Ladies and gentlemen, thank you for standing by. Good day, and welcome to the WD-40 Company First Quarter Fiscal Year 2025 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 marks, we will conduct a question-and-answer session. [Operator Instructions] I’d now like to turn the presentation over to the host for today's call, Wendy Kelley, Vice President, 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 30, 2024. These documents will be made 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 that are 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 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, January 10, 2025. 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 2025. I will also provide you with an update on our must win battles and one of our strategic enablers. Following that, Sara will share additional details on our first quarter results, provide updates on the anticipated divestiture of our home care and cleaning business, and our 55/30/25 business model and review our outlook for fiscal year 2025. We'll then take your questions. I'm happy to share with you that today we reported net sales of $153.5 million for the first quarter, which was an increase of 9% from the first quarter of last fiscal year. Furthermore, we reported net sales of maintenance products, our core strategic focus of $145.5 million for the first quarter, which was an increase of 10% from the first quarter of last fiscal year, marking the third consecutive quarter of double-digit growth in this category. Gross margin continues to improve and is moving closer to our target of 55%. In the first quarter, we reported gross margin of 54.8%, which is an improvement of 70 basis points sequentially from the fourth quarter and 100 basis points compared to the first quarter of last fiscal year. Gross margin excluding the impacts of the assets we currently have held for sale was 55.4%. This improvement of our gross margin is driving increased profitability at the bottom line. Net income for the first quarter was $18.9 million, an increase of 8% over prior year. We are pleased with the strong volume performance the business is currently experiencing. In the first quarter, excluding the impact of currency, nearly 90% of our growth was driven by increased sales volume. Global sales volumes showed…

Thanks, Steve. Today, I will share an update on the anticipated divestiture of our homecare and cleaning business in the Americas and the U.K., provide insights into our business model, and review some highlights from our first quarter results. While our full year 2025 guidance remains unchanged, I will provide some additional color on our outlook. But first, I want to talk about a new mantra that you are hearing in the halls here at WD-40 Company. Few things, many places, bigger impact. This mantra has been born out of the company's long-standing strength focus. Few things, many places to drive a bigger impact has historically been an approach central to our product strategy. In fiscal year 2024, almost 90% of our revenue and growth came from sales of WD-40 Multi-Use Product and WD-40 Specialist. We see significant growth opportunities for those product lines. With approximately 650 employees, we want each one to wake up every morning thinking about how to grow the blue and yellow brand with a little red top. That kind of focus is hard to find and incredibly valuable and was the driving factor for us when we made the decision to pursue divesting our homecare and cleaning brands in the Americas and the U.K. This quarter, we met all the criteria to classify the assets we intend to sell as held for sale on our balance sheet, indicating progress on this journey. While I do not have a detailed update for you today on the anticipated divestiture, I can share with you that we continue to make progress on the transaction. The investment bank we have engaged continue to have discussions with potential suitors on our behalf. While there are no certainties on identifying a buyer when going to the market, our expectation is that…

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 and aligns with our longer-term goals. In summary, what did you hear from us on this call? You heard that sales of maintenance products were up 10% in the first quarter, marking the third consecutive quarter of double-digit growth in this category. You heard that sales of WD-40 Multi-Use Product were up 10% in the first quarter. You heard that sales of WD-40 Specialist were up 14% in the first quarter. You heard that we are pleased with the strong volume performance, the business is experiencing and that in the first quarter nearly 90% of our growth was driven by increased volume. You heard that management's job is to unlock opportunities to drive substantial value to stockholders, and that includes increased focus on our key growth markets around the globe. You heard that we've now gone public with our sustainability targets after a very in-depth process, putting together our science-based roadmap for achieving carbon reduction. You heard about our company's new mantra, few things, many places, bigger impact, which is intended to result in operational efficiencies as we grow. You heard that we're incredibly pleased with the improvements we've made to gross margin, but it continues to move closer to our target of 55%. You heard that we continue to make progress on the sale of our homecare and cleaning business currently held for sale and expect to complete the divestiture in the coming months. You heard that we raised our dividend last month and have returned approximately $16 million to our stockholders in the first quarter, and you heard that we reiterated our full fiscal year 2025 guidance. Thank you for joining our call today. We'd now be pleased to answer your questions.

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

Hey, everyone. Thanks for taking my question. I was just looking at kind of through the Q and stuff like that. I was looking at operating income, I noticed that the Americas was down 11% year-over-year and it is partially due, I guess, to the EBITDA margin kind of contraction. I was wondering what that's attributed to if there was something special there or just any color you can provide.

Hi, Daniel. This is Sara. So yes, there's a couple of things that are impacting that. First is the timing. You look at the timing of the A&P spend in Q1 this year compared to last year, we are ahead of our pace in the Americas for Q1. In addition, I mentioned on my -- on the call that there was a bankruptcy with one of our customers and 100% of that which was about $800,000 hit the Americas trading block. So those two are the bigger items, and then we also have a timing of our growth reward program accruing at a higher rate in Q1 compared to the prior year.

Okay. That's helpful. And then so you mentioned, I think, I forgot the right, 55% gross margin by 2026, but you're already at 54.8%. And I understand when you said it could come faster, but I was wondering if your base case is suggesting that there will be some giveback maybe because of higher logistical costs or warehousing costs or how should we think about it? Because I mean, it still seems that the end of '26 is still far away.

Yeah. As we -- even just going back a year, our margin can fluctuate pretty dramatically quarter-to-quarter depending on our sales mix and our product mix. So even if going back to Q1 of last year, we had a really strong quarter -- margin coming out of Q1, drop down a little bit and then ticked our way back up. So it is a very good start. We are obviously seeing a little bit of higher cost on the freight and logistics side in the U.S., but we're cautiously optimistic on holding margin through the rest of this year. So that's why we're saying definitely by the end of next year, we're feeling confident on that, but we think we have a chance to get there before the end of this year.

All right. Thank you very much.

It's okay.

Your next question comes from the line of Linda Bolton-Weiser from WD-40 (ph). Please proceed with your question.

Yes. Hello. Happy New Year. So I was wondering, sorry if -- you gave some of the details about your year-over-year increase in SG&A expense. I'm not sure I caught all the details, but it did seem like a big increase of 14% year-over-year. So I'm curious, is that the run rate to expect for the whole year or was there something in the quarter that's going to change and go away or something remaining quarters of the year? Thank you.

Hi, Linda. So there was -- the bankruptcy that we had with one of our customers in the Americas. So that is a one-time that's hitting the Q1. We are also accruing at a higher growth reward program going into this year than we were going into last year. So there is expected increased expenses in that, but that is built into our guidance for this year.

Can you quantify the one-time effect in millions of dollars that bankruptcy had on the quarter?

The bankruptcy for the quarter was approximately $800,000.

Okay. Thanks. And then, I believe [indiscernible] had a little bit of a positive effect on top line in the quarter. Can you update what your thoughts are for that? I guess, how does it work out in the remaining part of the year? Does that become negative? Like, how has it changed in terms of your projection for that aspect of the sales line. Thanks.

Yeah. When we look at the Q1 rates right now compared to the Q1 rates last year, globally, it was trending positively for us. Although, if you look at the individual trade blocs, specifically in the Americas with the Mexican peso and the Brazil real it is negatively impacting us. So that was offset by a positive impact on the currencies elsewhere. If you were to look at the rates today and kind of take a dramatic look at the rates today and forecast that out for the rest of the year, we do anticipate that it would take a turn globally that it would then have a negative impact, if we forecast it out for the remainder of the year at today's rates, when you compare them to the full year rates from prior year.

Okay. Thanks. And then, I think there was some mention in your 10-Q of U.S. promotion in the quarter. It sounded like maybe that benefited the Multi-Use Product sales in the quarter. Can you give more color on that and that would you regard that as a shifting of some sales from the second quarter into the first quarter? Thanks.

Hey, Linda. It's Steve. So no, I don't think there's anything particular in terms of large volume promotions that have really boosted sales. It's really generally, I think, particularly the home center channel in the U.S. has gone very, very strong. Our retail sales generally have picked up. Our unit sales at POS level were up around 4% or 5% in the first quarter. And so, yeah, we are very encouraged by the kind of switch in kind of retail foot traffic and DIY activity looks to be improving. And so we see that as a positive beyond the first quarter.

Okay. And then, just in terms of the cadence, I know you don't want to get into quarterly type guidance at all, but the cadence -- I mean, you actually have an easy seeming -- easier comparison prior year comparison in the second quarter. And I can't quite remember what that was because of -- was that when you have the little bubble related to SAP implementation, I can't quite remember. But it does seem like there's an easier kind of comparison, both on sales and a little bit on profit growth. Can you just remind us what that was?

Yeah. Linda, very good memory. So yes, it was the quarter that we went live with our ERP and we disclosed about a $2.5 million impact that we experienced in that quarter alone for -- with disruption at the top line, so that's the majority of it.

So then theoretically, you would have like a higher kind of -- like, so if your U.S. growth rate or I don't know your overall sales growth, what was in the quarter, 9%. So theoretically, it would be higher even in the second quarter because you have that easy comparison, all else being equal. Is that the way to think about it?

I think you have a couple of caveats. One is that we kind of disclosed last quarter, the Asia distributor markets are off to a slow start, that was expected, and so we expect that to pick up in the back half of the year. Europe is out of the gate very strong, we expect that to continue. Although, we do get up in the last half of the year in some quite tough comparables versus prior year. And then obviously, the Brazil impact and so we have -- we just had a very strong start in Brazil with over $3 million of growth in Q1. We should get that versus prior year, again, something similar or better in Q2. And then, obviously, that begins to taper off then in Q3 and Q4 as we lap are taking Brazil directly in Q3 and Q4.

Thank you. That's very helpful. And then just to clarify, if you do not sell the cleaning business by the end of the second quarter, will it be removed because you're restating to have it discontinued ops or is it going to be in there if you don't sell it?

No. It will still be in there if we don't sell it. So it's not a big enough of a strategic shift for us to qualify for discontinued ops. So if it's still not sold by the end of the second quarter, it will still be in our reported results. And we'll have -- we would have a similar reporting mechanism, and we'll try to be very transparent with so you can do it with and without deal.

Great. Got you. And then I think, yeah, you did say strong demand in U.K., Italy, you named a few regions there. Is that -- is there anything particular driving that market in Europe in terms of the strength that you're seeing there?

So Europe, just about everywhere was strong in performance all across Europe. I can't really think of anything that didn't really perform the U.K. was a little flat compared to some of the other markets. But excellent performance and all of our Must-Win Battle has been executed very strongly. There is -- in the first part of the year, just a little bit of distribution where we had kind of distribution losses that are still coming back in the first half of the year, one client in perhaps, which may be positively impacted the first quarter by just under $1 million maybe, and we'll continue to add that kind of small impact in terms of a boost in the first half of the year. But beyond that, EIMEA is back in growth mode just as it was -- back to where it was before the kind of loss of the Russian business and the inflation. So we see very, very strong growth out of Europe.

Okay, then. Thank you. That's all from me. Thank you.

Thanks, Linda.

Ladies and gentlemen, that does conclude our allotted time for questions. We thank you for participating on today's conference call and ask that you please disconnect your lines.