What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-06 compared with 2023-01-09 · 257 added, 153 removed, 275 unchanged (60% of the section changed)

34 unchanged sentences

We sell our products primarily through warehouse club stores, hardware stores, automotive parts outlets, industrial distributors and suppliers, mass retail and home center stores, value retailers, grocery stores, online retailers, farm supply, sport retailers, and independent bike dealers.

The following summarizes the financial and operational highlights for our business during the three months ended November 30, 2022:

The following summarizes the financial and operational highlights for our business during the six months ended February 28, 2023:

 Consolidated net sales decreased $9.6 million, or 4%, compared to the corresponding period of the prior fiscal year.

Increases in the average selling price of our products positively impacted net sales by approximately $50.2 million from period to period, primarily due to sales price increases implemented across all segments over the last twelve months.

These favorable impacts were more than offset by decreases in sales volume, which unfavorably impacted net sales by approximately $26.6 million from period to period.

These favorable impacts were significantly offset by decreases in sales volume, which unfavorably impacted net sales by approximately $44.7 million from period to period.

Changes to net sales attributable to volumes and average selling price of our products are impacted by differences in sales mix related to products, markets and distribution channels from period to period.

In addition, changes in foreign currency exchange rates from period to period had an unfavorable impact of $9.5 million on consolidated net sales for the first quarter of fiscal year 2023.

On a constant currency basis, net sales would have decreased less than 1% from period to period.

This unfavorable impact from changes in foreign currency exchange rates mainly came from our EMEA segment, which accounted for 33% of our consolidated sales for the three months ended November 30, 2022.

In addition, changes in foreign currency exchange rates from period to period had an unfavorable impact of $15.1 million on consolidated net sales for the first half of fiscal year 2023.

On a constant currency basis, net sales would have increased by $5.4 million, or 2%, from period to period.

This unfavorable impact from changes in foreign currency exchange rates mainly came from our EMEA segment, which accounted for 34% of our consolidated sales for the six months ended February 28, 2023.

 Gross profit as a percentage of net sales increased to 51.1% compared to 50.6% for the corresponding period of the prior fiscal year primarily due to the positive impacts of price increases implemented over the last twelve months, offset by ongoing global supply chain challenges, including the increased cost of raw materials and constraints that began during the COVID-19 pandemic.

These ongoing challenges have resulted in increased inflation rates globally.

See the Impact of COVID-19 on Our Business section which follows for details, including actions the Company continues to take in response to these challenges.

See the Impact of Global Supply Chain Constraints and Inflation on Our Business section which follows for details, including actions the Company continues to take in response to these challenges.

 Consolidated net income decreased $7.5 million, or 20%, compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates from period to period had an unfavorable impact of $1.2 million on consolidated net income for the first quarter of fiscal year 2023.

Changes in foreign currency exchange rates from period to period had an unfavorable impact of $2.2 million on consolidated net income for the first half of fiscal year 2023.

Thus, on a constant currency basis, net income would have decreased $5.3 million, or 14%, from period to period.

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Significant Developments

Impact of COVID-19 on Our Business

Our financial results and operations continue to be impacted by the COVID-19 pandemic that began during our fiscal year 2020.

The ongoing COVID-19 pandemic has impacted global economies, the rate of inflation, supply chains, distribution networks and consumer behavior around the world.

Impact of Global Supply Chain Constraints and Inflation on Our Business

Our financial results and operations continue to be impacted by certain macroeconomic factors that began during our fiscal year 2020, specifically the COVID-19 pandemic.

The pandemic impacted global economies, the rate of inflation, supply chains, distribution networks and consumer behavior around the world.

We have experienced both favorable and unfavorable impacts to our financial results and our operations as a result of the direct and indirect effects of the COVID-19 pandemic.

For example, sales have been negatively impacted at varying times in the regions in which we operate due to health and safety restrictions

required by local governmental authorities.

Such restrictions continue to sporadically impact various regions, particularly in certain countries within our Asia-Pacific segment.

Fluctuations in global economic conditions may impact end-user demand for our products in certain regions at varying times and are difficult to predict.

These changes in demand may significantly impact our financial results from period to period .

For example, sales have been negatively impacted at varying times in the regions in which we operate due to health and safety

restrictions required by local governmental authorities.

Such restrictions have sporadically impacted various regions, particularly in certain countries within our Asia-Pacific segment.

Fluctuations in global economic conditions continue to impact end-user demand for our products in certain regions at varying times and are difficult to predict.

These changes in demand, including those resulting from shifts in consumer spending patterns as a result of inflation, may significantly impact our financial results from period to period .

In addition, global supply chain issues have resulted in increased raw material costs and other input costs, higher competition for freight resources, and labor constraints within manufacturing and distribution networks.

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In addition, we have taken actions to increase inventory levels of certain raw materials, components and finished goods, given the current challenges within supply chain and increased lead times required by suppliers.

As a result of these initiatives, we experienced increases in the capacity and flexibility of our supply chain throughout fiscal year 2022 and this has improved further as we have started our fiscal year 2023, particularly in the Americas segment.

As a result of these initiatives, we experienced increases in the capacity and flexibility of our supply chain throughout fiscal year 2022 and this has improved further during the first half of fiscal year 2023, particularly in the Americas segment.

Although we are not able to estimate the costs or impacts associated with potential future supply chain disruptions, we believe that the changes we continue to implement as a result of the pandemic will have a positive lasting impact on our ability to better manage any future disruptions.

However, some of the additional costs resulting from these recent supply chain constraints, including costs resulting from maintenance of higher inventory levels, as well as the inflationary environment that is impacting our raw material costs, are expected to unfavorably impact our cost of goods sold for as long as such conditions exist.

To offset the unfavorable impact of increased costs to our gross margin, price increases have been implemented across all of our markets and geographies in fiscal year 2022 and in the first fiscal quarter of 2023 and we intend to implement further price increases in certain regions for the remainder of fiscal year 2023.

To offset the unfavorable impact of increased costs to our gross margin, price increases have been implemented across all of our markets and geographies in fiscal year 2022 and in the first half of fiscal year 2023 and we intend to implement further price increases in certain regions for the remainder of fiscal year 2023.

Although we are seeing the favorable impacts of these price increases, sales volumes are often impacted unfavorably in the short term as customers and end users adjust to increased sales prices.

The severity and duration of the COVID-19 pandemic and its effects on our supply chain, changes in end-user demand and the current inflationary environment remain uncertain and it is not possible to estimate the extent to which these conditions will impact our financial results and operations in future periods.

See our risk factors disclosed in Part I―Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2022, which was filed with the SEC on October 24, 2022 for further information on risks associated with pandemics, including COVID-19.

The severity and duration of these conditions and their effects on our supply chain, changes in end-user demand and the current inflationary environment remain uncertain and it is not possible to estimate the extent to which these conditions will impact our financial results and operations in future periods.

See our risk factors disclosed in Part I—Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2022, which was filed with the SEC on October 24, 2022 for further information on these risks.

The Impact of Russian Military Action in Ukraine

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and other countries immediately imposed various economic sanctions against Russia.

