Brady Corporation

Good day and thank you for standing by. Welcome to the Q4 2024 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 will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. 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, CFO. Please go ahead.

Thank you. Good morning and welcome to the Brady Corporation fiscal 2024 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 2024 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, Russell Schaller. Russell?

Thank you, Anne, and thank you all for joining us today. We released our fiscal 2024 fourth quarter financial results this morning, and I'm thrilled to announce another company record high EPS for both quarter and the year. We grew organic sales this quarter, and we also generated record high cash flow from operating activities. This quarter was an excellent finish to another great year. Our 2024 non-GAAP EPS of 422 was another all-time record high following three consecutive years of all-time record highs. Our GAAP EPS of 4.07 was also an all-time record high. This year we grew organic sales by 2.6% with growth driven by both of our regional segments. We improved our gross profit margin to 51.3% an increase from 49.4% last year. We closed the acquisition of GraviTech on August 1st, and we returned $117 million to our shareholders through dividends and share buybacks. I'm incredibly proud of the entire Brady team for creating our results this year. It's a testament to their efforts that our profitability improved while we increased our investment in R&D. We are using these investments to increase our portfolio of engineered products to help make our customers' lives easier. Meanwhile, we're expanding our sales force and investing in our digital capabilities to put ourselves in the best position to generate consistent organic sales growth. Our priorities for the next year remain the same. Generate top line growth in excess of GDP and continue our evolution into a faster growing company. Target niche opportunities by developing unique product offerings to support our customers, particularly in the area of workplace automation, which we believe is a growth opportunity for years to come. Deliver operational improvements to increase profitability as we grow. To integrate GraviTech acquisition and identify combined sales growth opportunities. And effectively deploy our capital to drive long-term shareholder value which includes organic investments, acquisitions, returning funds to our shareholders through dividends and share buybacks. We demonstrated our commitment to returning funds to our shareholders this year as we repurchased nearly 3% of our diluted share count. And we announced an additional 100 million share back authorization. And yesterday, we announced an increase in our dividend, which represents the 39th consecutive year of annual dividend increases. We are committed to return cash to our shareholders while delivering a strong shareholder return. I'll now turn it over to Ann to provide more details on our financial results. Ann?

Thank you, Russell. We had a strong quarter and an excellent finish to 2024. Our organic sales growth was 1.6% this quarter. Our gross profit margin improved to 51.6%. We increased our investment in R&D and we reduced SG&A as a percentage of sales. This resulted in earnings growth and another quarterly record GAAP EPS of $1.15 per share, which was up 15% compared to the fourth quarter of last year. Our non-GAAP EPS, which is calculated as our GAAP EPS excluding the after-tax impact of amortization expense, was $1.19 per share this quarter, which was up 14.4% over the fourth quarter of last year. Both regions performed well this quarter. Our Americas and Asia region grew organic sales 3.4% and increased segment profit by 6.7%. Our Europe and Australia region declined 1.8% organically compared to last year's fourth quarter, which follows an impressive streak of 13 straight quarters of organic sales growth. The macro environment in Europe has become more challenging over the last several months and quarters, but even despite the slight decline in organic sales, we were still able to increase operating income by 4.6% in the region, which was driven by continued improvement in gross profit margin and ongoing efficiency gains throughout our cost structure in Europe. The key financial takeaways this quarter are record high EPS, record high cash flow from operating activities, continued strong financial performance within both of our regions, and a continued commitment to return funds to our shareholders. Let's move to slide number four for our quarterly sales trends. Organic sales grew 1.6% this quarter. The recent strengthening of the U.S. dollar versus other major currencies decreased sales by 0.8% and divestitures decreased sales by 1.5% for a total sales decline of 0.7% in the quarter. Moving to slide number five, you'll find our quarterly gross margin trending. Our gross profit margin continues to be strong with an increase of 80 basis points to 51.6% compared to 50.8% in the fourth quarter of last year. We continue to realize benefits from our sales growth coming from higher gross profit margin products as well as stabilizing input costs compared to last year. Slide number six details our SG&A expense trending. SG&A was $93.3 million this quarter compared to $97.5 million in the fourth quarter of last year. As a percent of sales, SG&A declined to 27.2% compared to 28.2% of sales last Q4. And then if you exclude amortization expense from each of the periods presented, then SG&A would have decreased from 27.5% of sales in the fourth quarter of last year to 26.5% of sales this quarter. We've made significant progress in optimizing our cost structure, reducing our SG&A expense from more than 36% of sales eight years ago to 28.1% in fiscal year 2024. At the same time, we've continued to invest in growth by expanding our sales force, enhancing our digital capabilities, and broadening our omnichannel strategies, all while identifying savings throughout our sales and other support functions. Moving to slide number seven, you'll find the trending of our investments in research and development. This quarter, we once again increased our investment in R&D, finishing at 17.5 million, which was 5.1% of sales. We know that the investments with the best ROI are almost always organic investments, and in particular, our investments in research and development. We remain committed to new product development, and we have another exciting lineup of products set to launch in fiscal 2025. On slide number eight, you can see that pre-tax earnings increased 6.9% on a GAAP basis from $63.8 million to $68.2 million. And if you exclude amortization from both periods, pre-tax earnings increased 6.6% on a non-GAAP basis from $66.2 million to $70.5 million. Slide number nine details the trending of earnings in DPS. Here you can see a clear trend of increasing earnings, and you can also see that the fourth quarter is our strongest quarter on record. On both a GAAP and a non-GAAP basis, our fourth quarter EPS was an all-time record high. This quarter's GAAP EPS increased 15% compared to last year, and if you exclude the after-tax impact of amortization from both periods, our fourth quarter non-GAAP EPS increased 14.4% compared to last year. Turning to slide number 10 you'll find a summary of our cash generation. Operating cash flow increased from $79.3 million in Q4 of last year to $84 million this quarter. And free cash flow continues to be strong at $73.2 million this quarter compared to $73 million in last year's fourth quarter. Operating cash flow was 151% of net income and free cash flow was 132% of net income this quarter. Slide number 11 details the impact that our historical cash generation has had on our balance sheet. As of July 31st, we were in a net cash position of $159.2 million. Our approach to capital allocation is consistent, which is to, first, use our cash to fund organic sales growth and efficiency opportunities. This includes investing in new product development, sales generating resources, capability-enhancing CapEx, and automation-focused CapEx. We have the ability to continue to invest throughout the economic cycle so that we're always putting ourselves in the best position to drive future sales growth and profit growth. And second, we focus on consistently increasing our dividends. Yesterday, we announced our 39th consecutive year of annual dividend increases, which is a streak that we're very proud of. After funding organic investments and dividends, we then deploy our cash in a disciplined manner for acquisitions where we have clear synergies and then also for opportunistic share buybacks when we see a disconnect between intrinsic value and Brady's trading price. Our strong balance sheet puts us in a position to be able to continue to increase our investment in R&D and other organic sales opportunities, to acquire companies strategically when the price is right, and to return funds to our shareholders through dividends and share buybacks. Slide number 12 provides an overview of our financial results for the full year ended July 31st, 2024. Organic sales grew 2.6% and foreign currency translation increased sales 0.2%, while the impact of divestitures decreased sales by 2.1% this year. We finished fiscal 2024 with all-time record high GAAP EPS and non-GAAP EPS. These strong earnings results were even after increasing our investment in R&D by more than 10% this year, resulting in the largest annual investment in R&D in company history. We're confident that our actions this year and our consistent priorities will set us up for success in the future, which takes us to our guidance for next year, which is shown on slide number 13. We're forecasting GAAP EPS to range from $4.20 to $4.45 per share in fiscal 2025, which would represent an increase of between 2% and 9.3% compared to fiscal 2024. And we're forecasting non-GAAP EPS which excludes the impact of amortization to range from $4.40 to $4.70 per share in fiscal 2025, which would represent an increase of between 4.3% and 11.4% compared to fiscal 2024. We also anticipate organic sales growth in the low single digit percentages for the year ending July 31st, 2025. Other elements of our guidance include an income tax rate of approximately 20% depreciation and amortization expense of 38 to 40 million, and capital expenditures of approximately 35 million. Potential risks to our guidance, among others, include potential strengthening of the U.S. dollar, inflationary pressures that we're unable to offset in a timely enough manner, or an overall slowdown in economic activity. I'll now turn the call back over to Russell to cover our regional results and to provide some closing thoughts before Q&A.

