Brady Corporation (BRC) Q1 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2018 Brady Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today's program is being recorded. And now, I would like to introduce your host for today’s program Ann Thornton, Chief Accounting Officer. Please go ahead.

Good morning and welcome to the Brady Corporation fiscal 2018 first quarter earnings conference call. The slides for this morning's call are located on our website at www.bradycorp.com. We will begin our prepared remarks on Slide 3. Please note that during the 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 2017 Form 10-K, which was filed with the SEC in September of this year. Also, please note that this teleconference is copyrighted by Brady Corporation and may not be rebroadcast without the consent of Brady. We will be recording this call and broadcasting it on the Internet. As such, your participation in the Q&A session will constitute your consent to being recorded. I’ll now turn the call over to Brady's President and Chief Executive Officer, Michael Nauman.

Thank you, Ann. Good morning, and thank you all for joining us. We released our fiscal 2018 first quarter financial results this morning and I am pleased to report our ninth consecutive quarter of improved year-on-year profitability, total sales growth of 3.6% and organic sales growth of 1.7%. We increased net earnings by 14.6% compared to the first quarter of last year and diluted earnings per share increased 11.4% to $0.49. These improvements are direct result of our focus on serving our customers extremely well, developing high quality innovative products, driving efficiency throughout our global operations, streaming our SG&A structure and strengthening our culture of innovation and local ownership. We make sure that every decision we make appropriately balances the long-term and the short-term that our efficiency actions are sustainable and that we're investing in our future. This focus is demonstrated by our increased investments in research and development. R&D expenses were up 15% this quarter and we are excited about the new products and update we've had in the pipeline for this fiscal year and beyond. Our ID Solutions business continues to perform well, posting a total sales increase of 4.2% which consisted of organic sales growth of 2.9% and 1.3% benefit from currency. ID Solutions was led by our EMEA and Asian regions. Overall, IDS is posting solid organic sales growth, increasing its investments in innovation, and improving its customers buying experience which is all leading to increased profitability. In our Workplace Safety business, we realized the total sales increase of 1.9% which included a 3.3% benefit from currency and a 1.4% organic sales decline. We are seeing positive developments in our North American business and we are confident we are taking the right steps to return this business to growth. Our European WPS business continues to deliver organic sales growth as this marks our 15 consecutive quarter of organic growth on a per day basis. This leadership team continues to execute our strategy of providing industry-leading expertise to our customers while managing the shift from catalog to digital. Pricing pressures remain challenging in this business, but we are managing this by increasing the value we provide to our customers through our industry-leading expertise, offering more customized and proprietary solutions in the identification of Workplace Safety spaces, delivering excellent customer service, and improving our customers buying experience by building websites with the newest e-commerce platforms. We believe that these actions will enable us to deliver more value to our customers and increase sales of proprietary products that solve our customers unique challenges. We are making meaningful progress in growing organic sales and driving sustainable efficiencies throughout the entire organization. This is resulting in the achievement of our financial goals. For the longer-term, we have been renewing our focus on innovation and developing new creative ideas and solutions that our customers value. We continue to make the investments today that will ensure our long-term success. Our proprietaries for the rest of the fiscal years are consistent. We'll continue to serve our customers extremely well, developed high quality innovative products that solve our customers’ problems, drive efficiencies in every function of the business and improve our underperforming businesses. The key to our long-term success is to organic sales growth and we believe we're making the right investments today for consistent organic sales growth, which will accelerate bottom line profitability and cash generation over the long-term. I'll now turn the call over to Aaron to discuss our financial results for the fiscal quarter. I’ll then be back to provide specific commentary about our Identification Solutions and Workplace Safety businesses. Aaron?

Thank you, Michael, and good morning, everyone. The financial review starts on Slide number 3. Total sales increased 3.6% to $290.2 million in the first quarter, which consisted of organic sales growth of 1.7% and an increase of 1.9% due to foreign currency translation. As Michael mentioned, we’re heavily focused on driving efficiencies throughout the entire company. At the same time, we're investing in the development of innovative new products. Our investment in R&D was $10.5 million this quarter, up 15% over the first quarter of last year. Net earnings increased 14.6% to finish a $25.8 million this quarter, compared to $22.6 million last year. Diluted EPS increased 11.4%, finishing at $0.49 per share, and our cash generation continues to be strong as cash flow from operating activities was 134% of net earnings this quarter. Q1 represents a nice start to the year as organic sales are trending up and we're investing in our future by increasing our R&D efforts. All while staying focused on driving sustainable efficiency gains throughout the organization. On Slide number 4, you'll find a summary of our quarterly sales trends. As I mentioned, total sales grew 3.6% and organic sales were up 1.7%. We've now posted two consecutive quarters of organic sales growth and working to execute our strategy to continue this momentum and drive consistent organic growth for the rest of the fiscal year. Moving on Slide number 5 is an overview of our gross profit margin trending. Our gross profit margin was 50.3% this quarter, which was up slightly from the first quarter of last year. Strong performance in our identification solutions business along with efficiency gains throughout our global operations are more than offsetting pricing challenges in certain product categories. On Slide number 6, you'll find the trending of our SG&A expense. SG&A was $100.1 million this quarter, compared to $98 million in the first quarter of last year. This increase was primarily due to foreign currency translation along with investments in selling resources in certain businesses. We continue to remain diligent on delivering efficiencies throughout our SG&A structure, so that our increasing revenues can help fund our long-term growth initiatives will also delivering accelerated bottom line growth. Slide number 7 illustrates our increasing investments in R&D. As you can see there's been an increase in both the R&D as a percent of sales and in absolute dollars. We believe that a steady stream of highly innovative proprietary products that add significant value to our customers is critical to our long-term success. Again R&D was up 15% this quarter and we expect to see increased spending throughout the balance of this fiscal year with our full-year F 2018 R&D expense expected to be up 10% when compared to fiscal 2017. Slide number 8 details our diluted earnings per share, which was up 11.4% finishing at $0.49 this quarter, compared to diluted EPS of $0.44 in the first quarter of last year. Turning to Slide number 9, you'll find a summary of our cash generation. We generated $34.7 million of cash flow from operating activities this quarter, which equates to 134% of net earnings. This compares to $34 million in last year's first quarter. We continue to approach each decision with cash focused mindset and expect to consistently generate free cash flow in excess of net earnings. Side number 10 shows the trending of our net cash position as well as a summary of our debt structure at the end of the quarter. At October 31, we were in a net cash position of $47.7 million compared to a net debt position of $49.7 million at this time last year. As we look at deploying our cash, our capital allocation approach is disciplined and patient. First, we use our cash to fund organic growth opportunities throughout the cycle, which includes funding investments in new product development, IT improvements, capability enhancing, capital expenditures, et cetera. Second, we focus on returning cash to our shareholders in the form of dividends, which we've consistently increased every year since going public. After funding organic growth investments and dividends, we've been patiently deploy our cash in a disciplined manner for acquisitions where we believe we have strong synergistic opportunities. And we'll use our cash to improve shareholder returns through opportunistic share purchases. We currently have two million shares authorized for repurchase. Overall, our cash generation is strong. Our balance sheet is strong and we are focused on driving long-term value to our shareholders through a disciplined allocation of capital. Slide number 11, summarizes our guidance for the full fiscal year ending July 31, 2018. Our full-year diluted earnings per share guidance remain unchanged at $1.85 to $1.95. Included in our F 2018 guidance is low single-digit organic sales growth, which will be driven by the ID Solutions business. Our guidance is based on foreign currency exchange rates as of October 31, 2017, which should be a slight tailwind for the full fiscal year. Incorporated into our full-year guidance is an increase in R&D investments of approximately 10% compared to fiscal 2017 and an income tax rate in our historical range of 27% to 29%. Offsetting the investment in R&D are ongoing efficiency gains in our manufacturing facilities and in our SG&A functions. We will continue to invest in sales generating resources, while tackling the back end processes within our selling functions with a goal of improving every customers buying experience, while providing a more cost effective delivery model. We will also stay focused on reducing G&A expense as we have opportunities to do additional efficiencies in our admin structures as well. Other key operating assumptions included in our guidance are unchanged with depreciation and amortization expense of approximately $26 million and capital expenditures of approximately $30 million. Included in our capital expenditure plan is approximately $10 million for the purchase of certain strategic facilities that we currently lease and the remaining $20 million is primarily for enhancements to equipment to improve our capabilities and drive efficiency gains. We are not anticipating any restructuring charges and are not excluding any one-time items from this guidance. I'll now turn the call back over to Michael to cover our divisional results and to provide some closing comments before turning the call over to Q&A. Michael?

Thank you, Aaron. Slide number 12 summarizes the identification solutions first quarter financial results. Organic sales increased 2.9% and foreign currency translation increased sales by 1.3%. In total IDS sales increased by 4.2% finishing at $209.7 million this quarter. Organic sales in EMEA and Asia increased in a high single-digit, while organic sales in the Americas regions were effectively flat this quarter. Sales in Asia were led by China, which increased organically by nearly 15% compared to last year. We continue to win new projects, while driving increased sales from our existing customer base. Organic sales growth in our IDS business in EMEA continues to be driven by Western Europe. I am proud of the entire European team and their ability to consistently execute our strategy, which has resulted in increased sales on a per day basis for the last four consecutive quarters. In the Americas region of IDS, sales grew in the mid-single digits in Canada and Mexico were flat in Brazil and declined slightly in U.S. We realized growth across most of our traditional product categories with our strongest growth and our product identification and wire identification product lines. Sales growth in the U.S. industrial market was offset by decline in organic sales in our healthcare product line. We continue to face pricing pressure due to factors specific to the healthcare market from the consolidation of group purchasing organizations and large healthcare companies to the uncertainty presented in the legislative direction of healthcare in the U.S. We are addressing these issues through a continued investment in R&D with the specific focus on products that help our customers improve their efficiency and mitigate risk related to incorrect data and treatment errors for patients. For example, this quarter we launched a new skin marker that improves the clarity of mammogram test results at a more effective cost price point than current solutions in the marketplace. We have more product launches planned for this fiscal year that we are excited to bring to our customers to help solve their problems and drive value for their organizations and their customers. Within R&D, we continue to improve the process by which we select and develop new products. We assure that we are spending our R&D dollars efficiently and bringing more products to market on a consistent basis. We are leveraging customer insights into new product launches and update. This coming year, we will have some exciting new printers and lockout/tagout product plan that we believe will bring to our customers unique solutions that solve their problems. The IDS segment finished the first quarter with $35.8 million in segment profit which is an increase of 8.4% over the first quarter of last year. This team has consistently increased segment profit over the past two plus years which is a direct result of the focus on increasing organic sales as well as the focus on operational excellence that we've been working on since I arrived at Brady. As a percentage of sales, segment profit improved to 17.1% this quarter compared to 16.4% last year. Looking ahead to the full fiscal 2018, we expect low single-digit organic sales growth for IDS and we expect segment profit to be in the mid-to-high teens as a percentage of sales. We expect to continue to incur additional expenses from our investments in R&D, while efficiency activities in our facilities and throughout our SG&A structure should continue to provide benefits that will more than offset our innovation investments allowing us to continue our trend of strong financial performance. Turning to Slide number 13, you’ll find our Workplace Safety review. Sales increased by 1.9% which consisted of organic sales decline of 1.4% and an increase from foreign currency translation of 3.3%. When looking at our WPS business, we have two regions that performed well, Europe and Australia. Our third region North America which is just under 35% of the total WPS segment revenue is where we struggled, but we are definitely improving. Organic sales increased in the low-single digits in our European business this quarter, continuing the trend of low-to-mid single-digit organic sales per day growth that we've maintained for 15 consecutive quarters. In Europe, one of the major drivers of this growth is online sales, which increased in the high-single digits this quarter and now makes up more than 20% of total sales in the region. Our business leaders in Europe continue to deliver on their strategy and grow sales especially through the digital channel. We face pricing pressures in Europe just as we do in North America, but we've been able to make up for these challenges through operational efficiency, gains and improvement in our SG&A cost structure as well as to partnering with our customers to fully understand their needs and providing a set of complete solutions for them. Our Australian business increased sales in the low-single digits this quarter. We're seeing progress from that drive to bring our diverse product offering to many different industries in Australia, while reducing our cost structure to improve profitability in this business. Australia has now increased organic sales per day for four consecutive quarters. Organic sales in North America WPS business declined in the mid-single digits, but showed improvement as the rate of decline slowed throughout the quarter. Our average order sizes increased and sales of our more proprietary product offerings improved. Digital sales continue to increase and grew in the high-single digits over the first quarter of last year, but this is not been enough yet to overcome the decline in catalog sales and return the business to sales growth. Pricing pressures continue to impact this business and are compressing margins in our less proprietary product offerings. We are continuing to take action to return the WPS business to grow through three priorities. First, we are working to improve the buying experience for our customers, so that it’s as simple as possible. Building our mobile presence remains essential to delivering on this aspect of our strategy. We must position ourselves to capture the shift to mobile as it continues to occur. Our mobile sales are still a relatively small portion of our overall sales, but sales in mobile devices are increasing every month due to the improved capabilities of these sites. Second, we are increasing our customer interaction to provide more value than simply fulfilling orders. This allows us to understand what our customers are dealing with from a safety and identification standpoint and to better serve those needs by offering our compliance expertise and complete solution. Third, one of our strength is our ability to customize and quickly turn orders around to our customers. So we are improving our portfolio of products by increasing more customized and proprietary products and services that our customers value. Meanwhile, we've continued to address our cost structure not only in the North American business, but globally throughout the entire WPS segment. To compete effectively, we need to ensure that our processes are streamlined to reduce the cost to process orders as well as reducing our structural costs. First quarter segment profit in the WPS business was $6.4 million compared to $6.5 million in last year's first quarter. As a percentage of sales, segment profit was 8% this quarter compared to 8.2% in last year's first quarter. The decrease in segment’s profit and profitability was due to the decrease in sales volume this quarter, but we continue to take actions to address our cost structure and take advantage of efficiency opportunities. For the full-year, we expect the global WPS business will have approximately flat organic sales and that segment profit will continue to be in the high single-digits as a percentage of sales. Fiscal 2018 is off to a good start, but we definitely have more work ahead of us. We need to turn around our underperforming businesses and we must continue to drive operational excellence throughout our organization. We expect to continue to face pricing pressures in both the WPS business as well as our healthcare product line this year, which means that we must keep our innovation engine running and to launch new products in efficient and effective manner in order to drive sales growth. We've improved our operations and we continue to push decision making further into the organization, which is resulted in increased ownership and accountability at every one of our global businesses. We’re simplifying organizational structure and are constantly working to eliminate non-value added activities that are not a part of new product development and manufacturing our products or directly in support of those efforts. I'm pleased with our progress and our start in fiscal 2018, but we have to keep pushing for more as an organization. The future is bright for Brady and the entire Brady team is excited and motivated to exceed our goals and to continue deliver improved results for our shareholders. I would now like to start the Q&A. Operator, would you please provide instructions to our listeners.

