WD-40 Company

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, 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'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 31st, 2024. 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, July 10th, 2024. 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.

Thank you, Wendy, and thanks to all of you for joining us this afternoon. Today I'll provide you with an overview of our sales results for the third fiscal quarter of 2024, an update on our must-win battles, and progress we've made on certain strategic enablers. After that, Sarah will provide you a brief update on the divestiture of our home care and cleaning business, an update on our business model, and an outlook for the remainder of fiscal year 2024. We'll then take your questions. I'm happy to share with you that for the third consecutive quarter, we saw sales growth across all three of our trade blocks. Today, we reported net sales of $155 million, an increase of over 9%, and a new record quarter for the company. Excluding the favorable impact of currency, revenue grew 8%. In addition, sales of maintenance products grew over 10% for both the third quarter and year to date, which is in line with our long-term growth targets. We remain encouraged that the improvement in trends we experienced in the first half of fiscal year 2024 have carried into the third quarter. Sales volumes continue to improve, and in the third quarter, nearly all our sales growth was driven by volume, with currency and price impacts nearly canceling one another out. In addition, we're pleased to report that gross margin continues to improve and is moving closer to our long-term target of 55%. In the third quarter, we reported gross margin of 53.1%, which is an improvement of 70 basis points sequentially and 250 basis points compared to the third quarter of last fiscal year. Driving improvements to gross margin enables us to invest in critical areas of our business, like our 4x4 strategic framework, which will help us to continue to drive faster top-line growth and improve operational efficiencies. Now let me discuss third quarter sales results by segment. Unless otherwise noted, I will discuss sales on a reported basis and compared to the third quarter of last fiscal year. Sales in the Americas, which includes the United States, Latin America, and Canada, grew approximately 6% over the prior year to 75.1 million. The bulk of this growth was driven by higher sales of W40 multi-use product, which increased 7% compared to the prior year. Much of this growth came from strong sales of W40 multi-use product in Latin America, which increased by 51% year-over-year. These increased sales were partially offset by lower sales of W40 multi-use product in the United States and Canada. Our Latin American market is comprised of our direct markets in Mexico and Brazil, and all remaining Latin American countries, most of which are served by our marketing distributor partners in the region. Sales in Latin America were favorably impacted by our transition to a direct market model in Brazil. Early in the third quarter of fiscal year 2024, we acquired our Brazilian distributor and shifted from an indirect distribution model to one where we sell directly to retail customers. This distribution model shift favorably impacted net sales in Brazil by 2.7 million in the third quarter. In addition, sales in Mexico and other Latin American markets increased 2.8 million due to the timing of customer orders, successful brand building programs, increased distribution of the VD40 smart straw, and favorable impacts of changes in foreign currency exchange rates. While end-user demand remained relatively constant in the United States, sales decreased by 2% compared to the prior year quarter. This relatively flat performance in the U.S. was driven by several factors. Firstly, we're lapping an extremely strong U.S. performance in our FY23, where the U.S. experienced exceptionally strong volume recovery post-price increases and grew by 17%. We also experienced strong declines in our non-strategic household brands in the U.S., which decreased in Q3 by 15%. Our combined maintenance product sales in the U.S. for Q3 declined by 2%, whereas year-to-date they've grown by 2%. and we expect modest growth for the fall year. Our re-RP implementation did not have a material impact on our U.S. results in the third quarter, whereas we continued to experience some disruption, this lessened as the quarter progressed to the extent that by the end of the quarter, we were approaching traditional customer service levels with order fill rates and on-time and in-fall delivery, also referred to as OTIF deliveries, well into the 90% level. A plan for FY24 in the Americas was always driven primarily by strong Latin American growth, and that is playing out. Sales of W40 multi-use product in Canada decreased 13% period over period due to phasing associated with the discontinuation of our classic CAN delivery system and the implementation and conversion of smart straw in Canada. we have taken some short-term pain in Canada to drive a very significant long-term gain as we fully leverage our smart straw and easy reach formats. In the Americas, sales of W4D specialists increased across most regions and were up 10% compared to the prior year, primarily due to new distribution and the timing of customer orders in the United States. In total, our Americas segment made up 49% of our global business in the third quarter. Turning to our sales results in the IMEA, which includes Europe, India, the Middle East, and Africa, sales in IMEA grew approximately 13% over the prior year to 59.4 million. Currency fluctuations positively impacted our sales in IMEA, and on a constant currency basis, sales would have increased 10%. The growth was driven in large part by higher sales of W40 multi-use product, which increased 17%, and W40 specialists, which increased 11%. As a reminder, volumes last year were unfavorably impacted by price increases we'd implemented, resulting in temporarily reduced demand as customers adjusted to these prices. The combination of recovering volumes and increased selling prices resulted in higher sales across most regions in RMAO this quarter. In the third quarter, we saw double-digit growth of WD40 multi-use product in nearly all RMAO direct markets. with particularly strong growth in France and Italy, which increased 1.4 million and 1.2 million, respectively. In RMA, a distributive market, sales are up 14%, primarily due to recovering volumes and increased selling prices, resulting in higher sales across most regions. Sales of W40 specialists increased across most regions of IMEA and were up 11% compared to the prior year due to the combined impact of higher sales volume due to increased distribution and stronger levels of demand after customers adjusted to price increases. The growth in maintenance products was partly offset by a decline of 19% in home care and cleaning product brands, which are not a strategic focus for us and are expected to decline due to our shift in focus on core operations during the ongoing sales process. In total, our EMEA segment made up 38% of our global business in the third quarter. Turning to Asia Pacific, which includes Australia, China, and other countries in the Asia region, sales in Asia Pacific grew approximately 14% over the prior year to 20.5 million. The growth was driven by higher sales of W40 multi-use products, which were up 11%, higher sales of W40 specialists, which were up 30%, and higher sales of home care and cleaning product brands, which were up 28%. The growth of maintenance products in Asia Pacific was driven in large part by higher sales of W40 multi-use products and W40 specialists in China. In China, sales of maintenance products were up 29%, primarily due to successful brand building programs and the timing of custom orders. On a constant currency basis, sales for China would have increased by 35%. We've consistently shown how effective brand building drives success in markets worldwide. Over the last few years, we've continued to invest slightly higher levels of AMP in brand building activities in priority markets like China. If we push our AMP investment from 5% to 6% to 8% to 10% in disciplined brand building and sampling programs in such high growth target markets, we experience higher levels of growth and returns like we are experiencing in China. We're regularly focused on building brand awareness through targeted sampling programs, or what we refer to internally as putting cans in hands, and expanding our distribution network, a simple yet effective strategy that has worked for decades. As a result, we continue to see strong growth and returns. In our Asia-Pacific distributor market, sales are up 7%, primarily due to successful brand building programs in certain regions and the timing of customer orders. The growth is driven by higher sales of WD-40 multi-use products, which are up 5%, and higher sales of WD-40 specialists, which are up 33%. In Australia, we experienced a very strong quarter with solid sales of both WD-40 multi-use products and WD-40 specialists, which increased 6% and 14% respectively. Recently, volumes have been unfavorably impacted by price increases we'd implemented in Australia, which resulted in temporarily reduced demand. The combination of recovering volumes and successful brand building programs have resulted in a strong quarter. In addition, home care and cleaning product sales increased by 28% in Australia. Our Novak carpet cleaning product portfolio boasts a robust brand presence, a solid competitive edge, and significant growth opportunities. In addition, our home care and cleaning brands provide our Australian subsidiary economies of scale. On a constant currency basis, Sales for Australia would have increased by 14%. In total, our Asia-Pacific segment made up 13% of our global business in the third quarter. Now let me discuss the progress we've made against our must-win battles and provide you with an update on the strategic enablers that support our 4x4 strategic framework. Our must-win battles focus on what we do to increase sales and profitability. We look at these must-win battles as long-term growth drivers, and therefore, we'll focus our discussion on the year-to-date results of these battles. Starting with Muslim battle number one, lead geographic expansion, year-to-date global sales of W40 multi-use product were 334 million, representing growth of 11% over the prior year. We experienced strong sales of our signature multi-use product brand in all three trade blocks, with 18% growth in OMEA, 7% growth in the Americas, and 5% growth in Asia Pacific. We made excellent progress in many key markets, Its strong sales growth of 32% in Latin America, 29% in Benelux, 28% in Iberia, 27% in France, 23% in the Middle East, 22% in Italy, 14% in our DEC region, and 9% in China. The strong growth in Latin America is partially attributable to the acquisition of our Brazilian marketing distributor, which was a strategic decision that aligns with this Muslim battle. Much of our initial growth we've seen this quarter is due to the departure from our prior agreement with Turo Marketing, which was based on a royalty model. Moving to a direct market provided us with an immediate benefit to our top line, which we're realizing this quarter. For the first 12 months of direct operation, we expect the Brazil market to contribute revenue growth of more than $10 million due to this transition. This is a substantial increase over the growth expected under the old royalty-based business model. Over the medium term, which is approximately three to five years, we expect to turn Brazil into a $20 million plus market. Sales growth in Latin America is also attributable to increased sales in Mexico. Year-to-date, sales of W40 multi-use product in Mexico increased 25% over the prior year. As you may recall, we successfully shifted from a distributor model to a direct market in Mexico in May 2020, and our revenues in Mexico have tripled since making that