4.1自受益人签署认购权利提前行使日期或自此日起的八（8）个月之内，受益人不得直接或间接（包括通过其顾问）及确保其关联方以及集团公司的任何一方不得直接或间接（包括通过他们各自的董事、高级职员、雇员和顾问）:308,128 and $304,199 截至2024年10月31日和2024年7月31日，分别。
无形资产摊销费用为$4,713 and $2,355 截至2024年和2023年10月31日的三个月。
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and租赁
2024年6月30日和2023年6月30日的三个月的营业租赁费用分别为4,735 and $4,065 for the 截至2024年和2023年10月31日的三个月分别为 在任一方被承认 “销售成本” 或 “销售、一般及行政费用” 根据租赁性质，在合并捏大简式利润表中列示费用。 2024年10月31日和2023年的三个月期间，短期租赁费用、可变租赁费用和转租收入对合并捏大简式利润表不重要。
公司提供的延长保修服务的费用已包含在某些产品的销售价格中，且公司将其视为服务保修。公司将与延长服务保修相关的递延营业收入作为合同负债进行会计处理。与服务保修履约义务相关的合同负债余额为$2,973 and $2,947 截至2024年10月31日和2024年7月31日，分别为$。合同负债的当前部分和非当前部分分别包含在“其他当前负债”和“其他负债”中，列在简化合并资产负债表上。公司在2024年和2023年10月31日的三个月内确认的营业收入为$337 and $314 在相应期间初的合同负债余额中，包括来自于延长服务保修的摊销。在截至2024年10月31日的合同负债余额中，公司预计到2026财政年度结束时确认 32截至2024年7月，公司预计在2025财政年度结束时将认可%的额外收入。 31%，剩余余额将在此之后确认。
The following is a reconciliation of segment profit to income before income taxes for the three months ended October 31, 2024 and 2023:
Three months ended October 31,
2024
2023
Total profit from reportable segments
$
68,014
$
66,641
Unallocated amounts:
Administrative costs
(9,092)
(6,911)
Investment and other income
1,234
438
Interest expense
(1,356)
(766)
Income before income taxes
$
58,800
$
59,402
NOTE I – Stock-Based Compensation
Incentive Stock Plans
The Company has an incentive stock plan under which the Board of Directors may grant nonqualified stock options to purchase shares of Class A Nonvoting Common Stock, restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”), or restricted and unrestricted shares of Class A Nonvoting Common Stock to employees and non-employee directors. Certain awards may be subject to pre-established performance goals. The majority of the Company’s annual share-based awards are granted in the first quarter of the fiscal year.
Total stock-based compensation expense recognized during the three months ended October 31, 2024 and 2023 was $5,813 and $4,163, respectively. The total income tax benefit recognized in the condensed consolidated statements of income was $632 and $425 during the three months ended October 31, 2024 and 2023, respectively.
Stock Options
The stock options issued under the plan have an exercise price equal to the market price of the Company's stock at the date of the grant and generally vest ratably over three years, with one-third becoming exercisable one year after the grant date and one-third additional in each of the succeeding two years. Options issued under the plan, referred to herein as “time-based” options, generally expire ten years from the date of grant. The Company did not include stock options in its annual grant of share-based awards to employees in the current fiscal year.
The following is a summary of stock option activity for the three months ended October 31, 2024:
Time-Based Options
Options Outstanding
Weighted Average Exercise Price
Weighted Average Remaining Contractual Term
Aggregate Intrinsic Value
Outstanding at July 31, 2024
1,222,046
$
44.46
Granted
—
—
Exercised
(128,803)
38.83
Forfeited
(1,720)
50.19
Outstanding at October 31, 2024
1,091,523
$
45.12
5.4
$
28,592
Exercisable at October 31, 2024
1,010,597
$
44.84
5.2
$
26,754
The following table summarizes additional stock option information:
Three months ended October 31,
2024
2023
Intrinsic value of options exercised during the period (in thousands)
$
4,622
$
3,410
Fair value of options vested during the period (in thousands)
1,249
1,729
Cash received from the exercise of stock options during the period (in thousands)
5,855
2,598
Tax benefit on options exercised during the period (in thousands)
1,112
841
As of October 31, 2024, total unrecognized compensation cost related to stock options was $674 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 1.5 years.
