WD-40 Company

Ladies and gentlemen, thank you for standing by. Good day and welcome to the WD-40 Company 4th Quarter in Full Fiscal Year 2024 Earnings Conference Call. Today's call is being recorded. At this time, all participants are in 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 to allow your signal to reach our equipment. If at any time during the conference and 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.

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, 2024. These documents will be made 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 17, 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. Fiscal year 24 has been a year of exceptional strength, resilience, and strategic progress. We've navigated challenges, capitalized on opportunities, and continued to build on the strong foundation that has made W40 Company a success for over seven decades. Today, I'll provide you an overview of our sales results for the fourth fiscal quarter of 2024 and the progress we've made against our 4x4 strategic framework. 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 outlook for fiscal year 2025. We will then take your questions. I'm pleased to announce that our fourth quarter was our second consecutive record-breaking sales quarter. Today, we reported fourth quarter net sales of $156 million, representing an increase of over 11%, with sales and maintenance products experiencing double-digit growth during both the fourth quarter and the full fiscal year. By the close of fiscal year 24, sales of our signature product, W40 multi-use product, reached $453 million, an 11% increase over per year, and a new annual record for our core brand. In addition, I'm very happy to report that gross margin continues to improve and is moving closer to our target of 55%. In the fourth quarter, we reported gross margin of 54.1%, which is an improvement of 100 basis points sequentially from the third quarter and 270 basis points compared to the fourth quarter of last fiscal year. Now let me discuss fourth quarter sales results by segment. Unless otherwise noted, I will discuss sales in a reported basis compared to the fourth quarter of last fiscal year. This quarter, sales in the Americas, which includes the United States, Latin America, and Canada, grew approximately 6% over the prior year to $79 million. The bulk of this growth was driven by higher sales volumes of W40 multi-use product, which increased 7% compared to the prior year. Much of this growth came from strong sales in Latin America, which increased by 63% over the prior period. These increased sales were partially offset by lower sales in the United States and Canada. Our Latin America 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 of W40 multi-use product in Latin America were favorably impacted by our transition to a direct market model in Brazil. In the third quarter of fiscal year 24, 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 nearly $7 million for the full fiscal year. We also continue to experience positive momentum in our direct market in Mexico from the shift we made in 2020 from a distributor model. Sales in Mexico and other Latin American markets increased 24% and 9%, respectively, due to the timing of customer orders, successful brand building programs, increased distribution, and expanded availability of W40 SmartStrom. As I shared with you last quarter, our plan for fiscal year 24 in the Americas was always driven primarily by strong Latin American growth, and that has played out. In the United States, sales of W40 multi-use product decreased by 4% compared to the prior period. The United States experienced solid point-of-sale demand in the fourth quarter. However, compared to the same period last year, sales were down. We are comparing against an exceptionally strong performance in the fourth quarter of last year when we saw double-digit increases in both volume and sales in the United States. In Canada, sales of W40 multi-use product decreased 3% compared to the prior period. Sales in Canada were negatively impacted period over period due to phasing associated with discontinuation of our classic canned delivery system and the implementation and conversion of smart straw next generation in Canada. The good news is that we're seeing positive trends at distribution points where we have fully converted our customers to smart straw next generation and expect this conversion to drive significant long-term gains as we fully leverage our premium formats. In the Americas, sales of WD-40 specialists increased across most regions and were up 6% compared to the prior year period, primarily due to strong sales in Canada and Latin America. In total, our maintenance products increased 7% in the Americas this quarter. The growth in maintenance products was partly offset by a decline of 12% in home care and cleaning product brands. For the full fiscal year, maintenance product sales in the Americas totaled $267 million, reflecting a 7% increase compared to the prior year. This growth aligns with our long-term target for the region, which projects annual growth between 5% and 8%. In total, our Americas segment made up 51% of our global business in the fourth quarter. Now turning to our sales in IMEA. This quarter, sales in the IMEA, which includes Europe, India, the Middle East, and Africa, grew approximately 16% over the prior period to $59 million. Currency fluctuations had a minimal impact on our sales in IMEA, and on a constant currency basis, sales would have increased 15%. The strong growth in IMEA was driven by higher volume sales of W40 multi-use products, which increased 16% compared to the prior period. This growth is primarily attributable to increased sales in our IMEA distributor markets, which are up 41% compared to the prior year. This quarter, we saw double-digit growth in many of our EMEA distributed markets, but particularly strong growth in Northern Europe and India, which increased 52% and 206%, respectively. In our EMEA direct markets, sales of WD-40 multi-use product were also very strong in many markets, primarily due to improved volume, as many of our customers have adjusted to the impact of price increases implemented last fiscal year. Sales increased 5% compared to the prior period, most significantly in France and the DAC region, where they were up 18% and 12% respectively. The DAC region comprises Germany, Austria, and Switzerland. Sales of W40 Specialist increased across most regions of EMEA and were up 13% compared to the prior period due to the combined impact of higher sales volume due to increased distribution and stronger levels of demand after customers adjusted to price increases. In total, our maintenance products increased 15% in EMEA in the fourth fiscal quarter. In addition, sales of home care and cleaning product brands sold in the UK increased 25% in the fourth quarter. For the full fiscal year, maintenance product sales in EMEA totaled $212 million, reflecting a 17% increase compared to the prior year. This growth surpasses our long-term growth target for the region, which projects annual growth between 8% and 11%. In total, our AMA segment made up 37% of our global business in the fourth quarter. Now turning to Asia Pacific. Sales in Asia Pacific, which includes Australia, China, and other countries in the Asia region, grew approximately 21% over the prior year to $18 million. The growth was driven primarily by higher sales of W40 multi-use products, which grew up 26% compared to the prior period. This growth is driven in large part by higher sales of maintenance products in our Asia-Pacific distributor markets, which are up 51% compared to the prior period due to successful brand building programs in certain regions and the timing of customer orders. In China, sales of maintenance products were up 10% compared to the prior period due to successful brand building programs and the timing of customer orders. China continues to see strong growth in both WD-40 multi-use product and WD-40 specialist, with full fiscal year sales of maintenance products up 14% compared to the prior year. In Australia, sales were flat compared to the prior period. Sales of Novak carpet cleaning product decreased 6% compared to the prior period due to the timing of promotional activities. However, this sales decline was almost entirely offset by high sales of WD-40 specialist, which increased 15% compared to the prior period, primarily due to successful brand building and promotional programs. For the fourth fiscal year, maintenance product sales in Asia Pacific totaled $79 million, reflecting a 10% increase compared to the prior year. This growth aligns with our long-term growth target for the region, which projects annual growth between 10% and 13%. In total, our Asia Pacific segment met up 12% of our global business in the fourth quarter. Now let me discuss the progress we've made against our 4x4 strategic framework, which, as you will recall, is comprised of our four must-win battles and our four strategic enablers. Our must-win battles focus on what we do to increase sales and profitability. We look at these as long-term growth drivers, and therefore we will focus our discussion on the full fiscal year results of those battles. Starting with must-win battle number one, lead geographic expansion. Global sales of WD-40 multi-use products in fiscal year 24 were 453 million, representing growth of 11% over prior year. We experienced strong sales of our signature multi-use product brand in all three trade blocks with 18% growth in Ameya, 7% growth in the Americas, and 9% growth in Asia Pacific. People often ask Sarah and I what we believe investors misunderstand about WD-40 Company as an investment. I tell them that investors sometimes overlook the significant global expansion opportunities still available, even after 71 years, but a blue and yellow can with a little red top. We've made excellent progress this fiscal year in many key markets with strong sales growth of 40% in Latin America, 13% in our Asia distributor markets, 25% in France, and 21% in India. But what I want to emphasize today is that we have so much further to go. As I look around the world, all I see is opportunity. We estimate the global benchmark sales opportunity for WD-40 multi-use product to be approximately $1.6 billion. We calculate that benchmark sales opportunity by using macroeconomic data from World Bank market data and combining that data with an internally developed algorithm. We've used these data sources combined with our algorithm for close to 30 years, and they've proven to be remarkably accurate. The data show that after 71 years, we've achieved only approximately 28% of the benchmark sales opportunity for WD-40 multi-use product. Therefore, there remains approximately $1.2 billion of land and expand growth opportunity across the globe. Our strategy remains simple yet effective to reach this goal, make our product available to buy in more places, and put more cans in the hands of our target end users around the world. The success of our geographic expansion strategy is perhaps best exemplified by our progress in Brazil. Following our acquisition of our Brazilian distributor, we achieved sales growth of nearly 7 million in the first six months of direct operations, exceeding our initial expectations. This success, coupled with our experience in growing markets all around the world, gives us confidence in our ability to unlock further game-changing opportunities in emerging markets and move the needle ever closer to the significant growth opportunity in front of us. Next is Muslim battle number two, accelerating premiumization. Global sales of Liberty 40 Smart's strong easy reach in fiscal year 2024 when combined grew 11% or approximately 20 million over the prior year. Our premiumization strategy was developed with our end users in mind. Our premiumized products delight our end users and leave them with positive lasting memories. In addition, premiumization continues to be a major contributor to our revenue growth and gross margin expansion. Over the last five years, we've achieved a compound annual growth rate for net sales of premium products of 10.7%. On a go-forward basis, we'll be targeting a compound annual growth rate for net sales of premium product formats of greater than 10%. A third Muslim battle is to drive W40 specialist growth. Global sales of WD-40 Specialist products in fiscal year 24 were nearly $74 million, up 11% or $7 million over the prior year. Through our WD-40 Specialist product line, we aspire to achieve category leadership and increase our market share by leveraging our core brand equity. Once again, we saw growth of WD-40 Specialist products across all three trade blocks, with growth of 6% in the Americas, 14% in EMEA, and 17% in Asia Pacific. In China, we continue to experience spectacular growth of WD-40 specialists, where