What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-09 compared with 2024-01-09 · 224 added, 124 removed, 295 unchanged (54% of the section changed)

34 unchanged sentences

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 three months ended November 30, 2023:

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

The following summarizes the financial and operational highlights for our business during the six months ended February 29, 2024:

• Consolidated net sales increased $24.4 million, or 10%, compared to the corresponding period of the prior fiscal year.

4 unchanged sentences

On a constant currency basis, net sales would have increased by $17.6 million, or 7%, 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.

This favorable impact from changes in foreign currency exchange rates mainly came from our EIMEA segment, which accounted for 37% of our consolidated sales for the six months ended February 29, 2024.

• Gross profit as a percentage of net sales increased to 53.1% compared to 51.1% for the corresponding period of the prior fiscal year.

• Consolidated net income increased $2.5 million, or 8%, 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.

Changes in foreign currency exchange rates from period to period had a favorable impact of $1.2 million on consolidated net income for the first half of fiscal year 2024.

Thus, on a constant currency basis, net income would have increased $1.3 million, or 4%, from period to period.

1 unchanged sentence

Results of Operations

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

Three and Six Months Ended February 29, 2024 Compared to Three and Six Months Ended February 28, 2023

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 29/28, Six Months Ended February 29/28,

2024 2023 Change from

Dollars Percent

Prior Year 2024 2023 Change from

Dollars Percent Dollars Percent

WD-40 Multi-Use Product 107,234 100,261 6,973 7 % $ 214,911 $ 194,849 $ 20,062 10 %

10 unchanged sentences

EPS – diluted $ 1.14 $ 1.21 $ (0.07) (6) % $ 2.42 $ 2.23 $ 0.19 9 %

Shares used in diluted EPS 13,583 13,608 (25) 0 % 13,583 13,608 (25) 0 %

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

1 unchanged sentence

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

Three Months Ended November 30,

Three Months Ended February 29/28, Six Months Ended February 29/28,

2024 2023 Change from

Dollars Percent

Prior Year 2024 2023 Change from

Dollars Percent Dollars Percent

Americas $ 63,507 $ 62,890 $ 617 1 % $ 127,582 $ 120,904 $ 6,678 6 %

4 unchanged sentences

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 29/28, Six Months Ended February 29/28,

2024 2023 Change from

Dollars Percent

Prior Year 2024 2023 Change from

Dollars Percent Dollars Percent

WD-40 Multi-Use Product $ 49,043 $ 48,405 $ 638 1 % $ 97,554 $ 91,562 $ 5,992 7 %

11 unchanged sentences

Change from Prior Year

First Quarter

First Quarter Second Quarter Year to Date

Increase in average selling price (1)

Increase in sales volume (1)

$ 1.8 $ 2.2 $ 4.0

Increase (decrease) in sales volume (1)

3.6 (2.4) 1.2

Currency impact on current period – non-GAAP 0.7 0.8 1.5

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 – November 30, 2023 Compared to November 30, 2022

Americas Sales – Three Months Ended – February 29, 2024 Compared to February 28, 2023

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.

• WD-40 Multi-Use Product sales increased $0.6 million, or 1%, primarily due to increases in Latin America and the U.S.

of $1.1 million and $0.7 million, or 12% and 2%, respectively, partially offset by decreases in Canada of $1.2 million, or 35%.

The increased sales in Latin America were primarily due to the favorable impact of price increases and higher volumes in Mexico as a result of the timing of customer orders, as well as the favorable impacts of changes in foreign currency exchange rates.

The decrease in sales in Canada was primarily due to the timing of promotional activities and customer orders period over period.

• WD-40 Specialist and other maintenance product sales slightly increased across most regions in the Americas.

• Homecare and cleaning product sales decreased $0.4 million, or 10%, primarily due to lower volume in the U.S.

as a result of reduced demand.

For both the three months ended February 29, 2024 and February 28, 2023, 76% of sales came from the U.S., and 24% of sales came from Canada and Latin America combined.

