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Even in this challenging environment caused by the ongoing impacts of the COVID-19 virus and the associated inflation and logistical challenges, the Brady team once again performed quite well.
I'm proud of how the team was able to navigate this challenging economic environment and deliver for both our customers and our shareholders.
This quarter, we grew sales by a very healthy 16% and we increased earnings per share by 4.7%.
If you exclude the impact of amortization, then our earnings per share was up even more significantly at 9.1%.
In addition to this solid revenue and earnings growth, we have a rock solid balance sheet.
This quarter, we returned more than $30 million to our shareholders in the form of dividends and buybacks.
And we're still in a net cash position of more than $90 million.
In our WPS business, sales were down by 7.8%.
This sales reduction was almost exclusively the result of very challenging comparables.
Last year, our WPS team did an excellent job of providing COVID-related products to our customers.
The sale of these products, which included social distance signage and personal protective equipment, has since waned, thus resulting in challenging comparables.
The best way to look at our WPS business is to compare sales to the pre-COVID period of fiscal 2020, which would show that our current sales levels exceeded those historic pre-COVID levels.
In our Identification Solutions business, we continue to post excellent results with sales growth of 25.4% and segment profit growth of 21.2%.
And if you exclude the impact of amortization expense, segment profit would have been up a robust 26.4%.
Our Identification Solutions business is a very strong franchise and continues to perform extremely well.
As we look ahead, our priorities are the first to drive organic sales growth and ensure we are serving our customers extremely well during this period of challenging logistics.
Second, it is to take the necessary cost and pricing actions to offset the impacts of this inflationary environment and return to pre-pandemic gross margin levels.
Third is to integrate our recent acquisitions, and finally, to deploy our capital to drive long-term shareholder value.
In our ID Solutions Business, we're embracing these priorities by increasing our investments in R&D, including the incremental R&D necessary to fully realize the benefits from our recent acquisitions.
We are certainly seeing benefits from our historical R&D focus as we're launching new products at an increasing rate, and we're continuing to distance ourselves from our competitors who neither have the scale nor financial wherewithal to invest as heavily in R&D.
We're also improving our online presence by upgrading our websites and investing more in digital marketing talent all while expanding our sales force and expanding geographically into underserved markets.
We're driving significant automation enhancements within our factories and distribution centers, which in a period marked by scarcity of labor and rising costs, this continuous push to drive automation is critical.
Our strong new product lineup, investments to drive sales and our positive momentum in driving efficiencies give us confidence that our ID Solutions Business will continue to generate strong organic sales growth with very healthy margins in fiscal 2022 and beyond.
In our Workplace Safety business, we're capitalizing our common web platform by using our much stronger market intelligence to quickly adapt to changing market dynamics.
We've increased our investments to new product development and the pace of new product launches in an effort to increase the percentage of proprietary high-value products sold to our customers which will have a positive impact on our profit margins.
And we're intensely increasing our advertising spend and our head count in certain businesses that have lagged in an effort to drive future revenues.
These investments resulted in reduced segment profit this quarter but will result in increased revenues as we progressed throughout the fiscal year.
Our Workplace Safety business is headed in the right direction, and I'm confident that the changes we've been implementing and the investments we've been making will help drive long-term sales and profit growth.
While we're investing in organic sales, we're also working to streamline our SG&A cost structure so that we can fund our sales growth initiatives while still driving down SG&A expense.
And we're focused on becoming a more efficient manufacturer by automating wherever we can.
In addition to our focus on driving organic sales growth and becoming a more efficient organization, we're also actively integrating the three acquisitions that we completed in the fourth quarter last year which includes building out our industrial track and trace solution set.
Much of the increased R&D that you see relates to the investments necessary to build out a comprehensive solution that will help move us into faster growing end markets and accelerate sales growth for years to come.
I'm confident we'll continue to see revenue growth in future quarters.
However, we're seeing inflationary pressures across many different cost categories from wages to freight to raw materials, and we've had challenges securing supply of certain products including chips and selected products for our supply chain originates in Asia.