These geopolitical tensions continued throughout the first quarter of fiscal year 2023 and this event has continued to impact global economies, particularly in Europe.

These geopolitical tensions continued throughout the first half of fiscal year 2023 and this event has continued to impact global economies, particularly in Europe.

It is uncertain when conditions will improve or whether additional governmental sanctions will be enacted in future periods.

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Prior to the suspension of sales in Russia and Belarus, our net sales to these two regions were approximately 3% to 4% of consolidated net sales, the majority of which is related to Russia.

We do not have facilities, third-party manufacturing partners, employees or inventory in these affected regions.

We do not have facilities, third-party manufacturing partners, employees or inventory located in these affected regions.

Additionally, the only activities we conducted in these regions prior to the suspension of sales were through local marketing distributors.

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Results of Operations

Three Months Ended November 30, 2022 Compared to Three Months Ended November 30, 2021

Three and Six Months Ended February 28, 2023 Compared to Three and Six Months Ended February 28, 2022

Operating Items

The following table summarizes operating data for our consolidated operations ( in thousands, except percentages and per share amounts):

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Maintenance products

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The following table summarizes net sales by segment (in thousands, except percentages):

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Americas Sales

The following table summarizes net sales by product line for the Americas segment, which includes the U.S., Canada and Latin America (in thousands, except percentages):

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Maintenance products

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(1) Current fiscal year constant currency (“CC”) net sales translated at the foreign currency exchange rates in effect for the corresponding period of the prior fiscal year, compared to prior period actual net sales.

Increases in the average selling price of our products positively impacted net sales by approximately $13.6 million in the Americas segment, primarily due to sales price increases implemented over the last twelve months.

These favorable impacts were offset by a decrease in sales volume which unfavorably impacted net sales by approximately $11.7 million from period to period.

Changes to net sales attributable to volumes and the average selling price of our products are impacted by differences in sales mix related to products, markets and distribution channels from period to period.

Americas Sales – Three Months Ended – November 30, 2022 Compared to November 30, 2021

Net sales of maintenance products in the Americas segment increased due to the following:

 United States (“U.S.”) sales increased $5.6 million, or 15%, primarily due to increased sales of WD-40 Specialist, WD-40 Multi-Use Product and 3-IN-ONE products.

WD-40 Specialist products are sourced at certain third-party manufacturers that were impacted significantly by global supply chain constraints in the prior period.

However, adjustments we have made in our supply chain to increase the production capacity of our most significant products, including WD-40 Specialist, improved the availability of these products from period to period.

WD-40 Specialist sales increased by $2.9 million, or 85%, primarily due to these improvements that resulted in increased sales volume, as well as price increases implemented during the last twelve months.

The following table summarizes management’s estimates of effects on net sales of changes in price, volume and foreign currency exchange rate impacts for the Americas segment (in millions):

Change from Prior Year

First Quarter

Second Quarter

Increase in average selling price (1)

Decrease in sales volume (1)

Currency impact on current period – non-GAAP

Increase in net sales

(1) Management’s estimates of changes in net sales attributable to volumes and the average selling price of our products are impacted by differences in sales mix related to products, markets and distribution channels from period to period.

Americas Sales – Three Months Ended – February 28, 2023 Compared to February 28, 2022

Net sales of maintenance products in the Americas segment increased due to the following (by region):

 United States (“U.S.”) sales increased $8.0 million, or 22%.

WD-40 Multi-Use Product sales increased by $6.3 million, or 21%, primarily due to price increases and improved supply chain capacity from period to period, which was partially offset by lower demand which resulted in decreased sales volume.

3-IN-ONE products are sourced at certain third-party manufacturers that were impacted significantly by global supply chain constraints in the prior period.

However, adjustments we have made in our supply chain to increase the production capacity of our maintenance products, including 3-IN-ONE, improved the availability of these products from period to period.

3-IN-ONE product sales increased by $1.0 million, or 69%, primarily due to these improvements that resulted in increased sales volume, as well as price increases from period to period.

WD-40 Specialist sales increased by $0.7 million, or 12%, primarily due to price increases implemented during the last twelve months, partially offset by lower demand which resulted in decreased sales volumes.

 Canada sales increased $0.5 million, or 12%, due to the favorable impact of price increases which was partially offset by unfavorable changes in foreign currency exchange rates and weaker economic conditions that resulted in lower levels of demand and decreased sales volume.

 Latin America sales increased $0.3 million, or 3%, primarily due to higher sales in our direct market in Mexico as a result of increased distribution, successful promotional programs and price increases, as well as the favorable impact of changes in foreign currency exchange rates.

These favorable impacts were significantly offset by decreased sales

volumes to marketing distributors due to weaker economic conditions in certain regions that resulted in lower levels of demand.

Net sales of homecare and cleaning products in the Americas decreased primarily due to the following:

 The unfavorable impact of lower demand for certain brands was partially offset by price increases and the improvement in the capacity and flexibility of our supply chain from period to period.

 While each of our homecare and cleaning products have continued to generate positive cash flows, we have generally experienced flat or slightly decreased sales for many of these products in recent periods.

For the three months ended February 28, 2023, 76% of sales came from the U.S., and 24% of sales came from Canada and Latin America combined compared to the distribution for the three months ended February 28, 2022 when 74% of sales came from the U.S., and 26% of sales came from Canada and Latin America.

Americas Sales – Six Months Ended – February 28, 2023 Compared to February 28, 2022

Net sales of maintenance products in the Americas segment increased due to the following (by region):

sales increased $13.5 million, or 19%.

WD-40 Multi-Use Product sales increased by $7.9 million, or 13%, primarily due to price increases from period to period, as well as our improved supply chain capacity.

Although these price increases and improved supply chain capacity positively impacted sales of WD-40 Multi-Use Product, the overall impact was significantly offset by a lower level of customer orders and promotional programs as customers adjust to the price increases, which resulted in decreased sales volume.

3-IN-ONE product sales increased by $1.1 million, or 71%, primarily due to improved supply chain capacity and price increases from period to period.

These positive effects were partially offset by a lower level of customer orders and promotional programs as customers adjust to the price increases, which resulted in decreased sales volume.

WD-40 Specialist and 3-IN-ONE products are sourced at certain third-party manufacturers that were impacted significantly by global supply chain constraints in the prior period.

However, adjustments we have made in our supply chain to increase the production capacity of our most significant products, including WD-40 Specialist and 3-IN-ONE, improved the availability of these products from period to period.

WD-40 Specialist and 3-IN-ONE sales increased by $3.6 million, or 39%, and $2.1 million, or 70%, respectively, primarily due to these improvements that resulted in increased sales volume, as well as price increases implemented during the last twelve months.

 Latin America sales decreased $3.8 million, or 16%, primarily due to the timing of marketing distributor orders from period to period.

Sales were unfavorably impacted due to marketing distributors purchasing a higher level of our product in advance of a price increase that went into effect in late fiscal year 2022, which lowered purchases from these customers during the first quarter of fiscal year 2023.

