What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-01-09 compared with 2023-07-10 · 205 added, 367 removed, 214 unchanged (73% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used in this report, the terms “we,” “our,” and “us” refer to WD-40 Company and its wholly-owned subsidiaries, unless the context suggests otherwise.

As used in this report, the terms “we,” “our,” and “us” and “the Company” refer to WD-40 Company and its wholly-owned subsidiaries, unless the context suggests otherwise.

Amounts and percentages in tables and discussions may not total due to rounding.

11 unchanged sentences

This report contains forward-looking statements, which reflect our current views with respect to future events and financial performance.

These forward-looking statements are generally identified with words such as “believe,” “expect,” “intend,” “plan,” “could,” “may,” “aim,” “anticipate,” “target,” “estimate” and similar expressions.

These forward-looking statements are generally identified with words such as “believe,” “expect,” “intend,” “plan,” “project,” “could,” “may,” “aim,” “anticipate,” “target,” “estimate” and similar expressions.

These forward-looking statements include, but are not limited to, discussions about future financial and operating results, including:

11 unchanged sentences

Actual events or results may differ materially from those projected in forward-looking statements due to various factors, including, but not limited to, those identified in Part I—Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2023, and in Part II—Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.

WD-40 Company (the “Company”), based in San Diego, California, is a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world.

WD-40 Company based in San Diego, California, is a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world.

We own a wide range of well-known brands that include maintenance products and homecare and cleaning products:

1 unchanged sentence

Our products are sold in various locations around the world.

Maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia, Europe, the Middle East and Africa.

Maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia, Europe, India, the Middle East and Africa.

Homecare and cleaning products are sold primarily in North America, the United Kingdom (“U.K.”) and Australia.

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 nine months ended May 31, 2023:

The following summarizes the financial and operational highlights for our business during the three months ended November 30, 2023:

• Consolidated net sales increased $15.5 million, or 12%, 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 $71.5 million from period to period, primarily due to sales price increases implemented across all segments over the last twelve months.

These favorable impacts were partially offset by decreases in sales volume, which unfavorably impacted net sales by approximately $44.2 million from period to period.

Increases in sales volume favorably impacted net sales by approximately $7.6 million from period to period.

Increases in the average selling price of our products positively impacted net sales by approximately $4.1 million from period to period, primarily due to sales price increases implemented in certain regions during the prior fiscal year.

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 $18.9 million on consolidated net sales for the first nine months of fiscal year 2023.

In addition, changes in foreign currency exchange rates from period to period had a favorable impact of $3.8 million on consolidated net sales for the first three months of fiscal year 2024.

On a constant currency basis, net sales would have increased by $11.7 million, or 9%, from period to period.

This unfavorable impact from changes in foreign currency exchange rates mainly came from our EMEA segment, which accounted for 36% of our consolidated sales for the nine months ended May 31, 2023.

• Gross profit as a percentage of net sales increased to 50.9% compared to 49.7% 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 changes in consumer behavior as a result of inflation.

These ongoing challenges have resulted in increased inflation rates globally.

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 $3.1 million, or 6%, 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 $2.8 million on consolidated net income for the first half of fiscal year 2023.

Thus, on a constant currency basis, net income would have decreased $0.3 million, or 1%, from period to period.

This favorable impact from changes in foreign currency exchange rates mainly came from our EIMEA segment, which accounted for 35% of our consolidated sales for the three months ended November 30, 2023.

• Gross profit as a percentage of net sales increased to 53.8% compared to 51.4% for the corresponding period of the prior fiscal year.

• Consolidated net income increased $3.5 million, or 25%, compared to the corresponding period of the prior fiscal year.

Changes in foreign currency exchange rates from period to period had a favorable impact of $0.6 million on consolidated net income for the first quarter of fiscal year 2024.

Thus, on a constant currency basis, net income would have increased $2.9 million, or 21%, from period to period.

• Diluted earnings per common share were $1.28 versus $1.02 in the prior fiscal year period.

Our strategic initiatives and the areas where we will continue to focus our time, talent and resources in future periods include:

(i) building a business for the future;

(ii) attracting, developing and engaging outstanding tribe members;

(iii) striving for operational excellence;

(iv) growing WD-40 Multi-Use Product;

(v) growing WD-40 Specialist product line;

and (vi) expanding and supporting portfolio opportunities that help us grow.

Significant Developments

Impact of Global Supply Chain Constraints and Inflation on Our Business

Our financial results and operations continue to be impacted by certain ongoing macroeconomic factors that have been affecting global economies, the rate of inflation, supply chains, distribution networks and consumer behavior around the world.

For example, 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.

This inflationary environment started to negatively impact our gross margin and financial results in fiscal year 2021 and these trends have continued to increase our cost of goods sold since that time.

In response to these global supply chain issues, we implemented various initiatives.

These initiatives included improvements within our existing third-party manufacturer network, as well as identifying and onboarding new third-party manufacturers, particularly in the Americas and EMEA segments.

As a result of these initiatives, we experienced increases in the capacity and flexibility of our supply chain and have also been able to reduce our inventory levels since they peaked during the first quarter of fiscal year 2023.

Although it is not possible to estimate the costs or impacts associated with potential future supply chain disruptions or the inflationary environment that continues to impact our raw material costs, we believe that the changes we continue to implement will have a positive impact on our ability to better manage any future disruptions.

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 nine months 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 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

On February 24, 2022, Russian forces launched significant military action against Ukraine, which has resulted in conflict and disruption in the region.

In response to this action taken by Russia, the U.S.

and other countries imposed various economic sanctions against Russia 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.

It is not possible to predict the direct and indirect impacts of this evolving situation and its effect on global economies in future periods.

We suspended selling our products to markets in Russia and Belarus beginning in March 2022, which had and continues to have an unfavorable impact on our business.

In addition, we were temporarily unable to sell our products in Ukraine due to the disruption in the country, but sales to Ukraine resumed in the first quarter of fiscal year 2023.

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 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.

Write-offs of previously existing accounts receivable from those marketing distributors affected by the crisis have not been significant to date and are not expected to become significant in future periods.

As a result of this conflict, commodity markets remain subject to heightened levels of uncertainty, especially as they relate to the price of crude oil, which increased significantly in the immediate aftermath of the sanctions against Russia.

Increases in crude oil prices unfavorably impact the cost of our products, as well as the cost of the transportation and distribution of our products.

The length and severity of the recent volatility in the price of crude oil are highly unpredictable and may impact our cost of goods sold for as long as these conditions exist.

Results of Operations

Three and Nine Months Ended May 31, 2023 Compared to Three and Nine Months Ended May 31, 2022

Three Months Ended November 30, 2023 Compared to Three Months Ended November 30, 2022

Operating Items

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

Three Months Ended May 31, Nine Months Ended May 31,

Three Months Ended November 30,

2023 2022 Change from

Prior Year 2023 2022 Change from

Dollars Percent Dollars Percent

Maintenance products $ 133,325 $ 115,494 $ 17,831 15 % $ 371,741 $ 363,425 $ 8,316 2 %

Dollars Percent

WD-40 Multi-Use Product $ 107,677 $ 94,587 $ 13,090 14 %

WD-40 Specialist 16,842 15,406 1,436 9 %

Other maintenance products 7,626 6,319 1,307 21 %

Total maintenance products 132,145 116,312 15,833 14 %

8,271 8,581 (310) (4) %

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EPS – diluted $ 1.28 $ 1.02 $ 0.26 25 %

Shares used in diluted EPS 13,600 13,680 (80) (1) % 13,606 13,712 (106) (1) %

(1) Homecare and cleaning products (“HCCP”)

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

Three Months Ended May 31, Nine Months Ended May 31,

Three Months Ended November 30,

2023 2022 Change from

Prior Year 2023 2022 Change from

Dollars Percent Dollars Percent

Dollars Percent

Americas $ 64,075 $ 58,014 $ 6,061 10 %

EMEA 52,524 49,450 3,074 6 % 140,105 161,068 (20,963) (13) %

EIMEA 48,754 40,772 7,982 20 %

Asia-Pacific 27,587 26,107 1,480 6 %

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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 May 31, Nine Months Ended May 31,

Three Months Ended November 30,

2023 2022 Change from

Prior Year 2023 2022 Change from

Dollars Percent Dollars Percent

Maintenance products $ 67,435 $ 57,778 $ 9,657 17 % $ 180,132 $ 160,171 $ 19,961 12 %

Dollars Percent

WD-40 Multi-Use Product $ 48,511 $ 43,157 $ 5,354 12 %

WD-40 Specialist 7,108 6,825 283 4 %

Other maintenance products 4,126 3,589 537 15 %

Total maintenance products 59,745 53,571 6,174 12 %

HCCP 4,330 4,443 (113) (3) %

Total $ 71,130 $ 61,453 $ 9,677 16 % $ 192,034 $ 172,238 $ 19,796 11 %

Total net sales $ 64,075 $ 58,014 $ 6,061 10 %

% of consolidated net sales 45 % 46 %

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Change from Prior Year

Quarter Second Quarter Third Quarter Year to Date

First Quarter

Increase in average selling price (1)

$ 13.6 $ 12.0 $ 11.0 $ 36.6

Decrease in sales volume (1)

(11.7) (3.8) (1.5) (17.0)

Increase in sales volume (1)

Currency impact on current period – non-GAAP 0.7

1 unchanged sentence

(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 – May 31, 2023 Compared to May 31, 2022

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

• United States (“U.S.”) sales increased $9.0 million, or 21%.

WD-40 Multi-Use Product sales increased by $6.8 million, or 20%, primarily due to price increases, which was partially offset by slightly 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 $1.4 million, or 77%, 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 $0.8 million, or 13%, primarily due to price increases implemented during the last twelve months.

Sales volumes for WD-40 Specialist were relatively constant from period to period.

• Latin America sales increased $1.7 million, or 18%, primarily due to marketing distributors purchasing a higher level of our product in advance of a price increase that went into effect in June 2023, which increased purchases from these customers from period to period.

Sales in our direct market in Mexico also increased as a result of price increases, as well as the favorable impact of changes in foreign currency exchange rates.

These favorable impacts in our direct market in Mexico were partially offset by decreased sales volumes due to significant

purchase activity by customers in February 2023 in anticipation of the price increases implemented in March 2023, which lowered sales volumes in the third quarter of fiscal year 2023.

• Canada sales decreased $1.1 million, or 23%, primarily due to lower sales volume.

In the third quarter of the prior fiscal year, we experienced a higher level of demand in the industrial channel of Western Canada as a result of increased activity levels of end-users in the oil industry due to market conditions within the industry at that time.

Demand in the industrial channel of Western Canada was significantly lower in the third quarter of fiscal year 2023.

These unfavorable impacts were partially offset by price increases implemented during the last twelve months.

Net sales of homecare and cleaning products in the Americas remained relatively constant primarily due to the following:

• The unfavorable impact of lower demand for certain brands was more than 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 May 31, 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 three months ended May 31, 2022 when 75% of sales came from the U.S., and 25% of sales came from Canada and Latin America.

Americas Sales – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

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

sales increased $22.6 million, or 20%.

WD-40 Multi-Use Product sales increased by $14.7 million, or 15%, primarily due to price increases, as well as our improved supply chain capacity.

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, particularly in the first half of fiscal year 2022.

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 $4.4 million, or 28%, and $3.5 million, or 73%, 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 $2.1 million, or 6%, primarily due to weaker economic conditions in many countries within this region, as well as 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 for some regions in Latin America.

Conversely, marketing distributor sales in the first half of the prior 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.

These unfavorable impacts were partially offset by higher sales in our direct market in Mexico, primarily due to favorable impacts of changes in foreign currency exchange rates and price increases from period to period, partially offset by lower sales volumes as a result of lower demand.

• Canada sales decreased $0.5 million, or 4%, due to unfavorable changes in foreign currency exchange rates and weaker economic conditions that resulted in lower levels of demand and decreased sales volume, particularly during the third quarter of fiscal year 2023, as a result of factors discussed above in the section for the three months ended May 31, 2023.

These unfavorable impacts were partially offset by price increases from period to period.

Net sales of homecare and cleaning products in the Americas remained relatively constant as a result of lower demand that resulted in decreased sales volumes, which was almost entirely offset by price increases implemented over the last twelve months.

For the nine months ended May 31, 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 nine months ended May 31, 2022 when 73% of sales came from the U.S., and 27% 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 May 31, Nine Months Ended May 31,

Americas Sales – Three Months Ended – November 30, 2023 Compared to November 30, 2022

Net sales in the Americas segment increased due to the following:

• WD-40 Multi-Use Product sales increased $5.4 million, or 12%, primarily due to increases in the U.S.

and Latin America of $2.5 million and $2.4 million, or 8% and 29%, respectively.

The increase in the U.S.

was due to higher volume as a result of successful promotional programs.

In Latin America, sales in the first quarter of fiscal year 2024 were favorably impacted by higher volumes as the result of timing of customer orders.

This favorable impact was due to reduced demand in the comparative period as a result of customers that purchased higher levels of our product at the end of fiscal year 2022 in anticipation of price increases.

In addition, sales in Canada were favorably impacted by higher sales of premiumized products and successful promotional programs.

• WD-40 Specialist sales slightly increased across most regions in the Americas.

• Other maintenance product sales increased due to a $0.5 million, or 15%, increase in 3-IN-ONE sales, primarily due to successful promotional programs in Mexico and Canada.

• Homecare and cleaning product sales remained relatively consistent period over period.

• For the three months ended November 30, 2023, 75% of sales came from the U.S., and 25% of sales came from Canada and Latin America combined compared to the three months ended November 30, 2022 when 78% of sales came from the U.S., and 22% of sales came from Canada and Latin America.

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

Three Months Ended November 30,

2023 2022 Change from

Prior Year 2023 2022 Change from

Dollars Percent Dollars Percent

Maintenance products $ 49,721 $ 47,289 $ 2,432 5 % $ 132,801 $ 154,825 $ (22,024) (14) %

Dollars Percent

WD-40 Multi-Use Product $ 37,044 $ 30,178 $ 6,866 23 %

WD-40 Specialist 6,666 6,011 655 11 %

Other maintenance products 3,062 2,540 522 21 %

Total maintenance products 46,772 38,729 8,043 21 %

HCCP 1,982 2,043 (61) (3) %

Total $ 52,524 $ 49,450 $ 3,074 6 % $ 140,105 $ 161,068 $ (20,963) (13) %

Total net sales $ 48,754 $ 40,772 $ 7,982 20 %

% of consolidated net sales 35 % 33 %

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(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.

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):

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 EIMEA segment (in millions):

Change from Prior Year

Quarter Second Quarter Third Quarter Year to Date

First Quarter

Increase in average selling price (1)

$ 9.5 $ 11.1 $ 9.7 $ 30.3

Decrease in sales volume (1) – Russian markets

(5.0) (3.3) - (8.3)

Decrease in sales volume (1) – All other markets

(13.2) (10.2) (3.5) (26.9)

Increase in sales volume (1)

Currency impact on current period – non-GAAP 3.6

(Decrease) increase in net sales $ (16.7) $ (7.3) $ 3.0 $ (21.0)

Increase in net sales $ 8.0

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 – May 31, 2023 Compared to May 31, 2022

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

Direct Markets – EMEA (68% of net sales QTD FY2023 vs 71% QTD FY2022)

• Sales in our direct markets increased $0.8 million, or 2%, primarily due to price increases across all direct markets implemented over the last twelve months.

The favorable impacts were significantly offset by unfavorable changes in foreign currency exchange rates of $2.3 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, 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 the price increases implemented in late fiscal year 2022 and the first half of fiscal year 2023.

Marketing Distributors – EMEA (32% of net sales QTD FY2023 vs 29% QTD FY2022)

• Sales increased $2.3 million, or 16%, in EMEA markets wherein we utilize a marketing distributor model (“distributor markets”), in which products are sold to marketing distributors who in turn sell to wholesalers and retailers.

• Sales in distributor markets increased primarily due to the timing of customer orders as well as price increases implemented over the last twelve months, particularly in India and Turkey, which were up $1.5 million and $0.8 million, respectively.

• Sales in our distributor markets were unfavorably impacted by $1.0 million due to the weakening of the Pound Sterling, the functional currency of our U.K.

subsidiary, against the U.S.

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

• The increases in distributor market sales were partially offset by lower sales volumes of maintenance products in most distributor markets and unfavorable changes in sales mix.

EMEA Sales – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

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

Direct Markets – EMEA (71% of net sales YTD FY2023 vs 66% YTD FY2022)

• Sales in our direct markets decreased $7.6 million, or 7%.

Changes in foreign currency exchange rates unfavorably impacted net sales by $11.5 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 in most direct markets and unfavorable changes in sales mix in the U.K.

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 May 31, 2023.

• The unfavorable impacts were partially offset by price increases across all direct markets.

Marketing Distributors – EMEA (29% of net sales YTD FY2023 vs 34% YTD FY2022)

• Distributor market sales decreased $13.4 million, or 25%, 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 $4.6 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 Poland, Kuwait and India, which were down $1.4 million, $0.9 million and $0.8 million, respectively.

• The decreases in distributor market sales were partially offset by price increases implemented over the last twelve months and favorable changes in sales mix.

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 Germany, Austria, Denmark, Switzerland, Belgium and the Netherlands).

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

EIMEA Sales – Three Months Ended – November 30, 2023 Compared to November 30, 2022

Net sales increased in the EIMEA segment primarily due to the following:

• WD-40 Multi-Use Product sales increased $6.9 million, or 23%, primarily due to higher sales volume and the impact of price increases implemented in the fourth quarter of fiscal year 2022 and first quarter of fiscal year 2023.

This resulted in reduced demand in the comparative period as customers adjusted to those price increases.

In addition, sales were favorably impacted by changes in foreign currency exchanges rates.

Sales increased most significantly in the Germanics region, France, the Middle East, and Iberia, which were up $2.8 million, $1.9 million, $1.6 million, and $1.3 million, respectively.

These increases were partially offset by decreased sales in India of $0.9 million from period to period.

• WD-40 Specialist and other maintenance product sales increased $0.7 million, or 11%, and $0.5 million, or 21%, respectively, primarily due to the combined impact of higher sales volume and the favorable impact of price increases.

France, in particular, saw an increase in sales of $0.7 million in these categories from period to period.

• Homecare and cleaning product sales remained relatively consistent period over period.

• Net sales were favorably impacted $3.6 million across our various brands as a result of favorable changes in foreign currency exchange rates.

On a constant currency basis, sales in EIMEA would have increased 11%.

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 May 31, Nine Months Ended May 31,

Prior Year Change from

2023 2022 Dollars Percent 2023 2022 Dollars Percent

Maintenance products $ 16,169 $ 10,427 $ 5,742 55 % $ 58,808 $ 48,429 $ 10,379 21 %

Three Months Ended November 30,

2023 2022 Dollars Percent

WD-40 Multi-Use Product $ 22,122 $ 21,252 $ 870 4 %

WD-40 Specialist 3,068 2,570 498 19 %

Other maintenance products 438 190 248 131 %

Total maintenance products 25,628 24,012 1,616 7 %

HCCP 1,959 2,095 (136) (6) %

Total $ 18,063 $ 12,764 $ 5,299 42 % $ 64,664 $ 55,093 $ 9,571 17 %

Total net sales $ 27,587 $ 26,107 $ 1,480 6 %

% of consolidated net sales 20 % 21 %

5 unchanged sentences

Change from Prior Year

Quarter Second Quarter Third Quarter Year to Date

First Quarter

Increase in average selling price (1)

$ 3.1 $ 0.9 $ 0.6 $ 4.6

Increase (decrease) in sales volume (1)

3.5 (1.0) 5.5 8.0

Increase in sales volume (1)

Currency impact on current period – non-GAAP (0.4)

Increase (decrease) in net sales $ 5.2 $ (0.9) $ 5.3 $ 9.6

Increase in net sales $ 1.5

Asia-Pacific Sales – Three Months Ended – May 31, 2023 Compared to May 31, 2022

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

• Asia distributor markets sales increased $4.8 million, or 151%, as a result of supply chain disruptions caused by the COVID-19 pandemic during the third quarter of the prior fiscal year.

Products for our Asia distributor markets are sourced from a third-party manufacturer located in Shanghai, China.

In late March 2022, Shanghai instituted severe lockdown measures as a result of a surge in COVID-19 cases in the country.

This lockdown remained in effect for the remainder of the third quarter and resulted in our third-party packager and logistics partners in Shanghai being severely restricted from manufacturing or distributing products for our Asia distributor market in April and May of 2022.

All regions in these markets registered higher net sales from period to period, as no such disruptions were in place during the third quarter of fiscal year 2023.

In addition, sales were positively impacted by sales price increases from period to period.

• China sales increased $1.3 million, or 39%, also due to the lockdown in Shanghai during the comparative period that severely limited the production of our products by our third-party manufacturer located in the region from late March 2022 through the end of the third quarter of fiscal year 2022.

In addition, sales were favorably impacted by sales price increases from period to period.

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 $1.7 million, or 50%.

• Australia sales decreased $0.9 million, or 14%, primarily due to a decrease in sales volume of homecare and cleaning products and WD-40 Multi-Use Product driven by weaker market and economic conditions, as well as unfavorable changes in foreign currency exchange rates.

On a constant currency basis, sales in Australia would have decreased $0.4 million, or 6%.

These unfavorable impacts were partially offset by the favorable impact of price increases implemented over the last twelve months.

Asia-Pacific Sales – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

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

• Asia distributor markets sales increased $7.6 million, or 34%, primarily due to higher sales in the third quarter of 2023 due to the absence of COVID-19 lockdown measures as discussed above in the section for the three months ended May 31, 2023.

In addition, sales increased as a result of successful promotional programs and customers that purchased product in advance of price increases implemented in the first half of fiscal year 2023, all of which resulted in increased demand and higher sales volumes in most countries in the region early in fiscal year 2023.

Sales were also favorably impacted by price increases implemented over the last twelve months.

• China sales increased $2.5 million, or 16%, 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, sales were favorably impacted by the easing of COVID-19 lockdown measures as discussed above in the section for the three months ended May 31, 2023.

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 $4.2 million, or 26%.

• Australia sales decreased $0.5 million, or 3% primarily due to the unfavorable impact of changes in foreign currency exchange rates and lower sales volumes, primarily due to lower demand of homecare and cleaning products in the region.

On a constant currency basis, sales in Australia would have increased $0.8 million, or 5% due to the favorable impact of price increases.

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:

Asia-Pacific Sales – Three Months Ended – November 30, 2023 Compared to November 30, 2022

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

• WD-40 Multi-Use Product sales increased $0.9 million, or 4%.

Sales in China increased $0.5 million, or 8%, due to successful promotional programs and marketing activities which resulted in increased sales volume.

In addition, timing of customer orders favorably impacted sales in China, which was slightly offset by unfavorable changes in foreign currency exchange rates.

Sales of WD-40 Multi-Use Product in the Asia distributor markets also increased $0.5 million, or 4%, primarily due to price increases in these markets from period to period and successful promotional programs in certain regions.

• WD-40 Specialist sales increased $0.5 million, or 19%, primarily due to successful promotional programs and marketing activities in China that increased sales volume.

• Other maintenance product sales increased due to a $0.2 million, or 131%, increase in 3-IN-ONE sales, primarily due to increased sales in Australia as a result of the timing of customer orders and successful promotional programs.

• Homecare and cleaning product sales did not change by a significant amount period over period.

The following general information is important when assessing fluctuations in our gross margin:

• 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.

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Advertising, promotional and other discounts that are given to our customers are recorded as a reduction to sales, whereas advertising and sales promotional costs associated with promotional activities that we pay to third parties are recorded as advertising and sales promotion expenses;

• In the EMEA segment, the majority of our cost of goods sold is denominated in Pound Sterling whereas sales are generated in Pound Sterling, Euro and the U.S.

• In the EIMEA segment, the majority of our cost of goods sold is denominated in Pound Sterling whereas sales are generated in Pound Sterling, Euro and the U.S.

The strengthening or weakening of the Euro and U.S.

Dollar against the Pound Sterling may result in foreign currency related changes to the gross margin percentage in the EMEA segment from period to period;

Dollar against the Pound Sterling may result in foreign currency related changes to the gross margin percentage in the EIMEA segment from period to period;

• Our 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 $4.7 million for each of the three months ended May 31, 2023 and 2022, and $13.1 million and $14.2 million for the nine months ended May 31, 2023 and 2022, respectively.

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

These costs totaled $4.1 million and $4.2 million for the three months ended November 30, 2023 and 2022, respectively.

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

Three Months Ended May 31, Nine Months Ended May 31,

Three Months Ended November 30,

2023 2022 Change from

Prior Year 2023 2022 Change from

Gross profit $ 75,553 $ 64,255 $ 11,298

Gross margin 53.8 % 51.4 % 240 bps (1)

50.9 % 49.7 % 120 bps (1)

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

Gross Margin – Three Months Ended – May 31, 2023 Compared to May 31, 2022

Gross margin increased 290 bps primarily due to the following favorable impacts, significantly offset by unfavorable impacts:

Favorable/(Unfavorable) Explanations

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

210 bps Decreases in miscellaneous other input costs.

60 bps Changes in foreign currency exchange rates in the EMEA segment.

(300) bps Higher costs of aerosol cans.

(300) bps Higher costs of specialty chemicals used in the formulation of our products.

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

Gross Margin – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

Gross margin increased 120 bps primarily due to the following favorable impacts, significantly offset by unfavorable impacts:

Gross Margin – Three Months Ended – November 30, 2023 Compared to November 30, 2022

Gross margin increased 240 bps primarily due to the following favorable impacts, partially offset by unfavorable impacts:

Favorable/(Unfavorable) Explanations

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

80 bps Changes in foreign currency exchange rates in the EMEA segment.

150 bps Lower warehousing, distribution and freight costs, primarily in the Americas segment.

130 bps Favorable sales mix and other miscellaneous mix impacts.

Increases in average selling prices.

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

(80) bps Higher costs of aerosol cans.

(360) bps Higher costs of specialty chemicals used in the formulation of our products.

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

(70) bps Increases in miscellaneous other input costs.

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

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

Three Months Ended February 28, Nine Months Ended May 31,

Three Months Ended November 30,

2023 2022 Change from

Prior Year 2023 2022 Change from

(in thousands) Dollars Percent Dollars Percent

(in thousands) Dollars Percent

SG&A expenses $ 44,135 $ 39,984 $ 4,151 10 %

% of net sales 31.4 % 32.0 %

SG&A Expenses – Three Months Ended – May 31, 2023 Compared to May 31, 2022

The increase in SG&A expenses was primarily due to increases in employee-related costs of $3.4 million due to higher incentive compensation accruals, increased headcount and annual compensation increases.

In addition, professional

services fees increased $1.4 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.

In addition, travel and meeting expense increased SG&A expense by $0.7 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.

These increases to SG&A expenses were partially offset by changes in foreign currency exchange rates, which reduced SG&A expenses by $1.0 million from period to period.

SG&A Expenses – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

The increase in SG&A expenses was primarily due to increases in employee-related costs of $6.9 million due to increased headcount and annual compensation increases, as well as higher incentive compensation accruals.

Travel and meeting expense also increased SG&A by $3.7 million due to the reduction in travel restrictions, as discussed above in the section for the three months ended May 31, 2023.

In addition, professional services fees increased $3.1 million in support of our strategic initiatives in the Americas and EMEA segments, also discussed above in the section for the three months ended May 31, 2023.

Other miscellaneous expenses increased $0.6 million.

In addition, sales commissions increased $0.4 million primarily due to higher sales in the Americas segment.

These increases to SG&A expenses were partially offset by changes in foreign currency exchange rates, which reduced SG&A expenses by $5.2 million from period to period.

In addition, freight expense decreased $0.5 million from period to period.

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 $1.6 million and $1.4 million for the three months ended May 31, 2023 and 2022, respectively, and $4.1 million and $4.0 million for the nine months ended May 31, 2023 and 2022, respectively.

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

SG&A Expenses – Three Months Ended – November 30, 2023 Compared to November 30, 2022

The increase in SG&A expenses was primarily due to increases in employee-related costs of $1.8 million due to higher headcount, annual compensation increases and higher incentive compensation accruals, partially offset by lower stock-based compensation expense.

Travel and meeting expense also increased SG&A by $0.9 million due to a higher level of activity to support our strategic framework, particularly in the EIMEA segment.

In addition, professional services fees increased $0.5 million primarily due to increased legal expenses from period to period.

In addition, changes in foreign currency exchange rates increased SG&A expenses by $1.1 million from period to period.

These increases to SG&A expenses were partially offset by a decrease in freight expense of $0.3 million from period to period.

We continued our research and development investment, the majority of which is associated with our maintenance products, including efforts focused on sustainability as well as our focus on innovation and renovation of our products.

Research and development costs were $1.9 million and $1.3 million for the three months ended November 30, 2023 and 2022, respectively.

The increase from period to period was partially due to a higher level of research and development activity associated with our sustainability initiatives.

Our research and development team engages in consumer research, environmental and sustainability initiatives, product development, 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.

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

Three Months Ended May 31, Nine Months Ended May 31,

Prior Year Change from

(in thousands) 2023 2022 Dollars Percent 2023 2022 Dollars Percent

Three Months Ended November 30,

(in thousands) 2023 2022 Dollars Percent

A&P expenses $ 6,983 $ 5,339 $ 1,644 31 %

% of net sales 5.0 % 4.3 %

A&P Expenses – Three M onths Ended – May 31, 2023 Compared to May 31, 2022

The increase in A&P expenses was primarily due to a higher level of promotional programs and marketing support in the Americas and Asia-Pacific segments.

Changes in foreign currency exchange rates did not have a significant impact on A&P expenses from period to period.

A&P Expenses – Three Months Ended – November 30, 2023 Compared to November 30, 2022

The increase in A&P expenses was primarily due to a higher level of promotional programs and marketing support, particularly in the Americas 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 were $7.9 million and $7.5 million for the three months ended May 31, 2023 and 2022, respectively.

Therefore, our total investment in A&P activities was $15.6 million and $13.5 million for the three months ended May 31, 2023 and 2022, respectively.

A&P Expenses – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

The increase in A&P expenses was primarily due to a higher level of promotional programs and marketing support in the Americas segment.

This increase was partially offset by favorable changes in foreign currency exchange rates of $1.0 million, primarily in the EMEA segment.

Total promotional costs recorded as a reduction to sales were $21.5 million and $20.8 million for the nine months ended May 31, 2023 and 2022, respectively.

Therefore, our total investment in A&P activities was $40.5 million and $38.0 million for the nine months ended May 31, 2023 and 2022, respectively.

Total promotional costs recorded as a reduction to sales were $7.8 million and $6.5 million, or 5.5% and 5.2% of net sales, for the three months ended November 30, 2023 and 2022, respectively.

Therefore, our total investment in A&P activities was $14.8 million and $11.8 million or 10.5% and 9.5% of net sales, for the three months ended November 30, 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 May 31, Nine Months Ended May 31,

Three Months Ended November 30,

2023 2022 Change from

Prior Year 2023 2022 Change from

Dollars Percent Dollars Percent

Dollars Percent

Americas $ 14,196 $ 12,772 $ 1,424 11 %

EMEA 11,966 10,146 1,820 18 % 28,632 38,074 (9,442) (25) %

EIMEA 9,515 6,283 3,232 51 %

Asia-Pacific 11,025 9,617 1,408 15 %

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Total $ 24,184 $ 18,679 $ 5,505 29 %

Americas Operating Income – Three Months Ended – May 31, 2023 Compared to May 31, 2022

Income from operations for the Americas increased to $16.9 million, up $3.5 million, or 27%, due to a $9.7 million increase in sales and a higher gross margin, partially offset by higher operating expenses.

Gross margin for the Americas segment increased from 45.8% to 48.2% primarily due to the favorable impact of price increases over the last twelve months and decreases to miscellaneous other input costs, 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.

Operating expenses increased $2.6 million primarily due to higher accrued incentive compensation and higher A&P expenses, as well as higher employee-related costs primarily due to increased headcount.

Operating income as a percentage of net sales increased from 21.7% to 23.8% period over period.

Americas Operating Income – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

Income from operations for the Americas increased to $43.4 million, up $6.8 million, or 19%, due to a $19.8 million increase in sales and a higher gross margin, partially offset by higher operating expenses.

Gross margin for the Americas segment increased from 47.0% to 48.9% primarily due to the favorable impact of price increases implemented during 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.

Operating expenses increased $6.1 million due to higher employee-related costs as a result of increased headcount and higher accrued incentive compensation.

In addition, operating expenses increased due to a higher level of travel and meeting expense and A&P expenses.

Operating income as a percentage of net sales increased from 21.2% to 22.6% period over period.

EMEA Operating Income – Three Months Ended – May 31, 2023 Compared to May 31, 2022

Income from operations for the EMEA segment increased to $12.0 million, up $1.8 million, or 18%, primarily due to a $3.1 million increase in sales and a higher gross margin, partially offset by higher operating expenses.

Gross margin for the EMEA segment increased from 49.0% to 52.0% primarily due to the favorable impact of price increases over the last twelve months and decreases to miscellaneous other input costs, partially offset by the increased costs of aerosol cans and petroleum-based specialty chemicals.

Operating expenses increased $1.3 million primarily due higher employee-related costs as a result of higher accrued incentive compensation and increased headcount, as well as increased travel and meeting expense.

Americas Operating Income – Three Months Ended – November 30, 2023 Compared to November 30, 2022

Income from operations for the Americas increased to $14.2 million, up $1.4 million, or 11%, due to a $6.1 million increase in sales partially offset by higher operating expenses.

Gross margin for the Americas segment remained constant at 50.7%.

Operating expenses increased $1.6 million due to higher A&P investments and higher employee-related costs, including annual compensation increases and a higher level of fringe benefits.

In addition, operating expenses increased due to a higher level of travel and meeting expense.

Operating income as a percentage of net sales increased from 22.0% to 22.2% period over period.

EMEA Operating Income – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

Income from operations for the EMEA segment decreased to $28.6 million, down $9.4 million, or 25%, primarily due to a $21.0 million decrease in sales, which was slightly offset by a higher gross margin.

Gross margin for the EMEA segment increased from 50.9% to 51.7% primarily due to price increases that were implemented over the last twelve months, significantly offset by 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.

Operating expenses remained relatively constant as higher travel and meeting expense and higher employee-related costs were almost completely offset

by lower level of A&P freight expenses.

Operating income as a percentage of net sales decreased from 23.6% to 20.4% period over period.

Asia-Pacific Operating Income – Three Months Ended – May 31, 2023 Compared to May 31, 2022

Income from operations for the Asia-Pacific segment increased to $5.3 million, up $2.2 million, or 71%, primarily due to a $5.3 million increase in sales and a higher gross margin, partially offset by an increase in operating expenses.

Gross margin for the Asia-Pacific segment increased from 51.8% to 56.3% primarily due to the favorable impact of price increases that were implemented during the last twelve months.

Operating expenses increased $1.4 million primarily due to higher A&P expenses and higher other miscellaneous expenses.

EIMEA Operating Income – Three Months Ended – November 30, 2023 Compared to November 30, 2022

Income from operations for the EIMEA segment increased to $9.5 million, up $3.2 million, or 51%, primarily due to a $8.0 million increase in sales and a higher gross margin, which was partially offset by higher operating expenses.

Gross margin for the EIMEA segment increased from 50.6% to 54.9% primarily due to price increases that were implemented in the fourth quarter of fiscal year 2022 and first quarter of fiscal year 2023, as well as decreased costs of petroleum-based specialty chemicals and lower warehousing, distribution and freight costs.

These favorable impacts to gross margin were partially offset by increases in the costs of aerosol cans and filling fees at our third-party manufacturers.

Operating expenses increased $2.9 million primarily due to higher employee-related costs from increased headcount as well as annual compensation increases and higher incentive compensation.

In addition, travel and meeting expenses increased.

Operating income as a percentage of net sales increased from 15.4% to 19.5% period over period.

Asia-Pacific Operating Income – Nine Months Ended – May 31, 2023 Compared to May 31, 2022

Asia-Pacific Operating Income – Three Months Ended – November 30, 2023 Compared to November 30, 2022

Income from operations for the Asia-Pacific segment increased to $11.0 million, up $1.4 million, or 15%, primarily due to a $1.5 million increase in sales and a higher gross margin, partially offset by an increase in operating expenses.

Gross margin for the Asia-Pacific segment increased from 54.4% to 55.2% primarily due to the favorable impact of price increases that were implemented during the last twelve months, partially offset by the increased cost of petroleum-based specialty chemicals.

Operating expenses increased $2.1 million from period to period primarily due to higher A&P expenses and higher other miscellaneous expenses, as well as a higher level of travel and meeting expenses.

Gross margin for the Asia-Pacific segment increased from 54.4% to 59.2% primarily due to the favorable impact of price increases that were implemented during the last twelve months and decreased costs of petroleum-based specialty chemicals, partially offset by higher miscellaneous costs from period to period.

Operating expenses increased $0.7 million from period to period primarily due to higher A&P expenses.

Operating income as a percentage of net sales increased from 36.8% to 40.0% period over period.

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

Three Months Ended May 31, Nine Months Ended May 31,

2023 2022 Change 2023 2022 Change

Three Months Ended November 30,

2023 2022 Change

Interest income $ 74 $ 44 $ 30

Interest expense $ 1,146 $ 1,169 $ (23)

Other income (expense), net $ 243 $ (42) $ 285 $ 558 $ (119) $ 677

Other (expense) income, net $ (40) $ 150 $ (190)

Provision for income taxes $ 5,590 $ 3,707 $ 1,883

Interest Income

Interest income was not significant during the three and nine months ended May 31, 2023 and 2022.

Interest Expense

Interest expense increased $0.9 million and $2.4 million for the three and nine months ended May 31, 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.

Interest expense remained relatively consistent period over period.

Other Income (Expense), Net

Other income (expense), net was not significant for the three months ended May 31, 2023 and 2022.

Other income (expense), net changed by $0.7 million for the nine months ended May 31, 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.

Other income (expense) was not significant during the three months ended November 30, 2023 and 2022.

Provision for Income Taxes

The provision for income taxes was 22.5% and 20.9% of income before income taxes for the three months ended May 31, 2023 and 2022, respectively.

The rate increase of 1.6% in the effective tax rate was primarily due to higher tax rates in certain foreign jurisdictions.

The provision for income taxes was 21.5% and 20.2% of income before income taxes for the nine months ended May 31, 2023 and 2022, respectively.

The rate increase of 1.3% in the effective income tax rate from period to period was primarily

due to tax shortfalls from the settlements of stock-based equity awards, resulting in a 1.5% unfavorable impact on our effective tax rate from period to period.

In addition, higher tax rates in certain foreign jurisdictions resulted in a 1.3% unfavorable impact on our effective tax rate.

These unfavorable impacts to the effective tax rate were partially offset by a one-time tax-deductible charitable 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 1.2% favorable impact on our effective tax rate.

Net income was $18.9 million, or $1.38 per common share on a fully diluted basis, for the three months ended May 31, 2023 compared to $14.5 million, an increase of 30%, or $1.07 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 $0.6 million on consolidated net income for the third quarter of fiscal year 2023.

The provision for income taxes was 24.2% and 20.9% of income before income taxes for the three months ended November 30, 2023 and 2022, respectively.

Descriptions of impacts on our effective income tax rate are incorporated by reference to Part I-Item 1, “Notes to Condensed Consolidated Financial States” Note 13 – Income Taxes included in this report.

Net income increased 25% to $17.5 million, or $1.28 per common share on a fully diluted basis, for the three months ended November 30, 2023 compared to $14.0 million, or $1.02 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 a favorable impact of $0.6 million on consolidated net income for the three months ended November 30, 2023.

Thus, on a constant currency basis, net income would have increased $2.9 million, or 21%, from period to period.

Net income was $49.4 million, or $3.62 per common share on a fully diluted basis, for the nine months ended May 31, 2023 compared to $52.5 million, a decrease of 6%, or $3.82 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 $2.8 million on consolidated net income for the nine months ended May 31, 2023.

Thus, on a constant currency basis, net income would have decreased $0.3 million, or 1%, from period to period.

Performance Measures and Non-GAAP Reconciliations

In managing our business operations and assessing our financial performance, we supplement the information provided by our financial statements with certain non-GAAP performance measures.

These performance measures are part of our current 55/30/25 business model, which includes gross margin, cost of doing business, and earnings before interest, income taxes, depreciation and amortization (“EBITDA”), the latter two of which are non-GAAP performance measures.

Cost of doing business is defined as total operating expenses less amortization of definite-lived intangible assets, impairment charges related to intangible assets and depreciation in operating departments, and EBITDA is defined as net income before interest, income taxes, depreciation and amortization.

We target our gross margin to be at or above 55% of net sales, our cost of doing business to be at 30% of net sales, and our EBITDA to be at or above 25% of net sales.

Results for these performance measures may vary from period to period depending on various factors, including economic conditions and our level of investment in activities for the future such as those related to quality assurance, regulatory compliance, and intellectual property protection in order to safeguard our WD-40 brand.

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 is reflected in our reported results.

In addition, it is not possible to determine how long these supply chain and inflationary conditions will exist and if they will worsen or improve over time.

Our targets for gross margin and these other performance measures are long-term in nature and we expect to make progress towards achieving them over time.

For more detailed information pertaining to recent trends and economic conditions and the actions we are taking to respond to them, please see the section titled “Significant Developments”.

These performance measures are part of our current 55/30/25 business model, which includes gross margin, cost of doing business, and earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”), the latter two of which are non-GAAP performance measures.

Cost of doing business is defined as total operating expenses less amortization of definite-lived intangible assets, impairment charges related to intangible assets, amortization of implementation costs associated with cloud computing arrangements (“cloud computing amortization”) and depreciation in operating departments.

Adjusted EBITDA is defined as net income before interest, income taxes, depreciation, amortization of definite-lived intangible assets, and cloud computing amortization.

Beginning in fiscal year 2024, cloud computing amortization is included in our of cost of doing business and Adjusted EBITDA calculations.

We are in the process of implementing a new cloud-based enterprise resource planning system, which we will begin to amortize once the system is placed into service.

Implementation of such systems is related to initiatives associated with our strategic framework intended to achieve greater operational efficiencies.

Cloud computing amortization is recognized in selling, general and administrative expenses in the Company’s condensed consolidated statements of operations.

We target our gross margin to be 55% of net sales, our cost of doing business to be 30% of net sales, and our Adjusted EBITDA to be 25% of net sales.

Results for these performance measures may vary from period to period depending on various factors, including economic conditions such as the inflationary environment we have experienced in the last several fiscal years, and our level of investment in activities for the future such as those related to quality assurance, regulatory compliance, information technology, sustainability, and intellectual property protection in order to safeguard our WD-40 brand.

Our targets for gross margin and these other performance measures are long-term in nature and we expect to make progress towards them over time.

The following table summarizes the results of these performance measures:

Three Months Ended May 31, Nine Months Ended May 31,

2023 2022 2023 2022

Three Months Ended November 30,

Gross margin – GAAP 54 % 51 %

Cost of doing business as a percentage of net sales – non-GAAP 36 % 36 %

EBITDA as a percentage of net sales – non-GAAP (1)

20 % 17 % 18 % 19 %

(1) Percentages may not aggregate to EBITDA percentage due to rounding and because amounts recorded in other income (expense), net on our consolidated statement of operations are not included as an adjustment to earnings in the EBITDA calculation.

Adjusted EBITDA as a percentage of net sales – non-GAAP (1)

(1) Percentages may not aggregate to Adjusted EBITDA percentage due to rounding and because amounts recorded in other income (expense), net on our consolidated statement of operations are not included as an adjustment to earnings in the Adjusted EBITDA calculation.

We use the performance measures above to establish financial goals and to gain an understanding of our comparative performance from period to period.

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We believe these measures also provide investors with additional financial information that should be considered when assessing our underlying business performance and trends.

These non-GAAP financial

measures are supplemental in nature and should not be considered in isolation or as alternatives to net income, income from operations or other financial information prepared in accordance with GAAP as indicators of our performance or operations.

These non-GAAP financial measures are supplemental in nature and should not be considered in isolation or as alternatives to net income, income from operations or other financial information prepared in accordance with GAAP as indicators of our performance or operations.

The use of any non-GAAP measure may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.

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Cost of Doing Business (in thousands, except percentages)

Three Months Ended May 31, Nine Months Ended May 31,

2023 2022 2023 2022

Three Months Ended November 30,

Total operating expenses – GAAP $ 51,369 $ 45,576

Amortization of definite-lived intangible assets (250) (358) (753) (1,081)

Amortization (1)

Depreciation (in operating departments) (1,049) (965)

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Cost of doing business as a percentage of net sales – non-GAAP 36 % 36 %

EBITDA (in thousands, except percentages)

Three Months Ended May 31, Nine Months Ended May 31,

2023 2022 2023 2022

(1) Includes amortization of definite-lived intangible assets and cloud computing amortization.

Adjusted EBITDA (in thousands, except percentages)

Three Months Ended November 30,

Net income – GAAP $ 17,482 $ 13,997

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Interest expense 1,146 1,169

Amortization of definite-lived intangible assets 250 358 753 1,081

Amortization (1)

Depreciation 2,010 1,643

EBITDA $ 27,975 $ 21,000 $ 72,986 $ 73,808

Adjusted EBITDA $ 26,462 $ 20,725

Net sales $ 140,416 $ 124,893

EBITDA as a percentage of net sales – non-GAAP 20 % 17 % 18 % 19 %

Adjusted EBITDA as a percentage of net sales – non-GAAP 19 % 17 %

(1) Includes amortization of definite-lived intangible assets and cloud computing amortization.

Liquidity and Capital Resources

Our financial condition and liquidity remain strong.

Although there continues to be uncertainty related to adverse global economic conditions, volatility in financial markets, the current inflationary environment and their impacts on our future results, we believe our efficient business model positions us to manage our business through such situations.

Although there continues to be uncertainty related to adverse global economic conditions, volatility in financial markets, the current inflationary environment and their impacts on our future

results, we believe our efficient business model positions us to manage our business through such situations.

We continue to manage all aspects of our business including, but not limited to, monitoring our liquidity, the financial health of our customers, suppliers and other third-party relationships, implementing gross margin enhancement strategies and developing new opportunities for growth.

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.

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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 Pounds Sterling in the EMEA segment.

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

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

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

Dollars from period to period due to changes in foreign currency exchange rates.

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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 May 31, 2023,

$42.1 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 $26.4 million is denominated in U.S.

Dollars and is classified as short-term.

In the United States, we held $67.6 million in fixed rate long-term borrowings as of May 31, 2023, consisting of senior notes under our Note Agreement.

We paid $0.8 million in principal payments on our Series A Notes during the first nine months of fiscal year 2023.

As of November 30, 2023, $19.8 million of this facility was classified as long-term and was entirely denominated in Euros.

$23.6 million was classified as short-term and was denominated in U.S.

Dollars and Pounds Sterling.

In the United States, we held $67.2 million in fixed rate long-term borrowings as of November 30, 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 three months of fiscal year 2024.

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 8 – Debt for additional information on these financial covenants.

At May 31, 2023, we were in compliance with all material debt covenants.

At November 30, 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 May 31, 2023, we had a total of $38.4 million in cash and cash equivalents.

At November 30, 2023, we had a total of $50.3 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.

We believe that our future cash from domestic and international operations, together with our access to funds available under our unsecured revolving credit facility, will provide adequate resources to fund short-term and long-term operating requirements, capital expenditures, dividend payments, acquisitions, new business development activities and share repurchases.

On October 12, 2021, our Board of Directors (“Board”) approved a share repurchase plan (the “2021 Repurchase Plan”).

Under the 2021 Repurchase 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 $38.4 million remains available for the repurchase of shares of common stock as of May 31, 2023.

On June 19, 2023, our Board approved a share repurchase plan (the “2023 Repurchase Plan”).

Under the 2023 Repurchase Plan, which will become effective on September 1, 2023, we are authorized to acquire up to $50.0 million of our outstanding shares through August 31, 2025.

On June 19, 2023, the Board approved the 2023 Repurchase Plan.

Under the 2023 Repurchase Plan, which became effective on September 1, 2023, we are authorized to acquire up to $50.0 million of our outstanding shares through August 31, 2025, of which $47.6 million remains available for the repurchase of shares of common stock as of November 30, 2023.

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

Nine Months Ended May 31,

Three Months Ended November 30,

2023 2022 Change

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Operating Activities

Net cash provided by operating activities increased $47.9 million to $55.6 million for the nine months ended May 31, 2023.

Net cash provided by operating activities increased $16.5 million to $26.9 million for the three months ended November 30, 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 nine months ended May 31, 2023 was net income of $49.4 million, which decreased approximately $3.1 million from period to period.

Changes in our working capital, which increased net cash provided by operating activities, were primarily attributable to a decrease in inventory during the first nine months of fiscal year 2023 compared to a significant increase in inventory in the corresponding period of the prior fiscal year, which resulted in a $52.6 million favorable impact period over period to our cash provided by operating activities.

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 has decreased since the first quarter of 2023 through the period ending May 31, 2023.

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

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

Our primary source of operating cash flows for the three months ended November 30, 2023 was net income of $17.5 million, which increased approximately $3.5 million from period to period.

Changes in our working capital, which increased net cash provided by operating activities, were primarily attributable to a decrease in inventory during the first quarter of fiscal year 2024 compared to a significant increase in inventory in the corresponding period of the prior fiscal year, which resulted in a $18.7 million favorable impact period over period to our cash provided by operating activities.

In the corresponding period of the prior fiscal year, we had continued to build our inventory levels of certain raw materials, components and finished goods due to challenges within supply chain that we experienced after the COVID-19 pandemic.

We have since been able to increase the capacity and flexibility of our supply chain which has enabled us to reduce our inventory levels since they peaked during the first quarter of 2023.

Investing Activities

Net cash used in investing activities decreased $2.5 million to $4.2 million for the nine months ended May 31, 2023, primarily due to a lower level of manufacturing-related capital expenditures within the U.S.

Net cash used in investing activities decreased $0.6 million to $0.7 million for the three months ended November 30, 2023, primarily due to a lower level of manufacturing-related capital expenditures within the U.S.

from period to period.

Financing Activities

Net cash used in financing activities increased $10.8 million to $54.0 million for the nine months ended May 31, 2023.

This change was primarily due to net repayments on our revolving credit facility of $11.9 million during the first nine months of the fiscal year, compared to net proceeds of $15.6 million in the corresponding period of the prior fiscal year.

Net cash used in financing activities increased $12.2 million to $24.5 million for the three months ended November 30, 2023.

This change was primarily due to net repayments on our revolving credit facility of $9.7 million during the first three months of the fiscal year, compared to net proceeds of $3.4 million in the corresponding period of the prior fiscal year.

Increases in dividends paid to our stockholders also increased cash used in financing activities by $0.7 million.

Offsetting these increases in cash outflows from period to period was a decrease in treasury stock purchases of $15.0 million, as well as a decrease of $3.7 million in shares withheld to cover taxes on conversion of equity rewards.

Offsetting these increases in cash outflows from period to period was a decrease in treasury stock purchases of $1.7 million.

Effect of Exchange Rate Changes

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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 $3.2 million for the nine months ended May 31, 2023 as compared to a decrease in cash of $2.8 million for the nine months ended May 31, 2022.

Dollar terms, was an increase in cash of $0.4 million for the three months ended November 30, 2023 as compared to an increase in cash of $2.2 million for the three months ended November 30, 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.

Commercial Commitments

We have ongoing relationships with various third-party suppliers (contract manufacturers) that manufacture our products and third-party distribution centers which warehouse and ship our products to customers.

The contract manufacturers maintain title and control of certain raw materials and components, materials utilized in finished products, and of the finished products themselves until shipment to our customers or third-party distribution centers in accordance with agreed upon shipment terms.

Although we have definitive minimum purchase obligations in the contract terms with certain of our contract manufacturers, when such obligations have been included, they have either been immaterial or the minimum amounts have been such that they are well below the volume of goods that we have historically purchased.

We have ongoing relationships with various third-party suppliers (contract manufacturers) that manufacture our products and third-party distribution centers that warehouse and ship our products to customers.

The contract manufacturers maintain title and control of certain raw materials and components, materials utilized in finished products, and the finished products themselves until shipment to our third-party distribution centers or customers in accordance with agreed upon shipment terms.

Although we have contractual minimum purchase obligations with certain contract manufacturers, such obligations are immaterial or well below the volume of goods that we have historically purchased.

In addition, in the ordinary course of business, we communicate supply needs to our contract manufacturers based on orders and short-term projections, ranging from two to six months.

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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 May 31, 2023, no such commitments were outstanding.

As of November 30, 2023, no such commitments were outstanding.

Share Repurchase Plans

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 and Note 14 — Subsequent Events, included in this report.

On June 20, 2023, the Company’s Board declared a cash dividend of $0.83 per share payable on July 31, 2023 to stockholders of record on July 14, 2023.

The information required by this item is incorporated by reference to Part I—Item 1, “Notes to Condensed Consolidated Financial Statements” Note 9 — Share Repurchase Plan included in this report.

On December 12, 2023, the Company’s Board approved a 6% increase in the regular quarterly cash dividend, increasing it from $0.83 per share to $0.88 per share.

The $0.88 per share dividend declared on December 12, 2023 is payable on January 31, 2024 to stockholders of record on January 19, 2024.

Critical Accounting Policies and Estimates

Our discussion and analysis of our operating results and financial condition is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

Our discussion and analysis of our operating results and financial condition is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

Critical accounting policies are those that involve subjective or complex judgments, often as a result of the need to make estimates.

The following areas all require the use of judgments and estimates:

revenue recognition, accounting for income taxes and impairment of definite-lived intangible assets.

revenue recognition and accounting for income taxes.

Estimates in each of these areas are based on historical experience and various judgments and assumptions that we believe are appropriate.

Actual results may differ materially from these estimates.

Actual results may materially differ from these estimates.

There have been no material changes in our critical accounting policies and estimates from those disclosed in Part II—Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 2 to our consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended August 31, 2023, which was filed with the SEC on October 23, 2023.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis