Ladies and gentlemen, thank you for standing by. Good day. And welcome to the WD-40 Company First Quarter Fiscal Year 2019 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 November 30, 2018. 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 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 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, January 9, 2019. 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.

Thanks Wendy. Good day, everyone, and thanks for joining us for today’s conference call. Today, we reported net sales of $101.3 million for the first quarter of fiscal 2019, which was an increase of 4% from the first quarter of last fiscal year. Net income for the first quarter was $13.3 million compared to $12.6 million in the first quarter of last fiscal year, an increase of 5% year-over-year. Diluted earnings per share for the first quarter were $0.95, compared to $0.90 for the same period last year. Now let’s start with a discussion about our strategic initiatives and the brands that support many of them. Our long-term revenue growth targets are aspirational, but we continue to believe that with enough sweat, determination, and hard work, they are achievable. We aspire to drive consolidated net sales to approximately $700 million in revenue by the end of fiscal 2025, and in doing so we will follow our 55/30/25 business model. We refer to the brands that are going to get us there as our 2025 brands. They are, WD-40 Multi-Use Product, WD-40 Specialist, 3-IN-ONE, WD-40 BIKE, GT85, 1001, Spot Shot, Solvol, Lava and Novick. Our 2025 brands are our core strategic focus for the primary growth engine for the company. Strategic initiative number one is to grow WD-40 Multi-Use Product. Our goal under this initiative is to make the blue and yellow can with the little red top available to more people, in more places who will find more uses more often. In the first quarter of fiscal 2019, sales of WD-40 Multi-Use Product was $78.3 million, up 5% compared to the first quarter of last year. This reflects excellent progress towards our most important strategic initiative to grow WD-40 Multi-Use Product to approximately $530 million in revenue by the end…

Thanks, Garry. First let’s start with a review of our 55/30/25 business model. The long-term targets we used 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 30% of net sales. And then, finally, the 25 represents our target for EBITDA. Well, first, the 55 or our gross margin. In the first quarter our gross margin was 55.1%, compared to 55.5% last year. This represents a decline of 40 basis points. Changes in major input costs, which include petroleum-based specialty chemicals and aerosol cans were the primary driver of this decline and negatively impacted our gross margin by 200 basis points. As a reminder, there’s often about a 90-day to 120 day lag or more before changes in raw material costs impact our cost of goods sold due to production and inventory life cycles. The average cost of raw materials that flow through our cost of goods in the first quarter was higher this year compared to the first quarter last year, which put pressure on gross margin in all three trading blocks. Petroleum-based specialty chemical costs negatively impacted our gross margin by 160 basis points period-over-period. Also contributing negatively to the gross margin of 40 basis points was the increased cost of aerosol cans. These negative impacts to gross margin were partially offset by the favorable effects of price increases, which we have implemented in all three trading blocks over the last 12 months and which positively impacted gross margin by 120 basis points in the first quarter. Sales mix changes and other miscellaneous…

Hey. Thanks, Jay. So, let’s sum up on what you heard from us on the call today. You heard that we had a 4% global sales growth in the first quarter. You heard that global sales of WD-40 Multi-Use Product grew 5% in the first quarter. You heard the global sales of WD-40 Specialist grew 13% in the first quarter. You heard that we continue to make progress towards our long-term revenue targets, which is to drive consolidated net sales for approximately $700 million in revenues by the end of fiscal year 2025. You heard that we have increased our A&P investment to support additional physical and digital brand building activities. You heard that we are making some additional capital investments to support the development of our new facilities in Milton Keynes and in Pine Brook, as well as development of our new initiatives. You heard that our Board of Directors increased our dividend by 13% last month and you heard that we have reiterated our fiscal year 2019 guidance. However, we acknowledge that there are some global dynamics which are entirely out of our control and may positively or negatively impact that guidance. So, in closing, I’d like to share with you a quote from Colin Powell. A dream doesn’t become reality through magic; it takes sweat, determination, and hard work. Thank you for joining us today. We’d be pleased to now open the conference to your calls for questions.

Operator? Ladies and gentlemen, please hold tight for one moment.

[Operator Instructions] Our first question comes from the line of Linda Bolton Weiser from D.A. Davidson. Please proceed with your questions.

Hi. Happy New Year.

Happy New Year.

Hi, Linda.

Hi. So, I guess…

[Inaudible]

I guess, first of all, can you just review, because I am just getting back on board here, so I don’t have a recent memory of when was the rough time period when you first started to take price increases and then when was the most recent price increase taken?