Conversely, sales in the first quarter of fiscal year 2022 were favorably impacted due to significant purchase activity in advance of an earlier price increase that went into effect in November 2021.

 Canada sales remained relatively consistent period over period primarily due to the favorable impact of price increases which were mostly offset by unfavorable changes in foreign currency exchanges rates and weaker economic conditions that resulted in lower levels of demand.

Net sales of homecare and cleaning products in the Americas increased primarily due to the following:

 The favorable impact of price increases and the improvement in the capacity and flexibility of our supply chain, which were partially offset by lower demand for certain brands from period to period.

For the three months ended November 30, 2022, 78% of sales came from the U.S., and 22% of sales came from Canada and Latin America combined compared to the distribution for the three months ended November 30, 2021 when 70% of sales came from the U.S., and 30% of sales came from Canada and Latin America.

Conversely, sales in the first half of fiscal year 2022 were favorably impacted due to significant purchase activity in advance of an earlier price increase that went into effect in November 2021.

In addition, sales were unfavorably impacted due to weaker economic conditions in certain marketing distributor regions, partially offset by sales increases in our direct market in Mexico, as discussed above in the section for the three months ended February 28, 2023.

 Canada sales increased $0.6 million, or 10%, due to the same factors discussed above in the section for the three months ended February 28, 2023.

Net sales of homecare and cleaning products in the Americas decreased primarily as discussed above in the section for the three months ended February 28, 2023.

For the six months ended February 28, 2023, 77% of sales came from the U.S., and 23% of sales came from Canada and Latin America combined compared to the distribution for the six months ended February 28, 2022 when 72% of sales came from the U.S., and 28% of sales came from Canada and Latin America.

The following table summarizes net sales by product line for the EMEA segment, which includes Europe, the Middle East, Africa and India (in thousands, except percentages):

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Maintenance products

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Currency impact on current period – non-GAAP

(1) While our reporting currency is the U.S.

Dollar, the functional currency of our U.K.

subsidiary, the entity in which the EMEA results are generated, is Pound Sterling.

Although the functional currency of this subsidiary is Pound Sterling, approximately 50% of its sales are generated in Euro and approximately 15% are generated in U.S.

As a result, the Pound Sterling sales and earnings for the EMEA segment can be negatively or positively impacted from period to period upon translation from these currencies depending on whether the Euro and U.S.

Dollar are weakening or strengthening against the Pound Sterling .

(1) Current fiscal year constant currency net sales translated at the foreign currency exchange rates in effect for the corresponding period of the prior fiscal year , compared to prior period actual net sales .

Increases in the average selling price of our products positively impacted net sales by approximately $9.5 million in the EMEA segment, primarily due to sales price increases implemented over the last twelve months.

These favorable impacts were more than offset by decreases in sales volume, which unfavorably impacted net sales by approximately $18.3 million from period to period.

Of this $18.3 million impact attributable to volume declines, $5.0 million relates to our suspension of sales in Russia discussed below.

In addition, changes in foreign currency exchange rates had an unfavorable impact of $8.0 million on net sales for the first quarter of fiscal year 2023.

The following table summarizes management’s estimates of effects on net sales of changes in price, volume and foreign currency exchange rate impacts for the EMEA segment (in millions):

Change from Prior Year

First Quarter

Second Quarter

Increase in average selling price (1)

Decrease in sales volume (1) – Russian markets

Decrease in sales volume (1) – All other markets

Currency impact on current period – non-GAAP

Decrease in net sales

The countries and regions in Europe where we sell through a direct sales force include the U.K., Italy, France, Iberia (which includes Spain and Portugal) and the Germanics sales region (which includes Austria, Denmark, Switzerland, Belgium and the Netherlands).

The regions in the EMEA segment where we sell through local distributors include the Middle East, Africa, India, Eastern and Northern Europe.

EMEA Sales – Three Months Ended – November 30, 2022 Compared to November 30, 2021

Net sales decreased in the EMEA segment primarily due to the following:

EMEA Sales – Three Months Ended – February 28, 2023 Compared to February 28, 2022

Net sales decreased in the EMEA segment primarily due to the following (by market and region):

Direct Markets – EMEA (74% of net sales QTD FY2023 vs 65% QTD FY2022)

 Sales in our direct markets decreased $7.7 million, or 21%, primarily due to unfavorable changes in foreign currency exchanges rates of $5.7 million as a result of the weakening of the Pound Sterling, the functional currency of our U.K.

 Sales in our direct markets decreased $0.7 million, or 2%, primarily due to sales volume decreases and unfavorable changes in foreign currency exchange rates of $3.6 million as a result of the weakening of the Pound Sterling, the functional currency of our U.K.

subsidiary, against the U.S.

 Direct market sales also decreased due to lower levels of customer orders of maintenance products in France, Iberia, Germany, Italy and the United Kingdom, partially offset by the favorable impact of price increases from period to period.

 In most direct markets, these volume decreases were due to reduced demand compared to the prior period, driven by weaker market and economic conditions as well as a lower level of customer orders and promotional programs as customers adjust to these price increases implemented in late fiscal year 2022 and first quarter of fiscal year 2023.

The unfavorable impacts were significantly offset by price increases across all direct markets and a sales volume increase in the United Kingdom direct market, partially due to a higher level of promotional programs.

 Most direct markets experienced sales volume decreases due to reduced demand compared to the prior period, driven by weaker market and economic conditions as well as a lower level of customer orders and promotional programs as customers adjust to these price increases implemented in late fiscal year 2022 and the first half of fiscal year 2023.

Marketing Distributors – EMEA (26% of net sales QTD FY2023 vs 35% QTD FY2022)

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However, this unfavorable impact to sales in distributor markets was partially offset by the favorable impacts of certain sales denominated in currencies other than the Pound Sterling, which strengthened against the Pound Sterling from period to period.

 Sales in distributor markets also decreased due to lower sales volumes of maintenance products in most distributor markets, particularly Poland and India, which were down $1.1 million and $1.0 million, respectively.

 Sales in distributor markets also decreased due to lower sales volumes of maintenance products in most distributor markets, particularly India and Turkey, which were down $1.3 million and $1.0 million, respectively.

 The decreases in distributor market sales were partially offset by price increases implemented over the last twelve months.

EMEA Sales – Six Months Ended – February 28, 2023 Compared to February 28, 2022

Net sales decreased in the EMEA segment primarily due to the following (by market and region):

Direct Markets – EMEA (72% of net sales YTD FY2023 vs 64% YTD FY2022)

 Sales in our direct markets decreased $8.4 million, or 12%, primarily due to unfavorable changes in foreign currency exchange rates of $9.3 million as a result of the weakening of the Pound Sterling, the functional currency of our U.K.

subsidiary, against the U.S.

 In addition, decreases in sales volume unfavorably impacted sales period to period.

In most direct markets, these volume decreases were due to reduced demand compared to the prior period, due to the same factors discussed above in the section for the three months ended February 28, 2023.

 The unfavorable impacts were significantly offset by price increases across all direct markets.

