00:02 Thank you for standing by, and welcome to the Q1 twenty twenty two Brady Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. [Operator Instructions] As a reminder, today's conference call is being recorded. 00:21 I would now like to turn the conference to your host, Ms. Ann Thornton. Ma'am, you may begin.

00:25 Thank you. Good morning and welcome to the Brady Corporation fiscal twenty twenty two first quarter earnings conference call. The slides for this morning's call are located on our website at www.bradycorp.com/investors. 00:38 We will begin our prepared remarks on slide number three. 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. 00:53 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 twenty twenty one Form 10-K, which was filed with the SEC in September. 01:11 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. 01:25 I'll now turn the call over to Brady's President and Chief Executive Officer, Michael Nauman. Michael?

01:31 Thank you, Ann. Good morning and thank you all for joining us today. This morning, we released our fiscal twenty twenty two first quarter financial results, which showed strong sales growth and profitability. 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. 02:08 This quarter, we grew sales by a very healthy sixteen percent and we increased earnings per share by four point seven percent. If you exclude the impact of amortization, then our EPS was up even more significantly at nine point one percent. In addition to this solid revenue and earnings growth, we have a rock solid balance sheet. This quarter we returned more than thirty million dollars to our shareholders in the form of dividends and buybacks, and we are still in a net cash position of more than ninety million dollars. 02:41 In our WPS business, sales were down by seven point eight percent. 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 twenty twenty, which would show that our current sales levels exceeded those historic pre-COVID levels. 03:24 In our Identification Solutions business, we continue to post excellent results, with sales growth of twenty five point four percent and segment profit growth of twenty one point two percent. And if you exclude the impact of amortization expense, segment profit would have been up a robust twenty six point four percent. 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. 04:28 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. 04:57 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. 05:24 Our strong new product line-up, 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 twenty twenty two and beyond. 05:43 In our Workplace Safety business, we are capitalizing on 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. 06:08 And we're intensely increasing our advertising spend and our headcount 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. 06:27 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. 06:57 In addition to our focus on driving organic sales growth and becoming a more efficient organization, we are 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. 07:25 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. 07:47 In general, we've been overcoming these shortages, but it has resulted in increased freight charges as we've used air freight more than we have in the past. Even with these inflationary pressures, our gross profit margin was still an enviable forty eight point two percent, which was right in line with the forty eight point two percent 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 seventy basis points and year-over-year basis. 08:27 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 will return to our historical gross margin levels of close to fifty percent. 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. 09:01 I'll now turn the call over to Aaron to give a little more detail on our financial results. Then I'll return to provide specific commentary about our Identification Solutions and Workplace Safety businesses. Aaron?

09:14 Thank you, Michael. Good morning, everyone, and thank you for joining us this morning. I'll start the financial review on slide number three. Sales in the first quarter were three hundred and twenty one point five million dollars, which was an increase of sixteen percent when compared to the same quarter last year and GAAP pre-tax earnings increased five point eight percent to forty four point seven million dollars. 09:37 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 eleven point three percent to forty eight point five million dollars. 09:57 GAAP diluted EPS was zero point sixty seven dollars, which was an increase of four point seven percent over last year's first quarter. And if you exclude amortization expense, then EPS would have increased by nine point one percent to zero point seventy two dollars this quarter compared to zero point sixty six dollars 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. 10:27 Moving to slide number four, you will find our quarterly sales trends. Our sixteen percent sales increase consisted of organic sales growth of seven percent, an increase from acquisitions of eight point three percent, and an increase from foreign currency translation of zero point seven percent. 10:44 Organic sales growth in our ID Solutions business was a robust thirteen point two percent 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 eight point six percent this quarter. 11:07 If we compare our sales levels to the pre-pandemic period, which for us would be the first quarter of fiscal twenty twenty, you'll see that our total sales are up a full twelve percent over pre-pandemic levels. And if you compare sales by division, you'll see that Identification Solutions is fifteen point six percent above pre-pandemic levels and Workplace Safety is one point two percent above pre-pandemic levels. 11:35 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. 11:47 Turning to slide number five, you'll see our gross profit margin trending. Our gross profit margin was forty eight point two percent this quarter compared to forty eight point nine percent 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. 12:14 On slide number six, you will find our SG&A expense trending. SG&A was ninety six point seven million dollars this quarter compared to eighty three million dollars 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. 12:36 Amortization expense was one point four million dollars in the first quarter of last year and was three point eight million dollars in the first quarter of this year. And as a percent of sales, SG&A was thirty point one percent this quarter compared to thirty point zero percent 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 twenty nine point five percent of sales last year to twenty eight point nine percent of sales this year. 13:11 Slide number seven is the trending of our investments in research and development. This quarter, we invested thirteen point nine million dollars 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. 13:45 Slide number eight illustrates our pre-tax income trends. Pre-tax earnings increased five point eight percent on a GAAP basis and increased eleven point three percent, if you exclude amortization expense from all periods. 13:59 Slide number nine illustrates our after-tax income and EPS trends. As I mentioned, our GAAP EPS was zero point sixty seven dollars this quarter compared to zero point sixty four dollars in last year's first quarter, an increase of four point seven percent. And if you exclude the after-tax impact of amortization, our EPS would have increased by an even stronger nine point one percent. 14:21 On slide number ten, you'll find a summary of our cash generation. We generated twenty seven point five million dollars of cash flow from operating activities and free cash flow was sixteen point two million dollars 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 seven point six million dollars. 14:50 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 thirty million dollars. 15:16 Now if you'll turn to slide eleven, you can see the impact that Brady's historically strong cash generation has had on our balance sheet. Even after returning more than thirty million dollars to our shareholders in the form of dividends and buybacks, having heightened CapEx and intentionally increasing inventory levels, on October thirty one, we were still in a net cash position of more than ninety million dollars. 15:40 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. 15:59 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 -- we will absolutely keep funding these investments where it makes sense and where the investments are ROI positive. 16:27 And second, we focus on returning cash to our shareholders in the form of dividends. We've now increased our annual dividend for thirty six consecutive years, which puts us in a pretty elite group of companies. 16:41 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. 17:00 Slide number twelve summarizes our guidance for the year ending July thirty one, twenty twenty two. Our full year diluted earnings per share guidance, excluding amortization, remains unchanged at a range of three point twelve dollars to three point thirty two dollars per share. On a GAAP basis, our full year diluted EPS guidance also remains unchanged at a range of two point ninety dollars to three point ten dollars per share. 17:25 Included in our GAAP earnings per share guidance is an increase in after-tax amortization expense of approximately six million dollars. After-tax amortization increases from about five point five million dollars in fiscal twenty twenty one to about eleven point five million dollars in fiscal twenty twenty two, which is a delta of about zero point twelve dollars per share. 17:46 As we look at stagging 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. 18:05 As we move beyond the second quarter, we expect to see increased benefits from our pricing actions as well as the 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. 18:23 We also expect total sales growth to exceed twelve percent for the full year ending July thirty one, twenty twenty two which is inclusive of both organic sales growth as well as sales growth from the recently completed acquisitions. 18:39 We will continue to make the investments necessary to drive organic sales growth. We will continue to search for acquisitions that advance our strategies and we will continue to drive sustainable efficiency gains, while being tight on non-revenue generating expenses. 18:54 As for capital allocation, we'll keep investing in our organic business, we will keep investing in our industrial track and trace initiatives, we will continue to return funds to our shareholders through dividends and opportunistic buybacks. We did just buyback eighteen point nine million dollars worth of shares last quarter and we'll continue to look for acquisitions where the price is right and the strategic fit is clear. 19:18 We have a strong balance sheet and we use it as a tool to drive long term shareholder value. Potential risks to this guidance, among others, include the strengthening of the U.S. 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. 19:42 I'll now turn the call back to Michael to cover our divisional results and to provide some closing comments before the Q&A session. Michael?

19:52 Thank you, Aaron. Slide number thirteen outlines the first quarter financial results for our Identification Solutions business. IDS sales increased twenty five point four percent to two hundred and forty eight point six million dollars. This very robust sales growth is comprised of organic growth of thirteen point two percent, acquisition growth of eleven point six percent and an increase of zero point six percent from foreign currency translation. 20:20 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. 20:39 Segment profit as a percentage of sales was nineteen point six percent, which was down from twenty point three percent 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 twenty one percent of sales to twenty one point one percent of sales, so an increase of about ten basis points compared to the first quarter of last year. 21:07 Regionally, organic sales in Asia were strong this quarter with growth of over fifteen percent 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 fifteen percent 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. 21:39 We also had organic sales growth of nearly twelve percent 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 eleven percent. In general, the sales trends and ideas are very positive. 22:03 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 are 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. 22:36 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. 23:00 We continued our steady stream of new printer introductions by launching the J4300 Brady Jet Label Printer. This inkjet printer combines with Brady’s high efficiency proprietary materials to balance the safety and complexity of compliance labels with the demands of industrial environments. 23:21 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 stream of best-in-class printers plus Brady's high-performance materials that sets Brady apart from our competition. 23:45 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. 24:06 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. 24:27 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. 24:47 Moving to slide number fourteen, you will find a summary of Workplace Safety financial performance. WPS sales decline seven point eight percent, which consisted of an organic sales decline of eight point six percent and an increase from foreign currency of zero point eight percent. This sales decline was primarily driven by challenging comparables to last year's first quarter. 25:11 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 seventy two point nine million dollars this quarter, which were above the pre-pandemic sales experienced in the first quarter of fiscal twenty twenty. 25:38 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. 25:59 Our Australian business performed similarly to our European business. During the pandemic, our Australian business grew organic sales over ten percent in last year's first quarter. Looking back, the challenging comparables we were pleased with this quarter's sales volumes as they were above pre-pandemic levels. 26:21 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. 26:46 And as I alluded to earlier, we've made investments to improve certain of our lagging businesses in WPS, including our business in the U.S. that primarily serves micro businesses. We've incurred start-up costs to open a new facility in the U.S. We've invested in head count, and we're also investing in additional advertising. All in, these incremental investments were approximately two point five million dollars. 27:12 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. 27:36 Similar to our IDS business, we're taking actions to offset these cost increases. WPS' segment profit was two point three million dollars this quarter compared to eight million dollars 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. 27:58 Our WPS team members are listening to their customers to identify what they need. They are modifying their marketing campaigns to reach entirely new customers and entirely new industries and they are working hard to address underperforming businesses within the portfolio. 28:16 Our Workplace Safety business has one more quarter of moderately difficult comparables ahead of it, but we are 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. 28:34 Our 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 front-line workers all around the globe. 28:50 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 impacts stemming from the pandemic are certainly not over. Throughout the pandemic, we invested in growth and efficiencies and its continued level of investment that will enable us to keep this strong positive momentum. 29:15 Brady is in an enviable financial position. We're coming off of record EPS 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 thirty million dollars to our shareholders in the form of buybacks and dividends this quarter. 29:36 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. 29:55 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. 30:11 With that, I'd like to now start the Q&A. Operator, would you please provide instructions to our listeners?

30:20 Thank you. [Operator Instructions] Our first question comes from Michael McGinn at Wells Fargo. Your line is open.

30:37 Hey. Good morning, everybody.

30:38 Good morning, Michael.

30:42 I wanted to go -- talk about Workplace Safety for a second. So, you mentioned sales are kind of in line with those pre-COVID levels and I'm wondering, if holding the line on the Workplace Safety business those sales, is the goal versus Identification Solutions, if you strip out the acquisitions, it's materially above pre-COVID levels, is Workplace Safety core to shareholder value?

