WD-40 Co (WDFC) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Good day, and welcome to the WD-40 Company first-quarter FY17 earnings conference call. Today's call is being recorded.

(Operator Instructions)

I'd now like to turn the presentation over to the host for today's call, Ms. Wendy Kelley, Director of Investor Relations and Corporate Communications. 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, Garry Ridge, and Vice President and Chief Financial Officer, Jay Rembolt.

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-Q for the period ending November 30, 2016. These documents are available on our Investor Relations website at investor.WD40Company.com. A replay and transcript of today's call will also be made available at that location 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 SEC filings, as well as our earnings presentation.

As a reminder, today's call includes forward-looking statements about our expectation for the Company's future performance. Of course, actual results could differ materially.

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 SEC 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, January 9, 2017. The Company disclaims any duty or obligation to update any forward-looking information, whether as a result of new information, future events or otherwise. With that, I'd now like to turn the call over to Garry.

Thank you, Wendy. Good day, and thanks for joining us for today's conference call.

Today we reported net sales of $89.2 million for the first quarter of FY17, which is a decrease of 4% from the first quarter of last year. Net income for the first quarter was $11.8 million compared to $12.1 million in the first quarter of last fiscal year, a decrease of 3% year over year. Diluted earnings per share for the first quarter were $0.82 compared to $0.83 for the same period last year.

Now let's start with a discussion about our strategic initiatives. Strategic initiative number one is to grow WD-40 Multi-Use product. Our most important strategic initiative is to take the blue and yellow can with little red top to more places for more people who will find more uses more frequently. We believe we can grow WD-40 Multi-Use product to approximately $600 million in revenue by the end of FY25.

In the first quarter, global sales of Multi-Use product were down 7% compared to the first quarter of last year. Despite the choppy start to the year, we have many exciting things planned for the blue and yellow can with the little red top during FY17. We will begin expanding distribution of our newest innovation, WD-40 Easy Reach Flexible Straw, to other geographies beginning with Australia later this month. In EMEA we will increase the rate of converting European end-users to our more innovative Smart Store delivery system.

Strategic initiative number two is to grow the WD-40 Specialist line. Once we built our brand equity and established the power of the shield in a particular geography, we can leverage that brand recognition to develop new product lines like WD-40 Specialist. We believe we can grow WD-40 Specialist to approximately $125 million in revenues by the end of FY25. In the first quarter sales of WD-40 Specialist were $5.8 million, which represents a 36% increase over the first quarter of last year.

In the first quarter we're excited to have launched our new line of Specialist greasers in the United States, which is a line of grease products designed to prevent rust and corrosion and to protect across extreme conditions. We are optimistic about the long-term opportunities for WD-40 Specialist product line; however, there will be some volatility in sales levels along the way due to the timing of promotional programs, the building of distribution and various other factors that come with building a new product line.

Strategic initiative number three is to broaden product and revenue base. Our goal under this initiative is to leverage the recognized strengths of the WD-40 Company to derive revenue from new sources and brands. We continue to expand the product offering within our 3-IN-ONE, GT85, as well as WD-40 Bike.

Strategic initiative number four is to attract, develop and retain outstanding tribe members. Our goal under this initiative is to attract, develop and retain talented tribe members. At the end of the first quarter we had a total of 445 tribe members globally. Our long-term target under this initiative is to grow employee engagement to greater than 95%.

We are a learning and teaching organization, and one of the unique internal programs which captures this spirit is called Tribology University. The goal of this global program is to educate our tribe members so they become the indispensable go-to partners for product knowledge and end-user insights. Tribology University continues to evolve and grow, and our tribe and I am excited about the future of the program.

Strategic initiative number five is operational excellence. We are continuously focused on optimizing resources, systems and processes as well as applying rigorous commitment to quality assurance, regulatory compliance and intellectual property protection. We are excited to share we have finally completed the upgrade of our ERP system in EMEA. I'd like to thank all the tribe members that helped make this transition a successful one.

That completes the strategic initiatives update, so let's move on to the details of our first-quarter results starting with sales. Consolidated net sales were $89.2 million in the first quarter, down $3.3 million versus last year. In the first quarter we generated approximately 40% of our sales in currencies other than the US dollar, and changing foreign currency exchange rates continue to be a headwind for us.

Translation of our foreign subsidiaries' results from their functional currencies to US dollars had an unfavorable impact on sales. On a constant currency basis total net sales would have been $95.1 million, an increase of 3% compared to last year. This is because our net sales were reduced by about $5.9 million due to the strengthening of the US dollar against the functional currencies of our subsidiaries. This is what we refer to as translational-related exposure, and it impacts reported results from Canada, Australia, China, and the EMEA segment.

However, if we take a close look we see that this reduction in sales was significantly offset by about $4.2 million of transaction-related impacts in EMEA due to the strengthening of the euro and the US dollar against the pound sterling. So net/net, if we remove all foreign currency exchange impacts, our consolidated revenue would have been around about $90.9 million, down 2% compared to the first quarter of last year.

Now let's take a closer look at what's happening in the individual segments. We start with the Americas. Consolidated net sales in the Americas, which includes the United States, Latin America and Canada, decreased to $42.8 million in the first quarter, down about 4% from last year.

Sales of maintenance products decreased by 3% in the Americas, primarily due to the lower sales of the Multi-Use product in the United States and Latin America. Maintenance product sales in the United States were down 3% during the first quarter due to the timing of customer orders and promotional activities associated with the WD-40 Multi-Use product. This decline is primarily due to the fact that in the comparable period last year sales were higher than normal due to the initial launch and distribution of WD-40 Easy Reach Flexible Straw in the United States. This decrease in sales was partially offset by increased sales of WD-40 Specialist.

Maintenance product sales in Latin America were down 6% in the quarter, primarily due to the uncertain business conditions in Mexico as a result of the current political climate in the region. As a reminder, our maintenance products exclude our home care and cleaning products. We continue to consider our home care and cleaning products, particularly those in the US, as harvest brands that continue to generate meaningful contributions and cash flows, but I generally expect it to become a smaller part of the business over time. Sales of our home care and cleaning products in the Americas decreased 5% in the first quarter as compared to the same period last year.

Let's jump across the pond to EMEA. Consolidated net sales in EMEA, which includes Europe, the Middle East, Africa and India, decreased to $30.3 million in the first quarter, down 6% from last year. EMEA's reported results in the first quarter were negatively impacted by foreign currency exchange headwinds as well as the timing of customer orders in Russia.

On a constant currency basis, sales in EMEA increased $4.2 million, or 13% compared to last year. We sell into EMEA through a combination of direct operations as well as through marketing distributors. Reported consolidated sales of EMEA direct markets, which accounted for 66% of the region's sales, were up 3% for the quarter at $20 million in US dollars.

However, it's also helpful to look at our results in local currencies in which we conduct sales transactions in our direct markets. In the United Kingdom our pounds sterling direct market total sales increased 7% in the first quarter. In our Europe-based direct markets, sales in euros increased by 10% in the first quarter.

Now let's turn to our EMEA distributor markets which accounted for 34% of EMEA sales during the quarter. Distributor markets decreased 19% in the first quarter, primarily due to a 36% decrease in sales in Russia.

Although market conditions have begun to stabilize in Russia, our results reflect the steps of our marketing distributors have taken to normalize their inventory levels to meet the current market needs. We would like to remind our investors that political and economic instability in the region makes it difficult for us to predict what level of sales we'll have in this market in the near future.

Now let's go across to Asia Pacific. Consolidated net sales in Asia Pacific, which includes Australia, China and other countries in the Asian region, decreased to $16.1 million in the first quarter -- no, sorry, increased to $16.1 million in the first quarter, up about 1% from last year.

In Australia net sales in US dollars were $4.4 million in the first quarter, up 16% compared to last year. Changes in foreign currency exchange rates had a positive impact on these results. In its functional currency, the Australian dollar, sales were up 8% for the quarter. The growth was due to increased distribution and higher sales resulting from successful promotional programs, as well as the continued growth of our base business.

In China net sales in US dollars were $3.2 million in the first quarter, up 7% compared to last year. Changes in foreign currency exchange rates had a negative impact on these results. In its functional currency, the Chinese RMB, sales were up 14% in the quarter. The growth in the region was due to new distribution and increased promotional activities.

We are in a new phase of building distribution in China. We recently added 121 new accounts in China in an effort to make WD-40 Multi-Use product even easy to buy. We expect to add more distribution in China later this fiscal year. We continue to remain optimistic about the long-term opportunities in this region, although we expect a lot of volatility along the way due to the timing of promotional programs, the building of distribution, shifting economic patterns and varying industrial activities.

In our Asian distributor markets net sales were $8.6 million for the quarter, down 8% compared to last year. The decline in sales was driven primarily by a lower level of promotional activity and the timing of customer orders. This decline is partially due to the fact that in the comparable period last year customers were buying product in advance of a price increase that took place at the end of the first quarter of FY16. Our Asian distributor markets are not impacted by currency since we sell our products in US dollars in that region. Now over to Jay who will continue the review of the financials.

Hey, thank you, Garry. First let's review our 55/30/25 business model, the long-term targets we use to guide our business. As you may recall, the 55 represents gross margin, which we target to be at 55% of sales. The 30 represents our cost of doing business, which is our total operating expenses, excluding depreciation and amortization. Our target is to be at 30% of net sales. And then finally, the 25 represents EBITDA.

First, the 55, or our gross margin. In the first quarter our gross margin was 57.2% compared to the 55.6% in the first quarter of last year. For the first time in several quarters net changes in the cost of petroleum-based specialty chemicals and aerosol cans did not have an overall impact on our gross margin.

Although the net changes in the cost of petroleum-based specialty chemicals did not have an impact, we did experience a net positive impact on gross margin from costs in our Americas and Asia Pacific segments. However, these were fully offset by unfavorable net impacts in our EMEA segment. While the cost of petroleum specialty chemicals for our EMEA segment are sourced in pounds sterling, the underlying inputs are denominated in US dollars and as a result of the strengthening of the US dollar against the sterling, we saw a significant increase in the cost of goods in pounds sterling.

Just -- changes in foreign currency exchange rates had a positive impact on our gross margin as well. This is because in EMEA our cost of goods are primarily sourced in pounds sterling while approximately 45% of our revenues are generated in euros, 30% in pounds sterling, and the remaining 25% in US dollars. The combined effect of the strengthening of both the euro and the US dollar against the pound sterling caused revenues in total to be worth more in pounds sterling, thus improving our gross margin.

Also positively impacting our gross margin by 50 basis points this quarter were sales and exchanges and other miscellaneous costs, primarily due to a larger portion of our sales in EMEA being made up of higher margin maintenance products. Gross margin also was positively impacted by 10 basis points due to sales price increases which were implemented in EMEA over the last 12 months.

These improvements of gross margin were partially offset by higher warehousing and inbound freight costs, primarily in the Americas, which had an unfavorable impact on our gross margin of 30 basis points. Additionally advertising, promotional and other discounts that we give to our customers increased compared to last year and had a negative impact on gross margin of another 30 basis points.

Well, now I'll address the 30, or our cost of doing business. In the first quarter our cost of doing business was approximately 37% compared to 35% last year. Revenue growth is the most important factor in achieving our long-term 30% target. In the first quarter our revenue declined as well as increased SG&A expenses negatively affected our cost of doing business percentage. SG&A increased 4% compared to last year, which was primarily attributed to higher employee-related costs associated with higher stock-based compensation expense due to the timing of expenses associated with certain equity awards granted during the first quarter.

While our target is to have our cost of doing business at 30% of net sales, we plan to continue to make investments in support of our fifth strategic initiative, operational excellence. This will include investments in quality assurance, regulatory compliance, and intellectual property protection in order to safeguard the blue and yellow can with the little red top. We expect to move closer to our long-term target of 30% over time as revenues grow.

For the first quarter, 75% of the cost of doing business came from just three areas. People costs, or the investments we make in our tribe; the investments we make in marketing, advertising and promotion, as a percentage of sales our A&P investment was 5.4% in the first quarter; and then finally freight costs, the costs to get our products to our customers.

And that brings us to EBITDA the very last of our 50/30/25 measures. EBITDA was 21% of net sales for the first quarter compared to 20% for the first quarter last year. Now, that completes the discussion of our 55/30/25 business model for the current quarter.

I'll now discuss a couple of other items worth noting. The provision for income tax was 28.3% in the first quarter compared to 28.5% last year. The slight decrease was driven by increased taxable earnings generated from foreign operations which are taxed at a lower rate.

Net income for the first quarter was $11.8 million versus $12.1 million in the prior year. Changes in foreign currency exchange rates had an unfavorable impact of about $1.1 million on the translation of our consolidated results this quarter. On a constant currency basis net income would have increased by $800,000 compared to last year.

