Brady Corporation Class A Aktie

Good day, and thank you for standing by. Welcome to the Q4 2026 Brady Corporation Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ann Thornton, CFO. Please go ahead.

Thank you. Good morning, and welcome to the Brady Corporation Fiscal 2026 Fourth Quarter Earnings Conference Call. The slides for this morning's call are located on our website at www.bradycorp.com. We will begin our prepared remarks on Slide #3.

Please note that during this call, we may make comments about forward-looking information. Words such as expect, will, may, believe, forecast and anticipate are just a few examples of words identifying a forward-looking statement. It's important to note that forward-looking information is subject to various risk factors and uncertainties, which could significantly impact expected results. Risk factors were noted in our news release this morning and in Brady's fiscal 2026 Form 10-K, which was filed with the SEC this morning.

Also, please note that this teleconference is copyrighted by Brady Corporation and may not be rebroadcast without the consent of Brady. We will be recording this call and broadcasting it on the Internet. As such, your participation in the Q&A session will constitute your consent to being recorded.

I'll now turn the call over to Brady's President and Chief Executive Officer, Vineet Nargolwala. Vineet?

Thank you, Ann, and good morning, everyone. I was appointed by the Board nearly 3 months ago to succeed Russell Shaller as he transitioned into retirement. Over his tenure as CEO, Russell built a strong foundation for growth at Brady, and I would like to thank him for his contribution towards Brady's success.

As you may know, I've had the privilege to serve on Brady's Board for the last 4-plus years. This has given me a great perspective on Brady and the transformation of the business leading to the PSS acquisition. With my decade-long tenure at Honeywell and my extensive technology background, the Board asked me to be appointed on the PSS acquisition along with the management team, and I championed that opportunity. My diligence, which included discussions with former colleagues at Honeywell and numerous other executives in the industry, provided conviction that the PSS business would help create the next chapter of growth for Brady, not just by adding a business of scale, but also by growing our addressable markets. With the PSS acquisition closed as of a month ago, Brady is now pivoting from a classic industrial company to an industrial technology company that is able to put more connected devices, software, services and media to work to solve the most challenging customer problems. We're entering new markets and immediately garnering the #2 market position in the AIDC sector.

With this acquisition and the beginning of fiscal year 2027, we are reorganizing our 2 business units into 2 separate reportable segments. Ann will discuss this more in detail in a few minutes, but for clarity of discussion, we now refer to the existing Brady business as Identification Solutions, or IDS, and the former PSS business from Honeywell as Intelligent Productivity Solutions, or IPS. Olivier Bojarski, who previously was the President of Americas and Asia for Brady, will now lead the IDS business; and David Barker, who was the President of PSS at Honeywell, will now lead our newly acquired IDS business. Olivier and David are both with us today on this call, and they will be available to answer questions during our Q&A session.

Let me take a moment now to discuss the significant opportunity before us and how we intend to capitalize on that opportunity to drive long-term growth and shareholder value. Brady has over a 100-year history of helping organizations identify and protect assets and people even in the world's most demanding environments. We're known for our specialty materials, printers and consumables serving small- to medium-sized customers across numerous markets with unique solutions. We have a history of strong cash generation and over 40 years of increasing dividends to our shareholders. With the acquisition of Honeywell's PSS business, Brady becomes a leading identification, safety and productivity solutions partner for businesses globally. The acquisition combines Brady's capabilities with PSS' strengths in scanners, mobile computing, software and services designed for large demanding enterprise customers, creating end-to-end solutions across critical workflows.

We now operate in over 40 countries with over 9,000 employees worldwide and address a market of approximately $14 billion. Combined, we have over 1,000 engineers and scientists and nearly $200 million in R&D investment. As Ann will discuss in more detail in a few minutes, our top line revenue will increase by over 70% on an annualized basis, and we expect the IPS (sic) [ PSS ] acquisition to be immediately accretive in this first fiscal year under our ownership.

Since I became the CEO 3 months ago, I've taken every opportunity to meet with our employees, our customers and our channel partners in both the IDS and IPS segments of our business. I've also met with several of our key shareholders. My listening to reveal to me that my excitement about the future of Brady is not unique. First, there is overwhelming support across our organization. In town halls and roundtables across the businesses globally, there is genuine excitement about building new Brady and the opportunities it offers to our teams to learn and grow while serving our customers in many new ways. Second, there is positive feedback from the VAR community that the IPS business is now part of Brady. Our partners are excited about having a true market alternative and in fact, rooting for our success. And third, our major shareholders are supportive of the direction and the trajectory of new Brady. They too see the opportunity ahead and understand our commitment to a continuation of Brady's history of operational excellence and focus on shareholder returns.

Although it is only a month since the close of the transaction, the IPS business joins Brady with momentum and is growing sales in the low single digits over the trailing 12 months. IPS' new product pipeline is strong, and we will augment that as we have line of sight to the meaningful opportunity ahead of us with our combined businesses. Similarly, as you can see from Brady's financial results, the core Brady business is executing incredibly well as we achieved record revenue and adjusted earnings per share. Our strong organic growth with the additional contributions from acquisitions and foreign exchange drove 10% top line growth for the quarter and the year. In addition, expanding margins drove a 15% increase in adjusted earnings per share in 2026 versus 2025. We enter fiscal 2027 with momentum and with clear strategic imperatives and distinct operational and financial objectives. Of course, there is much work to be done to integrate the organizations and the underlying systems, and our integration teams have been planning these processes for months, and we are well underway. We will keep you updated on our progress as the year unfolds.

Now I will turn it over to Ann to review the results of the quarter and the year just ended as well as our initial outlook for fiscal 2027. Ann?

Thank you, Vineet. We reported record high revenue and adjusted earnings per share results in fiscal year 2026, which also represents our sixth consecutive record earnings year. Our focus on new product development and in particular, on the ease-of-use capabilities of our Printers is driving consistent organic sales growth from our Printers and our Specialty Adhesive materials, and you're seeing this in our record high earnings and cash flow results.

This quarter, organic sales grew 8.4%, Acquisitions added 1.1% and foreign currency translation increased sales 0.5% for total sales growth of 10% in the quarter. Gross profit margin improved to 52.9% compared to 50.4% in the fourth quarter of last year. Last year, we took actions to streamline our cost structure, and we closed manufacturing facilities in Beijing, China and in Buffalo, New York. Costs resulting from these actions reduced our gross profit margin by 50 basis points in the fourth quarter last year. Now we're realizing the benefits of this reduced footprint in 2026. One favorable item in the fourth quarter of this year was our tariff refund, which benefited our gross profit margin by approximately $4 million, which was net of incremental tariffs incurred. Adjusting for the negative impact of facility consolidations in Q4 of 2025 and adjusting for the positive impact from tariff refunds in Q4 of 2026, our gross profit margin increased by 110 basis points.

Our continued growth from our Printers and Specialty Adhesive materials is the primary driver of the improvement in our gross profit margin and in our overall profitability. SG&A was $148.1 million in the fourth quarter compared to $117.9 million in the fourth quarter of last year. If you exclude amortization expense from both periods as well as acquisition-related expenses from the current year and exclude facility closure and other re-org costs incurred last year, then SG&A decreased to 26.2% of sales compared to 26.8% of sales, a reduction of 60 basis points. The actions we took last year to reduce our cost structure continue to drive benefits.

Looking at R&D, we continue to focus on printer development and software capabilities as well as our specialty adhesive materials, and we're absolutely seeing the growth from these efforts. Printer unit sales were up 25% in the fourth quarter compared to the fourth quarter of last year. For the full year 2026, printer unit sales are up 10% compared to 2025. This is exactly where we're looking to drive growth because we know that what follows our sales of our specialty adhesives. R&D expense was $22.9 million or 5.2% of sales, which was a slight decrease from $23.1 million or 5.8% of sales in last year's fourth quarter. Our results come together with GAAP diluted earnings per share of $0.96 compared to $1.04 last year. And adjusted diluted earnings per share were $1.48 compared to $1.26 last year, which is growth of 17.5%.

Operating cash flow increased 35.8% from $58.3 million to $79.2 million in the fourth quarter, and free cash flow increased 22.9% from $49.4 million to $60.7 million in the fourth quarter. Operating cash flow increased nearly 35% in fiscal year 2026 compared to fiscal 2025. This demonstrates our consistent focus on cash-based decision-making and our high-quality earnings. And at July 31, we were in a net cash position of $172.2 million, which was more than double our net cash position from 1 year ago. Our financial strength and our ability to generate cash enables us to continue to invest in our organic business through R&D as well as our sales force while consistently increasing our dividends. Yesterday, we announced our 41st consecutive annual dividend increase, which is a streak that we're incredibly proud of.

Our strong balance sheet also allows us to buy back shares when the opportunity is there. And this quarter, we purchased 333,000 shares for $28.1 million, which was an average price of $84.36 per share. During the full year fiscal 2026, we purchased 517,000 shares for $42.2 million, which was an average price of $81.65 per share. And we still have $44 million remaining within our current plan authorization, giving us continued flexibility to be opportunistic with buybacks.

Turning to our regional segment. Organic sales growth was incredibly strong at 11.6% in the Americas and Asia region, finishing at a record high $296.1 million in the quarter. Acquisitions added 1.7% growth and foreign currency translation increased sales 0.2% for total sales growth of 13.5%. We grew sales in all of our key product lines and growth was once again led by Wire Identification, which had nearly 20% sales growth in the quarter. Wire ID represents 20% of the sales in the Americas and Asia region, and this product line grew 16% in fiscal year 2026. Data centers continue to be a key end market for this product category with commercial construction as well as industrial manufacturing also helping to drive growth.

Breaking the region down further, organic sales grew 10.3% in the Americas and grew 20.3% in Asia. Our reported segment profit in the Americas and Asia region increased 43.9% to $74.3 million, and segment profit as a percentage of sales increased 530 basis points from 19.8% to 25.1% in the fourth quarter. The tariff refund of $4 million benefited our Americas and Asia region. But even after adjusting for the tariff benefit, segment profit still grew 36% and segment profitability grew from 19.8% of sales to 23.7% of sales. Sales growth in our Engineered Products, along with the cost reduction activities from last year are driving our improvement in both profit and profitability.

Turning to the Europe and Australia region. We grew organic sales 2.1% in the fourth quarter. Foreign currency translation added 1.1% to sales for total sales growth of 3.2%...

[Operator Instructions]

Excuse me, Latanya, we just have a few more prepared remarks here before we want to open up for Q&A.

Our first question will be coming from the line of Keith Housum of North Coast Research.

I'm sorry, go ahead with your remarks.

Thanks, Keith. One moment, Latanya. We do still have just a few more prepared remarks. Thanks so much, Keith.

All right. I think we were on the Americas and Asia region. So we did finish the second half of the year with momentum, and we closed fiscal year 2026 with organic sales growth of 1.2%. Manufacturing has been a challenging end market in Europe and Australia for several quarters now, and we view closing our year with growth as meaningful looking ahead to 2027. We grew sales in most of our major product lines in the quarter and the full fiscal year with growth led by Safety and Facility ID and Wire ID.

Our reported segment profit in Europe and Australia increased 23.9% in the quarter to $18.7 million, and segment profit as a percentage of sales increased from 11% to 13.3%. Breaking the region down further, organic sales grew 2% in Europe and 3.1% in Australia. Vineet mentioned at the beginning of the call that starting with this fiscal year 2027, we will be organized with 2 reportable segments. Our first segment will consist of the existing Brady business, which we'll refer to as Identification Solutions, or IDS. And the second segment will consist of our acquisition of Honeywell's PSS business, which we will refer to as Intelligent Productivity Solutions, or IPS. We will begin reporting our new segments starting in the first quarter of 2027.

For fiscal 2027, we expect revenue from IDS to grow approximately 5% organically, and we expect IPS to contribute revenue of approximately $1.15 billion. On a combined basis, we expect Brady to deliver $6.25 to $6.75 of adjusted diluted EPS, which includes approximately $0.80 of accretion from the IPS business. We expect the majority of the $0.80 of accretion from IPS to be weighted towards the second half of the fiscal year as we work through the early stages of integration during the first half. We plan to exclude any onetime integration-related costs from our reported IPS business' results in fiscal year 2027 in order to provide a clear view of the business' financial performance. After these adjustments, we expect the IPS business' reported segment profit to be in the low double digits as a percentage of sales during this first year. Meanwhile, we expect our reported IDS segment profit to be approximately 20% of sales in 2027.

