Good day and welcome to the WD-40 Company Fourth Quarter Fiscal Year 2017 Earnings Conference Call. Today’s call is being recorded. At this time, all participants are in a listen-only mode. At the end of the prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the presentation over to your host for today’s call, Ms. Wendy Kelley, Director of Investor Relations and Corporate Communications. 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, Garry Ridge and Vice President and Chief Financial Officer, Jay Rembolt. 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 September 30, 2017. These documents are available on our Investor Relations website at investor.wd40company.com. A replay and transcript of today’s call will also be made available at that location shortly after this call. On today’s call, we will discuss certain non-GAAP measures. The descriptions and reconciliations of these non-GAAP measures are available on our SEC filings as well as our earnings presentation. As a reminder, today’s call includes forward-looking statements about our expectations for the company’s future performance. Of course, actual results could differ materially. The company’s expectations, beliefs and projections are expressed in good faith, but there can be no assurance that they will be achieved or accomplished. Please refer to the risk factors detailed in our SEC filings for further discussions. 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 19, 2017. The company disclaims any duty or obligation to update any forward-looking information whether as a result of new information, future events, or otherwise. With that, I’d now like to turn the call over to Garry.

Thank you, Wendy. Good day and thanks for joining us for today’s conference call. Today, we reported net sales of $96.6 million for the fourth quarter of fiscal year 2017, which was a decrease of 1% from the fourth quarter of last year. Net income was $14.4 million compared to $14.2 million in the fourth quarter of last fiscal year, an increase of 1%. Diluted earnings per share for the fourth quarter were $1.01 compared to $0.99 for the same period last year. For the full fiscal year net sales were $380.5 million which is essentially flat over last fiscal year. On a constant currency basis, total net sales would have been $399.6 million for the full fiscal year, up 5% over last year. This is what we refer to as translational related exposure and impacts reported results from Canada, Australia, China, and the EMEA segment. However, we also experienced transaction related impacts from their foreign currency exchange rates, exclusively from our EMEA segment which resulted in a favourable impact on our consolidated net sales. So if we removed all currency related impacts from our fiscal year results, net sales would have increased 2%. Net income was $52.9 million in fiscal year 2017 reflecting an increase of 1% and diluted earnings per share for the full year set a new record for the company at $3.72 compared to $3.64 in the prior fiscal year. I believe today’s results demonstrate that our robust to business model and global diversification can deliver record earnings even in times of currency exchange headwinds. For the purpose of this call, after discussing our strategic initiatives we’ll be focussing primarily on financial and operational results for the fourth fiscal quarter. For a complete discussion of our full year’s results for 2017, please refer to the press…

Thank you, Garry. First let's start with a discussion about how we performed against our most recent issued fiscal year 2017 guidance. We’d expected our fiscal year 2017 net sales to be between $382 million and $388 million. Today, we reported fiscal year revenue of $380.5 million, flat to prior year. We expected gross margin to be above 56% and today we reported gross margin of 56.2%. We expected our global advertising and promotion investment to be below 6% of net sales and today we reported A&P investment of 5.4%. We expected net income to be between $51.3 million and $52.3 million resulting in diluted EPS of $3.64 and $3.71 assuming 14.1 million weighted average shares outstanding. Today we reported net income of $52.9 million and a diluted EPS of $3.72 based on 14.1 million weighted average shares outstanding. Overall, we delivered full fiscal year results in line with our most recent guidance. As Garry has mentioned returning to topline growth continues to be a top priority for us. However we believe that our bottom-line results are solid and demonstrate the strength of our business model. Now let's turn to our 50/30/25 business model and review the long-term targets that we use to guide our business. As you may recall the 55 represents gross margin, which we target to be at 55% of net sales. The 30 represents our cost of doing business which is our total operating expenses excluding depreciation and amortization. Our target is to be at 30% of net sales and that leaves us finally with EBITDA at 25%. First, the 55 our gross margin, in the fourth quarter our gross margin was 56% compared to 57.4% last year. Net changes in major input costs which include petroleum-based specialty chemicals and aerosol cans, negatively impacted our margin…

Great. Thanks, Jay. So let me sum up and share what you may have heard on the call. You heard that our results demonstrate that our robust business model and global diversification can deliver record earnings even in time of currency exchange headwinds. You heard that for the fist time in a long time foreign currency exchange rates slightly benefit our reported quarterly results. You heard that for the full fiscal year we achieve EPS of $3.72 which is a new company record and above the top end of our most recently issued guidance. You heard that global sales of WD-40 Specialist were almost $26 million in the fiscal year of 2017, which represents a 20% increase over the last year. You heard that we issued new guidance which projects the company will return to top line growth in fiscal year 2018, hoping that exchange rights stabilize. You heard that we have refreshed our strategic initiatives and that a new long-term revenue target is to drive consolidated net sales to approximately $700 million in revenue by the end of fiscal year 2025. So in closing, I'd like to share a quote with you from John Maxwell “sometimes you win sometimes you learn”. Thank you for joining us today and a special thank to our WD-40 global tribe members for their passion and dedication to our great company again in 2017. We’d be please now to open the conference call to your questions.