Marketing Distributors – EMEA (28% of net sales YTD FY2023 vs 36% YTD FY2022)

 Distributor market sales decreased $15.7 million, or 39%, in EMEA.

 Sales in Russia decreased $8.3 million from period to period due to the ongoing effects of the Russian military action in Ukraine.

See The Impact of Russian Military Action in Ukraine described in the “Significant Developments” section above for further information regarding the suspension of our sales to Russian markets.

 In addition, sales in our distributor markets were unfavorably impacted by $3.6 million due to the weakening of the Pound Sterling, the functional currency of our U.K.

subsidiary, against the U.S.

 Sales in distributor markets also decreased due to lower sales volumes of maintenance products in most distributor markets, particularly India, Poland and the Czech Republic, which were down $2.3 million, $1.5 million and $1.3 million, respectively.

 The decreases in distributor market sales were partially offset by price increases implemented over the last twelve months.

Asia-Pacific Sales

The following table summarizes net sales by product line for the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region (in thousands, except percentages):

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Maintenance products

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Increases in the average selling price of our products positively impacted net sales by approximately $3.1 million in the Asia-Pacific segment, primarily due to sales price increases implemented over the last twelve months.

In addition, an increase in sales volume favorably impacted net sales by approximately $3.5 million from period to period.

Changes in foreign currency exchange rates had an unfavorable impact of $1.4 million on net sales for the first quarter of fiscal year 2023.

Asia-Pacific Sales – Three Months Ended – November 30, 2022 Compared to November 30, 2021

Net sales in the Asia-Pacific segment increased primarily due to the following:

 Asia distributor markets sales increased $3.8 million, or 41%, primarily due to higher sales of WD-40 Multi-Use Product as a result of successful promotional programs and the continued easing of COVID-19 lockdown measures, which resulted in increased demand and higher sales in most countries in the region.

In addition, net sales increased due to the favorable impact of price increases from period to period, as well as customers purchasing product in advance of anticipated additional price increases.

 China sales increased $1.3 million, or 22%, due to the success of promotional programs in the first quarter of fiscal year 2023.

The following table summarizes management’s estimates of effects on net sales of changes in price, volume and foreign currency exchange rate impacts for the Asia-Pacific segment (in millions):

Change from Prior Year

First Quarter

Second Quarter

Increase in average selling price (1)

Increase (decrease) in sales volume (1)

Currency impact on current period – non-GAAP

Increase (decrease) in net sales

Asia-Pacific Sales – Three Months Ended – February 28, 2023 Compared to February 28, 2022

Net sales in the Asia-Pacific segment decreased primarily due to the following (by market and region):

 Asia distributor markets sales decreased $1.1 million, or 11%, primarily due to lower sales of WD-40 Multi-Use Product driven by weaker market and economic conditions and distributors that had purchased product in advance of price increases implemented in December 2022, both of which lowered sales volumes in the second quarter of fiscal year 2023, particularly in Taiwan, Korea, Thailand and Malaysia.

These unfavorable impacts were partially offset by the favorable impacts of price increases.

 China sales were relatively constant from period to period, as the favorable impact of price increases was almost completely offset by the unfavorable impact of changes in foreign currency exchange rates.

On a constant currency basis, sales in China would have increased $0.5 million, or 7%.

 Australia sales increased 0.3 million, or 6%, primarily due to the favorable impact of price increases and successful promotional programs, which were partially offset by the unfavorable impact of changes in foreign currency exchange rates and decreased sales levels of homecare and cleaning products due to lower demand and decreased sales volume.

On a constant currency basis, sales in Australia would have increased $0.5 million, or 10%.

Asia-Pacific Sales – Six Months Ended – February 28, 2023 Compared to February 28, 2022

Net sales in the Asia-Pacific segment increased primarily due to the following (by market and region):

 Asia distributor markets sales increased $2.7 million, or 14%, primarily due to higher sales of WD-40 Multi-Use Product as a result of successful promotional programs, the easing of COVID-19 lockdown measures, price increases implemented over the last twelve months and customers that purchased product in advance of additional price implemented in December 2022, all of which resulted in increased demand and higher sales volumes in most countries in the region early in fiscal year 2023.

These favorable impacts experienced in early fiscal year 2023 were partially offset by declines in sales during the second quarter of fiscal year 2023, as discussed above in the section for the three months ended February 28, 2023.

 China sales increased $1.2 million, or 10%, due to the success of promotional programs in the first half of fiscal year 2023 and price increases over the last twelve months.

Sales were also favorably impacted by the timing of shipments related to customer orders placed in late fiscal year 2022 resulting from a successful promotional program in that fiscal year;

certain products related to these orders were not shipped until early fiscal year 2023.

In addition, net sales increased due to the favorable impacts of price increases.

These favorable impacts were partially offset by unfavorable changes in foreign currency exchange rates.

On a constant currency basis, sales in China would have increased $2.5 million, or 20%.

 Australia sales remained consistent from period to period, as the favorable impact of price increases was almost completely offset by the unfavorable impact of changes in foreign currency exchange rates and decreased sales levels of homecare and cleaning products.

 Australia sales increased $0.3 million, or 3% primarily due to higher sales of WD-40 Multi-Use Product as a result of price increases and successful promotional programs.

This favorable result was significantly offset by the unfavorable impact of changes in foreign currency exchange rates and decreased sales levels of homecare and cleaning products due to lower demand and decreased sales volume.

On a constant currency basis, sales in Australia would have increased $1.2 million, or 11%.

The following general information regarding the timing and nature of our product costs is important when assessing fluctuations in our gross margin from period to period:

 There is often a delay of one quarter or more before changes in costs of raw materials, such as specialty chemicals used in the formulation of our products, impact cost of products sold due to production and inventory life cycles;

 There is often a delay before changes in costs of raw materials, such as specialty chemicals used in the formulation of our products, impact cost of products sold due to production and inventory life cycles.

Such delays increase with higher production and inventory levels;

 In general, the timing of advertising, promotional and other discounts may cause fluctuations in gross margin from period to period.

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 O ur gross profit and gross margin may not be comparable to those of other consumer product companies, since some of these companies include all costs related to distribution of their products in cost of products sold, whereas we exclude the portion associated with amounts paid to third parties for shipment to our customers from our distribution centers and contract manufacturers and include these costs in selling, general and administrative expenses.

These costs totaled $4.2 million and $4.8 million for the three months ended November 30, 2022 and 2021, respectively.

These costs totaled $4.2 million and $4.7 million for the three months ended February 28, 2023 and 2022, respectively, and $8.4 million and $9.5 million for the six months ended February 28, 2023 and 2022, respectively.

 For further information pertaining to recent trends and economic conditions affecting gross margin, please see the section titled “Significant Developments” .

The following table summarizes gross margin and gross profit (in thousands, except percentages):

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

(1) Basis points (“bps”) change in gross margin.