RSUs issued under the plan have a grant date fair value equal to the market price of the Company's stock at the date of grant and generally vest ratably over three years, with one-third vesting one year after the grant date and an additional one-third in each of the succeeding two years.
The following is a summary of RSU activity for the three months ended October 31, 2024:
Number of Shares
Weighted Average Grant Date Fair Value
Non-vested RSUs as of July 31, 2024
148,991
$
52.20
Granted
88,319
74.63
Vested
(56,393)
51.07
Forfeited
(763)
58.94
Non-vested RSUs as of October 31, 2024
180,154
$
63.53
The RSUs granted during the three months ended October 31, 2023 had a weighted-average grant date fair value of $54.80. The total fair value of RSUs vested during the three months ended October 31, 2024 and 2023 was $4,201 and $2,974, respectively.
As of October 31, 2024, total unrecognized compensation cost related to RSUs was $6,090 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 2.4 years.
PRSUs
PRSUs are contingent on the achievement of predetermined market and performance targets. The PRSUs granted under the plan vest at the end of a three-year performance period provided the service period and specified performance targets are met. For the PRSUs granted during the three months ended October 31, 2024 and 2023, awards will vest based on achievement of performance conditions relating to Company revenue and diluted EPS targets. For the PRSUs granted during the three months ended October 31, 2022, the vesting criteria for 50% of the grant is based upon the Company's total shareholder return (“TSR”) relative to the S&P 600 SmallCap Industrials Index over a three-year performance period, and the vesting criteria for the other 50% of the grant is based upon Company revenue targets.
The PRSUs granted during the three months ended October 31, 2024 had a fair value determined by the average of the high and low stock price on the date of the grant. For awards with a market value condition, a third-party valuation is utilized to determine the fair value as of the grant date using a Monte Carlo simulation for that portion of the award.
The following is a summary of PRSU activity for the three months ended October 31, 2024:
Number of Shares
Weighted Average Grant Date Fair Value
Non-vested PRSUs as of July 31, 2024
103,221
$
53.46
Granted
61,981
71.24
Vested
(8,098)
64.44
Forfeited
(2,157)
55.23
Non-vested PRSUs as of October 31, 2024
154,947
$
59.95
The PRSUs granted during the three months ended October 31, 2023 had a weighted-average grant date fair value of $51.16. The total fair value of PRSUs vested during the three months ended October 31, 2024 and 2023 was $595 and $141, respectively.
As of October 31, 2024, total unrecognized compensation cost related to PRSUs was $6,812 pre-tax, net of estimated forfeitures, which the Company expects to recognize over a weighted-average period of 2.3 years.
Reconciliations of the numerator and denominator of the basic and diluted per share computations for the Company’s Class A and Class B common stock are summarized as follows:
Three months ended October 31,
2024
2023
Numerator (in thousands):
Net income (Numerator for basic and diluted income per Class A Nonvoting Common Share)
$
46,783
$
47,241
Less:
Preferential dividends
(736)
(748)
Preferential dividends on dilutive stock options
(8)
(5)
Numerator for basic and diluted income per Class B Voting Common Share
$
46,039
$
46,488
Denominator (in thousands):
Denominator for basic income per share for both Class A and Class B
47,732
48,505
Plus: Effect of dilutive equity awards
485
306
Denominator for diluted income per share for both Class A and Class B
48,217
48,811
Net income per Class A Nonvoting Common Share:
Basic
$
0.98
$
0.97
Diluted
$
0.97
$
0.97
Net income per Class B Voting Common Share:
Basic
$
0.96
$
0.96
Diluted
$
0.95
$
0.95
Potentially dilutive securities attributable to outstanding stock options and restricted stock units were excluded from the calculation of diluted earnings per share where the combined exercise price and average unamortized fair value were greater than the average market price of the Company's Class A Nonvoting Common Stock because the effect would have been anti-dilutive. The amount of anti-dilutive shares were 17,278 and 313,787 for the three months ended October 31, 2024 and 2023, respectively.
NOTE K — Fair Value Measurements
In accordance with fair value accounting guidance, the Company determines fair value based on the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The inputs used to measure fair value are classified into the following hierarchy:
Level 1 — Unadjusted quoted prices in active markets for identical instruments that are accessible as of the reporting date.
Level 2 — Other significant pricing inputs that are either directly or indirectly observable.