Russell? Thanks, Anne. Bill Meyer- slide 14 details, the financial results of our Americas and Asia region sales were 22.85 million this quarter in organic sales growth was 3.4%. Bill Meyer- divestitures decrease sales by 2.2% and foreign currency translation reduce sales by another point 8% resulting in total sales growth of point 4% this quarter. Our growth was driven by our product identification, wire identification, and safety and facility identification product lines. We finished the year on a high note in July. We saw meaningful recovery in our Asia business this quarter with organic growth of 12.3%. We're seeing growth throughout Asia with exception of China, which declined just over 6% organically this quarter. At approximately 20% organic revenue growth, Our expansion in India is driving some of the best numbers at Brady. Meanwhile, the remainder of our operations in Southeast Asia are also performing well. Segment profit in Americas and Asia increased 6.7% to 53.4 million, and segment profit as a percentage of sales increased from 22% to 23.3% this quarter. We are delighted with these results. which were generated by a lot of hard work combined with several industry-leading product launches. Turning to slide 15, we'll move to the performance of our Europe and Australia region. Sales were 114.9 million this quarter. Organic sales declined 1.8%, and the impact of foreign currency translation decreased sales 1.2% for a total decline of 3%. This quarter marked the first decline in organic sales in 13 quarters in our Europe and Australia region, which ended in impressive streak. Despite the decline in organic sales in Europe and Australia, we still grew segment profit by 4.6% to 19.3 million. And we improved segment profit from 15.6% of sales to 16.8% of sales. We continue to identify opportunities for efficiencies following our regional reorganization that became effective halfway through last year. And we've been able to offset increased pressures through manufacturing efficiencies and targeted price increases. Given the weak macroeconomic picture in that region, I'm incredibly proud of the team's multi-year performance. We do believe long-term prospects in the region are great and will continue to invest in sales resources and geographic expansion through new distributor partners. Our creative approach to solving unique customer problems with our niche solutions will ensure we remain on a positive trajectory in Europe and Australia. Looking ahead to our fiscal 2025, we have a lot to look forward to, including several new initiatives that will improve our customers' experience. For instance, our printer cartridges are now enabled with LabelSense technology. This enables a seamless print experience for our customers where the printer is able to sense the specific material and print without waste or the need to worry about unique printer configurations. Second, we have a fully enabled voice-to-print for our Bluetooth-enabled handheld printers. This allows the technician to simply talk to their phone and print a label without the need to manually enter data. These technology improvements are great examples of the product enhancements that help make our customers' lives easier. I'd also like to add background to our acquisition of GraviTech which we recently closed on August 1st. Over half of Brady's business is related to part marking and identification. A key gap in our portfolio was the ability to directly mark on parts without the use of a label. With GraviTech, we now have the ability to direct laser mark along with scribing and dot-peen marking solutions. These technologies round out our reader, printer, and labeling solutions to provide a single resource for industrial part identification. GravelTech is headquartered in Lyon, France, and has an international presence in the US, Latin America, Europe, and Asia. In fiscal 2025, we're forecasting sales of approximately $125 million and EBITDA of approximately $13 million from GravelTech, excluding integration-related costs. GravelTech's high-quality, precision, direct-marking products fill a gap in identification offerings within Brady's product portfolio. And we're looking forward to expanding our customer reach and providing a more complete set of solutions for our customers with the addition of GraviTech. With that, I'd like to turn it over for Q&A. Operator, would you please provide instructions to our listeners?

As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.

Our first question comes from Cashin Keeler with Bank of America.

Your line is open.

Yeah, hi, good morning, Russell and Ann. Congrats on the quarter and thanks for taking my questions. So I guess first off, you know, can you help us a little bit with the cadence of earnings throughout the year? You know, maybe how that will vary first half versus the second half. And then maybe also with that, how can we think about organic growth overall? Is there anything we should be mindful of there will be reasonably consistent throughout the year? And then maybe also with that, can you parse a little bit on organic growth? You know, how much will be coming from underlying demand growth and maybe pricing as well?

