WD 40 : TranscriptPDF 322 KB

Corrected Transcript

07-Jul-2021

WD-40 Co. (W DFC)

Q3 2021 Earnings Call

	Total Pages: 15
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WD-40 Co. (WDFC)	Corrected Transcript
Q3 2021 Earnings Call	07-Jul-2021

CORPORATE PARTICIPANTS

Wendy Kelley	Steven A. Brass
Director-Investor Relations & Corporate Communications, WD-40 Co.	President & Chief Operating Officer, WD-40 Co.
Garry Owen Ridge	Jay W. Rembolt
Chairman & Chief Executive Officer, WD-40 Co.	Vice President-Finance, Treasurer & Chief Financial Officer, WD-40 Co.

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OTHER PARTICIPANTS

Linda Bolton Weiser

Analyst, D.A. Davidson & Co.

Daniel Rizzo

Analyst, Jefferies LLC

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MANAGEMENT DISCUSSION SECTION

Operator: 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.

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Wendy Kelley

Director-Investor Relations & Corporate Communications, WD-40 Co.

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.

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WD-40 Co. (WDFC)	Corrected Transcript
Q3 2021 Earnings Call	07-Jul-2021

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.

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Garry Owen Ridge

Chairman & Chief Executive Officer, WD-40 Co.

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 those 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 US 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 [indiscernible] (03:49) with the pandemic, millions of end users have been introduced to our brands for the very first time.

In addition, our robust travel 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 subsidiaries results from their functional currencies to the US dollar had a favorable impact on sales in the third quarter. On a constant currency basis, sales would have been $128.7 million, up 31% compared to the third quarter of last year.

Steve will talk to you in a few minutes about the sales trends we experienced in the quarter in each of our trading blocks. But first, I'm going to share an update with you on our strategic initiatives. When the pandemic began, like many other companies, we were uncertain what impacts it would have on our business. We knew that we were going to face some challenging times. However, we also knew that we had a strong tribe who was dedicated to our brands and to our end users.

And we had a famous brand that people trust which could bring certainty to both our customers and our end users in uncertain times. We had a strategy with supporting tactics also known as our must-win battles. That focused us on driving long-term, sustainable growth. We knew that there would be some choppy waters ahead, but we were well-positioned to navigate them. I always say a smooth sea never made a skilled sailor. Our tribe has learned a tremendous amount from operating under this environment.

We have been trusting to in the last year and a half. We know that the consumer spending patterns or what we refer to as isolation renovation will not last forever. As things get back to normal from the post-pandemic, consumer spending patterns will change and our sales volumes will mostly likely return to more normal growth

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WD-40 Co. (WDFC)	Corrected Transcript
Q3 2021 Earnings Call	07-Jul-2021

patterns. However, we do believe that the shift in consumer spending patterns associated with the pandemic will benefit us over the long term.

We know that new end users have been introduced to our variants for the very first time and history tells us that our brand is a sticky brand. This means a high possibility that the buying behaviors we have been experiencing during the pandemic have created permanent uses of our maintenance products. Having said all that, we continue to think that our 2025 targets are just as probably wrong and just as roughly right as before we went into the pandemic.

However, we will be up against sizable, comparable periods in the next few quarters. In addition, the currency tailwinds we are currently experiencing will likely turn into headwinds at some point in the future. Taking those additional factors into consideration, we are adjusting our 2025 revenue targets today to a range of between $650 million and $700 million. We believe we can successfully bring these targets within the reach by the end of fiscal year 2025, and we will strive to do so while following our 55/30/25 business model.

Now, I'd like to turn to an update on our strategic initiatives. The strategic initiative number one is to grow WD-40Multi-Use Product. Our goal under this initiative is to make the blue and yellow can with little red top available to more people in more places who will find more uses more often. In the third quarter, sales of WD-40Multi-Use Product increased 45% globally to $104.1 million compared to the third quarter of last year. Strategic initiative number two is to grow the WD-40 Specialist product line. Our goal under this initiative is to leverage our most iconic asset, the blue and yellow can with little red top and grow the WD-40 Specialist product line through continued geographic expansion, as well as by developing new products and product categories. In the third quarter, sales of WD-40 Specialist increased 24% globally to $11.2 million compared to the third quarter of last year.

Strategic initiative number three is to broaden product and revenue base. Our goal under this initiative is to leverage the recognized strengths of WD 40 Company, derive revenue from existing brands, as well as from new sources and products. Strategic initiative number three includes well-known brands such as 3-IN-ONE,WD-40 BIKE, GT85, 1001, Spot Shot, Solvol, Lava, and no vac. In the third quarter, sales of products included under this initiative increased 32% globally to $18.6 million compared to the third quarter of last year.

Strategic initiative number four, attract, develop and retain outstanding tribe members. Our goal under this initiative is to attract, develop, and retain talented tribe members and to grow our tribe member engagement to greater than 95%. I'm often asked why we call our company employees tribe members at WD-40 Company. We define tribe as a community with a shared purpose that help feed and defend each other. This definition has remained consistently true for us throughout the duration of the pandemic. It is our culture that empowered our tribe to successfully navigate some extremely challenging times. We cultivate a culture at WD-40 Company that has been the cornerstone to our success for decades. In good times, that culture gives us a tribal family to celebrate with. In not so good times, that tribal culture gives us a global tribal family to fight for and support.

And strategic initiative number five is operational excellence. Our goal under this initiative is to strive for continuous improvement by optimizing resources, systems, and processes. Operational excellence also means making sustainable business decisions that create and protect long-term stakeholder value. We consider our stakeholders to be any group without [ph] full (10:31) support the business would not exist. Our commitment to operational excellence continues to be an enormous asset for us as we navigate the challenges associated with the pandemic. Using our 55/30/25 business model as a framework, we measure ourselves against this operational excellence initiative.

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WD-40 Co. (WDFC)	Corrected Transcript
Q3 2021 Earnings Call	07-Jul-2021

I'll now pass the call to Steve who will share an overview of our sales and an update on our must-win battles.

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Steven A. Brass

President & Chief Operating Officer, WD-40 Co.

Thanks, Garry. 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're experiencing and the business decisions we're making to combat them.

I will focus on the tailwinds. Today, we're reporting sales that are up 39% compared to the third quarter of last year. We continue to experience very high demand from maintenance products due to the shift in consumer spending patterns associated with pandemic. So 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-40Multi-Use Product in the US, 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-40Multi-Use Product due to the isolation renovation phenomenon. In addition, sales in the corresponding period of the prior fiscal year were negatively impacted by disruptions and lockdowns related to the early stages of the COVID-19 pandemic. Partially offsetting these strong sales were lower sales of WD-40 Specialist, which decreased 33% in the US during the quarter.

The good news is that consumer demand for WD-40 Specialist continues to be strong. Sales of WD-40 Specialist increased 85% in Canada and 253% in Latin America. WD-40 Specialist sales in the United States were negatively impacted by supply chain disruptions and constraints which we shared with investors last quarter. In the US, we continue to experience some issues [ph] making (13:25) a very high level of demand from maintenance products particularly for WD-40 Specialist, which are sourced at certain third-party manufacturers that were heavily impacted by the recent global supply chain constraints.

The availability and costs of raw materials, components, labor and freight continue to impact our supply chain in North America. However, the tribe is making good progress towards resolving the issues, and we expect we will see resolution of most of the issues impacting WD-40 Specialist by the first half of 2022. Our tribe has gained many learning moments operating our supply chain in the current environment. We will apply those learnings to make future improvements to our supply chain in North America.

In Latin America, we experienced strong sales for all our maintenance products during the third quarter which increased 151% in the quarter. This growth was primarily due to strong sales in our newest direct market, Mexico. In addition, sales in Latin America in the corresponding period of the prior fiscal year were negatively impacted by disruptions and lockdowns related to the early stages of the COVID-19 pandemic. As conditions continue to improve and restrictions in the region decrease, we continue to see increased end user demand in Latin America.

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