Level 3 — Significant unobservable pricing inputs, which result in the use of management's own assumptions.
The following table summarizes the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis at October 31, 2024 and July 31, 2024:
October 31, 2024
July 31, 2024
Fair Value Hierarchy
Assets:
Deferred compensation plan assets
$
18,180
$
20,029
Level 1
Foreign exchange contracts
148
137
Level 2
Liabilities:
Foreign exchange contracts
1,614
730
Level 2
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Deferred compensation plan assets: The Company’s deferred compensation investments consist of investments in mutual funds, which are included in “Other assets” on the condensed consolidated balance sheets. These investments were classified as Level 1 as the shares of these investments trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis.
Foreign exchange contracts: The Company’s foreign exchange contracts were classified as Level 2 as the fair value was based on the present value of the future cash flows using external models that use observable inputs, such as interest rates, yield curves and foreign exchange rates. See Note L, “Derivatives and Hedging Activities,” for additional information.
The fair values of cash and cash equivalents, accounts receivable, accounts payable, and other liabilities approximated carrying values due to their short-term nature.
NOTE L — Derivatives and Hedging Activities
The Company utilizes forward foreign exchange currency contracts to reduce the exchange rate risk of specific foreign currency denominated transactions. These contracts typically require the exchange of a foreign currency for U.S. dollars at a fixed rate on a future date, with maturities of less than 18 months, which qualify as cash flow hedges or net investment hedges under the accounting guidance for derivative instruments and hedging activities. The primary objective of the Company’s foreign currency exchange risk management program is to minimize the impact of currency movements due to transactions in other than the respective subsidiaries’ functional currency and to minimize the impact of currency movements on the Company’s net investment denominated in a currency other than the U.S. dollar. To achieve this objective, the Company hedges a portion of known exposures using forward foreign exchange currency contracts.
Main foreign currency exposures are related to transactions denominated in the British Pound, Euro, Canadian dollar, Australian dollar, Mexican Peso, Chinese Yuan, Malaysian Ringgit and Singapore dollar. Generally, these risk management transactions will involve the use of foreign currency derivatives to minimize the impact of currency movements on non-functional currency transactions.
The U.S. dollar equivalent notional amounts of outstanding forward exchange contracts were as follows:
October 31, 2024
July 31, 2024
Designated as cash flow hedges
$
44,448
$
59,207
Non-designated hedges
4,171
4,459
Total foreign exchange contracts
$
48,619
$
63,666
Cash Flow Hedges
The Company has designated a portion of its forward foreign exchange contracts as cash flow hedges and recorded these contracts at fair value on the condensed consolidated balance sheets. For these instruments, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (“OCI”) and reclassified into income in the same period or periods during which the hedged transaction affects income. As of October 31, 2024 and July 31, 2024, unrealized losses of $1,926 and $124 have been included in OCI, respectively.
Net Investment Hedges
The Company has designated certain third party foreign currency denominated debt borrowed under its credit agreement as net investment hedges. These debt obligations, denominated in Euros and British Pounds, were designated as net investment hedges to hedge portions of the Company's net investment in its European operations. The Company’s foreign currency denominated debt obligations are valued under a market approach using publicized spot prices, and the net gains or losses attributable to the changes in spot prices are recorded as cumulative translation within AOCI and are included in the foreign currency translation adjustments section of the condensed consolidated statements of comprehensive income. As of October 31, 2024 and July 31, 2024, the cumulative balance recognized in accumulated other comprehensive income were losses of $1,427 and $1,237, respectively, on any outstanding foreign currency denominated debt obligations.
The income tax rate for the three months ended October 31, 2024 and 2023 was 20.4% and 20.5%, respectively.
NOTE N — Contingencies
In the normal course of business, the Company is subject to a variety of investigations, claims, suits, and other legal proceedings, including but not limited to, intellectual property, employment, unclaimed property, tort, and breach of contract matters. Any legal proceedings are subject to inherent uncertainties, and these matters and their potential effects may change in the future. The Company records a liability for contingencies when a loss is deemed to be probable and the loss can be reasonably estimated. The Company currently believes that the outcomes of such proceedings will not have a material adverse impact on its business, financial position, results of operations or cash flows.