Gross Margin - Three Months Ended – November 30, 2022 Compared to November 30, 2021

Gross margin increased 60 bps primarily due to the following favorable impacts, partially offset by unfavorable impacts:

Gross Margin – Three Months Ended – February 28, 2023 Compared to February 28, 2022

Gross margin increased 40 bps primarily due to the following favorable impacts, significantly offset by unfavorable impacts:

Favorable/(Unfavorable)

1 unchanged sentence

Changes in foreign currency exchange rates in the EMEA segment.

Favorable sales mix and other miscellaneous mix impacts

Higher costs of specialty chemicals used in the formulation of our products.

Higher costs of aerosol cans.

Higher filling fees paid to our third-party contract manufacturers, primarily in the Americas segment.

Gross Margin – Six Months Ended – February 28, 2023 Compared to February 28, 2022

Gross margin increased 50 bps primarily due to the following favorable impacts, significantly offset by unfavorable impacts:

Favorable/(Unfavorable)

Sales price increases implemented in all three segments at varying times during the last twelve months.

Changes in foreign currency exchange rates in the EMEA segment.

Higher costs of aerosol cans.

Higher costs of specialty chemicals used in the formulation of our products.

Increases in miscellaneous other input costs.

Higher filling fees paid to our third-party contract manufacturers, primarily in the Americas segment.

Higher warehousing, distribution and freight costs associated with supply chain constraints as a result of the ongoing COVID-19 pandemic, the worsening inflationary environment and initiatives to increase production capacity while these constraints exist.

Increases in miscellaneous other input costs.

Selling, General and Administrative (“SG&A”) Expenses

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

(in thousands)

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% of net sales

SG&A Expenses – Three Months Ended – November 30, 2022 Compared to November 30, 2021

The increase in SG&A expenses was primarily due to increases in travel and meeting expense of $2.1 million due to the reduction in travel restrictions related to COVID-19 from period to period, resulting in a higher level of travel and meetings by employees.

In addition, employee-related costs increased by $1.0 million due increased headcount and annual compensation increases, which was partially offset by lower incentive compensation accruals.

In addition, professional services fees increased $0.8 million in support of our strategic initiatives in the Americas and EMEA segments, as well as the ongoing implementation of our new information system and increased cloud-based software usage and license fees.

SG&A Expenses – Three Months Ended – February 28, 2023 Compared to February 28, 2022

The increase in SG&A expenses was primarily due to increases in employee-related costs of $2.6 million due to increased headcount and annual compensation increases, slightly offset by lower incentive compensation accruals.

In addition, travel and meeting expense increased SG&A expense by $0.9 million due to the reduction in travel restrictions related to COVID-

19 from period to period, resulting in a higher level of travel and meetings by employees.

In addition, professional services fees increased $0.9 million in support of our strategic initiatives in the Americas and EMEA segments, including the ongoing implementation of our new information system and increased cloud-based software usage and license fees.

Other miscellaneous expenses also increased $0.4 million from period to period.

These increases to SG&A expenses were partially offset by changes in foreign currency exchange rates from period to period resulting in a decrease of $1.5 million in SG&A expenses.

SG&A Expenses – Six Months Ended – February 28, 2023 Compared to February 28, 2022

The increase in SG&A expenses was partially due to increases in employee-related costs of $3.5 million due to increased headcount and annual compensation increases, partially offset by lower incentive compensation accruals.

Travel and meeting expense also increased SG&A by $3.0 million due to the reduction in travel restrictions, as discussed above in the section for the three months ended February 28, 2023.

In addition, professional services fees increased $1.7 million in support of our strategic initiatives in the Americas and EMEA segments, also discussed above in the section for the three months ended February 28, 2023 .

Sales commissions increased $0.5 million primarily due to higher sales in the Americas segment.

Other miscellaneous expenses also increased $0.5 million from period to period.

These increases to SG&A expenses were partially offset by changes in foreign currency exchange rates from period to period resulting in a decrease of $4.2 million in SG&A expenses.

We continued our research and development investment, the majority of which is associated with our maintenance products, in support of our focus on innovation and renovation of our products.

Research and development costs were $1.3 million for both the three months ended November 30, 2022 and 2021.

Research and development costs were $1.2 million and $1.3 million for the three months ended February 28, 2023 and 2022, respectively, and $2.5 million and $2.6 million for the six months ended February 28, 2023 and 2022, respectively.

Our research and development team engages in consumer research, product development, current product improvements and testing activities.

This team leverages its development capabilities by collaborating with a network of outside resources including our current and prospective third-party contract

manufacturers.

This team leverages its development capabilities by collaborating with a network of outside resources including our current and prospective third-party contract manufacturers.

The level and types of expenses incurred within research and development can vary from period to period depending upon the types of activities being performed.

Advertising and Sales Promotion (“A&P”) Expenses

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

(in thousands)

% of net sales

A&P Expenses – Three Months Ended – November 30, 2022 Compared to November 30, 2021

Although A&P expenses decreased from period to period, A&P expenses as a percentage of net sales remained relatively constant.

The decrease in A&P expenses was primarily due to favorable changes in foreign currency exchange currency from period to period of $0.5 million primarily in the EMEA segment.

A&P Expenses – Three Months Ended – February 28, 2023 Compared to February 28, 2022

The increase in A&P expenses was primarily due to a higher level of promotional programs and marketing support in the Americas segment, partially offset by favorable changes in foreign currency exchange currency from period to period of $0.3 million primarily in the EMEA segment.

As a percentage of net sales, A&P expenses may fluctuate period to period based upon the type of marketing activities we employ and the period in which the costs are incurred.

Total promotional costs recorded as a reduction to sales was $6.5 million and $6.9 million for three months ended November 30, 2022 and 2021, respectively.

Therefore, our total investment in A&P activities totaled $11.8 million and $12.5 million for the three months ended November 30, 2022 and 2021, respectively.

Total promotional costs recorded as a reduction to sales was $7.1 million and $6.4 million for the three months ended February 28, 2023 and 2022, respectively.

Therefore, our total investment in A&P activities totaled $13.1 million and $12.0 million for the three months ended February 28, 2023 and 2022, respectively.

A&P Expenses – Six Months Ended – February 28, 2023 Compared to February 28, 2022

A&P expenses remained relatively constant from period to period.

Increases in A&P expenses, primarily due to a higher level of promotional programs and marketing support in the Americas segment, were mostly offset by favorable changes in foreign currency exchange currency from period to period of $0.8 million primarily in the EMEA segment.

Total promotional costs recorded as a reduction to sales was $13.6 million and $13.3 million for the six months ended February 28, 2023 and 2022, respectively.

Therefore, our total investment in A&P activities totaled $24.9 million and $24.5 million for the six months ended February 28, 2023 and 2022, respectively.

Income from Operations by Segment

The following table summarizes income from operations by segment (in thousands, except percentages):

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Unallocated corporate

Americas Operating Income – Three Months Ended – November 30, 2022 Compared to November 30, 2021

Americas Operating Income – Three Months Ended – February 28, 2023 Compared to February 28, 2022

Income from operations for the Americas increased to $13.7 million, up $2.5 million, or 22%, due to an $8.4 million increase in sales and a higher gross margin, partially offset by higher operating expenses.

