WD-40 Company

are in a listen-only mode. At the end of the prepared remarks, we will conduct a question and answer session. To register 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 0 and your on your telephone keypad i would now like to turn that presentation over to the host for today's call miss 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 companies chairman and chief executive officer gary ridge Vice President and Chief Financial Officer Jay Remboldt, 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-Q for the period ending November 30, 2020. These documents are 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 presentation. 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, that there can be no assurance that they will be achieved or accomplished. Please refer to the risk factors details 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, January 7th, 2021. 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 to Gary.

Thank you, Wendy, today, and thanks for joining us for today's conference call. Jay, Steve, Wendy, and I are once again dialing in from our respective homes. It has truly been a challenging year for the world, and we hope that you and your families are staying safe and healthy. Our tribe continues to work through the many challenges associated with the ongoing COVID-19 pandemic. However, today I'm happy to share some much needed good news with you. We market a variety of maintenance and cleaning products that have been in high demand during these extremely unusual times. This increased demand primarily came from our maintenance products and was linked to renovation trends associated with the pandemic, or what we call isolation renovation. As a result of the trend, today we reported net sales of $124.6 million for the first quarter of fiscal year 2021, up 26% compared to the first quarter of last year. This tremendous result is due to our tribe's hard work and dedication to delivering products to meet these increased consumer demands. Thank you, tribe mates, for working hard to ensure that customer orders can be fulfilled, production lines at our third-party manufacturers are functioning, and customers and end users can get the products they need. I know it hasn't been easy, but I am grateful for each one of you. And though I'm happy to share this much needed good news, I do want to caution investors that due to the uncertainty that the pandemic continues to present, it's very difficult for us to estimate how the pandemic might continue to impact our business over the short to mid-term. Steve will share some of the additional thoughts on the future with you in a few moments. Today, I'm going to share a quick update on our strategic initiatives, and then I'm going to turn the call over to Steve to walk you through our sales results and provide you with an overview of what we call our must-win battles. We've always had a very clear strategy with very clear growth aspirations. Our growth aspirations are to drive consolidated net sales to approximately $700 million and to do so while following our 55-30-25 business model. The pandemic has not altered our strategy or our growth aspirations. What the pandemic has required us to do is become more laser-focused on how we will achieve our goals. Because of the uncertain global economic conditions ahead, the timing of our growth aspirations is still unclear. What is clear is our confidence in our tribe and the must-win battles that are going to get us there. Strategic initiative number one is to grow WD-40 multi-use product. Our goal under this initiative is to make the blue and yellow can with the 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 first quarter, sales of WD40 multi-use product were 94.2 million, up 24% compared to last year. This growth was primarily driven by increased demand linked to isolated renovation I referred to earlier. The more time people spend isolated in their homes, the more time and money they spend making home improvements. Research suggests that they are both making these improvements themselves and by hiring tradesmen. Strategic initiative number two is to grow the WD-40 specialist product line. Due to the brand architecture project we completed in fiscal year 2020, for the first time ever, WD-40 specialist is fully leveraging our most iconic asset, the blue and yellow can with the little red top. We are optimistic about the long-term opportunities for WD-40 specialists and believe we can grow the product line to approximately $100 million in revenue. In the first quarter, sales of WD-40 specialists were $11.5 million, up 37% compared to the first quarter of last year. This growth was driven by strong e-commerce sales as well as strong sales in all three trading blocks driven by increased demand linked to renovation trends associated with the pandemic. Strategic initiative number three, broaden product and revenue base. Strategic initiative number three includes 3-in-1, WD-45, GT85, 1001, Spot Shot, Solvol, Lava and Nervac. We believe we are on track to reach a combined revenue for these products of approximately $70 million. Global sales of the products included in this initiative were 15.7 million in the first quarter, up 33% compared to 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 10.2 million in the first quarter, up 15% compared to last year. Global sales of WD-40 bike were also particularly strong in the first quarter, up nearly 260% compared to last year, as people are buying, fixing, riding bicycles more often as a result of the pandemic. Strategic initiative number four, 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 so proud of our tribe. One world, one company, one tribe has long been a mantra for WD-40 Company, but never has it been truer than it has been during this pandemic. The unprecedented global crisis has brought us many unexpected challenges, but we have weathered them together. We've learned together, we've collaborated in new ways and perhaps even thrived in some unexpected ways. Strategic initiative number five, Operation Excellence. Our goal under this initiative is best summarised by one of our core values here at WD40 Company, make it better than it is today. I believe our commitment to operational excellence has been an enormous asset for us as we've navigated the challenges associated with the pandemic. From a financial perspective, we have always been good stewards of our shareholders' capital resources and conservative in our financial commitments, and that serves us well in times like these. From an operational perspective, our tribe has never been more focused or better equipped to execute and deliver despite the considerable hurdles they must overcome due to the impacts of the pandemic. I will now pass the call to Steve, who will share an overview of our sales results with you and discuss our must-win battles.

Thanks, Gary, and good afternoon. The impact of the pandemic on our operations over these last 10 months has created an unprecedented amount of uncertainty around our business. When we last spoke, I shared with you that despite the many disruptions caused to our business by the pandemic, we were encouraged by what we were seeing in September and early October in our direct markets, and we were beginning to see some recovery in our distributor markets. Today, I'm happy to share with you that those trends continue throughout the duration of the first quarter, and today we're reporting total global sales growth of over 26% for the quarter. It has been said that luck is what happens when preparation meets opportunity. While we remain saddened that the pandemic continues to impact so many lives around the globe, we're pleased that our products are creating more positive, lasting memories than ever before. Our first quarter results reflect increased demand for our products due to a change in end-user behavior caused by the isolation renovation phenomenon. However, they also reflect our tribe's ability to pivot quickly and ride the changing waves, particularly as it relates to the e-commerce channel, where we experienced global sales growth of over 90% in the first quarter. Now let's take a closer look at what's happening in our trade blocs, starting with the Americas. Net sales in the Americas, which includes the United States, Latin America and Canada, were up 16% in the first quarter to 54.2 million. Sales of main end products increased 16% in the Americas due to increased sales in the US, Latin America and Canada, which all experienced double-digit sales growth. In the Americas, we experienced a 14% increase in sales of WD-40 multi-use product and a 20% increase in WD-40 specialist sales due to the isolation and renovation phenomenon, and increased sales to the e-commerce channel during the pandemic. The United States and Latin America also saw triple-digit growth of our WD-40 bike product line. Cycling has experienced a boom amid the pandemic, with increased ridership and the associated maintenance of bicycles throughout the region. In addition, we saw increased sales in Latin America during the first quarter due to strong sales in our newest direct market, Mexico. This contributed to a 42% increase in maintenance product sales in Latin America in the first quarter of this year compared to last year. While we anticipate a continued successful build of our direct customer base in Mexico, we expect there may be a bit of volatility along the way as we continue to develop this exciting new direct market. As a reminder, our maintenance product sales exclude our home care and cleaning products. Sales of our home care and cleaning products in the Americas increased 13% in the first quarter compared to the prior year, largely due to higher sales of 2,000 flushes, which increased 42%. We experienced a significant increase in sales of many of our home care and cleaning products in the United States and Canada due to increased demand as a result of the pandemic. However, we continue to consider our home care and cleaning products except for those listed as strategic brands as harvest brands that continue to generate meaningful contributions and cash flows but are generally expected to become a smaller part of the business over time. In total, our Americas segment made up 44% of our global business in the first quarter. Over the long term, we anticipate sales within this segment will grow between 2% to 5% annually. Now on to EMEA. Net sales in EMEA, which includes Europe, the Middle East, Africa and India, were up 40% in the first quarter to 54.7 million. Changes in foreign currency exchange rates had a favourable impact on sales for the EMEA segment from period to period. On a constant currency basis, sales would have increased by 33% compared to last year. Sales of maintenance products increased by 42% in EMEA due to increased sales in both our EMEA Direct and our EMEA Distributor markets, which increased 47% and 34% respectively. In our EMEA Direct markets, we experienced a 42% increase in sales of W40 multi-use product and a 61% increase in sales of W40 Specialist due to the isolation and renovation phenomenon and increased sales through the e-commerce channel during the pandemic. Our EMEA direct markets also saw a 265% increase in our W40 bike product line. In the first quarter, net sales in our EMEA direct markets accounted for 65% of the region's sales. In our EMEA distributor markets, we experienced a 34% increase in sales of W40 multi-use product and a 42% increase in W40 specialist sales, primarily due to improved economic conditions as a result of reductions in COVID-19-related movement restrictions. We saw particularly strong sales of the B40 multi-use product in northern, eastern Europe and India, which were up 62%, 24% and 120% respectively, areas where we were experiencing strong recoveries. In addition, the isolation renovation phenomenon led to increased demand and consumption of our products in some of our EMEA distributor markets. In the first quarter, net sales in our EMEA distributor markets accounted for 35% of the region's sales. In total, our EMEA segment made up 44% of our global business in the first quarter. It's interesting to note that sales in EMEA and the Americas both represented about 44% of our total global business this quarter. This demonstrates a significant future growth opportunity available to us in EMEA. Over the long term, we anticipate sales within this segment will grow between 8% to 11% annually. Now on to Asia-Pacific. Net sales in Asia-Pacific, which includes Australia, China and other countries in the Asia region, were up 24% in the first quarter to $15.6 million. Changes in foreign currency exchange rates had a favourable impact on sales of the Asia-Pacific segment from period to period. On a constant currency basis, sales would have increased by 21% compared to last year. Sales of maintenance products increased by 22% in Asia-Pacific due to increased sales in China, Australia and our Asia distributor markets, which all experienced double-digit sales growth. In Australia, net sales were 5.2 million in the first quarter, up 28% compared to last year, driven by increased demand for both our home care and cleaning and maintenance products. Sales of our home care and cleaning products were up 44% as a result of the COVID-19 pandemic. Though the more sales of WD-40 monkey use product and WD-40 specialist were also up 20% and 25% respectively due to the isolation renovation phenomenon. China net sales were $3.6 million in the first quarter, up 53% compared to last year, driven primarily by the timing of customer orders and increased sales through the e-commerce channel. In addition, sales in China during the first quarter of fiscal year 2020 increased were negatively impacted by the 70th anniversary National Day in China, which resulted in slowed market conditions and lower sales with no comparable event occurring this year. We remain optimistic about the long-term opportunities in China. However, we expect volatility along the way due to the economic and health-related impacts of COVID-19, the timing of promotional programs, the building of distribution, shifting economic patterns and varying industrial activities. In our Asia distributor markets, net sales are 6.9 million in the first quarter, up 11% compared to last year, primarily attributable to the timing of customer orders in the region. COVID-19 lockdown measures were reduced considerably in many of the Asian markets during the first quarter of fiscal year 2021. These reduced lockdown measures have positively impacted economic conditions in the region, which resulted in our marketing distributors normalising their inventory levels. Although the health concerns associated with the pandemic lessened and the resulting movement restrictions were lifted in many Asian countries, some larger countries in the region continue to observe movement restrictions. In total, our Asia Pacific segment made up 12% of our global business in the first quarter. Over the long term, we anticipate sales within this segment will grow between 10% to 13% annually. Now let's dig into our must-win battles. As Gary mentioned earlier, our Muslim battles are the tactics or specific steps we are undertaking to deliver against our anticipated revenue targets. We have four global Muslim battles. Muslim battle number one is geographic expansion. Our largest growth opportunity in the first Muslim battle is a geographic expansion of the blue and yellow can with the little red top. We estimate the potential global growth opportunity for W40 multi-use product to be approximately $1 billion. We are laser-focused on delivering long-term growth in our top 20 growth markets around the world. China remains our largest growth opportunity, which is why we elected to open a direct operation there in 2006. In addition, China is the world's largest e-commerce market, and our digital strategy in the country is a significant area of opportunity. India also represents a substantial long-term growth opportunity for us. Three years ago, we initiated our StepUp program in partnership with our India MD, and this has already delivered impressive results. In Latin America, we transitioned Mexico from a distributor market to a direct operation in May of 2020, and we're set for very strong growth in Mexico over the coming years. Our second must-win battle is premiumization of W40 multi-use product. Our smart store delivery system has been our most successful innovation and is loved by end users across the world. Premiumization creates opportunities for revenue growth as well as for gross margin expansion. As we continue to roll out smart straw next generation, which will increase capacity and reduce costs, our objective is to grow smart straw penetration to greater than 60%. Our third Muslim battle is to grow a W40 specialist. Gary mentioned earlier, we debuted our refreshed brand architecture for W40 specialists in fiscal year 2020. Now, for the first time ever, the W40 specialist is fully leveraging our most iconic asset, the blue and yellow can with the little red top. The WD-40 Specialist range of products aims to provide maintenance professionals and DIYers alike over 20 unique formulas to complement our iconic multi-use products. This makes the WD-40 brand even more relevant to more people in more places who will use more of it. We believe this refreshed packaging will accelerate awareness and improve findability in store and online. Our final Muslim battle is digital commerce. We set our global digital ambition two and a half years ago. Our ambition is to engage with end users at scale and become the global category leader in our category within the digital commerce platform. Since 2020 was the year that a global health crisis would transform the way people shop, our heightened focus on digital and e-commerce has never been so important. With e-commerce set to deliver over half of global retail growth by 2025, and digital interactions playing an increasingly important role in purchase journeys, we believe we're well positioned to benefit from the significant shift to online behaviors in the years ahead. We see digital and e-commerce as a strong accelerator of our future growth. In closing, I want to share a few thoughts with you about the future. Over the long term, we are optimistic that many of the new end users who have interacted with our products during the pandemic will become permanent users of our maintenance and home care solutions. However, the short-term to mid-term is much more difficult to see clearly. Due to the uncertainty that the pandemic continues to present, it's very difficult for us to estimate how the pandemic might continue to impact our business. Many regions continue to experience increased COVID-19 case counts, resulting in temporary closures and lockdowns, which could negatively impact our sales in the short term. In addition, if there is a shift in spending patterns or a global economic downturn in the wake of the pandemic, it could adversely impact our financial results. Finally, keeping up with demand in a COVID environment is a challenge. We're actively monitoring supply chain and transportation capacity constraints, which have arisen as a result of the pandemic. We are managing through these issues, but there are market constraints impacting all consumer packaged goods companies, that are not allowing us to meet some of our normal levels of service with our customers. Despite these uncertainties and risks, we remain cautiously optimistic about fiscal year 2021 and believe current market conditions suggest that for the full fiscal year, total net sales are likely to be in a range of between 435 to 470 million. Now I'll turn the call over to Jay, who will provide you a financial update on the business.