31:12 Great question, Michael. We are working hard to really change the profile of WPS in a significant and meaningful way. We are investing significantly in R&D, we're investing in in-sourcing key products, we're investing in getting closer to our customers. We believe that we have a value-add equation there that is unique in the marketplace as we execute these changes. It is going to take time. We are already down that path. We're excited about what we see from that. But this is not a quick situation and they have also been plagued more significantly than IDS, in that, A, a much larger percentage of their products are brought in, and B, a much larger percentage of their products come from Asia. So, they have a both logistical and cost pressures there. So, we absolutely see more short-term difficulties in that business, but we do believe that it is a business that overall, we can continue to provide significant shareholder value over the long term. That said, I want to be clear on all of our businesses, we evaluate our portfolio. We have in the past looked at some businesses that didn't make sense putting into our portfolio. We will continue to do that. We are very strongly cognizant of our critical need to make sure that we're always providing our shareholders with the most significant return for their investment.

32:48 Great. And then switching gears to the gross margin conversation and the chips, you mentioned being able to kind of maybe hold the line up fifty percent gross margin last quarter, not a whole lot of noise from chips and you mentioned being proactive. What change quarter-to-quarter and does this current situation alleviate or does it push you to make more of an eighty, twenty portfolio pruning approach to you need to sunset some legacy products here to kind of make way for the newer product suites?

33:22 It's excellent. Things are changing rapidly. I'm sure you're hearing that across the board. We have very good connections throughout all industrial business space and we know that what we're dealing with is certainly not unique. But the challenges of logistics, as I mentioned last quarter, I believe hopefully I did, I'd have to go back and listen to the tape. We do think will last for eighteen to twenty four months, that is not a guarantee of timing, but it is our latest belief and our continued latest belief on how this will impact things. 34:01 What that means is product sets, even in IDS that are more dependent, we have those on Asian imported products are dealing with much larger sourcing difficulties and also timing difficulties. We have made a lot of proactive steps. I know for a fact that in many ways we're able to service our customers better than our competition today and it is our goal to continue to do that. 34:29 But as far as pruning products, we look at that regularly. Throughout my tenure at Brady, we've pruned a number of products and continue to look at that cycle, and make sure we're offering our customers the best and the brightest. As an example, with our printers years ago when I first got here, we would allow the products to really just run to life before developing new ones. 34:52 We have an extremely strong pipeline, roadmap, and we make sure that we are always upgrading our products on a reliable basis. So, we never experienced that. So, we've created a very natural pruning process with all of our products that really look at life cycle capabilities. So, for instance, things like software upgraded, much more rapidly firmware and then hardware and we have a cadence depending on the product sets and the markets to do that. 35:25 But to be unequivocal, yes, we are taking this opportunity to look at all of our products to make sure that it's a product that still makes sense in the long-term marketplace. As you come out of a downturn like a pandemic or any other downturn or you look at our workplace changes that have come out of this, you have to be cognizant of the fact that our customers do have changing needs. And we believe a lot of our products are becoming more digital, more focused on interconnectivity re system approach, and therefore that does lead to pruning in the other direction as well.

36:00 Appreciate the time.

36:02 Thank you, sir.

36:04 Thank you. Our next question comes from Steve Ferazani of Sidoti. Your line is open.

36:12 Good morning, everyone. I did want to follow up on a question about Workplace Safety. You mentioned the two point five million dollars of investments in the quarter. But, those sound like more like expected ongoing costs every quarter. So, it sounds like to get your margins back to pre-COVID levels, you're going to have to get revenue up substantially?

36:38 Steve, those are actually one-time costs. Those are absolutely one-time costs. We are careful and as you know, through our history and your knowledge of our history, we are very careful not to bucketize costs that are not one-time is one-time. In this case, the majority of those expenses, the vast majority were related to opening up a new facility that is already proving itself logistically to be tremendous help in us re-growing that business. In particular, as you know, micro businesses in the U.S. were dramatically disproportionately impacted, but we're already seeing the green shoots that I spoke about six, nine months ago that we would see. We're already seeing them from new start-ups. 37:28 The good news about having a lot of cash right now in society is that the entrepreneurial spirit in the U.S. is alive and well and we will definitely see new businesses starting up that benefit from our product sets and we've repositioned that business to be located in an area that is very advantageous to be much more successful even than we were in the past before the pandemic. So, no, those are definitely one-time costs.

