WD-40 Company (WDFC) Q2 2018 Earnings Report, Transcript and Summary

Good day and welcome to the WD-40 Company Second Quarter Fiscal Year 2018 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 the 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-Q for the period ending February 28, 2018. These documents are available on our Investor Relations Web-site 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 in 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 could 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 5, 2018. 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 very much, Wendy. Good day everyone and welcome to our conference call. Today we reported net sales of $101.3 million for the second quarter of fiscal year 2018, reflecting an increase of 5% from the second quarter of last fiscal year and the first $100 million quarter in the Company's history. Net income for the second quarter was $14.8 million compared to $12.4 million in the second quarter of last fiscal year, an increase of 20% period-over-period. Diluted earnings per share for the second quarter were $1.05 compared to $0.87 for the same period last fiscal year, a new record for the Company. Foreign currency exchange rates favorably impacted our sales in the second quarter but we are seeing solid organic growth thus far this fiscal year. Our global net sales for the first half of the year have grown by 7% on a reported basis and by 4% on a constant currency basis. Now let's start with a discussion about our strategic initiatives. As most of you will recall, our long-term revenue target is to drive consolidated net sales to approximately $700 million in revenue by the end of fiscal year 2025. In support of this target and as a result of the savings that we are going to realize from the Tax Cuts and Jobs Act, we have decided to invest an additional $1 million in brand-building this fiscal year. In addition, we are currently evaluating additional brand building investments for next fiscal year. This investment will focus on two main areas of our core strategies of making the end-user aware and making our products easy to buy. It will first be used to fast-track our global digital presence and to increase the volume of Multi-Use Product sampling programs to targeted end-user groups in countries identified as key growth opportunities. We acknowledge that our anticipated 2025 targets are aspirational, but as Richard Branson once said, 'If your dreams don't scare you, they are too small.' In light of that, we know the opportunities are abundant but focus is a gift, and if we keep our focus in the right places, we believe we can be successful. Let's take a look now at the strategic initiatives, number one being grow WD-40 Multi-Use Product. Our most important strategic initiative is to take the blue and yellow can with a little red top for more people in more places and have them use it more frequently. In order to achieve that target of $530 million in Multi-Use Product revenue, we need to continue our strategy of building Multi-Use Product across all markets through both geographic expansion as well as through innovation. In the second quarter, global sales of Multi-Use Product were $78.9 million, reflecting an increase of 3% compared to the second quarter of last year. Year-to-date, net sales of WD-40 Multi-Use Product are up 6% compared to last year. In the second quarter, we launched our newest product, WD-40 Flexible, which is the European version of WD-40 EZ Reach, featuring an innovative flexible straw. We are being very deliberate about how we are staging the release of this new product. We have begun distribution of the product in trade-focused channels in Italy and we are happy with the initial results. We expect to add distribution in France in the third quarter of this fiscal year. The second strategic initiative is to grow the WD-40 Specialist product line. Our target under this initiative is to grow WD-40 Specialist product line through continued geographic expansion as well as by developing new products and product categories. Over the last several years, we've developed a robust pipeline of WD-40 Specialist products. Now our focus needs to be on building market awareness and distribution for these new initiatives and innovations in order to achieve our stated target of $100 million in revenue by the end of 2025. In the second quarter, global sales of WD-40 Specialist was $7.5 million, reflecting an increase of 38% compared to the second quarter of last year. Year-to-date, net sales of WD-40 Specialist were up 33% compared to last year. We are optimistic about the long-term opportunities for WD-40 Specialist. However, there will be some volatility in sales levels along the way due to the timing of promotional programs, the building of distribution, and various other factors that are common while you build out a new product line. Strategic initiative number three is to broaden the product and revenue base. Our goal under this initiative is to leverage the recognized strengths of WD-40 Company to derive revenue from existing brands as well as new sources of revenues and products. Strategic initiative number three includes maintenance products like 3-IN-ONE, WD-40 Bike, GT85, but also includes brands such as Spot Shot and Lava in the Americas, 1001 in EMEA, and no vac and Solvol in Asia Pacific. We believe we can continue to nurture and grow the products included under this initiative and expect their combined revenue to reach approximately $70 million by the end of fiscal 2025. In the second quarter, global sales of products under this initiative were $10.4 million, reflecting an increase of 6% compared to the second quarter of last year. Year-to-date sales of products included under this initiative are up 3% compared to last year. Strategic initiative number four is to attract, develop and retain outstanding tribe members. Our goal under this initiative is to attract, develop and retain talented tribe members and grow the tribe member engagement to greater than 95%. During the second quarter, we asked our 464 tribe members to participate in a biannual employee engagement survey. I'm very happy to report that our global employee engagement index score increased by 50 basis points from two years ago to 93.3%. In fact, 99% of our tribe answered that they love to tell people that they work for WD-40 Company. And 98% of our tribe told us they feel their opinions and values are a good fit with the WD-40 Company culture. We cultivate high employee engagement by creating a culture based on care, candor, accountability and responsibility, guided by our values and nourished by learning. Our employee engagement score is a reflection of that way of life. Additionally, I'm happy to share with you that during the second quarter we located and purchased a new building to house our U.K.