WD 40 CO 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations As used in this report, the terms “we,” “our,” and “us” and “the Company” refer to WD-40 Company and its wholly-owned subsidiaries, unless the context suggests otherwise. Amounts and percentages in tables and discussions may not total due to rounding. The following information is provided as a supplement to, and should be read in conjunction with, the unaudited condensed consolidated financial statements and notes thereto included in Part I—Item 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2023, which was filed with the Securities and Exchange Commission (“SEC”) on October 23, 2023. Use of Non-GAAP Constant Currency In order to show the impact of changes in foreign currency exchange rates on our results of operations, we have included constant currency disclosures, where necessary, in the Overview and Results of Operations sections which follow. Constant currency disclosures represent the translation of our current fiscal year revenues, expenses and net income from the functional currencies of our subsidiaries to U.S. Dollars using the exchange rates in effect for the corresponding period of the prior fiscal year. Results on a constant currency basis are not in accordance with accounting principles generally accepted in the United States of America (“non-GAAP”) and should be considered in addition to, not as a substitute for, results prepared in accordance with U.S. GAAP. We use results on a constant currency basis as one of the measures to understand our operating results and evaluate our performance in comparison to prior periods in order to enhance the visibility of the underlying business trends, excluding the impact of translation arising from foreign currency exchange rate fluctuations. Management believes this non-GAAP financial measure provides investors with additional financial information that should be considered when assessing our underlying business performance and trends. However, reference to constant currency basis should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with U.S. GAAP. Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. This report contains forward-looking statements, which reflect our current views with respect to future events and financial performance. These forward-looking statements are generally identified with words such as “believe,” “expect,” “intend,” “plan,” “project,” “could,” “may,” “aim,” “anticipate,” “target,” “estimate” and similar expressions. These forward-looking statements include, but are not limited to, discussions about future financial and operating results, including: growth expectations for maintenance products; expected levels of promotional and advertising spending; anticipated input costs for manufacturing and the costs associated with distribution of our products; plans for and success of product innovation, the impact of new product introductions on the growth of sales; anticipated results from product line extension sales; expected tax rates and the impact of tax legislation and regulatory action; changes in the political conditions or relations between the United States and other nations; the impacts from inflationary trends and supply chain constraints; changes in interest rates; and forecasted foreign currency exchange rates and commodity prices. We undertake no obligation to revise or update any forward-looking statements. Actual events or results may differ materially from those projected in forward-looking statements due to various factors, including, but not limited to, those identified in Part I—Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2023, and in Part II—Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q. Overview The Company WD-40 Company based in San Diego, California, is a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world. We own a wide range of well-known brands that include maintenance products and homecare and cleaning products: WD-40® Multi-Use Product, WD-40 Specialist®, 3-IN-ONE®, GT85®, X-14®, 2000 Flushes®, Carpet Fresh®, no vac®, Spot Shot®, 1001®, Lava® and Solvol®. 21 Table of Contents Our products are sold in various locations around the world. Maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia, Europe, India, the Middle East and Africa. Homecare and cleaning products are sold primarily in North America, the United Kingdom (“U.K.”) and Australia. We sell our products primarily through 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. Acquisitions 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. Highlights 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. Increases in sales volume favorably impacted net sales by approximately $23.0 million from period to period. Increases in the average selling price of our products positively impacted net sales by approximately $6.5 million from period to period, primarily due to sales price increases implemented in certain regions during the prior fiscal year. Changes to net sales attributable to volumes and average selling price of our products are impacted by differences in sales mix related to products, markets and distribution channels from period to period. In addition, changes in foreign currency exchange rates from period to period had 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 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 $1.5 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. • Diluted earnings per common share were $3.88 versus $3.62 in the prior fiscal year period. 22 Table of Contents Results of Operations 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 May 31, Nine Months Ended May 31, 2024 2023 Change from Prior Year 2024 2023 Change from Prior Year Dollars Percent Dollars Percent Net sales: WD-40 Multi-Use Product $ 119,053 $ 107,151 $ 11,902 11 % $ 333,964 $ 302,000 $ 31,964 11 % WD-40 Specialist 20,224 17,886 2,338 13 % 53,883 48,566 5,317 11 % Other maintenance products 7,885 8,288 (403) (5) % 22,699 21,175 1,524 7 % Total maintenance products 147,162 133,325 13,837 10 % 410,546 371,741 38,805 10 % HCCP (1) 7,883 8,392 (509) (6) % 24,020 25,062 (1,042) (4) % Total net sales 155,045 141,717 13,328 9 % 434,566 396,803 37,763 10 % Cost of products sold 72,657 69,955 2,702 4 % 203,684 194,708 8,976 5 % Gross profit 82,388 71,762 10,626 15 % 230,882 202,095 28,787 14 % Operating expenses 55,212 46,105 9,107 20 % 158,581 135,606 22,975 17 % Income from operations $ 27,176 $ 25,657 $ 1,519 6 % $ 72,301 $ 66,489 $ 5,812 9 % Net income $ 19,842 $ 18,895 $ 947 5 % $ 52,860 $ 49,418 $ 3,442 7 % EPS – diluted $ 1.46 $ 1.38 $ 0.08 6 % $ 3.88 $ 3.62 $ 0.26 7 % Shares used in diluted EPS 13,577 13,600 (23) 0 % 13,581 13,606 (25) 0 % (1) Homecare and cleaning products (“HCCP”) Net Sales by Segment The following table summarizes net sales by segment (in thousands, except percentages): Three Months Ended May 31, Nine Months Ended May 31, 2024 2023 Change from Prior Year 2024 2023 Change from Prior Year Dollars Percent Dollars Percent Americas $ 75,103 $ 71,130 $ 3,973 6 % $ 202,685 $ 192,034 $ 10,651 6 % EIMEA 59,399 52,524 6,875 13 % 162,466 140,105 22,361 16 % Asia-Pacific 20,543 18,063 2,480 14 % 69,415 64,664 4,751 7 % Total $ 155,045 $ 141,717 $ 13,328 9 % $ 434,566 $ 396,803 $ 37,763 10 % 23 Table of Contents Americas Sales The following table summarizes net sales by product line for the Americas segment, which includes the U.S., Canada and Latin America (in thousands, except percentages): Three Months Ended May 31, Nine Months Ended May 31, 2024 2023 Change from Prior Year 2024 2023 Change from Prior Year Dollars Percent Dollars Percent WD-40 Multi-Use Product $ 58,559 $ 54,592 $ 3,967 7 % $ 156,113 $ 146,154 $ 9,959 7 % WD-40 Specialist 9,034 8,209 825 10 % 23,232 21,910 1,322 6 % Other maintenance products 4,333 4,634 (301) (6) % 12,462 12,068 394 3 % Total maintenance products 71,926 67,435 4,491 7 % 191,807 180,132 11,675 6 % HCCP 3,177 3,695 (518) (14) % 10,878 11,902 (1,024) (9) % Total net sales $ 75,103 $ 71,130 $ 3,973 6 % $ 202,685 $ 192,034 $ 10,651 6 % % of consolidated net sales 49 % 50 % 47 % 48 % CC Net sales – non-GAAP (1) $ 74,690 $ 71,130 $ 3,560 5 % $ 200,818 $ 192,034 $ 8,784 5 % Currency impact on current period – non-GAAP $ 413 $ 1,867 (1) Current fiscal year constant currency (“CC”) net sales translated at the foreign currency exchange rates in effect for the corresponding period of the prior fiscal year, compared to prior period actual net sales. The following table summarizes management’s estimates of effects on net sales of changes in price, volume and foreign currency exchange rate impacts for the Americas segment (in millions): Change from Prior Year First Quarter Second Quarter Third Quarter Year to Date Increase in average selling price (1) $ 1.8 $ 2.2 $ 0.1 $ 4.1 Increase (decrease) in sales volume (1) 3.6 (2.4) 3.5 4.7 Currency impact on current period – non-GAAP 0.7 0.8 0.4 1.9 Increase in net sales $ 6.1 $ 0.6 $ 4.0 $ 10.7 (1) Management’s estimates of changes in net sales attributable to volumes and the average selling price of our products are impacted by differences in sales mix related to products, markets and distribution channels from period to period. Americas Sales – Three Months Ended – May 31, 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 24 Table of Contents 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. 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. 25 Table of Contents EIMEA Sales 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 May 31, Nine Months Ended May 31, 2024 2023 Change from Prior Year 2024 2023 Change from Prior Year Dollars Percent Dollars Percent WD-40 Multi-Use Product $ 45,402 $ 38,932 $ 6,470 17 % $ 124,018 $ 104,770 $ 19,248 18 % WD-40 Specialist 8,407 7,544 863 11 % 22,598 19,677 2,921 15 % Other maintenance products 3,317 3,245 72 2 % 9,388 8,354 1,034 12 % Total maintenance products 57,126 49,721 7,405 15 % 156,004 132,801 23,203 17 % HCCP 2,273 2,803 (530) (19) % 6,462 7,304 (842) (12) % Total net sales $ 59,399 $ 52,524 $ 6,875 13 % $ 162,466 $ 140,105 $ 22,361 16 % % of consolidated net sales 38 % 37 % 37 % 36 % CC Net sales – non-GAAP (1) $ 57,848 $ 52,524 $ 5,324 10 % $ 154,911 $ 140,105 $ 14,806 11 % Currency impact on current period – non-GAAP $ 1,551 $ 7,555 (1) Current fiscal year constant currency net sales translated at the foreign currency exchange rates in effect for the corresponding period of the prior fiscal year, compared to prior period actual net sales. The following table summarizes management’s estimates of effects on net sales of changes in price, volume and foreign currency exchange rate impacts for the EIMEA segment (in millions): Change from Prior Year 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 Increase in net sales $ 8.0 $ 7.5 $ 6.9 $ 22.4 (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. 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 – 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 and Italy, which were up 26 Table of Contents $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. 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. • 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 – 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. 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 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 $0.8 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. On a constant currency basis, sales in EIMEA would have increased 11%. 27 Table of Contents Asia-Pacific Sales The following table summarizes net sales by product line for the Asia-Pacific segment, which includes Australia, China and other countries in the Asia region (in thousands, except percentages): Three Months Ended May 31, Nine Months Ended May 31, Change from Prior Year Change from Prior Year 2024 2023 Dollars Percent 2024 2023 Dollars Percent WD-40 Multi-Use Product $ 15,092 $ 13,627 $ 1,465 11 % $ 53,833 $ 51,076 $ 2,757 5 % WD-40 Specialist 2,783 $ 2,133 $ 650 30 % 8,053 6,979 1,074 15 % Other maintenance products 235 $ 409 $ (174) (43) % 849 753 96 13 % Total maintenance products 18,110 $ 16,169 $ 1,941 12 % 62,735 58,808 3,927 7 % HCCP 2,433 1,894 539 28 % 6,680 5,856 824 14 % Total net sales $ 20,543 $ 18,063 $ 2,480 14 % $ 69,415 $ 64,664 $ 4,751 7 % % of consolidated net sales 13 % 13 % 16 % 16 % CC Net sales – non-GAAP (1) $ 20,948 $ 18,063 $ 2,885 16 % $ 70,497 $ 64,664 $ 5,833 9 % Currency impact on current period – non-GAAP $ (405) $ (1,082) (1) Current fiscal year constant currency (“CC”) net sales translated at the foreign currency exchange rates in effect for the corresponding period of the prior fiscal year, compared to prior period actual net sales. The following table summarizes management’s estimates of effects on net sales of changes in price, volume and foreign currency exchange rate impacts for the Asia-Pacific segment (in millions): Change from Prior Year First Quarter Second Quarter Third Quarter Year to Date Increase (decrease) in average selling price (1) $ 1.6 $ 1.4 $ (0.1) $ 2.9 Increase (decrease) in sales volume (1) 0.3 (0.3) 3.0 3.0 Currency impact on current period – non-GAAP (0.4) (0.3) (0.4) (1.1) Increase in net sales $ 1.5 $ 0.8 $ 2.5 $ 4.8 (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. 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 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. 28 Table of Contents • Homecare and cleaning product sales increased $0.5 million, or 28%. The increase was due to higher sales volume in Australia attributable to successful promotional activities and improved packaging. • Net sales were unfavorably impacted $0.4 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 16%. 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 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%. The increase was due to higher sales volume in Australia attributable to successful promotional activities and improved packaging. • Net sales were unfavorably impacted $1.1 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 9%. Gross Profit The following general information is important when assessing fluctuations in our gross margin: • There is often a delay before changes in costs of raw materials, such as specialty chemicals used in the formulation of our products, impact cost of products sold due to production and inventory life cycles. Such delays increase with higher production and inventory levels. • In general, the timing of advertising, promotional and other discounts may cause fluctuations in gross margin from period to period. 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 products sold is denominated in Pound Sterling whereas sales are generated in Pound Sterling, Euro and the U.S. Dollar. The strengthening or weakening of the Euro and U.S. Dollar against the Pound Sterling may result in foreign currency related changes to the gross margin percentage in the EIMEA segment from period to period. • Our gross profit and gross margin may not be comparable to those of other consumer product companies, since some of these companies include all costs related to distribution of their products in cost of products sold, whereas we exclude the portion associated with amounts paid to third parties for shipment to our customers from our distribution centers and contract manufacturers and include these costs in selling, general and administrative expenses. These costs totaled $4.6 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 May 31, Nine Months Ended May 31, 2024 2023 Change from Prior Year 2024 2023 Change from Prior Year Gross profit $ 82,388 $ 71,762 $ 10,626 $ 230,882 $ 202,095 $ 28,787 Gross margin 53.1 % 50.6 % 250 bps (1) 53.1 % 50.9 % 220 bps (1) (1) Basis points (“bps”) change in gross margin. 29 Table of Contents 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 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 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 May 31, Nine Months Ended May 31, 2024 2023 Change from Prior Year 2024 2023 Change from Prior Year (in thousands) Dollars Percent Dollars Percent SG&A expenses $ 45,564 $ 38,195 $ 7,369 19 % $ 134,722 $ 115,869 $ 18,853 16 % % of net sales 29.4 % 27.0 % 31.0 % 29.2 % 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. 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 $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 30 Table of Contents 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 May 31, Nine Months Ended May 31, Change from Prior Year Change from Prior Year (in thousands) 2024 2023 Dollars Percent 2024 2023 Dollars Percent A&P expenses $ 9,345 $ 7,660 $ 1,685 22 % $ 23,053 $ 18,984 $ 4,069 21 % % of net sales 6.0 % 5.4 % 5.3 % 4.8 % 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 $7.7 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 $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 May 31, Nine Months Ended May 31, 2024 2023 Change from Prior Year 2024 2023 Change from Prior Year Dollars Percent Dollars Percent Americas $ 18,382 $ 16,906 $ 1,476 9 % $ 45,798 $ 43,390 $ 2,408 6 % EIMEA 13,705 11,966 1,739 15 % 35,307 28,632 6,675 23 % Asia-Pacific 6,750 5,312 1,438 27 % 25,264 21,952 3,312 15 % Unallocated corporate (11,661) (8,527) (3,134) (37) % (34,068) (27,485) (6,583) (24) % Total $ 27,176 $ 25,657 $ 1,519 6 % $ 72,301 $ 66,489 $ 5,812 9 % 31 Table of Contents Americas 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 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 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. 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 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 $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 – 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 51.7% 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. 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 20.4% to 21.7% period over period. Asia-Pacific 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% 32 Table of Contents 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 – 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 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. Operating income as a percentage of net sales increased from 33.9% to 36.4% period over period. Non-Operating Items The following table summarizes non-operating income and expenses for our consolidated operations (in thousands): Three Months Ended May 31, Nine Months Ended May 31, 2024 2023 Change 2024 2023 Change Interest income $ 136 $ 69 $ 67 $ 276 $ 164 $ 112 Interest expense $ 1,182 $ 1,597 $ (415) $ 3,336 $ 4,268 $ (932) Other (expense) income, net $ (283) $ 243 $ (526) $ (516) $ 558 $ (1,074) Provision for income taxes $ 6,005 $ 5,477 $ 528 $ 15,865 $ 13,525 $ 2,340 Interest Income Interest income remained relatively consistent for both the three and nine months ended May 31, 2024 and 2023. Interest Expense 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 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 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 23.1% and 21.5% of income before income taxes for the nine 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. Net Income 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. 33 Table of Contents 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 In managing our business operations and assessing our financial performance, we supplement the information provided by our financial statements with certain non-GAAP performance measures. These performance measures are part of our current 55/30/25 business model, which includes gross margin, cost of doing business, and earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”), the latter two of which are non-GAAP performance measures. Cost of doing business is defined as total operating expenses less amortization of definite-lived intangible assets, impairment charges related to intangible assets, amortization of implementation costs associated with cloud computing arrangements (“cloud computing amortization”) and depreciation in operating departments. Adjusted EBITDA is defined as net income before interest, income taxes, depreciation, amortization of definite-lived intangible assets, and cloud computing amortization. Beginning in fiscal year 2024, cloud computing amortization is included in our of cost of doing business and Adjusted EBITDA calculations. We 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. Cloud computing amortization is recognized in selling, general and administrative expenses in the Company’s condensed consolidated statements of operations. We target our gross margin to be 55% of net sales, our cost of doing business to be 30% of net sales, and our Adjusted EBITDA to be 25% of net sales. Results for these performance measures may vary from period to period depending on various factors, including economic conditions such as the inflationary environment we have experienced in the last several fiscal years, and our level of investment in activities for the future such as those related to quality assurance, regulatory compliance, information technology, sustainability, and intellectual property protection in order to safeguard our WD-40 brand. Our targets for gross margin and these other performance measures are long-term in nature and we expect to make progress towards them over time. The following table summarizes the results of these performance measures: Three Months Ended May 31, Nine Months Ended May 31, 2024 2023 2024 2023 Gross margin – GAAP 53 % 51 % 53 % 51 % Cost of doing business as a percentage of net sales – non-GAAP 34 % 32 % 35 % 33 % Adjusted EBITDA as a percentage of net sales – non-GAAP (1) 19 % 20 % 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. We use the performance measures above to establish financial goals and to gain an understanding of our comparative performance from period to period. We believe that these measures provide our stockholders with additional insights into how we run our business. We believe these measures also provide investors with additional financial information that should be considered when assessing our underlying business performance and trends. These non-GAAP financial measures are supplemental in nature and should not be considered in isolation or as alternatives to net income, income from operations or other financial information prepared in accordance with GAAP as indicators of our performance or operations. The use of any non-GAAP measure may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies. Reconciliations of these non-GAAP financial measures to our financial statements as prepared in accordance with GAAP are as follows: 34 Table of Contents Cost of Doing Business (in thousands, except percentages) Three Months Ended May 31, Nine Months Ended May 31, 2024 2023 2024 2023 Total operating expenses – GAAP $ 55,212 $ 46,105 $ 158,581 $ 135,606 Amortization (1) (640) (250) (1,456) (753) Depreciation (in operating departments) (1,111) (1,052) (3,256) (3,051) Cost of doing business $ 53,461 $ 44,803 $ 153,869 $ 131,802 Net sales $ 155,045 $ 141,717 $ 434,566 $ 396,803 Cost of doing business as a percentage of net sales – non-GAAP 34 % 32 % 35 % 33 % (1) Includes amortization of definite-lived intangible assets and cloud computing amortization. Adjusted EBITDA (in thousands, except percentages) Three Months Ended May 31, Nine Months Ended May 31, 2024 2023 2024 2023 Net income – GAAP $ 19,842 $ 18,895 $ 52,860 $ 49,418 Provision for income taxes 6,005 5,477 15,865 13,525 Interest income (136) (69) (276) (164) Interest expense 1,182 1,597 3,336 4,268 Amortization (1) 640 250 1,456 753 Depreciation 2,200 1,825 6,380 5,186 Adjusted EBITDA $ 29,733 $ 27,975 $ 79,621 $ 72,986 Net sales $ 155,045 $ 141,717 $ 434,566 $ 396,803 Adjusted EBITDA as a percentage of net sales – non-GAAP 19 % 20 % 18 % 18 % (1) Includes amortization of definite-lived intangible assets and cloud computing amortization. Liquidity and Capital Resources Overview 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. We continue to manage all aspects of our business including, but not limited to, monitoring our liquidity, the financial health of our customers, suppliers and other third-party relationships, implementing gross margin enhancement strategies and developing new opportunities for growth. Our principal sources of liquidity are cash generated from operations and cash currently available from our existing unsecured revolving credit facility under the Credit Agreement with Bank of America, N.A. We use the revolving credit facility primarily for our general working capital needs. We also hold borrowings under the Note Agreement. See Note 9 – Debt for additional information on these agreements. We have historically held a balance of outstanding draws on our line of credit in either U.S. Dollars in the Americas segment, or in Euros and Pounds Sterling in the EIMEA segment. Euro and Pound Sterling denominated draws fluctuate in U.S. Dollars from period to period due to changes in foreign currency exchange rates. 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 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 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. Dollars. In the United States, we held $66.8 million in fixed rate long-term borrowings as 35 Table of Contents 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. Per the terms of both the Note Agreement and the Credit Agreement, our consolidated leverage ratio cannot be greater than three and a half to one and our consolidated interest coverage ratio cannot be less than three to one. See Note 9 – Debt for additional information on these financial 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 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. We believe that our future cash from domestic and international operations, together with our access to funds available under our unsecured revolving credit facility, will provide adequate resources to fund short-term and long-term operating requirements, capital expenditures, dividend payments, acquisitions, new business development activities and share repurchases. On 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 $41.9 million remains available for the repurchase of shares of common stock as of May 31, 2024. Cash Flows The following table summarizes our cash flows by category for the periods presented (in thousands): Nine Months Ended May 31, 2024 2023 Change Net cash provided by operating activities $ 64,824 $ 55,593 $ 9,231 Net cash used in investing activities (9,103) (4,213) (4,890) Net cash used in financing activities (58,145) (54,024) (4,121) Effect of exchange rate changes on cash and cash equivalents (419) 3,204 (3,623) Net (decrease) increase in cash and cash equivalents $ (2,843) $ 560 $ (3,403) Operating Activities 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 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 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. 36 Table of Contents Financing Activities 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 All of our foreign subsidiaries currently operate in currencies other than the U.S. Dollar and a significant portion of our consolidated cash balance is denominated in these foreign functional currencies, particularly at our U.K. subsidiary, which operates in Pound Sterling. As a result, our cash and cash equivalents balances are subject to the effects of the fluctuations in these functional currencies against the U.S. Dollar at the end of each reporting period. 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 $0.4 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. Dollar. Commercial Commitments We have ongoing relationships with various third-party suppliers (contract manufacturers) that manufacture our products and third-party distribution centers that warehouse and ship our products to customers. The contract manufacturers maintain title and control of certain raw materials and components, materials utilized in finished products, and the finished products themselves until shipment to our third-party distribution centers or customers in accordance with agreed upon shipment terms. Although we have contractual minimum purchase obligations with certain contract manufacturers, such obligations are immaterial or well below the volume of goods that we have historically purchased. In addition, in the ordinary course of business, we communicate supply needs to our contract manufacturers based on orders and short-term projections, ranging from two to six months. We are committed to purchase the products produced by the contract manufacturers based on the projections provided. Upon the termination of contracts with contract manufacturers, we obtain certain inventory control rights and are obligated to work with the contract manufacturer to sell through all product held by or manufactured by the contract manufacturer on our behalf during the termination notification period. If any inventory remains at the contract manufacturer at the termination date, we are obligated to purchase such inventory, which may include raw materials, components and finished goods. The amounts for inventory purchased under termination commitments have been immaterial. In addition to the commitments to purchase products from contract manufacturers described above, we may also enter into commitments with other manufacturers to purchase finished goods and components to support innovation initiatives and/or supply chain initiatives. As of May 31, 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. Dividends 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 estimates are those that involve subjective or complex judgments. The following areas all require the use of judgments and estimates: revenue recognition and accounting for income taxes. Estimates in each of these areas are based on historical experience and various judgments and assumptions that we believe are appropriate. Actual results may materially differ from these estimates. 37 Table of Contents 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 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk The information required by this item is incorporated by reference to Part II—Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” 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.