Our diluted earnings per common share were $0.82 in the first quarter compared to $0.83 for the same period last fiscal year. Diluted weighted average shares outstanding decreased to 14.2 million shares from the 14.5 million shares a year ago.

Now a word about capital allocation. Our capital allocation strategy includes a comprehensive approach to balance investing for long-term growth as well as providing strong return to our shareholders. We target maintenance CapEx of between 1% and 2% of net sales.

And as we previously discussed, in addition to our maintenance CapEx in FY17, we anticipate making a one-time investment of approximately $15 million to buy and renovate a new office building to house our San Diego based tribe members. In the first quarter we closed escrow on a property and invested $10.7 million on a building in the San Diego neighborhood of Scripps Ranch. The tribe is very excited to relocate to the new building some time this summer, and we'll be completing the renovation throughout this next couple months.

In addition we continue to return capital to shareholders through regular dividends and share repurchases. On December 13, 2016 our Board of Directors approved a quarterly cash dividend of $0.49 per share, reflecting an increase of 17% over the previous quarter's dividend at $0.42 a share. With this rise, we have increased our dividend for seven consecutive years, for a total increase of 96% over that time period. And based on today's closing price of $117.30, the annualized dividend yield is 1.67%.

Now during the first quarter we repurchased nearly 113,000 shares of our stock at a cost of approximately $12.2 million under our current $75 million share repurchase plan, which was approved the Board in June of 2016. At the end of the first fiscal quarter we had $62.8 million remaining under the plan.

So with that, let's turn to our 2017 guidance. We are reaffirming the guidance we gave in October. Net sales growth is projected to be between 4% and 6% with net sales expected to be between $395 million and $404 million.

Gross margin for the full fiscal year is expected to be near the 56%, and advertising and promotion investment is projected to be around 6% of sales. Net income is projected to be between $51.3 million and $52.3 million, and diluted earnings per share is expected to be between $3.64 and $3.71 based on an estimated 14.1 million weighted average shares outstanding.

As a reminder, this guidance does not include any future acquisitions or divestitures and assumes foreign currency exchange rates and crude oil prices will remain close to current levels for the duration of FY17. And that completes the financial overview. Now I'll turn it back to Garry.

Thank you, Jay. So let's sum up of what you heard on this call today. You heard that foreign currency exchange rates continue to be a headwind, and on a constant currency basis reduced our net sales by about $5.9 million. Additionally you heard that reduction in sales was significantly offset by $4.2 million in transaction-related impacts in EMEA due to the strengthening of the euro and the US dollar against the pound.

You heard that the global sales of WD-40 Specialist were $5.8 million in the quarter, representing a 36% increase compared to last year. You heard that our EMEA direct markets are performing very well. You heard that our Australian market is performing well with 8% growth in functional currency, the Australian dollar. You heard that in China we've recently added 121 new accounts in an effort to make WD-40 Multi-Use product even easier to buy.

You heard that we increased our dividend 17% last month, and we have increased our dividend for seven consecutive years resulting in a 96% increase over that period of time. You heard that we've reaffirmed our FY17 guidance.

In closing I'd like to share a quote from a British author, Neil Gaiman: I hope that in this year to come you make mistakes, because if you are making mistakes then you're making new things, trying new things, learning, living, pushing yourself, changing yourself and you're going to change the world. Thank you for joining us on the call today. We would be more than pleased to now open the conference call for your questions.

(Operator Instructions)

Your first question comes from the line of Liam Burke with Wunderlich. Your line is open.

Thank you. Good afternoon, Garry. Good afternoon, Jay.

Good day, Liam.

Hi, Liam.

Garry, so with the balance of the year, do you have any major promotional activity scheduled or is it just going to be the usual ones that you had planned in the past?

Nothing outside of what our stated plan was, which include a number of different promotions with a number of different customers in a number of different geographies, Liam.

Okay. And on the Specialist side, you mentioned that you introduced a grease product into the Americas. How does the pipeline on some of those types of products in Specialist look?

We will be releasing our degrees of range later in the year. And we now have distribution of our grease lines through Home Depot. If you'd like to go see it you can go see it there. We'll be progressively rolling that out.

But the greases and our new degreaser line are the two biggest Specialist launches this year, with the continuation of course of added distribution in the US of our WD-40 Specialist spray and stick gel. And then a number of other Specialist products in selected geographies around the world. You noted that Specialist grew 36% in first quarter, so we're pretty happy with our trajectory at this time.

Super. And then just quickly on China, you mentioned 121 new accounts. I know you have a strong long-term outlook for China. Do these new accounts accelerate your expectations there, or is it pretty much on plan?

I think what it will do, it was a planned move. Our initial move in China was to over time build distribution to match consumption. Then as we've continued to build consumption, we can now add new distribution which eliminates the fear of actually demotivating the current distributors.

So for 10 years now we've been building to the business that's now at a run rate of several, as you know, million dollars, I think $15 million. So we're in the next year going to start to actually push out the distribution to now fill the gaps that we think are there. We will do another distribution drive and add more accounts again, probably in the third or fourth quarter of this year.

Great. Thank you, Garry.

Thanks, Liam.

Your next question comes from the line of Linda Bolton Weiser with B. Riley. Please proceed with your question.

Hi. So I just wanted to make sure I understood what you said about the petroleum-based input cost. I think you said overall it was neutral effect on gross margin, but did you say it was positive in some regions and negative in others? Can you just repeat that?

Yes, that's exactly right. What we had in the Americas and Asia Pacific is we actually continued to get a net benefit. But when we look to the impact in Europe and EMEA, what we saw was their cost of goods were rising for these types of products, the input costs associated with the petroleum-based products. And that was primarily due to the fact the sterling has weakened. And so they have been seeing kind of an inflation in their cost base.

Okay. So you're saying there's some sort of a currency effect on the actual input cost?

Yes, exactly. Right.

Okay.

While the constant dollars are the same, because of the change in dollar and sterling, their sterling acquisition of these inputs are much higher than they were a year ago.

Right, okay. So can you just tell me what was the quantification of the other effect, the FX effect, in the EMEA region? That's a separate number. What was that in the quarter?

I think it was 160 basis points, wasn't it?

Yes, it was fairly significant. Let me quickly flip to that. 160 basis points.

Okay. And I seem to recall that's a little more positive even than it was last quarter, which makes sense. But by my read of things it actually will get less of a positive going forward after this. Is that a correct projection of that, sort of?

Well, as long as currencies stay the same, it would. But yes, we don't really know what's going to happen with currencies.

Right. Yes, I meant if the British pound were to stay where it was.

Right.

Okay, all right. So there's a lot of puts and takes obviously in the gross margin. But I mean, I guess I was originally projecting or thinking maybe the gross margin would start to be down year over year in the third quarter. Is that something that's accurate, or might we even see gross margin decline in the second quarter year over year? I know you don't want to get into quarterly guidance, but maybe you could help us understand how the pieces move?

Well I think what we've seen is we seen gradual increase in the price of oil and as that gets into our supply chain and then gets into our inventories and into the customer base, then we'll start seeing an increase because of petroleum base input costs. The timing of that, what we see is that we say about 120 days, sometimes we see that come through earlier, sometimes in the case of the kind of the recent declines over the last year or so we've seen that kind of lag quite a bit further than that as we get the benefits. Now, when it comes against us we tend to see that quicker.

Okay. Thank you, that's helpful. So would you still say that you're planning range, are you just kind of thinking in your planning range for guidance it's $45 to $60 roughly per barrel of oil?

Yes. That's what was in our planning range.

Okay. And then can I just ask on the sales performance, granted it's hard to project quarter by quarter for you guys, and sometimes it's strong against strong and weak against weak, but you did have your easiest comparison in this quarter so I was relatively optimistic. I guess the Russia piece was a lot weaker. But how can we have confidence that you're going to come through with stronger growth when the comps get harder in the second half?

Well let's talk about the business without all of this static and noise for a minute, Linda, because it's really hard to look at. But I'm looking at a sheet of paper in front of me that lists all of our major geographies and it has green arrows and red arrows on it in relation to transactional currency sales.

And if I look firstly in the United States, we had a softer first quarter in the US versus last first quarter, and we know why. I've often said that we don't mix well with Barbie dolls and barbecue sets at Christmas.

Last Christmas we had a compelling reason to have that floor space. We launched Easy Reach Flexible Straw, and we got it. So that last -- first quarter last year had that in it.

In Latin America we've got a whole mess going on with the political climate in Mexico, which is causing the business climate down there to be uncertain. So for the rest of the year -- and then in Canada we're up about 2% in our transaction currency for the year. So the main market, which the US is, we can see in quarters two, three and four significant opportunities to have revenue growth because our programs, promotions and activities that were going on. So our big market, the US, we're going to see that grow, and we've got a little wash in this quarter.

In EMEA, when I look down this list, in transactional currencies we're growing 7% in pounds in the UK. In Benelux 17%, in France 9% -- and these are euros, in Iberia 15%, in Italy 18%, across the whole EMEA market in transaction currencies we grew 10%.

Unfortunately, when it moves across and it goes through the two currency impacts, it looks ugly like it does now. But from where we sit around looking at the strategic growth of our business, and having what I call emotional resilience to the fact that the strategy is being executed on, we feel fine.

Russia, we know what happened. Our marketing distributing there is normalizing inventories. In fact, in-market sales are better than they were before.

And if we go to Asia Pacific, in transactional currency Australia's up 8%, China is up 14%, the distributor markets were down, we understand why. So again, we can't manage this business quarter to quarter in normal times, and we won't.

And secondly, there's so much static and noise in this at the moment, the price we pay for being global. But thank God we're global because it gives us the hedge against one event to another. So we are comfortable with the guidance we've given.

We can see the business in the future. We're comfortable with our long-term projections. The tribe are executing, we've got great growth in Specialists, emotional resilience is what it's about, steady as she goes, the strategy is strong, and we will work through it as we have in the past.

Okay. Thanks, Garry. I appreciate that. That's it for me, thanks.

Thanks, Linda.

Your next question comes from the line of Daniel Rizzo with Jefferies. Please proceed with your question.

Hey, everyone.

Hey, Daniel.

How is everything? You mentioned increasing distribution in Asia. I was just wondering if I'm thinking about it rightly.

When would you shift to maybe doing direct sales in that region versus as it's progressing in EMEA and obviously in the US? Is there a time frame in the future where we do like a transition to doing to more of a direct model?

No. What I said, Daniel, is we are increasing distribution in China. And China is already a direct market. And we increased our distribution by adding 121 new accounts in China.

At this time we have no plan on converting any other marketing distributors in Asia to direct markets. Our only direct markets in Asia are Australia and China.

All right. Thank you for the clarification. And then with Easy Straw, you said it was down year over year just because of the promotional activity and the initial launch last year. Is that something that kind of ticked into the next quarter, or is it just something just for this quarter and will peter out as we look forward?

It was all in the first quarter of last year. That was the major launch, that was when we took floor space in most of the major home improvement and big box hardware stores in the United States. Easy Reach Flexible Straw is doing well. We just had that big selling in the first quarter of last year.

Okay, thanks. And then finally I think you mentioned in the press release something about destocking, inventory destocking, in Europe being kind of an issue in the quarter. But I didn't know if you followed up with that on the conference call here. So I was just wondering if that's something that maintains monitoring for the next couple quarters as well?

No. What I said was in Russia only our marketing distributor in Russia is normalizing their inventory. Over the past 18 months or so Russia has been a basket case, as we all know. And we went through a period of time of very severe sales declines in market.

Our distributor had stock. We now feel that has started to normalize, so we do know what our distributor does have a confidence of what the forward-looking output in the market is, which is actually output in the market from our distributor at the moment is up on last year. So what that was doing is basically balancing their stock, which means they bought less from us for a period. We should see that normalize as we enter this quarter and the next two quarters.

All right. Again, thank you for the clarification.

Thank you, Daniel.

Your next question comes from Linda Bolton Weiser with B. Riley. Please proceed with your question.

Hi again. So I'm just reviewing, you had so many initiatives for growth, I'm reviewing the list of things you had talked about on the last call. And can you just mention, are you still planning and did it launch yet, the expansion into the US of the Motorbike line? And then secondly the 3-IN-ONE recreational vehicle line, when does that launch?

Yes, the 3-IN-ONE recreational vehicle line, we've started our initial distribution of that. You should see if, it's not in some stores it should start to be soon. I can't remember exactly when.

And Motorcycle has not yet gone into distribution. It will, but we're waiting for shelf slotting in a major customer. We expect that to come soon.

Okay, thanks a lot.

Thanks, Linda.

Ladies and gentlemen, that does conclude our allotted time for questions. We thank you for participating on today's conference call, and ask that you please disconnect your line.