Other elements of our guidance include depreciation expense of approximately $45 million, capital expenditures of approximately $40 million and a full year income tax rate of approximately 21%. We will continue to exclude amortization expense from our adjusted EPS results in fiscal year 2027, which is consistent with the last several years. And we will provide you with an update on the amount of amortization that we expect for 2027 during our first quarter earnings release, which is when our purchase price allocation of IPS will be complete. Our adjusted EPS guidance range of $6.25 to $6.75 per share represents a range of growth of between 18.1% to 27.6% compared to 2026.

Now I'll turn the call back over. If we could please open the line up to questions. We're ready to go.

[Operator Instructions] And our first question will come from the line of Steve Ferazani of Sidoti.

I guess that Keith was in line, but I guess I'll just go ahead. Welcome, and thanks for the detail this morning. And when we back out the $4 million in the tariff refund, the numbers look pretty much in line with us, but Europe was certainly softer than we were expecting. U.S. was a little bit better. Can you talk a little bit about the divide between the two? Europe in particularly looks like it decelerated sequentially with lower margins. Can you talk about what you're seeing in the two different geographic regions?

Yes, Steve, thanks for the question. I'll get started and then I'll invite Olivier to maybe add a few comments. I think as we look at the two regions, one of the things that I'm really struck by is how closely our regional businesses track through the GDP performance and some of the macro trends that are driving each of the regions. As an example, we see some really good strength in Europe around defense spending. There is some momentum around the new digital passport and new regulations coming in.

So I think our team has done a really nice job of executing against what has been largely a tough macro, but also picking on some of the trends that have been positive and really pivoting to focus on growth in those areas. And I think on the Americas side, we are continuing to benefit from the continued CapEx investment in data centers. And Olivier, do you want to add more color to that?

No, I think that's exactly right, Vineet. And thank you for the question, Steve. I think we're executing well in both regions, but the macro environments are very different. In the U.S., we're benefiting from a stronger U.S. manufacturing PMI as well as data center growth. And obviously, we see a lower growth environment in Europe in general. But both regions are executing well with what we can control.

Inflationary pressures?

Can you say that again, Steve?

Are you seeing inflationary pressures, particularly in Europe, just looking at your segment margin there even sequentially? Or is that just mix?

Yes. So I think if you take a step back, we are seeing rising input costs across the board. We're not unique in that. So I think when you think about rising electronics costs, especially memory, I think that's an impact. The conflict in the Middle East is having an impact on diesel prices, which essentially becomes a tax across the board. And so we're certainly seeing that impact. I would say that despite that, our European region executed really well from a segment margin standpoint. And so really proud of the work that the team has done in Europe as well as in Americas and Asia.

Excellent. The one number that surprised us was your CapEx guide for fiscal '27, given that you're almost not quite doubling the size of your facilities, your CapEx as you're guiding a little bit lower. I'm assuming you've reviewed all the assets you've acquired and you think those are in good competitive shape given that Honeywell clearly had been planning to sell it for a little bit. We would have think maybe they would have under-invested. What do you think about the positioning of those facilities right now? And it sounds like you don't think there's a lot of near-term investments necessary?

Yes, Steve, this is Vineet. So I'll take that and then Ann will jump in as well. I think when you think about the IPS business, first of all, it's a CapEx-light business. So we really like the fact that it's not capital-intensive. I would say the second piece that I think is really remarkable about the business is that it comes with a world-class manufacturing facility in Suzhou, China, which really has -- was a star even in the Honeywell portfolio. And so when we look at that facility, it's a highly well-run facility, very efficient facility. And we don't really think any major capital investments are needed there to support the growth that's ahead of us. Ann I don't know if you want to add anything more.

Sure. Yes. Good question, Steve. A couple of items that came into the current year that we just reported, our CapEx coming in at $51.5 million for the full year includes a build-out of our headquarters facility, which was an incremental $12 million or $13 million of additional CapEx as we added some capacity, added some automation and really was a part of our facility consolidation efforts last year and closing the Buffalo facility. So what you're seeing this year in our results is a little bit of incremental kind of onetime additional facility build-out. Next year, we expect things to return to normalized levels, which generally for Brady and the IPS business, just as Vineet had just highlighted, generally can run around 2% of sales, and that's what you're seeing in our guide.

Excellent. That's very helpful. If I get one more in. Vineet, now that you're -- I mean, you've been on the Board for a period, so you've seen the different performance of Brady. But now that you're in the CEO seat, I'm curious if there's going to be a review of legacy Brady product lines? Clearly, there have been certain segments you've been -- product lines you've been investing in that are higher margin, but really driving the growth. Others maybe recently have been underperforming. Is there going to be -- how are you thinking about a product line review and maybe a reduction in SKUs? Is that on the table?

Yes, Steve, thank you for the question. So indeed, I've had a really great vantage point for the last 4-plus years of the Board. I will tell you that as I've transitioned to the CEO seat, just a deeper appreciation for what makes us special, our heritage, our talent, the focus on serving customers. I would say from a portfolio standpoint, we've always been focused on portfolio optimization. Obviously, now with the IPS business coming into the fold, that takes on a whole different meaning for us as well. So we'll keep looking at parts of the portfolio that really fit our strategy going forward and the ones that don't or the ones that we feel don't really support what we want to do going forward, we'll obviously look to -- look for a different direction there.

But I'm excited by the set of products and businesses that comprise Brady today, and really look forward to working with our business leaders and our teams to drive growth and create value for the future.

That concludes our Q&A session. I would now like to turn the call back to Vineet.

We do have one more in the queue, which is Keith Housum.

And our last question will come from the line of Keith Housum.

Can you guys hear me okay?

Yes, we can.

Glad to hear. Just two questions on the performance for the quarter, then I want to talk about the guidance a little bit. I guess this is probably geared more towards Olivier. Olivier, great job for the quarter. Asia grew 20% organically. Perhaps you guys can provide a little bit of color on the strength there? That really was great for them in that area and how sustainable it might be going forward?

Yes. Keith, thank you for the kind words and the question. Yes, indeed, we had a very strong quarter in Asia. It was really spread across all of our geographies. So we had strong performance in China, India as well as Japan and Southeast Asia. Part of that is that we're seeing also some growth in data centers and just general manufacturing in Asia across the board. And I want to highlight India, which is a very strong country for us. We had 23% growth this year. As you know, we made some additional investments going back about 2 years, expanded manufacturing in India, and now we're reaping the benefits from that.

Okay. So it sounds like, again, going through tough comps year-over-year is going to be tough, but there's a lot of tailwinds that you're back here from what I'm hearing.

Yes. We are generally positive about the environment across the board, certainly in the U.S., but also in Asia as a region.

Okay. Great. And then, guys, I think you guys noted here, printer volume growth was up 10% for the year, but I think 25% for the fourth quarter if I heard it right. So to me, that's a great acceleration throughout the year. But perhaps talk about, I guess, the cadence of that during the year and perhaps why it grew so much in the fourth quarter versus the rest of the year? And then second, any color on what drove our consumable growth during the year?

Yes. So the end markets we're in remain very strong. To highlight a couple, data centers, of course, for our Wire Identification product line. That's also leading to more customers buying our automation systems due to the high volume of passport assemblies that are necessary for these hyperscale data centers.

As I mentioned, the manufacturing environment is also very strong. PMI has been in expansion territory since January and the last couple of months, we're around 55%. So we're seeing growth across manufacturing. And construction also remains strong for us as a market. But in addition to the market growth, I think we're having some success with our new products. We mentioned the i4311 in the prior earnings call, and we are having success placing those printers with customers as we identify new use cases.

I can jump in on the consumable growth during the fiscal year. As a collective group, I know we've spoken in the past around printers and the petite consumables for those printers representing nearly 40% of our total -- the total organic Brady's sales. And that is still true. We're right at 40% -- just about a little bit over 40%. And the growth coming from printers and consumables together in fiscal year 2026 was nearly 10% organically. So absolutely fantastic year.

Great. And then if I turn to the guidance, and of course, I want to focus here on the IPS segment and Dave, welcome aboard to Brady. If I look at the guidance of $1.15 billion, that's only slightly higher than the revenue that was reported, at least from what we've seen publicly from FY '25. So as you think about perhaps just on a trailing 12-month basis, how is that guide versus the trailing 12 months?

Keith, this is Vineet. So I'll start and then ask David to add a little bit of color. So first of all, we're very excited about the closing on the IPS business. We're 30 days in, and we are confirming a lot of what we had learned in diligence, but also are learning a lot of new things. And I think one of the things that I'm really impressed by is the focus that the team has on new product development. We're already looking at areas where the Brady team, the IDS teams and the IPS teams can start working together on portfolio synergies and fill each other's gaps. We're also starting to work on the commercial side.

But it's still very early days. And so I think when you think about what to expect in fiscal '27, we're really expecting the team, the IPS team to execute and continue to deliver at the same cadence that they have in the past 12 months. There's a lot we need to learn, a lot we need to sort of augment. There are areas around new product and R&D that we are augmenting. There are areas around sales coverage, investing in the partner program, that we are investing in. So I think there's a lot of work to be done here as we integrate the business. But I'm pleased with what we're seeing so far, and I'll invite David here to add a few more comments.

Thank you, and thank you, Keith, for the welcome. It's great to be part of Brady. Immediately, we inherited a much stronger portfolio of value solutions. So in key technologies like RFID, like print, like scan, our portfolio solutions has increased. Our VAR community, our value-added resellers are very excited about that potential. Our end users, of course, are as well, and our commercial teams are chomping at the bit.

Second thing I would say, immediately impactful in Brady is what we're terming Brady speed. So we have a much flatter organization, decision-making happens much more in the regions, much closer to our customers and to our end users. And that means we can act with greater speed and agility in the market, that's appreciated by, of course, both our end users and our commercial teams in the regions.

Great. And then Ann, just on a trailing 12 months basis, that $1.15 billion guide, does that assume just very low single-digit growth?

Yes, exactly right, Keith.

I guess here's my concern or here's my question for you guys. I understand prices have been raising within the industry as a result of the memory cost significantly over the past year. So there's going to be some of that increase here in prices that we experienced over the next 12 months. So are we expecting volumes to actually go down a little bit? Or are we expecting perhaps it's more of a conservative guidance as you guys kind of get more of the lay of the land here in the combined organization?

Yes, Keith, that's a really good read. I would say that we are -- it's more of the latter, right? As we -- as I pointed out earlier, there's a lot we're learning as we go. We're only 30 days in. And so I think from -- in terms of our guide, we are expecting, obviously, volumes to go up. We think there's some low single-digit type growth. Obviously, as input costs change, we're going to be very agile and responsive in the market as well. And so I think there's a lot that we will learn, and we'll keep updating you as the year goes. But I think for now, we believe that, that's sort of the right range to be in.

Okay. And I guess the last question, of course, on the mind of investors here that are familiar with the industry is going to be around the memory cost here and what the current status of memory cost is? And is there a potential that there are supply constraints and how it's going to impact pricing going forward? But just perhaps any discussion you can have about how memory costs are impacting the IPS segment currently?

Yes, Keith, that's a great question. So I will tell you that what I'm really encouraged by is that David and team have been working very diligently over the past few months to secure memory supply. So I'll let him sort of comment a little bit on where things stand, and also the pricing dynamic, which seems to be changing quarter-to-quarter.

Yes. I would say that memory tightness is an industry-wide phenomenon. We've been working very hard on that over the last 12 months with our suppliers, of course, and also with our VAR community and our end-use customers. Two main items. First is availability. We've had great success in that area. We've initiated some product redesigns to be able to use different memory configurations. We've also qualified new suppliers and engaged in some long-term contracts to ensure that, that memory is available to the critical workflows of our customers.

And secondly, addressing the memory cost increases, twofold strategy there. First of all, price, obviously, is a major part of that, and we've implemented price increases appropriately as have many others in the industry. And second of all, addressing costs as well throughout our supply chain to be able to help mitigate some of that memory cost increase.

Okay. And I guess last question, maybe perhaps this is for you, Ann, but I'll turn to anybody. If we think about, again, from publicly available information and discussion, I think the adjusted EBITDA of the IPS segment was 16% previously. And how does that reconcile to the low double-digit segment profit margin you guys are guiding to?

As we look ahead to next year, we basically expect our adjusted EBITDA to be right around the level that we -- at the jump-off point when we acquired the business. So what we announced basically our purchase price, 8x EBITDA implies right around $175 million of adjusted EBITDA for this upcoming year.

