BRADY CORP

Previous wording

The ability to provide customers with a broad range of proprietary, customized and diverse products for use in various applications across multiple industries and geographies, along with a commitment to quality and service, have made Brady a leader in many of its markets. Brady's long-term sales growth and profitability will depend not only on the overall economic environment and our ability to successfully navigate changes in the macro environment, but also on our ability to develop and market innovative products, deliver a high level of customer service, advance our digital capabilities, and continuously improve the efficiency of our global operations. Our strategy for growth includes an increased focus on certain industries and products, streamlining our product offerings, expanding into higher growth end-markets, improving the overall customer experience, developing technologically advanced, innovative, and proprietary products, and improving our digital capabilities.

Current wording

The ability to provide customers with a broad range of proprietary, customized and diverse products for use in various applications across multiple industries and geographies, along with a commitment to quality and service, have made Brady a leader in many of its markets. Brady's long-term sales growth and profitability will depend not only on the overall economic environment and our ability to successfully navigate changes in the macro environment, but also on our ability to develop and market innovative products, deliver a high level of customer service, advance our digital capabilities, and continuously improve the efficiency of our global operations. Our strategy for growth includes an increased focus on certain industries and products, streamlining our product offerings, expanding into higher growth end-markets, intensifying efforts to leverage our diverse product portfolio and synergies across our business, improving the overall customer experience, developing technologically advanced, innovative, and proprietary products, and improving our digital capabilities.

Previous wording

•Building on our culture of diversity, equity and inclusion to increase employee engagement and enhance recruitment and retention practices in order to drive differentiated performance and execute our strategy.

Current wording

•Enhancing our high-performance culture, which rewards execution and respects diversity, to elevate employee engagement and improve recruitment and retention practices in order to drive differential performance and execute our strategy.

Previous 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.

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 January 31, 2025, we had cash of $138.5 million, as well as a credit agreement with $210.1 million available for future borrowing, which can be increased up to $1,095.1 million at the Company's option and subject to certain conditions, for total available liquidity of $1,233.6 million.

Previous wording

The comparability of the operating results for the three months ended October 31, 2024 compared to the three months ended October 31, 2023 has been impacted by acquisitions of Gravotech on August 1, 2024 and AB&R on October 1, 2024. The operating results of Gravotech have been included in both reportable segments since the date of acquisition, and the results of AB&R have been included in the Americas & Asia reportable segment since the date of acquisition. The comparability of the operating results of the Americas & Asia segment has also been impacted by the divestiture of a non-core business in October 2023.

Current wording

The comparability of the operating results for the three and six months ended January 31, 2025 compared to the same periods in the prior year have been impacted by the acquisitions of Gravotech on August 1, 2024 and AB&R on October 1, 2024. The operating results of Gravotech and AB&R have been included since their acquisition dates. Gravotech has been included in both reportable segments, and AB&R has been included in the Americas & Asia reportable segment. The comparability of the year-to-date operating results of the Americas & Asia segment has also been impacted by the divestiture of a non-core business in October 2023.

Previous wording

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

Current wording

A comparison of results of operating income for the three and six months ended January 31, 2025 and 2024, is as follows:

Previous 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.

Current wording

Net sales for the six months ended January 31, 2025 increased 12.1% to $733.7 million compared to $654.6 million in the same period in the prior year. The increase consisted of organic sales growth of 3.1% and sales growth from acquisitions of 10.0%, partially offset by a decrease from foreign currency translation of 0.5% and a decrease of 0.5% due to a divestiture. Organic sales grew 4.7% in the Americas & Asia segment and were flat in the Europe & Australia segment during the six months ended January 31, 2025 compared to the same period in the prior year.

Previous 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.

Current wording

Gross margin increased 8.5% to $175.8 million in the three months ended January 31, 2025 compared to $162.1 million in the same period in the prior year. As a percentage of net sales, gross margin decreased to 49.3% from 50.2% in the three-month period. Gross margin increased 9.5% to $365.5 million in the six months ended January 31, 2025 compared to $333.8 million in the same period in the prior year. As a percentage of net sales, gross margin decreased to 49.8% from 51.0% in the six-month period. The decrease in gross margin as a percentage of net sales during the three months ended January 31, 2025 was primarily due to facility closure and other reorganization costs of $2.3 million, which were partially offset by organic sales growth in higher gross margin product lines. The facility closure and other reorganization costs primarily relate to headcount reductions associated with the closure of a manufacturing facility in China and the closure of a manufacturing facility in the U.S. The decrease in gross margin as a percentage of net sales during the six months ended January 31, 2025 was primarily due to a non-recurring increase in cost of goods sold of $4.1 million related to the fair value adjustment to inventory from acquisitions as well as the facility closure and other reorganization costs of $2.3 million, which were partially offset by organic sales growth in higher gross margin product lines.

Previous 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.

Current wording

R&D expenses increased 11.2% to $18.7 million in the three months ended January 31, 2025 compared to $16.8 million in the same period in the prior year. As a percentage of net sales, R&D expenses were unchanged at 5.2% in the three-month period compared to the same period in the prior year. R&D expenses increased 15.7% to $37.6 million in the six months ended January 31, 2025 compared to $32.5 million in the same period in the prior year. As a percentage of net sales, R&D expenses increased to 5.1% from 5.0% in the six-month period. 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 drive long-term organic sales growth. Investments in new printing systems, materials and new product development within recent acquisitions are 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 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.

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 15.9% to $105.9 million in the three months ended January 31, 2025 compared to $91.3 million in the same period in the prior year. As a percentage of sales, SG&A expenses increased to 29.7% from 28.3% in the three-month period. SG&A expenses increased 16.1% to $217.7 million for the six months ended January 31, 2025 compared to $187.6 million in the same period in the prior year. As a percentage of net sales, SG&A expenses increased to 29.7% from 28.7% in the six-month period. The increase in SG&A expenses during the three and six months ended January 31, 2025 was primarily due to increased headcount and other selling-related costs from acquisitions, including incremental amortization expense from the acquired intangible assets. SG&A expenses during the three months ended January 31, 2025 also include facility closure and other reorganization costs of $3.4 million. SG&A expenses during the six months ended January 31, 2025 also include facility closure and other reorganization costs of $3.4 million and non-recurring acquisition-related costs and other expenses of $1.0 million.

Previous 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.

Current wording

Interest expense increased to $1.3 million and $2.7 million for the three and six months ended January 31, 2025, respectively, compared to $0.8 million and $1.6 million in the same periods 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 acquisitions, which was partially offset by a decrease in the weighted average interest rate compared to the same periods in the prior year.

Previous wording

The Company’s income tax rate was 20.4% and 20.5% for the three months ended October 31, 2024 and 2023, respectively. The Company expects its ongoing annual income tax rate to be approximately 20% based on its current global business mix and based on tax laws and statutory rates currently in effect.

Current wording

The Company's income tax rate was 22.5% and 21.8% for the three months ended January 31, 2025 and 2024, respectively, and the income tax rate was 21.4% and 21.1% for the six months ended January 31, 2025 and 2024, respectively. The Company expects its ongoing annual income tax rate to be approximately 21% based on its current global business mix and based on tax laws and statutory rates currently in effect.

Previous wording

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

Current wording

The following is a summary of segment information for the three and six months ended January 31, 2025 and 2024:

Previous 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.

Current wording

Organic sales in the Americas increased in the low-single digits in the three months ended January 31, 2025 and in the mid-single digits in the six months ended January 31, 2025 compared to the same periods in the prior year. Organic sales growth in both the three and six-month periods was 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.

Previous 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.

Current wording

Organic sales in Asia increased approximately 11% in the three months ended January 31, 2025 and increased in the high-single digits in the six months ended January 31, 2025 compared to the same periods in the prior year. The organic sales increase in both the three and six-month periods was primarily driven by organic sales growth in Japan and India, which was partially offset by an organic sales decline in China. Organic sales grew in all major products lines with the strongest growth in the product identification and safety and facility identification product lines.

Previous wording

Organic sales in Australia declined in the low-single digits in the three months ended October 31, 2024. The organic sales decline was primarily driven by a decrease in volume in the wire identification product line.

Current wording

Organic sales in Australia declined in the low-single digits in both the three and six months ended January 31, 2025 compared to the same periods in the prior year. The organic sales decline was primarily driven by a decrease in volume in the safety and facility and wire identification product lines.

Previous 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.

Current wording

The Company's cash balances are generated and held in numerous locations throughout the world. At January 31, 2025, 94% 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 $145.7 million at October 31, 2024, a decrease of $104.5 million from July 31, 2024. The significant changes were as follows:

Current wording

Cash and cash equivalents were $138.5 million at January 31, 2025, an increase of $111.7 million from July 31, 2024. The significant changes were as follows:

Previous 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.

Current wording

Net cash provided by operating activities was $63.0 million in the six months ended January 31, 2025, compared to $98.4 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 acquired businesses, increased inventory purchases and higher annual incentive compensation payments.

Previous wording

Net cash used in investing activities was $147.9 million in the three months ended October 31, 2024, which primarily consisted of the acquisition of businesses of $140.6 million and capital expenditures of $7.3 million. Net cash used in investing activities was $11.3 million in the three months ended October 31, 2023, which consisted of capital expenditures.

Current wording

Net cash used in investing activities was $151.7 million in the six months ended January 31, 2025, which primarily consisted of the acquisition of businesses of $137.3 million and capital expenditures of $14.4 million. Net cash used in investing activities was $60.8 million in the six months ended January 31, 2024, which consisted of capital expenditures including the purchase of a previously leased facility in Mexico and facility construction costs in Belgium.

Previous 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.

Current wording

Net cash used in financing activities was $22.3 million in the six months ended January 31, 2025 compared to $43.0 million in the same period in the prior year. The decrease in cash used in financing activities was primarily due to a decline in share repurchases compared to the same period in the prior year.

Previous 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.

Current wording

As of January 31, 2025, the outstanding balance on the Company's credit agreement was $87.7 million. The maximum amount outstanding on the credit agreement during the six months ended January 31, 2025 was $144.8 million. As of January 31, 2025, the U.S. dollar-denominated borrowings of $31.0 million bear interest at 5.3%; the Euro-denominated borrowings of €45.0 million bear interest at 3.8%; and the British Pound-denominated borrowings of £8.0 million bear interest at 5.6%. The Company had letters of credit outstanding under the credit agreement of $2.2 million as of January 31, 2025, and there was $210.1 million available for future borrowing, which can be increased to $1,095.1 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 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.

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 January 31, 2025, the Company was in compliance with these financial covenants, with a ratio of debt to EBITDA, as defined by the agreements, equal to 0.3 to 1.0 and the interest expense coverage ratio equal to 73.5 to 1.0.