WD-40 Company

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 February 28th, 2025. 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, April 8, 2025. 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 thank you all for joining us today. Today, I'll start with an overview of our sales results for the second fiscal quarter of 2025. I'll also provide updates on our must-win battles and key strategic enablers. After that, Sarah will go over our second quarter results in more detail, provide a brief update on the anticipated divestiture of our home care and cleaning business, review our 55-30-25 business model, and share an updated outlook for fiscal year 2025. We'll then open the floor for your questions. Today, we reported net sales of 146.1 million for the second quarter, which was an increase of 5% from the second quarter of last fiscal year. Changes in foreign currency exchange rates have been a bit of a headwind for us this quarter. Adjusting for estimated translation impact of foreign currency, Net sales would have been 150.9 million, reflecting an increase of 9% compared to the prior year fiscal quarter. Our target sales growth for core maintenance products remained in the mid to high single digits. In the second quarter, we achieved 139.3 million in net sales for these products, a 6% increase despite currency headwinds. This performance aligns with our long-term growth targets. Much of this growth was driven by strong volume performance. We experienced double-digit volume growth, both in the second quarter and year to date, with particularly strong volume growth in our mayor. Now let's talk about second quarter sales results in dollars by segment, starting with the Americas. Total sales in the Americas, which includes the United States, Latin America, and Canada, increased 3% in the second quarter to $65.5 million, compared to the same period last year. Adjusting for estimated translation impact of foreign currency, net sales in the Americas would have increased by 5% compared to the prior year fiscal quarter. Sales and maintenance products increased 4% in the second quarter to 62.4 million compared to the same period last year. The bulk of this growth was driven by higher sales volume of W40 multi-use product in Latin America, which increased 47% compared to prior year quarter. Sales of W40 multi-use products in Latin America were favorably impacted by our transition to a direct market model in Brazil. This distribution model shift favorably impacted net sales in Brazil by approximately 3.4 million in the second quarter. And US direct market is celebrating its one-year anniversary this quarter, and it continues to perform fully in line with our expectations. In addition, sales in other Latin American markets increased 1.3 million due to improved economic conditions in certain regions, as well as higher level of brand building activity and expanded distribution. Higher sales in Latin America were partially offset by lower sales of W40 multi-use products in the United States, which decreased by $2.7 million compared to the prior year quarter due to the timing of customer orders. I'm happy to share that many of those customer orders have already shifted into March, contributing to a strong start we're seeing in the US for our third fiscal quarter. In the Americas, sales of 3040 specialists increased 9% compared to the prior year, primarily due to expanding distribution in the United States. Growth in maintenance products is partially upset by a 6% decline in home care and cleaning products. This drop is primarily due to reduced distribution for these brands as we shift our focus to our more profitable maintenance products in line with our 4x4 strategic framework. In total, our Americas segment made up 45% of our global business in the second quarter. Now let's take a look at our sales in IMEA, which includes Europe, India, the Middle East, and Africa. Total sales in IMEA increased 10% in the second quarter to 59.6 million compared to the same period last year. Adjusting for estimated translation impact of foreign currency, Net sales in IMEA would have increased by 15% compared to the prior year fiscal quarter. Sales of maintenance products increased 11% in the second quarter to 58.1 million compared to the same period last year. The strong growth in IMEA was driven most significantly by higher sales volumes of 50-40 multi-use product in our direct market. Sales increased most significantly in Italy, France, and the Benelux regions, which were up 28%, 13%, and 27% respectively. In IMEA, most regions have seen continued volume growth momentum following a temporary decline in volumes associated with price increases we implemented over two years ago. While much of this volume recovery occurred in fiscal year 24, momentum in sales volumes has continued into fiscal year 25, leading to higher sales. Sales of the V40 Specialist increased 12% compared to prior year fiscal quarter, primarily due to higher sales volume due to increased distribution and stronger levels of demand in various direct markets, most significantly in the Dak, Benelux, and Iberia regions. Growth in maintenance products has partially upset by a 32% or $715,000 decline in home care and cleaning products. This is primarily due to reduced promotional efforts for these brands, as we shift our focus to our more profitable maintenance products in line with our 4x4 strategic framework. In total, our RMA segment made up 41% of our global business in the second quarter. Now on to Asia Pacific. Sales in Asia Pacific, which includes Australia, China, and other countries in the Asia region, decreased 1% in the second quarter to 21 million compared to the same period last year. Adjusting for estimated translation impact of foreign currency, net sales in Asia Pacific would have increased by 1% compared to prior year fiscal quarter. Sales of maintenance products decreased 1% in the second quarter to 18.9 million compared to the same period last year. This decline was driven primarily by lower sales of W40 multi-use products in our Asia distributor markets, where sales decreased 8% compared to the prior year quarter due to the timing of customer orders. Sales volume in our Asia distributor markets declined due to in-market knock-on effects associated with changes in foreign currency exchange rates. Since we sell to these distributors in the U.S. dollar, a stronger dollar makes our products more expensive to buy in-market. As a result, our marketing distributor partners may raise prices in the markets, leading to temporary market disruption. In March, we began to see recovery in our Asia-Pacific distributor markets and anticipate a strong second half of fiscal year 25. Lower sales in our Asia distributor markets were partially offset by higher sales of the V40 multi-use product in China, which increased 5% due to increased sales volume from successful brand building and marketing activities, as well as expanded distribution. In Australia, sales were down 5% in the second quarter, primarily due to lower sales of home care and cleaning products in the region, which decreased 7% due to the timing of customer promotions. In Asia Pacific, sales of W40 specialists were up 10% in the second quarter due to higher sales volume from successful promotions and marketing efforts in our Asia distributor markets, along with expanded distribution in China. In total, our Asia Pacific segment made up 14% of our global business in the second quarter. Now let's take a look at our