Brady Corporation (NYSE:BRC) Q1 2023 Earnings Call Transcript

n (NYSE:BRC) Q1 2023 Earnings Call Transcript November 17, 2022

Brady Corporation beats earnings expectations. Reported EPS is $0.84, expectations were $0.83.

Operator: Good day and thank you for standing by. Welcome to the Q1 2023 Brady Corporation Earnings Conference Call. 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 Accounting Officer. Please go ahead.

Ann Thornton: Thank you. Good morning and welcome to the Brady Corporation fiscal 2023 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 2022 Form 10-K, which was filed with the SEC in September.

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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 will now turn the call over to Brady’s President and Chief Executive Officer, Russell Shaller. Russell?

Russell Shaller: Thank you, Ann and thank you all for joining us today. This morning, we released our fiscal 2023 first quarter financial results, which was another quarter marked by solid execution across all of our businesses. Overall, we had a good quarter with organic sales growth of 6.9%. Much of this organic growth was ultimately offset by foreign currency translation, resulting in total sales growth of 0.3%. Although we can’t control currency translation, we can control organic sales and we can control our cost structure in an effort to offset currency headwinds. And that is precisely what we did, which led to our strong GAAP earnings per share growth of 17.9%. We once again improved profitability, while investing in R&D, expanding our sales force and improving our digital capabilities.

I am proud of how the entire Brady team worked together through this challenging macro environment, all the while delivering for both our customers and our shareholders. More specifically, as it relates to the macro environment, we are starting to see some changes. For instance, hiring is improving, but still remains somewhat challenging. We are seeing more qualified candidates and we are filling open positions quicker than we had in the past. International shipping rates have moderated and our supply chain is improving. There are still certain products that are challenging to source in a cost effective manner. But for the most part, the supply chain has loosened up to the point where we are getting the critical parts that we need to meet our customer demands.

However, these positive signs have not yet translated into reduce inflation. We are experiencing increased energy costs, increased wage rates and weaker currencies in relation to the U.S. dollar, which are squeezing margins in regions outside of North America. While there are number of economic uncertainties, we continue to experience a solid demand environment for Brady’s products. And our team continues to do a great job serving our customers. We have effectively managed these marketplace disruptions in supply chain constraints to ensure that we could serve our customers. However, it’s made supply chains more expensive and lead times have been elongated versus pre-pandemic periods, which you can see in our increased inventory levels. Our balance sheet gives us the flexibility to withstand these type of macro events and ensure that we can meet the needs of our customers by supplying them with the products they need to get their jobs done.

I can’t tell you what the macroeconomic future holds. My view of the future is formed based on the data that many of you see as well as what I am hearing from our customers, our suppliers and the Brady sales force. Even though our order patterns currently remain robust, we are prepared for a softer calendar 2023. Brady’s priorities remain clear. First and foremost is to continue our evolution into a faster growing company. Second is to improve our capabilities to ensure our customers’ automation initiatives which is an area that we believe, will give us a tailwind for years to come. Third is to take the necessary actions to offset impacts of this inflationary environment, all the while meeting customer demands and providing the best possible service.

Fourth is to reinforce Brady’s culture of operating sustainably, with a long-term view, which encompasses our approach to ESG and ensuring that we are supporting all of our stakeholders from our customers, to our employers, to our communities, and of course, our shareholders. And finally, we are focused on deploying our capital in order to drive long-term shareholder value, be it organic investments, acquisitions, or returning funds to our shareholders. We are in a position of strength. Our printer lineup is strong and we have a pipeline of highly innovative printers on the way. Placing printers in the marketplace is incredibly important for Brady, as this results in repeat purchases and deepens our customer relationships. We are continuing to make investments in our future.

We have a rock solid balance sheet. And we have a fantastic team at Brady that is delivering for our customers every single day. I will now turn the call over to Aaron to provide more details on our financial results then I will return to provide more specific commentary about our identification solutions business and our workplace safety business. Aaron?

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Aaron Pearce: Thank you, Russell and good morning everyone. This quarter, we once again had strong organic sales growth. We reduced the SG&A expense as a percent of sales and we grew our bottom line nicely. Each of our two divisions performed well. IDS grew segment profit by 5.5%, while WPS grew segment profit by 178% this quarter. And we took advantage of recent market pullbacks by repurchasing another 280,000 shares. Putting it altogether, we reported first quarter GAAP EPS of $0.79 compared to $0.67 in the first quarter of last year. And non-GAAP EPS which is calculated as our GAAP EPS less the after-tax impact of amortization expense was $0.84 this quarter compared to $0.72 in Q1 of last year. So the key financial takeaways this quarter are strong organic sales growth, nicely improved EPS, solid performance in each of our two divisions, and a continued commitment to returning funds to our shareholders.

All of which helped us overcome the substantial appreciation of the U.S. dollar and deliver another very strong quarter. Let’s move to Slide #4 for our quarterly sales trends. Organic sales grew in each of our two segments, but with the stronger U.S. dollar, foreign currency translation reduced total company sales by 6.6%, thus bringing total sales growth to 0.3%. The impact of foreign currency reduced the IDS sales by 5.5% and reduced WPS sales by 10.3%. The reason for the outsized foreign currency impact on WPS is because approximately half of WPS sales are in Western Europe and another 20% of WPS sales are in Australia. Even with this significant foreign currency challenge, our WPS business still performed extremely well this quarter. On Slide #5, you will see our gross profit margin trending.

Our gross profit margin decreased 10 basis points to 48.1% compared to 48.2% in the first quarter of last year. Looking at gross profit margin on a year-over-year basis, we were able to offset nearly all of our input cost increases. However, sequentially input cost increases are still running above our price increases, which was one of the drivers of a reduced sequential gross profit margin. Even though conditions are improving, we continue to experience scarce labor in certain geographies. And we are still seeing inflationary pressures continue across many different cost categories, from energy costs to raw material costs and everything in between. Although markets seem to be getting a bit better with respect to product availability and people availability, we haven’t seen it translate into reduced inflation quite yet.

And even though price increases are partially offsetting inflation, we are still experiencing some lags between input cost increases and price increases. As such, we would expect to continue to see a bit of choppiness in our gross profit margins over the next several quarters. This quarter, we realized approximately 5.6% sales growth from pricing. On Slide #6, you’ll find our SG&A expense trending. SG&A was $89.9 million this quarter compared to $96.7 million in the first quarter of last year. As a percent of sales, SG&A was 27.9% this quarter compared to 30.1% in the first quarter of last year. If you exclude amortization expense, then SG&A would have declined from 28.9% of sales in Q1 of last year to 26.8% of sales this quarter. In addition to our continual focus on becoming a more efficient organization, SG&A expense also benefited from reduced incentive based compensation expense, reduced healthcare costs, and a reduction in SG&A expense due to foreign currency translation.

Slide #7 is the trending of our investments in research and development. This quarter, we invested $13.9 million in R&D, which equates to about 4.3% of sales. A steady stream of new product launches is critical to our growth strategy. Accordingly, we remain committed to new product development as we see opportunities across our businesses, including our newest lines of printers and the building out of a comprehensive industrial track-and-trace platform that encompasses our printers, high-quality materials, RFID scanners and barcode scanners. This quarter’s R&D spend was a bit less than we would expect in future quarters due to the timing of project spend and a reduction in incentive-based compensation. On Slide #8, you can see that pre-tax earnings increased to 12.6% on a GAAP basis.

If you exclude amortization expense from both the current year and the prior year, then our non-GAAP pre-tax earnings would have increased by 11.3%, increasing from $48.5 million in Q1 of last year to $54 million this quarter. Slide #9 shows the trending of earnings and EPS on an after-tax basis. When you look at these charts, you can see that the general trend of up into the right as we have now had two consecutive years of record EPS and we are off to a good start once again this year. On Slide #10, you will find a summary of our cash generation. Operating cash flow increased this quarter despite accelerating the timing of our annual incentive-based compensation payments into the first quarter and increasing inventories to both support our increased sales volumes as well as to ensure that we can support our customers in the event of further supply chain challenges.

As it relates to incentive-based comp, last year, we made our annual payments in the second quarter, whereas this year, we made these payments which were approximately $24 million in the first quarter. Accordingly, we expect our second quarter cash generation to be quite a bit stronger than what we experienced last year. Now if you will turn to Slide #11, you can see the impact that Brady’s historical cash generation has had on our balance sheet. Even after stepping up our share buybacks and building up inventories over the last year or so, on October 31, we were still in a net cash position of $15.5 million. Our approach to capital allocation is to first and foremost use our cash to fully fund organic sales and efficiency opportunities. This includes investing in new product development, sales generating resources, capability enhancing capital expenditures, and automation focused CapEx. Despite the economic uncertainty, we will continue to deploy capital to drive productivity and sales growth, especially in our businesses, where we expect enhanced growth from secular tailwinds.

