WD-40 Company

Ladies and gentlemen, thank you for standing by. Good day and welcome to the WD-40 Company third 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 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 and 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 now would like to turn the presentation over to the host for today's call, Ms. Wendy Kelly, Vice President of 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'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 May 31, 2023. 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, 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, July 10th 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'll begin by discussing our sales results for the third fiscal quarter of 2023. I'll also provide you with an update on our must-win battles. Sarah will review some financial topics with you, including a review of our FY23 guidance. I'm happy to share with you that after two quarters of flat-to-down sales, we've returned to solid top-line growth in the third fiscal quarter. Today, we reported net sales of $141.7 million for the third quarter, which is up 15% compared to the same period of last year, and a new record for the company. Translation of our subsidiary's results into the U.S. dollar had an unfavorable impact on our consolidated net sales in the third quarter. On a constant currency basis, third quarter sales would have increased 21.9 million or 18% compared to the third quarter of last year. Furthermore, we've seen bottom line growth as well with net income of 18.9 million compared to 14.5 million last year, reflecting an increase of 30% year on year. While we continue to experience some disruptions linked to the price increases that we've put into place over the last 12 months, the impact is beginning to abate, and we saw volume-related sales growth this quarter at a consolidated level. We estimate sales volume declined about 1.5 million in the Americas and 3.5 million in EMEA in the third quarter, but this was more than offset by sales volume increases in Asia-Pacific of 5.5 million in the quarter. Year-to-date, we reported net sales of 396.8 million, which is up 2% compared to the same period of last year. Translation of our subsidiary's results into the U.S. dollar also had an unfavorable impact on our consolidated net sales year-to-date. On a constant currency basis, year-to-date sales would have increased 27.3 million, or 7%, compared to the same period of last fiscal year. Now let's take a closer look at the third 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 16% in the third quarter to 71.1 million. Maintenance product sales in the United States increased 21% in the third quarter. This increase in sales was driven primarily by strong sales of W-14 multi-use product in the United States, which increased 20% in the quarter, mainly due to the impact of price increases on revenue, which was partially offset by slightly lower demand, which resulted in decreased sales volume. Strong sales of 3-in-1 and W40 specialists also contributed to the increase in sales and grew 77% and 13% respectively. The increased sales of 3-in-1 were due to increased production capacity and improved availability due to adjustments we have made in our supply chain. I'm very happy to report that in the Americas, we recently achieved an on-time and full service score of 98.6%. After the many hardships brought on by the pandemic, this service score represents grit, determination, persistence, and an incredible effort across numerous functions throughout our America's trade bloc. The V40 specialist sales increased primarily due to price increases implemented during the last 12 months. Maintenance product sales in Canada decreased 23% in the third quarter, primarily due to lower sales volume. In the corresponding period of last year, we experienced very strong sales of WD-40 multi-use product due to high level of demand for our products in the industrial channel. This level of demand in the channel was not repeated in the third quarter of this year. Maintenance product sales in Latin America were up 18% in the third quarter, when compared to last year, primarily due to marketing distributors purchasing a higher level of our product in advance of a price increase that went into effect in June 2023. Sales in our direct market in Mexico also increased because of price increases and the favorable impact of changes in foreign currency exchange rates. These favorable impacts in our direct market in Mexico were partially offset by purchasing activity associated with prior price increases. Sales of our home care and cleaning products in the Americas were relatively flat in the third quarter compared to the prior year. We consider our home care and cleaning products as harvest brands that continue to generate consistent contributions and cash flows, but are generally expected to become a smaller part of our business over time. In total, our Americas segment met up 50% of our global business in the third quarter. Over the long term, we anticipate sales within this segment will grow between 5% to 8% annually. As a reminder, the compound annual growth rates associated with our trade blocks reflect our long-term growth expectations and may not always align with short-term trends and results. Now let's take a look at what happened in EMEA, which includes Europe, the Middle East, Africa, and India. Last quarter, I shared with you that we had gotten off to a rocky start in the first half of fiscal year 2023 in EMEA. Pricing actions were taken, as well as the loss of sales in Russia and Belarus. resulted in sales declines over that period. I'm happy to share with you today that we're seeing a strong recovery in EMEA, and sales were up 6% in the third quarter to $52.5 million. Currency fluctuations negatively impacted our sales in EMEA, and on a constant currency basis, sales would have increased 13% compared to the third quarter of last year. This growth is in line with our long-term expectations for this segment, which is sales growth of between 8% to 11% annually. 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 68% of the region's sales in the third quarter, increased by 2% compared to last year. This increase in sales was primarily driven by the impact of price increases on revenue. The favorable impacts were significantly offset by unfavorable changes in foreign currency exchange rates. In addition, weaker market and economic conditions as well as a lower level of customer orders and promotional activity have led to reduced volume period over period. Sales in RMA distributor markets, which accounted for 32% of the region's sales in the third quarter, increased by 16% compared to last year. This increase in sales was driven primarily by the timing of customer orders, as well as the impact of price increases on revenue, particularly in India and Turkey, where sales were up 106% and 103%, respectively. In addition, this is the first time in four quarters that our decision to suspend sales of our products to our marketing distributors customers in Russia and Belarus towards the end of the second quarter of fiscal year 2022 has not negatively impacted our sales