Muslim battles. Our Muslim battles focus on maintenance, product revenue growth, and improved profitability. Starting with muslin battle number one, lead geographic expansion, year-to-date global sales of W40 multi-use product were 232 million, representing growth of 8% compared to the same period last year. We experienced 16% growth of our signature brand in IMEA and 7% growth in the Americas. This growth was partially offset by a 4% sales decline in Asia Pacific. Every day, we continue to uncover new opportunities to build our flagship brand with end users around the world. As geopolitical fragmentation increases, we're exploring new go-to-market strategies in specific regions. Over the past five years, we've successfully transitioned two markets, Mexico and Brazil, to a direct model, gaining valuable insights and driving strong growth. However, going direct is not the only way to accelerate top-line growth. We're also exploring alternative go-to-market strategies. To improve efficiency, we've started grouping our EMEA markets into strategic regional hubs, with centralized operations and business functions. These hubs manage sales, distribution, and marketing for multiple nearby markets, helping us reduce costs, accelerate rate of execution, and better adapt to regional needs. In the Asia-Pacific region, we're adopting hybrid models in some markets to accelerate learning and growth. We've identified Indonesia, Vietnam, and Japan as tough market opportunities within our Asia distributed network. Experience has shown that having boots on the ground benefits both our company and our distributor partners. Currently, we have dedicated W40 company personnel working alongside our Indonesian and Vietnamese distributors, and we're excited to announce the hiring of our first dedicated personnel in Japan who will work closely with our Japanese distributor. We're confident that the focus and expertise that these personnel will bring to their respective markets will create a significant unlock and contribute further to our success. Next is Muslim battle number two, accelerating premiumization. Our second Muslim battle is to accelerate sales of premium formats and W40 multi-use products. For us, premiumization is a major contributor to achieving more profitable growth, and our premiumized products continually leave our end users with positive lasting memories. The year-to-date sales of W40 smarts draw an easy reach when combined, or up 11% compared to the prior year period. On a go-forward basis, we'll be targeting a compound annual growth rate for net sales of premiumized products of greater than 10%. A third Muslim battle is to drive W40 specialist growth. Year-to-date, sales of W40 specialist products were $38 million, up 12% compared to the same period last year. We continue to see growth of W40 specialist products across all three trade blocks with particularly strong growth in IMEA and the Americas, and where sales grew 14% and 12% respectively. As we continue to embrace our new mantra, few things, many places, bigger impact, we'll review our portfolio to ensure we focus our resources on the products with the greatest growth potential, as well as those, new or existing, that support our sustainability agenda. On a go-forward basis, we'll be targeting a compound annual growth rate for net sales of W4D specialists of greater than 15% in reported currency. Our final Muslim battle, number four, is to turbocharge digital commerce. We view digital commerce as an accelerator for all our other Muslim battles. E-commerce sales are up 9% year-to-date. The digital channel is so much more than just a sales platform. It's a powerful tool for building brand awareness and educating end users about our products. One example is our Training the Trades program, which offers technical training and skill development to aspiring technicians and tradespeople worldwide. Over the past seven years, we've expanded from training approximately 6,000 tradespeople in one country to facilitating 200,000 completed trainings each year across more than 20 countries, with pro-focused educational content reaching millions more. In fiscal year 25, we aim to create more than 15 million online impressions and distribute more than 175,000 product samples to skilled trade professionals, effectively putting many hands in hands around the world. The digital channel has provided us with a tremendous opportunity to train more future tradespeople globally faster. Now let's move to the second element of our 4x4 strategic framework, our strategic enablers, which emphasize operational excellence. Today, I'll provide an update on strategic enablers one and three. At W40 Company, we believe our greatest asset cannot be found on a balance sheet, but rather it resides within our talented global team. Therefore, it makes sense that our first strategic initiative is to ensure a people-first mindset. For over 20 years, we've measured employee engagement every two years, not just to track progress, but to drive improvements. However, in today's volatile and certain complex and ambiguous times, we recognize the need to develop more frequent and effective ways to listen to our employees. This allows us to gather real-time feedback, enhance our culture, and shift from employee engagement to true employee inspiration. Once again, we measured employee engagements, and I'm extremely proud that we've been able to increase our employee engagement index score to 94%. In addition, 94% of our employees agree that they understand the strategy for achieving W4E Company's future goals and ambition. This is important because when employees are highly engaged and understand the organization strategy, It creates a more cohesive, motivated, and productive workforce that drives the organization towards its goals. I want to take a moment to say thank you to all of our employees for their dedication, hard work, and passion. It's because of you that our company can achieve great things. Moving on to strategic enabler number three, achieve operational excellence in supply chain. Through this strategic enabler, we're advancing our global supply chain strategy to both drive economic value and support our sustainability agenda. This fiscal year, we've strengthened global partnerships with key suppliers, leading to improved efficiencies, supply chain optimization, and tangible cost savings. Based on what we know today, we believe these cost savings will largely offset the financial impact of any potential tariffs for the remainder of this fiscal year. Generally speaking, we expect any potential tariffs from what we know today to have a minimal global impact on our business. thanks to our highly diversified supply chain. By sourcing raw materials and manufacturing products close to our customers and end users, we gain both economic and environmental advantages, while also naturally mitigating most of the impact of tariffs. However, given the dynamic nature of the environment, predicting exact outcomes is challenging, and we do have markets within the Americas, especially Mexico and Canada, representing around 6% of our global business, that may be impacted more significantly. As a precaution, we've taken steps to build inventory in certain markets to mitigate potential tariff impacts in the short term. Beyond FY25, we do expect to see higher inflation, like most businesses, and we will likely need to modestly adjust prices in certain markets to offset that impact. With that, I'll now turn the call over to Sarah.