And second, we focus on consistently increasing our dividends. We have increased our dividends every single year since going public. After fully funding organic investments and dividends, we then deploy our capital in a disciplined manner for either acquisitions where we have clear synergistic opportunities or for buybacks in a highly opportunistic manner when we see a disconnect between Brady’s intrinsic value and Brady’s trading price. Our enviable balance sheet positions us well to execute additional value enhancing activities, including investing in R&D, completing acquisitions, and returning funds to our shareholders. As we look to the future, we are confident that the actions we have taken set us up for success. But of course, we can’t control the macro economy and we can’t control foreign currency rates.

Based on exchange rates as of October 31, the strengthening of the U.S. dollar is expected to reduce our sales by approximately 5% for the full fiscal year ending July 31, 2023. To put this in perspective, when we provided our initial fiscal €˜23 guidance, just a few months ago, we expected a full year foreign currency headwind of approximately 3.5% and it’s now increased to a headwind of 5%. As it relates to EPS, the impact of foreign currency is expected to reduce our fiscal €˜23 EPS by approximately $0.20 per share when compared to last year’s foreign currency exchange rates. This brings us to our fiscal €˜23 guidance which is articulated on Slide 12 of the deck. Even with these increased foreign currency headwinds, we are maintaining our full year fiscal 2023 previously established EPS guidance range of $3.30 to $3.60 per share on a non-GAAP basis and $3.13 to $3.43 per share on a GAAP basis.

Our outlook is based on October 31 exchange rates and we expect continued economic expansion. While we acknowledge that market conditions remain uncertain and we are certainly hearing and feeling increased concern over the future, we have not yet seen a meaningful slowdown in our order patterns and we continue to have positive momentum. As such, we expect that organic sales growth will remain consistent with our initial guidance range of mid to high single-digit percentage growth for the year ending July 31 2023. The other elements of our guidance range are also unchanged and include an income tax rate of approximately 20%, depreciation and amortization expense of approximately $32 million to $34 million, and capital expenditures of approximately $32 million.

As per capital allocation, we don’t foresee any major changes in our strategy. We will keep investing in our organic business. Yesterday, we announced our quarterly dividend and we will be opportunistic with buybacks while looking for acquisitions where the price is right and the strategic fit is clear. We have a strong balance sheet and we will use it as a tool to drive long-term shareholder value. Potential risks to this guidance, among others, includes further strengthening of the U.S. dollar, inflationary pressures that we can’t offset in a timely enough manner through price increases or an overall slowdown in economic activity. I will now turn the call back over to Russell to cover our divisional results and to provide some closing thoughts before Q&A.

Russell?

Russell Shaller: Thank you, Aaron. Slide 13 outlines the first quarter results for our Identification Solutions business. IDS sales were $256.4 million this quarter and organic sales growth was 8.6%. In IDS, we continue to invest in innovation in R&D. The vast majority of the $13.9 million of R&D this quarter was in our IDS division, where our goals are to continue the steady stream of new product launches with a particular focus on combining product software and services that help our customers become more efficient and help them get their jobs done in a more cost effective manner. For instance, in our lockout/tagout product offerings, we provide comprehensive programs customized to meet each of our customers’ unique requirements.

These programs combined Brady’s service focus with our proprietary LINK360 software, our printers, or durable materials, and our industry leading lockout and tagout devices. Along with our unique safety locks to deliver a complete solution that improves our customer safety experience, all the while improving their productivity as well. It’s these type of comprehensive customer experiences that set Brady apart from its competitors. We believe that we will have a secular tailwind for years to come as companies continue to push for efficiency gains and increased employee productivity, thus increasing Brady’s €“ increasing demand for Brady’s productivity solutions. Segment profit as a percentage of sales improved 20.1% this quarter compared to 19.6% last quarter.

As we managed through this inflationary period, we can expect to continue to see quarter-to-quarter fluctuations in our segment profit margins due to the timing of pricing actions. Our goal is to remain price competitive, while offsetting the negative impacts of input cost inflation to deliver continued sales growth and strong profitability. Regionally, sales continue to grow in Asia despite periodic lockdowns in China driven by their zero-COVID policy. Asia organic growth was 7% this quarter. In Europe, our organic sales were up in the mid-teens this quarter. Our European team did an excellent job of driving sales growth, while managing their cost structure in this very challenging environment. And in the Americas, we had organic growth of approximately 5% this quarter.

Our expanded new product lineup investments to drive sales and our expansion into untapped markets gives us confidence that we will continue to generate above GDP organic sales growth for the years to come in our IDS business. Moving to Slide 14, you will find a summary of our workplace safety financial performance. WPS sales declined 9.1% this quarter entirely due to significant appreciation of the U.S. dollar. If you strip out foreign currency, our WPS business had organic sales growth of 1.2%. This marks our fourth consecutive quarter of organic sales growth and it’s a continuation of major profitability improvements we have been generating over the last several quarters. Segment profit increased from $2.3 million in the first quarter of last year to $6.4 million this quarter.

This is a more than 2.5 fold increase in profitability even with the major foreign €“ currency headwinds we are facing. Looking at our WPS business geographically, we saw continued organic growth in Europe and Australia where our businesses in the U.S. contracted this quarter. We have been focused on a three-pronged approach to ensure that our WPS business is sustainably improving. First, we are ensuring our products are relevant, with a focus on identifying skews that provide the most value to our customers. Second, we are enhancing the value of WPS by helping our customers choose the right product. And third, we are driving efficiencies and reducing overhead costs, including personnel and catalog distribution costs, all while increasing spend on our website and on our online advertising to accelerate our shift away from catalogs.

With our heightened level of focus, the foundation of our WPS business is improving with a number of key brands and several businesses that have been performing well. And our internally produced custom solutions, along with our consultative selling, provides significantly more value to our customers than simple catalog items. Looking ahead, we will continue to drive profit improvements and we will continue to look critically at our products in our business portfolio. Although WPS comparables get more challenging in the back half of the year, this team is focused on ensuring that our improved business results are sustainable. Brady performed very well this quarter and we clearly have positive momentum building across the organization. We are in an enviable financial position.

We are coming off two consecutive record earnings per share years and we just realized 17.9% increase in earnings per share in the first quarter. In the near-term, demand looks solid, but our current viewpoint reflects growing caution in the macro-economic outlook. As such, we will be proactively drawing down inventory levels in certain businesses and initiating cost containment measures where appropriate. Given our ability to generate healthy cash flow, even during challenging economic times, we have the ability to continue to invest in research and development, geographic expansion and improve our capabilities while serving our customers as they work through their automation journey. With these initiatives, we expect to have tailwind for years to come as companies work to shorten their supply chain, increase automation and drive efficiencies.

With that, I’d like to start the Q&A session. Operator, would you please provide instructions to our listeners?

Q&A Session

Operator: Our first question comes from the line of George Staphos from Bank of America Securities.

Cashen Keeler: Yes, hi, good morning. This is actually Cashen setting in for George this morning. So can you maybe just talk about your demand trends throughout the quarter now just month to month? And then I guess coming out of the first quarter, what has been just generally the trajectory here in the second quarter?

Russell Shaller: Yes, sure. So, we have seen some lumpiness in order patterns more so than would be historically normal. I think a lot of our customers and the distribution channel is still searching for what is the right level of inventory. And what is the demand that they are seeing from some of their use cases. So we had a brief period in September that I thought was unusually weak. And then as we got into October, virtually all of that got filled up. And I am speaking of the Americas right now that Europe has actually been pretty steady. And the rest of the world has been pretty steady. So, we are going into Q2 with basically the way we left Q1, which is in a pretty strong place.

Cashen Keeler: Okay. That’s helpful. And then I guess in IDS, organic growth was pretty strong, even on a strong comparison. So, I guess ultimately, what was driving that? Was that more so pricing, or can you just give us a sense of that, and maybe just demand trends on a product level as well?

Russell Shaller: Yes. So, obviously, pricing is playing a role. And there is a part of the growth having to do with pricing, and also having to do with organic demand. We have been, I want to say pleasantly surprised that our order book continues to be very strong. And like I said, I think going into Q2, we are seeing no degradation of our performance from Q1.

Cashen Keeler: Okay. Got it. And then I guess just on the track and trace build out, you did these acquisitions, call it, 1.5 year ago, you have lapped through those, I guess last quarter. So, I guess where do we stand now in terms of building out that comprehensive track and trace solution? What needs to be done and I guess ultimately, what are the mile markers we should be looking for over the next several quarters?

Russell Shaller: Yes. So, we knew this was and is a long journey. We feel very comfortable with the acquisitions that we have made. They are now on our own internal systems, which is important. We are melding the R&D teams across all three businesses. The next step here is really kind of two-fold. Some of the businesses, I will take Nordic was a little more focused on retail than we are as a corporation. And so we are making more industrial versions of some of their products. You will see those in the marketplace in the next few quarters. And in code, which was more focused on healthcare, we are also doing the industrial type solutions. So, they are more robust. They are more suited to an industrial environment. So, we had a long journey, where we expected to industrialize these products and make them look and feel and interchangeable with each other in our operating systems and our printers.

So, at this point, it is really just a matter of engineering and getting the products to work together. We don’t really need much of it in the way of an epiphany, or additional acquisitions to make this happen.

Cashen Keeler: Okay. Thanks.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Steve Ferazani from Sidoti.

Steve Ferazani: Good morning Russell, Aaron. Thanks for all the detail on the call. I do €“ Aaron I want to dig into a little bit about with your comments on the guidance range, because it didn’t move. There is obviously a lot of moving parts here. Specifically, you pointed out the stronger dollar than it was three months ago, and the fact that that would have a $0.20 impact. And that would sort of lead to why isn’t the guidance coming down unless something else more positive offset it and I didn’t hear that. And just give us your comfort level on that range and what sort of needs to happen to get to that lower versus the higher end? Sort of a complicated question. Sorry, I know.

Aaron Pearce: That’s okay. So, coming into the year, when we provided our original guidance, we had provided a foreign currency headwind somewhere in the neighborhood of 15% to 18%. And of course, that’s translation as well as any margin compression that we would get from the stronger U.S. dollar. So, it clearly got a bit worse. But frankly, it hasn’t been that significant and we have been able to overcome it with continuing to push efficiency gains, of course, pricing we talked about as well. And frankly, sales have held in there pretty good and as Russell mentioned order patterns remained strong. So, we remain very confident that we will hit this guidance range even with the what seems to be never ending foreign currency headwind from the stronger U.S. dollar.

Steve Ferazani: What gets you to the higher end as opposed to the lower end, what needs to work out?

Aaron Pearce: Well for Brady, as you know at our 50% gross €“ 50%-ish gross profit margin. Sales are super important and continuing to make the investments that we need to drive the top line. So, of course, without our top line growth, we are not going to hit the top end of our guidance range. But again, we are confident that we will hit that, we will hit our guidance range. Plus, as you know, WPS has improved quite substantially on the bottom line. And we need that to continue as well. So, Brady is a pretty complicated $1.3 billion business with a lot of moving parts, and a summation of a lot of smaller businesses. And just like always, we need to execute and we need to continue to make the investments to drive the top line.

Steve Ferazani: Okay. That’s helpful. Alright. When I think about you covered the drain on the gross margin, softening sequentially, largely offset by much lower SG&A. It sounded like there are some one-offs there in terms of the lower SG&A this specific quarter, how can we think about that?

Aaron Pearce: Yes. There definitely were a couple that are relatively minor. However, we have been experiencing some €“ I will say some nice reductions in healthcare expenses, which certainly matters for us, we call that out. And we have had a reduction in incentive based compensation a bit as well, that we would expect to continue. So, over and then of course, the bigger component of all of this is foreign currency, much like foreign currency hurts our top line, it certainly drives down or SG&A expense as well. So, you can basically take the 5%-ish reduction that we anticipate in revenue, and apply that to SG&A expense as well. So, if foreign currency exchange rates stay where they were at October 31st, for the remainder of this year, you should see SG&A expense go down as well. And then of course, that is partially then offset by the continued investments that we are making in our sales force and marketing expenses, etcetera.

Steve Ferazani: Great. Thanks for that. If I can get one more in, I saw the announcement and the pictures from that the ribbon cutting for code in Utah. Can you talk a little bit about what that means and how that all sort of fits up in the process of bringing those acquisitions in?

Russell Shaller: Yes. So, it’s €“ first, it’s not super significant. I mean it’s a relatively small distribution channel. But we continue to look at supply chain on-shoring where possible, getting products hub-ed closer to the customers. If we were to look at pre-pandemic, shipping, global shipping and global transportation was a pretty drama free event. As we have went through the pandemic, and we had uncertainty in shipping time, shipping rates, it caused us to rethink how we deploy some of our products. And what opportunities we have to have them hub-ed closer to our customers. So, in the case of this particular location, we used to hub it in Asia and partially in Malaysia and partially in Singapore. And by bringing it back to the U.S., it becomes obviously much closer to the customer, since that’s the principal.

That’s principally where this product is sold. And it gives us a little bit faster lead times, and we were able to do it in this case. So, we continue to look at all of our deployments throughout the globe and how we have products situated where we have our inventory. And I think we have a general desire to both do manufacturing and have our inventory as close to our customers as possible. And this was part of that strategy.

Steve Ferazani: So, should we expect to see more of these types of developments?

Russell Shaller: It will be gradual. And again we don’t have like a block upgrade, where we are saying, we are going to move a huge part of Chinese manufacturing to the U.S., for instance. But we are comprised of literally dozens of locations and dozens of distribution centers. And we look through this. And one of the reasons why we actually have now a Chief Operating Officer is to look at all of our locations and say, are they really appropriate for the business and the business model we are running. So, like we did with this code distribution center, which again is pretty small in the scheme of things. I can imagine other smaller ones in the future. It’s all towards being both more operationally efficient, driving down our cost position, as well as making sure that we are serving our customers optimally.

Steve Ferazani: Great. Thanks Russell. Thanks Aaron.

Operator: Our next question comes from the line of Keith Housum from Northcoast Research.

Keith Housum: Good morning guys. Just following up on the previous question, Russell, what are the changes to your incentive comp plan in the quarter? I noticed you have mentioned both R&D and SG&A, that was a contributor to the client expense this quarter compared to last quarter.

Russell Shaller: Yes. No, there has been no change to our plan in terms of kind of the total envelope. We have made it I will say slightly easier to get a little bit of incentive compensation, and definitely harder to max out on the incentive compensation. We think that is more indicative to the current environment where there is more uncertainty. If you look back to Brady, a few years ago, you could draw a ruler across some of the businesses in terms of gross margin and operating profit and what have you. I think our scheme now is more reflective of I will say changes in dynamics. Now, I will say at the 100% level, so the nominal bonus structure that hasn’t changed a penny year-over-year. So, we are keeping the base the same, but we are kind of stretching it out low and high.

Now, we do like I think most companies, every quarter, we true it up, and we look at it. Last year was absolutely phenomenal. And we are at the very high end of the range of the bonus structure. As we are coming into this fiscal year, we think it’s going to be a lot tougher to hit some of those targets. And so we revised it down. So, you do see an impact from Q4 to Q1. But I think we are €“ nominally we are going to get back into what I consider a more stable range. It’s just the swing from Q4 to Q1.

Keith Housum: Is that based on revenue and gross profits, or bottom line? Can you give me a little bit of context on what it’s based on?

Russell Shaller: Yes. So, it really the two principal parts of it are no surprise, top line, revenue growth and bottom line, operating income.

Keith Housum: Got it. Helpful. Thank you. Appreciate it. And in terms of like your price increases, I know your commentary that you are still lagging, the raw material increases, and other contributors that have gross margins are custom? So, how far long do you think you guys are in the price increases. So, for example, if inflation kind of came to a halt today, will the price increases still had to go through the next several quarters?

Russell Shaller: If inflation literally stopped today, I would say our price increases essentially would stop Now, there might be a couple of small places here and there that we would still look at. But right now, we are anticipating future price increases, because we are also anticipating future increases in raw materials. It takes us about two months to three months from when we make a decision to actually do it and get into our customers, because there is notification periods. And the sheer effort to go through hundreds of €“ tens of thousands of SKUs at least and change pricing is a non-trivial process, because there is some nuance in how we do it. But right now, we are anticipating a price increase in most of our products in January. We are still €“ we are making the decision right now that that’s going to happen, but we could always backpedal it all of a sudden we saw a significant change in inflation.

Keith Housum: Great. I appreciate it. Thank you.

Operator: Thank you. At this time, I would like to turn the conference back to Russell Shaller, President and CEO for closing remarks.

Russell Shaller: Perfect. Thank you all very much for your time today and for your thoughtful questions. Brady has a business that is positioned to perform well regardless of which direction the economy had. We now have a proven history of being faster than GDP growing company. Our pricing and efficiency actions are expected to help us stay in the upper 40% to near 50% in gross profit margin. Our IDS division continues to perform well and the actions we have taken to improve our workplace safety business are clearly working. And we have a fortress balance sheet which enables us to keep investing in both organic and inorganic growth, while also returning funds to our shareholders. Even though the future of the macro economy is uncertain, I am very optimistic about Brady’s future. Thank you for your time this morning. Have a great day. Operator, you may disconnect the call.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.