Certainly [Operator Instructions] Our first question comes from the line of Joe Mondillo from Sidoti & Company. Your question please.

Hi, good morning, guys.

Good morning, Joe.

Good morning.

So my first question just related to capital description. I understand you continue to maintain sort of this “discipline and patient approach”. But I'm just wondering sort of long-term if we continue going on this rate, we had a very loss the net cash position. So long-term, just wondering what sort of your vision is? Whether acquisitions start to come into the picture? Diluted share count continues to climb up over the last several quarters? Can we mitigate that with share repurchases in the meantime just can you talk about maybe evolving the approach over the next couple years?

Sure, Joe. If we look at our philosophy, it isn't changing. However, as you know having followed us for a long time, we came from a position, years ago before I got here, of regular volume acquisitions, particularly competitors in market share acquisitions. We fundamentally don't believe that is the best way to develop a high powered growth engine with high profitability. I fundamentally believe rather that as we look at acquisitions we need to think about them as an opportunity for us to bring key technology into the corporation that we can develop in a timely and cost effective manner ourselves. Those acquisitions need to be positive both for the people we are acquiring and for our organization and really I always like to say one plus one really does need to equal three. And I know a lot of people will say that, but in the result, it really needs to be from adding something that the company truly doesn't have that will really continue to help us be a differentiating presence in the marketplace. So yes, we absolutely will be acquiring in the future but of the technology base we are not setting any expectations for dollars of acquisitions per year, what we are expecting within our organization is to make sure that we are internally very knowledgeable of the technology roadmaps where we need to head – what we need to acquire and that we work with companies that we believe would be great fits, so that when there is a good time for them and for us that we can quickly and effectively acquire them in a very positive manner. What that does mean though is that we are looking at temporary issues as much as we're looking at the long-term for our acquisition based. That doesn't mean we will acquire in the near to mid future, it does mean if we don't it's because the opportunities aren't there that we are already targeting and looking at. Now let’s talk about stock repurchase as an example. Our philosophy once again hasn't changed in that we do not believe in program buys. We do believe that there are price points that when the market has a significant disconnect with the intrinsic value as we see it that we will move into the market. And as you know since my tenure we have done that. But as you know up to the reporting cycle, we certainly haven't done that in recently that reflects what we believe is a good connection in the marketplace and not a necessarily disconnect, but we do stay actively aware of the price and our values and we want to make sure as a result of any buybacks that we continue to return to our shareholders outsized gains. As far as our third factor that we work with, I mentioned is dividends. We're quite proud that we've increased those 32 years in a row, literally ever since we became public. And that is something that we keep in mind as we look each year at our dividend approach and whether we want to increase them or not. I am quite excited about our future. I'd like to say very few companies today are positioned in the strength position we are and that will allow us to make key decisions at the right time to really drive true differentiating value to our shareholders. That flexibility and that power will give us an amazing opportunity, not just in the short-term and medium-term, but in the long-term. Thanks Joe.

