Good day, and welcome to the WD-40 Company Third Quarter Fiscal Year 2021 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 Chairman and Chief Executive Officer, Garry Ridge; Vice President and Chief Financial Officer, Jay Rembolt; and President and Chief Operating Officer, Steve Brass. 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, 2021. 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 7, 2021. 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. We hope that you and your families are staying safe and healthy. Our tribe continues to work together through the challenges and opportunities associated with the COVID-19 pandemic. In the third quarter, we experienced unprecedented demand for our maintenance products, and today, we reported net sales of $136.4 million for the third quarter of fiscal year 2021, up 39% compared to the third quarter of last year and a new all-time record quarter. The pandemic has created both headwinds and tailwinds for our business. In the third quarter of last fiscal year, we experienced a strong headwind and our sales results were negatively impacted by disruptions related to COVID-19 pandemic. Over the last year, we have experienced a myriad of lockdown measures, various disruptions in our U.S. supply chain and increasingly higher costs. However, these challenges have been more than offset by significant tailwinds. Due to the shift in consumer spending and the isolation renovation trends that we have associated with the pandemic, millions of end users have been introduced to our brands for the very first time. In addition, our robust tribal culture and increased focus on our must-win battles have enabled us to mitigate many of the adverse impacts COVID-19 has had on our business. The tribe’s efforts have enabled us to meet most of the very high demands we experienced for our maintenance products. As a result, we experienced a 45% increase in sales of maintenance products during the third quarter compared to the same period last year. In addition, translation of our foreign subsidiary’s results from their functional currencies to the U.S. dollar had a favorable impact on sales in the third quarter. On a constant currency basis, sales would have been…

Thanks, Garry, and good afternoon. When we last spoke I shared with you that we believed there was a tailwind for us coming out of the COVID-19 pandemic. In reality, the pandemic has created both headwinds and tailwinds for our tribe. Jay will talk in greater detail in a few moments about the headwinds we are experiencing and the business decisions we are making to combat them, I will focus on the tailwinds. Today we’re reporting sales that are up 39% compared to third quarter of last year. We continue to experience very high demand for our maintenance products due to the shift in consumer spending patterns associated with the pandemic. Though we do not expect to see sales growth of this magnitude over the long-term, we do know that due to the shift in consumer spending patterns we experienced during the duration of the pandemic, we believe we have acquired millions of new end users around the world. The post-pandemic era is coming and we’re confident that many of the new end users who have interacted with our products during the pandemic will become permanent users of our maintenance products. Let’s take a closer look at what’s happening in our trade blocks, starting with the Americas. Net sales in the Americas, which include the United States, Latin America and Canada, were up 20% in the third quarter to $60 million, a new record for the trading block. Sales of maintenance products increased 28% in the Americas, due to increased sales of WD-40 Multi-Use Product in the U.S., Latin America and Canada, which increased 24%, 138% and 74%, respectively. These strong sales trends are driven by several factors. In the United States, we experienced strong sales of WD-40 Multi-Use Product due to the isolation revenue renovation phenomenon. In addition, sales…

Thanks, Steve. Our record third quarter was driven by robust demand across all maintenance products, coupled with strong operation performance. In the third quarter, we grew consolidated net sales by 39% to $136.4 million. Net income for the third quarter was $21 million compared to $14.5 million last year. Diluted earnings per share for the third quarter was $1.52, compared to a $1.06 for the same period last year. Now let’s begin our review of our 55/30/25 business model, 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 or above 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 overtime to around 30% of net sales. And finally, the 25 represents our long-term target for EBITDA. First, we’ll look at the 55 or gross margin. In the third quarter, our gross margin was 53.1%, compared to 54% last year. This represents a decline of 90 basis points year-over-year. Gross margin was negatively impacted by 180 basis points due to increases in manufacturing costs, changes in sales mix and higher miscellaneous costs. These increased manufacturing costs were primarily driven by higher labor and overhead costs at our third-party manufacturers, caused by the global supply chain constraints linked to the pandemic. Also negatively impacting our gross margin was change in foreign currency exchange rates, which adversely affected our gross margin by 50 basis points. This is due to the fluctuations in exchange rates for the euro and U.S. dollar against the pound sterling in our EMEA segment from period-to-period. This is because in EMEA the majority of our cost of goods are sourced in…

