Brady Corporation

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.

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?

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.