WD-40 Company

Ladies and gentlemen, thank you for standing by. Good day and welcome to the WD-40 Company four-quarter fiscal year 2021 earnings conference call. 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 a conference you need to reach an operator, please press star 0 on your telephone keypad. I would now like to turn the presentation over to your host for today's call. Ms. Wendy Kelly, Vice President, Stakeholder, and Investor Engagement. Please proceed.

Thank you. Good afternoon, and thanks to everyone for joining us today. On our call today are WD-40 Company Chairman and Chief Executive Officer Gary Ridge, Vice President and Chief Financial Officer Jay Rimbolt, 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 foreign policy for the period ending August 31, 2021. 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 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, but there can be no assurance that they will be achieved or accomplished. please refer to the risk factors detailed in our SCP 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 19th, 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 over to Gary.

Thank you, Wendy, and thank you for everyone joining us on today's call. Today I'm happy to share with you that we reported record net sales of $488.1 million for the full fiscal year 2021, up 19% over last fiscal year. Changes in foreign currency exchange rates had a favourable impact of $19.7 million on net sales for the fiscal year 2021. on a constant currency basis net sales would have been up 15 percent net income was 70.2 fiscal year 2021 reflecting an increase of 16 percent diluted earnings per share in 2021 were five dollars and nine cents compared to four dollars and forty cents last year for the fourth quarter We reported net sales of 115.2 million, which reflects an increase of 3% from the fourth quarter of last year. Changes in foreign currency exchange rates had a favourable impact of 6.5 million on net sales for the fourth quarter. On a constant currency basis, net sales would have decreased 3% compared to last year. Net income was $8.4 million compared to $19.7 million in the fourth quarter of last fiscal year, reflecting a decrease of 57%. Deleted earnings per share in the fourth quarter were $0.61 compared to $1.42 in the fourth quarter of last year. If you follow our business closely, you'll know where fluctuations in performance quarter to quarter are not unusual. This has been especially true since COVID-19 pandemic began. Fiscal year 2021 was a lumpy year with abnormal swings in net sales from period to period. We've seen more variability between quarters than we experienced before the pandemic. We know this quarter looks different. However, we're going to share with you today why our results are actually an exciting step forward in our infinite game. In the fourth quarter, we made a thoughtful and deliberate decision to invest significantly in sales momentum we have been experiencing and increase our investments in brand awareness and market penetration. Though these decisions negatively impacted our net income in the fourth quarter, we believe the investments in these key strategic areas will drive strong top-line growth in the future. If you follow us with an infinite mindset, you'll be pleased with our results this year. Our infinite-minded decisions have delivered a compounded annual growth rate of total shareholder return of 14% since 1998. This unprecedented year brought many unexpected opportunities and challenges. I am so proud of our tribe and what they have been able to accomplish during these extraordinary times. In many ways, the challenges we've experienced since the pandemic began has brought out the best in our tribe and has enabled us to learn together and pivot through some very challenging times. Steve will talk with you in a few minutes about the specific sales trends we experienced in the fourth quarter in each of our trading blocks. But first, I'm going to share an update with you on our strategic initiatives. Our strategic initiatives are the continuing plan we have in place to achieve the company's long-term aspirations. As most of you will recall, we recently adjusted our long-term revenue aspirations to drive net sales to a range of between $650 and $700 million by the end of fiscal year 2025. We strive to do this while following our 55-30-25 business model. While these financial objectives remain, we recently decided to refresh our strategic initiatives so they more accurately and holistically reflect the top priorities of our organisation. Before I share with you our refreshed strategy, I will first share with you the progress we've made against our current strategic initiatives during fiscal year 2021. Strategic initiative number one is to grow WD-40 multi-use product. In fiscal year 2021, sales of WD-40 multi-use product increased 22% globally to $371 million. Strategic initiative number two is to grow the WD-40 specialist product line. In fiscal year 2021, sales of WD-40 specialists increased 16% globally to $42.5 million. Strategic initiative number three is to broaden product and revenue base. In fiscal year 2021, sales of products included under this initiative increased 13% globally to $63.2 million. Strategic initiative number four, attract, develop and retain outstanding tribe members. When we last measured in January 2022, our overall global employee engagement score was 93%. Our tribe has continued to adapt during the pandemic and we have made every effort to make our tribe members' wellbeing a top priority. In January 2021, we did a check-in survey with the tribe which reconfirmed engagement continues to be at this level. 