Ladies and gentlemen, thank you for standing by. Good day and welcome to the WD-40 Company Third 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 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 May 31, 2019. 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, July 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 and thanks for joining us for today’s conference call. Today, we reported net sales of $114 million for the third quarter of fiscal year 2019, up nearly 7% compared to the third quarter of last year. Net income for the third quarter was $18.1 million, compared to $16.1 million last year, reflecting an increase of 12% year-over-year. Diluted earnings per share for the third quarter were $1.30 compared to $1.15 for the same period last year. And I’m happy to share with you that both sales and earnings results for the third quarter reflect new records for the Company. Now, let’s start with the discussion about our strategic initiatives and the brands that support them. We aspire to drive consolidated net sales to approximately $700 million in revenues by the end of fiscal year 2025 and to do so while following our 55/30/25 business model. We’d like to remind investors that these long-term targets are guideposts not guidance. They’re probably wrong and roughly right. However, our tribe is working tirelessly on programs and initiatives that will help us successfully reach our 2025 aspirations. As a reminder, 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 no vac. Our 2025 brands are our core strategic focus and the primary growth engine for our Company. Our 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 a little red top available to more people, in more places who will find more uses more often. We aspire to grow the WD-40 Multi-Use Product to approximately $530 million in revenue by the…

Thanks, Garry. Let’s first start with the discussion about our 55/30/25 business model, 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 goal is to drive our cost of doing business toward 30% of net sales over time. And finally, the 25 represents our target for EBITDA. First, the 55 or our gross margin. In the third quarter, our gross margin was 54.5% compared to 54.8% last year. This represents a decrease of 30 basis points year-over-year. The sales mix changes and other miscellaneous costs negatively impacted our gross margin by 160 basis points this period. This is driven by a combination of unfavorable mix changes and increases in miscellaneous costs, primarily in our Americas and EMEA segments. Also negatively impacting gross margin by 50 basis points this quarter were changes in major input costs. Approximately 20 basis points came from increased cost of petroleum-based specialty chemicals, while remaining 30 basis points came from higher costs associated with aerosol cans. When we last updated investors, we shared that we anticipated gross margin would begin to show a slight positive trend driven by the lower petroleum based input costs. While we’ve seen this in the Americas, cost increases we experienced in EMEA and Asia Pacific more than offset these savings. Even though the cost of crude oil was lower, the costs in EMEA and Asia Pacific for some of the petroleum based specialty chemicals we procure have increased. As a result, the average cost of raw materials that flow through our cost of goods in the third quarter was higher this year,…

Hey, thanks, Jay. In summary, what did you hear from us on the call today? You heard that both our sales and earnings for the third quarter reflect new records for the Company. You heard that global sales of WD-40 Multi-Use Product were up 7% in the third quarter. You heard that global sales of WD-40 Specialist grew 8% in the third quarter. You heard that we continue to increase penetration of Smart Straw and distribution of the WD-40 EZ-REACH Flexible. You heard that Linda Lang has announced her retirement from our Board of Directors and that I expect to be stepping into her Board Chair position beginning in December. You heard that we’ve promoted Steve Brass to the role of President and Chief Operating Officer and Patricia Olsem to the role of Division President, Americas. You heard that our net sales guidance remains unchanged, but we have strengthened our guidance for net income and EPS. In closing, I’d like to share with you a quote today from Anne Mulcahy. One of the things we often miss in succession planning is that it should be gradual and thoughtful with lots of sharing of information and knowledge and perspective, so it’s almost a non-event when it happens. Thank you for joining us today and we’d be pleased to open the conference call to your questions.

Hi. This is Cindy Ding on for Linda. Thanks for taking our questions. So, first, did you see any shelf space changes at any retailer?

Shelf space changes, well no.

Okay.

No, there was no change in our shelf distribution.

Okay. Thank you. And then, now that the gross margin is at around the 55% targeted level, do you see potential to get to a higher level going forward?

Yes. As we’ve always shared, we believe we do have upside on our gross margin and it will continue to be impacted as we roll out our premiumization strategy with things like Smart Straw, the next generation of Smart Straw, EZ-REACH and as our Specialist product range grows as a percentage of our overall revenue.

As a follow-up to that question, are there any updates you can provide on the new Smart Straw system? And when should we expect to learn about pricing and margin details?

