BRADY CORP

Previous wording

Brady Corporation is a global manufacturer and supplier of identification solutions and workplace safety products that identify and protect premises, products and people. The Company is organized and managed on a geographic basis with two reportable segments: Americas & Asia and Europe & Australia. Within each of the reportable segments, the Company sells products under the product identification, wire identification, healthcare identification and safety and facility identification product lines to a diverse base of customers. The product identification, wire identification, and healthcare identification product lines include high-performance and innovative products that are designed, manufactured, and distributed within the Company's value chain. The safety and facility identification product line includes a broad range of stock and custom products that the Company manufactures, as well as a wide variety of products that the Company purchases and resells as a distributor.

Current wording

Brady Corporation is a global manufacturer and supplier of identification solutions and workplace safety products that identify and protect premises, products and people. The Company is organized and managed on a geographic basis with two reportable segments: Americas & Asia and Europe & Australia. This regional operating structure allows the Company to further integrate its businesses, support continued growth through the application of the best go-to-market strategies in key geographies, facilitate new product development within recent acquisitions and further simplify and scale the global business.

Previous wording

•Providing our customers with the highest level of customer service.

Current wording

•Providing the highest level of customer service by aligning with customers' preferred communications channels and leveraging technology to enhance the customer experience.

Previous wording

•Integrating acquisitions to further enhance our strategic position and accelerate long-term sales growth.

Current wording

•Integrating recent acquisitions to further enhance our strategic position and accelerate long-term sales growth.

Previous wording

We believe we have the financial strength to continue to invest in organic sales growth opportunities including sales, marketing and research and development ("R&D"), as well as inorganic sales opportunities including acquisitions, while continuing to drive sustainable efficiency gains and automation in our operations and selling, general and administrative ("SG&A") functions and return capital to our shareholders in the form of dividends and share repurchases. At April 30, 2024, we had cash of $160.5 million, as well as a credit agreement with $234.5 million available for future borrowing, which can be increased up to $1,084.5 million at the Company's option and subject to certain conditions, for total available liquidity of $1,245.0 million.

Current wording

We believe our financial strength positions us well to continue investing in acquisitions and organic growth opportunities, such as expanded sales channels, marketing programs, and research and development (“R&D”). We remain focused on driving sustainable efficiency gains and automation across our operations and selling, general and administrative (“SG&A”) functions, while also returning capital to our shareholders through dividends and share repurchases. At October 31, 2024, we had cash of $145.7 million, as well as a credit agreement with $181.5 million available for future borrowing, which can be increased up to $1,036.5 million at the Company's option and subject to certain conditions, for total available liquidity of $1,182.2 million.

Previous wording

We believe that our financial resources and liquidity levels, including the remaining undrawn amount of the credit agreement and our ability to increase that credit line as necessary are sufficient to manage the continuing impact of economic or geopolitical events which may result in reduced sales, net income, or cash provided by operating activities. Refer to Risk Factors, included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended July 31, 2023, for further discussion of the possible impact of global economic or geopolitical events on our business.

Current wording

We believe that our financial resources and liquidity levels, including the undrawn portion of our credit agreement and our ability to increase that credit line as necessary, are sufficient to support the execution of our growth strategy and to manage the impact of economic or geopolitical events that could potentially reduce sales, net income, or cash provided by operating activities. Refer to Risk Factors, included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended July 31, 2024, for further discussion of the possible impact of global economic or geopolitical events on our business.

Previous wording

A comparison of results of operating income for the three and nine months ended April 30, 2024 and 2023, is as follows:

Current wording

A comparison of results of operating income for the three months ended October 31, 2024 and 2023 is as follows:

Previous wording

References in this Form 10-Q to “organic sales” refer to sales calculated in accordance with GAAP, excluding the impact of foreign currency translation and sales recorded from divested companies up to the first anniversary of their divestiture. The Company's organic sales disclosures exclude the effects of foreign currency translation as foreign currency translation is subject to volatility that can obscure underlying business trends. Management believes that the non-GAAP financial measure of organic sales is meaningful to investors as it provides them with useful information to aid in identifying underlying sales trends in our businesses and facilitating comparisons of our sales performance with prior periods.