98% of our tribe shared they were excited about the company's future. Strategic initiative number five, operational excellence. Our goal under this initiative is to strive for continuous improvement and we measure ourselves against this initiative following the 55-30-25 business model. In fiscal year 2021, we report a gross margin of 54%, cost of doing business of 35%, and EBITDA of 20%. Now, our strategic refresh. We decided to refresh our strategic initiatives so they more accurately and holistically reflect the top priorities of our organisation moving forward. We believe our long-term financial objectives can only be achieved if we make infinite-minded decisions that create and protect long-term shareholder value. We have always considered ourselves a purpose-driven organization, which puts its people first. Our philosophy has always been if we take care of our employees, our employees will take care of our customers. Our philosophy has not changed. However, we wanted our strategic drivers to better reflect this ideology. So with that, I'm pleased to share with you our refreshed strategic drivers, which can also be found within our quarterly earnings presentation. Strategic initiative number one. Build a business for the future. Our goal under this initiative is to build an enduring business that we will be proud to pass on to the next generation. By using our purpose and values as a decision-making filter, we will make infinite-minded decisions that create and protect long-term stakeholder value. As mentioned in our fourth quarter, we significantly increased investment in our brand building to support our must-win battles because we are playing the infinite game. The desired outcome for this strategic initiative is to further embed infinite-minded decisions into our business and to fully integrate our ESG initiatives into the heart of our strategic planning process. Strategic initiative number two, attract, develop and engage outstanding tribe members. We know our people make us great. By building and nurturing an inclusive, diverse, purpose-driven learning and teaching an organisation, our tribe members will succeed together while excelling as individuals. This has always been important to our organisation's long-term success. We believe in the will of our people. Will is not tangible. You won't find it on our balance sheet. It encompasses morale, motivation, collaboration, inspiration, commitment, and the desire to offer discretionary effort. Some see human capital as expense. We see our people, our tribe, as an invaluable asset because we know that our success is the result of the engagement and the commitment of our people. The desired outcome of this strategic initiative is to grow employee engagement to greater than 95%. Ticket issue number three is to strive for operational excellence. Our goal under this initiative is to foster a culture of continuous improvement in which operational excellence is the responsibility of a member. Operational excellence means optimising collaboration, resources, systems and processes, as well as prioritising the use of our time, talent and treasure and technology. Using our 55-30-25 business model as a framework, we measure ourselves against this operational excellence initiative. Strategic initiative number four is to 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 in more places to more people who'll find more uses more often. We will grow the WD-40 multi-use product line through continued geographic and digital expansion, increased market penetration, educating end users about new uses, and through the development of new and unique delivery systems that make the product easier to use. The desired outcome for this strategic initiative is to grow sales of WD-40 multi-use product to approximately 525 million by 2025. Strategic initiative number five is to grow the WD-40 specialist product line. Our goal under this initiative is to leverage the WD-40 brand by developing new products and categories which build and reinforce the core brand positioning and create growth through continued geographic and digital expansion. As part of the brand architecture project we completed in fiscal year 2020, WD40 Bike was absorbed into the WD40 specialist line of products. Accordingly, we will begin to report WD40 Bike as part of our specialist results beginning the first quarter of fiscal year 2022. The desired outcome for this strategic initiative is to grow sales of WD40 specialists to approximately $125 million by 2025. Strategic initiative number six is to expand and support portfolio opportunities that help us grow. Our goal under this initiative is to expand and support brands that provide protection. Our focus will be to expand 3M1 and GT85 or future maintenance brands with portfolio opportunities that fit well within our unique multi-channel distribution network. In addition, we will support home care and cleaning product brands that provide healthy profit returns, including well-known brands such as 1001, SpotShot, Solvold, 2000 Flushes, Carpet Fresh, X14, Lava and Novac. The desired outcome for this strategic initiative is to grow sales in this category to approximately $50 million by 2025. Our decision to report WD-40 Bike... as part of the WD40 specialist results going forward, has lowered the desired outcome for this initiative as compared to the prior corresponding initiative. Supporting our strategic initiatives are our must-win battles. These are focused action plans that support our strategic initiatives. I will now pass the call to Steve, who will share an overview of our sales results and update you on our must-win battles. Thanks, Gary, and good afternoon. Today we close out a spectacular year of incredible growth for our company. Globally sales of W40 brand products grew 22% in fiscal year 2021 compared to last year. We experienced very high end user demand for our maintenance products due to the higher level of renovation and maintenance activities driven by the