Thanks, Steve. Today I will share a brief update on the anticipated divestiture of our home care and cleaning business in the Americas and the UK, provide insight into our business model, and review some highlights from our second quarter results. I will also share an updated outlook for fiscal year 2025. Last quarter, we met all the criteria to classify the assets we intend to sell as held for sale on our balance sheet, indicating progress on this journey. While I do not have a detailed update for you today on the anticipated divestiture, I can share with you that the investment bank we have engaged continues to have discussions with multiple potential suitors on our behalf. While there are no certainties on closing a deal with potential buyers and going to the market, our expectation is that we will likely complete the divestiture of these brands over the coming months. We will provide further updates on the divestiture process as appropriate. Our 55-30-25 business model continues to be a long-term beacon that we will move toward and align with over time. In the short to mid-term, we continue to think about each critical component of the model in a range. Let's start with a look at our second quarter gross margin performance. We target a range of 50 to 55% for gross margin, and we have made significant progress improving our gross margin over the last several quarters. In the second quarter, our gross margin was 54.6%, up from 52.4% last year. This represents an improvement of 220 basis points compared to the second quarter of last year. Gross margin benefited 110 basis points from lower costs of our cans and 90 basis points from lower costs associated with specialty chemicals used in the formulation of our products. We are also happy to share with you that gross margin improved in both IMEA and the Americas this quarter compared to the second quarter of last year. Within IMEA, gross margin improved 440 basis points to 58.1%. The Americas improved their gross margin by 70 basis points to 50.1%. In Asia Pacific, gross margins remained steady at 58.4%. which was a slight decline of 10 basis points. As a reminder, gross margin recovery has been a central focus for senior leadership who are incentivized to recover gross margin to 55% and beyond. Year to date, our gross margin was 54.7%, up from 53.1% last year. Excluding the impact of the home care and cleaning businesses we plan to divest, our gross margin is 55.2%, positioning us to exceed 55% by the end of fiscal year 2025. In fact, we currently believe we will achieve growth margin of between 55 and 56% in fiscal year 2025, one year earlier than previously projected. There are things that could knock us off course, and we continue to carefully observe the cost landscape, impact of tariffs, timing of execution of our supply chain cost initiatives, in our success in divesting of our assets held for sale. However, we are very happy with the significant improvements we have seen to gross margin over the last several quarters, and we believe we will be above our target of 55% for the fiscal year. Now turning to our cost of doing business, which we define as total operating expenses plus adjustments for certain non-cash expenses. Cost of doing business is primarily comprised of three areas. Investments in our employees, investments in building our brand globally, and trade expense to get our products to our customers. Cost of doing business as a percentage of net sales is how we measure how efficient we are at operating our business. We target a range of 30 to 35% of the percentage of net sales for our cost of doing business. This quarter, Our cost of doing business as a percentage of net sales was 38% compared to 36% in the same period last year. In dollar terms, our cost of doing business increased 4.7 million, or 9%, primarily due to higher employee-related expenses, including higher accrued incentive compensation and stock-based compensation expense. In addition, investments made in brand building activities increased period over period. As a percentage of sales, our A&P investment was 5.1% compared to 4.8% in the second quarter of the prior year. Our A&P investment is currently tracking below our full year guidance of 6% due to the timing of promotional programs. However, we have several brand building activities planned for the second half of this fiscal year, which we estimate will bring our A&P investment in line with our projected guidance of approximately 6% of net sales. we expect to see improvements in our cost of doing business metric over time as sales grow, which is the most important factor in managing our cost of doing business towards our long-term target of 30 to 35%. Turning now to adjusted EBITDA. We believe looking at adjusted EBITDA as a percentage of sales is beneficial to measure our profitability and to assess operational efficiency. Our 25% target for adjusted EBITDA margin is a long-term aspiration. However, we continue to believe we can move adjusted EBITDA margin back to our mid-term target range of 20 to 22%. In the second quarter, our adjusted EBITDA margin improved slightly to 18% compared to 17% in the same period of last year. We believe looking at adjusted EBITDA in dollar terms can also be useful for assessing absolute performance. In the second quarter, our adjusted EBITDA was $25.8 million, up 10% from prior year. As we've mentioned previously, as we successfully divest the brands that are held for sale, we will need some time to digest the