Yes. I would add, Keith, that our priority here is to bring the IPS business back to growth on a sustainable basis. So there's a lot of calories being spent right now on helping the team double down on the right product areas, on the right sales areas, balance the rising input costs with actions in the market. So I think as we think about the work product over the next few quarters, it's really about the commercial side, it's about the product side, making sure that we are really bringing the business back to being the innovative market leader that it aspires to be.

And our next question will be a follow-up from Steve Ferazani of Sidoti.

I just wanted to follow up the last string of questions. Really, Vineet to just pull back and if you can discuss, and you were with Honeywell for obviously many years, how the competitive landscape has changed for PSS, which is like a limited competition environment. How that market has changed, how you're thinking about it and what Brady brings to the table to help PSS in that market?

Sure. I'll definitely offer a perspective. I will tell you my perspective is very dated. Honeywell was a couple of lifetimes ago, but I will invite David here as well to comment a little bit on the competitive dynamics in the market. What I will tell you is AIDC used to be a very fragmented space. It's obviously way more consolidated now, right? A couple of players, including us, control the majority or have the majority share in the market. It's not to say that there isn't technology disruption and new players coming on. And I think technology is the big leveler. And one of the things that I think we are very focused on is leading with innovation, making sure that we are really listening to customers.

Brady is really known for its maniacal focus on serving customers, the ease-of-use value proposition and really making sure that we are putting the customer at the center of everything we do. And I think it's that mindset that we bring to the IPS team. It's not to say that they aren't of the same mindset already, but I think it's being in the Brady umbrella, I think, is just a better fit for the IPS business. And I'll let David comment a little bit more on what you're seeing from a competitive dynamic standpoint.

Yes. I would say even if you look at the name change of the business segment, it's quite subtle, but we've moved from productivity solutions and services to Intelligent Productivity Solutions. And that tells a lot. We've invested significantly in our software portfolio, and that's where the real differentiation will be in the future. We've made our software portfolio interoperable. So many of the different IPS software solutions work together. We've also made it agnostic to our hardware portfolio. So it significantly increases the market. And it unlocks a lot of additional value for our customers, but also makes our solutions much more sticky with them as well.

Got it. Very helpful. And I know it's only a month into the acquisition, but I guess for Vineet and Ann. Any changes -- a couple of questions regarding de-leveraging given the lower CapEx than we're expecting, can you de-leverage faster out of this acquisition as well as any updated thoughts on synergy realization? Have you started thinking about cross-selling opportunities and what that might bring?

Yes. I'll start on that, Steven, and then Ann will jump in, I'm sure. So you asked two or three different questions in there. So I would say, let's start with the -- let's start with the synergy piece, right? So I think we've sort of outlined about $25 million of synergies in year 3. But this is really not about synergies, right? We were so excited about the portfolio, the depth of talent. There are some capabilities we are inheriting with the IPS business like a focus on industrial design, which I think really help the broader Brady portfolio.

David talked about the focus on print and scan, the RFID. This is really a case where 1 plus 1 equals 5 as we think about combining our health care teams together to focus on that segment. We think about combining our R&D teams together around print, scan, RFID. Our software teams are starting to work together already just 30 days in. So I think there's a lot of excitement about what we can achieve together, the Brady IDS team and the Brady IPS team. I think from a capital allocation standpoint, I'll start and then Ann will jump in. We are pretty focused on maintaining the balance that we've had in our capital allocation strategy. Certainly, the focus on investing in growth, maintaining our commitment to our shareholders from a dividend standpoint and a buyback standpoint. And I think we have taken on a little bit of debt. It's very comfortable for us. But certainly, we want to get to a point where we feel more comfortable to getting to our target leverage. I think that's going to be a big focus here. Ann, I don't know if you want to add more to it.

Yes, absolutely. Thanks for the question, Steve. And you're absolutely right, only 30 days in, but we are incredibly excited and more excited every single day as we continue to work with the IPS team, and that does not change our view or our projections that we've laid out around our intent and our ability to de-leverage to below 2x net leverage within the first 2-years of post ownership of the business. which absolutely gives us the room and the ability to continue to balance our capital allocation approach exactly as Vineet had just mentioned.

And I'm showing no further questions at this time. I would now like to turn the call back to Vineet for closing remarks.

Thank you. I'll close by saying we're beginning a new chapter for Brady. Brady has a history of transformation and none bigger than the IPS acquisition. Together, we are taking a significant step forward as we forge a new company with a culture of innovation and collaboration. As we transition from an industrial company to an industrial technology company, we are immediately leveraging the capabilities of a large, well-established and trusted technology business in IPS, giving us entry into new markets, new verticals and new customers. Our entire enterprise is energized. Our teams are excited and already working closely to fulfill our strategic objectives and continue to build shareholder value. We look forward to keeping you apprised of our progress in the coming year. Thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Brady Corporation Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to hand the call over to Ann Thornton, Chief Financial Officer. Please go ahead.

Thank you. Good morning, and welcome to the Brady Corporation Fiscal 2026 Third Quarter Earnings Conference Call. The slides for this morning's call are located on our website at www.bradycorp.com/investors. We will begin our prepared remarks on Slide #3. Please note that during this call, we may make comments about forward-looking information.

Words such as expect, will, may, believe, forecast and anticipate are just a few examples of words identifying the forward-looking statement. It's important to note that forward-looking information is subject to various risk factors and uncertainties, which could significantly impact expected results. Risk factors were noted in our news release this morning and in Brady's fiscal 2025 Form 10-K, which was filed with the SEC in September. Also, please note that this teleconference is copyrighted by Brady Corporation and may not be rebroadcast without the consent of Brady. We will be recording this call and broadcasting it on the Internet. As such, your participation in the Q&A session will constitute your consent to being recorded.

I'll now turn the call over to Brady's President and Chief Executive Officer, Russell Shaller. Russell?

Thanks, Ann, and thank you all for joining today. I'm pleased to announce a fantastic quarter. We reported a new record high adjusted earnings per share of $1.50, an increase of 23% versus the third quarter of last year. Organic sales grew 8.2% and gross profit margin was nearly 52%, while both regions reported significant growth in operating income and profitability.

We're growing in our key product lines in both of our regions, and we continue to see positive response to the new products that we've introduced over the last several years. Launched in February, our i4311 is a 4" portable printer, which is tailored for plant safety and manufacturing professionals, and it's selling well above expectations. Our development team worked with a wide variety of users create this product and customer feedback has been fantastic.

And we're seeing continued growth in wire and identification this quarter, particularly in data centers, which is a key end market for this highly critical identification solution. Our top priorities are profitable sales growth and a constant focus on cash generation, and this quarter absolutely delivered both. In addition to 23% adjusted earnings per share growth in the quarter, our cash generation was nearly $80 million. Operating cash flow is up 35% so far this fiscal year.

Last month, we announced that we entered into an agreement to acquire Honeywell's productivity solutions and services business. This marked an exciting moment in Brady's history, and we're looking forward to combining our highly engineered durable labels, printers and software with the data and devices powering the entire supply chain. This is an exciting moment in our company's history. Over the past several years, Brady has carefully evaluated the competitive landscape while identifying new growth opportunities to expand our addressable market.

With this acquisition, the PSS more than doubles the markets Brady can serve. At the same time, we believe emerging marking and identification standards, including GS1 and Europe's digital product passport initiatives, along with new applications for RFID-based product identification will support a long runway for future growth. Additionally, our early work with AI augmented products points the way to exciting new use cases to improve our customer safety and efficiency.

We see PSS as a unique opportunity to expand our portfolio into leading-edge mobility and scanning solutions trusted by some of the world's largest transportation, warehousing and logistics companies. By combining Brady's high-performance printers, software and specialty adhesive materials with PSS' full suite of mobility and scanning solutions, we will be able to offer a single source solution to a broader set of customers. The PSS business has an incredible product portfolio, a talented R&D team with deep technical expertise and critical sales and support functions who know their business extremely well.

We're looking forward to closing the transaction and to bringing our businesses together. We have a bright future ahead of us, and we know this is an opportunity to drive a significant amount of long-term value for our shareholders.

I'll turn the call over to Ann to provide details on our financial results, and then I'll return to discuss our regional results and to share some additional thoughts regarding the PSS transaction. Ann?

Thanks, Russell. Our record adjusted earnings per share results this quarter were the result of strong organic sales growth, improved gross profit margin, efficiencies throughout SG&A and growth in operating income throughout our global businesses. Organic sales grew 8.2%, which was driven by both of our regions. The Americas and Asia grew 10.1% and Europe and Australia grew 4.5%.

We also funded a significant increase in research and development. We reduced our SG&A expense as a percentage of sales, and we increased our net cash position to $148.6 million. Our financial position allows us to continue to invest in our organic business, and it puts us in an incredibly strong position to finance the PSS transaction, all while remaining committed to our dividend and to opportunistic share buybacks.

Slide #4 details our quarterly sales trends. Organic sales grew 8.2% this quarter. Acquisitions added 2.1% and foreign currency translation increased sales by 3.5% for total sales growth of 13.8% in the quarter. Turning to Slide #5. This details our quarterly gross margin trending. Our gross profit margin was 51.8% this quarter compared to 51% in the second quarter of last year. Last year, we took actions to streamline our cost structure, and we closed manufacturing facilities in Beijing, China and in Buffalo, New York.

These actions reduced gross profit margin by 30 basis points approximately last year. So we're seeing the gross profit margin benefit from cost reduction actions taken last year, along with our sales growth led by our highly engineered products, all of which resulted in a 50 basis point improvement in our gross profit margin this quarter.

Slide #6 details our SG&A expense trending. SG&A was $128.7 million this quarter compared to $108.7 million in the third quarter of last year. As a percent of sales, SG&A was 29.6% compared to 28.4% last year. If you exclude amortization expense and acquisition-related expenses from the current year and exclude amortization expense and facility closure and other reorganization costs incurred last year, then SG&A was 25.3% of sales compared to 26.5% of sales last third quarter, which is a reduction of 120 basis points. We continue to invest in growth through targeted additions to our sales force, and we're realizing the benefits of our facility closure and other cost structure actions that we took last year.

Turning to Slide #7, you'll find the trending of our investments in research and development. We continue to increase our investment in new product development throughout our key product lines, and we're seeing these multiyear investments paying off in our organic sales growth. Printed unit sales are up nearly 8% this quarter compared to last year's third quarter, which is exactly what we're looking for because the consumable revenue will follow.

R&D expense was $23.5 million or 5.4% of sales this quarter, which was an increase from $19.2 million or 5% of sales in last year's third quarter. We funded a 23% increase in R&D in the quarter while improving our profitability and reporting record adjusted EPS. Slide #8 details the trending of our pretax earnings. Pretax earnings on a GAAP basis increased 11.6% from $65.7 million to $73.4 million in the quarter. If you exclude amortization and acquisition-related expenses in the current period and exclude amortization and the facility closure and other reorganization charges we incurred last year, pretax earnings increased 23.8% from $74.4 million to $92.1 million.

Moving to Slide #9. This outlines the trending of our net income and earnings per share. Net income increased 10.6% from $52.3 million to $57.8 million. Adjusted net income increased 22.3% from $58.8 million to $71.9 million. GAAP diluted earnings per share was $1.21 compared to $1.09 last year. And our adjusted GAAP diluted earnings per share was $1.50 compared to $1.22 last year, which was a 23% growth and a new quarterly record.

Our investments in R&D and in our sales force are paying off, and we're growing in all of our major product lines and improving our profitability. Cash generation is detailed on Slide #10. Operating cash flow increased 30.7% to $78.2 million in the quarter from $59.9 million in the third quarter of last year. And free cash flow increased 20.8% to $67.2 million this quarter compared to $55.6 million in last year's third quarter. Year-to-date, our operating cash flow is up nearly 35% versus last year, which shows our consistent focus on cash-based decision-making and our high-quality earnings.

Slide #11 details the impact that our cash generation has had on our balance sheet. As of April 30, we were in a net cash position of $148.6 million, which is more than triple our net cash position from a year ago. We're in an excellent position to finance the acquisition of the PSS business. We plan to structure our financing with $500 million in Term Loan A bank debt and $800 million of private placement debt. And our expectation is that our interest rate will be below 6%. Our net leverage ratio will be approximately 2.5x at the time of closing the transaction, and we expect to delever quickly to below 2x within 2 years of the close.

Our financial strength and our ability to generate a significant amount of cash allows us to service our debt and delever quickly while always investing in our business through R&D and our sales force. And we're focused on consistently increasing our dividends. At the beginning of this fiscal year, we announced our 40th consecutive annual dividend increase, which is a milestone that we're very proud of. Our strong balance sheet also gives us the ability to buy back shares when the opportunity arises. And this quarter, we bought 63,000 shares for $5.2 million, which was an average price of $81.59 per share.