NOTE O — Acquisitions
On August 1, 2024, the Company acquired all of the outstanding shares of Gravotech. Headquartered in Lyon, France, Gravotech is a leader in the design, manufacture and distribution of innovative solutions for specialized engraving, marking and cutting, offering laser, mechanical engraving, scribing and dot peen capabilities across multiple industries. The acquisition of Gravotech expands the Company’s identification product offerings and research and development capabilities to include specialized direct part marking and engraving expertise. The acquisition was funded through cash on hand and borrowings under the Company’s existing credit agreement. Net sales and net loss attributable to Gravotech from the acquisition date through October 31, 2024 were $29,475 and $4,685, respectively. The net loss attributable to Gravotech is due to a nonrecurring increase in cost of goods sold of $4,115 related to the fair value adjustment to inventory upon acquisition and amortization expense of $2,326 for intangible assets acquired.
The Company recorded its preliminary purchase price allocation during the three months ended October 31, 2024, based on its estimates of the fair value of the acquired assets and assumed liabilities as of the acquisition date. The preliminary purchase price allocation included goodwill of $71,790, of which $49,874 was assigned to the Americas & Asia segment and $21,916 was assigned to the Europe & Australia segment.
The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed at the date of the acquisition:
Cash and cash equivalents
$
7,667
Accounts receivable, net
24,325
Inventories
21,751
Prepaid expenses and other current assets
563
Property, plant and equipment — net
2,538
Goodwill
71,790
Other intangible assets
65,798
Operating lease assets
6,981
Other assets
1,061
Accounts payable
(17,813)
Accrued compensation and benefits
(9,347)
Taxes, other than income taxes
(6,857)
Accrued income taxes
(1,855)
Other current liabilities
(18,157)
Operating lease liabilities
(6,980)
Other liabilities
(6,908)
Net assets acquired
$
134,557
Less: cash acquired
(7,667)
Fair value of total consideration
$
126,890
The final purchase price allocation is subject to post-closing adjustments pursuant to the terms of the securities sale and purchase agreement, as well as the finalization of certain accounts, primarily intangible assets and deferred tax adjustments. The goodwill for this acquisition is not deductible for tax purposes.
The following table presents the unaudited pro forma operating results for the three months ended October 31, 2024 and 2023, reflecting the acquisition of Gravotech as if it had occurred at the beginning of fiscal year 2024. The unaudited pro forma operating results for the three months ended October 31, 2024 do not contain any adjustments to the accompanying condensed consolidated financial statements. The unaudited pro forma operating results for the three months ended October 31, 2023 include Gravotech’s normal operating results and pro forma adjustments to include cumulative expenses, net of tax, for the nonrecurring fair value adjustment to inventory, amortization expense for acquired intangible assets and interest expense on acquisition-related debt. The unaudited pro forma operating results are presented for comparative purposes only and do not necessarily reflect future operating results or those that would have occurred had the acquisition been completed at the beginning of fiscal year 2024.
On October 1, 2024, the Company acquired all of the outstanding shares of AB&R for $15,625, net of cash acquired. Based in Phoenix, Arizona, AB&R provides integrated solutions for asset tracking, inventory management, and workflow optimization using advanced identification and tracking technologies, including barcoding, radio frequency identification (“RFID”) and Internet of Things (“IoT”)-based systems. The acquisition was funded through cash on hand and borrowings under the Company’s existing credit agreement. The Company recorded its preliminary purchase price allocation during the first quarter of fiscal year 2025, based on its estimates of the fair value of the acquired assets and assumed liabilities at that time. The preliminary purchase price allocation included goodwill of $10,877, intangible assets of $4,600, and net tangible assets of $148. The goodwill for this acquisition is assigned to the Americas & Asia segment and is deductible for tax purposes. The final purchase price allocation is subject to post-closing adjustments and the finalization of certain intangible asset valuations and deferred tax adjustments, as well as potential contingent consideration subject to AB&R’s achievement of certain post-acquisition financial targets pursuant to the terms of the membership interest purchase agreement. Acquisition-related expenses of $305 were recognized in selling, general and administrative (“SG&A”) expenses during the three months ended October 31, 2024. The accompanying condensed consolidated financial statements include the results of AB&R from the date of acquisition through October 31, 2024. Pro forma and other financial information are not presented for the AB&R acquisition because its impact on the Company's results of operation and financial position is immaterial.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
Within each of the reportable segments, the Company markets, sells and distributes a broad range of identification and safety products and solutions across the following primary product categories:
•Safety and facility identification and protection, which includes safety signs, traffic signs and control products, floor-marking tape, pipe markers, labeling systems, spill control products, lockout/tagout devices, personal protection equipment, first aid products, and software and services for safety compliance auditing, procedures writing and training.