There's a lot of questions there. So, you know, first I give the caveat of my crystal ball is not necessarily better than anyone else out there. So I'll give kind of my personal take. You know, I think we were living in an area with a fair amount of industrial investments sitting on the sidelines, depending on which way elections go and what U.S. energy policy becomes. You know, so we're kind of trying to thread the middle um, range of possible outcomes, which means, you know, we see relatively, uh, slow GDP growth in the United States in Europe. And, you know, to take a step back a bit, uh, Brady traditionally is very dependent on overall economic health of the underlying countries that we serve. You know, not too surprisingly, if countries are doing well, there tends to be an investment in industrial production and capacity. And we come along with that overall spending as we are, we tend to be a percentage of manufacturing investment in the customers that we serve. So, you know, what we're looking at, I think in the coming year is more of the same of what we've seen over the past year. You know, it's been, I would say a little bit of month to month roller coaster. I think that some of the distributors and some of our customers are still very tentative in how much capital they're willing to deploy. We don't see anybody deferring maintenance or deferring necessary capital expenditures, but at the same time, we don't see too many customers that were all in and deciding to make really significant capital investments. I think they're, again, waiting to see the outcome of some of the elections, both in Europe and America. So as I look to the future, you know, I think even with a relatively low GDP growth rate, I'm pretty excited about the products that we're launching and some of the initiatives that we're taking. Our industrial products group, which is a subset of the overall Americas and Europe, has been clocking in some pretty good numbers. We're looking at, you know, mid to high single digit growth rates in, I think, a relatively stagnant macro environment. So, you know, where are we getting that growth, a lot of it is expanding wallet share on the part of our customers, we've been able to, you know, continue to sell them and upgrade them and provide new and better use cases. So I think a lot of our growth continues to come from customers that we have, which is most of the industrial companies out there. And getting them to use more Brady products, essentially to make their lives easier. Because I think in a lot of cases, the Brady solution simply is a more effective and efficient way to get the job done, and we're seeing growth. So, you know, we have, I think, a very modest guidance in the coming year. You know, what would make it better? is I think lower energy prices, particularly in Europe. We see that as a very significant headwind for industrial capacity utilization in Europe. And to the extent they can get lower energy prices or get their energy under control, we see it better. France, which traditionally is a little more energy independent than some of the other countries in the region, they're clocking some of our best organic sales growth rates. You know, I think that is a big part of the picture is where does energy go and what is the level of optimism on the part of our customers for overall expansion in their capabilities and industrial production? I appreciate that.

Thanks.

Go ahead. Yeah, thanks.

And then just on GravoTech, you know, at this juncture, I guess, what needs to be done to integrate that? And then I think you said the $13 million of EBITDA was excluding integration costs. So is there, you know, a figure we can think about in terms of, you know, costs associated with kind of integrating that business?

Yeah, you know, so first of all, GravoTech is a very successful company. And, you know, it's That's part of the reason we like it. We're not buying something that requires significant, uh, fix up. We're not looking at consolidating operations or anything major. You know, uh, there's a lot of, um, there are a lot of opportunities that Gravo tech pursues that Brady traditionally has and vice versa. So, you know, what we're looking for really is what new customers can we help Gravo tech. get to and what new customers can GravoTek pull us into, because we're definitely seeing that in some of the use cases. Yeah, of course, whenever you purchase a company, there's always some minor things that need to happen in terms of consolidating back office operations and making sure they're on the same ERP system and what have you. In the scheme of things, they're relatively small. Like I said, I don't I don't anticipate any consolidation of major operations. I think it's a little tweak here and a little tweak there. At the same time, what we're excited about is we think we can bring some R&D to Gravotech. And in some of the things that they do in terms of creation of images, you know, that is the same thing Brady is doing with their printers already. We can do that, and I think we can accelerate Gravotech's R&D and their capabilities with some of the core software that Brady has already developed. So, you know, like any acquisition, I think the first 12 months to 18 months is a little bit slow as you get all the pieces put together, but after that, we see a really strong business case for the combined entity.

Got it. Understood. And then last one, if I can, just on buybacks, is there a specific number you're looking to target next year? And then maybe also on that, I mean, what opportunities do you have in front of you in terms of capital deployment from an organic perspective? And I know you just did Gravotech, but maybe any areas in the portfolio you'd look to grow in organically as well?