Okay. I appreciate that. Just another question, I just wanted to ask about the U.S. healthcare piece of the IDS business. Just wondering sort of I think you've been seeing pressure within this business, wondering where you think we are in terms of a trend, do you think that it's going to continue to go on for a couple quarters or as it started, can you see some stabilization there? And then I know you probably won't divulge or quantify actual margins within that business, but just out of curiosity are those above segment margins or below segment margins or sort of in line?

So first of all, yes we have certainly faced challenges. We believe it's fundamentally a strong business in the long-term. It fits in our identification space quite well. One of the areas that we've really been focused on in that business, but are farther behind in the curve than we are in the other parts of IDS is developing the key new products of that segment needs and wants. We are very excited about our pipeline of products. That said, we have said, we will continue to face some pressures in that space as we said. I said in my opening comments throughout the fiscal year and really there is a major consolidation effort and a push effort within that market space as we look at both the supply channel, but also the actual end users, the hospitals themselves are continuing to consolidate. And that always provides both challenges, but opportunities. And we believe we've actually won some good opportunities, but it takes time for that revenue to develop from those. But very clearly I want to state, it's a long-term opportunity for Brady as we develop the key products as I mentioned some of them coming out that are both mitigators are risk and mitigators are cost. Those we feel are two major elements in healthcare that no matter what comes out of legislative changes will always be crucial. If we can make sure we're providing our customers and their customers with a safer, better environment, while at the same time doing at a price points that are below current solutions, it's an absolute win. As I said on the mammography that's a great example of the products that were coming out with the do both in effective manner. So I feel very good about what we're doing and why we're doing in that market space.

And any chance that you can sort of give us an idea of profitability relative to the whole segment as a whole?

Yes. Joe, this is Aaron. I can big picture anyway. First of all this business is actually very strong. It is obviously a quite profitable business as well, but the margins are below that of the IDS average. And frankly they have been since we bought them in December of 2012. So we haven't seen major changes either direction.

Okay, great. Thanks a lot. Appreciate you taking my questions.

Thanks Joe. Have a good day.

Thank you. Our next question comes from the line of Charley Brady from SunTrust Robinson Humphrey. Your question please.

Thanks. Good morning, guys.

Good morning.

Hey. Just on – can you comment a little bit more on where you're seeing the North American growth in WPS specifically?

Sure. Charley, as we take a look at WPS, we are seeing our proprietary products really being the segment that we're growing. We take a look at a lot of opportunities that we have where we can create total solutions for our customers and that's something that's a great strength. We're viewed by our customer base as experts. And I'm not saying that because we believe it, I'm saying that because that's the number one response we get from our customers is to why they do business with us and why they like working with us. They're confident that we're not just selling more product, we're helping them solve their problems, and whether it be an OSHA areas or just non-OSHA areas of compliance and safety, we are absolutely driving a solution that will make them a better, safer and more compliant organization. So if we can give a proprietary solution or more importantly a complete solution to our customers, that's where we're seeing more of our growth.

And so how much of the segment sales today are proprietary or customized products and kind of where do you see that going over the next say two to three years?

Charley, I’d say we don't break that out specifically, but we are absolutely driving more growth in that area, so we do expect and we'll expect to see that to continue to grow as a percentage of our revenue.

Okay, thanks. I know it’s in the K, under the initiatives for fiscal 2018; you had a couple changes there. What struck was performing comprehensive product reviews to optimize product offerings. That's not part of the list this year. It’s been replaced with focusing on SG&A. And I'm just wondering should we read something into that, I mean have you gone through – it sounds to me like you're still involved in looking at your product offering and optimizing that, I am just curious as to why maybe that's not listed as an 2018 priority anymore?

I wouldn't read anything into that. I think we take parts of our organization and we will create a large global focus once we believe it is part of our DNA, we expect to continue to drive those areas. We do that in a lot of our metrics and expectations. That's an area where we needed a major shift in philosophy and structure. That shift has taken place, but to be clear, we expect it to continue as part of our regular cadence to take place within the normal functions of the businesses.

Thanks. I appreciate it.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Mig Dobre from Baird. Your question please.

Good morning, everyone. It’s Joe Grabowski on for Mig this morning.

Good morning, Joe.

Good morning. Just jumping back to Workplace Safety, kind of big picture, I guess the guidance for the year is flattish. Q1 was down 1.4%. That was kind of similar to the decline last year. So I guess kind of two questions, first of all, if you can tell us how did Q1 compare to your internal expectations, where you expect them to be down a little bit? And then again kind of big picture, what surpass the flattish? What has to improve and I assume part of that path required North America to continue to improve?

So Joe, as you heard in my comments, we’re extremely pleased with our European and Australian businesses. So to hit that path to flattish, we do expect them to continue their strong performance and that is not just a strong short-term performance. They've shown consistently that they're performing very well as organization. So we have every confidence based not only on their history, but more importantly on the products and the efforts are putting forth in marketing and in really positioning themselves that that will continue. So that's a key criteria, but one that we are very confident. So the third leg of that stool, the North American business, we did end up performing about what we expected for the quarter and we actually performed in the way that we expected and that we improved throughout the quarter and that leads us that confidence that the trajectory were on is the correct one, the approaches we're making in the market space are the correct ones and we see through the quarter indications that the path we've outlined for the year will get us to the point there where the entire business will be flat for the year.

Great, okay and then switching ideas, growth in Europe was up high single-digit. I believe the last quarter that was up low single-digits. Could you just talk a little more about what’s driving the acceleration and how sustainable it is in Europe?

We have excellent product releases throughout the globe. Europe doesn't have the healthcare mix that North America has. So that's the difference that you're really going to see in the business. They certainly are a strong team, 15 great quarters of success. We continue to see that in the future, but fundamentally we're offering products that our customers really need and want and that’s accelerating both many of our printer type products, but then the consumables that we value and they value continue to grow as a result of our printer platform strong as well. That said, that's happening in North America in that space as well. But as I said, we don't have the offset from healthcare.

Okay, that makes sense. And then final question for me, SG&A as a percent of sales were down 50 basis points, that was somewhat less than a prior few quarters and they were up in a dollar basis. You mentioned investments in additional sales generating activities. I was hoping you could elaborate on what those investments were?

Yes. I can handle that one. As we look at our SG&A, well first of all, we were up versus last year. The biggest driver of that was foreign currency. So it went from $98 million to $100 million and vast majority was foreign currency. And when we talk about investing in sales generating activities, we are effectively talking about people. So we're talking about additional marketing folks. We're talking about additional sales folks, and it's really all across the Board. So that's really what it comes down to.

And it's proportional to our sales growth in those businesses. We have a strategy for the number of sales people we have in addressable regions and we are pretty well marching exactly along that strategy.

Got it. Okay. Thanks for taking the questions.

Thank you. End of Q&A

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Michael Nauman, President and CEO. Please go ahead sir.

Thank you. I'd like to leave you with a few concluding comments this morning. We’ve had a solid start to fiscal 2018. We continue to grow sales organically in our IDS businesses and WPS is steadily improving. We're making up for pricing pressure to efficiency gains and our manufacturing processes and we're continuing to identify opportunities for savings in our SG&A structure. All of this while continuing to increase our investment in R&D by 15% this quarter and growing our pipeline of innovative new products that add value to our customers and make a standout from our competition. We're continuing to focus on improving the businesses that are not meeting our expectations, which includes our WPS business in North America and we're starting to see improvement. The entire team is focused on identifying efficiency opportunities. We're thinking long-term, but acting short-term to set ourselves up for increased organic sales and achieving permanent sustainable cost reductions. For folks who are developing innovative new products, providing the highest level customer service, driving local ownership and accountability and consistently pushing for efficiency throughout the company, we're creating a winning culture that will enable us to achieve our goals and deliver consistently improved results for our shareholders for years to come. As always, if you have questions, please contact us. Thank you all for participating today and have a great day. Operator, you can disconnect the call.

Certainly. And thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.