comparison on a year-over-year basis. In total, I remain a segment made up of 37% of our global business in the third quarter. Now on to Asia-Pacific. Sales in Asia-Pacific, which includes Australia, China, and other countries in the Asia region, are up 42% in the third quarter to 18.1 million. In our Asia-Pacific distributor market, sales are up 151% compared to last year. The products we sell in this region are sourced from a third-party manufacturer in Shanghai. In the comparable period of last year, we experienced severe supply chain disruptions caused by lockdowns that have been put in place in Shanghai due to the COVID-19 pandemic. All regions in our Asia distributor markets experienced higher sales this quarter because similar disruptions did not take place this year. In addition, sales were positively impacted by sales price increases from period to period. The same dynamic also impacted China, where sales were up 39% compared to last year. In addition, sales were favorably impacted by price increases. Sales in China were unfavorably impacted by changes in foreign currency exchange rates. On a constant currency basis, sales would have increased by 50% compared to last year. Partially upsetting these sales increases in Asia-Pacific was a decline in sales in Australia, where sales declined 14% in the third quarter. This decline was due to a decrease in sales volume of both home care and cleaning products and maintenance products, driven by weaker market and economic conditions, as well as unfavorable changes in foreign currency exchange rates and the impact of price increases. On a constant currency basis, sales for Australia would have decreased by 6% compared to last year. In total, our Asia-Pacific segment made up 13% of our global business in the third quarter. Over the long term, we anticipate sales within this segment will grow between 10% to 13% annually. Now let's talk about our global growth aspirations and Muslim battles. One thing I've learned in my years as a business leader is that we have no control of the volatility, uncertainty, complexity, and ambiguity around the world. Constant unpredictable change is now the norm. As a global company with more than half of our revenues generated outside the US, we're exposed to the effect of changing foreign currency exchange rates, geopolitical unrest, and other economic fluctuations. Against that backdrop, and since we're close to wrapping up fiscal year 2023, and we'll embark into fiscal year 2024 very soon, we believe it's an appropriate time to review our 2025 revenue targets. Originally set in 2015 as long-term aspirational goals, we're now just a little over two years away from the end of fiscal year 2025. There were several things prompting us to revisit our 2025 growth aspiration, which, as a reminder, was to drive net sales of between 650 to 700 million by the end of fiscal year 2025. First, since March of 2022, we've lost a significant amount of revenue due to our suspension of our sales into Russia and Belarus and disruptions in Ukraine due to the military action in that country. Second, we've recently experienced significant headwinds from foreign currency exchange rates. Third, we'll soon be exploring options to further de-emphasize our home care and cleaning brands. De-emphasizing these brands over time will create headspace for our tribes to bring an even greater focus to our higher margin maintenance products. We're not establishing a new 2025 revenue target today. Instead, we're committing to target a compound annual growth rate for maintenance product revenue in the mid to high single digits on a non-GAAP constant currency basis. The bulk of that growth is expected to come from sales of W40 multi-use product to geographic expansion, increased penetration, premiumization, and supported by our continued investment in digital commerce. These must-win battles are the primary areas of action that will enable us to deliver against our revenue growth targets. 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. In the third quarter, sales of W40 multi-use product were up to 16%. I'm also happy to share with you that global sales of the V40 multi-use product have returned to growth year-to-date. We've seen strong year-to-date sales in the United States, China, and Mexico, where sales of our flagship product were up 15%, 14%, and 14% respectively. Those increased sales have been almost entirely offset by flat sales in our European direct market and losses in Russia, India, as well as in Latin America. We continue to estimate that the potential global growth opportunity for W40 multi-use product is greater than $1 billion, and we have a high level of confidence that W40 multi-use product will finish this fiscal year in growth. Our second Muslim battle is to grow W40 multi-use product through premiumization. Premiumization creates opportunities for revenue growth and gross margin expansion. Year to date, sales of W40 smarts draw an easy reach when combined, were 142.2 million, up 1% compared to the prior year period. Sales of premiumized products represented 47% of global sales of W40 multi-use products year-to-date. Sales of premiumized products were up 13% in the Americas and 30% in Asia Pacific. These increased sales were almost entirely offset by low sales of premiumized products in EMEA. By the first quarter of FY24, we expect to have fully implemented W40 smart store next-generation capacity within the Americas and EMEA, and we will be able to expand sales of premiumized products more rapidly. Our third must-win battle is to grow W40 specialists. Sales of W40 specialists were up 7% in the third quarter and 11% year-to-date. We saw solid growth for W40 specialists across all three trade blocks this quarter, with the Americas, EMEA, and Asia Pacific experiencing growth of 6%, 6%, and 15%, respectively. We're pleased that W4D Specialist is fully leveraging our most iconic assets, the blue and yellow brand with a little red top. Our final Muslim battle is focused on digital commerce. E-commerce sales were up over 35%, both in the third quarter and year-to-date, primarily due to strong growth in the Americas. As I've shared with you in the past, our digital commerce strategy is about more than driving online sales. It's about driving awareness of our brands and teaching end users how to use them. With that in mind, and in support of one of my three strategic priorities, pivoting the company toward a more sustainable future, I'm excited to share with you that we've recently launched our first global online marketing campaign that unites 30 plus markets under one message, repair, don't replace. The social media campaign is a perfect opportunity for us to inspire millions of doers, makers, fixers and builders to use our products to extend the lifespan of their tools, worn down equipment, bicycles, cars or just about anything else and keep them in circulation for longer. Just reducing waste, preserving valuable resources and leaving a positive lasting handprint on the world. You can learn more about this global campaign by visiting our company website. Now I'll turn the call over to Sarah, who will provide you with a financial update on the business.