Americas Sales – Six Months Ended – February 29, 2024 Compared to February 28, 2023

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

• WD-40 Multi-Use Product sales increased $6.0 million, or 7%, primarily due to increases in Latin America and the U.S.

of $3.5 million and $3.2 million, or 20% and 5%, respectively.

In Latin America, sales in the first half 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.

In addition, sales in Mexico increased due to higher volumes as a result of timing of customer orders and favorable impacts of changes in foreign exchange rates.

The increase in the U.S.

was due to a combination of recovering volumes at increased selling prices as well as a result of successful promotional programs.

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

• Other maintenance product sales increased due to a $0.7 million, or 9%, 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.

• Homecare and cleaning product sales decreased $0.5 million, or 6%, primarily due to lower volume in the U.S.

as a result of reduced demand.

• For the six months ended February 29, 2024, 75% of sales came from the U.S., and 25% of sales came from Canada and Latin America combined compared to the six months ended February 28, 2023 when 77% of sales came from the U.S., and 23% 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,

Three Months Ended February 29/28, Six Months Ended February 29/28,

2024 2023 Change from

Dollars Percent

Prior Year 2024 2023 Change from

Dollars Percent Dollars Percent

WD-40 Multi-Use Product 41,572 35,660 5,912 17 % $ 78,616 $ 65,838 $ 12,778 19 %

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Change from Prior Year

First Quarter

First Quarter Second Quarter Year to Date

Increase in average selling price (1)

$ 0.7 $ 0.0 $ 0.7

Increase in sales volume (1)

2 unchanged sentences

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 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 DACH and Benelux sales regions.

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

EIMEA Sales – Three Months Ended – February 29, 2024 Compared to February 28, 2023

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 Multi-Use Product sales increased $5.9 million, or 17%, primarily due to higher sales volume.

Volumes in the comparative period were unfavorably impacted by price increases that we implemented in the fourth quarter of fiscal year 2022 and first quarter of fiscal year 2023, which resulted in temporarily reduced demand as customers adjusted to those price increases.

The combination of recovering volumes at increased selling prices resulted in

higher sales across most regions.

Sales increased most significantly in France, India, and Iberia, which were up $1.0 million, $0.9 million, and $0.6 million, respectively.

• WD-40 Specialist and other maintenance product sales increased $1.4 million, or 23%, and $0.4 million, or 17%, respectively, primarily due to the combined impact of higher sales volume and the favorable impact of price increases across the regions.

• Homecare and cleaning product sales decreased $0.3 million, or 10%, primarily due to lower volume in the U.K.

as a result of reduced demand.

• Net sales were favorably impacted $2.4 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%.

EIMEA Sales – Six Months Ended – February 29, 2024 Compared to February 28, 2023

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

• WD-40 Multi-Use Product sales increased $12.8 million, or 19%, primarily due to higher sales volume.

Volumes in the comparative period were unfavorably impacted by price increases that we implemented in the fourth quarter of fiscal year 2022 and first quarter of fiscal year 2023, which resulted in reduced demand as customers adjusted to those price increases.

The combination of recovering volumes and increased selling prices resulted in higher sales across most regions.

Sales increased most significantly in the DACH and Benelux regions, France, the Middle East, and Iberia, which were up $3.0 million, $2.8 million, $2.3 million, and $1.9 million, respectively.

• WD-40 Specialist and other maintenance product sales increased $2.1 million, or 17%, and $1.0 million, or 19%, 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 $1.3 million in these categories from period to period.

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

• Homecare and cleaning product sales decreased $0.3 million, or 7%, primarily due to lower volume in the U.K.

as a result of reduced demand.

• Net sales were favorably impacted $6.0 million across our various brands as a result of favorable changes in foreign currency exchange rates.