Yeah, sure. So, you know, the stock buybacks is almost a double-edged sword. In some regards, we don't want them because that means that the market perceives our share price as undervalued. So, you know, do we have a target? Yeah, we've authorized $100 million in share buybacks, but we've, as in the past, we've been very disciplined in when we will use that money. So, you know, if the stock goes to a certain trading range, we'll start buying shares. Um, but if it's, uh, if we considered it's fairly valued or not much of a discount to our cashflow, uh, we'll keep our money because again, my overall preference, unless the share price is significantly devalued, my preference is reinvesting in the company, um, either organically. And again, we love our R and D investment that hands down is driving all of our growth and our gross margin improvement. And then secondly, there are some M&A opportunities out there. We continue to look at it. It will be certainly in either the materials space, because we use our materials capability to drive a lot of our unique product differentiation. And then secondly, we're always interested in things that further our ability to do part marking, part identification, And, you know, so if there are things in areas in those two categories, if they become available and they're available at a price that we feel, you know, meets our financial objectives, then we could certainly see acquisitions in the future. Yes, thank you.

Thank you. And our next question comes from Keith Halsem. With North Coast Research, your line is open.

Good morning, guys, and congratulations on a solid quarter there. Russell, in terms of the track and trace initiatives that you guys are working on, I know that earlier this year the V4500 came out as a data scanner. Perhaps can you talk about the progress of that initiative? I know one product doesn't drive the sales for you guys at all, but I think that scanner is probably representative of some of your track and trace efforts. How has the early adoption or early acceptance by the market been?

Yeah, so we feel, you know, very good about the adoption of the product. And, you know, for us, it's building out a complete portfolio, which now will include lasers, too. You know, so our goal, and, you know, if you think and you take a step back of what manufacturing needs to do, you need to be able to identify a part, uniquely trace it through the manufacturing floor, Patrick O' be able to read it at various steps along the way before it gets either incorporated into another product or it gets sent out the door to a customer. Patrick O' So we want to be there at every step of that journey, not in the distribution side of things, that's not really our core business, but throughout the manufacturing floor and Patrick O' you know, you see that in our industrial products and what we're doing. So I think in a relatively anemic industrial automation environment right now. I'm super pleased with how we're doing in our entire industrial portfolio. Again, our products are designed to work seamlessly with one another, you know, kind of like the Windows Office experience. What we're going for is immediate out of the box usage. So a lot of customer, excuse me, a lot of products out there require a fair amount of hand-holding software integration and difficulty to get set up. Our goal is for all of our products to be able to plug and play and be used in minutes without much skill. And I think we're pretty far along in that journey. I talked about at the tail end of my commentary being able to do voice-enabled printers. I'm super excited about that. And if you think about the whole ease of use for our customers, you know, we can do a voice enabled barcode on, and then have the reader right there to verify the barcode and be able to tag it to the particular product. So there's, there's a lot of, there are a lot of things out there that provides rich content to our customer in a way that's super easy for them to use. And that's kind of the thesis of our business. Um, there'll be more products to come over the coming year as we round out the portfolio, but. You know, this has been something that we've been working on. Probably we started in 2017 and 2018, and we've spent literally hundreds of millions of dollars to get to this point. And I am so excited to start seeing these products come out and, uh, and working together as, as our customers.

Yep. And obviously printers and cartridges are a big part of your business with the, especially the ones that you've had just mentioned there. Do you anticipate leads will be. accelerate the refresh cycle for printers that are currently out there as well as expanding the addressable market?

Yeah, so two things. So virtually all of our printers have been refreshed and now work with LabelSense technology, certainly all of our core products. So what does LabelSense do? If I'm printing on unique materials, so I'm not talking a paper label, but if I'm talking about a wire marker or something that goes on a printed circuit board or what have you, There's a decent amount of work that would have to go for a customer to configure their printer to print on a unique material and the setup and what have you to make it match that. With our new set of cartridges that are all enabled with this, there's basically there's a chip in the cartridge that tells the printer all of the settings that it needs to have to print optimally on that material. And, you know, that's a first in the industry. It can save in some kinds. It can save minutes to tens of minutes for our customers. And more importantly, they don't waste any material because if you've ever seen this, you print a label in the old technology. You print a label. You don't like how it looks. You try it again. You don't like how it looks. You try it again. This way you get it one and done, first shot, it's working. And again, a lot of effort on the part of the R&D and product management team to get this up and rolling and getting it to work across literally hundreds of different material and printer combinations.

