WD-40 Company

ladies and gentlemen thank you for standing by good day and welcome to the wd-40 company first quarter 2023 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 preparator arcs we will conduct a question and answer session to register to ask a question at any time during call please press star one 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, Vice President of Stakeholder and Investor Engagement Services. Please proceed.

Thank you. Good afternoon, and thanks to everyone for joining us today. On our call today are WD-40 Company's President and Chief Executive Officer, Steve Brass, and Vice President and Chief Financial Officer, Sarah Heiser. 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, 2022. 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 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, January 9th, 2023. 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 Steve.

Thanks, Wendy, and thanks to all of you for joining us this afternoon. Today, I will begin by discussing our sales results for the first fiscal quarter of 2023. I will also provide you with an update on our growth ambition, our Muslim battles, and my strategic priorities. Sarah will review some financial topics with you, including our guidance for FY 2023. As Wendy mentioned earlier, we've prepared a presentation covering our first quarter results and have posted it to our investor website. We invite you to refer to that document to review any numbers or results that we don't talk about on today's call. I'm happy to share with you that in the first quarter, gross margin improved sequentially by 400 basis points compared to the fourth quarter of fiscal year 2022. This is due to the pricing actions we've taken over the last several quarters. Sarah will talk with you in a few moments about gross margin in more detail, but we're confident that our plans to rebuild margin are working. Let's discuss our sales results. Today, we reported net sales of 124.9 million for the first quarter of fiscal year 2023. which was a decrease of 7% compared to last year. There are several things obstructing top-line performance this quarter. Sales volumes are down, as expected, due to disruptions caused by the price increases we've put into place over the last few quarters. Changes in foreign currency exchange rates had an unfavorable impact of about $9.5 million on our consolidated net sales in the first quarter. On a constant currency basis, net sales would have decreased by less than 1% compared to the first quarter of last year. Also impacting our top-line results this quarter is our values-guided decision to suspend sales of our products to our marketing distributor customers in Russia and Belarus, which negatively impacted our sales by approximately $5 million. Overall, underlying volumes remain in line with our expectations, and we would expect volume performance to improve sequentially in the second half of fiscal year 2023, as price-related disruptions abate. For more information about the impact of price increases on our sales results and the offsetting decreases in sales volume, please see our Form 10-Q for the period ending November 30, 2022, which we have filed earlier today. So now let's take a closer look at first quarter results in our trade blocks, starting with the Americas. Sales in the Americas, which includes the United States, Latin America, and Canada, were up 3% in the first quarter to $58 million. Maintenance product sales in the United States increased 15% due to strong sales of WD-40 specialists, WD-40 multi-use product, and 3-in-1. The strong sales were driven by the favorable impact of price increases on revenues, as well as increased production capacity and improved availability as our supply chain continues to strengthen. These increases were significantly offset by a lower level of customer orders and promotional programs due to disruptions caused by price increases. Maintenance product sales in Canada increased 7% in the first quarter, primarily due to the favorable impact of price increases, which were mostly offset by unfavorable changes in foreign currency exchange rates and weaker economic conditions that resulted in lower levels of demand. Maintenance product sales in Latin America were down 31% in the first quarter when compared to last year due to the timing of customer orders. This is because in the fourth quarter of fiscal year 2022, customers were buying products in advance of a price increase, which lowered purchases from these customers during the first quarter of this year. In addition, in the first quarter of 2022, we had a strong comparable period because of significant purchase activity in advance of a price increase that went into effect in November of 2021. Shows in Mexico, our newest direct market, remained constant. Now across the pond to EMEA. Shows in EMEA, which includes Europe, the Middle East, Africa and India, put down 29% in the first quarter to $40.8 million. Currency fluctuations significantly impacted our sales results for our EMEA trading block during the quarter. Changes in foreign currency exchange rates had an unfavorable impact of over $8 million on net sales for the first quarter. On a constant currency basis, sales would have decreased 15% over the first quarter of last year. As you know, we sell into EMEA through a combination of direct operations as well as through marketing distributors. Sales in our EMEA direct markets, which accounted for 70% of the region's sales in the first quarter, declined by 21% during the quarter compared to last year. due to the impact of changes in foreign currency exchange rates and reduced demand driven by weaker market and economic conditions. The region has also been impacted by a lower level of customer orders and promotional programs as customers adjust to the price increases we recently implemented. Sales in RMA are distributed to markets, which accounted for 30% of the region's sales in the first quarter, decreased by 43% during the quarter compared to last year. More than half of this decline was due to a suspension of sales in Russia, which resulted in decreased sales of approximately $5 million compared to last year. In March of 2022, we made the values-guided decision to suspend sales of our products to our marketing distributor customers in Russia and Belarus, and this has contributed to an unfavorable impact on our sales in this region. Now on to Asia-Pacific. Sales in Asia-Pacific, which includes Australia, China, and other countries in the Asia region, were up 25% in the first quarter to $26.1 million. In our Asia-Pacific distributor market, sales were up 41% compared to last year, primarily due to strong sales of W40 multi-use product. These strong sales were linked to successful promotional programs and continued easing of pandemic-related lockdown measures. In addition, the increase in sales is partially due to price increases we implemented over the last 12 months, as well as many distributor customers purchasing products in advance of additional price increases that will go into effect later this year. In Australia, sales remained constant in the first quarter. Changes in foreign currency exchange rates had an unfavorable impact on sales in the first quarter. On a constant currency basis, sales would have increased by 12% compared to last year. These sales increases were due to the favorable impact of price increases, which were partially offset by decreased sales of home care and cleaning products. In China, sales were up 22% compared to last year. driven primarily by successful promotional programs and the favorable impact of price increases. In addition, sales were favorably impacted by the timing of shipments related to some customer orders placed in late fiscal year 2022, which were not shipped until early fiscal year 2023. Changes in foreign currency exchange rates had an unfavorable impact on net sales for the first quarter. On a constant currency basis, sales would have increased by 34% compared to last year. We're taking a proactive approach in China and shipping as much product as we can during times when COVID-related restrictions are minimal. We expect more pandemic-related disruptions in the market over the short term, but we remain optimistic about the long-term opportunities in China. In addition to volatility in the China market caused by COVID-19, we expect volatility in this market due to the timing of promotional programs, the building of distribution, shifting economic patterns, and varying industrial activities. Now let's talk a little bit about our future growth aspirations. To understand where we're going, it's important to understand where we've been. On slide 11 of our earnings presentation, you will see 20 years of maintenance product sales adjusted for currency. We have continuously grown our multi-purpose maintenance product sales each year, except for 2020, when we experienced a modest decline due to the impacts of the pandemic. Following that modest decline, our sales rebounded extremely strongly in 2021 and 2022. We've demonstrated substantial resilience in the past, including during the Great Recession of 2008 and 2009, and that gives us confidence to face whatever volatility, uncertainty, complexity, and ambiguity may come our way in the future. Therefore, in terms of future growth, Sarah and I are committed to our long-term revenue growth aspiration, which is to drive net sales to between $650 to $700 million by the end of fiscal year 2025. The bulk of that growth is expected to come from sales of W40 multi-use product through geographic expansion, increased penetration, and premiumization. In terms of growth aspirations by segment, each of our trade blocks have unique long-term growth expectations. The compound annual growth rates associated with our segments reflect our long-term growth expectations for the segment and may not always align with shorter-term trends and results. In the Americas, we expect growth between 5% to 8% annually. We recently increased our expectations for growth in the Americas, fueled by several factors. In Latin America, over the last couple of years, we've seen very strong sales, largely driven by our newest direct market in Mexico. Despite the softness we reported in the first quarter, we expect excellent prospects for strong continued growth across Latin America in the future. Canada's growth prospects have also been significantly boosted as we continue to roll out next-generation smart straw in the region. Strong growth opportunities exist also within the U.S. market, in e-commerce, within the W40 specialist brand, and within the industrial channel. Our expectations for growth in our EMEA and Asia-Pacific segments remain unchanged. Over the long term, we anticipate sales within the EMEA segment will grow between 8% to 11% annually, and sales within the Asia-Pacific segment will grow between 10% to 13% annually. $650 to $700 million 2025 goal. Now a brief update on our must-win battles. Our must-win battles are the primary areas of action that will enable us to deliver against our revenue growth aspirations. These hyper-focused actions are the key drivers of revenue growth. Our largest growth opportunity in first must-win battle is the geographic expansion of the blue and yellow can with a little red top. Though consolidated sales of our flagship brand were down 12% in the first quarter, We have every confidence that W40 multi-use product will return to growth this fiscal year. The decline in W40 multi-use product was driven primarily by a 34% decline in sales in EMEA due to the reasons I mentioned a few minutes ago. 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. In the first quarter, sales of W40 SmartStraw and EasyReach, when combined, represented 43% of global sales of W40 multi-use product. Sales of premiumized products declined by 15% in the first quarter, primarily due to lower sales in RMA segment. Our SmartStraw Next Generation delivery system is currently available in the Americas and will be rolled out globally into school year 2023. SmartStraw Next Generation supports our objective to grow premium delivery system penetration to greater than 60% of our W40 multi-use product sales by 2025. Our third Muslim battle is to grow W40 Specialists. In the first quarter, sales of W40 Specialists were up 23% compared to last year. The United States saw outstanding growth, reporting an increase of 70% compared to last year. We're pleased that W40 Specialists is fully leveraging our most iconic asset, the blue and yellow brand with a little red top. Our final must-win battle is focused on driving digital commerce. In the first quarter, e-commerce sales roared back and were up 51% compared to the first quarter of last year. This was driven by triple-digit growth in the U.S. and double-digit growth in Asia Pacific. 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. We expect e-commerce will be the fastest growing retail sales channel globally for the duration of fiscal year 2023. We see a world where almost every transaction in the future will be influenced by a digital touchpoint somewhere on the path to purchase, and we believe we're well equipped to thrive in that world. Now I'll turn the call over to Sarah, who will provide you with a financial update on the business.