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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,

2023 2022 Dollars Percent

Three Months Ended February 29/28, Six Months Ended February 29/28,

Prior Year Change from

2024 2023 Dollars Percent 2024 2023 Dollars Percent

WD-40 Multi-Use Product $ 16,619 $ 16,196 $ 423 3 % $ 38,741 $ 37,449 $ 1,292 3 %

11 unchanged sentences

Change from Prior Year

First Quarter

First Quarter Second Quarter Year to Date

Increase in average selling price (1)

Increase in sales volume (1)

$ 1.6 $ 1.4 $ 3.0

Increase (decrease) in sales volume (1)

0.3 (0.3) 0.0

Currency impact on current period – non-GAAP (0.4) (0.3) (0.7)

1 unchanged sentence

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

Asia-Pacific Sales – Three Months Ended – February 29, 2024 Compared to February 28, 2023

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

• WD-40 Multi-Use Product sales increased $0.4 million, or 3%.

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.

Sales in the Asia distributor markets increased $0.5 million, or 7%, primarily due to price increases in these markets from period to period and successful promotional programs in certain regions, as well as the timing of customer orders.

• WD-40 Specialist and other maintenance product sales remained relatively constant from period to period.

• Homecare and cleaning product sales increased $0.4 million, or 23%.

The increase was due to higher sales volume in Australia attributable to successful promotional activities and improved packaging.

• Net sales were unfavorably impacted $0.3 million across our various brands as a result of changes in foreign currency exchange rates.

On a constant currency basis, sales in Asia-Pacific would have increased 5%.

Asia-Pacific Sales – Six Months Ended – February 29, 2024 Compared to February 28, 2023

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

• WD-40 Multi-Use Product sales increased $1.3 million, or 3%.

Sales in the Asia distributor markets increased $1.0 million, or 5%, primarily due to price increases in these markets from period to period and successful promotional programs in certain regions.

In addition, sales in China increased $0.5 million, or 4%, due to increased sales volume from successful promotional programs and marketing activities.

These increases were slightly offset by lower sales volume in Australia.

• WD-40 Specialist sales increased $0.4 million, or 9%, primarily due to increased sales volume from successful promotional programs and marketing activities in China.

• Other maintenance product sales increased $0.3 million, or 79%, due to higher sales of 3-IN-ONE, 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 increased $0.3 million or 7%.

The increase was due to higher sales volume in Australia attributable to successful promotional activities and improved packaging.

• Net sales were unfavorably impacted $0.7 million across our various brands as a result of changes in foreign currency exchange rates.

On a constant currency basis, sales in Asia-Pacific would have increased 6%.

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

7 unchanged sentences

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

These costs totaled $4.0 million and $4.2 million for the three months ended February 29, 2024 and February 28, 2023, respectively, and $8.0 million and $8.4 million for the six months ended February 29, 2024 and February 28, 2023, respectively.

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

Three Months Ended November 30,

Three Months Ended February 29/28, Six Months Ended February 29/28,

2024 2023 Change from

Prior Year 2024 2023 Change from

Gross profit $ 72,941 $ 66,078 $ 6,863 $ 148,494 $ 130,333 $ 18,161

Gross margin 52.4 % 50.8 % 160 bps (1)

53.1 % 51.1 % 200 bps (1)

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

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

Gross Margin – Three Months Ended – February 29, 2024 Compared to February 28, 2023

Gross margin increased 160 bps primarily due to the following favorable impacts, partially offset by unfavorable impacts:

Favorable/(Unfavorable) Explanations

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

130 bps Favorable sales mix and other miscellaneous mix impacts.

Favorable sales mix and other miscellaneous mix impacts

100 bps Lower costs of specialty chemicals used in the formulation of our products

Increases in average selling prices

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

(80) bps Higher costs of aerosol cans.

(100) bps Increases in miscellaneous other input costs

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

Gross Margin – Six Months Ended – February 29, 2024 Compared to February 28, 2023

Gross margin increased 200 bps primarily due to the following favorable impacts, partially offset by unfavorable impacts:

Favorable/(Unfavorable) Explanations

Favorable sales mix and other miscellaneous mix impacts

Increases in average selling prices

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

80 bps Lower costs of specialty chemicals used in the formulation of our products

(60) bps Increases in miscellaneous other input costs

(50) bps Higher costs of aerosol cans

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

Three Months Ended November 30,

Three Months Ended February 29/28, Six Months Ended February 29/28,

2024 2023 Change from

(in thousands) Dollars Percent

Prior Year 2024 2023 Change from

(in thousands) Dollars Percent Dollars Percent

SG&A expenses $ 45,023 $ 37,690 $ 7,333 19 % $ 89,158 $ 77,674 $ 11,484 15 %

% of net sales 32.4 % 28.9 % 31.9 % 30.5 %

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.

SG&A Expenses – Three Months Ended – February 29, 2024 Compared to February 28, 2023

The increase in SG&A expenses was primarily due to increases in employee-related costs of $4.1 million due to higher accrued incentive compensation, annual compensation increases and higher headcount, partially offset by lower stock-based compensation expense.

In addition, professional services fees increased $1.3 million in support of our strategic initiatives in the Americas and EIMEA segments, as well as higher costs associated with the ERP system we recently implemented in the United States.

In addition, travel and meeting expense increased SG&A expense by $0.8 million in support of our strategic framework.

Unfavorable changes in foreign currency exchange rates increased SG&A expenses by $0.6 million from period to period.

SG&A Expenses – Six Months Ended – February 29, 2024 Compared to February 28, 2023

The increase in SG&A expenses was primarily due to increases in employee-related costs of $6.0 million due to higher accrued incentive compensation, annual compensation increases and higher headcount, partially offset by lower stock-based compensation expense.

In addition, travel and meeting expense increased SG&A expense by $1.7 million and professional services fees increased $1.6 million in support of our strategic initiatives in the Americas and EIMEA segments, as well as higher costs associated with the ERP system we recently implemented in the United States.

Unfavorable changes in foreign currency exchange rates increased SG&A expenses by $1.7 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.

Research and development costs were $1.7 million and $1.2 million for the three months ended February 29, 2024 and February 28, 2023, respectively, and $3.6 million and $2.5 million for the six months ended February 29, 2024 and February 28, 2023, 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.

2 unchanged sentences

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

Three Months Ended November 30,

(in thousands) 2023 2022 Dollars Percent

Three Months Ended February 29/28, Six Months Ended February 29/28,

Prior Year Change from

(in thousands) 2024 2023 Dollars Percent 2024 2023 Dollars Percent

A&P expenses $ 6,725 $ 5,985 $ 740 12 % $ 13,708 $ 11,324 $ 2,384 21 %

% of net sales 4.8 % 4.6 % 4.9 % 4.4 %

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.

A&P Expenses – Three M onths Ended – February 29, 2024 Compared to February 28, 2023

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

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

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 $7.8 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.

Total promotional costs recorded as a reduction to sales were $7.6 million and $7.1 million, respectively, for the three months ended February 29, 2024 and February 28, 2023, or 5.5% of net sales for each period.

Therefore, our total investment in A&P activities was $14.3 million and $13.1 million or 10.3% and 10.1% of net sales for the three months ended February 29, 2024 and February 28, 2023, respectively.

A&P Expenses – Six Months Ended – February 29, 2024 Compared to February 28, 2023

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

Changes in foreign currency exchange rates primarily in EIMEA segment had a $0.4 million unfavorable impact on A&P expenses from period to period.

Total promotional costs recorded as a reduction to sales were $15.4 million and $13.6 million, or 5.5% and 5.3% of net sales, for the six months ended February 29, 2024 and February 28, 2023, respectively.

Therefore, our total investment in A&P activities was $29.1 million and $24.9 million or 10.4% and 9.8% of net sales, for the six months ended February 29, 2024 and February 28, 2023, 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 29/28, Six Months Ended February 29/28,

2024 2023 Change from

Dollars Percent

Prior Year 2024 2023 Change from

Dollars Percent Dollars Percent

Americas $ 13,220 $ 13,712 $ (492) (4) % $ 27,416 $ 26,484 $ 932 4 %

3 unchanged sentences

Total $ 20,941 $ 22,153 $ (1,212) (5) % $ 45,125 $ 40,832 $ 4,293 11 %

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.

Americas Operating Income – Three Months Ended – February 29, 2024 Compared to February 28, 2023

Income from operations for the Americas decreased to $13.2 million, down $0.5 million, or 4%, due to higher operating expenses, partially offset by a higher gross margin and increased sales.

Operating expenses increased $1.6 million primarily due to higher employee-related costs as a result of increased headcount and annual compensation increases.

In addition, operating expenses increased due to higher travel and meeting expenses in support of our strategic framework.

Gross margin for the Americas segment increased from 48.1% to 49.4% primarily due to the favorable impact of decreases in the costs of petroleum-based specialty chemicals, as well as price increases we implemented from period to period.

These favorable impacts were partially offset by increases to miscellaneous other input costs.

Operating income as a percentage of net sales decreased from 21.8% to 20.8% period over period.

Americas Operating Income – Six Months Ended – February 29, 2024 Compared to February 28, 2023

Income from operations for the Americas increased to $27.4 million, up $0.9 million, or 4%, due to a $6.7 million increase in sales and a higher gross margin, partially offset by higher operating expenses.

Gross margin for the Americas segment increased from 49.4% to 50.0% primarily due to the favorable impact of price increases and decreases to costs of petroleum-based specialty chemicals.

These favorable impacts were partially offset by increases in the costs aerosol cans and filling fees at our third-party manufacturers, as well as increases to miscellaneous other input costs.

Operating expenses increased $3.3 million due to higher employee-related costs as a result of increased headcount, higher accrued incentive compensation and annual compensation increases.

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

Operating income as a percentage of net sales decreased from 21.9% to 21.5% period over period.

EIMEA Operating Income – Three Months Ended – February 29, 2024 Compared to February 28, 2023

Income from operations for the EIMEA segment increased to $12.1 million, up $1.7 million, or 16%, primarily due to a $7.5 million increase in sales and a higher gross margin, partially offset by higher operating expenses.

Gross margin for the EIMEA segment increased from 52.3% to 53.7% primarily due to the favorable impact of changes in sales mix and market mix from period to period, as well as the combined impact of decreases in the costs of petroleum-based specialty chemicals and aerosol cans.

Operating expenses increased $2.9 million primarily due higher employee-related costs as a result of higher accrued incentive compensation, annual compensation increases and increased headcount.

In addition, operating expenses increased due to higher A&P expenses, as well as higher level of professional service costs travel and meeting expenses in support of our strategic framework.

Operating income as a percentage of net sales increased from 22.2% to 22.3% period over period.

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

EIMEA Operating Income – Six Months Ended – February 29, 2024 Compared to February 28, 2023

Income from operations for the EIMEA segment increased to $21.6 million, up $4.9 million, or 30%, primarily due to a $15.5 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.

Gross margin for the EIMEA segment increased from 51.5% to 54.2% primarily due changes in sales mix and market mix from period to period, as well as the combined impact of decreases in the costs of petroleum-based specialty chemicals and aerosol cans.

Operating expenses increased $5.8 million primarily due to higher employee-related costs as a result of higher accrued incentive compensation, annual compensation increases and increased headcount.

In addition, operating expenses increased due to higher A&P expenses, as well as higher level of professional service costs and travel and meeting expenses in support of our strategic framework.

Operating income as a percentage of net sales increased from 19.0% to 21.0% period over period.

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

Asia-Pacific Operating Income – Three Months Ended – February 29, 2024 Compared to February 28, 2023

Income from operations for the Asia-Pacific segment increased to $7.5 million, up $0.5 million, or 7%, primarily due to a $0.8 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 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.