37:56 Okay. Fair enough. Thanks for clarifying. In terms of clearly logistics problems will hurt, obviously, going through the 3Q conference calls we've heard this across the board that they are clearly worse than they were three months ago. You're maintaining guidance. I'm just trying to figure out, are you figuring out more work arounds, are you just getting a sense that maybe it sounds like you don't see an end to it. So, I'm just trying to figure out why maintain guidance if logistics problems are getting at least worse in the near term?

38:28 Well, just to speak more specifically about logistics, they vary by business, by percentage of imported products, by location. So, let me give you an example. In Australia, everything -- not everything, but we certainly import from Europe, the U.S., and Asia significantly larger amount of products than we do from other locations. Their logistics, their shipping costs, things like that are up incredibly. Even cross-country in Australia, the shipping costs are up large amounts. 39:03 Historically, as I've told you in the past, I believe last quarter, I can count on two percent is the shipping cost number throughout -- most of my history in international businesses and it is way up depending on the business above that. So, those are not going to go away. We definitely see those continuing to be impacted. Obviously, fuel rates things like that will change things, but we are anticipating that our cost remain up for an extensive period of time. 39:33 In addition, suppliers are having lots of different pressures from labor inflation to core material cost inflation that they are in some cases passing on more or less aggressively and we are certainly very aggressive about making sure we have a cost effective and significantly positive supply base, but we don't see that going away. 40:02 And so where we're pushing is on things like automation we're excelling. I think that you are aware we just introduced and literally are just almost fully completely functional on our inventory storage system in our major North American distribution center. This is both a way to rapidly increase our ability to be productive, but also to significantly reduce our costs. 40:34 We're able to get products out to our customers quicker and a higher quality rate because of this, but also less dependent on labor that is difficult to find and the costs are increasing. So, our automation efforts from that to our machinery equipment, they are all really -- many of them are coming to fruition that we were working on before the pandemic started. So, I believe we're ahead of lot of our competition, but we continue to invest in that area as well. 41:01 And then the last lever that is very significant is, we look at the value of our products to our customers, the costs that we face and we go to them, understanding that they are facing challenges as well and make sure that our prices are aligned with what the value we provide is and are increasing those across the board, but relative each product set. 41:27 We are not a peanut butter type of company, we're not a peanut butter approach, we're looking at all the value statements we provide and driving our prices based on that. So those levers we are working on very hard. Our teams are very resourceful. Without getting into specifics, I literally heard a brilliant idea yesterday that will provide great product for our customer at the same price, but greatly reduce our cost structure on it. 41:54 So we've got a lot going on in that area. So, we are confident that although, we've told you the second quarter is still going to be a challenge, that the third and fourth quarters we see a definite road map to our future as we projected.

42:10 Great. Thanks, Michael. Appreciate the time.

42:13 Thank you, sir. Appreciate your time.

42:15 Thank you. [Operator Instructions] Our next question comes from Keith Housum of Northcoast Research. Your line is open.

42:24 Good morning, guys. Michael, just kind of elaborating on the previous conversation here, does it sound like this quarter or perhaps the second quarter will be like a low point of your cost of -- your margin pressures and you perhaps have a little visibility or line of visibility into it creeping back up?

42:44 Yeah, Keith. I think our biggest opportunity set is in regard to revenue. I really feel very good about our ability to continue to drive our revenue. I don't have a perfect crystal ball. I know I've used that analogy with you in years' past. I don't have a perfect crystal ball, but what I do know is that we're pulling all the right levers to accomplish that goal. 43:10 I'm not going to give you a perfect prognosis of, hey, our margins are going to be X, Y, and Z by the third or fourth quarter. But I think in combination with revenue increases and really improving pricing and improving our cost structure and our logistics structure, I do feel confident that we'll be able to continue down the path that we're on for the guidance we've given.

