WD 40 CO 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide the reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect future results. This MD&A includes the following sections: Overview, Highlights, Results of Operations, Performance Measures and Non-GAAP Reconciliations, Liquidity and Capital Resources, Critical Accounting Estimates, and Recently Issued Accounting Standards. The MD&A is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements and the related notes included in Item 15 of this report. 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 20 Table of Contents 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. 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®. 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. During the first quarter of fiscal year 2025 we reclassified our homecare and cleaning product portfolios in the Americas and EIMEA segments to held for sale. 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 the fiscal year ended August 31, 2024. Highlights The following summarizes the financial and operational highlights for our business during the fiscal year ended August 31, 2024: • Consolidated net sales increased $53.3 million, or 10%, for fiscal year 2024 compared to the prior fiscal year. Increases in sales volume favorably impacted net sales by approximately $41.3 million from period to period. Increases in the average selling price of our products positively impacted net sales by approximately $4.2 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 $7.8 million on consolidated net sales for the fiscal year 2024. On a constant currency basis, net sales would have increased by $45.5 million, or 8% for fiscal year 2024 compared to the prior fiscal year. 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 fiscal year ended August 31, 2024. • Gross profit as a percentage of net sales increased to 53.4% for fiscal year 2024 compared to 51.0% for the prior fiscal year. • Consolidated net income increased $3.7 million, or 6%, for fiscal year 2024 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 fiscal year 2024. Thus, on a constant currency basis, net income would have increased by $2.2 million, or 3%, for fiscal year 2024 compared to the prior fiscal year. • Diluted earnings per common share for fiscal year 2024 were $5.11 versus $4.83 in the prior fiscal year. • During the first quarter of fiscal year 2025 we reclassified our homecare and cleaning product portfolios in the Americas and EIMEA segments to held for sale. 21 Table of Contents Results of Operations Fiscal Year Ended August 31, 2024 Compared to Fiscal Year Ended August 31, 2023 Operating Items The following table summarizes operating data for our consolidated operations (in thousands, except percentages and per share amounts): Fiscal Year Ended August 31, 2024 2023 Change from Prior Year Dollars Percent Net sales: WD-40 Multi-Use Product $ 452,925 $ 407,672 $ 45,253 11 % WD-40 Specialist 73,938 66,714 7,224 11 % Other maintenance products 31,173 29,172 2,001 7 % Total maintenance products 558,036 503,558 54,478 11 % HCCP (1) 32,521 33,697 (1,176) (3) % Total net sales 590,557 537,255 53,302 10 % Cost of products sold 275,330 263,035 12,295 5 % Gross profit 315,227 274,220 41,007 15 % Operating expenses 218,876 184,496 34,380 19 % Income from operations $ 96,351 $ 89,724 $ 6,627 7 % Net income $ 69,644 $ 65,993 $ 3,651 6 % EPS – diluted $ 5.11 $ 4.83 $ 0.28 6 % Shares used in diluted EPS 13,584 13,604 (20) 0 % (1) Homecare and cleaning products (“HCCP”) Net Sales by Segment The following table summarizes net sales by segment (in thousands, except percentages): Fiscal Year Ended August 31, 2024 2023 Change from Prior Year Dollars Percent Americas $ 281,883 $ 266,772 $ 15,111 6 % EIMEA 221,045 190,818 30,227 16 % Asia-Pacific 87,629 79,665 7,964 10 % Total $ 590,557 $ 537,255 $ 53,302 10 % 22 Table of Contents Americas Sales The following table summarizes net sales by product line for the Americas segment (in thousands, except percentages): Fiscal Year Ended August 31, 2024 2023 Change from Prior Year Dollars Percent WD-40 Multi-Use Product 216,769 202,651 14,118 7 % WD-40 Specialist 32,966 31,055 1,911 6 % Other maintenance products 17,289 16,642 647 4 % Total maintenance products 267,024 250,348 16,676 7 % HCCP 14,859 16,424 (1,565) (10) % Total net sales 281,883 266,772 15,111 6 % % of consolidated net sales 48 % 50 % CC Net sales – non-GAAP (1) $ 281,003 $ 266,772 $ 14,231 5 % Currency impact on current period – non-GAAP $ 880 (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 Fourth Quarter Fiscal Year Increase (decrease) in average selling price (1) $ 1.8 $ 2.2 $ 0.1 $ (1.6) $ 2.5 Increase (decrease) in sales volume (1) 3.6 (2.4) 3.5 7.0 11.7 Currency impact on current period – non-GAAP 0.7 0.8 0.4 (1.0) 0.9 Increase in net sales $ 6.1 $ 0.6 $ 4.0 $ 4.4 $ 15.1 (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 – Fiscal Year Ended – August 31, 2024 Compared to August 31, 2023 Net sales in the Americas segment increased from period to period, highlighted by the following: • WD-40 Multi-Use Product sales increased $14.1 million, or 7%, primarily due to the increase in Latin America of $14.8 million, or 40%. Sales in Latin America were favorably impacted by the transition to a direct marketing model in Brazil in the second half of fiscal year 2024, which resulted in an increase of net sales of $6.7 million from period to period. In addition, sales in other Latin American markets increased $8.1 million, or 23% due to increased sales volume from the timing of customer orders, successful promotional programs, and increased distribution of WD-40 Smart Straw. Sales in Latin America were favorably impacted by the changes in foreign currency exchange rates from period to period. End-user demand remained relatively constant in the U.S. and resulted in a slight increase in sales of $0.5 million from period to period. These favorable impacts to net sales were slightly offset by a decrease in sales in Canada of $1.2 million. • WD-40 Specialist sales increased $1.9 million, or 6%, primarily due to new distribution and increased demand across all regions. Canada, in particular, saw an increase in sales of $0.8 million, or 46% from period to period primarily due to premiumization of the Specialist product line in the region. • Other maintenance product sales remained relatively constant from period to period. 23 Table of Contents • Homecare and cleaning product sales decreased $1.6 million, or 10%, 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 Americas segment, 73% of sales came from the U.S., and 27% of sales came from Canada and Latin America combined for the fiscal year ended August 31, 2024 compared to the prior fiscal year when 78% of sales came from the U.S., and 22% of sales came from Canada and Latin America combined. EIMEA Sales T he following table summarizes net sales by pr oduct line for the EIMEA segment (in thousands, except percentages): Fiscal Year Ended August 31, 2024 2023 Change from Prior Year Dollars Percent WD-40 Multi-Use Product 168,450 142,965 25,485 18 % WD-40 Specialist 30,876 27,029 3,847 14 % Other maintenance products 12,741 11,507 1,234 11 % Total maintenance products 212,067 181,501 30,566 17 % HCCP 8,978 9,317 (339) (4) % Total net sales 221,045 190,818 30,227 16 % % of consolidated net sales 37 % 36 % CC Net sales – non-GAAP (1) $ 212,981 $ 190,818 $ 22,163 12 % Currency impact on current period – non-GAAP $ 8,064 (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 Fourth Quarter Fiscal Year Increase (decrease) in average selling price (1) $ 0.7 $ 0.0 $ (1.2) $ (0.7) $ (1.2) Increase in sales volume (1) 3.7 5.1 6.5 8.0 23.3 Currency impact on current period – non-GAAP 3.6 2.4 1.6 0.5 8.1 Increase in net sales $ 8.0 $ 7.5 $ 6.9 $ 7.8 $ 30.2 (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), DACH (which includes Germany, Austria and Switzerland) and Benelux (which includes Belgium, the Netherlands and Luxembourg). The regions in the EIMEA segment where we sell through local distributors include the Middle East, Africa, India, Eastern and Northern Europe. EIMEA Sales – Fiscal Year Ended – August 31, 2024 Compared to August 31, 2023 Net sales increased in the EIMEA segment from period to period, highlighted by the following: • WD-40 Multi-Use Product sales increased $25.5 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 24 Table of Contents 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 for our direct markets in France, the DACH and Benelux regions, and Iberia, which were up $5.2 million, $5.0 million and $2.1 million, respectively. In addition, marketing distributor sales in Northern Europe and the Middle East increased $5.5 million and $4.1 million, respectively. • WD-40 Specialist and other maintenance product sales increased $3.8 million, or 14%, and $1.2 million, or 11%, respectively, primarily due to the combined impact of higher sales volume across most regions due to increased distribution and stronger levels of demand after customers adjusted to price increases. • Homecare and cleaning product sales remained relatively constant from period to period. • Net sales were favorably impacted $8.1 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 12%. Asia-Pacific Sales The following table summarizes net sales by product line for the Asia-Pacific segment (in thousands, except percentages): Fiscal Year Ended August 31, 2024 2023 Change from Prior Year Dollars Percent WD-40 Multi-Use Product 67,706 62,056 5,650 9 % WD-40 Specialist 10,096 8,630 1,466 17 % Other maintenance products 1,143 1,023 120 12 % Total maintenance products 78,945 71,709 7,236 10 % HCCP 8,684 7,956 728 9 % Total net sales 87,629 79,665 7,964 10 % % of consolidated net sales 15 % 14 % CC Net sales – non-GAAP (1) $ 88,754 $ 79,665 $ 9,089 11 % Currency impact on current period – non-GAAP $ (1,125) (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. 