Gross margin for the Asia-Pacific segment increased from 55.3% to 58.5% primarily due to the favorable impact of price increases as well as favorable changes to other miscellaneous other input costs.

Operating expenses increased $0.7 million primarily due to higher accrued incentive compensation, as well as a higher level of professional service costs and travel and meeting

expenses in support of our strategic framework.

Operating income as a percentage of net sales increased from 34.3% to 35.2% period over period.

Asia-Pacific Operating Income – Six Months Ended – February 29, 2024 Compared to February 28, 2023

Income from operations for the Asia-Pacific segment increased to $18.5 million, up $1.9 million, or 11%, primarily due to a $2.3 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 54.8% to 58.9% primarily due to the favorable impact of price increases, as well as favorable changes to other miscellaneous other input costs.

Operating expenses increased $1.4 million from period to period primarily due to higher employee-related costs, including increased accrued incentive compensation.

In addition, operating expenses increased as a result of a higher level of A&P expenses, professional service costs and travel and meeting expenses in support of our strategic framework.

Operating income as a percentage of net sales increased from 35.7% to 37.9% 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,

2023 2022 Change

Three Months Ended February 29/28, Six Months Ended February 29/28,

2024 2023 Change 2024 2023 Change

Interest income $ 66 $ 51 $ 15 $ 140 $ 95 $ 45

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Provision for income taxes $ 4,270 $ 4,341 $ (71) $ 9,860 $ 8,048 $ 1,812

Interest Income

Interest income remained relatively consistent for both the three and six months ended February 29, 2024 and February 28, 2023.

Interest Expense

Interest expense remained relatively consistent period over period.

Other Income (Expense), Net

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

Interest expense decreased $0.5 million for both three and six months ended February 29, 2024 primarily due to lower aggregate outstanding balances on our revolving credit agreement from period to period.

Other (Expense) Income, Net

Other (expense) income, net was not significant during the three and six months ended February 29, 2024 and February 28, 2023.

Provision for Income Taxes

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.

The provision for income taxes was 21.6% and 20.8% of income before income taxes for the three months ended February 29, 2024 and February 28, 2023, respectively.

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

The provision for income taxes was 23.0% and 20.9% of income before income taxes for the six months ended February 29, 2024 and February 28, 2023, respectively.

Net income decreased 6% to $15.5 million, or $1.14 per common share on a fully diluted basis, for the three months ended February 29, 2024 compared to $16.5 million, or $1.21 per common share on a fully diluted basis, for the three months ended February 28, 2023.

Changes in foreign currency exchange rates from period to period had a favorable impact of $0.5 million on consolidated net income for the second quarter of fiscal year 2024.

Thus, on a constant currency basis, net income would have decreased $1.5 million, or 9%, from period to period.

Net income increased 8% to $33.0 million, or $2.42 per common share on a fully diluted basis, for the six months ended February 29, 2024 compared to $30.5 million, or $2.23 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 $1.2 million on consolidated net income for the six months ended February 29, 2024.

Thus, on a constant currency basis, net income would have increased $1.3 million, or 4%, from period to period.

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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.

We have placed a new cloud-based enterprise resource planning system into service in the U.S., which we began to amortize in the second quarter of fiscal year 2024.

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

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The following table summarizes the results of these performance measures:

Three Months Ended November 30,

Three Months Ended February 29/28, Six Months Ended February 29/28,

2024 2023 2024 2023

Gross margin – GAAP 52 % 51 % 53 % 51 %

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

17 % 19 % 18 % 18 %

(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.

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Cost of Doing Business (in thousands, except percentages)

Three Months Ended November 30,

Three Months Ended February 29/28, Six Months Ended February 29/28,

2024 2023 2024 2023

Total operating expenses – GAAP $ 52,000 $ 43,925 $ 103,369 $ 89,501

Amortization (1)

(508) (250) (816) (503)

Depreciation (in operating departments) (1,095) (1,034) (2,145) (1,999)

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Adjusted EBITDA (in thousands, except percentages)

Three Months Ended November 30,

Three Months Ended February 29/28, Six Months Ended February 29/28,

2024 2023 2024 2023

Net income – GAAP $ 15,536 $ 16,526 $ 33,018 $ 30,523

3 unchanged sentences

Amortization (1)

508 250 816 503

Depreciation 2,170 1,718 4,180 3,361

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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.

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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 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.

As of February 29, 2024, $19.5 million of this facility was classified as long-term and was entirely denominated in Euros.

$29.0 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.

In the United States, we held $67.2 million in fixed rate long-term borrowings as of February 29, 2024, 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 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 November 30, 2023, we were in compliance with all material debt covenants.

At February 29, 2024, 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, 2023, we had a total of $50.3 million in cash and cash equivalents.

At February 29, 2024, we had a total of $55.4 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.

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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.

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 $44.7 million remains available for the repurchase of shares of common stock as of February 29, 2024.

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

Three Months Ended November 30,

Six Months Ended February 29/28,

2024 2023 Change

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Effect of exchange rate changes on cash and cash equivalents (260) 2,777 (3,037)

Net increase (decrease) in cash and cash equivalents $ 2,174 $ (961) $ 3,135

Net increase in cash and cash equivalents $ 7,300 $ 149 $ 7,151

Operating Activities

Net cash provided by operating activities increased $16.5 million to $26.9 million for the three months ended November 30, 2023.

Net cash provided by operating activities increased $23.9 million to $44.9 million for the six months ended February 29, 2024.

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, 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.

Our primary source of operating cash flows for the six months ended February 29, 2024 was net income of $33.0 million, which increased approximately $2.5 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 half of fiscal year 2024 compared to a increase in inventory in the corresponding period of the prior fiscal year, which resulted in a $11.4 million favorable impact period over period to our cash provided by operating activities.

In the corresponding period of the prior fiscal year, we held elevated 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 fiscal year 2023.

In addition, accounts payable and accrued liabilities increased primarily due to timing of payments during the period resulting in a $6.7 million favorable impact compared to the corresponding period of the prior fiscal year.

Investing Activities

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.

Net cash used in investing activities decreased $1.5 million to $1.7 million for the six months ended February 29, 2024, primarily due to a lower level of manufacturing-related capital expenditures within the Americas and the EIMEA segments from period to period.

Financing Activities

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 $1.7 million.

Net cash used in financing activities increased $15.3 million to $35.6 million for the six months ended February 29, 2024.

This change was primarily due to net repayments on our revolving credit facility of $4.2 million during the six months of

the fiscal year, compared to net proceeds of $8.3 million in the corresponding period of the prior fiscal year.

In addition, increases in shares withheld to cover taxes on conversion of equity rewards of $1.8 million and increases in dividends paid to our stockholders of $1.3 million resulted in higher cash outflows from period to period.

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 $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.

Dollar terms, was a decrease in cash of $0.3 million for the six months ended February 29, 2024 as compared to an increase in cash of $2.8 million for the six months ended February 28, 2023.

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, 2023, no such commitments were outstanding.

As of February 29, 2024, 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 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.

On March 19, 2024, the Company’s Board declared a cash dividend of $0.88 per share payable on April 30, 2024 to stockholders of record on April 19, 2024.

Critical Accounting Policies and Estimates

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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.

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.

Recently Issued Accounting Standards

There have been no recently issued accounting standards that will have a material impact on our consolidated financial statements and related disclosures.

Information on Recently Issued Accounting Standards that could potentially impact our consolidated financial statements and related disclosures is incorporated by reference to Part I—Item 1, “Notes to Condensed Consolidated Financial Statements” Note 2 – Basis of Presentation and Summary of Significant Accounting Policies, included in this report.

Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

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