impacts. Although these home care and cleaning brands produce a lower gross margin than our maintenance products, there is a lower level of operating expenses associated with these brands. primarily because no employees or resources are fully dedicated to them. If we successfully divest these brands, we will lose approximately 23 million in annual revenue, but with little associated operating expenses. As a result, our cost of doing business and adjusted EBITDA metrics will see a temporary setback on a percentage basis. However, selling these brands will position us as a higher growth margin company while also freeing up capacity for employees to focus on higher priority projects that will align with our strategic framework. Now let's discuss operating income and EPS, as well as a non-cash tax event that impacted our reported results. Operating income improved to $23.3 million in the second quarter, an increase of 11% over the prior quarter, diluted earnings per common share for the quarter, were $2.19 compared to $1.14 for the second quarter last year. This quarter, we recorded a non-cash event that materially impacted our net income and EPS. In fiscal year 2019, we took an uncertain tax position related to the Tax Cuts and Jobs Act, specifically for calculating the long-time toll tax on unrelated foreign earnings. This resulted in a reduction in earnings in 2019. With the recent expiration of the federal statutes in December, the company released the unrecognized tax benefit associated with this mandatory one-time toll tax. The release of this tax benefit resulted in a favorable income tax adjustment of $11.9 million this quarter. Given the significance of this tax benefit, which resulted in a favorable impact of 87 cents for the quarter, We have backed this non-cash event out of EPS as a non-GAAP adjustment. Diluted earnings per common share on a non-GAAP adjusted basis were $1.32 in the second quarter compared to $1.14 last year, reflecting an increase of 16%. Our diluted EPS reflects 13.6 million weighted average shares outstanding. Now let's look at our capital allocation strategy. Maintaining a disciplined and balanced capital allocation approach remains a priority for us. For the foreseeable future, we expect maintenance capex of between 1 and 2% of sales per fiscal year, which is in line with our asset-light strategy. We continue to return capital to our stockholders through regular dividends and buybacks. Annual dividends will continue to be our priority and are targeted at greater than 50% of earnings. On March 18, our Board of Directors approved a quarterly cash dividend of $0.94 per share. During the second quarter, we repurchased approximately 12,500 shares of our stock at a total cost of approximately $3.1 million under our current share repurchase plan. We will continue to be active in the market and expect to repurchase at least enough shares to offset those issued for equity compensation. Our objective is to return cash to investors in the most accretive manner. So let's turn to FY25 guidance, which we have made revisions to reflect our current view of the business. As a reminder, we issued this year's guidance on a pro forma basis, excluding the financial impact of the home care and cleaning grants we have classified as assets held for sale. While the exact timing of the transaction remains uncertain, We believe this approach will provide investors with clarity on the direction of the core business and help minimize the noise surrounding the transaction. In addition, this guidance excludes the release of a non-cash one-time uncertain tax position that generated a favorable income tax adjustment. I encourage investors to review our second quarter fiscal year 2025 earnings presentation, which includes a pro forma view. Our updated guidance for fiscal year 2025 is as follows. Net sales growth from the pro forma 2024 results continues to be projected to be between 6 and 11%, with net sales between 600 and 630 million after adjusting for translation impacts of foreign currency. Growth margin for the full fiscal year has been increased and is now expected to be between 55 to 56%. Advertising and promotion investment continues to be projected to be around 6% of net sales. Operating income continues to be projected to be between $95 and $100 million, representing growth of between 6% to 12% over the pro forma 2024 results. While we are raising our guidance for gross margin, our guidance for operating income remains unchanged due to the impacts of foreign currency exchange headwinds. The provision for income tax is now expected to be around 22.5%, which is driving an increase to non-GAAP diluted earnings per share, which is now expected to be between 525 and 555. Non-GAAP EPS is based on an estimated 13.5 million weighted average shares outstanding. This range represents growth of between 11 and 17% over the pro forma 2024 results. This guidance assumes no major changes to the current economic environment. Unanticipated inflationary headwinds, foreign currency exchange fluctuations, changes in trade tariffs, and other unforeseen events may further affect the company's financial results. In the event we are unsuccessful in divesting the assets currently held for sale, our guidance would be positively impacted by approximately 23 million in net sales $6 million in operating income and $0.33 in diluted EPS on a full-year basis. That completes the financial overview. Now, I would like to turn the call back to Steve.

Thank you, Sarah. In summary, what did you hear from us on this call? You heard that we experienced double-digit volume growth both in the second quarter and year-to-date, with particularly strong volume growth in OMEA. You heard that after adjusting for estimated translation impact of foreign currency, net sales would have increased 9% compared to prior year fiscal quarter. You heard that sales of our maintenance products were up 6% in the second quarter, despite currency headwinds, and that this performance aligns with our long-term growth target. You heard that sales of W40 multi-use products were up 8% year to date. You heard that sales of W40 specialists were up 12% year to date, You heard that we've been able to increase our employee engagement score to 94%. You heard that we've strengthened global partnerships with key suppliers, leading to improved efficiencies, supply chain optimization, and based on what we know today, we believe these cost savings will largely offset the financial impact of any potential tariffs for the remainder of this fiscal year. You heard that we've made improvements to gross margin over the last several quarters, and that we believe will be above our target of 55% by the end of fiscal year 2025. And you heard that we made an upward revision to our full fiscal year 2025 gross margin and EPS guidance. Thank you for joining our call today. We'd now be pleased to answer your questions.

Ladies and gentlemen, if you would like to register a question, 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 your question has been answered and you would like to withdraw your registration, press star one a second time. Our first question will come from the line of Daniel Rizzo with Jefferies. Please go ahead.

Good morning, everyone. Thank you for taking my questions. If we can start with just with tariffs, I understand you're making some adjustments, but I was wondering how much you ship across borders if you produce or produce and sell locally or how much tariffs will have an impact both the tariffs that's being proposed by the U.S. and, I guess, the retaliatory tariffs from China, just any color you can provide on the ongoing volatile environment.

