now, if it's tamer than it was, do we see more benefits from pricing moving forward if we remain at a more tamer level, even though, as you noted, there's still some moving parts?
spk01: Yeah, I mean, if you look at the drama over the last couple of years, most of that is all gone so you know we along with many people experienced purchase price variance with semiconductors significantly elevated shipping rates container shipping rates in particular or the need to switch to air freight to get parts at the right place at the right time almost all of that has relaxed we still see you know a little bit of elevated um I'll say inflationary trends, both in wages and in some regions. But I feel like we're in a good and stable place at this point, unless there's some unusual shock to the global economic system of one sort or another. I think our growth margin is in a reasonable place. It's largely recovered to historical levels, given the product mix that we have. If I was to trace back pre-pandemic and adjust for mix, which has changed a bit over time. It feels like we're in a pretty good place where pricing and raw materials and efficiency gains all balance each other out to deliver a pretty good gross margin for us.
spk02: When we think about the, I guess, what you would have called the ID solutions and the slower growth, Given the launch of those three new products, which are major products in your portfolio, the M610, the M611, M710, does that drive the replacement cycle? Can that spur some growth in a slowing growth global economy?
spk01: Yeah, so there's two things. Again, we are super excited about those product launches and refresh cycles. You know, they are being launched into a refresh base. So, you know, we already have a pretty significant installed base on all three products. But what it does open up for us is more mobile app-based applications. So, you know, the prior generation of devices were not as smart as the new ones. So it does open up market segments that might traditionally have been opaque to us. particularly the ability to store imagery in the cloud or on a phone and be able to port it to the printer, you know, rather than manually keyboarding it or having some other way of inputting the data. So, you know, what we've seen in the past as we start to introduce mobile-based computers, we get additional market share from either non-consumption or people who aren't used to using those type of products. At the same time, you'll notice there are keyboards still on many of our products to service our traditional users. So given the size of Brady and the size of these printers, you wouldn't expect to see an immediate uptick. These are very long-term plays for us, where we see growth for essentially anywhere from four to seven years is typical for these products, and then the consumables that come along with it. So you wouldn't expect to see a pop in, I'll say, 2024, but at the same time, it keeps us relevant and keeps us at the forefront of technology.
spk02: Great, great. That's helpful. We have one more in just on, obviously, cash conversion, well over 100%. starting to build up that net cash position again. How does that affect capital allocation decisions in terms of M&A buybacks?
spk00: I mean, we're still consistent here in our approach and our prioritization being focusing on the organic growth opportunities both through our sales force and new products, which you touched on, Steve, with the three fantastic new products in the quarter that Russell just went through. committed to the dividend. We bought back some shares in the quarter. We spent $11.9 million and bought 229,000 shares. And then still looking strategic from an M&A standpoint. So, yeah, I mean, a huge cash-generating quarter for us with the big driver being a reduction in inventory. And we're definitely seeing that as our expectation, basically, as we finish out the year as well.
spk02: Fantastic. Great. Thanks, Russell. Thanks, Anne. Thanks, Steve.
spk03: Thank you. Please stand by for our next question. And our next question comes from the line of Keith Housem of North Coast Research. Your line is open, Keith. Good morning, guys. Thanks.
spk04: I appreciate the opportunity. Russell, just touching on some of your growth initiatives, I remember earlier this year you talked about adding salespeople and in India and, you know, your commentary is you're adding a plant there in the second quarter. Press has expanded a little bit more on some of your growth initiatives, you know, including this one and outside of that. And, you know, when we might be able to see a little bit more of an impact on that for the top line.