So, in the United States, our most recent price increase went into effect around the June and July period of last year, with the total impact of that increase, probably, not realizing until well into the fourth quarter. And then in other geographic locations, particularly EMEA and Asia-Pacific, they were staged during the year depending on the country. And then prior to that in the United States the price -- last price rise we took, I think, was six years ago.

Oh! Okay. Okay. So, then, I mean, the way things work here, I mean, though, that’s fairly recent then that you took these price increases. So you would expect to hang on to them for a while even as we see this oil price rollover here, we would expect the pricing to hold up a little bit longer I would think, is that case?

We are not planning on making any changes to our pricing at this time.

Okay. And what was the rough magnitude of the pricing in the U.S. that you took?

It was about 4%.

Okay. And then, so you did really well in the quarter on the sales line, but U.S. and EMEA looked really good and even though the comparison in the prior year period was quite difficult actually. So can you just give a little more color on that and just as a general strength in the business, anything in particular? And then the comparisons actually get easier in the second fiscal quarter, so should we be expecting even stronger growth?

We expect our growth for the year will be in line with our guidance overall. As you know, we don’t really forecast quarter-to-quarter. But in the first quarter, as I shared in the U.S., it was a very nice quarter. We saw growth in our core product WD-40 Multi-Use Product driven particularly around one of our new initiatives, which is EZ-REACH, and also growth in a Specialist product around a special holiday pack that we trialed in the U.S. that we feel was reasonably successful. In EMEA, it was really across the Board, both made up of new distribution and the continual conversion of our classic can to our Smart Straw can in Europe. And as you might remember, Linda, when we convert from classic to Smart Straw, we get a revenue list because of pricing. And then, of course, there was a rebound in Europe around our MD markets in Russia and Eastern Europe, and we are starting also now to see some really nice sustainable growth out of India. We have been investing in India and we are starting to see some traction there. And then overall, Linda, as you might know we have deliberately taken an investment opportunity in both digital and e-commerce and we have been seeing some good growth in our digital areas. In Asia-Pac, where we didn’t grow that well, it was primarily our distributor markets and it was really a hangover from last quarter. We had a very, very strong Q4, which was due to the distributors getting back on track after we have made some changes there. So we should see things in Asia-Pacific start to normalize over the next three quarters, and we now anticipate we will have revenue growth in Asia-Pac in line with our expectations for the full year.

Okay. And then, can you just, I mean, there’s been a lot of investor anxiety, I guess, over the potential for a recession in the U.S. at least. Can you just remind me how your business behaves in a recession? Is it actually a little bit counter cyclical or can you just give a little color about the nature of your business in that kind of environment?

We are not recession proof, but we have been called recession resistant. And past history, I have been around for 30 years in the business. We have come through. We continue to invest in our business through the recessions whether there will -- if there -- and the other thing that plays even more in our favor now is our geographic diversity. In 2008, when we had the quite financial crisis, our business was actually sideways. We actually grew a little and if it wasn’t for the -- collapse, if you will, of the pound, U.S. dollar exchange rate, we would have grown, but that impact was more in the U.S., not in Europe. So let’s hope that we don’t talk ourselves into a recession, and let’s hope that we continue to make large hot dogs and put them on good buns , and don’t actually find ourselves in that position. But we feel that our spread across geography and our spread across trade channels gives us the best chance we can possibly have to ride through different economic conditions in different countries at different times around the world.

Great. And then just finally, I know you have kind of alluded to another new product innovation that you are working on. Are you…

Yes.

Are you still thinking that that might -- you might be able to talk about it in March and then when will the potential launch be?

We will review all and reveal all in March. So please be with us then, because we are really excited.

And when do you think the launch would be of the product?

We will talk about that in March.

Okay. Okay. That’s all for me. Thanks very much.

Thanks, Linda.

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

Good afternoon, everyone. How are you?

Hi, Daniel.

Hey. You mentioned that in 2008 your business was sideways or just intact, I guess. Are you referring the volumes held in and that -- it was just really effect? I mean, how did, I guess, how did pricing in volumes act during such an environment, were they down a little bit, were they flat or how just -- just any color?

2008 it was really the major sideways it was because of exchange rates and it was the exchange of the British pound and the U.S. dollar, volumes were reasonably, as far as I can remember, now you are asking me to remember details 11 years ago, that’s pretty hard for me. But I do know that the majority of the impact was exchange. You remember that, Jay?

Yeah. The sterling collapsed by about 25%. There was a very deep decline from the year -- the prior year to the -- from 2007 to 2008 and so big, big chunk of it came from the currency. We start -- we saw growth in most of the European markets, U.S. was a little bit, U.S. was a little sideways, if I remember, specifically, the -- a couple of channels had maybe a little bit more destruction than most, but net-net, I think, volumes across the Board were about showed a little -- should showed a little growth.

Yeah. I think that’s what I recall.

Okay. And then, you guys are talking about your digitization efforts, which seemed to be going fairly well and I don’t know if I have asked in the past, but are you working with Amazon, I mean, is that a distribution channel of yours or…

Yes.

…is that your own? It is, right.

Yeah. Yeah. Yeah. We are very engaged with Amazon. Amazon is a direct customer of ours, and I think, they are in a top, I don’t know what, they are in the top 20 customer list anyhow.

Specialist.

With Specialist particularly.

Okay. And, then, finally, for free cash flow, is there a seasonality threat, just in terms of payments versus, I mean, the give and take with working capital?

Yeah. There -- I am sure there’s a few little tweaks, but for the most part, it’s -- it isn’t. I mean, there are times when you have got some tax payments and you know, so our growth reward program payments, you know that, but in the grand scheme of things it’s very minor.

Okay. All right. Thank you very much.

Thanks, Daniel.

Thank you.

Our next question comes from the line of Rosemarie Morbelli from G. Research. Please go ahead with your questions.

Thank you, and good afternoon, everyone.

Good afternoon.

I was wondering if you are seeing any impact from the trade war in China and if not is it because you are too small and it is not affecting you or any other reason?

We are really not seeing any impact at all at this time. We don’t import much from China. So the tariff side isn’t working with us and it’s kind of, Jay?

Yeah. I mean there’s some indirect impact, but it’s hard to measure and it’s hard to really pinned down. You have got some hesitancy in a market to do something that at a period of time, but it doesn’t feel like it sustained.

Okay. And no impact, I mean, then, I think, that Indonesia, for example, has put some tariffs on Chinese -- Chinese goods. Is that affecting you or you are not in Indonesia?

No. We have a very large business in Indonesia. But we have seen no impact of any tariff. I am not sure that it’s impacting our products. And in fact, I don’t think it is, because we would have heard about it and we haven’t heard. So maybe it’s not in our product categories.

Okay. And then going back to price of oil coming down, how long will it take? Are you insightful, first of all, how long will it take for those -- for you to benefit from those costs? I know that the intermediary has to come down as well, but it sounds there was maybe. And so let’s say that you benefit from it in 90 days to 120 days, as Jay mentioned, will you at that point have to give up price?

Pricing wise, we have a very -- our current pricing structure is in place and we see no reason to change that current pricing structure. You are right about that. It is about 90 days to 120 days. We are on FIFO with -- and in that time between when it’s -- when a new lower material costs come into our manufacturing facility and by the time it gets through to us inventory and then on the end its 90 days and 120 days, even a little bit more, so which is why we haven’t really made any changes to guidance on that going out.

If we do see any impact of a sustained lower oil price, we wouldn’t expect that to be seen until the third quarter. Right now our cost of goods are really reflecting the oil price in what months Jay, July, August?

Yeah. July, August.

Which we -- where that high period that was -- when it was in the high 70s. So we have got the period of -- we would not expect to see any impact on the third quarter.

Yeah. Because it -- and you are right, Garry, even if it reflects we didn’t start seeing any real decrease until after the November period.

Yeah.

So it was like November that we started seeing it. So, yeah, we will still have some of these higher costs for a period.

Yeah.

And this is why we have a little uncertainty around oil is that a week ago it was $42, today it’s $52 and three weeks ago it was $60 and five weeks ago it was $75. So, as we said, we need to work out whether this is a serious of events or whether it is a sustainable trend.

Right. And in this environment, it is hard to know.

That would be a true statement.

Maybe you should take up tweeting.

I will leave that one alone.

So, no, I was just wondering if during the quarter, you had any surprises, whether positive or negative. And then, Garry, you talked about seeing growth following your digital optimization and if you could give us some idea as to how much growth is coming in that category?

Number one is, no, we didn’t see really any surprises. It kind of played out pretty well to the way we thought it was. We haven’t growth -- we haven’t yet and I am not sure whether we will be pulling out and disclosing the digital out on its own. What we can say is that, we are day-by-day taking a larger and more aggressive presence in the e-commerce segment, and we are very comfortable and happy with growth we are getting out of that area.

Okay. Great. Thank you. Good luck for the rest of the year and Happy New Year.

Thank you and Happy New Year.

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.