Brady (BRC) - 2024 Q1 - Quarterly Report

PART I. Financial Information Item 1. Financial Statements (Unaudited) This section presents Brady Corporation's unaudited condensed consolidated financial statements for the quarter ended October 31, 2023, highlighting increased net income and operating cash flow Condensed Consolidated Balance Sheets Total assets slightly decreased to $1.383 billion as of October 31, 2023, primarily due to lower inventories and goodwill, while equity increased to $995.0 million Condensed Consolidated Balance Sheets (in thousands) | | October 31, 2023 (Unaudited) | July 31, 2023 | | :--- | :--- | :--- | | ASSETS | | | | Cash and cash equivalents | $175,352 | $151,532 | | Accounts receivable, net | $179,970 | $184,420 | | Inventories | $166,916 | $177,078 | | Total current assets | $535,065 | $524,820 | | Goodwill | $583,702 | $592,646 | | Total assets | $1,383,413 | $1,389,257 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $251,694 | $258,036 | | Long-term debt | $52,267 | $49,716 | | Total liabilities | $388,421 | $398,338 | | Total stockholders' equity | $994,992 | $990,919 | | Total liabilities and stockholders' equity | $1,383,413 | $1,389,257 | Condensed Consolidated Statements of Income Net sales increased 2.9% to $332.0 million for the quarter, with gross margin improving to 51.7% and net income rising 19.8% to $47.2 million Condensed Consolidated Statements of Income (in thousands, except per share amounts) | | Three months ended October 31, 2023 | Three months ended October 31, 2022 | | :--- | :--- | :--- | | Net sales | $331,983 | $322,569 | | Gross margin | $171,719 | $155,264 | | Operating income | $59,730 | $51,386 | | Net income | $47,241 | $39,441 | | Diluted EPS (Class A) | $0.97 | $0.79 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income for the quarter increased to $25.0 million, despite an other comprehensive loss primarily from foreign currency translation adjustments Condensed Consolidated Statements of Comprehensive Income (in thousands) | | Three months ended October 31, 2023 | Three months ended October 31, 2022 | | :--- | :--- | :--- | | Net income | $47,241 | $39,441 | | Other comprehensive loss, net of tax | $(22,222) | $(17,437) | | Comprehensive income | $25,019 | $22,004 | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $995.0 million driven by net income, partially offset by other comprehensive loss, share repurchases, and cash dividends - Key changes in stockholders' equity for the three months ended October 31, 2023 include: - Net income: +$47.2 million - Other comprehensive loss: -$22.2 million - Repurchase of Class A Common Stock: -$14.2 million - Cash dividends paid: -$11.3 million[34] Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $62.3 million, ending the quarter with $175.4 million in cash and cash equivalents Summary of Cash Flows (in thousands) | | Three months ended October 31, 2023 | Three months ended October 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $62,273 | $27,999 | | Net cash used in investing activities | $(11,279) | $(3,861) | | Net cash used in financing activities | $(21,494) | $(20,535) | | Effect of exchange rate changes on cash | $(5,680) | $(3,201) | | Net increase in cash and cash equivalents | $23,820 | $402 | | Cash and cash equivalents, end of period | $175,352 | $114,471 | Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures supporting the financial statements, covering segment information, stock-based compensation, and derivatives - The unaudited condensed consolidated financial statements have been prepared by the Company in accordance with GAAP and should be read in conjunction with the audited statements in the Annual Report on Form 10-K for the year ended July 31, 2023[16][185] - The company did not adopt any new accounting standards in the three months ended October 31, 2023[186] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting sales and operating income growth, strong liquidity, and strategic initiatives for organic growth and efficiency Overview and Strategy Brady Corporation, a global supplier of identification and safety products, focuses on innovative products, customer service, and digital capabilities for long-term growth - The company's strategy for growth includes an increased focus on certain industries and products, expanding into higher growth end-markets, and improving digital capabilities[87] - Key initiatives for fiscal 2024 include: - Investing in organic growth via R&D and new product development - Expanding sales capabilities through an improved digital presence - Maintaining profitability through pricing and efficiency gains to combat inflation - Integrating recent acquisitions to accelerate