Is there just a rule of thumb in terms of the price increase, I guess, with this technology compared to the prior generation?

Yeah, we're not really pushing price on this. You know, the products, I think, are fantastic, and I think the value proposition to our customers is fantastic. You know, so we're not trying to extract more out of them. We're trying to get customers to be more excited and make it easier for them to use it. You know, as I've joked with some people, we're getting to drop the pen or use nonprofessional labeling. And really, I think Brady is most successful when it's a win-win and, you know, we don't try to extract every last penny, but we enable our customers to get their jobs easier in a fair economic environment. So, no, we're not, again, we're not really trying to push price. We're trying to push consumption and getting more printers and more cartridges in people's hands.

Gotcha. Gotcha. Well, one more question from you, if you don't mind. SG&A, you know, the most efficient and the best of the fourth quarter for you guys. Was there anything unique in the fourth quarter? I suggest that this KDIN shouldn't repeat into FY25.

You know, there were some little things back and forth. I don't know, Ann, if you want to make any commentary on that. Sure, sure.

Yeah, really nothing unusual, Keith, in this quarter of this year. As we work through initiatives internally, sometimes it can be a little bit choppy in terms of SG&A going up a bit, down a bit. But general trajectory, we expect to be at approximately this level and working downward into over the long term as we work through efficiency opportunities.

Right. And this all excludes GravTech, of course, because that will change dynamics a little bit. Great. Great point. Exactly. All right, guys. I'll stop there and get back to you. Thanks. Thank you. Great.

Thank you. Our next question comes from Steve Farazani with Sedoti. Your line is open.

Good morning, Russell. Morning, Anne. I wanted to ask a little bit about your progress in Southeast Asia and India. I know if we go back two or three years, those are practically greenfield opportunities for you. Can you give us a sense of how much traction you've gained and what the opportunity can be over the next three to five years as you see it right now?

Yeah, you know, India started off, you know, I'm going back 10 years ago, India started off as a very small opportunity for us as a corporation. And I think due to the leadership team, both in India and frankly, all of Southeast Asia, They are benefiting from some of the relocation out of China, as well as just overall economic growth in the particular country. So if I look over the last few years, we've added a second plant in India, relatively small, but it helps us be close to the customer. So we have two plants now, one in Bangalore and one in Delhi. We're seeing the results of those investments. Like I said, we called out approximately 20%. year over year growth. But this is on top of really a journey they've been on for many years showing low double digits growth rates. And we continue to invest in China. It's entirely possible if we continue our growth trajectory that we'll be opening up a third plant there as well. And so we just, like I said, feel very positive. Even in some of the other countries that are relatively small, We can see some benefit that they're experiencing again is some of production relocations happening out of China All and you see it all through Southeast Asia. I think Vietnam which is an incredibly small country for us. I wish it was bigger I think they had like a 700 percent growth rate But it was times a really small number. So we're we're slowly deploying additional salespeople additional sales resources throughout the region and And this is, this has always been Brady's business model of, you know, looking at what countries, what economies, what opportunities are growing and making sure that we are targeting those with the right set of resources, uh, whether it's R and D products or, um, customer sales and support.

Do you have to, to customize the products by markets, what they might buy in Vietnam or India might be different than what they're buying in the U S or the UK.

So absolutely, but it's kind of, I'll call it end user costs or end country customization. So Brady has a huge portfolio of products. I would say upwards of 2000 of products that we really support and sell, and then maybe another 10,000 that are less common. Um, what you see in the different countries, isn't that it's as much unique for the country is that they will overweight one product versus another. So. You know, for instance, due to some blackout concerns and what have you in terms of energy, you'll see in India, they will buy way more glow in the dark signage and tapes than you might find in other countries. But we sell them worldwide. It's just they would buy more in their country as a weight than others. Not surprisingly, our automation solutions tend to be much more heavily weighted to high cost geographies than lower cost. So if you look at our wire wrappers and what have you, those tend to be targeted towards countries where either labor is unavailable or if it is, it is comparatively expensive. So our whole portfolio is available to every country, but different countries choose to use different ones depending on their own unique needs and needs and what they're doing.