•Product identification, which includes materials, printing systems, radio frequency identification (“RFID”) and barcode scanners for product identification, engraving equipment, brand protection labeling, work in process labeling, finished product identification, asset tracking labels, asset tags and industrial track and trace applications.
•Wire identification, which includes handheld printers, wire markers, sleeves, and tags.
•Healthcare identification, which includes wristbands, labels, printing systems, and other products used in hospital, laboratory, and other healthcare settings for tracking and improving the safety of patients.
•People identification, which includes name tags, badges, lanyards, rigid card printing systems, and access control software.
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.
The following are key initiatives supporting our strategy in fiscal 2025:
•Investing in organic growth by enhancing our research and development process and utilizing customer feedback and observations to develop innovative new products that solve customer needs and improve environmental sustainability.
•Providing the highest level of customer service by aligning with customers' preferred communications channels and leveraging technology to enhance the customer experience.
•Expanding and enhancing our sales capabilities through an improved digital presence and the use of data-driven marketing automation tools.
•Maintaining profitability through pricing mechanisms to mitigate the impacts of ongoing supply chain disruptions and inflationary pressures while ensuring prices are market competitive.
•Integrating recent acquisitions to further enhance our strategic position and accelerate long-term sales growth.
•Driving operational excellence and executing sustainable efficiency gains within our selling, general and administrative structures and within our global operations including insourcing of critical products and manufacturing activities while reducing our environmental footprint.
•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.
Macroeconomic Conditions and Trends
The Company continues to be impacted by inflationary pressures to raw material and labor costs, supply chain disruptions, and other global macroeconomic challenges. While we experienced material increases to raw material and labor costs and supply chain disruptions in previous years, fiscal 2024 showed signs of easing with a moderation of raw material and labor cost inflation and improved supply chain stability, which we anticipate will continue into fiscal 2025. The Company has taken and will continue to take actions to mitigate inflationary pressures through targeted pricing actions and a commitment to driving long-term efficiency improvements.
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.
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.
Results of Operations
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.
A comparison of results of operating income for the three months ended October 31, 2024 and 2023 is as follows:
Three months ended October 31,
(Dollars in thousands)
2024
% Sales
2023
% Sales
Net sales
$
377,065
$
331,983
Gross margin
189,689
50.3
%
171,719
51.7
%
Operating expenses:
Research and development
18,921
5.0
%
15,702
4.7
%
Selling, general and administrative
111,846
29.7
%
96,287
29.0
%
Total operating expenses
130,767
34.7
%
111,989
33.7
%
Operating income
$
58,922
15.6
%
$
59,730
18.0
%
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.
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.
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.
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.
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.
Operating income decreased 1.4% to $58.9 million in the three months ended October 31, 2024, compared to $59.7 million in the same period in the prior year. The decrease in operating income was due to incremental amortization expense from acquisitions of $2.4 million and non-recurring acquisition-related and other costs of $5.1 million incurred during the three-month period.
OPERATING INCOME TO NET INCOME
Three months ended October 31,
(Dollars in thousands)
2024
% Sales
2023
% Sales
Operating income
$
58,922
15.6
%
$
59,730
18.0
%
Other income (expense):
Investment and other income
1,234
0.3
%
438
0.1
%
Interest expense
(1,356)
(0.4)
%
(766)
(0.2)
%
Income before income taxes
58,800
15.6
%
59,402
17.9
%
Income tax expense
12,017
3.2
%
12,161
3.7
%
Net income
$
46,783
12.4
%
$
47,241
14.2
%
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.
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.
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.
Business Segment Operating Results
The Company evaluates short-term segment performance based on segment profit and customer sales. Interest expense, investment and other income, income tax expense, and certain corporate administrative expenses are excluded when evaluating segment performance.
