WD-40 Company

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 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-K for the period ending August 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 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 the earnings documents posted on our investor relations website. As a reminder, today's call includes forward-looking statements about our expectations for the company's future performance. 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 19th, 2023. The company disclaims any duty or obligation to update any forward-looking information 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. It's been a privilege and honor to lead our great company over the last year, and even more special as my first year as CEO coincides with our 70-year anniversary. I've taken time over the last year to meet with our employees across the business and around the world, and it was truly a pleasure to have the chance to listen to their personal stories. While it was not surprising to me, it's been exceptional to see and feel the depth of engagement and commitment across the organization. Witnessing their inspired energy reinforced my own commitment and responsibility to nurture and build on our unique culture. I want to thank each of them for their dedication to drive superior results and the execution of our strategy. Looking at fiscal year 2023, for us, it was essentially a tale of two halves. Our first half saw disruption resulting from general economic uncertainty, higher costs, the loss of our Russian business, and price increases that were implemented. In the second half of the year, we saw volumes recover and we were also pleased with the recovery we experienced in EMEA, where we delivered double-digit constant currency growth for the last two quarters. Despite a difficult first half and the negative impact of currency of nearly $18 million, we still grew revenue by 4% over prior year. Excluding the impact of currency, revenue grew 7%, which is in line with our long-term growth projections. We are encouraged by the improvement in trends we experienced through the second half of the fiscal year as we enter fiscal year 2024. Now turning to our fourth quarter 2023 results, today I'll begin by discussing our sales results. I'll then walk you through our new 4x4 strategic framework, including an update on our four-year results and the progress we've made as it relates to our must-win battles. Sarah will provide further details on our fourth quarter results, an update on our business model, and our outlook for fiscal year 2024, and then we'll take your questions. Turning to our fourth quarter sales results, today I'm happy to share with you that we reported net sales of $140.5 million, up nearly 8% over the fourth quarter of last fiscal year. Translation of our subsidiaries' results into the U.S. dollar, had a favorable impact on our consolidated net sales in the fourth quarter. On a non-GAAP constant currency basis, fourth quarter sales would have been $139.2 million, up 7% compared to the fourth quarter of last year. Now let's take a closer look at the fourth quarter sales results in our trade blocks, starting with the Americas. Sales in the Americas, which includes the United States, Latin America and Canada, were up 10% in the fourth quarter to $74.7 million. Maintenance product sales in the United States increased 18%, driven by double-digit growth of both WD-40 multi-use product and WD-40 specialist. We're seeing solid improvements in volume now that we've lapped the impact of the price increases that we put into place last fiscal year. In the fourth quarter, we experienced double-digit volume and sales increases in the U.S., As a reminder, the U.S. was the first region to implement price increases and, therefore, have been the first region to recover from the related disruptions. Maintenance product sales in Latin America were down 12% against a strong comparative period in the prior year. As you may recall, the fourth quarter of last fiscal year was the strongest sales quarter in the region's history, where sales grew 80%, largely as a result of many of our marketing distributor customers purchasing product in advance of price increases that went into effect near that time. Sales in maintenance products in Canada decreased slightly down 3% period over period, but the favorable impact of sales price increases was completely offset by lower sales volumes due to weaker economic conditions in the region. We continue to experience positive momentum in our direct market in Mexico from the shift we made in 2020 from a distributor model Maintenance product sales in our direct market in Mexico decreased 19% in the fourth quarter as we continued to add new points of distribution, making our maintenance products available in more places for more people who find more uses more frequently. Sales of our home care and cleaning products in the Americas were down 4% in the fourth quarter compared to the fourth quarter of last year. We consider our home care and cleaning products as harvest brands that continue to generate consistent contributions and cash flows that are generally expected to become a smaller part of the business over time. We shared with investors last quarter that we're currently exploring options to further de-emphasize our home care and cleaning brands. We're currently conducting a global strategic review about the future of our home care and cleaning brands. The result of this strategic review could mean many things, but no decision has yet been made. We look forward to providing an update in the future. In total, our Americas segment made up 53% of our global business in the fourth quarter. Now let's take a look at our sales results in EMEA, which includes Europe, India, the Middle East, and Africa. I'm happy to share with you that the recovery we began to experience in EMEA last quarter continued into the fourth quarter. Sales in EMEA were up 16% to 50.7 million. We saw strong sales. in the UK, Italy, and Benelux, which all turned in their best quarters performance for the year. Currency fluctuations positively impacted our sales in EMEA, and on a constant currency basis, sales would have increased 13% compared to the fourth quarter of last year, marking the second consecutive quarter of double-digit sales growth in constant currency. 