-based tribe members. The new facility is located only 3 miles from our current Milton Keynes office. We are currently in the early stages of renovating the space and we expect to move the tribe to this new building in the spring of 2019. Strategic initiative number five is operational excellence. Our goal under this initiative is best summarized by one of the core values here at WD-40 Company, making it better than it is today. We measure ourselves against this operational excellence initiative by executing against our 55/30/25 business model and by making improvements to processes and systems while safeguarding our brands. Protecting the 55/30/25 business model is a priority for us. Volatile commodity prices, including those for oil and steel, have the ability to impact our gross margins over the short-term, but over the long-term our 55/30/25 business model must remain intact. Accordingly, we are making some proactive price adjustments in the coming months to ensure our gross margins will remain within our target ranges over the long term. That completes the update on the strategic initiatives. So, let's move on to the details of our second quarter sales results, starting with the Americas. As I mentioned earlier, consolidated net sales were $101.3 million in the second quarter, up $4.7 million or 5% in the second quarter of last year. Translation of foreign subsidiary results from their functional currencies to U.S. dollars had a favorable impact on sales. On a constant currency basis, total net sales would have been 97 million, an increase of just under 1% compared to last year. This is what we refer to as translation-related impacts and it affects reported sales from Canada, Australia, China, and the EMEA segment. Transaction-related impacts in EMEA were insignificant this quarter. So, in total, changes in foreign currency exchange rates increased net sales by about $4.3 million in the second quarter, and obviously that update was on the global results. Now, let's take a look at what happened in the individual segments. We'll start with the Americas. Net sales in the Americas, which include the United States, Latin America and Canada, were relatively flat in the second quarter compared to last year of $45 million. Year-to-date net sales in the Americas were up 4% compared to last year. Sales of maintenance products increased by 1% in the Americas, primarily due to higher sales of maintenance products in the U.S. and Latin America. Maintenance products sales in the United States increased 1% in the second quarter, primarily due to a 22% increase in sales of WD-40 Specialist due to new distribution for products that were launched in the early fiscal year of 2018. In addition, maintenance products sales in Latin America were up 2% in the second quarter, primarily due to increased sales of both WD-40 Specialist and 3-IN-ONE. These maintenance products sales increases were offset by a 2% decrease in the sales in Canada during the quarter due to the timing of some promotional activities. As a reminder, our maintenance products exclude our homecare and cleaning products. Sales of our homecare and cleaning products in the Americas decreased 7% in the second quarter as compared to the same period of last year. Now on to EMEA, net sales in EMEA, which includes Europe, the Middle East, Africa, and India, increased to $39.6 million in the second quarter, up 9% from last year. Year-to-date, net sales in EMEA are up 12% compared to last year. EMEA's reported results in the second quarter were positively impacted by foreign currency exchange rates. On a constant currency basis, sales in the EMEA decreased 1% compared to last year. As you know, we sell into EMEA through a combination of direct operations as well as through marketing distributors. Reported consolidated sales in our EMEA direct markets, which accounted for 70% of the region, increased 19% during the quarter to US$27.6 million. It's also helpful to look at our results in local currencies in which we conduct sales transactions in our direct markets. In pound sterling based markets, sales increased 5% in the quarter, primarily due to the growth driven by higher levels of promotional activities in the region that are focusing on WD-40 Smart Straw and WD-40 Specialist. In euro-based direct markets, sales increased by 1% in the quarter, primarily due to the timing of customer orders and the continued growth of our base business. Also contributing to the overall sales increase in these direct markets was higher sales of the WD-40 Specialist product line. Now let's turn to our EMEA distributor markets, which accounted for 30% of EMEA sales during the quarter. In reported currency, our EMEA distributor market sales decreased 8% in the second quarter to 12 million. These declines were driven by the timing of customer orders. Now on to Asia-Pacific, consolidated net sales in Asia-Pacific, which includes Australia, China, and other countries in the region, increased to 16.6 million in the second quarter, up 9% from last year. Year-to-date, net sales in Asia-Pacific are up 5% compared to last year. In Australia, net sales in U.S. dollars were $4.5 million in the second quarter, up 13% compared to last year. Changes in foreign currency exchange rates had a positive impact on these results. On a constant currency basis, sales would have increased by 300,000 or 7% period-to-period. This increase in sales was driven primarily by the successful promotional activities and expanded distribution of WD-40 Specialist product line in the region. Our Asian distributor market net sales were 8.1 million in the quarter, up 3% compared to last year. This increase in sales was primarily attributed to a higher level of promotion activities in the region, in particular in Taiwan and Thailand. Our Asian distributor markets are not impacted by currency, since we sell our products in U.S. dollars in the region. In China, net sales in U.S. dollars were $4.1 million in the second quarter, up 19% compared to last year. Changes in foreign currency exchange rates had a positive impact on these results. On a constant currency basis, sales would have increased by 400,000 or 12% period-to-period. This sales increase was primarily due to a promotional program that we conducted during the second quarter of the year. We remain optimistic about the long-term opportunities in China, although we expect a lot of volatility along the way due to the timing of promotional programs, the building out of distribution, shifting economic patterns, and the varying industrial activities. That's it for me for now. I'll now turn over to Jay who will continue with the review of the financials.