That's helpful. Thanks. If we could flip over to Europe, obviously in 3Q, those are the really big surprises. Europe was particularly strong. I think you indicated at the time you had one really good month. This quarter, it looked more like we probably could have predicted given the European economies. Can you give us a little bit more sense now what the difference was, 3Q versus 4Q, and how that affects maybe your outlook and your strategy there into the new year?

Yeah. You know, and this is always the problem when you have quarter to quarter results, um, you know, you can have a little bit of shifting one, uh, one day to the next and it falls in a quarter out of a quarter. You know, I think our, our third quarter result was a little bit higher than we expected. And our fourth quarter result was a little bit lower than we expected. If I was to take both together and the year as a whole, I think that was indicative of the overall European economy. Now, with that said, we're seeing some pretty significant differences in countries. You know, as I mentioned, France, for us, is doing incredibly well, which I guess we're probably one of the few companies that would say that. And on the same side, you know, some countries that are having some energy problems, Germany, UK, and some other issues, not doing as well, you know. So, unfortunately, you get, for Europe, you get it all blended together. And it really is, it's a lot of differences amongst the individual countries depending on their policies and what they're doing and their overall capability set. So, you know, as I said, Nicole, we remain very optimistic in Europe. They've had, you know, through I consider a pretty anemic GDP growth rate, they've had 13 quarters of successive performance. And I'm sorry that this one broke the streak. But there's nothing to believe in the coming quarters that we don't see them back on the path of continued growth. Like I said, that management team there is very tenured. They've been doing this for a long time. They know what they need to do. And I'm excited about the opportunities and some of the business cases that they've been talking about.

Great. guiding for capex back down to 35 million. So it looks like under 2% of sales again, uh, reasonable to expect cash conversion is back towards a hundred percent or more. Yeah. Yeah.

Yeah. So, you know, the only lumpy thing that ever happens with us outside of acquisitions, occasionally we flip a rental property to an owns property. And, you know, we did that last year, which were some pretty substantial cash outlays. Um, but in general, You know, given our relatively modest needs, it's very much one for one. So we make a dollar and that goes to the bottom line in cash.

So I know others have asked this, so let me try it another way. You're going to start building cash very quickly again this year if guidance plays out. You were buying back stock at $56. You're much higher here and you said you're opportunistic. I don't know what the MNA, are you very comfortable building up the cash position again through the year, if that's how it plays out?

Well, you know, there's the cash has to go somewhere. I don't want it to burn a hole in our pocket. You know, I'm not going to buy something at a PDE of 25. It's just, that's just not part of our business. So, you know, obviously I would prefer to be in a, either in a zero or slight debt position and, On the flip side, I'm not going to throw money away either. So we've been very disciplined as a corporation in how we deploy our cash. If it builds up and we don't see an acquisition opportunity, I'm perfectly comfortable in doing that. At the same time, I think both our cash position or our cash generation gives us the possibility, should the property become available, and there's a few out there, of doing a pretty substantial acquisition. And I would be delighted if we get in a position to make something that's more significant or possibly even transformative should it arise. So we're going to be disciplined, wait to see how the world evolves. And in the meantime, we've got a great rainy day fund should we ever need it.

Thanks, Russ. Thank you.

I'm showing no further questions at this time. I would now like to turn it back to Russell Schaller, President and CEO, for closing remarks.

Great. Thanks, everyone, for your time and for your questions. You know, we've performed well this year with another record quarter and record year of earnings per share and cash generation. We're investing in organic business through our sales force, and we made the largest investment in R&D in the company's history this year. We expect these investments will continue to drive sales growth into the long term. We're also in an incredibly strong financial position. Fiscal 21, 22, 23, and now 24 were all record years of EPS, and we're once again guiding to another year in 2025. The macroeconomic is constantly changing, but our approach continues to be to control what we can while focusing on our formula for success. Investing in our organization to create new products that make our customers' life better while delivering a positive return to our investors. I'm looking forward to the future, and I know that our global team has the ability to overcome challenges, think creatively, and continue to deliver results. Thank you for your time this morning, and for your interest in Brady. Operator, you may disconnect the call.

This concludes today's conference call. Thank you for participating. You may now disconnect.