Ladies and gentlemen, thank you for standing by. Good day. And welcome to the WD-40 Company Third Quarter Fiscal Year 2022 Earnings Conference Call. Today’s call is being recorded. At this time, all participants are in a listen-only mode. At the end of 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, Vice President of Stakeholder and Investor Engagement. Please proceed.

Thank you. Good afternoon and thanks to everyone for joining us today. Joining us 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, and incoming Chief Executive Officer, Steve Brass. Also joining us for today’s call is our Vice President, Global Finance Strategy and Incoming Chief Financial Officer, Sara Hyzer. 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, 2022. 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, 2022. 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. Before we begin, I’d like to take a moment to welcome Sara Hyzer to our call today. We shared with investors yesterday that Sara will become, Vice President, Finance, Treasurer and Chief Financial Officer effective November 1, 2022, once we have completed the filing of our fiscal year 2022 10-K. Sara joined our tribe in 2021 global finance and accounting teams as financial strategist for this last year. We are thrilled that she has accepted this opportunity within our tribe. Sara will be available during the question-and-answer portion of today’s call to answer any questions you have for her. As you may know, Jay announced his planned retirement late in 2020. Jay has been our Chief Financial Officer since 2008 and his impact on our company has been immeasurable. Jay will be with us on the next quarter call and then he will sail off into -- retirement. Now let’s turn to our results. Today, we reported net sales of $123.7 million for the third quarter of fiscal 2022, which was a decrease of 9% compared to the same quarter last year. As a reminder, in the third quarter of last year, we reported record sales, driven by robust demand for our maintenance products, coupled with strong operating performance. Against such a comparable, the bar was high. In addition, you have heard me say for 25 years not to follow us quarter to quarter. If you follow our business closely, you will know that fluctuations in performance quarter to quarter are not unusual. This has been especially true since the COVID-19 pandemic began. Although, the sales results, we are reporting today are down, we believe we are positioned to achieve sales growth for the full fiscal…

Thanks, Garry, and good afternoon. As Garry mentioned earlier, net sales were $123.7 million in the third quarter, down 9% or $12.7 million compared to the prior year. There were a couple of significant events that led to these declines, including severe lockdown measures instituted in Shanghai and the military action taken by Russia. In addition, we experienced decreased demand for our products in certain regions in EMEA compared to the record sales we reported in the third quarter of last year. Currency also negatively impacted in the third quarter, particularly in EMEA. On a constant currency basis, net sales would have been $127.9 million in the third quarter, the 6% decline from the prior year. However, year-to-date net sales were up 4% compared to last year. We experienced strong sales in the month of June, which we believe will position us to achieve sales growth for the full fiscal year to between 6% and 9%. Let’s take a closer look at what’s happening in our trade blocks, so that we can get a better understanding of these impacts. We will start with the Americas. Sales in the Americas, which includes the United States, Latin America and Canada, were up 2% in the third quarter to $61.5 million compared to last year. Sales of maintenance products increased 3% in the Americas due to increased sales in Canada and Latin America, which were up 23% and 10%, respectively. In Canada, we experienced strong sales of WD-40 Multi-Use Product, which increased 30%, primarily due to increased promotional activities and a higher level of demand for our products in the industrial channel. In Latin America, we also experienced strong sales of WD-40 Multi-Use Product, which increased 16%, primarily due to the positive momentum in Mexico from the shift we made in 2020 from…

Thank you, Steve. To begin with, I would also like to welcome Sara to the call. Many of you may recall that in late 2020 I announced my intention to retire. Since that time, we interviewed dozens of internal and external candidates to find the right person for the job. It gives me great pleasure to let you know that Sara is that right person. I have known Sara for six years and I am thrilled to be handing the rein to such a capable leader. I believe you will enjoy and appreciate working with Sara as much as I have. Well now onto the results. In the third quarter, the challenging inflationary environment and geopolitical uncertainty continue to impact our reported results. Unfortunately, we don’t see any near-term relief in sight and expect the operating environment to continue to remain challenging. However, we remain committed to our 55/30/25 business model and are focused on managing our business, so that we can restore gross margin to our target of 55%. With that said, we are not sticking our head in the sand and ignoring the macroeconomic, geopolitical, supply chain and inflation concerns that exist in the market today, we continue to actively manage our supply chain as we implement various initiatives to increase the capacity and flexibility of our supply chain for the long term. In tandem with these efforts, we have been implementing strategic price increases across all segments in response to the increased costs we continue to experience. In times like these, I am glad that our stakeholders can see the forest through the tress. What I mean by that is, even though we are underwhelmed by our third quarter results, I am as confident as I have ever been about the long-term opportunities for our company. As…

Thanks, Jay. In summary, what did you hear from us on this call? You heard that Steve is going to be joined by Sara Hyzer who will be the next CFO of WD-40 Company effective November 1, 2022. You heard that despite the fact that the third quarter sales results were down, we continue to believe we are positioned to achieve sales growth for the full fiscal year, which will represent a record sales results for our company. You heard that we continue to be a business for the very strong moat, diversified across many trade channels and countries around the world, we have a strong balance sheet, generates steady cash flow and continue to return capital to our investors through regular dividends. You heard the sales of WD-40 Specialist were up 12% in the third quarter and we continue to experience strong momentum due to the increased production capacity and improved product availability. You heard that although we have been experiencing pressure on gross margins from the challenging inflationary environment, we have a solid gross margin restoration plan in place. You heard that some of the significant price increases we implemented in the third quarter, particularly in our Americas trading block were implemented at the end of the quarter and the positive impact has yet to flow through our gross margin. You heard that we have adjusted our guidance for fiscal year 2022 and believe that earnings per share will be between $5.02 and $5.10. In closing today, I’d like to share with you a quote from Vivian Greene, Life isn’t about waiting for the storm to pass. It’s about learning to dance in the rain. Thank you for joining us today. We would be pleased now to take your questions.

[Operator Instructions] Our first question comes from the line of Daniel Rizzo with Jefferies. Please proceed with your question.

Hello, everyone. Thank you. Thank you for taking my question. You mentioned, I think, $1 billion market, I think, you highlighted for the Multi-Use Product. I was wondering if that market worldwide include premiumization or is premiumization is something that you are holding separate, which is a separate market that could add to that?

Steve, would you like to address that.

Sure. Thanks, Garry, and hey, Daniel. $1 billion would include premiumization in total and it’s $1 billion worth of growth, it’s not a $1 billion total opportunity, it’s $1 billion close actually based that $1.2 billion based upon, yeah, the top geographies around the world and on our benchmark. So, yeah, it would include premiumization, but it’s actually about $1.2 billion in total in growth opportunity.

And could you just provide more color on the digital platform. I think you said it was flat year-to-date. I was wondering, just I guess a little surprising given, it’s still somewhat new platform and I thought it was going better than that. I am just, I don’t know, maybe I missed something?

Thank you, Daniel. I think I can take that one also Garry. And…

Yeah.

… in terms of digital commerce, we have been catching up and so a lot of it is related to our Americas region and out of stocks and it’s absolutely roaring back in the last few months. So, overall, I believe the digital commerce for the year, so year-to-date we were down 13%, but that is improving with every month now that goes by. And so quarter three, for example, the Americas, it’s actually up 42% over prior year. So we are beginning to catch up and a lot of that was linked to pricing, sorry, to out of stocks on the WD-40 Specialist.

Okay. Thank you. And then, finally, obviously, I mean, costs are an issue, but, I mean, it just seems -- are they plateauing or is it just an unending rise, because, obviously, you still have to do a lot of catching up, but I was wondering if there is any sign of light at the end of tunnel?

Yeah. Daniel, thank you. I will take that. The margin issue is absolutely a timing issue. If you look at this year in total, in Q1 pricing added 120 basis points. In Q2 pricing added 200 basis points. In Q3 pricing added 490 basis points, which was offsetting the increases that were coming through primarily not from necessarily oil, because oil is fluctuating in that range, but from aerosol cans and other components of our cost of goods. So what I think the light at the end of the tunnel is, each quarter the pricing action we are taking is starting to offset the embedded cost of our raw materials. As we mentioned in this call, the price increase that we have just taken in the Americas or in the U.S., in fact, of about 25% will not show up until Q4. So, yes, this is totally a timing issue. We are all convinced that we will get back to 55% or greater over time. It just -- it can’t happen all at once.

Thank you very much.

Your next question comes from the line of Linda Bolton Weiser with D.A. Davidson. Please proceed with your question.

Yes. Hi. How are you?

Hi, Linda. I am great.

Good. So can I just ask you what -- maybe I am sort of losing track of things here, but I thought that when you last reported in early April, that we kind of knew about the China lockdowns at that point and maybe I am mistaken, but I thought we kind knew the situation and in fact the analyst and investors were more like looking, like talking to when they might be lifted. So I don’t -- I mean what sort of changed with regard to the situation that you weren't foreseeing kind of back in April. I guess, if you could just explain more about that?

Sure. Linda, the lockdown that we are talking about, which started in May, in fact, and it was a complete lockdown of Shanghai and Shanghai was locked down for I think nearly six weeks. And at that time, all of the shipments out of Shanghai was suspended, people couldn’t go to work and you probably observe that in the media or whatever. I don’t know that we understood what the -- how long it was going to go on for or the severity of it. But it’s certainly shut -- it did shutdown the operation. We ship all of our Asia distributors and all of our China local business out of packages in Shanghai and we could not ship a case of product during that time. Those have subsequently been lifted, and as Steve said in early June and we are starting -- and we have started to ship again. So it was absolutely a surprise and something that we couldn’t have anticipated.

