Good afternoon, everyone, and welcome back to Sudodi's virtual investor conference. I do see there are still some people filling into the room, but I will take this time right now and just remind everyone, if you have questions, we expect a few minutes after the informative presentation. You press that Q&A button at the bottom of your screen, type in the questions, and we will get to as many as we can, time permitting. Happy to welcome CFO Ann Thornton from Brady Corporation. The ticker is BRC. I think she has a lot of ground to cover, so I do not want to take up any more time. Let me turn it over to you, Ann.
All right. Thanks so much, Steve. And thanks. Good afternoon, everybody. Thanks for joining. All right. I'll start off by giving you some background on who we are and what we do, and then I'll share some financial information, and then I'll leave some time at the end for Q&A. Brady is a leader in the research, development, and manufacturing of high-performance specialty adhesives and printing solutions that are intended for safety and identification applications. We have a very, very broad product portfolio consisting of wire identification, specialty adhesive labels and printers, safety and facility identification products, including floor marking tape, lockout/tagout devices, and safety procedures, as well as pipe marking and a wide variety of other products. We also develop and manufacture product identification labels, printers, scanners, healthcare identification, patient ID, patient ID wristbands, along with a variety of other people identification type of products.
We sell into a wide variety of end markets, and our products are ideal for many, many different applications. Ultimately, the more specific and the more challenging the application for an adhesive product and a printing solution is, the better for Brady, because that is where our products really do stand out. We're very diversified. We have a diversified customer base. No one individual customer comes close to 10% of total sales. We sell thousands of products, and 48% of our revenue through the first nine months of fiscal 2025 was generated outside of the U.S. At the same time, our competitive landscape is very fragmented and is usually specific to a particular type of product or a geography or sometimes both.
We've refocused our attention on innovation over the last several years, and I'll show you that our R&D spend was up to an all-time high of 5.1% of sales in last fiscal year, which was 2024. This is an incredibly important area to us as we work to increase our organic growth profile as a company. Also, if you look back over the last eight years, we've generally reduced SG&A as a percentage of sales by 800 basis points over that period of time, which has been absolutely fantastic for our bottom line. We're coming off of actually four consecutive record years of EPS. 2021, 2022, 2023, and 2024 were record EPS years, with our prior year 2024 EPS up by 17% over 2023. We're on a really nice run from an earnings standpoint. Also, we're incredibly focused on cash generation, and we're always making cash-based decisions.
Operating cash flow was up 22% in 2024 compared to 2023. It was up to $255 million, which was another company record. As far as what we do with that cash that we generate, we are disciplined and we're patient. We continue to invest in the organic business throughout the economic cycle, excuse me. For us, that means salespeople, R&D, of course, as well as geographic expansion so that we can improve our rate of organic sales growth. We return dividends to our shareholders. At the beginning of this fiscal year, we announced our 39th consecutive annual dividend increase. We've increased our annual dividend every single year, actually, since we went public. We also take a disciplined approach when it comes to acquisitions. The opportunity must provide some level of technology or a product offering that we don't currently offer.
The price needs to make sense. It needs to be a logical fit within our businesses, and it needs to help move us forward, of course. If we do not find the right deal, then we will step aside and wait. We also return funds to our shareholders in the form of share buybacks. In 2024, we returned $117 million to our shareholders in buyback and dividends. In 2023, we returned $120 million. In 2022, we returned $150 million in buybacks and dividends. Through the first nine months of 2025, we have returned $67 million to our shareholders in buybacks and dividends. Overall, we believe that we have a well-balanced organization that is very diversified, which also tends to give us a level of protection throughout the economic cycle. Okay.
As far as our revenue by geography, through the first three quarters of this fiscal year, 52% of our revenue was generated in the U.S., 30% in Europe, 8% in Asia, with the remaining 10% in Australia and the rest of the Americas, just to round that out. Breaking Asia down further, 3% was in China and 5% was in the combination of the rest of Asia outside of China. Also, in light of the constant evolution of the topic of global tariffs, I can provide some additional details just about some key elements of our manufacturing footprint as well as our supply chain. For the most part, we do manufacture our products in the country of the ultimate sale.
The three primary exceptions to this are our specialty adhesive materials, which we produce in the U.S., our printers, which we produce in Malaysia, and a variety of specialty identification products that we produce in Mexico. We then distribute these product lines to our other locations globally for sale within the country. From a sourcing perspective, we do import goods from China to the U.S. for a few specific product lines, which represent approximately $50 million in annual sales. The majority of our operations that we have in China that represents that 3% of sales are for our customers in China. We operate our business geographically with two regions. One geography is the Americas and Asia, which represents about two-thirds of our total revenue. The combination of Europe and Australia represents the remaining one-third of our total revenue.
We sell the full suite of Brady products throughout each of our geographies. We internally will break this down in the way we look at our business is within five major product categories. The first is safety and facility identification. Some examples of products are shown on the upper left of this slide. This product category is rather broad, but an overall summary basically is that this consists of all of the signage, safety, and identification products that are present and often required throughout a manufacturing facility. Safety signs, floor marking tape, pipe markers, lockout devices, and labels to ensure that machine guarding and machine safety are in place, and many more examples.
We offer a full suite of hardware, which would be our printers, software for those printers, and then, of course, our high-performance specialty adhesive materials for our printers, which we manufacture at our coding facility here in Milwaukee and then sell throughout our global businesses, as I just mentioned. The next product category shown on the upper right side of this slide is wire identification. This consists of a wide variety of materials that can be printed upon and then applied to a multitude of different types of wires and cables in many different applications and industries. The printers that you see here and throughout all of our other product categories are the Razor Blade models. We manufacture both our printers and the key consumables for those printers so that only Brady materials can be used within those devices.
Some of our best-selling products within this product category are our portable printers, which are durable handheld printers that are designed to withstand day-to-day use that's needed at a construction job site, basically like what an electrician would use every single day to label wires, panels, everything else required in utilizing our specialty adhesives throughout construction projects. Product identification primarily consists of barcode labels and other brand protection type labels. We also manufacture RFID-enabled labels, the label design software, 1D and 2D barcoding software, as well as the RFID readers and barcode readers, which came along with a couple of acquisitions from a few years ago. Healthcare identification mostly consists of patient identification wristbands and other labels that are intended to ensure that all of the care that a patient receives in a healthcare setting is accurate and is what is intended for that individual patient.
Data accuracy and reliability is clearly essential. We also source and resell a variety of other healthcare supply and PPE products within our healthcare business. Our last major product category would be what we refer to as people identification. Some of the products that we would manufacture and sell would be employee badges, building access badges, lanyards, wristbands for specialty events, things like that. We also offer a full printer lineup that is designed for this product category, which came along with another acquisition from a few years ago. Overall, there are a lot of common themes between our product categories, with the primary theme being that we manufacture high-quality, long-lasting products that are intended for a wide variety of end markets, with a particular specialty in adhesives designed for harsh environments where the cost of failure or the cost of non-compliance is very high.
All right. Now, the next slide. This comes up. There we go. I touched on most of the items shown here, which is basically pulling our identification product offering together. The acquisitions that we made a few years ago that are shown here, Code and Nordic ID, brought with them the optical scanning capabilities that we were missing prior to this acquisition, these acquisitions, I should say, which now allows us to offer to our customers an integrated solution consisting of a printer, a scanner to read 1D and 2D barcodes, as well as RFID embedded labels, our specialty adhesive materials within the printers themselves, and then the software to tie everything together. Our most recent acquisition from just over 10 months ago is Gravotech, which you can see here in green.
All of what I've been referring to basically on the previous slide and so far from a product standpoint is about identifying something, whether that be a product, a facility in some way, a machine, or a person, but we're generally always using a label or some other type of a material as the medium for that identification. In certain circumstances, a label isn't the right solution. Think of metal parts and components of autos, engines, items like that. We purchased Gravotech, which manufactures laser and mechanical engravers that perform precision direct part marking directly on a product or a part or a component. We're really happy with this acquisition, and it fills an identification gap that we previously had in direct part marking. Just a brief summary before we move on to the financials.
Where we are today, we're highly focused on improving our rate of organic sales growth. We're investing in innovation. We're investing in automation. We're focusing on making the right decisions today that will pay off for our shareholders in the long term. We're also driving profit improvement. I mentioned that EPS was up 17% in fiscal 2024. Efficiency opportunities are constantly being tackled throughout our businesses. SG&A is down significantly from eight or so years ago. We're constantly working on simplifying what we do and how we do it, and it's absolutely paying benefits. We're returning funds to our shareholders. We believe we're positioned very well for the future. We have a really diverse product portfolio, and we believe that when you combine that with our niche product offerings, we're in a great position for growth over the long term. All right.
Now I'll just touch on some of our financial trends. From a revenue standpoint, we've had a nice upward trend of organic sales growth coming out of the pandemic. Just immediately pre-pandemic, we grew revenue 2.8% organically in fiscal 2019. Then, of course, the pandemic hit in fiscal 2020, and we dropped like many companies. We were actually down 5.4% that year, and then we recovered in fiscal 2021 and fiscal 2022. One item that I do like to point out, and just to keep in mind, is that Brady has a July 31 fiscal year-end. The pandemic year, if you call it a year, was basically the second half for us of fiscal 2020 and the first half of fiscal 2021. Jumping back to it, in fiscal 2023, we grew organic sales 5.5%, which was one of our strongest years in recent times.
This past fiscal year, we grew sales 2.6% organically. Through the first nine months of 2025, our organic sales are up 2.6% as well. We have very strong gross profit margins. Historically, again, pre-pandemic, we were pretty much right around 50% annually. You can see that straight line here. During the inflationary period and the logistics challenges in 2022, we dropped below this level slightly to 48.5%. In fiscal 2023, we recovered back to nearly 50% at that time. In 2024, our gross profit margin continued to improve to 51.3%. We have worked really hard to continue to execute operational efficiencies throughout our global businesses, along with implementing strategic price increases. We are also getting some solid sales growth from some of our higher gross profit margin products this year and last year as well, which has brought along this really nice result.
All right. Next, you can see on this slide that R&D has steadily increased for the last eight years, which truly does show our commitment and our belief in the return on our investment in R&D. In 2023, we were at 4.6% of sales, which was our highest year ever. We closed 2024 at 5.1% of sales, which became our largest annual investment in company history. This year, we're up again over last year through the first nine months. Our R&D investment is really paying off as this is truly what's generating organic growth. It's an area where we'll continue to invest because it does result in long-term benefits to the organization. All right. Moving to SG&A expense, we've reduced SG&A as a percentage of sales by 800 basis points over the last eight years.
The chart here really does bring this to light in fiscal 2016, quite a while back, but SG&A at that time was over $400 million. You can see a step up in dollars in 2022 because we made three acquisitions at the end of 2021. As a percentage of sales, we continue to reduce our SG&A structure year over year. We continue to work on efficiency and improvement projects throughout our back office support and within our sales function. Non-customer-facing, I should say, we're always trying to work on our back end and improve how we do things. We still have automation and other opportunities, which will allow us to expect to continue to drive improvements in this area. Pre-tax earnings have been moving steadily in the right direction, up every year, which is with basically one step down during the pandemic.
This trend is the end result of everything that I just mentioned around our focus on organic sales growth, our continued investment in gross profit margin, and our reduced SG&A cost structure, all while increasing our investment in R&D. We also like to show pre-tax income here rather than net income, just to remove any noise from tax rate fluctuations and just keep the focus on our underlying results. Moving along to earnings per share, it is the exact same story. This is GAAP earnings per share. Fiscal 2021, you can see, was $2.47, excuse me, of EPS. That was an all-time record high. In 2022, we were at $2.90, another record high, as was fiscal 2023 at $3.46. When we released our prior year results in 2024 of $4.07 of diluted EPS, that represented our fourth consecutive year of record high earnings per share.
As I mentioned, these are GAAP reported EPS results shown here as well. We are extremely focused on converting our organic sales growth into bottom-line growth and doing everything that we can to offset inflation, drive efficiencies, and continue to drive that value for our shareholders. All right. If you look at cash flow from operating activities trending over time, I will point out a couple of items here. First of all, if you look at our fiscal 2022 cash generation of $118 million, this was a big drop from fiscal 2021. One primary driver was inventory. As we worked through the pandemic, kind of the tail end of the pandemic, we took the approach of making sure that we had the inventory to serve our customers, which absolutely benefited us.
We did whatever we could to have the products that we needed so that we could fulfill orders as quickly as possible. This was a major advantage for us, we do believe, because we do not believe that all of our competitors were necessarily in this situation. This served us well as we worked through the supply chain crisis as well. Not that it was easy, but we made the decision to ensure that we had the product on hand. Quite honestly, it pushed us to shorten some of our supply chain to make decisions about holding a little bit more of our critical stock and items like that. Now we have been in the process of reducing inventory through 2023 and 2024, which was a major part of the reason for our strong cash generation last year, which was also a company record. Okay.
Our balance sheet. We are in a net cash position as of April 30 of $49 million. We've also made some acquisitions this fiscal year in the first nine months, totaling $147 million. You can kind of see that drop. Still, even after making acquisitions, we're in a net cash position. We have a very strong balance sheet, which gives us the ability to deliver shareholder value over the long term. All right. Regionally, on the next two slides, you'll see very consistent results in terms of growth in both sales and profitability over the last three years within our two externally reported regions, the Americas and Asia and Europe and Australia. We've definitely been executing well in both of our regions by growing both sales and profitability over the last three years. All right.
In summary, I'll just add a couple of closing thoughts here. We're incredibly strong financially. We're very diverse. We're very, very focused on organic sales growth. Our profitability has improved. Our cash generation has been very good. We always make cash-based decisions, which we know is the right long-term decision for our shareholders. Even though it may result in cash buildup on the balance sheet, we look at that as an absolute opportunity to do all of the above. We're returning funds to our shareholders. As we sit here today, we believe we're in a great position with the strong balance sheet that allows us that optionality to do all of these things at once, invest in the organic business, continue to pay our dividend, and then be opportunistic from an M&A and a share buyback perspective. We're super focused on execution.
We've got a great new product lineup. So we feel good that we're set up for a strong future. Steve, I'll turn it back over to you for any questions.
Thanks so much, Ann. Great summary of Brady's progress over the last couple of years. I'd like to remind everyone, we have about six or seven minutes remaining. If you have any questions, press that Q&A button at the bottom of your screen, type in the questions, and we'll get to as many as we can. Why don't I kick it off, Ann? You had the last couple of slides on the way you break down the geography on the two sections. Can you talk to us a little bit about what you're seeing Americas versus Europe versus Asia-Pac and what you think is driving the differences, particularly what we've seen in the last couple of quarters?
Oh, sure. Yeah, absolutely. We're definitely seeing a tougher environment for our combined Europe and Australia region this year, certainly last few quarters. We released our third quarter results on May 16th, so just about a month ago. Much tougher environment economically and market-wise this year in Europe and Australia than last year, and even than the year before, honestly, as well. That directionally is kind of moving in the opposite direction in the Americas and Asia. Fairly consistent kind of in the U.S. It's been disruptive over these last couple of months. Just a lot of noise from the outside world, obviously, due to what everyone knows. Kind of the difference maker in particular this year in our Americas and Asia region would be Asia. The Asia portion, although small, a smaller portion of the Americas and Asia region, we're growing really nicely throughout Southeast Asia.
China has kind of, we do believe that we're kind of seeing it bottom out. It's been a kind of challenge for the last couple of years. It is no longer a drag on that region. Just this last quarter, we reported 23% organic growth in Asia. Again, smaller part of the total company. I think I touched on Asia in total is 8% of our sales. Still, pushed the Americas and Asia region up to 5.4% growth in the quarter, which was a nice surprise. Conversely, Europe and Australia had a bit tougher quarter just this last quarter than we expected. It kind of came together to still a solid quarter. It is definitely a tougher economic and market environment for sure in Europe and Australia this year versus last year.
Okay.
Could you touch on margins a little bit? We do have a question coming in from an investor. In terms of obviously very strong margins, is there room to improve?
Good. Great question. We definitely showed an improvement to, man, absolutely a high for gross profit margin since we kind of changed our mix way back when we did an acquisition in about 2012.
Way back.
Way back. Yeah, exactly. Getting up to that 51.3% level last fiscal year. Is there room to improve? We're always pushing for it. With what we see, certainly from a potential on the horizon of incurring some level of incremental tariffs as we sit here at this moment, nobody knows when or kind of exactly how much. We'll do what we can. We have the ability to put through price increases.
It has to be measured and targeted and strategic, of course. We do not do sweeping things across the board. We do put through price increases. We have pricing power in certain product categories for sure. We are constantly working on operational efficiencies. We are always pushing for it. Where we see more room for improvement is in SG&A proportionally than in gross profit margin. Though we are pushing for it, we are expecting to see more. There is a little more low-hanging fruit, certainly from the acquisitions that we just made over the course of this year that we can kind of continue to tackle that as a line item because it is still significant.
Talk a little bit about those acquisitions. I mean, we can even go back to Nordic ID and Code, but then more recently, Gravotech.
You made a couple even smaller ones more recently with Microfluidic Solutions, and there was the other small one. Is there any kind of line you can put through all of those? Is there any theme to the acquisitions you've made, or how do you approach M&A or think about it?
Oh, it's a great question. Absolutely. The line, I mean, for us, not for us, but the common theme that we point to or that we're looking at with those acquisitions is filling a product portfolio gap.
Though we do not sit here today with a major belief that we have a major gap or an entire leg to the stool missing, we absolutely have gaps in our product offering that we believe are absolute value adds that will turn into multiplied growth over time, with those being the fact that with Code and Nordic ID, we did not offer the optical reader capabilities. Our printers and our software for our printers, we have had the ability and have printed barcodes for decades, but we did not have the technology to be able to sell that product to our customer to actually have a reader and read those barcodes. That is what those companies brought us. Just a more rounded-out product portfolio.
The addition of Gravotech and Microfluidic Solutions, Gravotech filled a product portfolio gap, which was we talk about using basically everything that we're marking and identifying is using some sort of a material or a label or something as the medium for that. That doesn't cover all scenarios of needing to mark and identify something. That is why I touched on with Gravotech, the direct part marking is where a label just doesn't work, doesn't suffice, it's not the right alternative. So product portfolio gap. We weren't going to crumble without it, but it's absolutely additive to have it. Similar with Microfluidic Solutions, that's inkjet technology. Our printers are thermal transfer. Although we do sell some inkjet printers, we don't manufacture prior to having the capabilities with Microfluidic Solutions. We didn't manufacture the actual inkjet element themselves.
We manufacture our physical materials and the thermal transfer printing capabilities, but just not the inkjet. Kind of trying to fit in the technologies that absolutely truly do fit and jive with the rest of the Brady portfolio, focusing on identification, more high-tech, but just areas where we did not currently offer the capabilities.
Got it. What's the M&A environment look like now, given the global uncertainty? You talked about $49 million in net cash now. Q4 typically for you guys, a very strong cash flow quarter. How are you thinking about, one, the M&A environment and just general capital allocation? You have been buying back more shares than you were historically.
Yep.
How do we think about all of that combined?
Sure. Absolutely.
That's a broad question.
Oh, no. No, it's great. It's great. And it's relevant.
I mean, we're not stopping anything that we were doing from an M&A standpoint, even considering the tariff environment. We're just taking anything that we have that we're evaluating in the pipeline. We're not running scared from things and still being opportunistic in both of those areas like we have been in the past, in both M&A and in share buybacks while never starving our organic business. In those growth areas, that's a constant for us. Of course, we're proud of our consistent streak of increasing dividends for sure. In M&A, who knows? Perhaps the ultimate fallout or as things settle with tariffs may result in a more favorable buy-side environment than it has been in the last few years as perhaps pricing comes down a little bit. Who knows? We're there. We're not necessarily accelerating or decelerating anything.
By no means are we running scared from anything. We're just continuing to kind of cultivate that pipeline and make sure that it's the right deal that fills the right gap at the right price for us.
Is there any net leverage line you wouldn't cross?
Yeah. For sure, being in a net cash position, though it may look like it's the goal or the only thing that we'll do, it truly isn't. It's just an outcome of our operations. We're always focused on cash-based decisions. As and when the cash builds up, so be it. It leaves us in a spot where we can do all of these things all at the same time. We've absolutely in the past been levered over two times. Our covenants certainly allow well north of that. Servicing that, that would be no problem.
Two times net leverage, no problem.
Got it. Got it. Just, we're a little bit over time. Any closing thoughts before we wrap it up here?
Oh, we're trying to—things are uncertain. We're trying to kind of navigate it just like any other manufacturer for sure. I think with the current tariff situation, we're certainly not taking any knee-jerk reactions about what we do. We focus on what we can control. It kind of gives us a sharper focus on certain product lines and whether we want to continue offering certain products or source differently or what have you. In the meantime, we're here. We believe we're set up. We're geographically diversified. We're generally manufacturing in-country with some exceptions that we believe make the most sense for sure for us as a company. Really, our presence in China is relatively small for us as a company.
Given this kind of current disruption that's caused by the tariff situation, barring any outsized economic fallout if things deteriorate, we do believe that we're in a pretty good spot to be able to kind of handle it and navigate it with our diverse customer base, diverse end markets, and diverse product offering as well.
I didn't get to this question, but now that you sort of raised it, given that your China exposure, do you have any sense of what the annualized EPS impact without offsets is?
All we discussed last quarter when we released on May 16 was a range of what we expected at that time, which was kind of up to the minute. We had to go through all that of our fourth quarter potential impact, which we said was $3 million-$5 million.
That was—
Was that where we're still talking 125% tariffs at that point, or was that already the—
That had been—what's the word? Called back, cut down on—
It had been. Okay.
Yeah. Four days prior to our release, that had been backed off on and paused or whatever the word is. That was under the, I believe, pretty much about where we're at right now. We discussed fourth quarter. The reason we didn't want to talk about full year is it's so dynamic, and we're working on a lot of levers as it relates to tariffs. We'll be—
And that impact is prior to trying to take any pricing or offsets, really?
Pretty much. Yeah.
Y eah.
Exactly.
Very small given the size of the company.
Yeah. Yeah. Exactly. Yep.
Perfect.
We will be forthright with as much as we know and are able to share in future quarters as we come out and hopefully as it all settles into some sort of a decision.
Excellent. Ann Thornton from Brady Corporation. Thanks so much for being here. Hopefully, everybody found this as informative as I did. Hope everyone enjoys the remainder of the conference. Thanks, Ann.
Thanks, Steve. Bye now.