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 73% of the region's sales in the fourth quarter, increased by 19% compared to last year. Maintenance product sales in the EMEA direct markets increased in the fourth quarter, driven primarily by double-digit growth of both WD-40 multi-use product and WD-40 specialists in the United Kingdom, Italy, and Spain, mainly due to the impact of price increases, which is partially offset by slightly lower demand which resulted in decreased sales volume. The increase in sales was also driven by the timing of promotional programs, particularly in the wholesale and trade channels. Sales in RMA distributor markets, which accounted for 27% of the regional sales in the fourth quarter, increased by 9% compared to last year. This increase in sales was primarily driven by higher sales of maintenance products in many distributor markets. In total, RMA's segment made up 36% of our global business in the fourth quarter. Now on to Asia Pacific. Sales in Asia Pacific, which includes Australia, China, and other countries in the Asia region, were down 20% in the fourth quarter to $15 million. In Australia, sales were down 1% in the fourth quarter, primarily due to the impact of foreign currency exchange rates. On a constant currency basis, sales for Australia would have increased by 5% compared to last year, primarily due to higher sales of the home care and cleaning products as a result of successful promotional programs. In our Asia-Pacific distributor markets, sales were down 38% in the fourth quarter against a tough prior year comparison. As you may recall from last year, severe lockdown restrictions from earlier in the year were lifted and we resumed shipping product to the area, resulting in strong sales during the fourth quarter. In China, sales were down 4% in the fourth quarter, primarily due to the impact of foreign currency exchange rates. On a constant currency basis, sales for China would have increased by 2%. In total, our Asia-Pacific segment made up 11% of our global business in the fourth quarter. Now let's talk about our long-term growth aspirations. At W40 Company, we're privileged to have one of the world's best-known and most iconic brands. We have a strong competitive moat that allows us to capture the tremendous runway of opportunity before us. As we enter fiscal year 2024, I'm proud to introduce you to our new 4x4 strategic framework. which is tied to our purpose and values and will guide our future performance. Our 4x4 strategic framework was developed to drive profitable growth for sustainable value creation. There are two main elements of our strategic framework. The first element, which we refer to as our must-win battles, focuses on what we do to increase sales of our maintenance products. This is an area of focus we've discussed with investors for several years. Our Muslim battles include growing W40 multi-use product sales through geographic expansion, growing sales and gross margin through the premiumization of W40 multi-use product, growing W40 specialist product line through category leadership, and accelerating our capabilities in building our brand digitally and maximizing our global digital commerce presence. Today, we're also introducing the second element of our strategic framework, which we refer to as our strategic enablers. These four strategic enablers focus on operational excellence and support how we will achieve our Muslim battles and include ensuring a people-first mindset where we can attract, develop, and engage outstanding employees, building a sustainable business for the future, achieving operational excellence in supply chain, and driving productivity via enhanced systems. These are the primary areas that make up our 4x4 strategic framework and where we will continue to focus our time, talent, and treasure to be successful in achieving our long-term financial and operational goals. Let's reflect on the progress we made against our muslin battles for fiscal year 2023. Starting with muslin battle number one, lead geographic expansion, our largest growth opportunity in first muslin battle is a geographic expansion of the blue and yellow cam with the little red top. We estimate the potential global growth opportunity for WD-40 multi-use product to be approximately $1 billion, and we're laser focused on delivering long-term growth in our top 20 growth markets around the world. In fiscal year 2023, global sales of W40 multi-use product grew 2% over prior year. Though this growth is not in line with our long-term expectations, we ended the year strong and expect to see growth return to historic levels. For the year, we made good progress in several key markets on this Muslim battle, with strong sales growth of 14% in the UK, 14% in Mexico, 10% in China, and 17% in the US. Next is Muslim battle number two, accelerating premiumization. Our smart store delivery system has been our most successful innovation in the company's 70-year history and is loved by end users around the world. Our easy reach delivery system provides our end users with even more options to solve problems in factories, workshops, and homes. For us, premiumization is a major contributor to our revenue growth as well as gross margin expansion and also delights our end users. Over the last five years, we've achieved a compound annual growth rate for net sales of premiumized products of 7.3% in reported currency and 8.2% on a constant currency basis. We are on track to fully implement the WD40 smart straw next generation capacity within the Americas and EMEA in the first quarter of fiscal year 2024. which we expect to accelerate the sales of WD-40 multi-use premiumized products. On a go-forward basis, we'll be targeting a compound annual growth rate for net sales of premiumized products of greater than 10% in reported currency. Our third must-win battle is to drive WD-40 specialist growth. However, we see this as much more than an incremental revenue opportunity. Driving WD-40 specialist growth focuses on achieving category leadership by leveraging our core brand equity and taking advantage of our strong moat. It's