Sure. Hey, Daniel and Steve. So, you know, we are a centralized supply chain, and so the tariff risk is somewhat mitigated by that. Of course, we're not fully immune, so... In the United States, as you perhaps know, we manufacture for the U.S., mostly in the U.S. There are small elements and components that are brought in, but the vast kind of element of the supply chain in the U.S. is reasonably tariff immune. Of course, there are costs such as steel tariffs that will work their way through as we go through, but they're being offset also by other costs. This decentralized nature of our supply chain helps a lot. We've got a lot of supply chain optimization measures happening this fiscal year, and we currently believe, as of today, what we see today and what we know today, that our supply chain optimization and cost-saving measures will largely offset any impact of tariffs for the remainder of this fiscal year. Beyond this fiscal year, we will kind of look at our forward cost base And we kind of indicated that we will look at small to moderate inflationary plus type increases as we experience potential inflation going forward.

Okay. So China announced retaliatory tariffs. It's very early. But they also announced or alluded to maybe restricting sales within the country and just doing other things that are just kind of as a retaliation against the U.S. I was wondering if that affects you guys at all, that they're restricting your product, they're restricting what you can do, or there's any – signs of any potential emerging headwinds from that?

So as of today, we see no risk there. So we manufacture in China for China. And as you perhaps know, we export from China to the Asian markets as well as manufacturing in Australia. And we're ramping up manufacturing also in other Asian markets. And so within China at the moment, we are kind of seen as a local brand in many ways. Many places we operate around the world. And so as of today, we don't see any material risk to our operations in China because of our localized supply chain. And the fact that we have Chinese nationals fully operating our Chinese business, we are seen very much as kind of a local business in many places around the world.

Okay. And thank you for that. And then you mentioned optimizing your supply chain. I was wondering if that means you're going from dual sourcing to sole sourcing or vice versa, or just a little bit of color on that. If it means you're going to more sources to make it less, more cost effective maybe, and a little more stable, or if you're going to one source to make it more optimized or how you should think about it.

So it's a combination of all those things. So the net result is that we have a a better, more diversified geographic footprint to our supply chain, which is serving the major areas of growth in the business, whilst also extracting. So you may be aware that we did invest in a global supply chain leadership position a couple of years ago, and we're starting to bear the fruit in terms of the high-quality analysis that's led to global cost savings and leveraging kind of our global partnerships. And so it's a combination of lots of things that's leading to a much more kind of de-risked, localized supply chain, but also driving cost savings for us.

Does it take a while to kind of qualify a supplier? I mean, is it a multi-year process? Is it a multi-month process? Or how does it work and how easy is it to shift?

Yeah, there's a time lag, right? So bringing on, for example, a new aerosol filler takes more than a year. You're looking at 18 months to two years to fully see that through. But we're well in the process. We have multiple moves around the world where that's already happening and we're diversifying, further diversifying our supply chain, whilst also optimizing for the global nature of our business in many areas.

Okay, and just two more questions one, so your your gross margins are going high are expected to be a little bit better than expected, but the operating income is the same. So I assume that's from sg&a or it appears to be from sg&a and I guess I want to make sure that's just coming from from higher expected compensation expenses for the rest of the year or for something else that's keeping those sg&a expenses elevated through the end of the year.

Hey, Daniel, I can take that one. So the guidance, the SG&A costs for the year are substantially as expected when we look out both in the first half and the back half of the year. The reason the operating income is not shifting with the increase in our margin is strictly from the impact of the foreign currency. So when you look at the – sorry, the air conditioner just went on in here. The impact of foreign currency for the first half of the year has been a headwind, and when we look at that for the full year, depending on which market you're looking at, the impact of that is now masking, you know, the growth margin is masking the headwind of the foreign currency, so our operating income is expected to be in line with the initial expectations that we had at the beginning of the year.

But FX has fallen recently, though, so could that provide some upside that's not currently being expected?

Potentially. When we look at the biggest market for us is the euro, and I would agree that the euro is trended up in the last month. When we put guidance together, we obviously are looking at more recent rates. And so that could be a tailwind for us if it holds in the back half of the year.

Okay. And then last question just on FX. Is there a rule of thumb you guys have, like a one cent move in the euro translates into X in the number of millions of of dollars or is it not really that easy?

It's not really that easy just because of the dynamics of the costs over in Europe. So we don't necessarily have a rule of thumb that we guide to on that.

All right. Thank you very much.

Thank you. Ladies and gentlemen, that does conclude our allotted time for questions. We thank you for your participation on today's conference call and ask that you please disconnect your lines.