Okay. So then the trend of business sort of in the May quarter were then much better in March and April, and then really got bad in May, is that how kind of how it trended through the quarter?

Steve, I don’t have that in front of me, but I...

I think the - [Indiscernible] certainly for the Asia distributor markets, so it’s just a question of not being able to ship, right? So in market we had -- so our marketing distributed across the Asia region had stock in local markets and we are able to service their markets. All that happened, was inventory has got a little lower, we weren’t really out of stock in those markets. So we fully believe that the shipments that didn’t ship in April and May will fully shift in the fourth quarter. So we won't have lost any and revenues in those markets or very little. It will just move from Q3 sales into Q4 sales and you heard us talk about a very strong June and that was partially reflected by those significantly increased shipments to our Asian distributor markets. Now some of the lockdown in China that will have deferred business. So that would have been because of the lack of economic activity, factory closures, complete lockdowns in some cities, there will be some loss of Chinese business from that period.

And another just to add to that Linda, the half the City of Shanghai closed down kind of late March, the government at that time said they thought it would last a week. On around about 15th, no, about the 8th, 9th of April the full lockdown happened in Shanghai and that continued until May 16th when return to normal was announced by the officials.

Okay. All right. Thanks. And then just some on the commodity side or specialty chemical side of things, I thought that you had said that your guidance for the fiscal year included our planning assumption of oil around $100 per barrel to $120 per barrel, and since you last reported, I mean, oil was down, I mean, it hit a high of $120 per barrel around there, but now it’s more close to $100 per barrel. So it just seems to me that the situation may be has not gotten significantly worse and we have seen the tin and plastic resin -- tin plate and plastic resin have actually come down and just spot prices in the market. So I guess I am just wondering like look it just seems like a surprising that the gross margin guidance will be lowered even though the commodities are within the range maybe of what you are planning?

So, number one, we have seen no decrease in the price of our aerosol cans. We had a 60% increase, which we shared in aerosol cans that’s been embedded and flowing through our cost of different times. So even though spot rates are moving it has no impact whatsoever on the price of aerosol cans. And the real issue here is, as I have -- as we have shared is the timing of the flow-through of the cost of goods and the offset of price increases. Yes, oil has been fluctuating between $100 and $120. I mean, as you know well, it takes a lot 90 to 120 days of any impacts of oil to flow into our system. So just because it’s moved in the last couple of weeks it has no impact, and in fact, yes, it went to 95 last week and it’s back over 105 today. So in this scenario oil is not the thing that’s had the biggest impact in the short-term over the last few months. It’s the impact of the cost of aerosol cans, the cost of plastics, the cost of filling fees, all of which are flow -- have flow -- have been flowing into our supply chain at varying times and varying places from varying impact all around the world. This is purely a timing issue.

Okay. Thanks for that. And then, I mean, I haven’t really run my numbers through the model yet, but I think your gross margin guidance for the year implies the gross margin would be up sequentially in the fiscal fourth quarter, am I thinking of that kind of correctly?

It has two.

Yeah. Okay. Okay. Just wanted to…

Yeah.

… make sure about that.

Yeah. Yeah.

Okay. And then, I guess, you had mentioned on the call last time that there was a new product that you were planning on launching, it sounded kind of interesting, maybe with some kind of clean or green product, I can’t quite remember, is that something that is still on track and is that something that could be something that’s important?

Yes. As soon as -- that product is in final stages of stability and quality testing, and once it’s through that, we would be expecting to announce full details of it in the upcoming quarters, but it’s still on track and we are excited about it. It is a product that will be very I think seen as being product is ESG friendly, and yeah, it’s on track and it will be coming.

Okay. And then, finally, we have heard from various retailers about wanting to work down inventory and if you supply a bunch of different channels, but even among like say industrial distributors and things like that. Are you seeing any kind of work down in inventory that they are trying to do because of any kind of slowdown in demand.

Steve, do you want to cover off on that.

Yeah. No. We are not basically and I mean I might be ahead of as, who knows where things are headed, but we haven’t seen that yet. And I mean, we have got some trade channels continue to grow strongly, so our industrial sales we reported last quarter were globally very strong. We are still up 25% in the industrial market globally and we have talked about our e-commerce, which is kind of going to be flat this year. We are still getting good -- the pandemic kind of boost we got from e-commerce and DIY it’s where it’s kind of flattened for us and but that’s just reflecting those channel sales I think and the retail sales in those channels. We are continuing to grow very nicely around the world in automotive, hardware and industry. So, no, we haven’t seen those inventory and kind of control measures coming in yet.

Okay. I will leave it there then. Thank you very much.

Thank you, Linda.

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.