Ladies and gentlemen, thank you for standing by. Good day and welcome to the WD-40 Company's First Quarter Fiscal Year 2024 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, Vice President of Stakeholder and Investor Engagement. 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, Steve Brass; and Vice President and 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 November 30th, 2023. 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 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 documents posted on our investor relations website. As a reminder, today's call includes forward-looking statements about our expectations for the company's future performance. 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 discussions. 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 9th, 2024. The Company disclaims any duty or obligation to update any forward-looking information as a result of new information, future events or otherwise. With that, I'd now like to turn the call over to Steve.

Thanks, Wendy, and thanks to all of you for joining us this afternoon. Today, I'll begin by discussing our sales results for the first fiscal quarter of 2024. I will also provide you with an update on our must-win battles and some of our strategic enablers. Sara will provide further details on our first quarter results, and update on our business model and our outlook for fiscal year 2024, and then we'll take your questions. I'm happy to share with you that today we reported net sales of $140.4 million for the first quarter, which was an increase of 12% from the first quarter of last fiscal year. Excluding the favorable impact of currency, revenue grew 9%, which is in line with both our FY'24 guidance and our long-term growth projections. We are encouraged that the improvement in trends we experienced in the second half of fiscal year 2023 have carried into fiscal year '24. This is the first time since fiscal year 2021 that our business has been firing on all cylinders. We saw volume-related sales growth this quarter in all three trade blocks. In fact, approximately 65% of our constant currency sales increase this quarter was volume-related. We estimate that increases in volume favorably impacted sales by approximately $7.6 million from period to period while only about $4.1 million was attributed to increases in average selling price primarily due to price increases we implemented last year in certain regions. We're also pleased to see that this topline growth is dropping down to the bottom line. Net income for the first quarter was $17.5 million compared to $14 million in the first quarter of last fiscal year, an increase of 25% year-over-year. For those of you who've reviewed the press release we issued earlier today, you may have noticed…

Thanks, Steve. I'll begin today with a discussion about our business model, then I will walk you through some of our first quarter results and provide an update on our capital deployment. While our full year top and bottom line guidance remains unchanged, I will provide some additional color on our outlook. Before we begin today, I wanted to point out to investors that we have modified how we calculate some of the non-GAAP performance measures related to our 55%, 30%, 25% business model. Beginning this quarter and going forward, amortization of implementation costs associated with cloud computing arrangements will be included in our cost of doing business and EBITDA calculations Accordingly, we will now refer to our EBITDA target included in our 55%, 30%, 25% business model as adjusted EBITDA. As Steve mentioned, we are in the process of implementing a new cloud-based enterprise resource planning system which we will begin to amortize once the system is placed into service. Implementation of systems like this one are related to our strategic framework and are intended to achieve greater operational efficiencies for our organization. We consider these noncash charges to be like depreciation of fixed assets and therefore believe they should be treated as such. WD-40 Company's asset light and dynamic business model has helped the company maintain a healthy financial position for years and continues to be our guiding light. Our 55%, 30%, 25% business model is a long-term beacon that we will move toward and align with over time. In the short to midterm, we think about each critical component of the model in a range. Let's start with our first quarter gross margin performance. We target a range of 50% to 55% for gross margin and we have made significant progress to perform well within this range.…

Thank you, Sara. In closing, we're proud of the progress we've made this quarter, which is a great start to our fiscal year, aligns with our longer-term goals. In summary, what did you hear from us on this call? You heard that this is the first time since fiscal year 2021 that our business has been firing on all cylinders and we saw top line growth in all three trade blocks. You heard that we saw volume-related sales growth in all three trade blocks and that approximately 65% of our constant currency sales increase this quarter was volume-related. You heard that sales of WD-40 Multi-Use Product were up 14% in the first quarter. You heard that sales of WD-40 Specialists were up 9% in the first quarter. You heard that our inventory levels peaked in the first quarter of fiscal year 2023 and since then we have reduced inventory by $37.5 million or 31%. You heard that we're incredibly pleased with the improvements we've made to gross margin and that this progress has positioned us to likely deliver above the midpoint of our fiscal year 2024 gross margin guidance range. You heard that beginning this year certain key senior leaders will have a portion of our incentive compensation tied to making progress to recovering our adjusted EBITDA margins initially back to 20% to 22% over the midterm. You heard that we continued to return capital to investors through regular dividends and that we raised our dividend last month. And you heard that we reiterated our full fiscal year 2024 guidance and are proud of the progress we've made this quarter. Thank you for joining our call today. We'd now be pleased to answer your questions.

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

Yes, hello. Congratulations on this strong quarter. So I was wondering if you could comment on what the environment is regarding pricing because we're actually starting to hear in certain areas of deflationary developments. Are you getting any pressure to actually roll back any prices? I know historically that wasn't really the practice, but can you just sort of give a little bit more on the pricing front? Thank you.