In general, we've been overcoming these shortages, but it has resulted in increased freight charges as we've used airfreight more than we have in the past.
Even with these inflationary pressures, our gross profit margin was still an enviable 48.2%, which was right in line with the 48.2% experience in the fourth quarter of last year.
But our cost increases have neither been large enough nor fast enough to fully keep up with rising costs, resulting in our gross margins being down around 70 basis points and year-over-year basis.
As such, we're putting through additional price increases across many of our product lines to try to catch up with the rapidly increasing costs.
We believe that these gross margin challenges are temporary and that in the near term we'll return to our historical gross margin levels of close to 50%.
Even with this challenging logistical environment, Brady is well-positioned as we look to the rest of this fiscal year and beyond.
I'm confident in our ability to deliver results to our customers, our employees and, of course, our shareholders.
Then I'll return to provide specific commentary about our Identification Solutions and Workplace Safety businesses.
I'll start the financial review on slide number 3.
Sales in the first quarter were $321.5 million, which was an increase of 16% when compared to the same quarter last year, and GAAP pre-tax earnings increased 5.8% to $44.7 million.
Impacting earnings this quarter was a significant increase in amortization expense from the acquisitions completed at the end of last year.
If you exclude amortization expense from all periods presented, and our pre-tax earnings would have increased by 11.3% to $48.5 million.
GAAP diluted earnings per share was $0.67, which was an increase of 4.7% over last year's first quarter.
And if you exclude amortization expense, then earnings per share would have increased by 9.1% to $0.72 this quarter compared to $0.66 in the first quarter of last year.
So, financially, Q1 was another strong quarter even with the logistical challenges and the inflationary pressures that Michael just mentioned.
Moving to slide 4, you'll find our quarterly sales trends.
Our 16% sales increase consisted of organic sales growth of 7%, and increase from acquisitions of 8.3% and an increase from foreign currency translation of 0.7%.
Organic sales growth in our ID Solutions Business was a robust 13.2% in Q1.
Our Workplace Safety business benefited from strong COVID-related product sales in last year's first quarter, thus creating tough comparables.
As a result of these tough comparables, we saw a decline in WPS organic sales of 8.6% this quarter.
If we compare our sales levels to the pre-pandemic period, which for us would be the first quarter of fiscal 2020, you'll see that our total sales are up a full 12% over pre-pandemic levels.
And if you compare sales by division, you'll see that Identification Solutions is 15.6% above pre-pandemic levels and workplace safety is 1.2% above pre-pandemic levels.
This strong performance not only against last year, but also against the pre-pandemic period, is a direct result of the investments that we've been making and the strong sales momentum that we developed just before the pandemic hit.
Turning to slide number 5, you'll see our gross profit margin trending.
Our gross profit margin was 48.2% this quarter, compared to 48.9% in the first quarter of last year.
As Michael mentioned, we're seeing inflationary pressures, and we're finding it difficult to fill open manufacturing roles.
But we're automating wherever we can, we're driving efficiencies at a strong pace, and we're putting it through targeted price increases.
On slide number 6, you'll find our SG&A expense trending.
SG&A was $96.7 million this quarter, compared to $83 million in the first quarter of last year.
SG&A was heavily impacted by a full quarter of expense from the three acquisitions completed near the end of last year along with the increase in amortization expense that I just mentioned.
Amortization expense was $1.4 million in the first quarter of last year and was $3.8 million in the first quarter of this year.
And as a percent of sales, SG&A was 30.1% this quarter, compared to 30% in the first quarter of last year so effectively, right in line with the prior year.
However, if you exclude amortization expense from both the current year and the prior year then SG&A would have declined from 29.5% of sales last year to 28.9% of sales this year.
Slide number 7 is the trending of our investments in research and development.
This quarter, we invested $13.9 million in R&D.
We're committed to increasing our R&D investments as we continue to see opportunities for incremental R&D within our core business and, specifically, in building out a comprehensive industrial track and trace platform that encompasses our printers, high-quality materials, RFID scanners, and barcode scanners.
These investments in R&D are critical to help propel Brady's long-term sales growth and protect our gross profit margins.
Slide number 8 illustrates our pre-tax income trends.
Pretax earnings increased 5.8% on a GAAP basis and increased 11.3% if you exclude amortization expense from all periods.
Slide number 9 illustrates our after-tax income and earnings per share trends.
As I mentioned, our GAAP earnings per share was $0.67 this quarter compared to $0.64 in last year's first quarter, an increase of 4.7%.
And if you exclude the after-tax impact of amortization, our earnings per share would have increased by an even stronger 9.1%.
On slide number 10, you'll find a summary of our cash generation.
We generated $27.5 million of cash flow from operating activities and free cash flow was $16.2 million this quarter.
Our underlying cash flow was strong, but we intentionally invested in both inventories as well as capital expenditures.
This quarter, we purchased two previously leased manufacturing facilities for a total cash outlay of $7.6 million.
Both of these facility purchases were ROI positive and will help secure our long-term future.
This quarter, we also continued to increase inventories as we've been intentionally prioritizing customer service and product availability over trying to optimize inventory levels and risk running out of critical materials.
Over the last six months, we've increased our inventories by approximately $30 million.
Even after returning more than $30 million to our shareholders in the form of dividends and buybacks, having heightened capex and intentionally increasing inventory levels, on October 31, we were still in a net cash position of more than $90 million.
Our strong balance sheet puts us in a fantastic position to execute additional value-enhancing activities, including investing in R&D, completing additional acquisitions, and returning funds to our shareholders.
Our approach to capital allocation has not changed and has been serving us well.
First, we use our cash to fully fund organic sales and efficiency opportunities throughout the economic cycle.
This includes investing in new product development, sales-generating resources, IT improvements, capability-enhancing capital expenditures, and capex to further automate our facilities.
We will also -- sorry -- we will absolutely keep funding these investments where it makes sense and where the investments are ROI positive.
And second, we focus on returning cash to our shareholders in the form of dividends.
We've now increased our annual dividend for 36 consecutive years, which puts us in a pretty elite group of companies.
After fully funding organic investments and dividends, we then deploy our cash in a disciplined manner for either acquisitions, where we believe that we have strong synergistic opportunities or for buybacks when we see a disconnect in our view of intrinsic value versus Brady's trade-in price.
Slide number 12 summarizes our guidance for the year ending July 31, 2022.
Our full-year diluted earnings per share guidance, excluding amortization remains unchanged at a range of $3.12 to $3.32 per share.
On a GAAP basis, our full-year diluted earnings per share guidance also remains unchanged at a range of $2.90 to $3.10 per share.
Included in our GAAP earnings per share guidance is an increase in after-tax amortization expense of approximately $6 million.
After-tax amortization increases from about $5.5 million in fiscal 2021 to about $11.5 million in fiscal 2022, which is a delta of about $0.12 per share.
As we look at staging throughout the rest of this fiscal year, we anticipate our short-term gross profit margin challenges to persist throughout our fiscal second quarter, and history shows that our second quarter is seasonally our lowest quarter of the year and generally has earnings per share below that of Q1.
As we move beyond the second quarter, we expect to see increased benefits from our pricing actions as well as increased benefits from our many efficiency and automation projects.
As a result, we continue to expect that the majority of our earnings-per-share growth will come in the third and fourth quarters of this year.
We also expect total sales growth to exceed 12% for the full year ending July 31, 2022, which is inclusive of both organic sales growth as well as sales growth from the recently completed acquisitions.
We'll continue to make the investments necessary to drive organic sales growth, we'll continue to search for acquisitions that advance our strategies, and we'll continue to drive sustainable efficiency gains while being tight on non-revenue-generating expenses.
As for capital allocation, we'll keep investing in our organic business.
We'll keep investing in our industrial track-and-trace initiatives.
We'll continue to return funds to our shareholders through dividends and opportunistic buybacks.
We did just buy back $18.9 million worth of shares last quarter, and we'll continue to look for acquisitions where the price is right and the strategic fit is clear.
We have a strong balance sheet, and we'll use it as a tool to drive long-term shareholder value.
Potential risks to this guidance, among others, include the strengthening of the US dollar versus other major currencies such as the euro or the British pound, worsening logistics that don't allow us to meet our commitments to our customers, and further inflationary pressures that we cannot offset in a timely enough manner.
Slide number 13 outlines the first quarter financial results for our Identification Solutions business.
IDS sales increased 25.4% to $248.6 million.
This very robust sales growth is comprised of organic growth of 13.2%, acquisition growth of 11.6% and an increase of 0.6% from foreign currency translation.
Organic sales in our IDS division were once again very strong, not only versus the first quarter of last year but also against previous sequential quarters.
And on the cost side, our strong focus on sustainable efficiency gains partially offset the input cost increases that we've been experiencing.
Segment profit as a percentage of sales was 19.6%, which was down from 20.3% last year.
However, if you exclude the sizable increase in amortization that Aaron mentioned, then segment profit as a percentage of sales would have increased from 21% of sales to 21.1% of sales, so an increase of about 10 basis points compared to the first quarter of last year.
Regionally, organic sales in Asia were strong this quarter with growth of over 15% compared to the first quarter of last year.
This is the fourth consecutive quarter of Asian organic sales growth in excess of 10%.
Organic sales were also up more than 15% in EMEA despite several lockdowns continuing throughout most of the first quarter.
Our European team once again did an excellent job driving sales growth while handling the period interruptions caused by the lockdowns.
We also had organic sales growth of nearly 12% in the Americas.
We saw growth in all product lines and geographies throughout the quarter and we were especially pleased with the bounce back in our healthcare product line where organic sales growth increased approximately 11%.
In general, the sales trends and ideas are very positive.
Our commitment to R&D remains a high priority.
We've ratcheted up our investments to build a complete industrial track and trace solution.
And although we're probably a full two years away from having a complete track and trace solution, we've already been experiencing very nice synergies from our recent acquisitions and we expect these sales synergies to only increase from here on out due to the complementary nature of our product portfolios and the more complete product offerings that Code, Magicard and Nordic ID bring to Brady.
These acquisitions are performing slightly better than expected and bring us valuable technologies that help us round out our product offerings and make Brady more valuable to our customers.
Clearly, we're devoting a significant amount of time and money to our track and trace product offerings.
But we are not sacrificing R&D investments in other areas such as printers and materials.
We continued our steady stream of new printer introductions by launching the J4300 Brady Jet Label Printer.
This inkjet printer combines with pretty high efficiency proprietary materials to balance the safety and complexity of compliance labels with the demands of industrial environments.
Our industrial inkjet printers save our customers time by quickly and easily creating compliant, long lasting photo quality labels, signs and tags that are needed to create a safer, more efficient workplace.
It's a combination of our steady It's a combination of our steady stream of best-in-class printers, plus Brady's high-performance materials that sets Brady apart from our competition, from barcodes to extremely small text, to perfect photo quality images, our customers most important information needs to be visible and needs to stay put in any type of environment.
Simply stated, Brady's printers and materials are all about high performance in the harshest of environments.
Our R&D pipeline is strong and we continue to launch innovative new solutions that help our customers solve problems and be more efficient and effective.
I'm excited about what we're doing in an ID Solutions business and how our acquisitions of Code, Nordic ID and Magicard will further accelerate our growth.
We're improving our customer service, investing in our future and streamlining the rest of our cost structure.
These positive revenue trends combined with our strong cost discipline, will help offset inflationary pressures and paint a bright future for our IDS division.
Moving to slide number 14, you'll find a summary of Workplace Safety financial performance.
WPS sales declined 7.8%, which consisted of an organic sales decline of 8.6% and an increase from foreign currency of 0.8%.
This sales decline was primarily driven by challenging comparables to last year's first quarter.
Our WPS business performed extremely well and supplied our customers with a great deal of COVID-19-related products during the pandemic last year, and the demand for these types of products has declined substantially since then.
Our WPS sales were $72.9 million this quarter, which were above the pre-pandemic sales experienced in the first quarter of fiscal 2020.
Even in these challenging times with periodic shutdowns, our European WPS team did an outstanding job of increasing its customer base.
And for those customers who initially came to us to purchase COVID-related products, our team has done a nice job providing these same customers with our core safety and identification products as well.
Our Australian business performed similarly to our European business.
During the pandemic, our Australian business grew organic sales over 10% in last year's first quarter.
Looking back the challenging comparables, we were pleased with this quarter sales volumes as they were above pre-pandemic levels.
Over the last several quarters, we've increased our Australian customer base and we continue to find opportunities to enhance our digital marketing approach to ensure that we retain our new customers and turn them into long-term repeat customers.
The sale of COVID-related products declined in North America as well this quarter, and this decline was not fully offset by our non-COVID product offerings thus leading to a decline in organic sales in the Americas.
And as I alluded to earlier, we've made investments to improve certain of our lagging businesses in WPS including our business in the US that primarily serves micro businesses.
We've incurred start-up costs to open a new facility in the US, we've invested in head count, and we're also investing in additional advertising.
All in, these incremental investments were approximately $2.5 million.
These investments negatively impacted WPS' profitability this quarter, but we believe that these investments are critical to return our WPS business to sustainable, long-term, profitable growth.
In addition to these investments, our WPS business also experienced gross margin compression as a result of raw materials, freight and wage inflation as I mentioned.
Similar to our IDS business, we're taking actions to offset these cost increases.
WPS' segment profit was $2.3 million, compared to $8 million in last year's first quarter.
This reduction in segment profit was directly related to the reduced sales volumes, the incremental investments that I just mentioned, as well as significant cost pressures.
Our WPS team members are listening to their customers to identify what they need.
They're modifying their marketing campaigns to reach entirely new customers and entirely new industries, and they're working hard to address underperforming businesses within the portfolio.
Our Workplace Safety business has one more quarter of moderately difficult comparables ahead of it, but we're laying the foundation for a solid recovery.
I'm proud of the role that Brady played and continues to play in this long, ever-changing fight against COVID-19.
Identification Solutions and Workplace Safety products help companies with social distancing.
Our products help schools reopen safely and safety and identification products were used by our frontline workers all around the globe.
And now, our products are helping our customers increase efficiency to help them meet their own set of customer demand.
This pandemic is not over, and the financial impact stemming from the pandemic are certainly not over.
Throughout the pandemic, we invested in growth and efficiencies, and it's this continual level of investment that will enable us to keep this strong positive momentum.
Brady is in an enviable financial position.
We're coming off of record earnings per share here.
Our earnings are up, and our balance sheet is very strong.
We're in a net cash position even after making three acquisitions toward the end of last year and returning more than $30 million to our shareholders in the form of buybacks and dividends this quarter.
We will continue to invest in R&D, sales-generating resources and capacity-enhancing capex, all while being very tight on non-revenue-generating expenses and aggressively working through global logistical issues and inflationary forces.
I'm very proud of how our team performed throughout this challenging period.
Their ability to deal with uncertainty, think on their feet and solve problems quickly all while never compromising the long term has built a solid foundation for Brady's future.
With that, I'd like to now start the Q&A.
Operator, would you please provide instructions to our listeners?

user
compname reports q1 diluted earnings per share of $0.67.
q1 sales $321.5 million.
diluted earnings per share in q1 fiscal 2022 is $0.67.
co's earnings per diluted class a nonvoting common share, excluding amortization guidance for year ending july 31, 2022 remains unchanged.
compname says earnings per diluted class a nonvoting common share on a gaap basis remains unchanged at $2.90 to $3.10 per share for fiscal 2022.
supply chains for certain components remain tight.
experiencing inflation in many areas including wages, freight, utilities, and raw materials.

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