sales grew over 1.4 million, or 45%, due to expanded distribution, new WD-40 specialist product introduction to the region, as well as successful brand building programs. We estimate the benchmark sales opportunity for WD-40 specialists globally to be approximately $605 million, and to date, we've achieved only 12% of our benchmark growth opportunity. Over the last five years, we've achieved a compound annual growth rate for net sales of W4D specialists of 14%. On a go-forward basis, we'll be targeting a compound annual growth rate for net sales of W4D specialists of greater than 15%. Our fourth and final Muslim battle is to accelerate digital commerce. Global sales within the PurePlay e-commerce channel in fiscal year 24 were up 12% compared to the prior year. The strategy associated with this battle is not just about driving online sales. It's about accelerating all our other must-win battles. Digital commerce intersects with all our must-win battles, much like the central overlap in a Venn diagram. As part of our digital commerce strategy in 2024, we continued our global online marketing campaign, the Repair Challenge. We are now in the third year of this promotional effort, which motivates millions of doers, makers, fixers, and builders across more than 40 countries to extend the lifespan of their tools and equipment. In FY24, our Repair Challenge websites attracted over 2 million visitors, with more than 10,000 projects submitted. These projects aim to prolong the life of tools, worn-down equipment, bicycles, cars, and just about anything else, helping to keep them in circulation longer. Turning to the second element of our 4x4 strategic framework, our strategic enablers. Our strategic enablers focus on operational excellence, and they collectively underpin and drive the success of our Muslim battles. Strategic enabler number one is ensuring a people-first mindset. At W40 Company, our most powerful competitive advantage is the commitment of our 644 employees spread across 16 countries to our purpose, values, and strategy. We strive to be an employer of choice where all employees can bring their best selves to work. Our people-first mindset is intended to create programs that inspire, motivate, and reward employees for contributions that are aligned with our 4x4 strategic framework while maintaining a strong focus on growth and profitability. I'm very proud of our 93% employee engagement rate in FY24, a testament to our strong culture, and the opportunities we provide for our people to learn, grow, and succeed. This year, we made significant strides in beginning to transform W40 Company into a world-class global learning organization. To gain insights into our progress, we conducted a voluntary learning survey, which received an impressive 82% response rate. The results show that 90% of our employees believe that continuous learning is key to driving the company's success, among other valuable findings. This brings us to strategic enable number two, build a sustainable business for the future. We define sustainability as the ability of a business to exist indefinitely. We are committed to operating our business in a manner that will have positive environmental and societal impacts, which will create value for all our stakeholders. Over the last 12 to 18 months, we've taken significant steps to embed sustainability into our business strategy, steps we believe will provide us with a competitive advantage in the global marketplace. Our efforts have been considerable. Some of the highlights include adding three dedicated ESG positions, completing an environmental assessment of our Tier 1 suppliers, implementing a carbon accounting system, refining our sustainability lens for future innovation, and developing a science-based environmental impact roadmap with a priority to reduce GHG emissions. We will be publishing our 2024 ESG report next month. In this report, we detail our ESG-related objectives, targets, and progress made during the last two-year period, and we establish objectives and targets for the future. Strategic enabler number three is achieving operational excellence in supply chain. Through this strategic enabler, we continue to pursue operational excellence. This year, we adopted a truly global approach to our supply chain strategy for the first time, recognizing its pivotal role in driving economic value and advancing sustainability. We've undertaken several key initiatives that support this approach. In-depth analyses revealed significant opportunities for cost reduction and efficiency gains. By strengthening global partnerships with key suppliers, we've driven efficiencies that translate into cost savings. Additionally, we completed an environmental audit of our top suppliers and published an updated supplier code of conduct. In fiscal year 2025, we'll publish a new responsible sourcing policy to more clearly communicate how the supply chain can positively impact environmental and social responsibility. Notably, we reduced our inventory by approximately $7 million and maintained an average on-time and full delivery rate of 95% for fiscal year 2024. Our employees achieved all of this while simultaneously rolling out the first phase of our new ERP implementation across a substantial portion of our business. And finally, strategic enablement number four is to drive productivity via enhanced systems. We've been laser-focused on identifying and implementing systems that streamline operations, deliver actionable insights, and drive value. By leveraging automation and AI, we aim to optimize our processes, reduce manual labor, and ultimately enhance our bottom line. A key milestone this year was a successful rollout of our new ERP system across 50% of our business. While we encountered some initial challenges, we've swiftly adapted and learned from the experience, which we expect will result in smoother implementations going forward. Other milestones this past fiscal year include standardization and processes like project and portfolio management, along with streamlined approaches to solution-driven decision-making. Lastly, we've established the foundation to move with more intent toward productivity improvement by establishing global centers of excellence along key areas of IT to bring once disparate teams together to harness their collective skills and capacity to focus on our long-term growth objectives. With that, I'll now turn the call over to Sarah.