Gross margin for the Americas segment increased from 46.7% to 48.1% primarily due to the favorable impact of price increases over the last twelve months, offset by increases in the costs of petroleum-based specialty chemicals, aerosol cans and filling fees at our third-party manufacturers due to inflationary impacts.

The increase in operating expenses from period to period was primarily due to higher employee-related costs due to increased headcount, as well as higher A&P expenses.

Operating income as a percentage of net sales increased from 20.6% to 21.8% period over perio d .

Americas Operating Income – Six Months Ended – February 28, 2023 Compared to February 28, 2022

Income from operations for the Americas increased to $26.5 million, up $3.3 million, or 14%, due to a $10.1 million increase in sales and a higher gross margin, partially offset by higher operating expenses.

Gross margin for the Americas segment increased from 47.7% to 49.4% primarily due to the favorable impact of price increases over the last twelve months, offset by increases in the costs of petroleum-based specialty chemicals, aerosol cans and filling fees at our third-party manufacturers due to inflationary impacts.

In addition, higher warehousing, distribution and freight costs unfavorably impacted gross margin.

The increase in operating expenses from period to period was primarily due to higher travel and meeting expense, as well as higher salary and other employee costs, offset by lower incentive compensation accruals.

The increase in operating expenses from period to period was primarily due to higher employee-related costs as a result of increased headcount, as well as increases to travel and meeting expense and A&P expenses.

Operating income as a percentage of net sales increased from 21.0% to 21.9% period over perio d .

EMEA Operating Income – Three Months Ended – November 30, 2022 Compared to November 30, 2021

Income from operations for the EMEA segment decreased to $6.3 million, down $7.9 million, or 56%, primarily due to a $16.8 million decrease in sales and lower gross margin, partially offset by a decrease in operating expenses.

Gross margin for the EMEA segment decreased from 51.5% to 50.6% primarily due to the combined unfavorable impacts of fluctuations in foreign currency exchange rates and the increased costs of aerosol cans and petroleum-based specialty chemicals.

In addition, gross margin was also unfavorably impacted by increases in discounts provided to our customers, as well as increased warehousing, distribution and freight costs, due to supply chain constraints and inflationary impacts.

EMEA Operating Income – Three Months Ended – February 28, 2023 Compared to February 28, 2022

Income from operations for the EMEA segment decreased to $10.4 million, down $3.3 million, or 24%, primarily due to a $7.3 million decrease in sales, partially offset by a higher gross margin and a slight decrease in operating expenses.

Gross margin for the EMEA segment increased from 52.0% to 52.3% primarily due to the favorable impact of price increases over the last twelve months, partially offset by the increased costs of aerosol cans and petroleum-based specialty chemicals .

Operating expenses decreased $0.3 million primarily due to lower A&P expenses, lower accrued incentive compensation and lower freight costs as a result of lower sales volumes.

These favorable impacts to operating expenses were significantly offset by increased headcount and salaries, as well as higher travel and meeting expense.

Operating income as a percentage of net sales decreased from 25.4% to 22.2% period over period .

EMEA Operating Income – Six Months Ended – February 28, 2023 Compared to February 28, 2022

Income from operations for the EMEA segment decreased to $16.7 million, down $11.3 million, or 40%, primarily due to a $24.0 million decrease in sales and lower gross margin, which were slightly offset by a decrease in operating expenses.

Gross margin for the EMEA segment decreased from 51.8% to 51.5% primarily due to the combined unfavorable impacts of increased costs of aerosol cans and petroleum-based specialty chemicals.

In addition, gross margin was also unfavorably impacted by increases in discounts provided to our customers.

These unfavorable impacts to gross margin were significantly offset by price increases that were implemented over the last twelve months .

Operating expenses decreased $1.4 million primarily due to lower A&P expenses and lower accrued incentive compensation, as well as lower freight costs as a result of lower sales volumes.

These favorable impacts to operating expenses were partially offset by higher travel and meeting expense, as well as increased headcount and salaries.

Operating income as a percentage of net sales decreased from 25.0% to 19.0% period over period .

Asia-Pacific Operating Income – Three Months Ended – November 30, 2022 Compared to November 30, 2021

Income from operations for the Asia-Pacific segment increased to $9.6 million, up $2.3 million, or 32%, primarily due to a $5.2 million increase in sales, partially offset by an increase in operating expenses.

Gross margin for the Asia-Pacific segment decreased slightly from 54.5% to 54.4% primarily due to the unfavorable impacts of increases to the cost of petroleum-based specialty chemicals and fluctuations in foreign currency exchange rates .

These unfavorable impacts to gross margin were almost completely offset by price increases that were implemented during the last twelve months .

Operating expenses increased $0.5 million from period to period primarily due to higher A&P expenses and higher miscellaneous expenses.

Operating income as a percentage of net sales increased from 34.9% to 36.8% period over period.

Asia-Pacific Operating Income – Three Months Ended – February 28, 2023 Compared to February 28, 2022

Income from operations for the Asia-Pacific segment decreased to $7.0 million, down $0.9 million, or 11%, primarily due to a $0.9 million decrease in sales and a lower gross margin.

Gross margin for the Asia-Pacific segment decreased from 55.9% to 55.3% primarily due to the unfavorable impacts of increases to the cost of petroleum-based specialty chemicals and aerosol cans.

These unfavorable impacts to gross margin were significantly offset by price increases that were implemented during the last twelve months .

Operating income as a percentage of net sales decreased from 37.0% to 34.3% period over period.

Asia-Pacific Operating Income – Six Months Ended – February 28, 2023 Compared to February 28, 2022

Income from operations for the Asia-Pacific segment increased to $16.6 million, up $1.4 million, or 9%, primarily due to a $4.3 million increase in sales, partially offset by a lower gross margin and an increase in operating expenses.

Gross margin for the Asia-Pacific segment decreased from 55.2% to 54.8% primarily due to the unfavorable impacts of increases to the cost of petroleum-based specialty chemicals and aerosol cans .

These unfavorable impacts to gross margin were significantly offset by price increases that were implemented during the last twelve months .

Operating expenses increased $0.8 million from period to period primarily due to higher A&P expenses, higher freight costs due to an increase in sales volumes and increased travel and meeting expenses.

Operating income as a percentage of net sales decreased from 36.0% to 35.7% period over period.

Non-Operating Items

The following table summarizes non-operating income and expenses for our consolidated operations (in thousands):

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Interest income

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Interest Income

Interest income was not significant during the three months ended November 30, 2022 and 2021.

Interest income was not significant during the three and six months ended February 28, 2023 and 2022.

Interest Expense

Interest expense increased $0.5 million for the three months ended November 30, 2022 compared to the corresponding period of the prior fiscal year primarily due to higher aggregate outstanding balances on our revolving credit agreement from period over period and changes in interest rates.

Interest expense increased $0.9 million and $1.4 million for the three and six months ended February 28, 2023, respectively, compared to the corresponding periods of the prior fiscal year primarily due to higher interest rates and higher aggregate outstanding balances on our revolving credit agreement from period over period.