43:38 Okay. And you referenced some challenges getting some products in the door as well, some challenges hiring the right amount people. Is there a sense that you lost out on some revenue during the quarter because of those challenges or do you got it done just costing more to get it done?

43:53 Yes and yes. It's definitely cost a lot more. Without giving specific products, we've been air shipping products we never shipped before. I can also tell you, some of those products are now on ships in addition to air shipping. So, we are -- there were some key products we absolutely needed to get to our customers. 44:15 Our first goal is to get them to our customers even though the cost may not be what we want, but we want to get them to our customers. And so, we did do that with a lot of air shipping. We currently do have some of those key products on ships again, thank goodness, but what that means is, we were able to get ahead of the curve and produce enough extra that we could still keep shipping by air, but put a bunch on ships. So, that is absolutely true in that regard. We definitely moved the first and foremost. 44:50 Now, did we ship everything we wanted to ship? No, we didn't. But I will tell you, I was personally amazed at the Herculean effort at some of our factories to close out October, Amazed. It was a tremendous effort and it made me literally just proud of all our people of how hard they work, how driven they were. 45:15 We've got a very motivated team and they have a lot of pride. They have a lot of pride in getting to our customers what they need and they don't want to let them down. And so, although we did leave some material on the shelf and some material in the system, we really closed the gap in a very significant way.

45:37 Okay. And then the final question from me, you referenced price increases going into effect. Can you provide a little bit of color in terms of the end markets which just price increases you will be going toward and you guys raise your prices on a regular cycle, so just want to confirm is this off-cycle in IDS, WPS, and Crafts, any color on the amount that you're being forced to raise prices?

46:01 Well, first of all, I don't say across the board because we don't peanut butter spread, but the truth is, there is some level of price increase across the board. It just isn't -- we're not putting in place X, Y, Z percent across the board and the timing does vary, Keith. We have contracts, we have agreements, we need to interact with our customers. We treat our customers with a lot of respect. We care about them tremendously. But at the same time, to your point, we have to pass on the value that we create in price increases to them as we're dealing with those pressures. 46:37 Timing, we do have off-cycle increases, we do have on-cycle increases. We are overall raising our prices more than we have in the historical past as our most industrial companies right now. So, overall, I'd say this, yes, off-cycle increases, yes, on-cycle increases and larger increases. But it does absolutely vary by product set and the cost pressures that we're facing in the cost -- product set. 47:06 You also mentioned regions, that's also true on regions. We're raising prices effectively in all regions, but those price increase timing and amounts do vary by region, by customer, by product set. So, yes, this is a significant effort for Brady right now. As I guarantee and I talked to a lot of people, it is for almost all organizations.

47:34 Yeah. All right. Thanks, Michael. Good luck.

47:37 Thank you, sir. Have a great one. Thanks, Keith.

47:40 Thank you. Our next question comes from Michael McGinn of Wells Fargo. Your line is open.

47:45 Hey. Thanks for the follow-up. I was wondering, if you had a sense of how lean you think the distribution channel is, how much room there still is to restock and what kind of percentage of your total business that represents?

48:00 Well, I apologize, I may not have heard the question perfectly. I'm not sure that was on the slide. But I think what you're asking me, I will say this, we are not seeing significant stock-ups by the distribution channel and that's good news, in that, I do eventually expect an economic boomerang from stocking up, but we are definitely not seeing it right now with our partners, our distributor partners. 48:29 Little harder to tell with our end users, but if you look at society overall and what's happening and I think we probably are seeing some of that. But it's a little harder to tell. But better that I know that it isn't definitely happening right now with our distributor partners. And so therefore, I’m optimistic that volumes will continue to go up in the near future. 48:54 What happens at the end as things untangle from this is yet to be seen. But I would expect, not for us, but for a general economic pullback as there is more inventory and you know this from all the numbers in the system overall than there historically has been.

49:18 Great. Then switching gears to the geopolitical front, trade talks have seemingly resumed and we now have an infrastructure framework. Any overall commentary on where you see yourself benefiting in infrastructure and then on the trade, any kind of benchmarks you that the percentage of total imports of your business is?

49:45 Well, I'd tell you this, first about we love anything related to infrastructure. We believe we provide products that are critical for the world infrastructure, not just the U.S., but in your particular case, the question. The U.S. is so yes, we do definitely see some very positive construction. We do very well in the construction industry, as a result of the safety needs, identification needs of that industry, their need for high quality, high durability. So, we are excited about that. Obviously, that's going to take some time and the whole construction industry is still tangled up right now. 50:25 So you know, if you're – I’ve been analogy, which is probably myth, but Napoleon lost the war for a lack of a nail, in horseshoe in our horse on a cannon in the Battle of Waterloo. So, that is what I believe the construction industry is facing right now. If you go through a lot of areas in that way buildings are being finished because of literally one or two critical elements. And so, I do think that's going to take a little while to untangle that will impact the rolling out of the infrastructure money, as far as getting to us. But you know what the great news, because we're towards the end of that cycle, typically, the great news is, it will come typically. The great news is it will come. And when it does come that will definitely help Brady. 51:14 Now, let's talk about trade barriers and all of that, we -- it's interesting, everything from automation to developing new products for the next generation to forward to in-sourcing, to forward deploying our products. We've been working on for about five years now, ahead of a lot of companies are just now realizing that's the direction the world is going. By the way, because of the pandemic, so I'm not going to say, I foretold the pandemic, we absolutely did not. No idea. But we were believe -- we believe we were intelligently moving in the direction of the world would have to eventually go. It just happened to be fortuitous. And I don't want to take advantage of a bad situation, but the reality is that we have been positioned proactively for that. 52:02 Why am I saying that because we have forward deployed a lot of resources as close to our customers as possible, as in company – country’s possible. So let me give you an example that's not directly related to trade barriers in the very recent, but the Brexit issue, we have plants and some capabilities all throughout the UK that are really going to and already benefiting from the need to in-source into the UK more products. And that can be said for France and Germany, the Benelux areas, the U.S. China, India, I mean, again and again we are adding resources that we've had in the works in facilities and people to new countries and new regions. 52:48 So, I believe our footprint forward deploying as much as possible to be as reactive, positively reactive to our customers as possible is also going to benefit from this new barrier-oriented mentality. We did it for our customers. We did it for responsiveness. We did it to make sure we always have the products where we need win, but as a result, we fortuitously are going to benefit from this as well.

53:18 Understood. Appreciate the time.

53:20 Thank you, sir. Appreciate your time.

53:24 Thank you. I'm showing no further questions at this time. I’d like to turn the call back over to Michael Nauman for any closing results -- remarks.

53:31 Thank you so much. I'd like to leave you with a few concluding comments this morning. The COVID-19 pandemic has certainly entered a new phase. In this phase, we're seeing stress supply chains, increased input costs, labor shortages and overall increased inflation. We're working through this effectively, but we are experiencing some short-term margin compression. 53:56 I don't know what the future holds for the global economy, but I do know that Brady is well positioned to thrive regardless of which direction the economy heads. We have a strong balance sheet. We're prioritizing investments for growth and we have a never-ending focus on cash generation. 54:14 As a result, we're seeing strong sales growth at once our pricing and efficiency initiatives catch up to the cost inflation, our strong sales growth and improved gross profit margins will drive significant bottom-line growth. 54:31 On a final note, I would like to wish a very special Happy Birthday to our own Ann Thornton here at Brady. It is her birthday today. I'm not allowed to say which one, but happy birthday and from all of your friends at Brady, please stay safe. Thank you for your time this morning. Have a great day. Operator, you may disconnect the call.

54:55 Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.