The following is a summary of segment information for the three months ended October 31, 2024 and 2023:
Three months ended October 31,
2024
2023
SALES GROWTH INFORMATION
Americas & Asia
Organic
5.1
%
3.3
%
Currency
(0.2)
%
—
%
Acquisition
7.4
%
—
%
Divestiture
(1.6)
%
(1.9)
%
Total
10.7
%
1.4
%
Europe & Australia
Organic
0.7
%
1.4
%
Currency
3.6
%
4.6
%
Acquisition
15.0
%
—
%
Total
19.3
%
6.0
%
Total Company
Organic
3.6
%
2.7
%
Currency
1.2
%
1.5
%
Acquisition
9.9
%
—
%
Divestiture
(1.1)
%
(1.3)
%
Total
13.6
%
2.9
%
SEGMENT PROFIT
Americas & Asia
$
54,900
$
49,897
Europe & Australia
13,114
16,744
Total
$
68,014
$
66,641
SEGMENT PROFIT AS A PERCENT OF NET SALES
Americas & Asia
22.4
%
22.5
%
Europe & Australia
10.0
%
15.2
%
Total
18.0
%
20.1
%
Americas & Asia
Americas & Asia net sales increased 10.7% to $245.4 million in the three months ended October 31, 2024 compared to $221.6 million in the same period in the prior year, which consisted of organic sales growth of 5.1% and sales growth from acquisitions of 7.4%, which were partially offset by a decrease from foreign currency translation of 0.2% and a decrease of 1.6% due to the divestiture of a non-core business in October 2023.
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.
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.
Segment profit increased 10.0% to $54.9 million in the three months ended October 31, 2024 compared to $49.9 million in the same period in the prior year. As a percentage of net sales, segment profit was essentially flat at 22.4% compared to 22.5% in the same period in the prior year. The increase in segment profit was primarily due to increased sales volumes in the Americas, which was partially offset by certain acquisition-related costs and purchase accounting adjustments.
Europe & Australia
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%.
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.
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.
Segment profit decreased to $13.1 million in the three months ended October 31, 2024 compared to $16.7 million in the same period of the prior year. As a percentage of net sales, segment profit decreased to 10.0% from 15.2% in the same period of the prior year. The decrease in segment profit was primarily due to certain acquisition-related costs and organizational transition costs incurred during the three-month period.
Liquidity and Capital Resources
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.
Cash Flows
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:
Three months ended October 31,
(Dollars in thousands)
2024
2023
Net cash flow provided by (used in):
Operating activities
$
23,406
$
62,273
Investing activities
(147,901)
(11,279)
Financing activities
18,263
(21,494)
Effect of exchange rate changes on cash
1,775
(5,680)
Net (decrease) increase in cash and cash equivalents
$
(104,457)
$
23,820
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.
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.
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.
Material Cash Requirements
Our material cash requirements for known contractual obligations include capital expenditures, borrowings on our credit agreement and lease obligations. We believe that net cash provided by operating activities will continue to be adequate to meet our liquidity and capital needs for these items over the next 12 months and in the long-term beyond the next 12 months. We also have cash requirements for purchase orders and contracts for the purchase of inventory and other goods and services, which are based on current and anticipated customer needs and are fulfilled by our suppliers within short time horizons. We do not have significant agreements for the purchase of inventory or other goods or services specifying minimum order quantities. In addition, we may have liabilities for uncertain tax positions, but we do not believe that the cash requirements to meet any of these liabilities will be material.
On August 1, 2019, the Company and certain of its subsidiaries entered into an unsecured $200 million multi-currency credit agreement with a group of five banks.
On December 21, 2021, the Company and certain of its subsidiaries entered into an amendment to the credit agreement dated August 1, 2019 to adjust to alternative benchmarks due to the elimination of the London Inter-bank Offered Rate (“LIBOR”).
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.
On October 10, 2024, the Company and certain of its subsidiaries entered into a Third Amendment to Credit Agreement (“Amendment No. 3”) with a group of six banks, which amended the original credit agreement dated August 1, 2019. Amendment No. 3 amended the credit agreement to, among other things, change the applicable benchmark under the credit agreement for borrowings denominated in Canadian Dollars from the Canadian Dollar Offered Rate (“CDOR”) to the adjusted Term Canadian Overnight Repo Rate Average Rate (“CORRA”). Borrowings under Amendment No. 3 are unsecured and are guaranteed by certain of the Company's domestic subsidiaries.
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.
Covenant Compliance
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.
Forward-Looking Statements
In this quarterly report on Form 10-Q, statements that are not reported financial results or other historic information are “forward-looking statements.” These forward-looking statements relate to, among other things, the Company's future financial position, business strategy, targets, projected sales, costs, income, capital expenditures, debt levels and cash flows, and plans and objectives of management for future operations.
The use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “should,” “project” or “plan” or similar terminology are generally intended to identify forward-looking statements. These forward-looking statements by their nature address matters that are, to different degrees, uncertain and are subject to risks, assumptions, and other factors, some of which are beyond Brady's control, that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For Brady, uncertainties arise from:
•Increased cost of raw materials and labor as well as material shortages and supply chain disruptions
•Decreased demand for the Company's products
•Ability to compete effectively or to successfully execute the Company's strategy
•Ability to develop technologically advanced products that meet customer demands
•Ability to identify, integrate, and grow acquired companies, and to manage contingent liabilities from divested businesses
•Difficulties in protecting websites, networks, and systems against security breaches and difficulties in preventing phishing attacks, social engineering or malicious break-ins
•Global climate change and environmental regulations
•Litigation, including product liability claims
•Foreign currency fluctuations
•Changes in tax legislation and tax rates
•Potential write-offs of goodwill and other intangible assets
•Differing interests of voting and non-voting shareholders and changes in the regulatory and business environment around dual-class voting structures
•Numerous other matters of national, regional and global scale, including major public health crises and government responses thereto and those of a political, economic, business, competitive, and regulatory nature contained from time to time in Brady's U.S. Securities and Exchange Commission filings, including, but not limited to, those factors listed in the “Risk Factors” section within Item 1A of Part I of Brady's Form 10-K for the year ended July 31, 2024.
These uncertainties may cause Brady's actual future results to be materially different than those expressed in its forward-looking statements. Brady does not undertake to update its forward-looking statements except as required by law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the Company’s annual report on Form 10-K for the year ended July 31, 2024. There has been no material change in this information since the 2024 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Brady Corporation maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports filed by the Company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports the Company files under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of its management, including its President and Chief Executive Officer (the “Chief Executive Officer”) and its Chief Financial Officer, Chief Accounting Officer and Treasurer (the “Chief Financial Officer”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
There were no changes in the Company's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company's most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
The information set forth in Note N, "Contingencies" included in this Quarterly Report on Form 10-Q is incorporated herein by reference.
ITEM 1A. RISK FACTORS
The Company’s business, results of operations, financial condition, and cash flows are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” of Company’s Annual Report on Form 10-K for the year ended July 31, 2024. There have been no material changes from the risk factors set forth in the 2024 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company maintains a share repurchase program for the Company's Class A Nonvoting Common Stock. The program may be implemented by purchasing shares in the open market or in privately negotiated transactions, with repurchased shares available for use in connection with the Company's stock-based plans and for other corporate purposes.
On September 4, 2024, the Company's Board of Directors authorized an increase in the Company's share repurchase program, authorizing the repurchase of an additional $100.0 million of the Company's Class A Nonvoting Common Stock, which expanded upon the Company's prior authorization for a total authorized amount of $137.8 million. The share repurchase program may be implemented from time to time on the open market or in privately negotiated transactions and has no expiration date. As of October 31, 2024, there were $137.8 million worth of shares authorized to purchase remaining pursuant to the existing share repurchase program.
The following table provides information with respect to the purchases by the Company of Class A Nonvoting Common Stock during the three months ended October 31, 2024:
Period
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (Dollars in Thousands)
August 1, 2024 - August 31, 2024
—
$
—
—
$
137,788
September 1, 2024 - September 30, 2024
—
—
—
137,788
October 1, 2024 - October 31, 2024
—
—
—
137,788
Total
—
$
—
—
$
137,788
ITEM 5. OTHER INFORMATION
During the three months ended October 31, 2024, no director or Section 16 officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is identified in Item 408(a) of Regulation S-K.
Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.)
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BRADY CORPORATION
Date: November 18, 2024
/s/ RUSSELL R. SHALLER
Russell R. Shaller
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 18, 2024
/s/ ANN E. THORNTON
Ann E. Thornton
Chief Financial Officer, Chief Accounting Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)