Other Income (Expense), Net

Other income (expense), net was not significant during the three months ended November 30, 2022 and 2021 .

Other income (expense), net changed by $0.5 million for the three months ended November 30, 2022 compared to the corresponding period of the prior fiscal year primarily due to fluctuations in the foreign currency exchange rates for both the U.S.

Other income (expense), net remained relatively constant for the three months ended February 28, 2023 compared to the corresponding period of the prior fiscal year.

Other income (expense), net changed by $0.4 million for the six months ended February 28, 2023 compared to the corresponding period of the prior fiscal year primarily due to fluctuations in the foreign currency exchange rates for both the U.S.

Dollar and the Euro against the Pound Sterling.

Provision for Income Taxes

The provision for income taxes was 20.9% and 19.8% of income before income taxes for the three months ended November 30, 2022 and 2021, respectively.

The provision for income taxes was 20.8% and 20.1% of income before income taxes for the three months ended February 28, 2023 and 2022, respectively.

The increase in the effective tax rate was primarily due to higher tax rates in certain foreign jurisdictions from period to period, as well as higher interest expense related to existing uncertain tax positions.

The unfavorable impacts to the effective tax rate was partially offset by a decrease in the portion of performance-based compensation that is non-deductible from period to period.

The provision for income taxes was 20.9% and 19.9% of income before income taxes for the six months ended February 28, 2023 and 2022, respectively.

The increase in the effective income tax rate from period to period was primarily due to tax shortfalls from the settlements of stock-based equity awards, partially offset by a one-time tax-deductible charitable donation.

The Company recorded tax shortfalls related to settlements of stock-based equity awards of $0.7 million during the first quarter of fiscal year 2023 compared to insignificant tax benefits related to these types of settlements in the first quarter of fiscal year 2022, resulting in a 5.1% unfavorable impact on the Company’s effective tax rate from period to period.

Partially offsetting this unfavorable impact was a one-time tax benefit associated with the Company’s donation of its former corporate headquarters building to a local San Diego community foundation that occurred in the first quarter of fiscal year 2023, resulting in a 4.2% favorable impact on the Company’s effective tax rate.

We recorded tax shortfalls related to settlements of stock-based equity awards of $0.7 million during the first six months of fiscal year 2023 compared to $0.2 million in tax benefits related to these types of settlements in the first six months of fiscal year 2022, resulting in a 2.4% unfavorable impact on our effective tax rate from period to period.

Partially offsetting this unfavorable impact was a one-time tax benefit associated with our donation of our former corporate headquarters building to a local San Diego community foundation that occurred in the first quarter of fiscal year 2023, resulting in a 1.9% favorable impact on our effective tax rate.

The building, net of its tax basis, is estimated to result in a charitable donation of $3.5 million and an approximate tax benefit of $0.7 million.

Net income was $14.0 million, or $1.02 per common share on a fully diluted basis, for the three months ended November 30, 2022 compared to $18.6 million, or $1.34 per common share on a fully diluted basis, for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates from period to period had an unfavorable impact of $1.3 million on consolidated net income for the first quarter of fiscal year 2023.

Net income was $16.5 million, or $1.21 per common share on a fully diluted basis, for the three months ended February 28, 2023 compared to $19.5 million, a decrease of 15%, or $1.41 per common share on a fully diluted basis, for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates from period to period had an unfavorable impact of $0.9 million on consolidated net income for the second quarter of fiscal year 2023.

Thus, on a constant currency basis, net income would have decreased $2.0 million, or 10%, from period to period.

Net income was $30.5 million, or $2.23 per common share on a fully diluted basis, for the six months ended February 28, 2023 compared to $38.1 million, a decrease of 20%, or $2.75 per common share on a fully diluted basis, for the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates from period to period had an unfavorable impact of $2.2 million on consolidated net income for the six months ended February 28, 2023.

Thus, on a constant currency basis, net income would have decreased $5.3 million, or 14%, from period to period.

Performance Measures and Non-GAAP Reconciliations

5 unchanged sentences

Our financial results and operations continue to be impacted by increased global supply chain constraints and an inflationary environment, both of which have significantly lowered our gross margin percentage over the last twelve months and moved us well below our target of 55%.

Although we have been implementing strategic sales price increases across all segments at varying times in response to increased costs, it will take time before the full impact of these sales price increases are reflected in our reported results.

Although we have been implementing strategic sales price increases across all segments at varying times in response to increased costs, it will take time before the

full impact of these sales price increases are reflected in our reported results.

In addition, it is difficult to determine how long these supply chain and inflationary conditions will exist and if they will worsen or improve over time.

2 unchanged sentences

The following table summarizes the results of these performance measures:

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Gross margin – GAAP

10 unchanged sentences

Cost of Doing Business (in thousands, except percentages)

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Total operating expenses – GAAP

5 unchanged sentences

EBITDA (in thousands, except percentages)

Three Months Ended November 30,

Three Months Ended February 28,

Six Months Ended February 28,

Net income – GAAP

9 unchanged sentences

Our principal sources of liquidity are cash generated from operations and cash currently available from our existing unsecured revolving credit facility under the Credit Agreement with Bank of America.

We use proceeds of the revolving credit facility

primarily for our general working capital needs.

We use proceeds of the revolving credit facility primarily for our general working capital needs.

We also hold borrowings under the Note Agreement.

1 unchanged sentence

We have historically held a balance of outstanding draws on our line of credit in either U.S.

Dollars in the Americas segment, or in Euros and Pound Sterling in the EMEA segment.

Dollars in the Americas segment, or in Euros and Pounds Sterling in the EMEA segment.

Euro and Pound Sterling denominated draws will fluctuate in U.S.

3 unchanged sentences

Outstanding draws for which we have both the ability and intent to refinance with successive short-term borrowings for a period of at least twelve months are classified as long-term.

As of November 30, 2022, $40.7 million of the outstanding balance under our line of credit resides in the EMEA segment and is denominated in Euros and Pounds Sterling and classified long-term, whereas $41.7 million is denominated in U.S.

Dollars and classified as short-term.

In the United States, we held $68.0 million in fixed rate long-term borrowings as of November 30, 2022, consisting of senior notes under our Note Agreement.

We paid $0.4 million in principal payments on our Series A Notes during the first three months of fiscal year 2023.

As of February 28, 2023, $41.1 million of the outstanding balance under our line of credit resides in the EMEA segment and is denominated in Euros and Pounds Sterling and is classified as long-term, whereas $46.7 million is denominated in U.S.

Dollars and is classified as short-term.

In the United States, we held $68.0 million in fixed rate long-term borrowings as of February 28, 2023, consisting of senior notes under our Note Agreement.

We paid $0.4 million in principal payments on our Series A Notes during the first half of fiscal year 2023.

There were no other letters of credit outstanding or restrictions on the amount available on our line of credit or notes.

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See Note 7 – Debt for additional information on these financial covenants.

At November 30, 2022, we were in compliance with all material debt covenants.

At February 28, 2023, we were in compliance with all material debt covenants.