shift. are expected to have virtually quadrupled by the end of this fiscal year very similar to our investment strategy in china we've consistently invested in brand building and expanding our distribution network in mexico and our investments are paying off we're very pleased with our positive starts in our newest direct markets in brazil mexico we believe this latest acquisition of the brazil market was a game-changing opportunity for us we will continue to assess additional markets to uncover further game-changing opportunities ahead. Next is Muslim battle number two, accelerating premiumization. Year-to-date global sales of W40 SmartStraw and EasyReach, when combined, were $175 million, up $21 million, or 14% over the prior year. For us, premiumization is a major contributor to our revenue growth as well as gross margin expansion, and our premiumized products are loved by end users around the world. In addition, our premiumized delivery systems are a major driver of growth for our flagship brand and contributed 61% of W40 multi-use product growth year-to-date. Our implementation of W40 smarts for our next generation in the Americas and in multiple packages in EMEA is contributing to the sales growth of premiumized products. This growth aligns with our long-term net sales comparing your growth rate target of greater than 10% in reported currency for premiumized products. Our third Muslim battle is to drive W40 specialist growth. Year-to-date, sales of W40 specialist products were nearly 54 million, top 11%. We saw growth of W40 specialist products across all three trade blocks with particularly strong growth in Omeya and Asia Pacific, where sales grew 15% each. In China, we experienced spectacular growth in WD-40 specialists of 47% due to expanding distribution, new WD-40 specialist product introduction to the region, as well as successful brand building programs. We continue to target a net sales compound annual growth rate of greater than 15% in reported currency for WD-40 specialists. Our fourth and final Muslim battle is to accelerate digital commerce. We see this as an accelerator for all our other Muslim battles as it improves brand awareness and online engagement leading to an improved customer experience and sales across all our trade channels. Some of our key objectives within this Muslim battle are to build our brand digitally, grow and develop the e-commerce pure play channel, accelerate growth of the Omni channel and continue capability building for our employees. Year to date, e-commerce sales were up 18% with double-digit growth across all three trade blocks. Turning to the second element of our 4x4 strategic framework, our strategic enablers, our strategic enablers focus on operational excellence and support how we will achieve our Muslim battles. Strategic enabler number one is about ensuring a people-first mindset. That culture begins at the very top of our organization with our board of directors. Last month, we shared that Greg Sanford will retire from our board as of our next annual meeting of stockholders in December. Our board intends to nominate Eric Etchart as non-executive chair following Greg's departure. I'm very pleased that the board intends to appoint Eric to this role. His breadth of international finance, marketing, board, and management experience will provide the company valuable insights as we seek to accelerate our geographic expansion and remain steadfast in our commitment to good corporate governance. Eric also has strong appreciation for our culture here and leadership experience in ESG, which brings us to strategic enabler number two, build a sustainable business for the future. We'll have a very robust update for you on this enabler at our next earnings call because we intend to post our next ESG report in early fiscal year 2025. In our report, we'll be articulating our progress on key ESG matters, In addition, we continue to make great progress in our global Repair Don't Replace campaign. In 2021, W40 Company launched the Repair Challenge, an online contest that inspires millions of doers, makers, fixers, and builders across more than 40 countries to show how they extend the lifespan of their tools, worn down equipment, bicycles, cars, or just about anything else to keep them in circulation for longer. To date, the Repair Challenge has created over half a billion marketing impressions with end users worldwide. Strategic enabler number three is achieving operational excellence in supply chain. This strategic enabler is meant to continue our quest for operational excellence. To support this strategic enabler, we've established a set of global supply chain KPIs that are being utilized by all three trade blocks. This allows us to understand our operational performance at a deeper level in all regions. One important KPI is achieving on-time and in-fall delivery, and I'm happy to share with you that customer OTIP scores were over 95% in aggregate in the third quarter. We've also been working on several key projects this year that support this strategic enabler. Since we outsource all our manufacturing, it's crucial for us to take responsibility and leadership in ensuring that our entire value chain, from raw materials to customers and end users, meets the highest standards we set for ourselves and our partner organizations. We are committed to ensuring that our products are manufactured and delivered in accordance with the highest ethical and professional standards. Good governance is the first step towards good social and environmental responsibility in the supply chain. Therefore, we've recently published a revised supplier code of conduct and are currently working to develop and roll out a new responsible sourcing policy so we can more clearly communicate how the supply chain can positively contribute toward the areas of environmental and social responsibility. And finally, strategic enablement number four is to drive productivity via an end to systems, which Sarah will provide you an update on. With that, I'll now turn the call over to Sarah.