This fiscal year, we bought 184,000 shares for $14.1 million, which was an average price of $76.76 per share. Slide #12 details our fiscal 2026 guidance. We're raising our full year adjusted EPS guidance range from $4.95 to $5.15 per share to $5.20 to $5.30 per share. And we're raising our GAAP EPS guidance range from $4.62 to $4.82 per share to $4.66 to $4.76 per share. Our adjusted EPS guidance range represents a range of growth of between 13% to 15.2% compared to 2025. We expect organic sales growth in the mid-single-digit percentages for the full year ending July 31, 2026.

Other elements of our guidance include depreciation and amortization expense of approximately $44 million, capital expenditures of approximately $45 million and a full year income tax rate of approximately 21%. Our income tax rate generally tends to be slightly lower in the fourth quarter compared to our full year expectation based upon our historical profit mix and the expected timing of other discrete adjustments. Potential risks to our guidance, among others, include potential strengthening of the U.S. dollar, inflationary pressures that we were unable to offset in a timely enough manner or an overall slowdown in economic activity.

With that, I'll turn it back over to Russell to cover our regional results and to share additional information about the PSS transaction announcement before Q&A. Russell?

Thanks, Ann. Slide 13 shows the financial results of our Americas and Asia region. Organic sales growth was excellent at 10.1% in the quarter, ending at a record high $290.1 million. Acquisitions added 3.1% and foreign currency translation increased sales 1.2% for total sales growth of 14.4%. We grew sales in all our key product lines with another fantastic result in Wire ID.

Data centers are making a meaningful impact in our growth in this product category this year. Wire ID represents 20% of our revenue in Americas and Asia and sales were up 19% this quarter. We're also seeing strong sales of our portable benchtop and automated printer units, driving sales growth in Wire ID as well as Product ID and Safety and Facility ID. Globally, printer sales were up 7.8% in the third quarter. Breaking down the region further, organic sales in Americas grew 9.7% and organic sales in Asia grew 11.9%.

We were pleased to see Americas bounce back after a slower second quarter this year. We finished the quarter with momentum, and we feel positive about a strong finish to the year. Our reported segment profit in the Americas and Asia region increased 20.2% to $68.7 million, and segment profit as a percentage of sales increased from 22.5% to 23.7% in the third quarter. If you exclude the impact of amortization in both the current quarter and last year's Q3 as well as the facility closure and other reorganization activities from last year, segment profit increased 16.4% and segment profit as a percentage of sales increased from 24.3% to 24.7%.

Sales growth in our engineered products, along with cost reduction activities from last year are driving our improvement in both profit and profitability. Slide 14 details the financial results of our Europe and Australia region. We returned to growth in Europe and Australia with strong sales results in this quarter. In light of the weak manufacturing environment in Europe, in particular, it makes our sales results even more impressive.

I'm happy with the team's ability to navigate the weak macro conditions as well as the conflict in the Middle East and still grow sales 4.5% organically in the quarter. Foreign currency increased sales 8.1% for total sales growth of 12.6% to $145.2 million in Q3. We grew in all of our major product lines in Europe and Australia this quarter. Data centers are a key end market in Europe and Australia as well. Wire ID represents 13% of our sales in Europe and Australia, and this product line grew 13% in the quarter.

We're monitoring the conflict in the Middle East and modifying our own approach to procurement in targeted areas where it makes sense. We also evaluate the buying pattern of our customers and channel partners, and we don't believe there were meaningful changes in the quarter that could indicate sales may have been brought forward due to customers' concerns about supply chain or energy constraints.

Segment profit significantly improved again this quarter. Our reported segment profit in Europe and Australia increased 22.8% in the quarter to $21.5 million, and segment profit as a percentage of sales increased from 13.6% to 14.8%. If you exclude the impact of amortization in both the current quarter and last year's Q3 as well as the facility closure and other reorganization activities from last year, segment profit increased 15.5% compared to last year. We took several actions last year to reduce our cost structure in Europe and Australia, and now we're seeing the benefits in our results this year. We finished the quarter with momentum in Europe and Australia, and we feel positive about finishing the year on a high note.

Turning to the future. We're excited about the growth potential from our announced acquisition of Honeywell's Productivity Solutions and Services business. Brady is a strong foundation in identification and safety and PSS adds a critical third pillar, enterprise-level workforce productivity to the value we bring our customers today. Today, Brady and PSS represent a meaningful shift in the AIDC competitive landscape, a broader portfolio, a more complete solution set for enterprise customers and the scale to invest behind a differentiated road map.

Just as important as the products are the people and partnerships PSS has built. The global reseller network and the dedicated enterprise accounts that have built deep, long-standing customer relationships are central to what makes this combination compelling. And our intent is to preserve those relationships and build on them. Customers and channel partners should expect continuity in the teams they work with today, a sustained investment in R&D and in software offerings, including operational intelligence, voice and Swift Decoder that are increasingly embedded in customer workflows and continued commitment to the resilient vertically integrated supply chain that has long differentiated PSS in the market.

We see the combination of Brady's resources and PSS' customer-facing strengths as a clear opportunity to accelerate investment in these areas once the transaction closes. I'd also like to provide some additional background on the recent financial performance of the PSS business as well as our expectations for the first year post close. The PSS business was operated as a portion of a larger segment within Honeywell.

Several years ago, PSS was part of the Safety and Productivity Solutions segment, which was abbreviated SPS. In 2024, the PSS business was moved into Honeywell's new Industrial Automation segment, where it continued to be operated as a portion of a larger business unit. So to provide clarity around recent sales results specific to PSS, PSS' sales declined slightly by just under 2% in the calendar year 2025 compared to calendar year 2024. And in the first quarter of calendar year 2026, PSS' sales grew nearly 5%.

Last month, we announced that we expect the PSS business to be immediately accretive. We expect the business will add approximately $0.80 of adjusted EPS accretion in the first year. The business is highly complementary to Brady, and we expect it will deliver significant long-term value to our shareholders.

With that, I'd like to turn it over for Q&A. Operator, would you please provide instructions to our listeners?

[Operator Instructions] Our first question comes from Steve Ferazani with Sidoti.

Obviously, very positively surprised about the organic growth this quarter. I mean I'm looking back at the numbers, you were under 5% organic growth for it looks like almost 10 straight quarters, under 3% for 5%. This quarter, over 8%. I know you talked about Printers, but that was only 8%. So the strength here was broader than just the new product development. Can you give us a little bit better sense of what got you here? And also, given that you raised guidance, it had to have slightly surprised you as well.

Yes. So I think a couple of things went on. Q2 was definitely a little weaker than we had anticipated. And there were some timing issues of some small contracts. The net result was that a little bit of our growth, not to diminish it, but a little of our growth was fill in, I'm going to say maybe 1% or 2% was fill in from what we thought was a slightly weaker Q2 than we expected.

Now with that said, clearly, Q3 came in very strong. Data centers, if you do the math, it's 20% of our business, and it grew at almost 20%. And so if you do the math, that was a 4% uplift in the Americas and Asia and then less in Europe. So if you take those into account and you take the -- what we felt was just generally strong environment for Brady's products, you get to the organic results that we posted, which, again, we're hoping to continue through the rest of the fiscal year.

How much of a difference maker is the I4311? Is that a share taker?

It's not only -- I wouldn't even say it's a share taker, it's literally new to the world. There is no equivalent product to a portable 4" printer. We're up 50% over what we normally expect for a printer launch, which is both surprising and we think, quite frankly, awesome because we're very good traditionally at predicting printer placements because we've been doing this for a very long time.

Again, I want to remind everybody that no one product in Brady is super significant, but they also create -- and I think the this new printer also creates a little bit of a halo where it's pulling along other products as well because it is truly unique out in the industry of being able to go to a location without having to go back to a printer station and still be able to print a 4", which is comparatively large format thermal transfer product. So we're excited about the product. We're excited about what's happened so far. Is that meaningful to our growth? Not really. But will it be? We think so.

Got it. Very helpful. Russell, I think you make sure I heard you right, you said the -- in year 1, the acquisition would add $0.80 to adjusted EPS. I think you were more -- I think you had said double digits before.

Correct. Correct. As time goes on, of course, we're going to hone into exact answers. And we're still in the integration phase and understanding the complete cost structures and the add-backs and what have you. So directionally, we feel comfortable with $0.80. Is that going to move up a little or move down a little bit as we get closer to close? Certainly. And then we'll continue to unpack more detailed numbers as we get to the next quarter.

Is the expectation that there's some synergy realization with that? Or is that without synergies?

That first quarter -- excuse me, that first year is no synergies.

Wow. Okay. And timing on the deal, any change?

August 1 is our best estimate, pending regulatory filings and some other things. But if we miss the August 1 date, it will likely be due to external factors, not Honeywell or Brady.

Our next question comes from Keith Housum with Northcoast Research.

And I want to echo congratulations on a great quarter. Great to see. Russell, in terms of the data center business, obviously, a driver of your business, 3% to 4% overall. Do you guys have any increased visibility there? Obviously, we all see the same headlines and data centers are expected to grow some incredible amounts over the next several years, even more than what we've seen. Any visibility that you guys have that you guys will be part taking in that as well? It's been several quarters now that we've seen this as a growth driver for you guys.

Yes. So far, the data centers are keeping pace. We either see an acceleration from the current trend or a deceleration. The backlog in data centers from our perspective, the physical building of data centers seems to be at a virtual capacity limit. So while there's announced data centers, and there's a huge one just up the road from the Brady plant. In the end, there is some limit to how fast the infrastructure can be put in place, which, frankly, we see as a good thing because that ensures that we'll see a tailwind for this product category for several years as opposed to, I'll say, a data center sugar high, which I'm hoping turns out not to be true.

And when is the process of the data center being built, are you guys -- your products being used? Is it towards the completion of the data center? Is it earlier? Maybe any context you can provide there?

Yes. So I'm going to say it's kind of all along the way depending on how the data center itself is put together. So in some cases, there's a lot of prewiring that happens before the data center is actually fully built. In that case, we would be a little bit earlier and then sometimes it's on-premises.

But even from the -- taken from the very beginning, once they break ground, there are Brady products showing up in safety and facility all the way through to full commissioning. So the biggest part tends to be when they install the racks themselves and they're doing that wiring between them. And that's where we would see the single biggest slug of work. But from Brady's perspective, we like it all along the way because until the plant is fully operational, we're seeing revenue from groundbreaking all the way through.

And then at some point, we believe in the 3-year to potentially 4-year time frame, they'll do block upgrades of the data centers to get them to the next generation, and then we'll see a recurring revenue when that happens as well. So fundamentally, we just see this as an awesome opportunity for the company and being able to identify products within data centers.

And last question on data centers for me. And who is the buyer of this? Is it the builder of the data center themselves? Is it the server companies? Who's the buyer?

So I would say depending on the region and location, a whole host of people have their fingers in it. So sometimes it's actually the cable manufacturers themselves. Sometimes it is the data center integrator. Sometimes it is the on-prem data center. I'm going to say, hooker upper, which is not really a scientific term.

So I'm going to say there is -- it depends. And we've seen just so many permutations. As you can imagine, this whole field has exploded so quickly, there isn't necessarily a single optimal way of doing anything. And so a lot of people have sprung up at different points in the value chain, and we're selling to a variety of different people depending on who it is, whether it's AWS or somebody else data center, they all tend to do this a little bit differently.

Okay. I appreciate that. Gross margins, benefiting obviously from data centers, but it sounds like also with the printer growth there are going to be benefiting from consumables. great number this quarter at 51.8%. As we kind of think about going forward, how are you thinking about gross margins? Is 50% no longer the floor? Or are we thinking maybe 51%, 52% is possible here as we look forward?

Yes. So we -- just to remind everyone, we never target gross margin, we target area under the curve because in some of our product categories, we could clearly push up pricing and we could get even much higher gross margin than we stand right now. But we know that would come at the point of demand destruction because a lot of our products are used as a labor savings or as a way to do something different or more professional than, say, picking up a Sharpie.

So we're always very careful to look at the market and look at market uptake. Our goal is long-term growth and product placement as opposed to, say, pushing margins to 52% or 53%. I think given our mix today and the tariff regime as it exists today, 52% is a good place for us. You don't know where tariffs are going and mix could go slightly one way or another. But I do think it's important to realize. Our number one goal is long-term profitable growth, not hitting some particular profit margin -- excuse me, gross margin.

I appreciate that. In terms of the $0.80 number that you gave for the Honeywell PSS acquisition in the first full year, what is included in that context? I mean I've been of the opinion that they've underinvested in R&D and sales and marketing over the years. You're obviously close to the numbers than I am. Perhaps can you -- any thoughts on what that includes in terms of any additional investment of what they were doing?

So I'll give a little bit, and then I'll turn it over to Ann to give you a better unpacking of the number. So they have actually, in the last couple of years, rebuilt much of their R&D infrastructure. I would say that '22, '23 marked a low point of R&D investment for the PSS business. But fortunately, even they realized that they needed to add back R&D, most of which has happened. I think at the margins, we know there are some things that we can do. But at this point, it's not a significant build back. Will we add another $5 million, potentially $10 million in R&D? I think that is possible. Will we add some to the sales force? Absolutely.

And some of their customer-facing supply chain? Absolutely. But is it -- I would say, is it really significant in the scheme of things? No. So the business is -- I think there are things we can do kind of nip and tuck. But as I told everybody, it's a fantastic business with a fantastic portfolio, and I think it's got a great home in Brady. But I'll let Ann talk about some of the details.

That's perfect. So Keith, in addition to those items that Russell mentioned that, yes, this does include some bit of potential additional investment in R&D and in the sales force. What our estimate that we provided of $0.80 of adjusted EPS would exclude would be any truly onetime integration costs related to truly integrating the business, standing it up and all of that.

And then that would also include our expectations for interest expense, which we provided a little bit of clarity around what -- how we're expecting that to shape up. And we'll provide full clarity. We'll disclose that post close, we'll provide the visibility into those puts and takes.

Okay. Appreciate it. And I guess last question for me, guys. And I don't usually ask questions on Board resignations because you don't think much about...

Initially, I talk.

Well, time to hear, obviously, the stock being down last week. You had 2 Board members resigned a little bit over a week ago, you announced on a Friday afternoon. Stock was down 10%. Obviously, you made the Honeywell acquisition announcement about less than a month ago. Maybe any clarity you can give there in terms of the Board thought process on this and any relationship? Maybe you're limited you can speak, but I've got to ask that question.

Of course, Keith. And frankly, I would have answered it even if you hadn't. So let's turn back to clock a little bit about Brady and my appreciation for the Board we have and what they've had to go through for the last several months. So if you were to take Brady pre-Christmas time, we were, I would say, a very, very stable, almost monotonous earnings grower and cash flow generator that required, of course, required input from our Board, but let's be frank.

It was a very stable business, and our Board was perfectly capable of meeting once a quarter and giving us our steering and guidance and working with management. Over the last -- really the last, I would say, 4, 5 months, I feel like I owe our Board over time pay because we've gone from once a quarter pretty regular cadence meetings to -- at one point, as we are working through the acquisition and working through all of the details, we are meeting on a weekly basis.

And sometimes on the weekend, this was a significant and frankly, unexpected from most of our Board members, level of commitment that was never anticipated as we constituted our Board. I mean if you can imagine going from once a quarter to now you have to call in every single week, sometimes for hours and be directly engaged in a whole host of workflows. And the same amount of work is actually going to continue because, again, our Board is very involved, very professional.

I can't say enough about their participation and the amount of time they've had to spend. But this is going to go through at least our fiscal year and likely through the rest of the calendar year of very significant involvement. And so some of our Board members simply said, I cannot commit to that level of engagement. I can't -- I have a regular calendar. I have other Board commitments. I can't be on the call weekly continuously for all of these different work streams.

And I can understand it. I recognize the optics are awful. And I can say anything in the world and people can decide how much they believe or how much they don't. The fact of the matter is the Board members who were there for the Honeywell acquisition, all voted affirmatively. There was no dissent. There was actually no question that the deal was an awesome deal for Brady, but the level of time commitment was and will be staggering.

And again, I'm going to give tremendous credit to the Board members that we do have for sticking through all this and being available for significant amounts of time to make this deal happen.

That concludes today's question-and-answer session. I'd like to turn the call back to Russell Shaller for closing remarks.

That's great. Thank you all for your time this morning. We reported an excellent quarter. I'm proud of our entire team globally with our ability to deliver 8.2% organic sales growth in this disruptive geopolitical environment is impressive. We're growing in all of our major geographies. Our investment in R&D is paying off. Our new products are performing well, and we finished the quarter with momentum. We're in a great spot to finish the year on a high note. Thank you for your time this morning. Operator, you may disconnect the call.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Brady Corporation Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ann Thornton, Chief Financial Officer. Please go ahead.

Thank you. Good morning, and welcome to the Brady Corporation Fiscal 2026 Second Quarter Earnings Conference Call. The slides for this morning's call are located on our website at www.bradycorp.com/investors. We will begin our prepared remarks on Slide #3. Please note that during this call, we may make comments about forward-looking information. Words such as expect, will, may, believe, forecast and anticipate are just a few examples of words identifying a forward-looking statement.

It's important to note that forward-looking information is subject to various risk factors and uncertainties which could significantly impact expected results. Risk factors were noted in our news release this morning and in Brady's fiscal 2025 Form 10-K, which was filed with the SEC in September. Also please note that this teleconference is copyrighted by Brady Corporation and may not be rebroadcast without the consent of Brady.

We will be recording this call and broadcasting it on the Internet. As such, your participation in the Q&A session will constitute your consent to being recorded. I'll now turn the call over to Brady's President and Chief Executive Officer, Russell Schaller. Russell?

Thanks, Anne. Thank you for joining today.

We released our fiscal 2026 2nd quarter results this morning, and I'm pleased to report that this marks our 20th consecutive quarter of organic sales growth. Top line growth is a key metric and achieving this milestone for 5 straight years of quarterly sales growth demonstrates the strength of Brady's business model. This quarter, we also improved our gross margin. Our cash generation was incredibly strong, and we grew adjusted earnings per share 9%.

I'm proud of the team and proud of our first half of the year. Braves core mission is to create new world-class products to serve our industrial customers. Just last week, we launched an exciting new product that's unlike any other on the market. the I-4311 transportable industrial desktop label printer. This is the first transportable printer that can print on materials that are up to 4 inches wide. It has an old day battery, it's Wi-Fi and Bluetooth enabled and includes our Label sense software technology. The difference maker with this new printer is that it adds portability when our customers need to print on larger adhesive backed materials, which greatly expands the use cases for our customers.

With the I-4311, our customers can set up shop anywhere and they can print up to 5,000 labels on a single charge on hundreds of different specialty materials across wire ID, Safety and Facility ID and Product ID. The battery is rechargeable and can be easily swapped out, maximizing productivity at all times. And just like our entire printer lineup, the I-4311 is incredibly versatile and ideal for a wide variety of applications, including both indoor and outdoor uses, safety and OSHA requirements, harsh environments, lean manufacturing, electrical and datacom and lab applications. This is just 1 of the many examples of our R&D developments which span our printers to RFID to optical image recognition to lasers and more.

I've always been most excited about Brady's commitment to R&D. When I first joined Brady a bit over a decade ago, we spent roughly 3% of our revenue on R&D. This has grown to almost 6% in 2026, while our pretax earnings have more than tripled over the same period. To keep this trend going, we just hired Jane Lee as our new CTO in January. I'm personally delighted to have her on Brady's leadership team where she's bringing a wealth of insights to improve our technical road map. And as always, we are committed to helping our customers in their journey to identify products in a safe working environment.

Now I'll turn it over to Anne to provide more details on our financial results.

Anne?

Thanks, Russell. Our financial results were strong once again in the second quarter. Organic sales were up 1.6%. And as Russell just mentioned, this was our 20th consecutive quarter of organic sales growth as a company. which was led by the top line performance in our Americas and Asia region. The Americas and Asia grew 3.1% organically, which was partially offset by a slight organic decline of 1.1% in the Europe and Australia region. .

We also reported strong growth in our adjusted pretax income as well as our adjusted diluted earnings per share in the quarter, while funding a significant increase in research and development. And we finished the quarter in a net cash position. which allows us to continue to invest in both organic opportunities and strategic acquisitions to continue to drive shareholder value into the future.

Slide #4 details our quarterly sales trends. Organic sales grew 1.6% this quarter. Acquisitions added 2.3% and foreign currency translation increased sales by 3.8% for total sales growth of 7.7%. Slide #5 details our quarterly gross margin trending. Our gross profit margin was 50.6% this quarter compared to 49.3% in the second quarter of last year. Last year, we took actions to streamline our cost structure, and we closed manufacturing facilities in Beijing, China and Buffalo, New York, and we reorganized our overhead structure in Europe.

Adjusting for the onetime charges in gross margin in last year's Q2, our gross margin -- gross profit margin would have been 49.8% in last year's second quarter. You can see the gross margin benefit from cost reduction actions in our results, along with our sales growth coming from our highly engineered products. both of which led to the improvement in gross profit margin from 49.8% last year to 50.6% this year. Turning to Slide #6. This details our SG&A expense trending. SG&A was $107.9 million this quarter compared to $105.9 million in the second quarter last year. As a percent of sales, SG&A decreased to 28.1% of sales from 29.7% last year.

If you exclude amortization expense from the current and prior year, as well as the facility closure and other reorganization costs that we incurred last year and SG&A was 26.7% of sales this quarter compared to 27.3% of sales last quarter. a decline of 60 basis points. We're seeing the benefits of our facility closure and other cost structure actions that we took last year, while we continue to invest in growth through targeted additions to our sales force as well as expanding in certain geographies.

Moving to Slide #7. This details the trending of our investments in research and development. We continue to increase our investment in new products within our organic business with products like BI-4311 that Russell just described. as well as products from our acquisitions from last year. R&D expense was $24.3 million or 6.3% of sales this quarter. which was an increase from $18.7 million or 5.2% of sales in last year's second quarter.

We funded a nearly 30% increase in R&D in the quarter and still improved profitability. For the second half of this year, we do expect R&D as a percent of sales to be around 5.5% of sales, which would put us slightly below 6% of sales for the full fiscal year 2026. Slide #8 shows the trending of our pretax earnings. Pretax earnings on a GAAP basis increased 19.1% from $52 million to $62 million in the quarter. If you exclude amortization from both periods and excludes the facility closure and other reorganization charges we incurred last year, pretax earnings increased 7.7% from $62.4 million to $67.2 million.

Turning to Slide #9. This details the trending of our net income and earnings per share. Our net income increased 19.1% from $40.3 million to $48.1 million. Excluding amortization from both periods as well as the facility closure and other organization charges from last year, net income increased 8% from $48.1 million to $52 million. GAAP diluted earnings per share was $1.01 compared to $0.83 last year. Excluding amortization from both periods and the facility closure and other reorg charges from last year, Our adjusted diluted earnings per share grew to $1.09 this year from $1 last year, an increase of 9%.

Our results continue to benefit from sales growth in our highest gross margin products as well as from the cost reduction actions that we took last year in certain areas of our business. Moving to Slide #10. This details our cash generation. Operating cash flow increased 34.7% and to $53.3 million in the second quarter of this year compared to $39.6 million in the second quarter of last year. And free cash flow increased 30.5% and to $42.3 million in Q2 of this year compared to $32.5 million in last year's Q2. Year-to-date, our cash flow from operating activities is up nearly 38% versus last year. which demonstrates our high-quality earnings and our consistent focus on cash-based decision-making.

Slide #11 outlines the impact that our cash generation has had on our balance sheet. As of January 31, we were in a net cash position of $97.8 million. Our approach to capital allocation is consistent, and that is to always fund organic sales growth and efficiency opportunities. This includes investing in new product development, sales generating resources, capability-enhancing CapEx and improvements in automation. We have the ability to invest throughout the economic cycle so that we're always positioned to grow the top line and our profitability. And we're focused on consistently increasing our dividends.

At the beginning of this fiscal year, we announced our 40th consecutive annual dividend increase, which was a very exciting milestone for us as a company. From here, we're disciplined and opportunistic in our approach to both acquisitions and share buybacks. We're focused on identifying acquisitions of clear synergies, and we have the financial strength to do all of us to fund our organic business, our dividend, M&A opportunities and share buybacks. So far this year, we've purchased 121,000 shares for $9 million, which works out to an average price of $74.23 per share.

Moving to Slide #12. This details our fiscal 2026 guidance. We're increasing the bottom end of our full year fiscal 2026 previously announced adjusted diluted EPS guidance range from $4.90 to $5.15 per share to $4.95 to $5.15 per share. and we're increasing the bottom end of our full year GAAP EPS guidance range from $4.57 to $4.82 per share to $4.62 to $4.82 per share. Our adjusted diluted EPS guidance range represents a range of growth of between 7.6% to 12% compared to 2025. We expect organic sales growth in the low single-digit percentages for the year ending July 31, 2026. Other elements of our guidance include depreciation and amortization expense of approximately $44 million, capital expenditures of approximately $45 million and a full year income tax rate of approximately 21%.