spk01: Yeah. So, you know, one of, I guess the advantages and perhaps disadvantages to Brady is we're in almost every industrial segments and industrial country in the world. The consequence of which is there are always a lot of puts and takes. You know, we'll see strength in India and Australia and some extractive industries, and then it gets balanced out by we saw some weakness in consumer electronics. But our business and our model is always and will always be to look at, you know, where we like the trends in the future. you know, where we think, what countries, what geographies and regions are growing. You know, more recently, India has been doing fantastic for us. They have for the last several years. And the consequence of which is that we keep adding our, you know, our growth in India and our investment profile in India. And the same more recently with Australia post their lockdown, Also doing really a shining star. In terms of our growth initiatives, we have always said that working on productivity solutions, working on printers and printer materials is really the backbone of what Brady is. And then we have a host of peripheral products that support those or are tied to those. That is, for the most part, that is the real driver of Brady's operating profit. some of the super niche products that we have in a number of regions in a number of countries. So I feel like we're in a good place for our initiatives. I don't see any impediment at this point. We went through a year or two during COVID where chip supply and chip availability definitely hampered some of our product development efforts. We believe most of that is behind us now. And, you know, unless there's some global slowdown or recession, you know, we feel like we're well positioned to kind of capitalize on growth over 2024. Okay, appreciate that.
spk04: If we look at your R&D, and I appreciate how important the printers are to your business, your R&D pipeline, do you see like new products that gets you guys more into new markets and less the refreshes that you have going on here? How are you thinking about the use of R&D in driving top-line growth here?
spk01: Yeah, so, you know, it's ironic, but a lot of our products actually are fighting against non-consumption. So they are industrial manufacturers that haven't automated or don't even know that they can automate. And, you know, if our target market continues to be people who are buying from us, again, if If I looked at the 500 largest industrial companies, I would be hard-pressed to find one of them that didn't buy something from Brady. The question is, and what we're striving for, is how do we get them to buy more? How do we get a bigger wallet share? How do we help them on their automation journey? How do we help them in productivity? All of these things are areas where Brady can help. And if you look at our portfolio, not only of the printers, but of the workplace safety visualization products, they're all aimed towards improving productivity and helping ensure the manufacturing environment and the healthcare environment are safer and more productive places. I can't say there's a huge swath of industry that's out there that we don't work in right now. but I think there's tremendous opportunity for wallet share expansion at this point.
spk04: Gotcha. I appreciate that. And then last question for you here, as we look at sales in the quarter, you know, is there a feeling that perhaps sales benefited from, you know, backlogs being finally fulfilled as supply chain ease, or was that was not as big for you as perhaps some of your competitors?
spk01: Yeah, I would say, you know, we elected, um, several quarters ago to build inventory to ensure we didn't shortchange any of our customers. So we've had no, I'll call it backlog effect of shipping late products. Our conversion, and I'm gonna say for more than 95% of our sales, our conversion from order to sale is days or less, which is traditionally been our product line you know, pre-pandemic. And I feel really good about that. You know, it came at a cost of increased inventory. And, you know, part of the reason we're seeing significant cash generation this quarter is we've been able to pull down some of our inventory levels, but they're still elevated over where they were pre-pandemic. And all of this is aimed towards ensuring our customers and our distributors are not short-change products. So very long-winded answer to your question of no we don't see it as chewing into a backlog at this point affecting our sales.
spk04: Great. Thanks, Russell. Appreciate it.
spk03: Thank you. At this time, I'd like to turn the conference back to Russell Schaller for closing remarks. Sir?
spk01: Perfect. Thank you. Thank you all for your time today and for your questions. Brady is in a strong position regardless of which direction the economy heads. We're growing organically. and we've accelerated the pace of our new product introductions. Our diverse portfolio of products and our diverse geographic footprint increase Brady's ability to overcome challenges. We are very resilient. Our pricing and efficiency actions are helping us generate gross profit margins of approximately 50%, which demonstrates the value we bring to our customers. Our profits are up, and our cash flow was outstanding this quarter. We have a balance sheet that allows us to keep investing in our sales growth initiatives, while also returning funds to our shareholders throughout the economic cycle. On the ESG front, we are making great progress. We're working to ensure our manufacturing footprint is ecologically friendly, and we're excited about the contributions we're making to our communities, because Brady strives to be a transparent company that provides value to all of our stakeholders. Even though the global economy may face challenges in the future, I'm optimistic that our team and our company will overcome these challenges. As I hope is evident, we are excited about the Brady story. At some point mid-fiscal year, we're looking to hold an investor day to talk about our future in great detail. Thank you for your time this morning, and as always, thank you for your interest in Brady. Have a great day. Operator, you may disconnect the call.
spk03: This concludes today's conference call. Thank you for participating. You may now disconnect.
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