Hey, Linda, it's Steve. So, on the pricing front, of course, with major retailers, as always, they are excellent negotiators. And of course, we're having conversations about pricing going forward. I mean, I think the bottom line is that it's hardly a situation where we're profiteering. We are simply recovering our historic gross margin levels, and we're very pleased with the progress we're making there. So, in summary, yes, we are beginning to have conversations with retailers. We train our people very, very well to hold those conversations with our retail partners. But, yes, those conversations are at.

Okay. And then I know when you took the price increases in Europe that there was some loss of distribution. Can you just update us on -- have you fully regained back that distribution and kind of what's the status there?

So, in terms of Europe and the minor distribution losses we have, we have pretty well recovered most all of those distribution losses. Some of those, however, will run into next fiscal year in terms of a full recovery of the volume concern. So, yes, we have recovered just about all of the volume we lost from kind of delists, but some of that recovery will still play out in fiscal year 2025 in Europe.

Okay. And then, can you give some, well, I can't remember. I don't think you've exactly quantified the income statement effects of your ERP implementation costs, but can you give some idea of the cadence of when those will hit the income statement? Is it more in the first half or second half, or just evenly across the quarters? Any color on that?

Yeah, Linda, I can take that one. So we are still on track to go live with the new system in Q2. So we will expect some of that amortization begin to impact us in the next quarter and then going forward. So the amortization, I think we disclosed that we have about $10 million on the books at the end of November, and we will start to amortize that through the P&L starting in Q2 as soon as the system goes live. And we will -- there'll be some more transparency on the amount of that as we get into the second and third and fourth quarter of the year.

Okay. And then finally, I guess, I just was interested in your commentary on India. I didn't catch exactly what you said, but it sounded like something and then growth would resume more in the second half of the year. Can you give a little more on that issue? Thank you.

Sure. So, Linda, as you're aware, our long-term growth trajectory on India has been very, very positive over recent years. We have a wonderful partner and have a great long-term track record. We've suffered -- the same kind of disruption that we've suffered pretty well everywhere else in India in terms of these pricing and changes over the past 18 months and we're still kind of going through that. We do expect to emerge from that in the second half of this fiscal year. There was also some -- just some shipments deferred between Q1 and Q2 as well. So you should start to see the Indian situation improving. We were disappointed. We were negative about $0.9 million, I believe, in the first quarter. But you should see that over between Q2 begin to improve and then head back into growth in India in Q3 and Q4.

Okay. Thank you very much. I appreciate it.

Thank you.

Thanks, Linda

Our next question comes from the line of Daniel Rizzo from Jefferies. Please go ahead with your question.

Good afternoon, everyone. Thank you for taking my call. Just given the strong performance in the first quarter in sales, I mean, you're up over 12%, but the outlook is -- for the year is largely unchanged. I was wondering if there's order timing that's involved that would suggest a slowdown in the second quarter or the back half of the year or how should we think about it, again, given the -- everything is still intact, but you had a fairly strong first quarter.

So I'll take that one. Hi, Daniel. This is Sara. So, yes, we are very pleased with the results for the first quarter, but it is just one quarter, and there is still a lot of uncertainty as we look out for the back half of the year. And so at this point in time, we felt that it was appropriate. It's still our best estimate that we believe will still be within the guidance for the rest of the year. We do obviously see fluctuations quarter-to-quarter. If you go back and look at our business, the business can fluctuate quarter-to-quarter. And we have the ERP system going in live in Q2. So we're just -- we're wanting to wait one more quarter to see how the first half of the year shapes up before taking another look at guidance.

Was there any pull forward in the quarter from the second quarter? I know in the past, particularly, sales in Asia have been kind of lumpy just because of order timing. I was wondering if we saw that at all here in the first quarter.

Not really pull forward, Daniel. But there is -- Asia Pacific seems to have just entered this cadence of kind of a front-loaded fiscal year. And part of that is really cultural, down to the way that kind of orders happen and -- particularly in the Chinese market and Asian distributor markets. And so I think that that cadence of a stronger Q1, I mean, if you look at the overall Asia-Pac business, we're up 6%, 7% of constant currency. China is doing very well. Local currency up 18%. It's just this front-loaded piece that just seems to become the way we do business there increasingly, yeah.

Okay. And then this may be a dumb question, but given your asset-light business model, is there any benefit from improved cost absorption with higher production volumes? I mean, volumes can be fairly strong. I was wondering if that will have a meaningful impact on gross and EBIT margins.

So, yes, we do -- volume does help us, right? The more that we can push into our filler network, the better pricing we can get. So as volumes continue to recover, right, we will be able to see improved filling fees. Although fill fees for us have been one of those costs that have been stickier than others. So if you look at the comparison quarter-over-quarter, fill fees are still higher today than they were this time last year. And a lot of that is around the labor and inflationary environment that our third-party manufacturers incurred. A lot of those increases have just stuck. So in general, to answer your question, Daniel, yes, the more volume, the better pricing we get. But we have seen higher fill fees as we sit here today than we were a year ago.

Right. Thank you very much.

You're welcome.

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. Have a great day.