Brady (US:BRC)2023-02-23 16:00PART I. Financial Information Item 1. Financial Statements (Unaudited) This section presents the company's unaudited condensed consolidated financial statements, reflecting its financial position, operating results, cash flows, and stockholders' equity, with key data showing revenue and profit growth and improved operating cash flow Condensed Consolidated Balance Sheets As of January 31, 2023, total assets remained stable at $1.372 billion, total liabilities decreased to $405 million due to reduced long-term debt, and stockholders' equity increased to $967 million Key Balance Sheet Items (in thousands) | Item | As of January 31, 2023 | As of July 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,372,273 | $1,367,332 | | Cash and Cash Equivalents | $108,210 | $114,069 | | Total Current Assets | $504,215 | $498,068 | | Total Liabilities | $404,869 | $456,034 | | Total Current Liabilities | $229,849 | $255,174 | | Long-Term Debt | $77,281 | $95,000 | | Total Stockholders' Equity | $967,404 | $911,298 | Condensed Consolidated Statements of Income For the three months ended January 31, 2023 (Q2 FY23), net sales increased 2.6% year-over-year to $326 million, net income grew 12.3% to $37.99 million, and diluted EPS rose from $0.65 to $0.76 Summary of Operating Results (in thousands, except per share amounts) | Metric | Three Months Ended 1/31/23 | Three Months Ended 1/31/22 | Y-o-Y Change | Six Months Ended 1/31/23 | Six Months Ended 1/31/22 | Y-o-Y Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $326,249 | $318,055 | +2.6% | $648,818 | $639,530 | +1.5% | | Gross Profit | $156,440 | $149,362 | +4.7% | $311,704 | $304,350 | +2.4% | | Operating Income | $48,781 | $42,872 | +13.8% | $100,167 | $87,207 | +14.9% | | Net Income | $37,986 | $33,815 | +12.3% | $77,427 | $68,861 | +12.4% | | Diluted EPS (Class A) | $0.76 | $0.65 | +16.9% | $1.55 | $1.32 | +17.4% | Condensed Consolidated Statements of Comprehensive Income For the three months ended January 31, 2023, comprehensive income significantly increased to $69.13 million from $15.55 million in the prior year, primarily due to a favorable foreign currency translation adjustment of $30.56 million Comprehensive Income Statement (in thousands) | Item | Three Months Ended 1/31/23 | Three Months Ended 1/31/22 | Six Months Ended 1/31/23 | Six Months Ended 1/31/22 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $37,986 | $33,815 | $77,427 | $68,861 | | Other Comprehensive Income (Loss), Net of Tax | $31,144 | $(18,268) | $13,707 | $(22,986) | | Comprehensive Income | $69,130 | $15,547 | $91,134 | $45,875 | Condensed Consolidated Statements of Stockholders' Equity For the six months ended January 31, 2023, stockholders' equity increased from $911 million to $967 million, driven by $77.43 million in net income, partially offset by $22.79 million in dividends and $17.86 million in share repurchases - For the six months ended January 31, 2023, the company reported $77.43 million in net income, paid $22.79 million in dividends, and repurchased $17.86 million in stock66 Condensed Consolidated Statements of Cash Flows For the six months ended January 31, 2023, net cash from operating activities was $57.38 million, significantly higher than the prior year's $24.33 million due to reduced inventory purchases, while net cash used in financing activities was $57.13 million, primarily for credit agreement repayments, dividends, and stock repurchases Summary of Cash Flows (in thousands) | Item | Six Months Ended 1/31/23 | Six Months Ended 1/31/22 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $57,384 | $24,328 | | Net Cash Used in Investing Activities | $(8,156) | $(16,381) | | Net Cash Used in Financing Activities | $(57,128) | $(4,505) | | Net Decrease in Cash and Cash Equivalents | $(5,859) | $72 | Notes to Condensed Consolidated Financial Statements The financial statement notes detail accounting policies, segment information, revenue recognition, derivatives, and subsequent events, identifying IDS and WPS as reporting segments, with IDS as the primary revenue and profit source, and announcing organizational changes and quarterly dividends - The company operates in two reporting segments: Identification Solutions (IDS) and Workplace Safety (WPS), with the IDS segment being the primary contributor to revenue and profit99 Segment Profit (in thousands) | Segment | Three Months Ended 1/31/23 | Three Months Ended 1/31/22 | Six Months Ended 1/31/23 | Six Months Ended 1/31/22 | | :--- | :--- | :--- | :--- | :--- | | IDS | $47,384 | $44,129 | $98,909 | $92,945 | | WPS | $6,249 | $4,515 | $12,627 | $6,808 | | Total | $53,633 | $48,644 | $111,536 | $99,753 | - The Board of Directors announced on February 21, 2023, a quarterly cash dividend of $0.23 per share payable on April 28, 2023, to Class A and Class B common stockholders126 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's operating strategy, macroeconomic conditions, operating results, segment performance, and liquidity and capital resources, highlighting sales and margin improvements through organic growth and pricing actions, a revised credit agreement for enhanced financial flexibility, and continued investment in R&D and digital capabilities Overview and Strategy The company's strategy focuses on long-term growth and profitability through R&D investment, enhanced customer service, digital sales expansion, inflation-responsive pricing, strategic acquisitions, and operational excellence, with a planned FY2023 reorganization into a regional operating structure to support key market growth - Key initiatives for fiscal year 2023 include investing in organic growth, enhancing customer service, expanding digital sales capabilities, maintaining profitability through pricing, investing in acquisitions, driving operational excellence, building a diverse culture, and executing regional reorganization110128 - The company is executing a reorganization to a regional operating structure to support continued growth in key regions and streamline operations110 Results of Operations For the three months ended January 31, 2023, net sales grew 2.6%, driven by 6.3% organic growth offset by 3.7% negative foreign exchange impact; gross margin improved from 47.0% to 48.0% due to operational efficiencies and pricing, with operating income increasing 13.8% to $48.8 million Overall Company Sales Growth | Period | Total Growth Rate | Organic Growth Rate | Foreign Exchange Impact | | :--- | :--- | :--- | :--- | | Three Months Ended 1/31/23 | 2.6% | 6.3% | (3.7)% | | Six Months Ended 1/31/23 | 1.5% | 6.6% | (5.1)% | - Gross margin improved to 48.0% for both the three and six-month periods, primarily due to operational efficiencies from manufacturing streamlining and price increases208 - Research and development expenses increased 10.1% and 5.2% for the three and six-month periods, respectively, as the company continued to invest in new product development132 Business Segment Operating Results The IDS segment achieved 7.4% organic sales growth in Q2 with a margin increase to 18.5%, while the WPS segment saw 2.8% organic sales growth and a significant margin improvement to 8.9% due to optimized cost structure IDS Segment Performance (Q2 FY23 vs Q2 FY22) | Metric | Q2 FY23 | Q2 FY22 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $255.7M | $245.0M | +4.4% | | Organic Sales Growth | 7.4% | 16.0% | - | | Segment Profit | $47.4M | $44.1M | +7.4% | | Profit Margin | 18.5% | 18.0% | +50 bps | WPS Segment Performance (Q2 FY23 vs Q2 FY22) | Metric | Q2 FY23 | Q2 FY22 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $70.6M | $73.1M | -3.4% | | Organic Sales Growth | 2.8% | 5.2% | - | | Segment Profit | $6.2M | $4.5M | +38.4% | | Profit Margin | 8.9% | 6.2% | +270 bps | Liquidity and Capital Resources The company maintains a strong financial position with $108.2 million cash and $221.1 million available credit as of January 31, 2023, having revised its credit agreement to increase commitments to $300 million and extend maturity, ensuring sufficient resources for future operations - As of January 31, 2023, the company held $108.2 million in cash and $221.1 million in available borrowing capacity under its credit agreement, which can be increased to $981.1 million, resulting in total available liquidity of $1.0893 billion111 - In November 2022, the company amended its credit agreement, increasing total loan commitments by $100 million to $300 million and extending the final maturity date to November 14, 2027151 - As of January 31, 2023, the company was in full compliance with all financial covenants, with a leverage ratio of 0.31:1.0 (required below 3.5:1.0) and an interest coverage ratio of 85.9:1.0 (required above 3.0:1.0)177 Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's quantitative and qualitative disclosures about market risk since July 31, 2022 - No material changes have occurred in the quantitative and qualitative disclosures about market risk since July 31, 2022156 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the reporting period end, with no material changes in internal control over financial reporting during the most recent fiscal quarter - The company's President and Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of the end of the reporting period157 - No material changes occurred in the company's internal control over financial reporting during the most recent fiscal quarter182 PART II. Other Information Item 1A. Risk Factors No material changes have occurred compared to the risk factors disclosed in the company's Form 10-K for the year ended July 31, 2022 - No material changes have occurred compared to the risk factors outlined in the company's 2022 Form 10-K159 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company disclosed its Class A non-voting common stock repurchase program activities, with approximately $67.1 million remaining authorized for repurchases under the existing plan as of January 31, 2023 - The Board of Directors authorized an increase to the stock repurchase program on May 24, 2022, allowing for the repurchase of up to $100 million of the company's Class A non-voting common stock183 Stock Repurchase Activity (for the three months ended January 31, 2023) | Period | Total Shares Repurchased | Average Price Paid | Remaining Repurchase Authorization (in thousands) | | :--- | :--- | :--- | :--- | | November 2022 | — | — | $72,939 | | December 2022 | 123,321 | $46.92 | $67,153 | | January 2023 | 100 | $45.99 | $67,148 | | Total | 123,421 | $46.92 | $67,148 | Item 6. Exhibits This report lists various exhibits required by regulations, including executive employment contracts, change in control agreements, and certifications and XBRL-related documents mandated by the Sarbanes-Oxley Act - The report includes various exhibits such as executive employment contracts, change in control agreements, CEO/CFO certifications, and XBRL data files162185189 Signatures Signature Details This report was formally signed on February 24, 2023, by Russell R. Shaller, President and Chief Executive Officer (Principal Executive Officer), and Aaron J. Pearce, Chief Financial Officer and Treasurer (Principal Financial Officer) - The report is signed by Russell R. Shaller, President and Chief Executive Officer, and Aaron J. Pearce, Chief Financial Officer and Treasurer186190