25 Table of Contents 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 Fourth Quarter Fiscal Year 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 3.2 6.2 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 $ 3.2 $ 8.0 (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 – Fiscal Year Ended – August 31, 2024 Compared to August 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 $5.7 million, or 9%. Sales in the Asia distributor markets increased $4.3 million, or 13%, primarily due to successful promotional programs across most countries in the region, in particular Indonesia, Korea and Taiwan. Increases in the average selling price in these distributor markets also increased net sales from period to period. In addition, sales in China increased $1.6 million, or 8%, due to increased sales volume from successful promotional programs and marketing activities throughout fiscal year 2024. • WD-40 Specialist sales increased $1.5 million, or 17%, primarily due to increased sales volume in China 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 $0.7 million or 9%. 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 11%. 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 goods 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 26 Table of Contents expenses. These costs totaled $17.3 million and $17.1 million for the fiscal years ended August 31, 2024 and 2023, respectively. The following table summarizes gross margin and gross profit (in thousands, except percentages): Fiscal Year Ended August 31, 2024 2023 Change from Prior Year Gross profit $ 315,227 $ 274,220 $ 41,007 Gross margin 53.4 % 51.0 % 240 bps (1) (1) Basis points (“bps”) change in gross margin. Gross Margin – Fiscal Year Ended – August 31, 2024 Compared to August 31, 2023 Gross margin increased 240 bps primarily due to the following favorable impacts: Favorable Explanations 130 bps Favorable sales mix and other miscellaneous mix impacts 80 bps Lower costs of specialty chemicals used in the formulation of our products 80 bps Lower warehousing, distribution and freight costs, primarily in the Americas segment Selling, General and Administrative (“SG&A”) Expenses Fiscal Year Ended August 31, 2024 2023 Change from Prior Year Dollars Percent SG&A expenses $ 183,859 $ 154,684 $ 29,175 19 % % of net sales 31.1 % 28.8 % SG&A Expenses – Fiscal Year Ended – August 31, 2024 Compared to August 31, 2023 The increase in SG&A expenses was primarily due to increases in employee-related costs of $16.1 million primarily due to an increase in accrued incentive compensation of $8.8 million, as well as annual compensation increases and higher headcount. Professional services fees increased $6.1 million in support of our strategic initiatives in the Americas and EIMEA segments. The increase in professional service costs includes a $2.7 million increase in computer-related costs, primarily associated with the ERP system we recently implemented in the U.S. and the amortization of cloud computing implementation costs associated with this system. In addition, professional services fees increased due to costs associated with the development of a direct market in Brazil. Travel and meeting expense increased SG&A expense by $2.5 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 for the fiscal years ended August 31, 2024 and 2023 were $8.0 million and $6.2 million, respectively. 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. 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. 27 Table of Contents Advertising and Sales Promotion (“A&P”) Expenses Fiscal Year Ended August 31, 2024 2023 Change from Prior Year Dollars Percent A&P expenses $ 33,911 $ 28,807 $ 5,104 18 % % of net sales 5.7 % 5.4 % A&P Expenses – Fiscal Year Ended – August 31, 2024 Compared to August 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 $0.9 million unfavorable impact on A&P expenses from period to period. Total promotional costs recorded as a reduction to sales were $32.7 million and $29.1 million, or 5.5% and 5.4% of net sales, for the fiscal years ended August 31, 2024 and 2023, respectively. Therefore, our total expenditure on A&P activities totaled $66.6 million and $57.9 million or 11.2% and 10.8% of net sales, for the fiscal years ended August 31, 2024 and 2023, respectively. Income from Operations by Segment The following table summarizes income from operations by segment (in thousands, except percentages): Fiscal Year Ended August 31, 2024 2023 Change from Prior Year Dollars Percent Americas $ 65,037 $ 60,797 $ 4,240 7 % EIMEA 46,809 39,456 7,353 19 % Asia-Pacific 29,714 25,888 3,826 15 % Unallocated corporate (1) (45,209) (36,417) (8,792) (24) % Total $ 96,351 $ 89,724 $ 6,627 7 % (1) Unallocated corporate expenses are general corporate overhead expenses not directly attributable to any one of the business segments. These expenses are reported separate from our identified segments and are included in Selling, General and Administrative expenses on our consolidated statements of operations. Americas Americas Operating Income – Fiscal Year Ended – August 31, 2024 Compared to August 31, 2023 Income from operations for the Americas increased to $65.0 million, up $4.2 million, or 7%, due to a $15.1 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 50.9% 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 of aerosol cans and filling fees at our third-party manufacturers. Operating expenses increased $8.6 million due to higher employee-related costs as a result of increased headcount and annual compensation increases. Operating expenses also increased due to 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 increased from 22.8% to 23.1% period over period. 28 Table of Contents EIMEA EIMEA Operating Income – Fiscal Year Ended – August 31, 2024 Compared to August 31, 2023 Income from operations for the EIMEA segment increased to $46.8 million, up $7.4 million, or 19%, primarily due to a $30.2 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 52.2% to 54.7% primarily due to favorable changes from foreign currency exchange rates and changes in sales mix and market mix, as well as the combined impact of decreases in the costs of petroleum-based specialty chemicals and aerosol cans from period to period. Operating expenses increased $14.0 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 20.7% to 21.2% period over period. Asia-Pacific Asia-Pacific Operating Income – Fiscal Year Ended – August 31, 2024 Compared to August 31, 2023 Income from operations for the Asia-Pacific segment increased to $29.7 million, up $3.8 million, or 15%, primarily due to a $8.0 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 58.0% primarily due to changes in sales mix and market mix across most regions from period to period, as well as the favorable impact of price increases, particularly in Australia and Asia distributor markets. Operating expenses increased $3.0 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 32.5% to 33.9% period over period. Unallocated Corporate Unallocated Corporate Expenses – Fiscal Year Ended – August 31, 2024 Compared to August 31, 2023 Unallocated Corporate expenses increased to $45.2 million, up $8.8 million, or 24%, primarily due to increased accrued incentive compensation and higher employee-related costs as a result of increased headcount and annual compensation increases. In addition, operating expenses increased as a result of higher costs associated with the ERP system we recently implemented in the United States. Non-Operating Items The following table summarizes non-operating income and expenses for our consolidated operations (in thousands): Fiscal Year Ended August 31, 2024 2023 Change Interest income $ 474 $ 231 $ 243 Interest expense $ 4,287 $ 5,614 $ (1,327) Other (expense) income, net $ (1,030) $ 822 $ (1,852) Provision for income taxes $ 21,864 $ 19,170 $ 2,694 Interest Income Interest income was not significant for both the fiscal years ended August 31, 2024 and 2023. Interest Expense Interest expense decreased $1.3 million primarily due to a decrease in weighted average outstanding balance on our revolving credit facility slightly offset by higher interest rates related to draws on this credit facility. 29 Table of Contents Other (Expense) Income, Net Other (expense) income, net changed by $1.9 million from period to period which was primarily due to net foreign currency gains during fiscal year 2023 as compared to net foreign currency exchange losses in fiscal year 2024 due to fluctuations in the foreign currency exchange rates for both the U.S. Dollar and the Euro against the Pound Sterling. Provision for Income Taxes The provision for income taxes was 23.9% and 22.5% of income before income taxes for the fiscal years ended August 31, 2024 and 2023, respectively. Descriptions of impacts on our effective income tax rate are incorporated by reference to Part IV—Item 15, “Exhibits, Financial Statement Schedules” Note 14 – Income Taxes, included in this report. Net Income Net income was $69.6 million, or $5.11 per common share on a fully diluted basis, for fiscal year 2024 compared to $66.0 million, or $4.83 per common share on a fully diluted basis, for the prior fiscal year. Changes in foreign currency exchange rates year over year had a favorable impact of $1.5 million on net income for fiscal year 2024. Thus, on a constant currency basis, net income for fiscal year 2024 would have been $68.2 million. Fiscal Year Ended August 31, 2023 Compared to Fiscal Year Ended August 31, 2022 For discussion related to changes in financial condition and the results of operations for fiscal year 2023 compared to fiscal year 2022, refer to Part II—Item 7. 