pandemic. In addition, we continue to see recoveries in many markets due to improvements in public health and safety standards, as well as an expanded brick-and-mortar distribution and continued success within the e-commerce channel. As Gary mentioned earlier, the pandemic continues to create abnormal swings in our net sales results from period to period, which is evidenced in our fourth quarter net sales results. Let's take a closer look at what happened in our trade blocks in the fourth quarter, starting with the Americas. Net sales in the Americas, which includes the United States, Latin America, and Canada, were down 5% in the fourth quarter to 54.2 million. Sales of maintenance products decreased 5% in the Americas due to decreased sales of W40 products in the U.S. and Canada, which declined 5% and 17%, respectively. These declines were driven by several factors. In the United States, we were up against a very strong comparable period. While we continued to experience very strong end-user demand for our maintenance products, we were unable to fully meet those demands due to the current state of the global supply chain, the implications of which were felt most significantly in the United States. The biggest challenge facing many consumer product companies today is the continued stress the global supply chain is experiencing. These supply chain issues are contributing to rising input costs manufacturing fees, and higher warehousing and distribution expenses, which Jay will discuss in greater detail shortly. In Canada, net sales of maintenance products declined because of the timing of customer orders. In addition, we were up against a very strong year-over-year comparable period in Canada. In Latin America, we experienced strong sales of all our maintenance products during the fourth quarter, which increased 24% compared to the prior year. This growth was primarily due to strong sales in our newest direct market, Mexico. In addition, sales in Latin America in the corresponding period of the prior fiscal year were negatively impacted by disruptions and lockdowns related to the early stages of the COVID-19 pandemic. As conditions continue to improve and restrictions in the region decrease, we continue to see increased end-user demand in Latin America. Sales of our home care and cleaning products in the Americas decreased 2% in the fourth quarter compared to the prior year. We continue to consider our home care and cleaning products 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. For the full fiscal year, net sales in the Americas were up 7% to $214.6 million. In total, our American segment made up 47% of our global business in the fourth quarter. Over the long term, we anticipate sales within this segment will grow between 5% to 8% annually. Now on to EMEA. Net sales in EMEA, which includes Europe, the Middle East, Africa, and India, were up 6% in the fourth quarter to $45.1 million. Changes in foreign currency exchange rates had a favorable impact on sales for the EMA segment from period to period. On a constant currency basis, sales would have decreased by 6% compared to last year, primarily due to translation impacts caused by unfavorable changes between the pound sterling and the U.S. dollar. However, when also considering transactional impacts caused by changes between the euro and pound sterling, sales were relatively constant, only down 1% compared to the prior year period. The 1% decrease in EMEA sales after all currency impacts are removed was primarily caused by decreased sales in the EMEA direct markets, which were mostly offset by increased sales of maintenance products in the EMEA distributor markets. Sales levels were higher in the fourth quarter of this year in the EMEA distributor markets due to the severe lockdown measures that occurred during the fourth quarter of fiscal year 2020 as compared to relatively open conditions in the fourth quarter of this year. In the fourth quarter, net sales in RMA distributed markets accounted for 26% of the region's sales. In RMA direct markets, we experienced a sales decline from period to period because sales levels were much higher in the fourth quarter of last year due to the lifting of severe lockdown measures in the region. In the fourth quarter, net sales in RMA direct markets accounted for 74% of the region's sales. For the fourth fiscal year, net sales in EMEA were up 33% to $208.3 million, resulting in the most successful year in the history of the trade bloc. In total, our EMEA segment made up 39% of our global business in the fourth quarter. 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 region, were up 32% in the fourth quarter to $15.9 million. Changes in foreign currency exchange rates had a favourable impact for the Asia-Pacific segment from period to period. On a constant currency basis, sales would have increased by 24% compared to last year. In Australia, net sales were 5.3 million in the fourth quarter, up 2% compared to last year. Changes in foreign currency exchange rates had a favourable impact on sales in Australia from period to period. In local currency, net sales in Australia declined 7% compared to last year. Australia was up against a very strong year-over-year comparable for sales. In addition, some regions in Australia were under severe lockdown measures during the fourth quarter of 2021. These have been much more severe than what the country has experienced in the past, and this contributed to the decline in sales. In our Asia distributor markets, net sales were 5.8 million in the fourth quarter, up 172% compared to last year, primarily due to a nearly 200% increase in sales of W40 multi-use products in the region. These sales increases were primarily driven by the easing of COVID-19 lockdown measures and restrictions. These reduced lockdown measures positively impacted