What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-10 compared with 2024-04-09 · 172 added, 168 removed, 351 unchanged (49% of the section changed)

35 unchanged sentences

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:

On March 4, 2024, we acquired all of the issued and outstanding capital stock of Brazilian distributor, Theron, from M12 Participações Empresarias S.A.

See Note 3 – Acquisitions for additional information on this business combination.

As a result of this acquisition, we shifted from an indirect distribution model to a direct model.

Results from Brazil continue to be reported in the Americas segment for both the three and nine months ended May 31, 2024 and 2023, respectively.

The following summarizes the financial and operational highlights for our business during the nine months ended May 31, 2024:

• Consolidated net sales increased $37.8 million, or 10%, compared to the corresponding period of the prior fiscal year.

2 unchanged sentences

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 a favorable impact of $6.8 million on consolidated net sales for the first three months of fiscal year 2024.

In addition, changes in foreign currency exchange rates from period to period had a favorable impact of $8.3 million on consolidated net sales for the first nine months of fiscal year 2024.

On a constant currency basis, net sales would have increased by $29.3 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 37% of our consolidated sales for the six months ended February 29, 2024.

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 nine months ended May 31, 2024.

• Gross profit as a percentage of net sales increased to 53.1% compared to 50.9% for the corresponding period of the prior fiscal year.

• Consolidated net income increased $3.4 million, or 7%, 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 $1.2 million on consolidated net income for the first half of fiscal year 2024.

Changes in foreign currency exchange rates from period to period had a favorable impact of $1.5 million on consolidated net income for the first nine months of fiscal year 2024.

Thus, on a constant currency basis, net income would have increased $1.9 million, or 4%, from period to period.

1 unchanged sentence

Results of Operations

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

Three and Nine Months Ended May 31, 2024 Compared to Three and Nine Months Ended May 31, 2023

Operating Items

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

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

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

2024 2023 Change from

17 unchanged sentences

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

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

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

2024 2023 Change from

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

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

2024 2023 Change from

14 unchanged sentences

Change from Prior Year

First Quarter Second Quarter Year to Date

First Quarter Second Quarter Third Quarter Year to Date

Increase in average selling price (1)

5 unchanged sentences

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

Americas Sales – Three Months Ended – February 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 $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:

Americas Sales – Three Months Ended – May 31, 2024 Compared to May 31, 2023

Net sales in the Americas segment increased from period to period, highlighted by the following:

• WD-40 Multi-Use Product sales increased $4.0 million, or 7%, primarily due to increases in Latin America of $5.4 million, or 51%, partially offset by decreases in U.S.

and Canada of $1.0 million and $0.3 million, or 3% and 13%, respectively.

Sales in Latin America were favorably impacted by increased sales in Brazil.

Early in the third quarter of fiscal year 2024, we acquired a Brazilian distributor and shifted from an indirect distribution model to a direct model, where we sell directly to retail customers.

This shift favorably impacted sales in Brazil by $2.7 million for the three months ended May 31, 2024.

In addition, sales in other Latin American markets increased $2.8 million due to the timing of customer orders, successful promotional programs, increased distribution of WD-40 Smart Straw, and favorable impacts of changes in foreign currency exchange rates from period to period.

While end-user demand remained relatively constant in the United States from period to period, the decrease in

sales was primarily attributable to timing of customer orders associated with the implementation of our new ERP system that went live in January 2024.

• WD-40 Specialist sales increased $0.8 million, or 10%, primarily due to new distribution and timing of customer orders in the United States.

• Other maintenance product sales remained relatively constant from period to period.

• Homecare and cleaning product sales decreased $0.5 million, or 14%, primarily due to reduced demand in the U.S.

as a result of a lower level of advertising and promotional activities associated with these brands, as we focus on increasing sales of maintenance products in support of our four-by-four strategic framework.

• For the three months ended May 31, 2024, 72% of sales came from the U.S., and 28% of sales came from Canada and Latin America combined compared to the three months ended May 31, 2023 when 77% of sales came from the U.S., and 23% of sales came from Canada and Latin America.

Americas Sales – Nine Months Ended – May 31, 2024 Compared to May 31, 2023

Net sales in the Americas segment increased from period to period, highlighted by the following:

• WD-40 Multi-Use Product sales increased $10.0 million, or 7%, primarily due to increases in Latin America and the U.S.

of $8.9 million and $2.2 million, or 32% and 2%, 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 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 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.

Sales in Latin America were favorably impacted by the transition to a direct marketing model in Brazil as discussed above in the section for the three months ended May 31, 2024.

In addition, sales in other Latin American markets increased $6.2 million due to the timing of customer orders, successful promotional programs, increased distribution of WD-40 Smart Straw, and favorable impacts of changes in foreign currency exchange rates from period to period.

The slight increase in sales in the U.S.

is primarily due to higher volumes as a result of successful promotions programs.

• WD-40 Specialist sales increased $1.3 million , or 6% , primarily due to new distribution and increased demand in the United States.

• Other maintenance product sales remained relatively constant from period to period.

• Homecare and cleaning product sales decreased $1.0 million, or 9%, primarily due to reduced demand in the U.S.

as discussed above in the section for the three months ended May 31, 2024.

• For the nine months ended May 31, 2024, 74% of sales came from the U.S., and 26% of sales came from Canada and Latin America combined compared to the nine months ended May 31, 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 February 29/28, Six Months Ended February 29/28,

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

2024 2023 Change from

14 unchanged sentences

Change from Prior Year

First Quarter Second Quarter Year to Date

Increase in average selling price (1)

First Quarter Second Quarter Third Quarter Year to Date

Increase (decrease) in average selling price (1)

$ 0.7 $ 0.0 $ (1.2) $ (0.5)

Increase in sales volume (1)

3.7 5.1 6.5 15.3

Currency impact on current period – non-GAAP 3.6 2.4 1.6 7.6

3 unchanged sentences

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 – February 29, 2024 Compared to February 28, 2023

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

EIMEA Sales – Three Months Ended – May 31, 2024 Compared to May 31, 2023

Net sales increased in the EIMEA segment from period to period, highlighted by the following:

• WD-40 Multi-Use Product sales increased $6.5 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.

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

Sales increased most significantly in France and Italy, which were up

$1.4 million and $1.2 million, respectively, as well as Benelux and Poland which were each up $1.1 million from the prior quarter of the previous fiscal year.

• WD-40 Specialist sales increased $0.9 million, or 11%, primarily due to the combined impact of higher sales volume due to increased distribution and stronger levels of demand after customers adjusted to price increases.

• Homecare and cleaning product sales decreased $0.5 million, or 19%, primarily due to reduced demand in the U.K.

• Net sales were favorably impacted $1.6 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 10%.

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:

EIMEA Sales – Nine Months Ended – May 31, 2024 Compared to May 31, 2023

Net sales increased in the EIMEA segment from period to period, highlighted by the following:

• WD-40 Multi-Use Product sales increased $19.2 million, or 18%, primarily due to higher sales volume.

1 unchanged sentence

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.

Sales increased most significantly in France, the DACH and Benelux regions, the Middle East, and Iberia, which were up $4.2 million, $4.2 million, $3.3 million, and $2.4 million, respectively.

• WD-40 Specialist and other maintenance product sales increased $2.9 million, or 15%, and $1.0 million, or 12%, respectively, primarily due to the combined impact of higher sales volume due to increased distribution and stronger levels of demand after customers adjusted to price increases.

France, in particular, saw an increase in sales of $0.8 million in these categories from period to 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.

• Homecare and cleaning product sales decreased $0.8 million, or 12%, primarily due to reduced demand in the U.K.

as discussed above in the section for the three months ended May 31, 2024.

• Net sales were favorably impacted $7.6 million across our various brands as a result of favorable changes in foreign currency exchange rates.

2 unchanged sentences

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

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

Prior Year Change from

13 unchanged sentences

Change from Prior Year

First Quarter Second Quarter Year to Date

Increase in average selling price (1)

First Quarter Second Quarter Third Quarter Year to Date

Increase (decrease) in average selling price (1)

$ 1.6 $ 1.4 $ (0.1) $ 2.9

4 unchanged sentences

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:

Asia-Pacific Sales – Three Months Ended – May 31, 2024 Compared to May 31, 2023

Net sales in the Asia-Pacific segment increased from period to period, highlighted by the following:

• WD-40 Multi-Use Product sales increased $1.5 million, or 11%.

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.

Sales in China increased $1.0 million, or 25%, due to increased sales volume from successful promotional programs and marketing activities.

In addition, sales in the Asia distributor markets increased $0.4 million, or 5%, primarily due to successful promotional programs in certain regions and the timing of customer orders.

• WD-40 Specialist increased $0.7 million, or 30%, primarily due to increased sales volume in China due to expanded distribution and new product introduction, as well as successful promotional programs.

• Homecare and cleaning product sales increased $0.5 million, or 28%.

2 unchanged sentences

On a constant currency basis, sales in Asia-Pacific would have increased 16%.

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:

Asia-Pacific Sales – Nine Months Ended – May 31, 2024 Compared to May 31, 2023

Net sales in the Asia-Pacific segment increased from period to period, highlighted by the following:

• WD-40 Multi-Use Product sales increased $2.8 million, or 5%.

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.

Sales in China increased $1.5 million, or 9%, due to increased sales volume from successful promotional programs and marketing activities.

In addition, sales in the Asia distributor markets increased $1.4 million, or 5%, primarily due to price increases in these markets from period to period and successful promotional programs in certain regions.

• WD-40 Specialist sales increased $1.1 million, or 15%, primarily due to increased sales volume due to successful promotional programs and marketing activities as well as increased sales volume due to distribution of a motorbike product line new to the region.

• Homecare and cleaning product sales increased $0.8 million or 14%.

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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 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.

• In the EIMEA segment, the majority of our cost of products 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.

1 unchanged sentence

• 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 $4.0 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.

These costs totaled $4.6 and $4.7 million for the three months ended May 31, 2024 and 2023, respectively, and $12.6 and $13.1 million for the nine months ended May 31, 2024 and 2023, respectively.

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

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

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

2024 2023 Change from

4 unchanged sentences

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

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

Favorable sales mix and other miscellaneous mix impacts

Gross Margin – Three Months Ended – May 31, 2024 Compared to May 31, 2023

Gross margin increased 250 bps primarily due to the following favorable impacts:

Favorable Explanations

160 bps Favorable sales mix and other miscellaneous mix impacts

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

Increases in average selling prices

(100) bps Increases in miscellaneous other input costs

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

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

Gross Margin – Nine Months Ended – May 31, 2024 Compared to May 31, 2023

Gross margin increased 220 bps primarily due to the following favorable impacts:

Favorable Explanations

140 bps Favorable sales mix and other miscellaneous mix impacts

100 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

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

50 bps Increases in average selling prices

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

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

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

2024 2023 Change from

3 unchanged sentences

% of net sales 29.4 % 27.0 % 31.0 % 29.2 %

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

SG&A Expenses – Three Months Ended – May 31, 2024 Compared to May 31, 2023

The increase in SG&A expenses was primarily due to increases in employee-related costs of $3.7 million due to higher accrued incentive compensation, annual compensation increases and higher headcount.

Professional services fees increased $2.2 million in support of our strategic initiatives in the Americas and EIMEA segments, including higher costs associated with the ERP system we recently implemented in the United States.

In addition, professional service fees increased due to costs associated with the development of a direct market in Brazil after the purchase of our Brazilian distributor in March 2024.

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

SG&A Expenses – Nine Months Ended – May 31, 2024 Compared to May 31, 2023

The increase in SG&A expenses was primarily due to increases in employee-related costs of $9.7 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.

Professional services fees increased $3.8 million in support of our strategic initiatives in the Americas and EIMEA segments, including higher costs associated with the ERP system we recently implemented in the United States.

In addition, professional services fees increased due to costs associated with the development of a direct market in Brazil.

In addition, travel and meeting expense increased SG&A expense by $2.0 million primarily as a result of increased travel related to geographic expansion and other initiatives aligned with our strategic framework.

Unfavorable changes in foreign currency exchange rates increased SG&A expenses by $2.1 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 $1.7 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.

Research and development costs were $2.2 million and $1.6 million for the three months ended May 31, 2024 and 2023, respectively, and $5.8 million and $4.1 million for the nine months ended May 31, 2024 and 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.

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

This team leverages its

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

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

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

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

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

Prior Year Change from

2 unchanged sentences

% of net sales 6.0 % 5.4 % 5.3 % 4.8 %

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.

A&P Expenses – Three M onths Ended – May 31, 2024 Compared to May 31, 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 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 $7.6 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.

Total promotional costs recorded as a reduction to sales were $7.7 million and $7.9 million, or 4.9% and 5.6% for the three months ended May 31, 2024 and 2023, respectively.

Therefore, our total investment in A&P activities was $17.0 and $15.6 million or 11.0% of net sales for both the three months ended May 31, 2024 and 2023, respectively.

A&P Expenses – Nine Months Ended – May 31, 2024 Compared to May 31, 2023

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

Total promotional costs recorded as a reduction to sales were $23.1 million and $21.5 million, or 5.3% and 5.4% of net sales, for the nine months ended May 31, 2024 and 2023, respectively.

Therefore, our total investment in A&P activities was $46.1 million and $40.5 million or 10.6% and 10.2% of net sales, for the nine months ended May 31, 2024 and 2023, respectively.

Income from Operations by Segment

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

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

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

2024 2023 Change from

6 unchanged sentences

Total $ 27,176 $ 25,657 $ 1,519 6 % $ 72,301 $ 66,489 $ 5,812 9 %

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.

Americas Operating Income – Three Months Ended – May 31, 2024 Compared to May 31, 2023

Income from operations for the Americas increased to $18.4 million, up $1.5 million, or 9%, due to a higher gross margin and increased sales, partially offset by higher operating expenses.

Gross margin for the Americas segment increased from 48.2% to 50.6% primarily due to the favorable impact of increases in average selling price, decreases in the costs of petroleum-based specialty chemicals, as well as lower warehousing, distribution and freight costs from period to period.

These favorable impacts were partially offset by increases in the costs of aerosol cans.

Operating expenses increased $2.2 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

In addition, operating expenses increased due to higher costs associated with the ERP system we recently implemented in the United States.

Operating income as a percentage of net sales increased from 23.8% to 24.5% period over period.

Americas Operating Income – Nine Months Ended – May 31, 2024 Compared to May 31, 2023

Income from operations for the Americas increased to $45.8 million, up $2.4 million, or 6%, due to a $10.7 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.

Gross margin for the Americas segment increased from 48.9% to 50.2% primarily due to the favorable impact of price increases and decreases to costs of petroleum-based specialty chemicals as well as lower warehousing, distribution and freight costs from period to period.

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 $5.5 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

Operating expenses increased due to higher costs associated with the ERP system we recently implemented in the United States as well as increases 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 remained constant at 22.6% for both three and nine months ended May 31, 2024.

EIMEA Operating Income – Three Months Ended – May 31, 2024 Compared to May 31, 2023

Income from operations for the EIMEA segment increased to $13.7 million, up $1.7 million, or 15%, primarily due to a $6.9 million increase in sales and a higher gross margin, partially offset by higher operating expenses.

Gross margin for the EIMEA segment increased from 52.0% to 54.8% 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 expenses increased $3.5 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 22.8% to 23.1% period over period.

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

EIMEA Operating Income – Nine Months Ended – May 31, 2024 Compared to May 31, 2023

Income from operations for the EIMEA segment increased to $35.3 million, up $6.7 million, or 23%, primarily due to a $22.4 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 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.

Gross margin for the EIMEA segment increased from 51.7% to 54.4% primarily due changes in sales mix and market mix from period to period, favorable changes from foreign currency exchange rates as well as the combined impact of decreases in the costs of petroleum-based specialty chemicals and aerosol cans.

Operating expenses increased $9.3 million primarily due to higher employee-related costs as a result of higher accrued incentive compensation, annual compensation increases and increased headcount.

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Operating income as a percentage of net sales increased from 20.4% to 21.7% period over period.

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 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.

Asia-Pacific Operating Income – Three Months Ended – May 31, 2024 Compared to May 31, 2023

Income from operations for the Asia-Pacific segment increased to $6.8 million, up $1.4 million, or 27%, primarily due to a $2.5 million increase in sales and a higher gross margin.

Gross margin for the Asia-Pacific segment increased from 56.3%

to 57.6% primarily due to the favorable impact of changes in sales mix and market mix from period to period.

Operating income as a percentage of net sales increased from 29.4% to 32.9% period over period.

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

Asia-Pacific Operating Income – Nine Months Ended – May 31, 2024 Compared to May 31, 2023

Income from operations for the Asia-Pacific segment increased to $25.3 million, up $3.3 million, or 15%, primarily due to a $4.8 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 54.8% to 58.9% primarily due to the favorable impact of price increases, as well as favorable changes to other miscellaneous other input costs.

Gross margin for the Asia-Pacific segment increased from 55.2% to 58.5% primarily due to the favorable impact of price increases, as well as favorable changes to miscellaneous other input costs.

Operating expenses increased $1.6 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.

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

Operating income as a percentage of net sales increased from 33.9% to 36.4% 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 February 29/28, Six Months Ended February 29/28,

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

2024 2023 Change 2024 2023 Change

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Interest Income

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

Interest income remained relatively consistent for both the three and nine months ended May 31, 2024 and 2023.

Interest Expense

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.

Interest expense decreased by $0.4 million and $0.9 million for the three and nine months ended May 31, 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.

Other (expense) income, net decreased by $0.5 million and $1.1 million for the three and nine months ended May 31, 2024, respectively, primarily due to foreign currency exchange losses which were recorded for the three and nine months ended May 31, 2024 compared to net foreign currency exchange gains which were recorded in the same period of the prior fiscal year as a result of fluctuations in the foreign currency exchange rates for both the Euro and the U.S.

Dollar against the Pound Sterling.

Provision for Income Taxes

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.

The provision for income taxes was 23.2% and 22.5% of income before income taxes for the three months ended May 31, 2024 and 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 14 – 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.

The provision for income taxes was 23.1% and 21.5% of income before income taxes for the nine months ended May 31, 2024 and 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.

Net income increased 5% to $19.8 million, or $1.46 per common share on a fully diluted basis, for the three months ended May 31, 2024 compared to $18.9 million, or $1.38 per common share on a fully diluted basis, for the three months ended May 31, 2023.

Changes in foreign currency exchange rates from period to period had a favorable impact of $0.3 million on consolidated net income for the third quarter of fiscal year 2024.

Thus, on a constant currency basis, net income would have increased $0.7 million, or 4%, from period to period.

Net income increased 7% to $52.9 million, or $3.88 per common share on a fully diluted basis, for the nine months ended May 31, 2024 compared to $49.4 million, or $3.62 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 $1.5 million on consolidated net income for the nine months ended May 31, 2024.

Thus, on a constant currency basis, net income would have increased $1.9 million, or 4%, from period to period.

Performance Measures and Non-GAAP Reconciliations

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The following table summarizes the results of these performance measures:

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

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

2024 2023 2024 2023

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Cost of Doing Business (in thousands, except percentages)

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

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

2024 2023 2024 2023

8 unchanged sentences

Adjusted EBITDA (in thousands, except percentages)

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

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

2024 2023 2024 2023

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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, N.A.

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

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

We also hold borrowings under the Note Agreement.

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We regularly convert many of our draws on our line of credit to new draws with new maturity dates and interest rates.

We have the ability to refinance any draws under the line of credit with successive short-term borrowings through the September 30, 2025 maturity date of the Credit Agreement.

We have the ability to refinance any draws under the line of credit with successive short-term borrowings through the April 30, 2029 maturity date of the Credit Agreement.

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 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 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.

As of May 31, 2024, $19.5 million of this facility was classified as long-term and was entirely denominated in Euros.

$21.5 million was classified as short-term and was entirely denominated in U.S.

In the United States, we held $66.8 million in fixed rate long-term borrowings as

of May 31, 2024, 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 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 9 – Debt for additional information on these financial covenants.

At February 29, 2024, we were in compliance with all material debt covenants.

At May 31, 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 February 29, 2024, we had a total of $55.4 million in cash and cash equivalents.

At May 31, 2024, we had a total of $45.3 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.

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

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 $41.9 million remains available for the repurchase of shares of common stock as of May 31, 2024.

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

Six Months Ended February 29/28,

Nine Months Ended May 31,

2024 2023 Change

3 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents (419) 3,204 (3,623)

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

Net (decrease) increase in cash and cash equivalents $ (2,843) $ 560 $ (3,403)

Operating Activities

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

Net cash provided by operating activities increased $9.2 million to $64.8 million for the nine months ended May 31, 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 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.

Our primary source of operating cash flows for the nine months ended May 31, 2024 was net income of $52.9 million, which increased approximately $3.4 million from period to period.

Changes in adjustments to reconcile net income to cash increased net cash provided by operating activities by $4.5 million, primarily due to net unrealized foreign currency losses during the first nine months of the current fiscal year compared to net unrealized foreign currency gains in the corresponding period of the prior fiscal year, an increase in depreciation expense and a net deferred income tax expense for the nine months ended May 31, 2024 compared to net deferred tax benefit in the corresponding period of the prior fiscal year.

Changes in working capital decreased net cash provided by operating activities by $3.1 million for the nine months ended May 31, 2024 compared to a decrease of $4.3 million in the corresponding period of the prior fiscal year.

The favorable net change in working capital was primarily attributable to favorable changes in accounts payable and accrued liabilities balances during the first nine months of the current fiscal year compared to the corresponding period of the prior fiscal year, offset by unfavorable changes in trade and other accounts receivable balances due to the timing of collection of payments from customers in the U.S., and changes in inventory balances.

In the current and prior fiscal year, we took deliberate actions to decrease inventory levels after having increased them in fiscal year 2022 due to challenges within supply chain and increased lead times required by suppliers.

Investing Activities

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.

Net cash used in investing activities increased $4.9 million to $9.1 million for the nine months ended May 31, 2024, primarily due to the $6.2 million of cash used for the acquisition of a subsidiary.

Financing Activities

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.

Net cash used in financing activities increased $4.1 million to $58.1 million for the nine months ended May 31, 2024.

This change was primarily due to a $2.0 million increase in dividends paid to stockholders, a $1.8 million increase in shares withheld to cover taxes on conversion of equity awards, and a $0.7 million increase in treasury stock repurchases.

These increases in cash outflows from period to period were partially offset by a slight decrease of $0.3 million in net repayments on our revolving credit facility.

Effect of Exchange Rate Changes

5 unchanged sentences

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

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.

Dollar terms, was a decrease in cash of $0.4 million for the nine months ended May 31, 2024 as compared to an increase in cash of $3.2 million for the nine months ended May 31, 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 February 29, 2024, no such commitments were outstanding.

As of May 31, 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 10 — Share Repurchase Plan included in this report.

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

On June 18, 2024, the Company’s Board declared a cash dividend of $0.88 per share payable on July 31, 2024 to stockholders of record at the close of business on July 19, 2024.

Critical Accounting Estimates

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.

Critical accounting estimates are those that involve subjective or complex judgments.

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

2 unchanged sentences

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.

There have been no material changes in our critical accounting estimates from those disclosed in Part II—Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” 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.

Recently Issued Accounting Standards

3 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis