WD 40 FY 3Q17 Earnings Call Notes

Garry Ridge

Strategic initiative

“Our most important strategic initiative is to take the blue and yellow can with a little red top to more places for more people who will find more uses more frequently. ”

Attract new tribe members

“Strategic initiative number four is to attract, develop, and retain outstanding tribe members. Our goal under this initiative is to attract, develop, and retain talented tribe members. Our long-term target under this initiative is to grow employee engagement to greater than 95%. As we shared with our investors earlier this fiscal year, we completed the acquisition of a new building that will house our San Diego-based tribe members. We are currently in the final process of renovating the property and expect to relocate our tribe to the new office facilities in late August.”

Better to go slow in the right direction

” So historically in closing today which is the last conference call we will do from the facility here in Cudahy Place, I would like to share with you a quote from Simon Sinek, it’s better to go slow in the right direction than to go fast in the wrong direction.”

Jay Rembolt

Long term margin targets

Thanks, Garry. First, let’s review our 55/30/25 business model, the long-term targets we use to guide our business. As you may recall, the 55 represents gross margin, which we target to be a 55% of net sales. The 30 represents our cost of doing business, which is our total operating expenses excluding depreciation and amortization. Our target is to be at 30% of net sales. And that leaves us finally with the 25, which represents EBITDA.

WD 40 FY 3Q15 Earnings Call Notes

You will hear…

“You will hear that we reported net sales of $92.5 million for the third quarter which is a 3% decline from the third quarter of last fiscal year. Year-to-date net sales were $286.2 million which is a slight increase year-over-year. You will hear that the Americas performed very well in the third quarter with a 10% increase in net sales.”

“You will hear that Asia-Pacific is on track for a great year despite a product quality challenge we encountered during the quarter. You will hear that EMEA’s base business is strong, but reported sales continue to be impacted by significant currency headwinds and political and economic instability in Eastern Europe.”

Currency having a big impact

“In the third quarter nearly 40% of our revenues were generated in currencies other than the U.S. dollar, which means we are experiencing significant foreign currency headwinds particularly in EMEA. However, if you peel back the onion, our underlying business is performing well and in local currencies, seeing growth in all but a fuel-bound markets globally.”

What is “constant currency” anyways

“Since our results fluctuate due to the changes in foreign currency exchange rates, we also discussed our sales in what we call constant currency. For that we translate the current period results from the foreign subsidiary functional currency in the U.S. dollars at the same period last year exchange rates. ”

“But wait, there is more.”

It takes 90-120 days for lower commodity prices to impact COGS

“As we’ve shared with you in the past it takes considerable time, approximately 90 to 120 days for change in commodity prices to impact our cost of goods sold. All three trading blocks are net positive impacts to gross margin due to lower crude oil prices one of the primary feedstock’s of our petroleum-based specialty chemicals.”

Tell em what you told em

“In summary what did you hear from us on this goal? You heard that the Americas performed very well in the third quarter with 10% growth rate overall in revenue. You heard that Asia-Pacific is on track for a great year despite minor hiccup in the quarter there are up 9% year-to-date.”

Let me close with a quote

“So in closing, I’d like to share a quote with you with you from Mike Gafka. To be successful, you must accept full challenges that come your way. You can’t just accept the ones you like. “