Thank you, Garry. First, let's review the 55/30/25 business model. These are the long-term targets 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 goal is to drive our cost of doing business over time toward that 30%. And then finally, the 25 represents EBITDA. First, we'll look at our gross margin, or the 55. In the second quarter, our gross margin was 55.1% compared to 56.4% last year. Changes in major input costs, which primarily include petroleum-based specialty chemicals and aerosol cans, negatively impacted our margin by 120 basis points. As you know, crude oil is one of the primary feedstocks of our petroleum-based specialty chemicals. Our gross margin was negatively impacted by 80 basis points because the average cost of crude oil that flowed through our cost of goods sold was higher in the second quarter compared to last year. Also contributing negatively to our margin by 40 basis points was the increased cost associated with our aerosol cans. In addition, there were a variety of other costs which combined to negatively impact gross margin by 30 basis points. These miscellaneous impacts include increases in other non-oil and can-related cost of goods sold and other impacts from sales mix changes. Gross margin was also negatively impacted by 20 basis points primarily due to higher warehousing and inbound freight costs, mostly in the Americas segment. These negative impacts to gross margin were partially offset by select sales price increases which we implemented in EMEA and Asia-Pacific over the last 12 months, which positively impacted gross margin by 40 basis points. I'd like to remind you that despite the recent cost increases we've seen for crude oil and aerosol cans, our gross margin target of 55% remains unchanged. Now recently we've experienced rising input costs which would put pressure on our cost of goods in all three of our trading blocks. These economic factors have made it necessary for us to review our pricing structure and implement price increases in most of our markets. We continue to be focused and deliberate in managing our business so that we can maintain gross margin at a level that is above our target of 55% over the long-term. Now, I'll address the 30 or our cost of doing business. In the second quarter, our cost of doing business was approximately 34% compared to 35% last year. Revenue growth is the most important factor in achieving our long-term 30% target. In the second quarter of this year, our reported revenue increase positively impacted our cost of doing business percentage. For the second quarter, 78% of our cost of doing business came from three areas; people costs or the investment we make in our tribe; the investments we make in marketing, advertising and promotion, as a percent of sales our advertising and promotion investment was 5.1% in the second quarter; and then finally, freight costs, the cost to get our products to our customers. In the second quarter, our SG&A increased 2%, primarily due to unfavorable changes in foreign currency exchange rates of $1 million compared to the prior year period. Various other items also contributed to increased SG&A costs, including increased depreciation expense and general office overhead costs associated with our new building in San Diego, increased freight costs, increased professional service costs. These increases were more than offset by decreased people-related costs, primarily related to earned incentive compensation, and decreased new product development cost this year as compared to last. While our objective is to have our cost of doing business closer to our target of 30% of net sales, we will continue to make necessary investments in support of our strategic initiative that of operational excellence. As Garry mentioned earlier, we've decided to invest an additional $1 million in advertising and promotion during this fiscal year in support of brand development and we are currently evaluating an additional A&P investment next year as well. Accordingly, we anticipate these investments will impact our cost of doing business results for the near-term. However, we continue to expect to move closer to our target of 30% over the long-term as revenues grow. This brings us to EBITDA, the last of our 55/30/25 measures. EBITDA was 21% of net sales for both the second quarter of this year and last year. That completes the discussion on our business model for the quarter. Now, I'll discuss a couple of other items worth noting. One, the provision for income tax was 18.7% in the second quarter compared to 32.8% last year. The decrease in the effective income tax rate was primarily due to the favorable impact from the Tax Cuts and Jobs Act in the U.S. which became effective for us in the second quarter of this year. In addition, the effective income tax rate for the second quarter of last year was higher due to an adjustment associated with tax impacts from certain unrealized foreign currency exchange losses. Since our fiscal year ends on August 31, we will apply a blended statutory income tax rate of just under 26% for fiscal year 2018, which is about 9 percentage points below that of the prior year. We also recorded two discrete items during the year related to the U.S. tax reform, a benefit from the one-time re-measurement of the Company's deferred tax assets and liabilities, as well as a tax charge from the mandatory one-time total tax on unremitted foreign earnings. These two items essentially offset one another and when combined had little impact to the Company's effective tax rate in the second quarter of fiscal 2018. It is important to note that both of these items were recorded as provisional amounts, which means that they are management's best estimates at this time. These amounts are subject to change during the re-measurement period of up to one year after the enactment of the U.S. tax reform based on recent guidance issued by the SEC. Based on our initial analysis of the U.S. tax reform, but subject to revisions of our provisional amounts, we expect that our effective tax rate for the full fiscal year will be in the 22% to 23% range. Net income for the second quarter was $14.8 million compared to $12.4 million in the prior year, reflecting an increase of 20%. Changes in foreign currency exchange rates had a favorable impact of about $900,000 on the translation of our consolidated results this quarter. On a constant currency basis, net income would have increased by 13% compared to last year. Diluted earnings per common share were $1.05 in the second quarter compared to $0.87 in the same period last year, and diluted weighted average shares outstanding decreased to 14 million shares from 14.1 million shares a year ago. Now, a word about capital allocation, our capital allocation strategy includes a comprehensive approach to balance investing and long-term growth while providing strong returns to our stockholders. We typically target our maintenance CapEx of between 1% and 2% of net sales, but as previously discussed, in addition to our normal maintenance CapEx, we anticipate making an investment of approximately $15 million to buy and renovate the office building to house our U.K.-based tribe members. At the end of the second quarter, we were able to find and purchase an office building in the Milton Keynes area for $7.4 million. The remainder of the estimated $15 million investment will be used to renovate and equip this new building over the next 12 to 18 months. Our U.K. tribe members are very excited and are expected to relocate to the new building in the next fiscal year. We continue to return capital to shareholders through regular dividends and share repurchases. On March 20, 2018, our Board of Directors approved a quarterly cash dividend of $0.54 per share, payable April 30 to stockholders of record at the close of business on April 20. And based on today's closing price of $133, the annualized dividend yield is 1.6%. During the second quarter, we repurchased just over 61,000 shares of our stock at a total cost of $7.5 million under our current $75 million share repurchase plan, which was approved by the Board in June 2016. At the end of our second fiscal quarter, we had $32.5 million remaining under the plan. With that, let's turn to the fiscal year 2018 guidance. We are updating our guidance to reflect the updated foreign currency exchange rates, higher input costs, our effective tax rate that's been revised based on the new tax legislation, as well as additional investments we are making to our advertising and promotions this year. Net sales growth is projected to be between 7% and 9%, with net sales expected to be between $407 million and $415 million. Gross margin for the full fiscal year is expected to be near 55%. And with the additional investments we tend to make, advertising and promotion investment is projected to be near 6% of net sales. Net income is projected to be between $56.6 million and $57.5 million. And diluted earnings per share is expected to be between $4.07 and $4.14 on an estimated 13.9 million weighted average shares outstanding. This guidance includes the anticipated impacts of the Tax Cuts and Jobs Act but it does not include any future acquisitions or divestitures and assumes that foreign currency exchange rates and commodity prices will remain close to current levels for the remainder of 2018. And that completes the financial overview. Now I'll turn it back over to Garry.