Our income tax rate generally tends to be slightly lower in the fourth quarter compared to our full year expectation which is based upon our historical profit mix and the expected timing of other discrete adjustments. Potential risks to our guidance, among others, include potential strengthening of the U.S. dollar, inflationary pressures that were unable to offset in a timely enough manner or an overall slowdown in economic activity.

Now I'll turn it back over to Russell to cover our regional results and to provide some closing thoughts before Q&A.

Thanks, Anne. Slide 13 details the financial results of our Americas and Asia region. Sales were $251.6 million this quarter, up $7.6 million from Q2 last year. Organic sales growth was 3.1%, acquisitions added 3.5% and foreign currency translation increased sales 1%. We grew sales in most of our major product lines with growth once again led by our wire identification product line and nearly 8% in the quarter. Data centers are an ideal use case for our specialty wire ID solutions, and this has been a growth leader for us. Asia continues its strength of strong performance with organic growth of 14.2%. Our business in India continues to lead Asia with nearly 25% organic sales growth this quarter.

We expanded into North and West regions of India over the last several years, and India is now our second largest business in Asia. Our reported segment profit in Americas and Asia region increased 16.9% to $53.8 million, and segment profit as a percentage of sales increased from 19.7% to 21.4% in the second quarter. If you exclude the impact of amortization in both the current quarter and last year's Q2 as well as the facility closure and other reorganization activities from last year, segment profit increased 11.3%, Our sales growth in Engineered Products as well as our cost reduction activities from last year have led to improved profitability.

Tariffs are still a headwind in the U.S. compared to last year's second quarter. We're constantly taking steps to mitigate the effects and halfway through the year, we continue to expect the full year incremental impact to be at the low end of the range we initially provided, which was approximately $8 million. Slide 14 details the financial results of our Europe and Australia region. Sales were $132.5 million in the quarter. Organic sales declined 1.1% and foreign currency translated added 9% for a total growth of 7.9% in the region. The manufacturing environment in Europe has been weak for the last several quarters, and we're feeling the effects of that. but we still saw growth in our Wire ID product line in the quarter, so we're benefiting from the data center expansion in this key product line in Europe and Australia as well.

We saw sales declines in Safety and Facility ID and Product ID, which are more closely tied to general manufacturing in automotive. Despite the weak macro activity in the region, we reported significant improvement in segment profit once again this quarter. Our reported segment profit in Europe and Australia increased 35.5% in the quarter to $15.4 million, and segment profit as a percentage of sales increased from 9.3% to 11.6%. If you exclude the impact of amortization in both the current quarter and last year's Q2 as well as the facility closure and other reorganization activities from last year, segment profit increased 10.6% compared to the prior year. We took several actions last year to reduce our cost structure in both Europe and Australia, and we're seeing the benefits in our results this year.

We're positioned for increased profitable growth when manufacturing activity picks up in the region. I know we're on the right track halfway through the year. We're growing sales for improving profitability, and we're generating increased cash flow, all while investing in our products. I'm really looking forward to our customers' reactions to the brand-new 43.11 transportable label printer, and we have a lot more to come in our product pipeline. We work hard to help our customers operate a safe and productive workplace in any industry, anywhere in the world.

Product marketing and identification requirements are rapidly changing with the upcoming GS1 standards and the European Union product labeling requirements being only a couple of examples. This means that our customers are facing a more extensive set of identification requirements that call for both the knowledge and the solutions to be able to comply. This is exactly where Brady excels. Our goal is to provide our customers with easy-to-use products that meet complex requirements in situations with a high cost of failure. We value our customers, and our #1 focus is to provide them with solutions that keep them coming back to Brady.

We've reported a strong first half of 2026. We have momentum in our Americas and Asia region, and we've nearly returned to growth in Europe and Australia. Our acquisitions added direct part marking and inkjet printing capabilities to our product portfolio, helping us achieve our objective, which is to provide easy-to-use solutions for all of our customers' identifications need. With that, I'd like to turn it over for Q&A.

Operator, would you please provide instructions to our listeners?

[Operator Instructions] Our first question comes from the line of Steve Ferazani with Sidoti.

Thanks for the detail on the call. I wanted to start with -- what I -- to us was a negative surprise was the organic sales growth in the Americas, I mean, down to only just over 1% if I group that with what you're doing in Europe and Australia, it looks like if I combine those, your organic growth is completely dependent on Asia right now despite the fact you're investing 6% plus sales in R&D. Was this a 1-quarter blip? Or where is the growth going to be?

Steve, the -- our organic growth in the Americas and Asia region this quarter was actually up 3.1%.

I'm speaking specifically about the Americas. That's what I'm saying. If you put the Americas and grouped them with Australia and Europe, net that's probably going to be down, which means all your organic growth came from Asia.

Got you. Got you. My apologies. I missed that. Yes. The Americas on its own was up 1.4%, and Asia on its own was up 14.2%. So we did take the stuff back in the momentum on organic growth in the Americas on its own in the quarter.

That's what I'm asking is, was that a 1-quarter blip? Or what's the trend here? What are you seeing as late in the quarter from orders and now into pretty deep into Q3?

Yes. So we feel like we're headed in a better direction for us. November was actually a little bit on the weak side in the Americas. But as we exited the quarter, we definitely saw some improvement. I think there is some struggling out there with U.S. manufacturing, certainly not as bad as Europe, but it has not been as robust as we would have expected.

And how much of that 1.4% growth in the Americas was price versus volume?

Virtually no price.

It was virtually no price okay. what do you think gets you back to a growth trajectory? Is it going to be completely macro dependent?

Yes. We correlate very tightly particularly in America to U.S. manufacturing capacity utilization which right now has been the 78%, 77% range. We see something closer to 80 is very stimulative for us. starting to trend up a little bit, but it's still not at a point that we would like.

Okay. And then if I can ask about the very healthy margins. Again, it sounds like you weren't that aggressive on pricing. So it sounds like more of a mix for this quarter.

Yes. It's a mix. As you can imagine, our more commoditized products have actually done less well compared to our engineered products. So while I'll say the empty calories of our commoditized products have clearly gone down year-over-year. The engineered products have more than compensated for that, which is, in turn, bumped up our margins. .

Our next question comes from the line of Keith Housum with North Coast Research.

Appreciate the opportunity as always. Russell, you've confidence in Europe and Australia returning to growth here in the second half of the year. I guess what gives you some of that confidence?

So I was actually in Europe 2 weeks ago and kind of taking a tour of pulse of manufacturing over there. It feels like there will be modest. I mean -- and when I mean modest, they'll go from a contraction to maybe a 1% growth. I'm not saying by any stretch of the imagination that we saw something super robust, but I'm hoping that they actually hit bottom towards the end of last calendar year, and they're starting to see a recovery.

So I think there's still an awful lot of headwinds in Europe in terms of energy prices. and some of their policies due to manufacturing. It's no surprise if you read about heavy manufacturing in Europe has been particularly hard hit by energy prices and an influx of lower-cost Chinese products. So we're hoping they're doing it. And we also are seeing some growth in some of the noncore European countries. Middle East is doing pretty well for us. the Poland and Eastern Europe also doing well, Scandinavia. Unfortunately, those economies are not quite as big as the Germany, France and U.K., which largely are still struggling. .

Yes. Got it. Okay. And then the ground tech acquisition is probably 1.5 years behind you. You guys have added Metco or Mike, I apologize petrol you see it. And how is that performing for you guys? I know you guys had some restructuring you guys were doing there, but how are we doing in terms of growth trajectory? .

Yes. So it's absolutely, from a technology perspective, it has done 100% of what we wanted. We wanted to have that capability for direct part marketing, which we see as a significant growth potential, particularly if you look at European digital passport and some of the initiatives here in the United States to have unique part traceability. I think in the short term, we're definitely seeing a little bit of an impact of European automotive. They do serve the European automotive market and manufacturing in Europe, particularly in Germany has been pretty hard hit. In fact, it's still below where they were in 2019.

So there's 1 slice of grave related to automotive that I think has been weak, but the rest of the business is doing well. And actually, the luxury personalization segment is doing the best amongst that group.

Interesting. Okay. Appreciate that. Just to get this question out there because it asked everybody, I know your printers use a small amount of memory. Any issues you guys are facing in terms of pricing or shortages on memory?

So no issues so far on memory. We try to lock up supplies for a long period of time. We're a memory light user will it affect our BOM at tiny bit, Yes, probably. But we're not anywhere near, say, the usage of a tablet or a mobile computer or something like that. So at the margin, it's just a very, very small effect. .

Got you. Okay. I appreciate your commentary on R&D and R&D as an investment for the longer term, but maybe help reconcile it for investors because, again, we did see 1.1% organic growth or 1.6%, whatever it was probably less than what we expected. But yet R&D has a significant investment. How should we reconcile the increase in the R&D versus the I guess, the declining organic growth.

So you need to compare it to our gross margin. If I look at our nonengineered products, we're probably collectively in the 40% gross margin. Now fortunately, that's a small percentage of our portfolio versus the engineered products are mid-50s and higher. I wish all of our products had the engineering behind them. So we continue to do that. I think that is 100% of Brady's growth story over the last decade. And it was a part of what I said.

For us, engineering is a multiyear journey. The investments we're making today are things that pay back in 3 years. I would never look at engineering and R&D on a quarterly basis. It's kind of irrelevant. I would look at it more of the journey Brady has been on in the last 10 years where we've tripled our operating income while R&D has gone from 3% to 6%. So I wish you can keep that trend going for the next decade. And again, I'm super delighted to have our new CTO joined, I can't say enough about the experiences she's bringing in a more connected ecosystem. She came from Honeywell. And I think that is she will help us get to the next level in the coming years.

Great. last question for me. As I think about the European business, -- it probably has always had more of the commodity products, but it's been more defensible and the pricing has been better on that. Any science or concerns that, that pricing for the commodity type of products might be breaking down?

Yes. So that was always -- has been an issue in the U.K. much, much less so in the other countries. We've seen it. We continue to see some deterioration in the U.K., but it's also the backdrop of the overall U.K. economy, which isn't awesome as well. So as Brady goes on, I wouldn't say that there's any trend there that is catastrophic. It's just the long-term revolving of Brady out of commodity products into manufactured products. It's a journey we've been on for years. It will continue to happen. Unfortunately, it is a little bit of a drag on our overall growth, but we're going to get through it. And that's kind of the story of Brady. .

And I'm currently showing no further questions at this time. I'd now like to hand the call back over to Russell Schaller for closing remarks.

Perfect. Thank you for your time and participation today. We exited the first half of 2026 with momentum going into the second half of the year. We're investing in new product development, and it's our highly engineered products that drive organic sales growth and profitability improvement. We have more products in our pipeline that are focused on solving our customers' problems in the simplest way possible. which also gives us the opportunity to engage with a broader set of customers and markets. Despite the tariff environment and the decline in manufacturing activity in Europe and Australia, we still grew our organic sales for the 20th straight quarter in a row.

We're improving our productivity while increasing our investment in R&D. We keep our focus on what we control, and we move forward with the long term, always in focus. I continue to be optimistic about this year and our ability to deliver improved results for our shareholders. Thank you for your time this morning. Operator, you may disconnect the call.

This concludes today's conference. Thank you for your participation. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Brady Corp Annual Shareholder Meeting 2025. [Operator Instructions] Please be advised today's conference is being recorded.

I would now like to turn the conference over to your speaker today, Ann Thornton. Please go ahead.

Thank you.

Good morning, and welcome to the Brady Corporation Fiscal 2025 Annual Shareholders Meeting. Slides for this morning's call are located on our website at www.bradycorp.com/investors. Please note that during this call, we may make comments about forward-looking information. Words such as expect, will, may, believe, forecast and anticipate are just a few examples of words identifying a forward-looking statement. It's important to note that forward-looking information is subject to various risk factors and uncertainties, which could significantly impact expected results. You can read about these risk factors in more detail in our 2025 Form 10-K, which was filed with the SEC in September of this year.

Moving to the agenda on Slide #3. We will first announce the results of the election of Brady's Board of Directors. Next, Brady's President and CEO, Russell Shaller, will provide some brief comments, and then we'll open it up to a Q&A session, whereby Russell as well as myself will be available to answer questions. Today's presentation is being broadcast live on the Internet and will be available on our website for replay. So your participation in the Q&A session will constitute your consent to being recorded. Also, please note that this teleconference is copyrighted by Brady Corporation and may not be rebroadcast without the consent of Brady.

I'd like to now move to Slide #4 for the formal business portion of this meeting and introduce Mr. Brad Richardson, the Chair of Brady's Board of Directors to read the results of the election of the Board of Directors.

Brad?

Well, thank you, Ann, and good morning, everyone. As Ann mentioned, I'm Brad Richardson, the Chair of Brady's Board of Directors. The following are the individuals who are standing for election to Brady's Board of Directors. First, Mr. Pat Allender, Dr. David Bem; Dr. Elizabeth Bruno; Ms. Joanne Collins Smee; Ms. Deidre Cusack; Ms. Anne De Greef-Safft, Mr. Chris Hix, Mr. Vineet Nargolwala; myself, Brad Richardson; Dr. Michelle Williams; and lastly is Russell Shaller. Our shareholders can find our Board members bios in our annual report on Form 10-K as well as on Brady's website.

We are extremely proud to offer this high-quality group of directors for reelection to the Board. Let's turn to Slide #5 for the results of the election of the Board of Directors. I'm pleased to announce that the shareholders of 100% of the Class B common voting stock voted in favor of the election of the director nominees, and they are, therefore, elected to a 1-year term. Thank you again for all your time and support of Brady.

And now I'll turn the call over to Russell.

Thank you, Brad. Having a Board that is engaged and brings their broad experience and knowledge is critical to the success of any organization. So thank you all for helping Brady to be a better company. Before starting the Q&A session, I'd like to share a few comments about 2025. First of all, I'd like to thank our employees. You are helping both Brady and our customers to see beyond day-to-day task and to imagine a more productive and safer working environment. Without all of your efforts and the collaboration of our suppliers and customers, our success in 2025 would not be possible.

And from a financial perspective, our adjusted earnings per share was up 9% in 2025 compared to last year, finishing at an all-time record high of $4.60 per share. This marked the fifth consecutive year of record earnings per share. Our record earnings were driven by organic sales growth, which was led by the Americas and Asia region with a growth of 4.8% in 2025. We navigated through the global trade environment while taking actions to reduce our cost structure in certain areas of our businesses in China, Europe and the United States, which helped set us up for continued improved results. We also continued our commitment to return funds to our shareholders through dividends of $45.5 million and share buybacks of $50.8 million in 2025. And in September, we announced our 40th consecutive year of annual dividend increases, which was an incredible milestone to reach, which we're very proud of.

Our commitment to our investment in R&D remains a top priority and is the engine behind our ability to grow sales and improve our gross profit margin. Our pipeline of new products continue to differentiate us from our competition. And this year, just a few of the new products we launched included the i7500 industrial label printer. It incorporates Brady's proprietary LabelSense technology, which automatically calibrates for printing on over 4,000 label, adhesive and ribbon combinations, resulting in almost 0 setup time and no wasted labels.

We also added 3 exciting acquisitions to our product portfolio in 2025 with Gravotech, [indiscernible] at the beginning of the fiscal year and Microfluidic Solutions in April. And just over 4 months ago, we acquired Mecco, which is an excellent addition to our laser and direct part marking technology. Brady's goal is to provide seamless interoperability across our platforms, and we are beginning to see the integration of multiple technologies into a single platform. Our goal is to bring the simplicity of consumer experience to industrial products that are needlessly complicated. Lastly, I would like to highlight our people.

A culture of responsibility is critical to any strong organization's success, and our global team takes pride in their work and operates with integrity. Brady is a fantastic organization with loyal customers who place their trust in us, which we take very seriously. We're committed to a culture that develops our people and our employees' voices are heard and where our leadership embodies our core values.

2025 was another great year, which represented our fifth consecutive record year of adjusted earnings per share. None of this would have been possible with the hard work and dedication of the Brady team. And with that, I'd like to start the Q&A. Operator, would you please provide instructions to our shareholders?

[Operator Instructions].

Okay. As there are no additional questions, I would like to thank you all for your participation today. And on behalf of Brady's Board of Directors and everyone at Brady, we thank you for being a shareholder of Brady Corporation. Have a great day.

Operator, you may disconnect the call.

Thank you. Ladies and gentlemen, this concludes today's presentation. You may now disconnect, and have a wonderful day.

Good day, and thank you for standing by. Welcome to the Q1 2026 Brady Corporation Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Ann Thornton, CFO. Please go ahead.

Thank you. Good morning, and welcome to the Brady Corporation Fiscal 2026 First Quarter Earnings Conference Call. The slides for this morning's call are located on our website at www.bradycorp.com/investors. We will begin our prepared remarks on Slide #3.

Please note that during this call, we may make comments about forward-looking information. Words such as expect, will, may, believe, forecast and anticipate are just a few examples of words identifying a forward-looking statement. It's important to note that forward-looking information is subject to various risk factors and uncertainties which could significantly impact expected results. Risk factors were noted in our news release this morning and in Brady's fiscal 2025 Form 10-K, which was filed with the SEC in September.

Also, please note that this teleconference is copyrighted by Brady Corporation and may not be rebroadcast without the consent of Brady. We will be recording this call and broadcasting it on the Internet. As such, your participation in the Q&A session will constitute your consent to being recorded.

I'll now turn the call over to Brady's President and Chief Executive Officer, Russell Shaller. Russell?

Thank you, Ann, and thanks, everyone, for joining us today. This morning, we released our fiscal 2026 1st quarter financial results. We had a good start to the year with organic sales growth of 2.8% and adjusted earnings per share growth of 8%. Our Americas and Asia region reported strong organic sales growth of 4.7% and our Europe and Australia region reported a significant improvement in adjusted segment profit of 15%. This was a direct result of the actions we took to streamline our cost structure in the region last year. Our team executed well, and we have started the year on a positive note. .

Before we go into Brady's financial details, I want to talk a bit about our connected products. Brady has spent the last several years building out a marking and tracing solution that is uniquely easy to use for our customers. As an example is our fantastic new app called [ Brady Scan ], which is available in Android and Apple versions. It is an industrial barcode scanning app that consolidates the entire scanning workflow and communicate seamlessly with our printers. You can instantly generate scannable barcodes with both image to barcode and speech to barcode technology. A built-in security check monitors from malicious QR codes and error correction automatically repairs damage QR codes, resulting in maximum readability. You can scan and input barcode values directly into Google sheet with no download or export required. And every barcode scan is automatically geo-tagged, allowing for complete traceability with location accuracy.

Our goal with this app is to make barcode reading, barcode generation and barcode printing an entirely seamless experience for our users, making track and trace easier than ever before. With this software, our customers can use their phone to create barcodes, instantly send those barcodes to a Brady printer, print them on our high-performance adhesive labels and created a time and location stamp with our geo locator. This is one of the many steps we are taking to integrate our lasers, readers and printers into a single, easy-to-use platform.

Now I'll turn it over to Ann to provide more details on our financial results. Ann?

Thank you, Russell. We had a good start to the year. Organic sales grew 2.8% in the quarter, which was led by our Americas and Asia region with organic growth of 4.7% in the quarter. We also reported strong growth in our adjusted pretax income as well as our adjusted diluted earnings per share in the quarter, while funding a significant increase in R&D. And we finished the quarter in a net cash position, which continues to give us the ability to invest in both organic opportunities and strategic acquisitions in the future.

Slide #4 details our quarterly sales trends. Organic sales were up 2.8%. Acquisitions added 3.2% and foreign currency translation increased sales by 1.5% for total sales growth of 7.5% in the quarter.

Turning to Slide #5. This details our quarterly gross margin trending. Our gross profit margin was 51.5% this quarter compared to 50.3% in the first quarter of last year. In last year's first quarter, we closed on the acquisition of Gravotec, which requires purchase accounting adjustments to recognize the fair value of inventory acquired. These adjustments reduced last year's reported gross profit margin by 110 basis points in the quarter. So without this acquisition-related adjustment, gross profit margin was 51.4% last year. Our gross profit margin continues to be strong as we realize the benefits from our sales growth coming from our engineered products.

Turning to Slide #6, you'll find our SG&A expense trending. SG&A was $117.6 million this quarter compared to $111.8 million in the first quarter of last year. As a percent of sales, SG&A was 29% compared to 29.7% last Q1. If you exclude amortization expense from each of the periods presented, as well as other nonrecurring acquisition-related costs incurred in last year's first quarter, and SG&A was 27.7% of sales in the first quarter compared to 28.3% of sales in last year's first quarter, which is a decline of 60 basis points. We continue to invest in growth through acquisitions and to our sales -- or excuse me, through additions to our sales force as well as selected geographic expansion in Southeast Asia, which were more than funding with efficiencies throughout our SG&A support functions.

Slide #7 details the trending of our investments in research and development. We continue to increase our investment in R&D within both our organic business as well as our acquisitions from last year. R&D expense was $23.3 million or 5.7% of sales this quarter which was an increase from $18.9 million or 5% of sales last year. We funded a 23% increase in R&D in the quarter and still grew the bottom line. We've proven over time that our best ROI comes from our engineered products. Russell just discussed our new app, [ Brady Scan ], and we have a very exciting lineup of products that launched this year.

Turning to Slide #8. This shows the trending of our pretax earnings. Pretax earnings on a GAAP basis increased 16.5% from $58.8 million to $68.5 million in the quarter. If you exclude amortization from both periods and exclude other acquisition-related charges we incurred in last year's Q1, pretax earnings increased to 7.6% from $68.6 million to $73.8 million.

Slide #9 details the trending of our net earnings and EPS. Our net income increased 15.3% in the quarter from $46.8 million to $53.9 million. Excluding amortization from both periods as well as the other acquisition-related charges from last year, our net income increased 7.1% from $54.2 million to $58 million. GAAP diluted earnings per share was $1.13 compared to $0.97 per share last year. Excluding amortization from both periods and the acquisition-related charges from last year, our adjusted diluted earnings per share improved from $1.21 per share from $1.12 per share last year, which was an increase of 8%. We had another strong earnings quarter resulting from our organic sales growth and the cost reduction actions that we took last year in selected parts of our business.

Slide #10 details our cash generation. Operating cash flow increased 42.5% to $33.4 million in the first quarter of this year compared to $23.4 million in the first quarter of last year. And free cash flow increased 38.8% to $22.4 million in Q1 of this year compared to $16.1 million in last year's Q1. We're constantly focused on making the best cash-based decisions throughout our organization which gives us the ability to invest in our business and return funds to our shareholders through share buybacks and dividends.

Turning to Slide #11, you'll find the impact that our historical cash generation has had on our balance sheet. As of October 31, we were in a net cash position of $66.8 million. Our approach to capital allocation is consistent, which is to fund organic sales growth and efficiency opportunities. This includes investing in new product development, sales generating resources, capability-enhancing CapEx and automation-focused CapEx. We have the ability to invest throughout the economic cycle so that we're always positioned to drive future sales growth and profit improvements. And we're focused on consistently increasing our dividends.

In September, we announced our 40th consecutive year of annual dividend increases, which was an incredible milestone and is a [ street ] that we're very proud of. From here, we're disciplined and opportunistic for both acquisitions and share buybacks. We're focused on identifying acquisitions with clear synergies to Brady, and we have the ability to fund our organic business, our dividend, M&A opportunities and share buybacks. We repurchased 55,000 shares for $4.1 million in the first quarter, which was an average price of $73.69 per share.

Slide #12 outlines our fiscal 2026 guidance. We are increasing the bottom end of our full year fiscal 2026 previously announced adjusted diluted EPS guidance range from $4.85 per share to $5.15 per share with a new range of $4.90 per share to $5.15 per share. So a $0.05 increase to the bottom end. Our GAAP EPS guidance range was updated to reflect acquisition-related amortization as well as to increase the bottom end also by $0.05, which we now expect to range from $4.57 per share to $4.82 per share. Our adjusted diluted EPS guidance range represents a range of growth of between 6.5% to 12% over 2025. We expect organic sales growth in the low single-digit percentages for the full year ending July 31, 2026.

Other elements of our fiscal year 2026 guidance include an income tax rate of approximately 21%, depreciation and amortization expense of approximately $44 million and capital expenditures of approximately $40 million. Potential risks to our guidance, among others, include potential strengthening of the U.S. dollar, inflationary pressures that were unable to offset in a timely enough manner or an overall slowdown in economic activity.

Now I'll turn it back over to Russell to cover our regional results and to provide some closing thoughts before Q&A. Russel?

Thanks, Ann. Slide 13 details the financial results of our Americas and Asia region. Sales were $268.9 million this quarter, which were up 9.6% from Q1 last year. Organic sales growth was 4.7% and acquisitions added the remaining 4.9% of our growth. We saw growth in most of our major product lines with significant growth of nearly 19% in the Wire Identification product line. Wire ID has been leading our organic sales growth company-wide for the last 3 years with data centers being a key end market. Our high-performance adhesive materials are ideal for the critical labor requirements in data centers.

Our Asia business performed well with total organic sales growth of 11.9%, which was led by our business in Japan. We saw growth throughout the region, including China, where we grew slightly by 0.8%, which means that our business outside of China, combined for nearly 20% growth in the quarter. Asia also contributed a significant amount of growth in segment profit in the Americas and Asia region in the quarter, which was a result of both organic sales growth and the cost reduction actions that we took in China last year. Our reported segment profit in Americas and Asia region increased 9% to $59.9 million, and segment profit as a percentage of sales was 22.3%.

If you exclude the impact of amortization in both the current quarter and last year's Q1 as well as our other nonrecurring acquisition-related expenses last year, segment profit increased 6.3%. Similar to past years, we are increasing our investment in R&D, which is the driving factor of our organic sales growth, both now and in the future. We are experiencing a tariff headwind in the U.S. compared to last year's Q1. While we continue to take steps to reduce their impact, last quarter, we projected net incremental expense of between $8 million and $12 million for fiscal 2026. As of the end of Q1, we are now projecting full year impact to be at the low end of this range, so approximately $8 million.

Slide 14 details the financial results of Europe and Australia region. Sales were $136.4 million this quarter. Organic sales declined 0.8% and foreign currency translation added 4.3% for total growth of 3.5% in the region this quarter. Both Europe and Australia continue to operate in challenging macro conditions for industrial manufacturers, yet we nearly returned to organic sales growth in the quarter. Sales declines in our People Identification and Safety and Facility Identification product lines, but we saw growth in our Wire ID products in the quarter. Organic sales in Europe declined 0.9% and increased slightly by 0.3% in Australia.

Despite the 0.8% decline in organic sales, we reported a significant improvement in segment profit in the region. Our reported segment profit in Europe and Australia increased 42.8% in the quarter, to $18.7 million, and segment profit as a percentage of sales was 13.7%. If you exclude the impact of amortization in both the current quarter and last year's Q1 as well as other nonrecurring acquisition-related expenses last year, segment profit increased 15% compared to the prior year. We took several actions last year to reduce our cost structure in both Europe and Australia, and we're seeing this payback in our profit results this year.

We started the year with some solid momentum. We're growing organic sales mid-single digits in America and Asia, and were nearly returned to growth in Europe and Australia. Even with the subdued global macroeconomic environment for industrial companies, I am super excited about the business we acquired and over the past year as well as fantastic technology that we are adding to our portfolio, such as the [ Brady Scan ] app that I truly believe the addition of our direct part marking product line and the ease-of-use features we are adding throughout our product portfolio enables us to help our customers improve their productivity.

With that, I'd like to turn it over for Q&A. Operator, would you please provide instructions to our listeners?

[Operator Instructions] Our first question comes from Steve Ferazani with Sidoti.

I appreciate the detail on the call. Russell, I was a little bit surprised on the strength of the gross margin better than it was in the second half, sort of flat versus if you adjust the year ago quarter, but the year ago quarter didn't include tariff impacts. So I'm trying to figure out, one, is it getting better compared to 3 and 4Q because you're more effectively offsetting with price? Or was it just a particularly strong mix quarter? If you can help us out a little more detail on the gross margin?

Yes. The biggest impact was both price and working on our supply chain and moving things around a little bit. As a truly global manufacturer, we do have some ability to move things around and to look at which companies -- countries, excuse me, we should be producing and sourcing from. So I think like any good manufacturer, you do what you can to offset macroeconomic effects, and that's basically what we're doing. I'm happy to say we were projecting $8 million to $12 million. I think through a lot of efforts from a lot of people at Brady, we're headed towards the very low end of that range. And that was also contributed to why we bumped the bottom end of our guidance up $0.05.

Got it. That's helpful. Higher R&D we've seen over the last couple of quarters. Is this a more reasonable run rate? And is that primarily because of the acquisitions you've made? Or you just feel like there's better returns that can be made from some of these product investments?

So certainly, the 5, 7 or so that we're at right now is due to the acquisitions. And over time, probably the next couple of quarters, we'll decide if there's overlapping R&D efforts, there's probably some at the margin. I would consider 5.5, give or take, kind of the situation, we should be in for the next few quarters. So there will be a little bit of streamlining of that effort, not really significant. We did have some onetime events in R&D. But as you point out, or as I pointed out in the call, R&D continues to be the absolute best investment we can make organically. And I don't really have a per se target on where it should be, but we can say directionally 5.5 for the next year or so.

Okay. That's helpful. When you're thinking about the cost-out actions you took last year, did we see most of it this quarter that the plant consolidation and some of the workforce reductions. Have we seen the full benefit? Or is there more to come?

I would say there's probably 80% plus you've seen in Q1. There's still some more things that we're going to get. We certainly don't need to and wouldn't take any additional restructuring charges. We have nothing anticipated at this point. But again, like everybody that's managing their company. We continue to look for ways to improve our efficiency and drive a little bit more to the bottom line. So I'm going to say 80% done, still a little bit more to go.

Excellent. And if I could just ask briefly on cash conversion was better than it was the year ago quarter. Typically, Q1 is your lowest. But are you expecting you can get cash conversion back closer to 100% this year? Or is that a little bit too much of a reach?

That's a reasonable target, Steve, and good observation on your part that usually is a little bit lower for us in Q1. That's just due to timing of annual incentive payments and things like that. But we're definitely pleased with the improvement in Q1. We expected that to come last year was a little bit more suppressed than we would typically see in Q1. A lot of that was due to timing, and our cash conversion kind of normalized out a little bit more toward the end of the year. So that's a reasonable expectation to see that cash conversion level improve this year.

If the inventory line still seems pretty high, is that because of the acquisitions or the consolidation or a few things?

A few things. Honestly, there's a little bit due to the acquisitions, but they're not overly very large either. So we made some decisions a few years ago to stock, more of our absolute highest running products. It's like that's a few years, some changes in our supply chain. We did move production of several printer lines as planned quite a while. Asia that also requires higher -- so a little bit of everything kind of around the edges that's causing that increase in inventory. And we're always looking for opportunities to work on those levels, but we -- and we would expect it to probably not increase too terribly much from here and kind of normalize capital to more of a neutral level.

I would say, if I can add one more piece of color a lot of the traditional Brady businesses, the signage and the identification products are very quick conversion cycle from the time we get in order to -- through manufacturing and selling it. And so you don't need to have as much inventory as a laser or a reader, which is really a finished good. So a thing -- we absolutely will be in a higher inventory position than what traditional Brady would have been, not a lot higher because that's still a small percentage of our sales, but that is going to add a couple of points to our overall inventory.

Our next question comes from Keith Housum with Northcoast Research.

Russell, I notice your guide for the Australia and -- I'm sorry, Europe and Australia segment suggest perhaps low single-digit growth by year-end, but you guys had a slight decline this quarter. Anything that you're seeing out there that gives you further confidence that, that segment will be able to turn it around based on some of the challenges they have in the macro environment as we see today?

Yes. So I'm facing this on what I read in a lot of economists that have said that the calendar year of 2026 is supposed to be better than the calendar year of 2025. Frankly, we really haven't seen much. It hasn't gotten any worse over the last several quarters, but we haven't seen what euphemistically are called green shoots. The services sector, which we don't participate in seems to be doing a little bit better in Spain and some of the [ vacationey ] countries. But if you look at core manufacturing in Germany, France and the U.K. just not seeing a lot of movement, not getting worse, not getting better, but we -- if we're going to turn the corner, it's at least 1 or 2 quarters out from now.

Great. And in terms of [ Brady Scan ], first off, congratulations. I know it's been on your list of things to get done for a while now. Is it out now? And I guess, perhaps any color you can provide in terms of who you think the target audience will be for that? Is it your entire base? Or is there a certain segment? And then finally, how many of your products will be linked to or be able to benefit from [ Brady Scan ]?

Yes. So there's 2 parts to it. One is we're being, I think, good friends to the economy in general. So the [ Brady Scan ] app has a consumer version that has no adware, no [ bloatware ] and isn't trying to take your data backhauling it to wherever. So that's a free version for 50 scans or so a month, which I think for most consumers is more than enough. The industrial version actually is going to form part of the backbone of our connected products. Right now, it works seamlessly with our printers and our readers, which I talked about. The next step we'll get it to engage directly with our lasers and our other marking technology.

So it's -- I'm going to say we're about halfway through it. There's still a lot more software that needs to get done. But I love the first iteration. I think it's a very clean and easy-to-use app. Understanding there is really more tailored towards industrial users. We just kind of threw in the consumer users as a nice freebie for some of our customers and friends. But you're encouraged to download it. It's got an Apple version, and it's got a Android version. And as of this weekend [ did it ] just gone up, and we only had 5 star reviews. So there you go.

Congratulations. And then it's been a year since you've had Gravotech, you guys added [ Metco ] -- hopefully I am saying that right earlier this quarter. Any line of sight to revenue synergies coming from the -- I guess, both of the acquisitions and then just the progress you've made over the past year?

Yes. So a couple of things. We've absolutely gone through a product road map and decided which business is focusing on which end markets. With that said, I think they are working in a very tough environment, in fact, more than Brady as a whole because the core segment that we're looking for them to excel at is heavy industrial manufacturing, which is amongst the weakest segments currently out there. So the fact they're doing okay. what I think is a pretty awful environment is good. We really need that to turn around.

One of their key customers is the automotive and automotive supply chain, not a great place right now, but it will come back. We're very confident. And we -- more importantly, we're confident in going after mid-sized manufacturers, which is really kind of the heart of Brady's business. So we feel good, very, very early. Brady makes long-term strategic bets. We have a core thesis that we believe everything is ultimately going to get marked in production. And this is ensures that we have that capability over the next 5 to 10 years. So still a work in progress. We feel good initially, but with a lot more to go.

Great. Appreciate that. And final question for me. Gross margin is another solid quarter for you guys, even with the tariff headwinds. I know you guys are hesitant to suggest that gross margins can be above that 50% range, but yet you guys have been able to deliver that the challenges that you've had. And I know you also are emerging -- a lot of your growth coming from your emerging products. Any more thoughts about gross margins and where they perhaps can go going forward?

Yes. So -- and I sound like I'm very repetitive on this because I answered it always the same way. Our engineered products, all things being equal, are probably 60-ish percent gross margin versus our more commodity products are 40-ish. So the more we have engineered products, the more our gross margin will expand but we don't have a target because all of these products are delivering significant cash flow and return on invested capital. So yes, there's a little bit of help due to our portfolio as it slowly changes.

Right now, of course, the offsetting effect has been some tariffs that hasn't helped by any stretch. But I do not have a target. We know we could push pricing higher to expand our gross margins at the expense of demand reduction. So we're really trying to spend most of our time getting more Brady products into more people's hands because I even add our gross margins -- money flows through to the bottom line. So we need to keep pushing on growth more than margin expansion. Thank you.

I'm showing no further questions at this time. I would now like to turn it back to Russell Shaller, CEO for closing remarks.

Thank you for your time today and for your questions. Brady is on a journey to help our customers have a safe and productive workplace. Our visual Safety and Facility Identification portfolio, combined with Brady's productivity solutions help our customers comply with a wide variety of regulations, including the upcoming [ GS1 ] standards and new European Union product labeling requirements. Even with a challenging tariff regime and a tough manufacturing macro environment, we are growing sales and increasing profitability.

As always, we're keeping our focus on what we can control and continue to move forward with long term consistently in mind. Our increased investment in R&D is a direct reflection of our view on the long term as our engineered products have proven to be the primary driver of our growth. We pride ourselves on the diversity of our end markets and our R&D investment gives us the ability to engage with an ever broader set of customers. We do expect to continue to be impacted by incremental tariffs but we believe that our global manufacturing presence and largely in-country manufacturing as well as our geographic diversification helps us to mitigate some of this effect.

We're being creative and we're adapting quickly and a very proud of the team and their tireless efforts in this changing environment. I'm optimistic for the rest of the year and the long term for Brady's ability to continue to deliver improved results for our shareholders. Thank you for your time this morning. Operator, you may disconnect the call.

This concludes today's conference call. Thank you for participating. You may now disconnect.