Current wording

References in this Form 10-Q to “organic sales” refer to sales calculated in accordance with GAAP, excluding the impact of foreign currency translation, sales recorded from acquired companies prior to the first anniversary date of their acquisition, and sales recorded from divested companies up to the first anniversary of their divestiture. The Company's organic sales disclosures exclude the effects of foreign currency translation as foreign currency translation is subject to volatility that can obscure underlying business trends. Management believes that the non-GAAP financial measure of organic sales is meaningful to investors as it provides them with useful information to aid in identifying underlying sales trends in our businesses and facilitating comparisons of our sales performance with prior periods.

Previous wording

Net sales for the nine months ended April 30, 2024 increased 1.2% to $998.0 million compared to $985.9 million in the same period in the prior year. The increase consisted of organic sales growth of 3.0% and an increase from foreign currency translation of 0.6%, which was partially offset by a decrease of 2.4% due to divestitures. Organic sales grew 3.0% in the Americas & Asia segment and 2.8% in the Europe & Australia segment during the nine months ended April 30, 2024.

Current wording

Net sales for the three months ended October 31, 2024 increased 13.6% to $377.1 million compared to $332.0 million in the same period in the prior year. The increase consisted of organic sales growth of 3.6%, sales growth from acquisitions of 9.9% and an increase from foreign currency translation of 1.2%, partially offset by a decrease of 1.1% due to divestitures. Organic sales grew 5.1% in the Americas & Asia segment and 0.7% in the Europe & Australia segment during the three months ended October 31, 2024 compared to the same period in the prior year.

Previous wording

Gross margin increased 4.3% to $177.0 million in the three months ended April 30, 2024 compared to $169.7 million in the same period in the prior year. As a percentage of net sales, gross margin increased to 51.6% from 50.3% in the three-month period. Gross margin increased 6.1% to $510.8 million in the nine months ended April 30, 2024 compared to $481.4 million in the same period in the prior year. As a percentage of net sales, gross margin increased to 51.2% from 48.8% in the nine-month period. The increase in gross margin as a percentage of net sales was primarily due to organic sales growth in higher gross margin product lines during both the three and nine-month periods.

Current wording

Gross margin increased 10.5% to $189.7 million in the three months ended October 31, 2024 compared to $171.7 million in the same period in the prior year. As a percentage of net sales, gross margin decreased to 50.3% in the three months ended October 31, 2024 compared to 51.7% in the same period in the prior year. The decrease in gross margin as a percentage of net sales was primarily due to a nonrecurring increase in cost of goods sold of $4.1 million related to the fair value adjustment to inventory from acquisitions and lower margin product sales from acquired businesses, which were partially offset by organic sales growth in higher gross margin product lines.

Previous wording

R&D expenses increased 12.5% to $17.7 million in the three months ended April 30, 2024 compared to $15.7 million in the same period in the prior year. As a percentage of net sales, R&D expenses increased to 5.1% from 4.7% in the three-month period. R&D expenses increased 11.5% to $50.2 million in the nine months ended April 30, 2024 compared to $45.0 million in the same period in the prior year. As a percentage of net sales, R&D expenses increased to 5.0% from 4.6% in the nine-month period. The increase in R&D spending was primarily due to an increase in R&D headcount. The Company remains committed to investing in new product development to increase sales within our businesses. Investments in new printing systems, materials and an industrial track and trace solution remain the primary focus of R&D expenditures in fiscal 2024.

Current wording

R&D expenses increased 20.5% to $18.9 million in the three months ended October 31, 2024 compared to $15.7 million in the same period in the prior year. As a percentage of net sales, R&D expenses increased to 5.0% in the three months ended October 31, 2024 compared to 4.7% in the same period in the prior year. The increase in R&D spending was primarily due to the acquisition of Gravotech, and, to a lesser extent, an increase in R&D headcount within the Company's organic business. The Company remains committed to investing in new product development to increase sales within our businesses. Investments in new printing systems, materials and the build out of a comprehensive industrial track and trace solution remain the primary focus of R&D expenditures in fiscal 2025.

Previous wording

SG&A expenses include selling and administrative costs directly attributed to the Americas & Asia and Europe & Australia segments, as well as certain other administrative expenses including finance, information technology, human resources, and corporate administrative expenses. SG&A expenses increased 5.3% to $95.8 million in the three months ended April 30, 2024 compared to $91.0 million in the same period in the prior year. As a percentage of sales, SG&A increased to 27.9% from 27.0% in the three-month period. SG&A expenses increased 3.7% to $283.4 million for the nine months ended April 30, 2024 compared to $273.2 million in the same period in the prior year. As a percentage of net sales, SG&A increased to 28.4% from 27.7% in the nine-month period. SG&A expenses include a gain of $3.8 million from the sale of the PremiSys business during the three months ended April 30, 2023. The increase in SG&A expenses during the three and nine months ended April 30, 2024 was primarily due to increased headcount in sales and technology roles, investments in digital advertising and the gain on sale of business recorded in the prior period, which was partially offset by a decrease in headcount and advertising expense from divested businesses and a decrease in amortization expense.

Current wording

SG&A expenses include selling and administrative costs directly attributed to the Americas & Asia and Europe & Australia segments, as well as certain other corporate administrative expenses including finance, information technology, human resources and other administrative expenses. SG&A expenses increased 16.2% to $111.8 million in the three months ended October 31, 2024 compared to $96.3 million in the same period in the prior year. As a percentage of net sales, SG&A increased to 29.7% in the three months ended October 31, 2024, compared to 29.0% in the same period in the prior year. The increase in SG&A as a percentage of net sales is primarily due to incremental amortization expense from acquisitions of $2.4 million, as well as increased headcount and other selling-related costs from the businesses acquired, which were partially offset by a decrease in advertising expenses in the Company's organic businesses compared to the same period in the prior year.

Previous wording

Investment and other income was $1.6 million and $4.7 million in the three and nine months ended April 30, 2024, respectively, compared to $0.8 million and $1.6 million in the same periods in the prior year. The increase in income during the three and nine-month periods was primarily due to an increase in interest income and an increase in the market value of securities held in deferred compensation plans.

Current wording

Investment and other income was $1.2 million in the three months ended October 31, 2024 compared to $0.4 million in the same period in the prior year. The change was primarily due to an increase in the market value of securities held in deferred compensation plans, partially offset by a decrease in interest income resulting from a decrease in interest rates as well as a reduced cash balance.

Previous wording

Interest expense decreased to $0.7 million and $2.3 million in the three and nine months ended April 30, 2024, respectively, compared to $0.8 million and $2.9 million in the same periods in the prior year. The decrease in interest expense was primarily due to a decrease in outstanding borrowings on the Company's credit agreement, which was partially offset by an increase in interest rates on the Company's credit agreement compared to the same periods in the prior year.

Current wording

Interest expense increased to $1.4 million in the three months ended October 31, 2024 compared to $0.8 million in the same period in the prior year. The increase in interest expense was primarily due to an increase in outstanding borrowings on the Company's credit agreement to fund the acquisitions completed during the three months ended October 31, 2024.

Previous wording

The following is a summary of segment information for the three and nine months ended April 30, 2024 and 2023:

Current wording

The following is a summary of segment information for the three months ended October 31, 2024 and 2023:

Previous wording

Organic sales in the Americas increased in the mid-single digits in the three months ended April 30, 2024 and increased in the low-single digits in the nine months ended April 30, 2024 compared to the same periods in the prior year. Organic sales growth during the three-month period was driven by growth in all major product lines with the strongest growth in the safety and facility identification and wire identification product lines. Organic sales growth during the nine-month period was primarily driven by growth in the wire identification, safety and facility identification and product identification product lines, which was partially offset by an organic sales decline in the healthcare identification product line.

Current wording

Organic sales in the Americas increased in the mid-single digits in the three months ended October 31, 2024. Organic sales grew in all major products lines with the strongest growth in the product identification, wire identification, and safety and facility identification product lines.

Previous wording

Organic sales in Asia increased in the low-single digits in both the three and nine-month periods ended April 30, 2024 compared to the same periods in the prior year. The organic sales increase during the three and nine-month periods was driven by sales growth in India, Singapore and Japan, which was partially offset by a decline in volume in China.

Current wording

Organic sales in Asia increased in the mid-single digits in the three months ended October 31, 2024. The organic sales increase was primarily driven by organic sales growth in Japan and India, which was partially offset by an organic sales decline in China.