about taking competitors off the shelf and increasing our market share. I'm happy to report that our efforts to drive brand awareness, maximize store placement, and increase shelf space are paying off. The fiscal year 2023 sales of W40 Specialist products were just under 67 million, up 11%. We saw growth in W40 Specialist products across all three trade blocks with growth of 18% in the Americas, 7% in EMEA, and 3% in Asia Pacific. Over the last five years, we've achieved a compound annual growth rate for net sales of W40 specialists of 14.4% in reported currency and 15.4% on a constant currency basis. On a go-forward basis, we'll be targeting a compound annual growth rate for net sales of W40 specialists of greater than 15% in reported currencies. Our final Muslim battle number four is to turbocharge digital commerce. Our ambition here is to engage with end users at scale and become the global leader in our category within the digital commerce platform. Muslim battle number four is about much more than selling products online. We view it as the accelerator for all our other Muslim battles. Digital commerce is about brand building. It drives awareness of our brands by leveraging digital media to teach end users how to use our solutions in addition to driving online sales. For fiscal year 2023, e-commerce sales were up over 35% for the year, largely due to strong growth in the Americas. We believe the greatest benefit of this must-win battle is to increase brand awareness and engagement online, which will lead to an improved shopping experience and higher sales across all channels, both in-store and online. As part of our digital commerce strategy in 2023, we launched our first global online marketing campaign, Repair, Don't Replace. This campaign further expands our opportunity to inspire millions of doers, makers, fixers, and builders to use our solutions not only to extend the lifespan of their tools or equipment, but also supports global efforts to reduce waste, preserve resources, and leave a positive handprint for future generations. And now turning to the second element of our strategic framework, our four strategic enablers, which collectively underpin our Muslim Battles. We view these as the how we will achieve our drivers for success. Starting with strategic enablement number one, ensuring a people-first mindset, at W40 Company, we know our people make us great. You will not find the greatest asset we have on our balance sheet because it's comprised of our 613 employees. We strive to be an employer of choice where all employees can bring their best and genuine selves to work. We're committed to fostering a culture of belonging, recognition, rewards, and resiliency. while attracting, developing, and engaging talent, which will drive our sustainable forward momentum. We will measure ourselves against this enabler by three quantitative metrics. Employee engagement, our Better Together scores, and our employee retention rates. Next is strategic enabler number two, building a business for the future. Simply put, we're committed to operating our business in a manner that will have a positive environmental and societal impact and one that will continue to create and protect long-term stakeholder value. We've shared with you in the past that we are philosophically aligned with a vision to reach net zero greenhouse gas emissions by 2050. The term sustainability is increasingly perceived as a climate-related matter, but we see it as more than that. We define sustainability as the ability of a business to exist for a long period of time, perhaps indefinitely. A sustainable enterprise should ensure a balance between economic growth, environmental care, and social well-being. We believe that taking an integrated approach to environmental, social, and governance issues enhances the long-term sustainability and resilience of our business and protects the long-term interests of our stakeholders. We're in the process of setting further targets to reduce greenhouse gas emissions, which we will share in our 2024 ESG report. Strategic enablement number three is achieving operational excellence in supply chains. Operational excellence has always been an important part of our strategy at WD-40 Company. Our supply chain was tested during the pandemic, and we learned a lot. The advances made by our employees to production capacity and product availability not only helped to recover our supply chain, but also uncovered a myriad of ways to make it better than it is today. This strategic enabler is meant to continue that quest for operational excellence. We believe that a resilient and high-performing supply chain enabled by people, capacity, and capabilities will secure the long-term success of our company. Our goal under this enable is to achieve on-time delivery of greater than 95% and manage our inventory on hand to less than 90 days. Finally, strategic enable number four, driving productivity via enhanced systems. We will identify and implement productivity solutions by using secure technologies to improve processes, provide effective access to critical analytics, and deliver the highest value investments through effective project and program management. This will drive profitability improvements to enhance productivity, controlled IT spending, increased employee satisfaction, as well as access to timely and accurate data that drives better decision making. The first project identified under the strategic enabler is our new cloud-based enterprise resource planning system, which the company is in the process of implementing, and Sarah will discuss with you in a moment. To summarize, our 4x4 strategic framework is designed to help us deliver on our long-term revenue compound annual growth rate for maintenance products in the mid to high single digits on a non-gap constant currency basis. This is supported by the growth outlook for each trade block We anticipate the Americas to grow between 5% to 8%, the Maya to grow 8% to 11%, and Asia-Pacific to grow 10% to 13%. In addition, our 4x4 strategic framework will drive EBITDA margin expansion as we improve our gross margins and invest across the business to gain efficiencies and productivity improvements. With that, I'll now turn it over to Sarah.