Thanks, Jay. In summary, what did you hear from us on this call? You heard that consolidated net sales were up 39% in the third quarter to $136.4 million, a new quarterly record for the company. You heard that sales of WD-40 Multi-Use Product were up 45% in the third quarter. You heard that sales of WD-40 Specialist were up 24% in the third quarter. You heard that year-to-date global e-commerce sales grew by over 25%. You heard that we have increased our marketing investment by over $2 million this year with a focus on winning the hearts and minds of end users in some of our top priority markets. You heard the way are being impacted by inflationary pressure and that in the order to combat these rising costs, we have recently begun to implement price increases in many of our markets, because we’re committed to our 55/30/25 business model. You heard that we have increased our revenue expectations for the full fiscal year and believe that net sales will be between $475 million and $490 million and that upward revision is driven by strong sales we experienced in the third quarter. You heard that we are adjusting our 2025 revenue targets today to a range of between $650 million and $700 million, which reflects a compounded annual growth rate in the mid-to-high single digits and we believe we can successfully bring these targets within reach by the end of fiscal year 2025. In closing today I’d like to share with you a quote from Albert Einstein, in the middle of every difficulty lies opportunities. Thank you for joining us today. We’d now be pleased to take your questions.

[Operator Instructions] Your first question is from the line of Linda Bolton Weiser with D.A. Davidson.

Yes. Hi. Congratulations on a strong quarter, really impressive top line growth there. So if we look at your revised revenue guidance for the year, it does sort of imply a deceleration of growth in the fiscal fourth quarter, which I guess I would have expected. I am just kind of wondering EMEA and the Americas in particular have really hard comparisons. I mean, do you think, like what are you seeing in June so far? And do you think you can actually grow those regions a little bit even though the comparisons are hard? And then, secondly, can you remind us why Asia was down so much in the prior year, was that something COVID-related?

Yeah. Thanks, Linda. It’s Garry. Yeah. The sales revenue guidance that we’ve given shows Q4 somewhere between approximately $105 million and $120 million. The top end of that will be growth year-over-year. That’s why we give a range. So, we increased the year-end target because of the strong results in the third quarter and we feel fairly comfortable with the range that we’ve given for the full year, which will probably show a modest growth quarter-over-quarter versus last year. As far as Asia’s concern, Steve, do you want to comment on the shift there?

Thanks, Gary, and hey, Linda. Yeah. Really, it’s just a comparable versus prior year. So if you look at China in particular, we had a very strong Q3 prior year and Q2. So it’s the mix between Q2 and Q3. Overall for China, we’re tracking very well year-to-date and for the year-end we are expecting a very strong growth and that’s true for the whole of Asia as well. So it’s just a quarterly phasing.

Okay. And I mean, can you give us any color about what you’re seeing in June, I mean, is that a month where you’re facing the hard comparisons and so you see a little bit slower growth already in June?

Again, Linda, I’ll just refer back to our full year guidance and we’ve given that out there and that guidance will show some growth in the quarter year-over-year, if we -- if you took the medium that. So it’s a hard comparison, but we don’t see that the fourth quarter is going to be necessarily anything different than what we’ve now shared in the full year number, which would be revenue somewhere between $100 million and something and $120 million for the quarter.

Okay. And then just you mentioned you’re already starting to take some price increases in your various regions, is that kind of across the board? Are there any emphasis in any particular product lines? And can you give us some ideal percent of magnitude of price increases being taken?

Yeah. It’s across our major product lines in varying place -- in most major countries around the world and it’s mid-to-high single digits depending on what country and what impact we’ve had on our cost of goods. So WD-40 Multi-Use Product, WD-40 Specialist, this is really passing on the real price increases we’re seeing due to increased manufacturing costs and increased raw material costs, some of which are coming from oil. But most of componentry across the world, we are seeing inflationary pressure. So across all product and mid-to-high single digits depending on which country and what the impact those costs are having.

Okay. And then in the last call I believe Jay had said like a little bit of a quantification would be gross margin in second half would be down 200 basis points to 300 basis points versus the second quarter? And quite frankly in the third quarter, it came in pretty close to my estimate. So I am just wondering with now the price increases and maybe materials cost going up even more. I mean is that still an accurate statement? Or do you want to modify the magnitude of what you were saying previously about the gross margin?

I’ll pass it over to Jay. He is the gross margin man.

Yeah. Thanks, Gary, and Linda, thank you. I think what we did not see the kind of the full brunt of some of the costs we were expecting in the third quarter, even though our margin was down. Yeah, we still see and expect some continued margin pressure on the short-term. The one thing to note is that many of the price increases that we’re talking about will not make their way into the market by the time we go through the fourth quarter. So they are primarily slated for earlier in the - or after the end of the year. So that will kind of mitigate some of that – or it will delay the benefit from price increases a little bit.