[Operator Instructions] Our first question comes from the line of Liam Burke from FBR Capital Markets. Please proceed with your question.

Thank you. Good afternoon, Garry, good afternoon, Jay.

Good afternoon, Liam.

Garry, you talked about U.S. maintenance sales being down due to tough comps where you had the different formula. How did Specialist perform underneath that and facing tough comps there?

Our Specialist performed very well. Specialist was up by I think 20% in the quarter and 20% in the year. So we are very, very pleased with our progress on Specialist and we continue to gain distribution of the already launched products. And this year we launched two new Specialist lines in our degreasers and greasers which were continue to gain distribution on. So, I would say, Specialist is doing what we wanted to do. And Jay is just saying -- showing me, it was -- what is it, Jay?

16% in the quarter.

16% in the quarter and 20% in the year.

Okay. And that was U.S. or U.S. alone and North America?

In the U.S. Specialist sales in the U.S. were up 12% in the quarter.

Okay. So Specialist pulled this on. This was straight tough comps through the anomaly from a year ago. Is that right, U.S. maintenance sales? sire where I would say I'm specialist is doing what we wanted to do. Jay is just saying, show me. What is it Jay?

16% in the quarter.

16% in the quarter and 20% in the EU.

Okay. And that was U.S. alone and North America.

In the U.S. specialist up and the U.S. were up 12% in the quarter.

Okay. So specialist pulled us on this restraint tough comps through the anomaly from a year ago, is it right in U.S. maintenance sales?

That’s correct. And just as an add to that, we’re encouraged by early results this fiscal year. From what we see so far the United States market in the first quarter is back in the growth.

Okay, great. You have your long term plans reset. Is there any additional investment that needs to be made either in your recent – over the past two years you restructured your distribution, you’ve invested in manufacturing. And I know your headquarters had nothing to do with operations, but is there any – are there any big capital projects or anything that needs to be done structurally to accomplish these $700 million in 2025?

Liam, there’s no sight of any major capital investments other than the ones that would be ongoing which would be continued tooling around our Smart Straw. The main operational change that we’re looking at is increasing the amount of product that we actually manufacture in China and that ships into the rest of the Asian markets. So we’re doing some supply chain architectural work there that'll happen over the next 18 months or so. But it shouldn’t be that visible. It's just a matter of moving some product into China and then shipping product out of there into some countries that we’re not necessarily shipping into out of China.

Great. Thank you, Garry, thank you Jay.

Thank you, Liam.

Our next question comes from the line of Daniel Rizzo from Jeffries. Please proceed with your question.

Hey, guys. How are you?

Good Daniel.

Good. If we think about your long term goals and the growth in Specialist I think from 26 million to 100 million. Would that suggest that just the improved product mix would drive or fuel margin expansion beyond what your current projections are or what the current 55/30 is –30/20 plan is? I mean, longer term could we go much higher than that just with the improved product mix?

We would like to think so, but the issue we’ve got is oil. And right now, where we are projecting our forward margin based on oil sort of staying where it is. So oil is the big play in the middle of that. Of course a lot of Specialist products do have higher margins. So naturally margins may strengthen over time, but I think right now we’re very comfortable in that 56 range that we’re in and we'll see how it pans out as oil settles over the next year or so.

And given the long-term, I guess, the need for longer-term international growth and introducing your product elsewhere, would that also – just that promotional activity will also be somewhat of a headwind for again just improvement from product mix?

Not quite sure I understand your question. Are you asking me what?

Well, I’m just wondering if promotional activity and rebates and then discounts are necessary over the long-term to continue to grow or to meet that topline revenue growth that you’re looking for?

I don't think that will change much from historical levels. We will still be investing around near 6% in marketing and I don't believe that we have -- we will be changing our pricing structure to drive revenue. It will be about the same as it's been.

Okay. Thanks. And then one final question. I was listening to another call today with a coating company suggesting that changing demographics in the U.S. because the less do-it-yourself product might be a less strategic headwind over the long-term or such structural change because people doing less by themselves as basically the baby boomers age. I was wondering that something that could affect you with something you're seeing or anticipate or just any color can provide around that thought?