We continue to monitor our compliance with all debt covenants and, at the present time, we believe that the likelihood of being unable to satisfy all material covenants is remote.

At November 30, 2022, we had a total of $36.9 million in cash and cash equivalents.

At February 28, 2023, we had a total of $38.0 million in cash and cash equivalents.

We do not foresee any ongoing issues with repaying our borrowings and we closely monitor the use of this credit facility.

1 unchanged sentence

On October 12, 2021, our Board of Directors approved a new share repurchase plan.

Under the plan, which became effective on November 1, 2021, we are authorized to acquire up to $75.0 million of our outstanding shares through August 31, 2023, of which $41.8 million remains available for the repurchase of shares of common stock as of November 30, 2022.

Under the plan, which

became effective on November 1, 2021, we are authorized to acquire up to $75.0 million of our outstanding shares through August 31, 2023, of which $40.2 million remains available for the repurchase of shares of common stock as of February 28, 2023.

The following table summarizes our cash flows by category for the periods presented (in thousands):

Three Months Ended November 30,

Net cash provided by (used in) operating activities

Six Months Ended February 28,

Net cash provided by operating activities

Net cash used in investing activities

1 unchanged sentence

Effect of exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Operating Activities

Net cash provided by operating activities was $10.4 million for the three months ended November 30, 2022 compared to net cash used in operating activities of $0.9 million for the prior period resulting in a net change of $11.4 million .

Net cash provided by operating activities increased $16.9 million to $20.9 million for the six months ended February 28, 2023.

Cash flows from operating activities depend heavily on operating performance and changes in working capital.

Our primary source of operating cash flows for the three months ended November 30, 2022 was net income of $14.0 million, which decreased approximately $4.6 million from period to period.

Changes in our working capital, which increased net cash provided by operating activities was primarily attributable to decreases in trade accounts receivable balances during the first three months of the fiscal year compared to increases in trade accounts receivable during the first three months of the prior fiscal year.

This was primarily due to a decrease in sales from

period to period.

In addition, net cash provided by operating activities increased due to lower earned incentive payouts in the first quarter of fiscal year 2023 compared to the same period of the prior fiscal year as well as decreases in other current assets from period to period primarily due to a lower income tax receivable balance, as well as lower deposits and miscellaneous prepaid expenses.

These changes were partially offset by decreases in accounts payable and accrued liabilities balances during the first three months of the fiscal year compared to increases in accounts payable and accrued liabilities during the first three months of the prior fiscal year.

Our primary source of operating cash flows for the six months ended February 28, 2023 was net income of $30.5 million, which decreased approximately $7.5 million from period to period.

Changes in our working capital, which increased net cash provided by operating activities, were primarily attributable to a lower increase in inventory during the first half of fiscal year 2023 compared to the corresponding period of the prior fiscal year which represents a decrease in the use of cash.

In the prior fiscal year, we took deliberate actions to increase inventory levels of certain raw materials, components and finished goods due to challenges within supply chain and increased lead times required by suppliers.

This building of our inventory continued throughout fiscal year 2022 into the first quarter of fiscal year 2023 and we have experienced increases in the capacity and flexibility of our supply chain as a direct result of these actions.

Although our inventory levels remain at balances that are higher than historical levels, inventory decreased during the three months ended February 28, 2023.

In addition, net cash provided by operating activities increased due to lower earned incentive payouts in the first half of fiscal year 2023 compared to the corresponding period of the prior fiscal year.

These changes were partially offset by decreases in accounts payable and accrued liabilities balances during the first half of the fiscal year compared to the corresponding period of the prior fiscal year.

Investing Activities

Net cash used in investing activities decreased $1.1 million to $1.3 million for the three months ended November 30, 2022, primarily due to a lower level of manufacturing-related capital expenditures within the United States and the United Kingdom from period to period.

Net cash used in investing activities decreased $0.3 million to $3.3 million for the six months ended February 28, 2023, primarily due to a lower level of manufacturing-related capital expenditures within the United States and the United Kingdom from period to period.

Financing Activities

Net cash used in financing activities decreased $9.6 million to $12.3 million for the three months ended November 30, 2022.

This change was primarily due to decreases in shares withheld to cover taxes on conversion of equity rewards of $3.6 million primarily due to lower settlements of stock-based equity awards from period to period.

Additionally, cash used in financing activities was decreased by proceeds provided by our autoborrow agreement of $3.4 million during the first three months of the fiscal year, whereas no draws were made on our autoborrow agreement in the corresponding period of the prior fiscal year.

In addition, treasury stock purchases decreased by $3.3 million.

Net cash used in financing activities decreased $22.0 million to $20.3 million for the six months ended February 28, 2023.

This change was primarily due to decreases in treasury stock purchases of $12.5 million from period to period.

Additionally, cash used in financing activities decreased due to higher proceeds provided by our line of credit agreement of $7.1 million.

Decreases in shares withheld to cover taxes on conversion of equity rewards also reduced cash used in financing activities by $3.7 million, as a result of lower settlements of stock-based equity awards from period to period.

Offsetting these decreases in cash outflows from period to period were increases in dividends paid to our stockholders of $1.3 million.

2 unchanged sentences

Dollar and a significant portion of our consolidated cash balance is denominated in these foreign functional currencies, particularly at our U.K.

subsidiary, which operates in Pound Sterling.

subsidiary, which

operates in Pound Sterling.

As a result, our cash and cash equivalents balances are subject to the effects of the fluctuations in these functional currencies against the U.S.

1 unchanged sentence

The net effect of exchange rate changes on cash and cash equivalents, when expressed in U.S.

Dollar terms, was an increase in cash of $2.2 million for the three months ended November 30, 2022 as compared to a decrease in cash of $1.2 million for the three months ended November 30, 2021.

Dollar terms, was an increase in cash of $2.8 million for the six months ended February 28, 2023 as compared to a decrease in cash of $0.9 million for the six months ended February 28, 2022.

These changes were primarily due to fluctuations in various foreign currency exchange rates from period to period, but the majority is related to the fluctuations in the Pound Sterling against the U.S.

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In addition to the commitments to purchase products from contract manufacturers described above, we may also enter into commitments with other manufacturers to purchase finished goods and components to support innovation initiatives and/or supply chain initiatives.

As of November 30, 2022, no such commitments were outstanding .

As of February 28, 2023, no such commitments were outstanding .

Share Repurchase Plan

The information required by this item is incorporated by reference to Part I—Item 1, “Notes to Condensed Consolidated Financial Statements” Note 8 — Share Repurchase Plan, included in this report .

On December 13, 2022, the Company’s Board approved a 6% increase in the regular quarterly cash dividend, increasing it from $0.78 per share to $0.83 per share.

The $0.83 per share dividend declared on December 13, 2022 is payable on January 31, 2023 to stockholders of record on January 13 , 2023 .

On March 21, 2023, the Company’s Board declared a cash dividend of $0.83 per share payable on April 28, 2023 to stockholders of record on April 14, 2023 .

Critical Accounting Policies and Estimates

11 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis