Q2 2024 WD-40 Company Earnings Call
Operator: Ladies and gentlemen, thank you for standing by. Good day, and welcome to the WD-40 Company second quarter fiscal year 2024 earnings conference. Today's call is being recorded. At this time, all participants are in a listen-only mode; after the prepared remarks, we will conduct the question and answer session. To register a question at any time during this call, please press star one on your telephone. Please make sure your mute function is turned off to allow your signal to reach us. If at any time during the conference you need to reach an operator, please press star zero on your telephone keypad.
Ladies and gentlemen, thank you for standing by good day and welcome to the WD 40 company second quarter fiscal year 2024 earnings Conference call. Today's call is being recorded at this time all participants are in a listen only mode. At the end of the prepared remarks, we will conduct a question and answer.
Session to register a question at any time during this call. Please press star one on your telephone keypad. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
At any time during the conference you need to reach an operator, Please press star zero on your telephone keypad.
Ross Cooling: I would now like to turn the presentation over to the host for today's call, Ross Cooling, Communications Manager, Investor Relations and Stakeholder Engagement. Please proceed. Thank you. Good afternoon, and thanks to everyone for joining us today. On our call today are WD-40 Company's President and Chief Executive Officer, Steve Brass, and Vice President, Finance, and Chief Financial Officer, Sara Hyzer. In addition to the financial information presented on today's call, we encourage investors to review our earnings presentation, earnings press release, and Form 10-K for the period ending February 29, 2024. These documents are available on our Investor Relations website at investor.wd40company.com.
I'd now like to turn the presentation over to the host for todays call Ross cooling communications manager Investor Relations and stakeholder engagement. Please proceed.
Ross Cooling: Thank you good afternoon, and thanks to everyone for joining us today on our call today are WD 40, company's President and Chief Executive Officer, Steve Brass, and Vice President Finance and Chief Financial Officer, Sarah Heizer.
Ross Cooling: In addition to the financial information presented on today's call. We encourage investors to review our earnings presentation earnings press release and Form 10-K for the period ending February 29 2020 for these documents are available on our Investor Relations website at Investor Day at WD, 40 company and Dot com.
Ross Cooling: A replay and transcript of today's call will also be made available shortly after this call. On today's call, we will discuss certain non-GAAP measures. The descriptions and reconciliations of these non-GAAP measures are available in our FDC filings, as well as in the earnings documents posted on our Investor Relations website. As a reminder, today's call includes forward-looking statements about our expectations for the company's future performance, and actual results could differ
Ross Cooling: A replay and transcript of today's call will also be made available shortly after this call.
On today's call, we will discuss certain non-GAAP measures.
Ross Cooling: Descriptions and reconciliations of these non-GAAP measures are available in our SEC filings as well as the earnings documents posted on our Investor Relations website as.
Ross Cooling: As a reminder, today's call includes forward looking statements about our expectations for the company's future performance actual results could differ materially the company's expectations beliefs and projections are expressed in good faith, but there can be no assurance they will be achieved or accomplished please refer to the risk factors detailed in our SEC.
Ross Cooling: The company's expectations, beliefs, and projections are expressed in good faith, but there can be no assurance that they will be achieved or accomplished. Please refer to the risk factors detailed in our FDC filings for further discussion. Finally, for anyone listening to a webcast replay or reviewing a written transcript of this call, please note that all information presented is current only as of today's date, April 9, 2024. The company disclaims any duty or obligation to update any forward-looking information as a result of new information, future events, or otherwise. With that said, I'd now like to turn the call over to Steve.
Ross Cooling: Filings for further discussion.
Ross Cooling: Finally for anyone listening to a webcast replay or reviewing a written transcript of this call. Please note that all information presented is current only as of today's date April nine 2024, the company disclaims any duty or obligation to update any forward looking information as a result of new information future events.
Ross Cooling: Or otherwise with that I'd now like to turn the call over to Steve. Thank.
Steven A. Brass: Thank you, Ross, and thanks to all of you for joining us this afternoon. Today, I'll begin by discussing several strategic actions we've taken to support our 4x4 strategic framework, followed by an overview of our sales results for the second fiscal quarter of 2024. I'll also provide you with an update on our must-win battles and some of our strategic enablers. Sara will provide further details on our second quarter results, an update on our business model, and our outlook for the remainder of fiscal year 24. And then we will take your questions.
Thank you Ross and thanks to all of you for joining us this afternoon.
Steven A. Brass: Today I'll begin by discussing several strategic actions, we've taken to support our followed by full strategic framework.
Steven A. Brass: Good bye and overview of our sales results for the second fiscal quarter of 2024.
Steven A. Brass: I will also provide you with an update on our must win battles and some of our strategic enablers.
Steven A. Brass: <unk> will provide further details on our second quarter results and update on our business model and our outlook for the remainder of fiscal year 2004, and then we will take your questions.
Steven A. Brass: Over the last few months, I'm proud of the significant progress we've made on our 4x4 strategic framework. In March, we acquired our Brazilian marketing distributor and long-time business partner, Terrone Marketing, for approximately $7 million in an all-cash transaction. This transaction directly supports our first Muslim battle to lead geographic expansion of WD-40 multi-use products. Strategically, this allows us to have a direct market presence in Brazil to drive faster growth versus building up a direct market from the ground up. As you may recall, we successfully shifted from a distributor model to a direct market in Mexico in May 2020, and our revenues in Mexico have virtually tripled since making that shift. Taking Brazil direct through an acquisition presents a similar growth opportunity, and we are well positioned to capture that growth. Our prior agreement with Turon Marketing was based on a royalty model, and moving to a direct market provides us with an immediate benefit to our top line.
Over the last few months I'm proud of the significant progress we've made on a floor by floor strategic framework.
Steven A. Brass: We acquired our Brazilian marketing distributor and long time business partner Tyrone marketing for approximately $7 million in an all cash transaction.
Steven A. Brass: This transaction directly supports our first must win battle to lead geographic expansion activity 40, multi use product.
Steven A. Brass: T. J. This allows us to have a direct market presence in Brazil to drive faster growth versus building up a direct market from the ground up.
Steven A. Brass: As you May recall, we successfully shifted from a distributor model to a direct market in Mexico in May 2020, and our revenues in Mexico, virtually tripled since making that shift.
Taking Brazil direct through an acquisition presents a similar growth opportunity and we are well positioned to capture that growth.
Steven A. Brass: Our prior agreement with Toro marketing was based on a royalty model and moving to a direct market provides us with an immediate benefit to our top line.
Steven A. Brass: We expect the Brazil market to drive revenue growth in excess of $10 million over the next year as a result of transitioning to this new business model. This is a substantial increase over the growth expected under the old royalty-based business model, which generated approximately $2 million of annual revenue. We've also made the strategic decision to more actively pursue the sale of our U.S. and U.K. home care and cleaning product portfolios. However, for the time being, we intend to strategically maintain the home care and cleaning product portfolio in Australia as it is a substantial portion of that market's business.
Steven A. Brass: We expect the Brazil market to drive revenue growth in excess of $10 million over the next year as a result of transitioning to this new business model. This is a substantial increase over the growth expected under the old royalty based business model, which generated approximately $2 million of annual revenue.
We've also made the strategic decision to more actively pursue the sale of our U S and UK homecare and cleaning product portfolios.
Steven A. Brass: The time being we intend to strategically maintained.
Steven A. Brass: Karen cleaning product portfolio in Australia as it is.
Steven A. Brass: A substantial portion of that market's business net proceeds from the sale of our U S and UK homecare and cleaning product portfolios, we will provide us with an opportunity to reinvest in our core business for long term growth.
Steven A. Brass: Net proceeds from the sale of our US and UK home care and cleaning product portfolios will provide us with an opportunity to reinvest in our core business for long-term growth. While this will have an unfavorable impact on our sales in the short term once we divest the portfolio, it allows us to place even more focus on creating revenue growth through our must-win battles and focus on our higher-margin business centering on our maintenance products over the long term. The immediate accretion from the Brazil marketing distributor acquisition and the additional investments we will make to accelerate growth in our high-potential markets will offset lost revenue from this sale over time. And finally, during the second quarter, we went live with the first and most significant phase of our enterprise resource planning, or ERP, system. This is no small task, and we did anticipate there being some level of disruption, as can be expected for a project of this nature. These disruptions resulted in a minor, unfavorable impact on the quarter's performance, particularly in the U.S.
Steven A. Brass: While this will have an unfavorable impact on our sales in the short term once we divest the portfolio.
Steven A. Brass: Ours is to place even more focused on creating revenue growth through our must win battles and focus on our highest margin business centered on our maintenance products over the long term.
Steven A. Brass: The immediate accretion from the digital marketing distributor acquisition and the additional investments we will make to accelerate growth in our high potential markets will offset lost revenue from this sale over time.
Steven A. Brass: And finally during the second quarter, we went live with the first and most significant phase of our enterprise resource planning or ERP system.
Steven A. Brass: This is no small task and we did anticipate there being some level of disruption as can be expected for a project of this nature. Please.
Steven A. Brass: These disruptions resulted in a minor unfavorable impact on the quarter's performance, particularly in the U S.
Steven A. Brass: I'm proud to report that, due to the ingenuity and resilience of our team members and the long-standing partnerships with our customers, we have worked through most of these challenges and are confident going forward as we continue to improve our processes and leverage the value this system brings across the organization. I want to acknowledge and thank our employees for their ongoing diligence in managing through this implementation. We know projects like these allow us to live out one of our core values of making it better than it is today, which will only strengthen us over time. Sara will provide more details on the ERP implementation.
Steven A. Brass: Proud to report that due to the ingenuity and resilience of our team members and the longstanding partnerships with our customers. We have worked through most of these challenges and are confident going forward as we continue to improve our processes and leverage the value of this system brings across the organization.
I want to acknowledge and thank our employees for their ongoing diligence in managing through this implementation. We know projects like these allow us to live at one of our core values of making it better than it is today, which will only strengthen overtime.
Steven A. Brass: We will provide more details on the ERP implementation.
Steven A. Brass: Now turning to our sales results, I'm happy to share with you that for the second consecutive quarter, we saw sales growth across all our trade blocks. For the second quarter, we reported net sales of $139 million, an increase of 7% over the prior year, excluding the favorable impact of currency revenue group 5%. On a year-to-date basis, net sales grew 10% on a reported basis and 7% excluding the favorable impact of currency, which is in line with both our FY24 guidance and our long-term growth target. We remain encouraged that the improvement in trends we experienced in the second half of fiscal year 23 has carried into the first half of fiscal year 24.
Steven A. Brass: Now turning to our sales results I'm happy to share with you that for the second consecutive quarter, we saw sales growth across all our trade loss for the second quarter, we reported net sales of $139 million and increased 7% over the prior year.
Steven A. Brass: Excluding the favorable impact of currency revenue grew 5% on.
Steven A. Brass: On a year to date basis net sales grew 10% on a reported basis and 7% excluding the favorable impact of currency, which is in line with both our FY 'twenty for guidance and our long term growth targets.
We remain encouraged that the improvement in trends, we experienced in the second half of fiscal year 'twenty three of carried into the first half of fiscal year 'twenty four.
Steven A. Brass: We're also pleased to report continued expansion of our gross margin versus the prior year, which allows us to invest across other areas of our business, such as advertising and promotion activities, in order to continue to drive top line growth. Now, let me discuss second quarter sales results by segment. Unless otherwise noted, I will discuss sales and comparisons to the prior year on a reported basis. Sales in the Americas, which includes the United States, Latin America, and Canada, of approximately 63.5 million, grew 1% over the prior year fiscal quarter.
Steven A. Brass: We're also pleased to report continued expansion of our gross margin versus prior year, which allows us to invest across other areas of our business such as advertising and promotion activities in order to continue to drive topline growth.
Steven A. Brass: Now, let me discuss second quarter sales results by segment, unless otherwise noted I will discuss sales and comparisons to prior year on a reported basis.
Steven A. Brass: Sales in the Americas, which includes the United States, Latin America, and Canada of approximately $63 5 million grew 1% over the prior year fiscal quarter.
Steven A. Brass: We're pleased to report that strong demand and sales growth throughout the U.S. more than offset the short-term impacts the ERP implementation had on our net sales. WD-40 specialists and other maintenance product sales increased across most regions in the Americas, and we continue to see encouraging signs across the region. The growth in maintenance products was partly offset by a decline in home care and cleaning product sales, primarily due to lower volume in the U.S. as a result of reduced demand.
Steven A. Brass: We're pleased to report a strong demand and sales growth throughout the U S more than offset the short term impacts of the ERP implementation ethanol net sales.
240 specialist and other maintenance product sales increased across most regions in the Americas, and we continue to see encouraging signs across the region.
The growth in maintenance products was partly offset by a decline in home care and cleaning products sales, primarily due to lower volume in the U S. As a result of reduced demand.
Steven A. Brass: In total, our America segment made up 46% of our global business in the second quarter. Turning to our sales results in IMEA, which includes Europe, India, the Middle East, and Africa, the recovery we experienced in the second half of last year in IMEA has continued throughout the first half of this year.
Steven A. Brass: In total our Americas segment made up 46% of our global business in the second quarter.
Steven A. Brass: Turning to our sales results in our EMEA, which includes Europe, India, the Middle East Africa.
Steven A. Brass: The recovery, we experienced in the second half of last year and our EMEA has continued throughout the first half of this year.
Steven A. Brass: OMEA sales of $54.3 million increased 16% over the prior year. Currency fluctuations positively impacted our sales in OMEA, and on a constant currency basis, sales would have increased 11%, marking the fourth consecutive quarter of double-digit sales growth in constant currency. The growth was driven in large part by higher sales of WD-40 multi-use products, which increased 17 percent, and WD-40 specialists, which increased 23 percent. As a reminder, volumes last year were unfavorably impacted by price increases we had implemented, resulting in temporarily reduced demand as customers adjusted to these prices. The combination of recovering volumes and increased selling prices resulted in higher sales across most regions in IMAEA this quarter. In the second quarter, sales of WD-40 multi-use products increased most significantly in France, India, and Iberia, which increased by 1 million, 0.9 million, and 0.6 million, respectively. The growth in maintenance products is partly offset by a decline of 10% in home care and cleaning product sales, which is a much smaller part of the business for iMayer.
Steven A. Brass: EMEA sales of $54 $3 million increased 16% over the prior year currency fluctuations positively impacted our sales in our EMEA and on a constant currency basis sales would have increased 11%, marking the fourth consecutive quarter of double digit sales growth in constant currency.
Steven A. Brass: The growth was driven in large part by higher sales of <unk> 40, multi use product, which increased 17% and debris 40 specialist which increased 23%.
Steven A. Brass: As a reminder volumes last year were unfavorably impacted by price increases we had implemented resulting in temporarily reduced demand as.
As customers adjusted to these prices.
Steven A. Brass: The combination of recovering volumes and increased selling prices resulted in higher sales across most regions in EMEA this quarter.
Steven A. Brass: In the second quarter sales of <unk> 40, multi use product increased most significantly in France, India, and Iberia, which increased $1 million.
Steven A. Brass: $9 million and $6 million respectively.
Steven A. Brass: The growth in maintenance products was partially offset by a decline of 10% in homecare and cleaning product sales, which is a much smaller part of the business Brian there.
Steven A. Brass: In total, our major segment made up 39% of our global business in the second quarter. Turning to Asia-Pacific, which includes Australia, China, and other countries in the Asia region, sales of 21.3 million were up 4% over the prior year. The growth was driven by higher sales of WD-40 multi-use products, which were up 3%, and home care and cleaning products, which were up 23% over the prior year. However, this was partly offset by a 3% decline in WD-40 specialist product sales.
Steven A. Brass: In total our EMEA segment made up 39% of our global business in the second quarter.
Turning to Asia Pacific, which includes Australia, China and other countries in the Asia region sales of $21 $3 million were up 4% over the prior year.
Steven A. Brass: Growth was driven by higher sales of WD 40, multi use product, which were up 3% and homecare and cleaning products, which were up 23% over the prior year. This was partially offset by a 3% decline in the <unk> 40 specialty product sales.
Steven A. Brass: In China, sales of maintenance products were up 3% primarily due to successful promotional programs and marketing activities that led to increased sales volume. On a constant currency basis, sales for China would have increased by 5%. In our Asia-Pacific distributor market, sales of maintenance products were up 3%, primarily due to price increases in these markets and successful promotional programs in certain regions. In Australia, sales were up 6% over the prior year, primarily due to higher sales of home care and cleaning products. In total, our Asia-Pacific segment made up 15% of our global business in the second quarter. Now, let me discuss the progress we've made on our Moswin battles and provide you with an update on some of our strategic enablers that support our 4x4 strategic framework. We look at these Muslim battles as growth drivers over the long term, and therefore, we will focus our discussion on the year-to-date results of these battles. Starting with Muscle and Battle No.
In China sales of maintenance products were up 3%, primarily due to successful promotional programs and marketing activities that lead to increased sales volume on a constant currency basis sales with China would have increased by 5%.
Steven A. Brass: In our Asia Pacific distributor market sales of maintenance products were up 3%, primarily due to price increases in these markets and successful promotional programs in certain regions.
Steven A. Brass: In Australia sales were up 6% over the prior year, primarily due to higher sales of homecare and cleaning products.
Steven A. Brass: In total our Asia Pacific segment made up 15% of our global business in the second quarter.
Steven A. Brass: Now let me discuss the progress we've made against our must win battles and provide you with an update and some of our strategic enablers that support our four by four strategic framework.
Steven A. Brass: If we look at these must win battles this growth drivers over the long term and therefore, we will focus our discussion on the year to date results of these battles.
Steven A. Brass: Starting with must win Battle number one lead geographic expansion as mentioned earlier the acquisition of the Brazilian market and distributor is a strategic decision to airlines with and supports as must win battle.
Steven A. Brass: 1, Lead Geographic Expansion, as mentioned earlier, the acquisition of a Brazilian marketing distributor is a strategic decision that aligns with and supports this Muscle and Battle. Through the first half of the year, global sales of WD-40 multi-use products of $215 million grew 10% over the prior year, led by strong growth of 19% in Imer, followed by growth in the Americas and Asia Pacific of 6.5% and 3%, respectively. We continue to make investments in our flagship brand to build awareness and increase market penetration and identify key markets. As a result, it has made excellent progress and has seen volume recovery in many key markets. Next is Muslim battle number two, accelerating premiumization, which is a major contributor to our revenue growth and gross margin expansion. Year-to-date sales of WD-40 SmartStraw and EasyReach, when combined, were up 13% over the prior year.
Steven A. Brass: Through the first half of the year global sales of <unk> 40, multi use product of $215 million grew 10% over the prior year led by strong growth of 19% in EMEA, followed by growth in the Americas, and Asia Pacific of six 5% and 3% respectively.
Steven A. Brass: We continue to make investments in our flagship brand to build awareness and increase market penetration and identified key markets.
As a result, we made excellent progress since in volume recovery in many key markets.
Steven A. Brass: Next is <unk> barrel number two accelerating premium amortization, which is a major contributor to our revenue growth and gross margin expansion.
Steven A. Brass: Year to date sales of WD 40, smart straw EZ reach when combined were up 13% over the prior year, our implementation activity 40, Smart straw next generation in the Americas and a multiple packages in our EMEA is contributing to the sales growth of premium lines products. This growth aligns with our long term net sales compound annual growth rate.
Steven A. Brass: Our implementation of WD-40 SmartStraw Next Generation in the Americas and of multiple packages in IMEA is contributing to the sales growth of premiumized products. This growth aligns with our long-term net sales compound annual growth rate target of greater than 10% in reported currency for premiumized products. Our third must-win battle is to drive WD-40 Specialist growth. Through the first half of the year, sales of WD-40 Specialist products were $34 million, up 10% over the prior year, led by strong growth in IMEA of 17%. In the Americas, sales of WD-40 Specialists grew 4%, while Asia-Pacific, which is a much smaller portfolio, grew 9% compared to the prior year.
Steven A. Brass: Target of greater than 10% in reported currency for premium <unk> products.
Steven A. Brass: Our third must win battle is to drive to be fully specialist growth through the first half of the year sales of WD 40 specialist products for $34 million up 10% over the prior year led by strong growth in our EMEA, 17%.
Steven A. Brass: In the Americas sales activity 40 specialist grew 4%, while Asia Pacific, which is a much smaller portfolio grew 9% compared to the prior year. We continue to target net sales compound annual growth rate of greater than 15% in reported currency for WD 40 specialist.
Steven A. Brass: We continue to target a net sales compound annual growth rate of greater than 15% in reported currency for WD-40 Specialists. Our fourth and final must-win battle is to accelerate digital commerce. We see this as an accelerator for all our other must-win battles as it improves brand awareness and online engagement, leading to an improved customer experience and sales across our channels. Here today, e-commerce sales are up 24% with strong growth in both China and America's trade blocs. Moving to the second element of our strategic framework, our strategic enablers, which collectively underpin our must-win battle. I want to take a moment to discuss Strategic Enablement No. 1 of ensuring a people-first mindset.
Steven A. Brass: Now for some final must win battle is to accelerate digital commerce, we see this as an accelerator for all our other must win battles as it improves brand awareness and online engagement, leading to an improved customer experiences across our channels year.
Steven A. Brass: Year to date E Commerce sales were up 24% with strong growth in both EMEA and the Americas trade blocks.
Turning to the second element of our strategic framework, our strategic enablers, which collectively under the enormous win battles.
Steven A. Brass: I want to take a moment to discuss strategic enable number one ensuring our people first mindset Adobe fully company, we pride ourselves in our culture and continuously focus on how to improve it our greatest asset cannot be found on our balance sheet, but rather it resides within our talented team.
Steven A. Brass: At WD-40 Company, we pride ourselves on our culture and continuously focus on how to improve it. Our greatest asset cannot be found on a balance sheet, but rather, it resides within our talented team. I'm extremely proud that we have been able to maintain an employee engagement score of around 93%, particularly given some of the significant changes we've experienced over the past 18 months. This includes changes within our leadership team, as Sara and I have gotten up to speed in our roles, and changes across the global organization, as we've implemented an updated pricing structure, completed the first and most significant phase of our ERP implementation system, and have continued to face uncertain macroeconomic conditions. Once again, I want to thank our strong and resilient team.
Steven A. Brass: I am extremely proud of that we haven't been able to maintain an employee engagement score of around 93%, particularly given some of the significant changes we have experienced over the past 18 months.
Steven A. Brass: This includes changes within our leadership team is Sarah and I have gotten up to speed in our roles and changes across the global organization.
Steven A. Brass: Implemented an updated pricing structure completed the first and most significant phase of our ERP implementation system and have continued to face uncertain macroeconomic conditions.
Steven A. Brass: Once again I want to thank our strong and resilient team as we continue to evolve our internal processes and major area of focus will be on implementing cultural pulse checks for real time feedback for us to be more proactive versus being reactive in this area.
Steven A. Brass: As we continue to evolve our internal processes, a major area of focus will be on implementing cultural pulse checks for real-time feedback so that we can be more proactive versus being reactive in this area. And, as previously discussed, we are making great progress on our strategic enabler number four, which is to drive productivity via enhanced systems with our new ERP system. As a lean company with just over 600 employees, we recognize the importance of providing the best systems and have increased our investments in new systems and system enhancement. And we are not done, as we will continue to invest in this important enabler to drive our strategy and support sustainable, profitable growth for our organization. With that, I'll now turn the call over to Sara. Thanks, Steven. Good afternoon,
Steven A. Brass: And as previously discussed we are making great progress on our strategic enablers and before which is to drive productivity via <unk> system with our new ERP system.
Steven A. Brass: Leanne company with just over 600 employees, we recognize the importance of providing the best systems and have increased our investments in new systems and system enhancements and we are now termed as we will continue to invest to support this important enabler to drive our strategy and support sustainable profitable growth for our organization.
With that I'll now turn the call over to Sarah.
Sara Hyzer: Thanks, Steve and good afternoon.
Sara Hyzer: As Steve mentioned, we have had a productive few months and continue to make notable progress against our 4x4 strategic framework. I am proud that our team continues to turn in solid results that continue to align with our long-term 55-30-25 business model. As Steve discussed, we went live with the first phase of our ERP system during the second quarter.
Steve mentioned, we have had a productive few months and continue to make notable progress against our four by four strategic framework.
Sara Hyzer: I am proud that our team continues to turn in solid results that continue to align with our long term $55 30 25 business model.
Sara Hyzer: As Steve discussed we went live with the first phase of our ERP system during the second quarter.
Sara Hyzer: To add some additional color, the new system is now in place over a substantial portion of our business, including the U.S. business, our Latin America distributor business, and our sales in our Asia regional office, which combined make up just under 50% of our revenues. This was a significant first step for the company as we move towards a more streamlined system footprint globally. Given the scale and scope of this implementation, even with those disruptions that Steve mentioned, we ultimately view the implementation as a success with lessons learned. I look forward to taking the learnings from this first implementation and applying those to the next phase of the project.
Sara Hyzer: To add some additional color the new system is now in place over a substantial portion of our business, including the U S business, our Latin American distributor business and our sales in our Asia Regional office, which combined make up just under 50% of our revenue.
Sara Hyzer: This was a significant first step for the company as we move towards a more streamlined system footprint globally.
Given the scale and scope of this implementation even with those disruptions that Steve mentioned, we ultimately theater the implementation as a success with lessons learned.
I look forward to taking the learnings from this first implementation and applying that into the next phase of the project.
Sara Hyzer: I'll begin today with a discussion about our second quarter results, followed by an update on our full year 2024 guidance before turning it back over to Steve for his final thoughts. I am particularly proud that we continue to expand margins from the prior year and perform within our target range of 50 to 55 percent. For the second quarter, gross margin improved 160 basis points over the prior year to 52.4%. Gross margin benefited 130 basis points from favorable sales mix and other miscellaneous mix. This quarter, we saw a benefit from sales mix in IMAEA, which had strong top-line growth. Lower costs associated with specialty chemicals also positively impacted gross margin by 100 basis points.
I'll begin today with a discussion about our second quarter results followed by an update on our full year 2024 guidance before turning it back over to Steve for his final thoughts.
None: Turning to our second quarter gross margin performance.
None: I am, particularly proud that we continue to expand margins from prior year and perform within our target range of 50% to 55%.
None: For the second quarter gross margin improved 160 basis points over prior year to 52, 4%.
None: Gross margin benefited 130 basis points from favorable sales mix and other miscellaneous next.
None: This quarter, we saw a benefit from sales mix and EMEA, which had a strong top line growth.
None: Costs associated with specialty chemicals also positively impacted gross margin by 100 basis points.
Sara Hyzer: To a lesser degree, gross margin was positively impacted by 70 basis points from tactical price increases as we cycle through the anniversary of most of those changes. While we are not planning any significant additional tactical price increases in the near term, we continue to monitor the inflationary environment in various markets. These favorable impacts to gross margin were partially offset by higher costs associated with other input costs, which had an adverse impact of 100 basis points in the quarter.
None: To a lesser degree gross margin was positively impacted by 70 basis points from tactical price increases as we cycled figure to anniversary of most of those changes.
None: While we are not planning any significant additional tactical price increases in the near term we continue to monitor the inflationary environment in various markets.
None: These favorable impacts to gross margin were partially offset by higher costs associated with other input costs, which had an adverse impact of 100 basis points in the quarter.
Sara Hyzer: Gross margin improved over the prior year across all trade blocks. Within the Americas, gross margin improved 130 basis points over the prior year to 49.4%. IMAEA continues to expand gross margin, improving 140 basis points over the prior year to 53.7%.
None: Gross margin improved over prior year across all trade blocks.
None: Within the Americas gross margin improved 130 basis points over prior year to 49, 4%.
None: I may ask continues to expand gross margin improving 140 basis points over prior year to 53, 7% in.
Sara Hyzer: And Asia Pacific again turned in strong gross margin performance, improving 320 basis points over the prior year to 58.5%. This progress through the first half of the year has positioned us to raise the bottom end of our full year 2024 gross margin guidance, which I will discuss shortly. Based on the current trajectory, cost environment, and macro environment, we are targeting to achieve a growth margin of 55% by the end of fiscal year 2026. Now, turning to our cost of doing business, which we define as total operating expenses, plus adjustments for certain non-cash expenses, and is primarily comprised of investments in our employees, investments in our brand, and freight expenses.
None: In Asia Pacific again turned in a strong gross margin performance, improving 320 basis points over the prior year to 58, 5%.
None: This progress through the first half of the year has positioned us to raise the bottom end of our full year 2024, gross margin guidance, which I will discuss shortly.
None: Based on the current trajectory cost environment and macro environment we.
None: We are targeting to achieve gross margin of 55% by the end of fiscal year 2026.
Now turning to our cost of doing business, which we define as total operating expenses less adjustments for certain non cash expenses.
None: And is primarily comprised of investments in our employees investments in our brands and freight expense.
Sara Hyzer: As we continue to grow our top line, we also remain focused on operating efficiently and reducing our costs effectively. As we get more operational leverage, we expect the cost of doing business to perform within our targeted range of 30 to 35% over time. For the second quarter, our cost of doing business was 36% as compared to 33% in the prior year. The increase was primarily driven by increases in our employee-related costs due to higher accrued incentive compensation, annual compensation increases, and higher headcount, partially offset by lower stock-based compensation.
None: As we continue to grow our top line. We also remain focused on operating efficiently and reducing our costs effectively.
None: As we get more operational leverage we expect the cost of doing business to perform within our targeted range of 30% to 35% over time.
None: For the second quarter, our cost of doing business was 36% as compared to 33% in the prior year.
None: The increase was primarily driven by increases in our employee related costs due to higher accrued incentive compensation annual compensation increases and higher head count, partially offset by lower stock based compensation.
Okay.
Sara Hyzer: We also experienced an increase in professional services, including costs associated with our ERP implementation and the acquisition of our Brazilian distributor. Additionally, travel expenses and unfavorable changes in foreign currency exchange rates contributed to higher SG&A. Investments in advertising and promotional activities, or A&P, increased over the prior year as we continue to build our brand and make investments to support long-term profitable growth. As a percentage of sales, A&P investment was 4.8%, compared to 4.6% the prior year. Our A&P investments are always impacted by phasing between quarters, and we still expect the full year to be within our guidance of five to six. Turning now to adjusted EBITDA. While the adjusted EBITDA margin has been under pressure due to the inflationary environment and the strategic investments we are making, we continue to target performing in a range of 20 to 25% over the longer term.
None: We also experienced an increase in professional services, including costs associated with our ERP implementation and the acquisition of our Brazilian distributor.
None: Additionally, travel expense and unfavorable changes in foreign currency exchange rates contributed to higher SG&A expense.
None: Investments in advertising and promotional activities, our A&P increased over prior year as we continue to build our brand and make investments to support long term profitable growth.
None: As a percentage of sales A&P investment was four 8% compared to four 6% prior year.
None: A&P investments are always impacted by phasing between quarters and.
None: And we still expect the full year to be within our guidance of 5% to 6%.
None: Turning now to adjusted EBITDA.
None: While adjusted EBITDA margin has been under pressure due to the inflationary environment and the strategic investments. We are making we continue to target performing in a range of 20% to 25% longer term.
Sara Hyzer: Getting adjusted EBITDA above 20% remains the priority. The sale of our home care and cleaning products portfolio will likely impact the timing of achieving this as we anticipate a potential step back in the short term as we divest this portfolio, but we expect a longer-term benefit as we focus our investments on our higher growth and higher margin maintenance products. For the second quarter, the adjusted EBITDA margin was 17% as compared to 19% in the prior year.
None: Getting adjusted EBITDA about 20% remains the priority.
None: The sale of our homecare and cleaning products portfolio will likely impact the timing of achieving that as we anticipate a potential step back in the short term as we divest this portfolio.
None: The longer term benefit as we focus our investments on our higher growth and higher margin maintenance products.
None: For the second quarter, adjusted EBITDA margin was 17% as compared to 19% in the prior year.
Sara Hyzer: The step back this quarter reflects the higher cost of business items that I previously discussed. Now, let me discuss some items that fall below the adjusted EBITDA line. Net income of $15.5 million declined approximately $1 million or 6% from the prior year.
None: To step back this quarter reflects the higher cost of business items that I previously discussed.
None: Now, let me discuss some items that fall below the adjusted EBITDA line.
None: Net income of $15 5 million declined approximately $1 million or 6% from prior year on.
Sara Hyzer: On a constant currency basis, net income would have decreased 9% compared to the prior year. Our net income reflects the provision for income tax rate of 21.6%. Diluted earnings per common share for the quarter were $1.14 compared to $1.21 in the prior year. The Luted EPS reflects 13.6 million weighted average shares outstanding this quarter, which was essentially flat compared to the prior year. Turning to the balance sheet and capital allocation, our resilient and asset-light business model, coupled with actions we have taken to grow our top line while improving gross margin, continue to contribute to our strong balance sheet and liquidity position. Maintaining a disciplined and balanced capital allocation approach remains a priority for us.
None: On a constant currency basis, net income would have decreased 9% compared to the prior year.
None: Our net income reflects the provision for income tax rate of 21, 6%.
None: Diluted earnings per common share for the quarter were $1 14 compared to $1 21 in the prior year.
None: Diluted EPS reflects $13 6 million weighted average shares outstanding this quarter, which was essentially flat compared to the prior year.
Turning to the balance sheet and capital allocation.
Our resilient and asset light business model, coupled with actions, we have taken to grow our top line, while improving gross margin continue to contribute to our strong balance sheet and liquidity position.
None: Maintaining a disciplined and balanced capital allocation approach remains a priority for us.
Sara Hyzer: For the foreseeable future, we expect maintenance capex of between 1% and 2% of sales per fiscal year, which is in line with our asset life strategy. One of our more significant investments has been in our new ERP system. Through our go-live date in January, we had capitalized approximately $10 million in investments, and this quarter, we began to amortize those costs upon implementing the first phase of the new system. As part of this project, we have incurred and will continue to incur costs that do not qualify for capitalization. We will continue to incur costs that will either be capitalized or expensed, depending on their nature, through the next phases of implementation in the near term. We continue to assess what those phases will be as we consider the needs of the business, supporting any business model changes, like Brazil, and the risk profile of our existing system.
For the foreseeable future, we expect maintenance capex of between one and 2% of sales per fiscal year, which is in line with our asset light strategy.
None: One of our more significant investments has been around our new ERP system.
None: Through our go live date in January we had capitalized approximately $10 million and investments and this quarter, we began to amortize those costs upon implementing the first phase of the new system.
None: As part of this project, we have incurred and will continue to incur costs that do not qualify for capitalization.
None: We will continue to incur costs that will either be capitalized or expense depending on their nature. The next phases of implementation in the near term.
None: We continue to SaaS, what those phases will be as we consider the needs of the business.
None: <unk> any business model changes like Brazil, and the risk profile of our existing systems.
Sara Hyzer: We also continue to make progress in lowering our inventory levels, which we had invested in to stabilize our U.S. supply chain in prior years. Our inventory levels peaked in the first quarter of fiscal 2023, and since then, we have reduced inventory by 41 million, or 34%. In addition, we continue to return capital to our shareholders through regular dividends and buybacks. Annual dividends will continue to be targeted at greater than 50% of earnings. On March 19th, our Board of Directors approved a quarterly cash dividend of $0.88 per share.
None: We also continue to make progress in lowering our inventory levels, which we had invested in to stabilize our U S supply chain in prior years.
None: Our inventory levels peaked in the first quarter of fiscal 2023, and since then we have reduced inventory by $41 million or 34%.
In addition, we continue to return capital to our shareholders through regular dividends and buybacks.
Annual dividends will continue to be targeted at greater than 50% of earnings.
None: On March 19th our board of Directors approved a quarterly cash dividend of <unk> 88 per share.
Sara Hyzer: During the second quarter, we repurchased approximately 11,500 shares of our stock under our current share repurchase plan at a total cost of approximately $2.9 million. We will continue to be active in the market and expect to repurchase at least enough shares to offset shares issued for equity compensation. Going forward, our objective is to return cash to investors in the most accretive manner. Our cash flow from operations for the first half of fiscal year 2024 was $44.9 million, and we have elected to use $21.6 million of that cash to pay down a portion of our short-term higher interest rate borrowing.
None: During the second quarter, we repurchased approximately 11500 shares of our stock under our current share repurchase plan at a total cost of approximately $2 9 million.
None: We will continue to be active in the market and expect to repurchase at least enough shares to offset share associated for equity compensation.
None: Going forward, our objective is to return cash to investors and the most accretive manner.
Our cash flow from operations for the first half of fiscal year 2024 was $44 9 million and we have elected to use $21 $6 million of that cash to pay down a portion of our short term higher interest rate borrowings.
Sara Hyzer: Our intent is to continue to pay down higher interest borrowings under the current interest rate environment. That concludes my discussion of our reported results. Let me now provide an update on our guidance. For the first half of fiscal year 2024, we are pleased with our solid performance and progress against our four by four strategic framework. It is important to note that results may vary from quarter to quarter, and comparisons to the prior year will vary particularly by trade block due to the timing of those prior year price changes and the temporary resulting impact on volume. We continue to monitor the market, and our guidance assumes no major changes to the current macroeconomic environment in the second half of fiscal year 2024.
None: Our intent is to continue to pay down higher interest borrowings under the current interest rate environment.
None: That concludes my discussion on our reported results. Let me now provide an update on our guidance.
None: For the first half of fiscal year 2024, we are pleased with our solid performance and progress against our four by far strategic framework.
None: It is important to note that results may vary from quarter to quarter and comparisons to the prior year will vary, particularly by trade block due to the timing of those prior year price changes and the temporary resulting impact on volumes.
None: We continue to monitor the market and our guidance assumes no major changes to the current macroeconomic environment in the second half of fiscal year 2024.
Sara Hyzer: It is also important to note that our full-year guidance, as previously communicated, anticipated the acquisition of our Brazilian marketing distributor. Based on these factors and assumptions, we are therefore reiterating annual net sales growth between 6% and 12% with net sales between $570 million and $600 million in constant currency. We are increasing the bottom end of our gross margin range to 51.5%, resulting in a new annual guidance range of 51.5% to 53%, an increase from our prior guidance of 51% to 53%. This is based on our current performance, mixed trends, and current cost environment. Advertising and promotion investment remains unchanged, and we expect this to be between 5 and 6% of net sales. We are reducing our provision for income tax to be between 23 and 24 percent, a decrease from our prior guidance of 24 and 25 percent.
None: It is also important to note that our full year guidance as previously communicated anticipated the acquisition of our Brazilian marketing distributor.
None: Based on these factors and assumptions we are therefore, reiterating annual net sales growth between six and 12% with net sales between $570 million and $600 million in constant currency.
None: We are increasing the bottom end of our gross margin range to 51, 5%, resulting in a new annual guidance of $51, 5% to 53% an increase from our prior guidance of 51% to 53%.
None: This is based on our current performance mixed trend and current cost environment.
None: Advertising and promotion investment remains unchanged and we expect us to be between 5% and 6% of net sales.
None: We are reducing our provision for income tax to be between 23 and 24%.
None: A decrease from our prior guidance of 24 and 25%.
Sara Hyzer: Given the updated growth margin guidance and the slightly lower tax rate, we are increasing our net income guidance and now expect it to be between $67.7 and $71.8 million, up from our prior guidance of $65 and $70 million. And we are increasing our diluted EPS guidance to be between $5 and $5.30 from our prior guidance of 478 and 515. Our diluted EPS guidance is based on an estimated 13.6 million weighted average shares outstanding, as we had previously communicated. That completes the financial overview. Now I would like to turn the call back to you. Thank you, Sara.
None: Given the updated gross margin guidance and the slightly lower tax rate, we are increasing our net income guidance and now expect it to be between 67, seven and $71 8 million.
None: From our prior guidance of 65 and $79 million.
None: And we are increasing our diluted EPS to be between $5 and 530.
None: From our prior guidance of $4 78, and $5 15.
None: Our diluted EPS guidance is based on an estimated $13 6 million weighted average shares outstanding as we had previously communicated.
None: That completes the financial overview.
None: I'd like to turn the call back to Steve. Thank.
Steven A. Brass: Thank you Sarah.
Steven A. Brass: In closing, we're proud of the progress we've made this quarter, particularly as it relates to our strategic framework and our longer-term goals. In summary, what did you hear today from us on this call? You heard that we saw top-line growth in all three trade blocks for the second consecutive quarter. You heard that we continue to execute non-Muslim battles; sales of WD-40 multi-use products and WD-40 specialists were both up 10% year-to-date, sales of premiumized products were up 13%, and digital commerce sales were up 24% year-to-date. You heard that we're incredibly pleased with how Gross Margin is holding up, and our first half performance has positioned us to increase the bottom end of our full year guidance range. You also heard that we're increasing our annual net income and adjusted EPS guidance for the full fiscal year 2024. You heard that we've made notable progress against our 4x4 strategic framework with the announced acquisition of our Brazilian marketing distributor, our decision to pursue a sale of our U.S. and U.K. home care and cleaning products portfolio, and a successful go-live of the first phase of our new ERP system.
Steven A. Brass: Closing, we are proud of the progress we've made this quarter, particularly as it relates to our strategic framework and our longer term goals.
Steven A. Brass: In summary, what did you hear from us on this call.
You heard that we saw top line growth in all three trade blocks for the second consecutive quarter.
Steven A. Brass: You heard that we continue to execute no must win battles sales activity 40, multi use product and WD 40 specialist were both up 10% year to date sales of premium <unk> products were up 13% in digital commerce sales were up 24% year to date.
Steven A. Brass: You heard that we're incredibly pleased with have gross margin is holding up in our first half performance has positioned us to increase the bottom end of our full year guidance range.
Steven A. Brass: You heard that we're also increasing our annual net income and adjusted EPS guidance for the full fiscal year 2022.
Steven A. Brass: You heard that we have made notable progress against our four by four strategic framework with the announced acquisition of our Brazilian marketing distributor.
Our decision to pursue a sale of our U S and UK homecare and cleaning products portfolio and a successful go live with the first phase of our new ERP system.
Operator: You heard the loss of revenue from the prospective sale of our home care and cleaning products portfolio will be partially offset by the Brazil marketing distributor acquisition in the short term. Over the longer term, we will fully offset this revenue loss by increasing investments to accelerate growth in our identified high potential. And you heard that we've been able to maintain our employee engagement score of around 93%, reflecting our passionate and resilient team, which is a strong competitive advantage for us. Thank you for joining our call today; we'd now be pleased to answer your questions. Ladies and gentlemen, if you would like to register a question, please press star one on your telephone keypad. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Steven A. Brass: The loss of revenue from the prospective sale of our homecare and cleaning products portfolio will be partially offset from the Brazil marketing distributor acquisition in the short term.
The longer term, we will fully offset this revenue loss by increasing investments to accelerate growth in our identified high potential markets.
Steven A. Brass: You heard that we've been able to maintain our employee engagement score of around 93%, reflecting our passionate and resilient team, which is a strong competitive advantage for us.
None: Thank you for joining our call today, we'd now be pleased to answer.
Steven A. Brass: Questions.
None: Ladies and gentlemen, if you would like to register a question. Please press star one on your telephone keypad. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Operator: If your question has been answered and you would like to withdraw your registration, please press star one again. One moment, please, for the first question. We'll take our first question from Daniel Rizzo with Jeff. Hi, everyone.
None: Your question has been answered and you would like to withdraw your registration. Please press star one again.
None: One moment please for the first question.
None: We will take our first question from Daniel Rizzo with Jefferies.
Daniel Dalton Rizzo: Hi, everyone. Thanks for taking my questions.
Daniel Dalton Rizzo: Thanks for taking my questions. I guess to start with, and maybe I missed this, but I was just wondering if the softness in Canada was just due to timing issues, or what specifically was going on there? Because I think it was down 24% year over year in the quarter. Hey, Daniel.
Daniel Dalton Rizzo: I guess I'll start with maybe I missed this but I was just wondering what if.
Daniel Dalton Rizzo: Softness in Canada was just due to timing issues or what specifically was going on there because I think it was down 24% year over year in the quarter.
None: Hey, Daniel So we're in the middle of a conversion of our smart straw product in Canada. So what you saw was the.
Steven A. Brass: So we're in the middle of a hard conversion of our SmartStraw product in Canada. So what you saw was the withdrawal of the current formats and the moving to SmartStraw. And so that did have a negative impact on the quarter. But looking forward, as we premiumize with quite a hard conversion in the Canadian market, you will see significant revenue growth as a result of that in the back half of the year. So the hard conversion is over as of now. It is being completed. It is mostly through, and we are executing it as we speak.
Daniel Dalton Rizzo: Withdrawal of the current formats and the moving to smart straw and so that did have a negative impact in the quarter, but looking forward as we premium eyes with a quite a hard conversion in the Canadian market you will see significant revenue growth a result of that in the back half of the year.
Daniel Dalton Rizzo: So the harder conversion is over.
Daniel Dalton Rizzo: No.
Daniel Dalton Rizzo: It is it is being completed it is mostly through and we are executing as we speak and so in the second half you should see that uplift from pre more premium formats within Canada market yet.
Steven A. Brass: And so in the second half, you should see that uplift from more premium formats within Canada Markets. Okay, and then you mentioned the potential sale of the home care products. Have you ever said how much they contribute to EBITDA on an annual basis? How much?
None: Okay, and then you mentioned the potential sell of the homecare products have you ever said, what they contribute to EBITDA.
None: On an annual basis how much.
Steven A. Brass: We haven't, Daniel, no. But I mean, if you look at it in terms of revenues, FY23 revenues from last year are about $26 million combined between the US and the UK. It represents about 5% of our overall sales revenue. And obviously, those products are sold at slightly lower gross margins.
None: We havent Daniel no, but I mean, if you look at it in terms of the revenues. If you take FY2023 revenues from last year was about $26 million combined between the U S and the U K a represents about 5% of our overall sales revenue.
None: And obviously those products are sold slightly grow most level gross margins. So we've spoken about those brooks, having a margin of low <unk> 41, 42% and so you should be able to do the math from there.
Steven A. Brass: So we've spoken about those products having a margin of about the low 40s, 41, 42%. And so, you know, you should be able to do the math from there. No, that's perfect.
No that's perfect. Thank you very much.
Steven A. Brass: Thank you very much. So with the distributor acquisition in Brazil, to kind of, I guess, kind of boost things in terms of growing through distribution, I was wondering if there are other opportunities like that, or this was just a one-off thing. Because I mean, you haven't really done too many deals in the past, but I was wondering if that's a new way of looking at things, or this just happened. So we're very transparent about where we believe our biggest growth opportunities are around the world. With our geographic expansion, we put on our top 20 growth market opportunities. And so we're very clear about where those are.
None: So once the distributor acquisition in Brazil to kind of I guess kind of two things in terms of growing through distribution I was wondering if there's other opportunities like that or this is just a one off thing because you haven't really done.
None: Too many deals in the past, but I was wondering if that's a new way of looking at things or this just appeared.
So we're very transparent about where we believe our biggest profit growth opportunities all around the world with our geographic expansion, we put on our top 20 growth market opportunities and so we're very clear where those are how we execute the question. We ask ourselves how do we grow the quickest in those opportunities and so each.
Steven A. Brass: How we execute, I mean, the question we ask ourselves is, how do we grow the quickest in those opportunities? And so the answer to each market is different. As you know, we're heavily invested in China with 60 people in China, and that's growing very nicely for us. And so how we invest to accelerate growth is something that's very much on our mind, particularly as we think now about potentially reinvesting some of the proceeds from the sale to further accelerate growth in those key areas. Okay, and then the final question about the amortization costs from the $10 million for the ERP transition. I was wondering if that's it I assume that it's going to linger through the back half of the year, but I was wondering if it's going to last until next year. I think I might have asked for this in the past, but I forget the answer. The amortization cost, in particular, Daniel? This is Sara.
None: The answer to each market is different as you know we're heavily invested in China was 60 people in China, and Thats growing very nicely for us.
None: So how we invest to accelerate growth is something that's very much on our mind, particularly as we think now about potentially reinvesting some of the proceeds from the sale to further accelerate growth in those key areas.
None: Okay, and then and final question with the amortization costs from the $10 million for the ERP transition.
None: I was wondering if that's I assume that's going to linger through the back half a year, but I was wondering if it's going to last into next year I think I might've vessels pass.
None: And I forget the answer.
None: The amortization costs in particular, Daniel this is Sarah.
Sara Hyzer: Yes. Yeah, so we did start amortizing. We had about $10 million very specifically for the ERP project. That started in Q2, middle of Q2, and we are amortizing that over 10 years. So you can pretty easily do the math there; you'll see about a million dollars a year, just under a million dollars a year with the first phase. And then as we continue to roll out at new locations, we'll be adding to that bucket. And then every time we go live, you know, we'll be able to disclose what those amounts are. Okay. Thank you very much, guys. You're welcome. And we'll take our next question from Linda Bolton-Weiser with D.A. Davidson.
Daniel Dalton Rizzo: Yes. So we did start amortizing, we had about $10 million split very specifically to the ERP project that started in Q2 middle of Q2, and we are amortizing that over 10 years.
Daniel Rizzo: No.
Daniel Dalton Rizzo: Pretty easy to do the math, there, you'll see about a $1 million a year just under $1 million a year with the first phase and then as we continue to rollout new locations will be adding to that bucket and then every time we go lives.
Daniel Dalton Rizzo: Being able to disclose what those amounts are.
None: Alright, Thank you very much guys.
None: Youre welcome.
None: Okay.
Speaker Change: And we will take our next question from Linda Bolton Weiser with D. A Davidson.
Thank you Hello.
Linda Ann Bolton: Thank you. Hello, I think, well, you did mention that there was a little bit of disruption or some challenges related to the ERP implementation in the US. Is there any way to quantify that impact on the quarter? Sure, I can. I can take that. Hi, Linda.
Speaker Change: So I think well you didn't mention that there was some a little bit of.
Speaker Change: Disruption or something challenges related to the ERP implementation in the U S.
Speaker Change: Hmm.
Speaker Change: Is there any way to quantify that.
Speaker Change: So in the quarter.
None: Sure I can I can take that hi, Linda.
Sara Hyzer: We are estimating a top line volume reduction of about $2.4 million from the disruption for the quarter. And that is really only in the US. We had some disruption in Latin America and ARO, but we were able to make that up before the end of the quarter. So that's the estimate that we have for the ERP disruption. And so is that like shipments that just couldn't be made and they'll kind of be pushed into the next quarter or is it just kind of lost revenue that won't be regained?
Linda Ann Bolton: Our estimating about a topline volume reduction of about $2 $4 million from the disruption for the quarter and that really all as in the U S. We had some disruption in Latin America, and <unk>, but we were able to make that up before.
Linda Ann Bolton: Before the end of the quarter. So that's the that's the estimate that we have for the ERP disruption.
Linda Ann Bolton: Okay.
And so is that like shipments with just couldn't be made and it'll be kind of be pushed into the next into the third quarter or is it just kind of lost revenue.
Linda Ann Bolton: That won't be re regains.
Sara Hyzer: So at this point, the estimate of two and a half is what we believe is lost revenue, and the team is obviously working hard on trying to make that up. But it really was around disruption related to processing, fulfilling, and shipping orders. And ultimately, there was some short stock at some of our customers during the, you know, during a few weeks during the go live. Okay, and then.
Linda Ann Bolton: So at this point.
Linda Ann Bolton: The estimate of the two and a half is what we believe is lost revenue and the team is obviously working hard on trying to make that up but it really was around disruption of.
Related to processing fulfilling and shipping orders and ultimately there was some short stock at some of our customers during the during a few weeks during the go lives.
Linda Ann Bolton: Okay.
Linda Ann Bolton: And then.
Steven A. Brass: I was just curious, um..., and about the Brazilian business. When you mentioned $10 million, I think, Steve, you said, "a revenue opportunity in the next year." Can you clarify, is that like incremental, or is that just total versus what it was? And then, I mean, some of it is just accounting for removing the distributor margin from the equation. So I'm just kind of wondering how much of a week-type real step up in revenue that represents. Can you explain that a little bit? So, if you look at the basic model that we had, we had a royalty model in Brazil, and so that was a $2 million revenue stream, and that was, I mean, when you have a royalty model, it's almost all gross margin minus a few costs, right? So it's a different model.
None: I was just curious.
Our Brazilian business.
None: <unk>.
None: But when you mentioned $10 million I think Steve you set a revenue opportunity.
None: Okay.
Is that incremental or is that just total.
None: Versus what it was and then on this one.
None: All of that is just accounting for removing the.
None: Distributor margin from the equation. So I'm just kind of wondering how much of a week had a real step up.
Revenue that represents can you explain that a little bit.
None: Sure sure. So if you look at the basic model that we had is we had a royalty model in Brazil, and so that was a $2 million revenue stream and that was it's almost when you have a royalty model. It's almost all gross margin months few costs right. So it's a different model.
Steven A. Brass: I mean, you have to say that Brazil is one of our, in terms of units sold, it's actually even bigger than Mexico was when we took over the Mexican market. And so we're very confident in our ability to be able to, you know, given the experience we've had in Mexico, to be able to transform that and realize the incremental value as a direct market. And so in our first year, as we said, in the back half of this year, that will be $5 million of increment on top of the, you know, the million dollars we would have done last year. And then in the first six months of next year, we'll have a further $5 million plus whatever we can put on top. And so, in the median term, we see a $20 million plus market in Brazil, which is exactly what we achieved in Mexico over a three and a half year period. And you know, opportunities for growth well beyond that in the long term. Okay, gotcha. And then, I was just wondering.
I mean, you have to say that Brazil is one of our in terms of units sold.
None: Actually even bigger than Mexico was when we took over the Mexico market and so we're very confident in our ability to be able to given the experience. We've had in Mexico to be able to transform that realize the incremental value is a direct market and so in our first year as we said so.
None: In the back half of this year that will be $5 million of increment on top of the <unk>.
We would've done last year.
None: Then so first six months of next year, we'll have a further $5 million plus and whenever we can put on top of <unk>. So in the medium term, we see a $20 million plus market in Brazil, which is exactly what we achieved in Mexico over a three and a half year period and opportunities for growth well beyond that in the long term.
None: Okay Gotcha and then.
None: I was just wondering.
Linda Ann Bolton: Sorry, switching back for a minute to the Americas. I know it's in your queue, but I was curious if you could give volume and pricing for the whole company and then what it was in the quarter for the Americas. Sure, Linda. I'll start with the whole company.
None: Sorry, switching back for a minute to the Americas.
None: I noticed in your Q.
None: I was curious if you could give.
None: Volume and pricing for the whole company and then what it was in the quarter for the Americas.
None: Sure Linda I'll start with the whole company. So volume just for the quarter was up 2% and the impact of price was an impact of 3% for the for the full year and then currency had an impact of 2%.
Sara Hyzer: So volume, just for the quarter, was up 2%. And the impact of price was an impact of 3% for the full year, and then currency had an impact of 2%. Okay. Thanks, everyone. Bye-bye.
None: Okay.
None: So.
None: Alright.
Sara Hyzer: [inaudible] Sorry, that's the pricing of 3% was for the quarter or for the whole year. And for the year to date, we're right at 3% as well. So for the halfway through the year, we're at 3% for the impact of selling price, and then the increase in sales volume is 4%. Okay, gotcha. And then, yeah, that's based on the growth, a growth of 10%. So that's how the 10% is being used, if you look at halfway through the year, we're up 10% of the 10, 3 is related to selling price, and 4 is related to volume. Okay.
None: Pricing of 3%.
None: <unk> was for the quarter or for the half.
None: For the quarter and for the year to date, we're right at 3% as well so further halfway through the year, we're at 3%.
None: For impact of selling price and then the increase in the sales volume is 4%.
None: Okay, Gotcha, and yes, that's based on the growth a growth of 10%. So that's how the 10% has been.
None: Look at halfway through the year, we're up 10% of the 10 three is related to selling price and four is related to volume.
None: Okay.
Linda Ann Bolton: And I guess, so the 3% pricing in the quarter, I mean, I guess that's a little bit more than I would have thought because you're, Um, Unknown Speaker. Your anniversary, Anne. I don't know. I guess I just thought it would kind of flatten out soon. So I don't know, is there any way you can give us some color on how we should expect that cadence to go for the pricing line? Yeah, so we do expect that to come down, not run at that rate for the second half of the year. We are continuing to lap price. So we're predominantly through most of the larger price increases now in both the Americas and EMEA markets. In the Asia pack, we are still lapping some more recent price increases related to Australia, because the timing of the inflationary environment in Australia was a little bit later.
None: And I guess, so the 3% pricing in the quarter.
None: It's a little bit more than I would've thought because you're.
None:
Youre Anniversarying.
None: I just thought it would have kind of flattened out sooner.
None: I don't know is there any way you can give us some color on how we should expect that cadence to go to the pricing line.
None: Yes, so we do expect that to come down not run at that rate for the second half of the year. We are continuing to lap price. So we're predominantly through most of the larger price increases now in both the Americas and EMEA markets in.
None: Asia Pac we are still lapping some.
More recent price increases related to Australia, the timing of the inflationary environment in Australia was a little bit later and so there is some price activities that we implemented really the later half of last year and really even into this year in Australia. After a couple of different price changes or price increases so there.
Linda Ann Bolton: And so there's some price activities that we implemented, really the later half of last year, and really even into this year in Australia through a couple different price changes or price increases. So there's still some lapping, but we're through the most, we're through the biggest pieces of it. Okay, and then, Finally, just on.., on Asia, I guess it was one region that , , , , , , , , , , , , , , So I think, you know, where we're at overall in Asia is if you look, it's been mapped a little bit by currency, so constant currency rate, our growth overall, I believe we're up 5% year to date. China's up in local currency 12% year to date.
None: Still some lapping but we're through the most we're through the biggest pieces of it.
None: Okay.
None: And then.
None: Finally, just on.
None: On Asia.
I guess that was one region that kind.
None: It was a little bit lower growth than I thought and then I noticed you said was.
None: It was down I know that's small in that region, but is there any particular things going on.
None: Okay.
None: Okay.
None: So I think.
None: Overall in Asia is if you look it's been masked a little bit by currency or constant currency rate.
None: Growth overall, and we were up 5% year to date, China is up in local currency, 12% year to date, and so we maintain double digit growth in China and all the other regions.
Linda Ann Bolton: And so we maintain double-digit growth in China, and all the other regions are up, but perhaps not as, you know, as high as we thought. So we see a very strong back half compared with the prior year for Asia Pacific. So there's nothing to be worried about. I think by the end of the year, we'll have caught up, and all three trading blocks we see operating within our guidance range. So 5% to 8% for the Americas, 10% to 13% for Asia Pacific, and 8% to 11% for Euromaya. We're very optimistic about the second half of the year. Okay, and then just one final one. You know, I was trying to figure out the math here on your EPS increase for the guidance and the tax rate. I don't think it was more than like five or 10 cents.
None: Perhaps not as high as we sold so we see a very strong back half.
Against prior year for Asia Pacific.
None: So there's nothing to be worried about I think by.
None: By the end of the year, we'll have corridor.
None: All three trading blocks, we see operating within our guidance range of 5% to 8% the Americas, 10% to 13% for Asia Pac and 811%.
None: <unk> said were very optimistic about the second half of the year.
None: Yes.
None: Okay.
None: Okay.
None: Just one final one.
None: Yes.
None: I was trying to figure out from the App here on your EPS increase for the guidance and the.
None: The tax rate I don't think it was more than like five or 10 cents and yet you raised the midpoint of the range by <unk> <unk>.
Linda Ann Bolton: And yet you raised the mid point of the range by 18. So is it fair to say that the rest of that is operational? Moving in the growth margin being better. Yeah, most of the change is as we're just getting, you know, we're halfway through the year now, and we have more visibility as to how we believe margin will play out for the second half of the year. So that's really the biggest change and, you know, the narrowing of the EPS range. There's obviously a little play in there on the income tax line as well.
None: Is it fair to say that the rest of that is operational.
None: We did in the gross margin being better.
None: Yes, most of the change is as we're just getting we're halfway through the year now we have more visibility as to how we believe margin will play out for the second half of the year. So that's the really the biggest change and the narrowing of the of the EPS range. There's obviously a little play in there on the income tax law.
Sara Hyzer: But those are the biggest two drivers for the change in the guidance. Okay, that's all for me. Thank you very much. Thanks, Sundar. Ladies and gentlemen, that does conclude our allotted time for questions. We thank you for your participation on today's conference call and ask that you please disconnect your line.
None: As well, but those are the biggest two drivers for the change in the guidance.
None: Okay. That's all for me thank you very much.
None: Thanks, Linda Linda.
None: Okay.
None: Ladies and gentlemen that does conclude our allotted time for questions. We thank you for your participation on today's conference call and ask that you. Please disconnect your line.
None: Yeah.
None: Okay.
None: Yeah.
Okay.