Thank you, Jay. In summary, what did you hear from us on this call today? You heard that today we reported record net sales of $101.3 million and the first ever $100 million quarter in the Company history. You heard that year-to-date we've seen solid net sales growth with a 7% growth on a reported basis and 4% growth on a constant currency basis. You heard that global sales of WD-40 Specialist grew 38% during the quarter. You heard that today we reported record EPS of $1.05. You heard that our reported results were favorably impacted by the Tax Cuts and Jobs Act and that we intend to invest an additional $1 million during this fiscal year and more next year in support of global brand development. You heard that the global employee engagement survey score increased 50 basis points from two years ago to 93.3%. You heard that we're making some proactive price adjustments to ensure our gross margin remains in line with our 55/30/25 business model, given the increase in commodity costs. And you heard that we've updated our fiscal year 2018 guidance to reflect updated foreign currency exchange rates, higher input cost, and revised effective tax rate, as well as the additional investments we are making to our advertising and promotional investments this year. So, as usual, in closing I'd like to share a quote with you today from Charles Schulz, and it is, 'In life, it's not where you go, it's who you travel with'. That's for our tribe. Thank you for joining us today and we'll be pleased now to open the conference call for your questions.

[Operator Instructions] Your first question comes from the line of Liam Burke with B. Riley FBR. Please proceed with your question.

Garry, could you give us some color on how EZ Reach has been doing domestically or in the Americas, however you want to catch it?

EZ Reach domestically has been meeting our expectation. We don't break out the individual sales, but certainly it's a new product that the end users have embraced, and currently in fact you'll see quite a number of displays of it in major stores around the U.S. as we enter our promotional period with it. And we're very comfortable that we've now rolled it out in Italy and France and we've also rolled it out in Australia. I think we talked about that last quarter. And it will be featured actually on TV in Australia around the next month or so during a big motor racing carnival.

Is that promotion tied to the incremental $1 million that you announced on the call or is the additional brand-building investment separate from EZ Reach?

It's separate. The $1 million this year and what we'll end up investing next year is very focused, Liam. We have done a very deep dive on the digital e-commerce space and just concluded about a month ago a global workshop on the opportunities, and the first place that this investment will go will be to enhance our global digital presence both in the 'make it easy to buy' and the 'make our end-user aware' categories that will include enhancement of education or information in assets with things like YouTube, optimizing our Web-sites globally, and optimizing our search engine optimization and program. So, the majority of it will go there. The other will go to targeted sampling programs in some of our larger opportunity markets, for example, Mexico China, India, et cetera.

Okay, great. Thank you, Garry. Jay, on the cost of doing business front, the SG&A piece of your business was down sequentially. Could you give us a little color on what happened there?

Some of that came from the lower incentive compensation. It was really the bigger impact on the lowering.

Okay, that's great. Thanks, Jay, and thanks, Garry.

Your next question comes from the line of Daniel Rizzo with Jefferies. Please proceed with your question.

You mentioned the weakness with distributors in EMEA was due to timing issues. Would that suggest that there is going to be kind of a snapback in the third quarter here, that it's just flow lumpiness from quarter to quarter?