Previous wording

Europe & Australia net sales increased 3.8% to $118.6 million in the three months ended April 30, 2024 compared to $114.3 million in the same period in the prior year, which consisted of organic sales growth of 4.4% and a decrease from foreign currency translation of 0.6%. Europe & Australia net sales increased 4.7% to $340.0 million in the nine months ended April 30, 2024 compared to $324.6 million in the same period in the prior year, which consisted of organic sales growth of 2.8% and an increase from foreign currency translation of 1.9%.

Current wording

Europe & Australia net sales increased 19.3% to $131.6 million in the three months ended October 31, 2024 compared to $110.4 million in the same period in the prior year, which consisted of sales growth from acquisitions of 15.0%, organic sales growth of 0.7% and an increase from foreign currency translation of 3.6%.

Previous wording

Organic sales in Australia increased in the low-single digits in both the three and nine months ended April 30, 2024 compared to the same periods in the prior year. Organic sales growth during the three and nine-month periods was primarily driven by the wire identification product line and, to a lesser extent, the product identification product line.

Current wording

Organic sales in Europe increased in the low-single digits in the three months ended October 31, 2024. Organic sales growth during the three-month period was primarily driven by growth in the safety and facility identification and people identification product lines, which was partially offset by an organic sales decline in the product identification product line.

Previous wording

The Company's cash balances are generated and held in numerous locations throughout the world. At April 30, 2024, 97% of the Company's cash and cash equivalents were held outside the United States. The Company's organic and inorganic growth has historically been funded by a combination of cash provided by operating activities and debt financing. The Company believes that its cash flow from operating activities and its borrowing capacity are sufficient to fund its anticipated requirements for working capital, capital expenditures, research and development, share repurchases, and dividend payments for the next 12 months and beyond. Although the Company believes these sources of cash are currently sufficient to fund domestic operations, annual cash needs could require repatriation of cash to the U.S. from foreign jurisdictions, which may result in additional tax payments.

Current wording

The Company's cash balances are generated and held in numerous locations throughout the world. At October 31, 2024, approximately 95% of the Company's cash and cash equivalents were held outside the United States. The Company's organic and inorganic growth has historically been funded by a combination of cash provided by operating activities and debt financing. The Company believes that its cash flow from operating activities and its borrowing capacity are sufficient to fund its anticipated requirements for working capital, capital expenditures, research and development, common stock repurchases, and dividend payments for the next 12 months. Although the Company believes these sources of cash are currently sufficient to fund domestic operations, annual cash needs could require repatriation of cash to the U.S. from foreign jurisdictions, which may result in additional tax payments.

Previous wording

Cash and cash equivalents were $160.5 million at April 30, 2024, an increase of $8.9 million from July 31, 2023. The significant changes were as follows:

Current wording

Cash and cash equivalents were $145.7 million at October 31, 2024, a decrease of $104.5 million from July 31, 2024. The significant changes were as follows:

Previous wording

Net cash provided by operating activities was $171.1 million in the nine months ended April 30, 2024 compared to $129.9 million in the same period of the prior year. The increase in cash provided by operating activities was primarily due to improved profitability, reduced inventory spend and lower annual incentive compensation payments compared to the same period in the prior year.

Current wording

Net cash provided by operating activities was $23.4 million in the three months ended October 31, 2024, compared to $62.3 million in the same period of the prior year. The decrease in cash provided by operating activities was primarily due to increased vendor payments related to the acquired businesses, the timing of payroll and higher annual incentive compensation payments, and other working capital changes.

Previous wording

Net cash used in financing activities was $89.0 million in the nine months ended April 30, 2024 compared to $105.9 million in the same period in the prior year. The decrease in cash used in financing activities was primarily due to increased net borrowings to fund higher level of capital expenditures during the nine months ended April 30, 2024, which was partially offset by an increase in share repurchases.

Current wording

Net cash provided by financing activities was $18.3 million in the three months ended October 31, 2024 compared to $21.5 million net cash used in financing activities in the same period of the prior year. The increase in cash provided by financing activities was primarily due to increased net borrowings to fund the acquisition of AB&R completed on October 1, 2024, and, to a lesser extent, a decline in share repurchases compared to the same period in the prior year.

