WD 40 : TranscriptPDF 327 KB

Corrected Transcript

07-Jul-2022

WD-40 Co. (W DFC)

Q3 2022 Earnings Call

	Total Pages: 16
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WD-40 Co. (WDFC)	Corrected Transcript
Q3 2022 Earnings Call	07-Jul-2022

CORPORATE PARTICIPANTS

Wendy Kelley	Steven A. Brass
Vice President-Stakeholder and Investor Engagement, WD-40 Co.	President, Chief Operating Officer & Director, 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

Daniel Rizzo

Analyst, Jefferies LLC

Linda Bolton Weiser

Analyst, D.A. Davidson & Co.

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MANAGEMENT DISCUSSION SECTION

Operator: 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 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.

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Wendy Kelley

Vice President-Stakeholder and Investor Engagement, WD-40 Co.

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, 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.

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WD-40 Co. (WDFC)	Corrected Transcript
Q3 2022 Earnings Call	07-Jul-2022

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.

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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. 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 and has worked closely with global finance and accounting teams as a 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 to report our full fiscal year results and then he will sail off into the sunset and enjoy his well-deserved 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've heard me say for 25 years not to follow us quarter to quarter. If you follow our business closely, you'll notice 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 year, which will result in record sales results for our tribe. Steve will talk in greater detail in a few moments about the sales results in our trade blocs and what our expectations for the remainder of the year are. Unfortunately, we continue to face a challenging inflationary environment and our third quarter gross margin came in at 48%, reflecting significant increases to our cost of products sold.

Inflationary cost pressures are broad based and continue to increase with little sign of near-term relief. These operational challenges are not unique to WD-40 company. However, we think that the strategies we've chosen will position us to manage through these challenges over time. Jay will talk in greater detail in a few moments about what the impact has been on our margin and what we are doing to restore it. We continue to be a business with a strong moat, diversified across many trade channels in countries around the world. We have a strong balance sheet, generate steady cash flows and continue to return capital to our investors with regular dividends.

In addition, the WD-40 brand is strong and robust brands like ours are great assets in turbulent times. Most critical of all, we have a tribe of passionate and committed employees who are dedicated to our company's purpose. Let's talk for a minute about our strategic initiatives. Our strategic initiatives are the continuing plan we have in place to achieve the company's long-term aspirations. Our strategic initiatives support our long-term revenue

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WD-40 Co. (WDFC)	Corrected Transcript
Q3 2022 Earnings Call	07-Jul-2022

growth target, which is to drive net sales to between $650 million and $700 million by the end of fiscal 2025. We strive to do so while following our 55/30/25 business model.

Steve and the tribe remain committed to the company's long-term aspirations and strategies we have in place to get there. Strategic initiative number one is to build a business for the future. Our goal under this initiative is to build an enduring business that we will be proud to pass on to the next generation. The desired outcome for this strategic initiative is to fully integrate our ESG initiatives into the heart of our strategic planning process. We are making great progress in setting our ESG priorities, and we expect to file our next ESG report early in fiscal 2023. In that report, we will be articulating our position and our progress on key ESG matters. We're in the early stages of determining what we need to do to reduce our greenhouse gas emissions to be in line with the Paris Agreement. We will also provide stakeholders with an update on progress we have made on our diversity, equity, inclusion and belonging efforts. One of the biggest desires we have as human beings is to belong. That's why we've added and created our own acronym for this critical area,

D, E, I and B.

Strategic initiative number two is to attract, develop, and engage outstanding tribe members. We believe that by building and nurturing an inclusive and diverse, purpose-driven learning and teaching organization, our tribe members will succeed together, while they excel as individuals. Recently we've shared that we've added some new tribe members at the board level. Last month, Edward Magee was appointed to our board and will serve as a member of our Audit and Finance Committee. Ed currently serves as Executive Vice President, Operations at Fender Musical Instruments. He has significant senior leadership experience in manufacturing, sustainability, supply chain and logistics.

Additionally, we shared that Cynthia Burks has been nominated to stand for election at our next annual meeting. Cynthia most recently served as Senior Vice President and Chief People and Cultural Officer at Genentech. Cynthia has extensive knowledge of human capital strategy and a fundamental understanding that culture is a competitive advantage, which makes her a perfect fit for the WD-40 company, where it really is all about the people.

Strategic initiative number three, strive for operational excellence. Our goal under this initiative is to foster a culture of continuous improvement in which operational excellence is the responsibility of every tribe member. Our commitment to operational excellence continues to be an enormous asset for us as we navigate the global economic challenges likely in front of us. Using our 55/30/25 business model as a framework, we measure ourselves against this operational excellence initiative.

Strategic initiative number four, grow WD-40Multi-Use Product. Our goal under this initiative is to make the blue and yellow can with the little red top available in more places to more people, who will find more uses more often. We will grow WD-40Multi-Use Product line through continued geographic and digital expansion, increased market penetration, educating end-users about new uses, and through the development of new and unique delivery systems that make the product easier to use. Although WD-40Multi-Use Product sales were down by 11% to $92.3 million this quarter, we've seen strong growth in recent years as we inch closer towards our 2025 aspiration. The desired outcome for this strategic initiative is to grow sales of WD-40Multi-Use Product to approximately $525 million by 2025.

Strategic initiative number five is to grow WD-40 Specialist product line. Our goal under this initiative is to leverage the WD-40 brand by developing new products and categories, which build and reinforce the core positioning and create growth through continued geographic and digital expansion. In the third quarter, sales of

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WD-40 Co. (WDFC)	Corrected Transcript
Q3 2022 Earnings Call	07-Jul-2022

WD-40 Specialist increased 12% globally to $16.7 million. The desired outcome for this strategic initiative is to grow sales of WD-40 Specialist to approximately $125 million by 2025.

Strategic Initiative number six, expand and support portfolio opportunities that help us grow. Our goal under this initiative is to expand and support brands that provide us protection and help us grow. Brands under this initiative include 3-IN-ONE and GT85, as well as our homecare and cleaning brands. In the third quarter, sales included under this initiative decreased 16% globally to $14.7 million. The desired outcome for this strategic initiative will be sales in this category of approximately $50 million by 2025. To reach that number, we expect sales growth of brands like 3-IN-ONE, GT85, 1001, and no vac. Many of our other homecare and cleaning product brands will most likely decline in sales over time, but they will continue to contribute healthy returns.

Supporting our strategic initiatives are our must-win battles. These are focused action plans that support revenue growth.

I will now pass the call to our soon to be CEO, Steve Brass, who will share an overview of our sales results and an update on our must-win battles.

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Steven A. Brass

President, Chief Operating Officer & Director, WD-40 Co.

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 of EMEA, compared to the record sales we reported in the third quarter of last year. Currency also negatively impacted us in the third quarter, particularly in EMEA.

On a constant currency basis, net sales would have been $127.9 million in the third quarter, a 6% decline from the prior year. However, year-to-date net sales were up 4% compared to last year. And we experienced strong sales in the month of June, which we believe will position us to achieve sales growth for the full fiscal year of between 6% and 9%.

Let's take a closer look at what's happening in our trade blocs, 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 the increased sales in Canada and Latin America, which were up 23% and 10%, respectively.

In Canada, we experienced strong sales of WD-40Multi-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-40Multi-Use Product, which increased 16% primarily due to the positive momentum in Mexico from the shift we made in 2020, from a distributor model to a direct market, as well as the price increases that went into effect earlier this fiscal year.

In the United States, sales of maintenance products remain constant, primarily due to increased sales of WD-40 Specialist, which were completely offset by lower sales of WD-40Multi-Use Product. WD-40 Specialist sales were up 78% in the quarter because of increased production capacity and improved availability as our supply chain continues to strengthen. These sales increases were offset by lower sales of WD-40Multi-Use Product in the quarter due to the timing of customer orders and shifting promotional programs.

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