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 SEC on October 23, 2023. 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 to help us achieve greater operational efficiencies. Cloud computing amortization is recognized in selling, general and administrative expenses in our 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. Given the anticipated divestiture of certain of our household brands, progression on certain aspects of our business model may be challenged if the potential divestiture occurs. However, we intend to focus our resources and investments from the potential sale of those brands on growing our higher growth and higher gross margin core business. 30 Table of Contents The following table summarizes the results of these performance measures: Fiscal Year Ended August 31, 2024 2023 2022 Gross margin – GAAP 53 % 51 % 49 % Cost of doing business as a percentage of net sales – non-GAAP 36 % 33 % 31 % Adjusted EBITDA as a percentage of net sales – non-GAAP (1) 18 % 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: Cost of Doing Business (in thousands, except percentages): Fiscal Year Ended August 31, 2024 2023 2022 Total operating expenses – GAAP $ 218,876 $ 184,496 $ 167,435 Amortization (1) (2,327) (1,005) (1,434) Depreciation (in operating departments) (4,112) (4,147) (4,369) Cost of doing business $ 212,437 $ 179,344 $ 161,632 Net sales $ 590,557 $ 537,255 $ 518,820 Cost of doing business as a percentage of net sales – non-GAAP 36 % 33 % 31 % (1) Includes amortization of definite-lived intangible assets and cloud computing amortization. Adjusted EBITDA (in thousands, except percentages): Fiscal Year Ended August 31, 2024 2023 2022 Net income – GAAP $ 69,644 $ 65,993 $ 67,329 Provision for income taxes 21,864 19,170 16,779 Interest income (474) (231) (102) Interest expense 4,287 5,614 2,742 Amortization (1) 2,327 1,005 1,434 Depreciation 8,350 7,146 6,860 Adjusted EBITDA $ 105,998 $ 98,697 $ 95,042 Net sales $ 590,557 $ 537,255 $ 518,820 Adjusted EBITDA as a percentage of net sales – non-GAAP 18 % 18 % 18 % (1) Includes amortization of definite-lived intangible assets and cloud computing amortization. 31 Table of Contents 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 August 31, 2024, $20.0 million of the facility was classified as long-term and was entirely denominated in Euros. $7.8 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 of August 31, 2024, consisting of senior notes under our Note Agreement. We paid $0.8 million in principal payments on our Series A Notes during 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 August 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 August 31, 2024, we had a total of $46.7 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, debt maturities, capital expenditures, dividend payments, acquisitions, new business development activities and share repurchases. On June 19, 2023, our Board approved a share repurchase plan (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 remained available for the repurchase of shares of common stock as of August 31, 2024. Cash Flows The following table summarizes our cash flows by category for the periods presented (in thousands): Fiscal Year Ended August 31, 2024 2023 2022 Net cash provided by operating activities $ 92,034 $ 98,391 $ 2,604 Net cash used in investing activities (9,735) (6,216) (7,691) Net cash used in financing activities (83,936) (85,048) (38,011) Effect of exchange rate changes on cash and cash equivalents 193 3,173 (5,020) Net (decrease) increase in cash and cash equivalents $ (1,444) $ 10,300 $ (48,118) 32 Table of Contents Operating Activities Net cash provided by operating activities decreased $6.4 million to $92.0 million for fiscal year 2024. Cash flows from operating activities depend heavily on operating performance and changes in working capital. Our primary source of operating cash flows for fiscal year ended August 31, 2024 was net income of $69.6 million, which increased $3.7 million from period to period. Changes in adjustments to reconcile net income to cash increased net cash provided by operating activities by $5.0 million, primarily due to net unrealized foreign currency losses during the current fiscal year compared to net unrealized foreign currency gains in the prior fiscal year and an increase in depreciation expense. Changes in our working capital increased net cash provided by operating activities by $4.6 million for the fiscal year 2024, compared to a $19.5 million increase in the prior fiscal year. The unfavorable net change in working capital was primarily attributable to changes in inventory and trade and other accounts receivable. Although we decreased inventory levels throughout fiscal year 2024, decreases in inventory during fiscal year 2023 were more significant. We took deliberate actions during fiscal year 2023 to improve capacity and flexibility of our supply chain to decrease inventory levels from the build up from prior years. Trade and other accounts receivable increased significantly during fiscal year 2024 as a result of higher sales and timing of collection of payments from customers. These unfavorable changes in working capital were partially offset by favorable changes in accounts payable, accrued liabilities, accrued payroll and related expenses. Investing Activities Net cash used in investing activities increased $3.5 million to $9.7 million for fiscal year 2024, primarily due to the purchase of our Brazilian distributor, Theron, as we shifted from an indirect distribution model to a direct model. Financing Activities Net cash used in financing activities decreased $1.1 million to $83.9 million for fiscal year 2024. This change was primarily due to lower net repayments on our revolving credit facility which was $25.4 million during the fiscal year, compared to $28.4 million in the prior fiscal year, as well as decreases in treasury stock purchases of $2.3 million during the fiscal year compared to the prior period. Offsetting these decreases in cash outflows from period to period was an increase in dividends paid to our stockholders of $2.6 million, as well as an increase of $1.6 million in shares withheld to cover taxes on conversion of equity awards. 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. 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 not significant in fiscal year 2024, while such changes resulted in an increase in cash of $3.2 million for fiscal year 2023, and a decrease in cash of $5.0 million in fiscal year 2022. These changes were primarily due to fluctuations in various foreign currency exchange rates from period to period, but the majority is related to the fluctuations in the Pound Sterling against the U.S. Dollar. Cash Flows Fiscal Year Ended August 31, 2023 Compared to Fiscal Year Ended August 31, 2022 For discussion related to changes in the consolidated statements of cash flows for fiscal year 2023 compared to fiscal year 2022, refer to Part II—Item 7. 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 SEC on October 23, 2023. Share Repurchase Plans The information required by this item is incorporated by reference to Part IV—Item 15, “Exhibits, Financial Statement Schedules” Note 10 — Share Repurchase Plan, included in this report. 33 Table of Contents Dividends We have historically paid regular quarterly cash dividends on our common stock. On December 12, 2023, our Board approved a 6% increase in the regular quarterly cash dividend, increasing it from $0.83 per share to $0.88 per share. On October 4, 2024, our Board declared a cash dividend of $0.88 per share payable on October 31, 2024 to stockholders of record on October 18, 2024. Our ability to pay dividends could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and loan covenants. Contractual Obligations We hold borrowings under our Note Purchase and Private Shelf Agreement with fixed repayment requirements and under a Revolving Credit Facility that has variable underlying interest rates. For additional details on these borrowings, including ability and intent assessment on our credit facility agreement with Bank of America, N.A., refer to the information set forth in Part IV—Item 15, “Exhibits, Financial Statement Schedules”, Note 9 – Debt. Additionally, we have ongoing relationships with various 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 definitive minimum purchase obligations in the contract terms with certain of our contract manufacturers, when such obligations have been included, they have either been immaterial or the minimum amounts have been such that they are well below the volume of goods that we have historically purchased. 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 August 31, 2024, no such commitments were outstanding. We have also recorded a liability for uncertain tax positions. For details on our uncertain tax positions, refer to the information set forth in Part IV—Item 15, “Exhibits, Financial Statement Schedules” Note 14 – Income Taxes. Critical Accounting Estimates Our results of operations and financial condition, as reflected in our consolidated financial statements, have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of financial statements requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. We use historical experience and other relevant factors when developing estimates and assumptions and these estimates and assumptions are continually evaluated. The accounting estimates discussed below are the ones we consider to be most critical to an understanding of our consolidated financial statements because their application places the most significant demands on our judgment. Our financial results may have varied from those reported had different assumptions been used or other conditions prevailed. Revenue Recognition Sales are recognized as revenue at a point in time upon transferring control of the product to the customer. This typically occurs when products are shipped or delivered, depending on when risks of loss and title have passed to the customer per the terms of the contract. For certain of our sales we must make judgments and certain assumptions in order to determine when delivery has occurred. Through an analysis of end-of-period shipments for these particular sales, we estimate the time of transit and delivery of product to our customers to determine whether revenue should be recognized during the current 34 Table of Contents reporting period for such shipments. Differences in judgments or estimates related to the lengthening or shortening of the estimated delivery time used could result in material differences in the timing of revenue recognition. In determining the transaction price, management evaluates whether the price is subject to refunds or adjustments related to variable consideration to determine the net consideration to which we expect to be entitled. We record estimates of variable consideration as a reduction of sales in the consolidated statements of operations. Variable consideration primarily includes rebates/other discounts (cooperative marketing programs, volume-based discounts, shelf price reductions and allowances for shelf space, charges from customers for services they provided to us related to the sale and penalties/fines charged to us by our customers for failing to adhere to contractual obligations), coupon offers, cash discount allowances, and sales returns. These estimates are based on the expected value method considering all reasonably available information, including current and past trade promotion spending patterns, status of trade promotion activities and the interpretation of historical spending trends by customer and category, customer agreements and/or currently known factors that arise in the normal course of business. We review our assumptions and adjust these estimates accordingly on a quarterly basis. Our consolidated financial statements could be materially impacted if the actual promotion rates are different from the estimated rates. If our accrual estimates for sales incentives at August 31, 2024 were to differ by 10%, the impact on net sales would be approximately $1.4 million. Accounting for Income Taxes A deferred income tax liability or asset is established for the expected future tax consequences resulting from the differences in financial reporting and tax bases of assets and liabilities. Based on changes in the related tax law as well as forecasted results, a valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. In addition to valuation allowances, we provide for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the authoritative guidance on income taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. We recognize accrued interest and penalties related to uncertain tax positions as a component of income tax expense. We are required to make assertions on whether our foreign subsidiaries will invest their undistributed earnings indefinitely and these assertions are based on the capital needs of the foreign subsidiaries. Generally, unremitted earnings of our foreign subsidiaries are not considered to be indefinitely reinvested. However, there is an exception regarding specific statutory remittance restrictions imposed on our China subsidiary. Costs associated with repatriating unremitted foreign earnings, including U.S. state income taxes and foreign withholding taxes, are immaterial to our consolidated financial statements. For additional information on income tax matters, see Part IV—Item 15, “Exhibits, Financial Statement Schedules” Note 14 — Income Taxes, included in this report. 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 IV—Item 15, “Exhibits, Financial Statement Schedules” Note 2 — Basis of Presentation and Summary of Significant Accounting Policies, included in this report.