Previous wording

On November 14, 2022, the Company and certain of its subsidiaries entered into a Second Amendment to Credit Agreement (“Amendment No. 2”) with a group of six banks, which amended the original credit agreement dated August 1, 2019. Amendment No. 2 amended the credit agreement to, among other items, (a) increase the lending commitments by $100 million for total lending commitments of $300 million, (b) extend the final maturity date to November 14, 2027, (c) increase the interest rate on certain borrowings by 0.125%, and (d) increase the available amount under the credit agreement, at the Company's option and subject to certain conditions, from $300 million up to (i) an amount equal to the incremental borrowing necessary to bring the Company's consolidated net debt-to-EBITDA ratio as defined in the credit agreement to 2.5 to 1.0 plus (ii) $200 million. Borrowings under Amendment No. 2 are unsecured and are guaranteed by certain of the Company's domestic subsidiaries.

Current wording

On November 14, 2022, the Company and certain of its subsidiaries entered into a second amendment to the credit agreement to, among other items, (a) increase the lending commitments by $100 million for total lending commitments of $300 million, (b) extend the final maturity date to November 14, 2027, (c) increase the interest rate on certain borrowings by 0.125%, and (d) increase the available amount under the credit agreement, at the Company's option and subject to certain conditions, from $300 million up to (i) an amount equal to the incremental borrowing necessary to bring the Company's consolidated net debt-to-EBITDA ratio as defined in the credit agreement to 2.5 to 1.0 plus (ii) $200 million.

Previous wording

As of April 30, 2024, the outstanding balance on the Company's credit agreement was $63.8 million. The maximum amount outstanding on the credit agreement during the nine months ended April 30, 2024 was $64.7 million. As of April 30, 2024, the U.S. dollar-denominated borrowings of $28.0 million bear interest at 6.3%; the Euro-denominated borrowings of €24.0 million bear interest at 4.7%; and the British Pound-denominated borrowings of £8.0 million bear interest at 6.1% for a weighted average interest rate of 5.6%. The Company had letters of credit outstanding under the credit agreement of $1.7 million as of April 30, 2024, and there was $234.5 million available for future borrowing, which can be increased to $1,084.5 million at the Company's option, subject to certain conditions. The credit agreement has a final maturity date of November 14, 2027. As such, borrowings were classified as long-term on the condensed consolidated balance sheets.

Current wording

As of October 31, 2024, the outstanding balance on the Company's credit agreement was $116.6 million. The maximum amount outstanding on the credit agreement during the three months ended October 31, 2024 was $144.8 million. As of October 31, 2024, the U.S. dollar-denominated borrowings of $52.0 million bear interest at 5.8%; the Euro-denominated borrowings of €50.0 million bear interest at 4.1%; and the British Pound-denominated borrowings of £8.0 million bear interest at 5.8%. The Company had letters of credit outstanding under the credit agreement of $1.8 million as of October 31, 2024 and there was $181.5 million available for future borrowing, which can be increased to $1,036.5 million at the Company's option, subject to certain conditions. The credit agreement has a final maturity date of November 14, 2027. As such, borrowings were classified as long-term on the condensed consolidated balance sheets.

Previous wording

The Company's credit agreement requires it to maintain certain financial covenants, including a ratio of debt to the trailing twelve months EBITDA, as defined in the credit agreement, of not more than a 3.5 to 1.0 ratio (leverage ratio) and the trailing twelve months EBITDA to interest expense of not less than a 3.0 to 1.0 ratio (interest expense coverage). As of April 30, 2024, the Company was in compliance with these financial covenants, with a ratio of debt to EBITDA, as defined by the agreement, equal to 0.2 to 1.0 and the interest expense coverage ratio equal to 98.1 to 1.0.

Current wording

The Company's credit agreement requires it to maintain certain financial covenants, including a ratio of debt to the trailing twelve months EBITDA, as defined in the debt agreements, of not more than a 3.5 to 1.0 ratio (leverage ratio) and the trailing twelve months EBITDA to interest expense of not less than a 3.0 to 1.0 ratio (interest expense coverage). As of October 31, 2024, the Company was in compliance with these financial covenants, with a ratio of debt to EBITDA, as defined by the agreements, equal to 0.4 to 1.0 and the interest expense coverage ratio equal to 83.8 to 1.0.

Previous wording

•Increased cost of raw materials and labor as well as raw material shortages and supply chain disruptions

Current wording

•Increased cost of raw materials and labor as well as material shortages and supply chain disruptions