WD-40 Company

Ladies and gentlemen, thanks for standing by. Good day and welcome to the WD-40 Company fourth quarter and full fiscal year 2020 earnings conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. At the end of the prepared remarks, we will conduct a question and answer session. To register to ask a question at any time during this call, please press star 1 on your telephone keypad. please make sure your mute function is turned off to allow your signal to reach our equipment. If at any time during the conference you need to reach an operator, please press star zero on your telephone keypad. I would now like to turn the presentation over to your host for today's call, Ms. Wendy Kelly, Director of Investor Relations and Corporate Communications. Please proceed.

Thank you. Good afternoon and thanks to everyone for joining us today. On our call today are WD-40 Company's Chairman and Chief Executive Officer, Gary Ridge, Vice President and Chief Financial Officer, Jay Rembolt, and President and Chief Operating Officer, Steve Brass. In addition to the financial information presented on today's call, we encourage investors to review our earnings presentation, earnings press release, and Form 10-K for the period ending August 31, 2020. These documents are or will be available on our investor relations website at investor.wd40company.com. A replay and transcript of today's call will also be made available at that location shortly after this call. On today's call, we will discuss certain non-GAAP measures. The descriptions and reconciliations of these non-GAAP measures are available in our SEC filings as well as our earnings presentations. As a reminder, today's call includes forward-looking statements about our expectations for the company's future performance. Of course, actual results could differ materially. The company's expectations, beliefs, and projections are expressed in good faith, but there can be no assurance that they will be achieved or accomplished. Please refer to the risk factors detailed in our SEC filings for further discussion. Finally, for anyone listening to a webcast replay or reviewing a written transcript of this call, please note that all information presented is current only as of today's date, October 20th, 2020. The company disclaims any duty or obligation to update any forward-looking information, whether as a result of new information, future events, or otherwise. With that, I'd now like to turn the call over to Gary.

Thank you, Wendy. G'day and thanks for joining us for today's conference call. Jay, Steve, Wendy and I are once again dialing in from our respective homes. We hope that you and your families are staying safe and healthy in these challenging times. Today we reported net sales of $111.6 million for the fourth quarter of fiscal year 2020, up 5% compared to the fourth quarter of last year. Translation of our foreign subsidiary results from their functional currencies to the US dollar did not have a meaningful impact on the sales in the fourth quarter. For the full fiscal year, net sales were $408.5 million down 4% compared to fiscal year 2019. Translation of our foreign subsidiaries results from their functional currencies to the US dollar had an unfavorable impact on sales in the full fiscal year. On a constant currency basis, net sales would have only declined 2% for the full year. In a few moments, Steve will share with you the drivers of the revenue growth we experienced in the fourth quarter, as well as some of the challenges we encountered. But first, I want to take a moment to thank our tribe for their resilience and determination during these unprecedented times. The results we are reporting today are a testimonial to the wonderful work our tribe is doing. Thank you for working hard to ensure that customer orders are obtained, production lines are functioning, orders are fulfilled, and customers and end users are getting the products they need. I think it's remarkable that with 90 per cent of our tribe working from home, we were still able to deliver these results. For the purpose of this call, after discussing our strategic initiatives, we will focus primarily on the financial and operating results for the fourth quarter of fiscal year 2020. For a complete discussion of our full year results for 2020, please refer to the press release we issued earlier today and our annual report on Form 10-K, which we expect to file on Wednesday, October 21st. Now let's start with the discussion about our strategic initiatives and the brands that support them. In March 2020, we were traveling down a highway on our way to a destination. That destination was to drive consolidated net sales to approximately 700 million. At that time, we had a reasonable understanding regarding when we might arrive at the destination and had shared our probably wrong and roughly right target of the end of 2025 investors on several occasions. However, when the pandemic hit, we were diverted off the highway and put into a parking lot. In the fourth quarter of fiscal 2020, things seemed to start moving again, and we were able to make our way out of the parking lot and back onto that highway. The destination is still very clear to us. Unfortunately, the GPS is telling us there may be some traffic jams in between us and our destination. Here's the good news. While we've been parked, we've taken considerable time to stabilize, secure, and reset our business so that we can thrive in the future. Our growth aspirations to drive consolidated net sales to approximately 700 million, and now we have become even more laser focused on how we will achieve that target. However, Because of the uncertain global economy and the traffic jams we expect to encounter due to the pandemic, the timing as to when we will arrive at our destination is still unclear. What is not unclear is our confidence in our tribe and the brands that are going to get us there. They are WD-40 multi-use product, WD-40 specialist, 3-in-1, WD-40 bike, GT85, 1001, Spot Shot, Solvol, Larva and Noteback. These brands are our core strategic focus and the primary growth engine for our company. Now, strategic initiative number one, grow WD-40 multi-use product. Our goal under this initiative is to make the blue and yellow can with a little red top available to more people in more places who will find more uses more often. We aspire to grow WD-40 multi-use product to approximately 530 million. In the fourth quarter, sales of WD-40 multi-use product were 81.2 million, up nearly 1% compared to last year. Despite the appearance of this top line number, we had very strong growth of WD-40 multi-use product at many regions, including the United States, where we saw 16% growth, the United Kingdom, where we saw 21% growth, our European direct markets, where we saw 36% growth, and Canada, where we saw 20% growth. All this growth was driven by demand linked to renovation trends associated with the pandemic, or what we are calling isolation renovation. It seems that the more time people spend isolated in their homes, the more time and money they spend making their home improvements. Research suggests that they are both making these improvements themselves and hiring tradesmen. Additionally, in all the markets where we've seen strong growth in the fourth quarter, we have been easy to buy, like in e-commerce and in certain countries and trade channels, that have been fully operational since the pandemic closures earlier this year came to an end. To the contrary, in less developed markets and geographies with strict movement restrictions in place and e-commerce platforms are generally less developed, our sales were challenged in the fourth quarter. Largely offsetting these increased sales were declines in sales of WD-40 multi-use product through our marketing distributor markets in Latin America, in Europe and in Asia, where we experienced double-digit declines due to the disruptions related to the global pandemic. We also experienced a significant decline in sales of WD-40 multi-use product in China, where the hardware and industrial channels continued to be significantly impacted by the pandemic through the fourth quarter. I'm also happy to share with you that we continue to make great progress with our latest innovation, SmartStraw Next Generation. Five years ago, when we started working on SmartStraw Next Generation, we did so in response to regulatory requirements from the Canadian government, which require aerosol products such as ours to be lockable. At about the same time, the demand for our first generation SmartStraw delivery system was continuing to grow. And we recognize the need to renovate that delivery system and its sourcing strategy to make it better. SmartStraw Next Generation was born in response to those needs. SmartStraw Next Generation is two delivery systems in one. It is a first of its kind lockable delivery system, which can be sold in Canada. and a traditional yet highly improved delivery system, which we will begin to sell in other markets globally in fiscal 2021. Canada is leading the way in launching SmartStraw Next Generation, and though we are still in early stages of release, preliminary data suggests that SmartStraw Next Generation is being well received by both consumers and end users in Canada. For the full fiscal year, Global net sales of WD-40 multi-use product were 304.5 million, down nearly 7% from last year. Strategic initiative number two is to grow the WD-40 specialist line. We are more excited than ever before for the future of WD-40 specialist. In the fourth quarter, sales of WD-40 specialist, 10.4 million, up 7% compared to the fourth quarter of last year. This growth was driven primarily by strong sales in our European direct markets where we saw growth of nearly 30%. Fiscal year 2020 was also the year we decided to global rebrand the WD-40 Specialist. Now, for the first time ever, WD-40 Specialist is fully leveraged with our most iconic asset, the blue and yellow can with a little red top. believe this refreshed brand will accelerate awareness and improve findability in stores. We've developed over 20 unique WD-40 Specialist formulas since the product line's inception in 2011, and these equate to over 30 uniquely labeled products available around the world. WD-40 Specialist contributed $36.8 million in sales during fiscal year 2020, up nearly 4% from last year. This continues to move the company towards its goal for this initiative, growing the product line to approximately $100 million in revenue. Strategic initiative number three, broaden product and revenue base. Strategic initiative number three includes maintenance products like 3-in-1, WD-40 bike, and GT85, but also includes home care brands such as SpotShot and Lava in the Americas, 1001 in EMA and NOVA and Solvol in Asia Pacific. We believe we are on track to reach a combined revenue for these products of approximately 70 million. Global sales of the products included under this initiative were 17 million in the fourth quarter, up 24% compared to last year. For the full fiscal year, net sales of products included under this initiative were 55.8 million, up 6% from last year. Our home care and cleaning products continue to benefit from increased demand as a result of the pandemic. Global sales of our home care and cleaning products were $10.9 million in the fourth quarter, up 15% compared to last year. Global sales of WD40 bike were also particularly strong in the quarter, up over 160% compared last year. to last year as people are buying and fixing up bicycles and riding them more often as a result of the pandemic. Strategic initiative number four is to attract, develop and retain outstanding tribe members. Our goal under this initiative is to attract, develop and retain talented tribe members and to grow tribe member engagement to greater than 95%. I have never been more grateful for the highly engaged tribe that we have at WD40 Company. We define tribe as a community of people with a shared purpose that help feed and defend each other. During this pandemic, we have stress tested this meaning. Most of our tribe members have spent the last seven months working from the safety of their homes, but our tribal culture has never felt more secure. The safety and the wellbeing of our tribe and their families will remain our top priority throughout the duration of this health crisis. Strategic initiative number five is operational excellence. As reflected in our company's values, our tribe never stops trying to make it better than it is today, and 2020 was no exception. Guided by our 55-30-25 business model, we found new ways to optimize resources, systems, and processes while applying rigorous commitment to quality insurance regulatory compliance, and intellectual property protection. One of the most exciting initiatives the Tribe worked on this fiscal year is related to ESG. ESG topics have been top of mind here at WD40 Company for far longer than the acronym has existed. For decades, we have been focused on doing the right thing. In the context of ESG, doing the right thing means prioritizing the well-being of employees, ensuring our products, are safe in the hands of our end users and minimising our impacts on the natural environment. Later this month, we will publish our inaugural ESG report. Investors will be able to download this report from our company website beginning October 29th. Also falling under this strategic initiative, we have recently started a project to implement a new enterprise resource planning system which will be used by our Americas Trading Block as well as certain offices in our Asia Pacific Trading Block. We will share more on this with you as the project unfolds in upcoming quarters. I will now pass the call to Steve who will discuss some of these operational highlights.