economic conditions during the fourth quarter of this year and resulted in increased demand and higher sales, particularly in South Korea and Indonesia. In China, net sales of 4.8 million in the fourth quarter, up 2% compared to last year. Changes in foreign currency exchange rate had a favorable impact on sales in China from period to period. In local currency, net sales in China declined 7% compared to last year. Overall, China is currently doing well and experiencing no major impacts from the pandemic. The decline in sales in the fourth quarter was primarily driven by the timing of customer orders and promotional activities. For the full fiscal year, net sales in Asia Pacific were up 26% to 65.3 million. In total, our Asia Pacific segment met up 14% of our global business in the fourth quarter. Over the long term, we anticipate sales within this segment will grow between 10% to 13% annually. As we begin our journey into fiscal year 2022 and seek to execute and deliver against our 2025 revenue growth aspirations to drive net sales to between $650 and $700 million, we are more focused than ever before on our must-win battles. These hyper-focused actions support our overall strategy and are the key drivers of revenue growth. Our largest growth opportunity in the first Muslim battle is a geographic expansion of the blue and yellow cam with the little red top. As Gary shared with you earlier, sales of W40 multi-use products for the full fiscal year were $371 million, up 22% compared to last year. We are focused like never before on our top 20 global growth markets. We never stopped investing during the pandemic. We increased our marketing investments by over $6 million this year, including nearly $4 million in the fourth quarter alone. These investments are focused on building brand awareness and market penetration in identified markets. We're doubling down on the future because of the tremendous growth we've seen in markets like France, the United Kingdom, and Russia, where in fiscal year 2021, we saw growth of 36%, 28%, and 43%. In addition, we've seen tremendous growth in Mexico, which has been the fastest growing direct market we've ever launched in the history of the company. In fiscal year 2022, we will continue to invest in building our flagship brand with end users around the world. Our second Muslim battle is to grow W40 multi-use product through premiumization. Premiumization creates opportunities for revenue growth, gross margin expansion, and most importantly, it delights our end users. For the full fiscal year, sales of W40 smart, strong, and easy reach when combined were 180.7 million, of nearly 19% compared to last year, and representing nearly 49% of total global sales of W40 multi-use product. Our SmartStraw Next Generation delivery system is currently available in Canada and has been rolled out in the United States. In fact, it will be available later in fiscal year 2022 in Europe. SmartStraw Next Generation supports our objective to grow premium delivery system penetration to greater than 60% of our WD-40 multi-use product sales by 2025. Our third Muslim battle is to grow the W40 specialist product line. For the full fiscal year, sales of W40 specialists were up 16% compared to last year, and up 21% if you include sales of W40 bike, as we will be doing going forward. Absent the supply chain disruptions and constraints we experienced in the United States, W40 specialists would have grown even more. We recently completed some very interesting research which suggests that end users of W40 Specialist are some of our most loyal W40 multi-use product fans. As you might recall, in early fiscal year 2020, we debuted new packaging for W40 Specialist which gave us stronger brand presence for both W40 multi-use product and W40 Specialist, aligning them as a blue and yellow brand with a little red top. We believe we have yet to see the full benefit of this brand architecture project because of the pandemic and associated supply chain issues. Our final must-win battle is focused on driving digital commerce. For the full fiscal year, global e-commerce sales are up 25% compared to last year, and we believe we are well positioned to benefit from the significant shift to online behaviors in the post-pandemic world. We're focused on developing a data-driven marketing strategy that empowers us to engage directly with end users in meaningful ways online. That strategy has already delivered a year-over-year increase of nearly 80% in website visits, doubled the views of our digital content globally, and has accelerated and deepened our engagement with end users on many digital platforms around the world. In closing, I want to share a few thoughts with you about the future. Fiscal year 2021 was an exceptional year for the blue and yellow brand with a little red top, with increased end user demand across all our trade blocks. We remain optimistic that many of the new end users who have interacted with our brands during the pandemic will become permanent users of our maintenance solutions. However, it's also important to note we haven't spent the last 18 months twiddling our thumbs and naively thinking that pandemic-related windfalls will last forever. Rather, we've spent the time becoming laser-focused on the areas where we believe future revenue growth will come from. We are investing our time, talent, treasure, and technology to support specific growth objectives because we believe investments in these areas will drive our growth in the future. So how do you top your best year ever? With a great start to the new year. I'm pleased to report that demand continues to be exceptionally strong, and September was the second largest sales month in the company's history. Now we'll turn the call over to Jay, who will provide you with a financial update on the business. Thanks, Steve.