WD-40 pany(WDFC) - 2021 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements (Unaudited) The unaudited financial statements for May 31, 2021, show total assets increased to $427.9 million, with nine-month net sales reaching $372.9 million and net income $61.8 million Condensed Consolidated Balance Sheets As of May 31, 2021, total assets increased to $427.9 million, total liabilities to $225.3 million, and shareholders' equity to $202.6 million | Balance Sheet Highlights | May 31, 2021 ($ thousands) | August 31, 2020 ($ thousands) | | :--- | :--- | :--- | | Total Current Assets | 240,943 | 185,154 | | Cash and cash equivalents | 80,362 | 56,462 | | Inventories | 47,768 | 41,264 | | Total Assets | 427,887 | 362,637 | | Total Current Liabilities | 79,118 | 60,116 | | Long-term borrowings | 116,498 | 113,098 | | Total Liabilities | 225,255 | 202,324 | | Total Shareholders' Equity | 202,632 | 160,313 | Condensed Consolidated Statements of Operations For the periods ended May 31, 2021, net sales grew to $136.4 million for the quarter and $372.9 million for nine months, with diluted EPS reaching $4.48 | Income Statement Highlights | Three Months Ended May 31, 2021 ($ thousands) | Three Months Ended May 31, 2020 ($ thousands) | Nine Months Ended May 31, 2021 ($ thousands) | Nine Months Ended May 31, 2020 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | 136,405 | 98,247 | 372,869 | 296,852 | | Gross Profit | 72,458 | 53,050 | 204,711 | 160,195 | | Income from Operations | 27,321 | 19,812 | 76,368 | 52,701 | | Net Income | 21,006 | 14,524 | 61,820 | 41,045 | | Diluted EPS | $1.52 | $1.06 | $4.48 | $2.98 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased to $64.0 million for the nine months ended May 31, 2021, with a net increase in cash of $23.9 million | Cash Flow Highlights | Nine Months Ended May 31, 2021 ($ thousands) | Nine Months Ended May 31, 2020 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 63,975 | 40,756 | | Net cash used in investing activities | (10,371) | (17,090) | | Net cash (used in) provided by financing activities | (30,615) | 37,490 | | Net increase in cash and cash equivalents | 23,900 | 61,322 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, business segments, debt covenants, purchase commitments, and a legal proceeding in Indonesia - The company's revenue is disaggregated by geographic segment (Americas, EMEA, Asia-Pacific) and product group (Maintenance products, Homecare and cleaning products)[77][95] - As of May 31, 2021, the company was in compliance with all debt covenants under its Note Agreement and Credit Agreement, which include a maximum consolidated leverage ratio of 3.5 to 1 and a minimum interest coverage ratio of 3 to 1[62][63] - The company is involved in litigation in Indonesia where a plaintiff is seeking over $25.0 million in damages related to trademark enforcement actions. The company believes an unfavorable outcome is not probable but is unable to estimate a possible loss[84][86] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong sales growth to $372.9 million and a 51% increase in net income to $61.8 million, driven by pandemic-related demand, despite ongoing supply chain challenges Overview and COVID-19 Impact The company experienced increased sales in fiscal year 2021 due to pandemic-driven consumer behavior but faces significant supply chain disruptions and rising costs - For the nine months ended May 31, 2021, consolidated net sales increased 26% (21% in constant currency) compared to the prior year, driven by pandemic-related consumer behavior[112] - The company is experiencing supply chain challenges, including aerosol production capacity constraints, competition for freight, and increased raw material costs, which have made it difficult to meet high demand, especially in the Americas[114] Results of Operations - Three Months Ended May 31, 2021 Third-quarter net sales grew 39% to $136.4 million, primarily driven by 80% growth in EMEA, while gross margin slightly decreased to 53.1% | Net Sales by Segment (Q3 2021) | Amount ($ thousands) | Change from Prior Year (%) | | :--- | :--- | :--- | | Americas | 60,046 | 20% | | EMEA | 58,587 | 80% | | Asia-Pacific | 17,772 | 14% | | Total | 136,405 | 39% | - Gross margin for Q3 2021 was 53.1%, down from 54.0% YoY, primarily impacted by a 1.8 percentage point increase in manufacturing costs due to supply chain constraints from the COVID-19 pandemic[134][135] - SG&A expenses increased by $10.2 million to $38.1 million, mainly due to a $6.1 million increase in employee-related incentive compensation and higher freight costs[137] Results of Operations - Nine Months Ended May 31, 2021 Nine-month net sales increased 26% to $372.9 million, with EMEA sales up 44%, and gross margin improved to 54.9% | Net Sales by Segment (Nine Months 2021) | Amount ($ thousands) | Change from Prior Year (%) | | :--- | :--- | :--- | | Americas | 160,390 | 12% | | EMEA | 163,150 | 44% | | Asia-Pacific | 49,329 | 24% | | Total | 372,869 | 26% | - Gross margin for the nine-month period improved to 54.9% from 54.0% YoY, favorably impacted by 1.2 percentage points from lower costs of petroleum-based specialty chemicals[171][172] - SG&A expenses increased by $19.2 million to $109.6 million, driven by a $15.1 million increase in employee-related costs from higher incentive compensation accruals due to stronger financial results[175] Liquidity and Capital Resources The company maintains strong liquidity with $80.4 million in cash, net cash from operations of $64.0 million, and refinanced $50.0 million of credit facility draws - Net cash provided by operating activities increased to $64.0 million for the nine months ended May 31, 2021, up from $40.8 million in the prior year, primarily due to a $20.8 million increase in net income[198][204] - In Q1 2021, the company refinanced $50.0 million of its revolving credit facility with $52.0 million in new senior notes, extending debt maturities to 2027 and 2030[200][201] - The company suspended its share buy-back plan in April 2020 to preserve cash; the plan subsequently expired on August 31, 2020. No shares were repurchased during the nine months ended May 31, 2021[202][228] Quantitative and Qualitative Disclosures About Market Risk Market risk disclosures are incorporated by reference from the company's Annual Report on Form 10-K for the fiscal year ended August 31, 2020 - Information regarding quantitative and qualitative disclosures about market risk is incorporated by reference from the company's 10-K for the fiscal year ended August 31, 2020[221] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of May 31, 2021, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of May 31, 2021, the company's disclosure controls and procedures were effective[223] - No material changes were made to the company's internal control over financial reporting during the third quarter of fiscal year 2021[224] PART II — OTHER INFORMATION Legal Proceedings The company is defending itself in the Jakarta Litigation in Indonesia, where a plaintiff seeks over $25.0 million in damages related to a trademark dispute - The company is defending itself in the Jakarta Litigation in Indonesia, where a plaintiff seeks over $25.0 million in damages related to a trademark dispute. The company believes an unfavorable outcome is not probable[84][86][226] Risk Factors No material changes to risk factors were reported since the last Annual Report on Form 10-K - No material changes to risk factors were reported since the last Annual Report on Form 10-K[227] Unregistered Sales of Equity Securities and Use of Proceeds The company's share buy-back plan expired on August 31, 2020, with no repurchases made during the first nine months of fiscal year 2021 - The company's share buy-back plan expired on August 31, 2020, and no repurchases were made during the nine months ended May 31, 2021[228] Exhibits This section lists exhibits filed with the Form 10-Q, including debt agreement amendments, Sarbanes-Oxley certifications, and iXBRL financial statements - Exhibits filed include amendments to debt agreements, Sarbanes-Oxley certifications, and financial data in iXBRL format[229]