Of course, we continue look at future proofing our business. If we were just in the United States, yes, people may be moving to from do-it-yourself to do it for me, but then someone's going to do that. For example you if you look at the electromechanical industry there is a bulging number of new trades people coming into that industry as we go forward as trades are moving more from just mechanical to electromechanical. Those changes happening of course with motor vehicles, if we were a company that was dependent on what I would call commodities in motor vehicles i.e. oil and fan belts and things like that. I think we’d be more concerned, but not -- but some of the new products that we’re bringing out over time I think will also take advantage of some of the changes. We’ve been working with a company in Boston for a number of years looking at future proofing or looking at where opportunities may be. So it's a dynamic world out there which is a lot of fun whether it would be the impact of e-commerce or digital, whether it would be the change in usage patterns of our end users. All of these are things that we think about and we dive into on an ongoing basis.

Thank you very much.

Thanks.

Our next question comes from the line of Rosemarie Morbelli with Gabelli & Company. Please proceed with your question.

Thank you and good afternoon everyone.

Good afternoon.

Just following up on the last – on Garry’s answer about e-commerce, are you benefiting from e-commerce, do you have a special program that is going to actually get people -- allow people to buy more online than they are doing currently. And what will that do to your results?

Well, e-commerce to us is just like a new distribution channel of the past. And yes we partner with our current customers to ensure that we’re supplying them with all of the tools they need to ensure that we upfront when consumers and end-users choose to buy online and not go direct to brick-and-mortar stores. We also have a whole e-commerce group within the company globally that is ensuring that we are optimized on search engines that we are there when people are searching to stop a squeak. It's WD-40 that they find. So e-commerce is changing fast. We’re paying a lot of attention to it and we are partnering with people like Amazon and eBay and our other customers to ensure that we’re in front from in China which is a huge e-commerce market and we’ve got a big activity going on there. So we’re very much aware of e-commerce. We’re paying attention to it and it really gets back to the fundamental of our business, make the end-user aware and make it easy to buy and it's our job to make it easy for end-users to buy our products whether they go to a service station, a gas station, a hardware store and auto store or to their laptop.

Okay. And whatever you sale via Amazon, eBay and I’m assuming you are referring to Alibaba in China. Do you – is the margin different depending on how you sell the product lines outside of direct versus distribution?

No. The margin is very similar across all of our trade channels.

Okay. And then if you could help me a little bit on the U.S. I understand that last year there was a certain amount of inventory build of the low VOC type of blue can. Does that mean that there is excess inventory currently in the channels and this is why you didn’t have any promotional activity in 2017 or at least in the four quarter?

No. There’s no excess inventory in the channels now. When there was excess inventory in the channel in the first quarter or the fourth quarter of last year and the first quarter of this year as we cleansed out all of the VOC product that wasn't 50 state compliant. We are now 50 state compliant along – we have the VOC regulations. So we kind of washed through that. And as I mentioned I think when Liam was on the line we’re encouraged by early results in this fiscal year. What we seen so far as the United States market is back into the growth mode and our promotional activities are in place.

And so if you – I guess you did tell us that you are down 11% in the U.S. So could you talk about whether or not you had an impact from the Hurricanes and the earthquake in your fourth quarter? And if you not do you anticipate negative impact in the first and then positive people as people replenish their lost supply of WD-40?

Thank you. Yes, sure weather events of this nature have certainly impacted our company in the past. Some people won’t remember, but the first truckload order of WD-40 ever was filled to meet the disaster needs of victims of hurricane Carlo along the U.S. Gulf Coast many years ago. A short-term there will likely be some disruption in sales, in Latin America for example, hurricane Irma and Maria have had a major impact on sales activity. Impacted countries through that region in the Caribbean including of St. Martin, Puerto Rico, the Dominican and Puerto Rico have all had large disruptions in the first quarter. But when you will add it all up the largest of that being Puerto Rico. It won’t have a material impact on our consolidated sales. The other side of the coin is as recovery begins in these regions we would expect to see consumption increase. Our marketing and supply chain teams have been working on their disaster recovery plans to put in place, to make sure that areas of high need received the volumes of product they require to respond to natural disasters like the ones we've seen and this is similar to what we saw in the Philippines a couple of years ago after the flood WD-40 is a go to product for cleaning out moisture in wet engine. So the bottom line is we wouldn't expect it to have a material negative impact in the first quarter. And we may see some increase in consumption as we go through the year as construction starts to happen and people start to get somewhat back to normal lives, but that's how we see it.

And so, this is included in your 4% to 6% topline growth for 2018 versus 2017?

As of today and what we know, yes.

Okay. 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.