growth - Driving operational excellence and insourcing critical manufacturing[88][100] Results of Operations Net sales increased 2.9% to $332.0 million with improved gross margin and operating income, while R&D and SG&A expenses also rose Results of Operations Summary (in thousands) | | 2023 | % Sales | 2022 | % Sales | | :--- | :--- | :--- | :--- | :--- | | Net sales | $331,983 | 100.0% | $322,569 | 100.0% | | Gross margin | $171,719 | 51.7% | $155,264 | 48.1% | | R&D | $15,702 | 4.7% | $13,933 | 4.3% | | SG&A | $96,287 | 29.0% | $89,945 | 27.9% | | Operating income | $59,730 | 18.0% | $51,386 | 15.9% | - Net sales increased 2.9% YoY, consisting of 2.7% organic growth, a 1.5% positive impact from foreign currency, and a 1.3% decrease from divestitures[101] - The increase in gross margin percentage was primarily due to product mix, reductions in freight expenses, and improvements in inventory management[111] Business Segment Operating Results Americas & Asia segment profit increased significantly due to organic growth and cost efficiencies, while Europe & Australia's profit remained flat despite sales growth Segment Sales Growth and Profit | | Americas & Asia | Europe & Australia | Total Company | | :--- | :--- | :--- | :--- | | Sales Growth (YoY) | | | | | Organic | 3.3% | 1.4% | 2.7% | | Total | 1.4% | 6.0% | 2.9% | | Segment Profit (YoY) | | | | | 2023 (in thousands) | $49,897 | $16,744 | $66,641 | | 2022 (in thousands) | $41,145 | $16,758 | $57,903 | | Profit as % of Sales | | | | | 2023 | 22.5% | 15.2% | 20.1% | | 2022 | 18.8% | 16.1% | 18.0% | - Americas & Asia segment profit increased 21.3% to $49.9 million, primarily due to increased sales volumes in the Americas, reduced freight costs, and manufacturing automation[118] - Europe & Australia segment profit was flat at $16.7 million as increasing labor and other costs from inflation were offset by pricing actions[120] Liquidity and Capital Resources The company maintains a strong liquidity position with $175.4 million in cash and substantial borrowing capacity, ensuring compliance with debt covenants - At October 31, 2023, the company had cash of $175.4 million and $245.8 million available for future borrowing under its credit agreement, for total available liquidity of $1,266.1 million (including an optional increase)[105][147] - Net cash provided by operating activities increased to $62.3 million from $28.0 million in the prior year, primarily due to improved profitability and reduced inventory levels[123] - As of October 31, 2023, the company was in compliance with its financial covenants, with a debt-to-EBITDA ratio of 0.18 to 1.0 (well below the 3.5 to 1.0 limit)[148] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes have occurred in the company's market risk information since the disclosures in its prior Annual Report on Form 10-K - There has been no material change in the company's quantitative and qualitative disclosures about market risk since the 2023 Form 10-K[150] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective as of the end of the period covered by this report[152] - There were no changes in the Company's internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[133] PART II. Other Information Item 1A. Risk Factors No material changes have occurred from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended July 31, 2023 - There have been no material changes from the risk factors set forth in the Company's Annual Report on Form 10-K for the year ended July 31, 2023[163] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities The company repurchased 279,683 shares for approximately $14.1 million, with an additional $100.0 million authorized for future repurchases Issuer Purchases of Equity Securities (Q1 FY2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Value of Shares Remaining for Purchase (in thousands) | | :--- | :--- | :--- | :--- | | August 2023 | 187,186 | $49.51 | $100,747 | | September 2023 | 0 | - | $100,747 | | October 2023 | 92,497 | $52.48 | $95,893 | | Total | 279,683 | $50.49 | $95,893 | - On August 30, 2023, the Board of Directors authorized an increase in the share repurchase program by an additional $100.0 million[164] Item 5. Other Information No director or Section 16 officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter - No director or Section 16 officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended October 31, 2023[154] Item 6. Exhibits This section lists the exhibits filed with the quarterly report, including CEO and CFO certifications and XBRL data files - Exhibits filed include certifications by the CEO (Russell R. Shaller) and CFO (Ann E. Thornton) pursuant to SEC rules, as well as XBRL financial data[155][167]