Okay. Thank you. That’s helpful. And then can you talk about -- I think you had talked about launching the new next-gen Smart Straw in the U.S. in this quarter, in the fourth quarter. But then you said you had some push out of the CapEx. So are there delays or anything that’s changing that timeline? Or are you still expecting to launch that in the U.S. here in this quarter?

Thanks, Linda. Now, you will see the appearance of Smart Straw next-generation 1.5 on the shelves in the United States as we start to move through the fourth quarter.

Okay. Great. And then, I guess, just a question on your, I mean, clearly, your cash flows are very strong with your strong earnings, but you didn’t -- you have not resumed share repurchase. Are you, like, kind of what are your plans and what are you thinking in terms of timing for maybe resuming some share repurchase?

Jay, do you want to address that?

Yeah. Yes. We haven’t -- we don’t have an authorization. Although, we would expect to be looking for an authorization as we move into the New Year.

Okay. Well, I guess, I’ll leave it at there and pass it on to the next person. Thank you.

Thank you very much, Linda.

Your next question is from the line of Daniel Rizzo with Jefferies.

Hi, guys. Thank you for taking my question.

Hi.

Hi.

I was just wondering you increased the outlook for the Americas, I think, the 5% to 8% from 2% to 5%, I mean, the long-term sales growth. I was just looking for more color on where exactly you expect that to come from the elevated increase or the faster growth?

Sure. Steve, would you like to cover that, please?

Sure. Thanks, Garry. Hey, Daniel. So it’s really we see -- you see, you heard about the fantastic growth we have had as we have taken the market Mexico direct, that’s driven significantly faster growth and has really helped the overall Americas grow quicker. So Mexico is a part of it. Latin America, we see strong growth, geographic growth opportunities for the whole of Latin America, higher than we saw before. Also now with Smart Straw next-generation, Canadian growth prospects to transform. So, we see strong growth out of Canada for premiumization. E-commerce accelerating growth across the whole of the Americas, so the fastest growing channel, we’re doing very well there broadly. And then also since the re-launch of the refreshed WD-40 Specialist packaging despite our short-term issues in the United States, we see that as being a stronger driver of growth going forward. So they would be the main reasons behind the increase in our confidence in the future of the Americas region.

Okay. And then, given what you saw in the third quarter in sales in the different regions and with especially rest of the year, I know in the past sometimes order timing is played kind of -- has move things around specifically last year I think in Asia, there was a delay, which caused a decline. I was wondering if there was any pull-forward or delays in this third quarter that will be a more evident in the fourth quarter?

Nothing significant that we would be concerned about or be happy about, I think, we have -- the delays that we saw last year were really due to shutdowns of COVID and the major ones were in the beginning of the year, basically when China -- around Chinese New Year of 2020 shutdown completely and we all have the scar tissue of memories of what was happening back then. So now I think, again, it’s how normalized things become and although we’re seeing things improving in the U.S., Australia is in lockdown again now. We see different countries dropping in and out depending on the way the vaccination, et cetera. But it seems -- the world has seen somewhat calmer than they did a year ago obviously and there is certainly a lot of hope on the horizon given the way that the vaccines are helping to control the spread of COVID.

Okay. And then final question, so the third-party issues that you kind of highlighted last quarter and then we kind of correlated. I think they still exist but it seems like you just completely offset them or masked them. I was wondering why it’s different, because it was such a strong quarter this time and why it’s -- I don’t know I just was unclear on why it’s different in Q3 here versus Q2?

Because of the actions we took. We were able to redirect some of our manufacturing across different areas. There was -- we didn’t have the impact of the big freeze in Texas, which certainly impacted supply chain, particularly around aerosol cans, some of our major suppliers of cans were shutdown for weeks. So a few things have happened and the flow of inward goods has freed up a little, and we have been working to redirect and place manufacturing in different areas where we had some of our packages that had to bring on second shifts, labor is now becoming available, although it’s still tight. So there is a number of steps that we have taken that told us that we were going to get through this, but we were in a pretty critical time at that time. And hats off to our tribe and hats off to our supply chain leaders, they have just done an amazing job and it just shows the resilience of our culture and we’re so fortunate and grateful for the hard work and the sweat and tears they have done to really hold up our supply chain during this period of time.

Okay. Thanks. Thanks for all the color.

You’re welcome.

And that does conclude today’s conference. Thank you for participating. You may now disconnect. Have a great day.