I don't know whether it will be in the third quarter, but our distributor business over time has ebbs and flows. We would see that we will be on track for the year and we have no anticipation that distributor business will be off for the year. So, it's nothing that we are particularly concerned about.

Okay. And then you mentioned having the two price increases to offset the higher input cost. I was wondering, what the lag is between when that's realized versus what we're announcing today. I mean, it usually take 90 to 120 days or is it less than that, or just any color that you can provide?

Yes, the price increases, some of them have already gone into effect. In other markets like the United States, they go into effect on June 1. So we did announce them to our customers about a month ago. So, I think we should see the margin stabilize. I don't think we're going to have a huge tail or headwind. I think we should line up pretty well as we come through the third quarter.

Okay. And then just on the goals for 2025, you mentioned 70 million in net sales from initiative number three. And you did allude to M&A. But I was wondering if M&A is necessary to meet that goal or is it more about just developing new brands organically?

We have no M&A plans in our 2025 goal. That 70 million that we are talking about, in aggregate right now that group of products is doing I think in our chart 63 million. So it's not a huge growth. We will see some fall-off from some of the household products that are not included in there and that fall-off will be offset by the growth of the products that are in there. Particularly the 3-IN-ONE brand and WD-40 Bike are the two areas that will offset that.

Okay. Thank you very much.

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

I was wondering if Jay's answer to the previous question on SG&A was the reason why revenues in the second quarter were up 5%, but up 7% year to date, so the growth rate slowed in the second quarter, while net income was up 20% for the quarter but 14% year-to-date, so we have kind of a disconnect there.

No. Our incentive programs are an annualized incentive program, so it adjusts as we go through the year, but we don't pay quarterly commissions, if that's what you were alluding to. It's just a matter of us truing up as the year progresses to see what we think our annual cost of our growth reward program will be.

So then what helped the net income line, since it grew 20% in the second quarter?

A big portion of that came from the tax benefit.

Okay. Okay, totally missed that.

We got a significant benefit in the quarter that really had a big impact on earnings.

Okay, thanks. I should have figured that one out. You are anticipating the 2018 tax rate to be between 22% and 23%. Is that a good number to use for 2019 and the out years?

We haven't finalized the 2019 and the out years, but we would expect that it might drop a little bit lower than that.

And the reason being is this year is a blended rate. Our fiscal year is September to August. So we've got the period from September through to December at the old rate and the balance of the year at the new rate. So, that's why we would expect it to be a slightly different rate in the full fiscal, in our full fiscal year of 2019.

Okay, thanks. And looking at the gross margin, let me rephrase this, can you estimate the percent increase in raw material cost versus the percent increase you got on your selling prices for the first half of this year?

We didn't do the math on that, but we should be able to do it from the – we had the amount of impact on margin, so we had a positive benefit of 40 basis points from the price increases, offset by or partially offsetting that much more significant increase in the input costs.

Was that the 70 basis points?

Yes, the input costs in total were 120 basis points. So we had a negative impact of 120 basis points offset by a positive impact from the price increases of 40 basis points.

Okay, yes, I see. So you had the crude plus the cans, all right. And then, can you help me understand, what is the difference between your EZ Reach that you are introducing in the U.S. and the Flexible in Europe, and why aren't they the same?

They are exactly the same. We just call them a different name. Flexible translates better in Italian and Spanish than EZ Reach does. So it's exactly the same product with a slightly different description.

Okay. I thought that you had found something that worked better than the EZ Reach.

No, it's just the naming.

All right, okay. And then lastly, on the EMEA distribution sales down, you said was the timing. Was it also a question of inventory built at the distribution level that they needed to get to?

No. No, it wasn't. Our distributor business globally, whether it would be distributors in Asia-Pacific or in EMEA or in Latin America, because it's a few large distributors, it's not necessarily as smooth as in other areas. So, we do have some quarters where it's up, some quarters where it's down, but overall, the trend continues to be a growth trend, unless you have an unusual event, like we had a couple of years ago in Russia, and we would call that out and talk about that. But there is no unusual event, it's just a timing thing.

Okay.

And the market itself is up 5% year-to-date.

Yes.

Okay. Thank you very much.

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 line.