The commercialization plan is currently being reviewed. We’d expect that we would start seeing some of the next generation of Smart Straw end of the market as we predicted sometime around the middle of next year. And we’ll keep you updated as we get closer.

Thank you. Is it the next calendar year?

Yes.

Thank you. And then, what are some initiatives to get the cost of doing business to 30% of sales?

The biggest driver for the cost of business is increase of revenue. We’ve often said that it’s really about getting leverage out of the infrastructure we have. So, as our revenue grows, then, you will see that that will have an impact on the cost of doing business ratio.

Your next question is from Daniel Rizzo with Jefferies. Your line is open.

Hi. Just to follow up on, I think what she was talking about. Last call, you mentioned that rotation at the warehouse was a headwind in the U.S., I think, which is just some product rotation. And I think that’s what is being referred to in terms of shelf space. Is that still an issue now or is that kind of ended?

In most cases, we are through the impacts that we had around pricing. But, we continue to have opportunities to increase distribution across the club channel, and we’re through that first round. We haven’t lost any further distribution. So, again, we would expect we’ll rotate in as we were rotated out, sometime in the future.

And then, I think you mentioned that sales were strong in Asia, but China was flat and Australia was down a little bit. I was just wondering what region you were seeing kind of the strength then, I mean, whether it was a specific country or area?

The biggest gain in the Asia-Pacific region was through our distributor markets. Those are countries like Malaysia, Singapore, Indonesia, Taiwan, Korea, Japan, there’s a few others, but all of our distributor markets. And this time last year, we had a period of time where we were changing our distributors in Malaysia, Singapore, and Indonesia, so that had a negative impact. That’s why there was such a large increase in the distributor markets. Australia primarily is due to currency; we’d expect that to -- Australia to end up in growth in the year end. And we have no -- and as far as China is concerned, we’re very comfortable that we continue to grow at a reasonable rate in China as we build out the business to our long-term plans.

Is China more of a direct market at this point?

China is a direct market, has been for 12 years.

Okay. All right. Thank you for that clarification. And then, finally, you mentioned tough comps in Canada and I think Latin America, because of your prebuying last year led to a big spike in the second quarter -- I’m sorry, in the third fiscal quarter. I was wondering why that wasn’t the case in U.S. or was it and you just kind of overcame that?

Correct, it was and we overcame it in the U.S. I think I mentioned in the call that the results were particularly pleasing in the U.S. because we did have some buy up against price rise last year, but our programs this year enabled us to combat and beat that in this fiscal year.

Your next question is from Rosemarie Morbelli with G.research. Your line is open.

Thank you. Good afternoon, everyone, and congratulations to all the promotions and for the succession plan.

Thank you.

So, I was wondering if you could give us a better feel for pricing versus volume and what do you expect going forward for the balance of the year?

Most of the gains that you’ll see in the balance of the year, our volume pricing has already been factored into our trading. So, Jay, I think that would be about correct.

For the remainder of the year? Yes. Yes, we don’t see any additional pricing increases.

And do you see your raw material costs continuing to come down, any change on the cans, for example, in addition to the petroleum?

Actually, cans have gone up. There’s probably some residual impact of tariffs. Even though we buy our cans in the U.S. and in places very close to where we sell our product, there is -- there has been some increase in can costs, and it’s somewhat coincident with the timing of tariffs.

And what do you hear in terms of tariff anecdotally by your customers in the different regions? Is the outlook kind of improving or is it -- or the positiveness that one may have had a year ago it really has moved all the way into the negative territory?

I wouldn’t say things have moved into the negative. I think, there’s a continuing uncertainty out there. You’ve got a number of things that are impacting us at the moment, the uncertainties around Brexit, the uncertainties around trade talks. So, we can -- as most companies and most people deal with risks, they have a real problem dealing with uncertainty. So, that seems to be some of it. But, I wouldn’t say it’s gone to negative. I would say it’s moderate.

Okay. And then, lastly, if I may, you are looking at revenues being closer to the lower end of your expectations. And the EPS now lower end of your previous high end. So, is the benefit solely from the lower tax rate or are there other factors in between that are going to allow you to have a higher margin in order to get to those members?

Yes. They all come from the change in tax, for the most part.

Nothing else? No other benefits anywhere else?

There could be, but it’s too soon to tell.

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.