Q2 2024 Tempur Sealy International Inc Earnings Call
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Please stand by, your program is about to begin.
Operator: Please stand by, your program is about to begin. Good day, everyone, and welcome to the Tempur-Sealy second quarter 2024 earnings call.
Speaker Change: Good day, everyone, and welcome to the Tempur Sealy second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session.
Operator: At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask questions by pressing the star and 1 on your telephone's keypad. You may withdraw your question by pressing star 2. Please note this call is being recorded and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Aubrey Moore with Investor Relations. Please go ahead.
Speaker Change: You may register to ask questions by pressing the star and 1 on your telephone's keypad. You may withdraw your question by pressing star 2. Please note this call has been recorded and I will be standing by should you need any assistance.
Speaker Change: It is now my pleasure to turn the conference over to Aubrey Moore with Investor Relations. Please go ahead.
Aubrey Moore: Good morning, everyone, and thank you for participating in today's call. Joining me today are Scott Thompson, Chairman, President, and CEO; and Bhaskar Rao, Executive Vice President and Chief Financial Officer.
Aubrey Moore: Good morning, everyone, and thank you for participating in today's call. Joining me today are Scott Thompson, Chairman, President and CEO , Bhaskar Rao, Executive Vice President and Chief Financial Officer.
Aubrey Moore: This call includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve uncertainties, and actual results may differ materially due to a variety of factors that could adversely affect the company's business. These factors are discussed in the company's SEC filings, including its annual reports on Form 10-K and quarterly reports on Form 10-Q. However, any forward-looking statement speaks only as of the date on which it is made.
Speaker Change: This call includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Operator: These forward-looking statements involve uncertainties, and actual results may differ materially due to a variety of factors that could adversely affect the company's business. These factors are discussed in the company's SEC filings, including its annual reports on Form 10-K and quarterly reports on Form 10-Q.
Speaker Change: These forward-looking statements involve uncertainties, and actual results may differ materially due to a variety of factors that could adversely affect the company's business.
Speaker Change: These factors are discussed in the company's SEC filings, including its annual reports on Form 10-K and quarterly reports on Form 10-Q . Any forward-looking statement speaks only as of the date on which it is made. The company undertakes no obligation to update any forward-looking statement.
Operator: Any forward-looking statement speaks only as of the date on which it is made. The company undertakes new obligations to update any forward-looking statements.
Aubrey Moore: The company undertakes no obligation to update any forward-looking statement. This morning's commentary will also include non-GAAP financial information. Reconciliations of this non-GAAP financial information can be found in the accompanying press release, which is posted on the company's investor website at investors.tempursealy.com and filed with the SEC.
Operator: This morning's commentary will also include non-GAAP financial information. Our conciliations of this non-GAAP financial information can be found in the accompanying press release, which is posted on the company's investor website at investors.tempersealy.com and filed with the SEC. Our comments will supplement the detailed information provided in the press release.
Speaker Change: This morning's commentary will also include non-GAAP financial information. Reconciliations of this non-GAAP financial information can be found in the accompanying press release, which is posted on the company's investor website at investors.tempursealy.com and filed with the SEC.
Speaker Change: Our comments will supplement the detailed information provided in the press release.
Scott Thompson: And with that introduction, it is my pleasure to turn the call over to Scott.
Speaker Change: And with that introduction, it is my pleasure to turn the call over to Scott.
Aubrey Moore: Thank you, Aubrey.
Scott Thompson: Good morning, everyone. And thank you for joining us on our second quarter 2020 for earnings call. Both began with some highlights from the quarter and then turned the call over to Boschert to review our financial performance in more detail. After that, I'll open up the call for Q&A. In the second quarter, net sales were approximately 1.2 billion. An adjusted EBITDA was 231 million and improvement of 6% versus the second quarter of 2023. Our adjusted ETS grew a solid 9% to 63 cents, but also improving our leverage ratio. We're pleased to see our global market outperformance mitigate the impact of software that anticipated industry volumes.
Scott Thompson: I'll begin with some highlights from the quarter and then turn the call over to Bhaskar to review our financial performance in more detail.
Speaker Change: After that, I'll open up the call for Q&A.
Scott Thompson: In the second quarter, net sales were approximately $1.2 billion. An adjusted EBITDA was $231 million, an improvement of 6% versus the second quarter of 2023.
Scott Thompson: Our adjusted EPS grew a solid 9% to $0.63, while also improving our leverage ratio.
Scott Thompson: We're pleased to see our global market outperformance mitigate the impact of softer-than-anticipated industry volumes.
Scott Thompson: Despite an estimated mid single digit industry decline in the quarter, more than our anticipated low single digit decline in the period, our sales were only slightly below internal expectations.
Scott Thompson: Despite an estimated mid-single-digit industry decline in the quarter, more than our anticipated low-single-digit decline for the period, our sales were only slightly below internal expectations.
Scott Thompson: Our strong growth margin performance and solid cost controls resulted in healthy earnings growth in the second quarter. Turning to a few of second quarter highlights. First, our US business outperformed the market, driven by the enduring strengths of our brands and products and supported by some recently introduced consumer-centric innovation and compelling marketing initiatives. Improperedic emerged as our top performing brand again this quarter, supported by our all new adapt products. As a reminder, our updated collection is designed to alleviate aches and pains by leveraging our innovative temper material, which delivers a 20% improvement in pressure relief compared to standard materials.
Scott Thompson: Our strong gross margin performance and solid cost controls resulted in healthy earnings growth in the second quarter.
Scott Thompson: Turning to a few of the second quarter highlights.
Scott Thompson: First, our U.S. business outperformed the market, driven by the enduring strengths of our brands and products, and supported by some recently introduced consumer-centric innovation and compelling marketing initiatives.
Scott Thompson: Tempur-Pedic emerged as our top performing brand again this quarter, supported by our all-new ADAPT products.
Scott Thompson: As a reminder, our updated collection is designed to alleviate aches and pains by leveraging our innovative Tempur materials, which deliver a 20% improvement in pressure relief compared to standard materials. Now, turning to a brief update related to the mattress room acquisition.
Scott Thompson: As a reminder, our updated collection is designed to alleviate aches and pains by leveraging our innovative Tempur materials, which delivers a 20% improvement in pressure relief compared to standard materials.
Scott Thompson: The recently introduced active grease product, our advanced heating and cooling sleep system price at approximately 13,800 for a king, has resonated strongly with discerning ultra luxury customers. In addition to active climate management, this product integrates sleep tracker AI. and is driving premium tickets upward of $20,000 when bundled with complimentary items. While sales volumes expected to be moderate, we believe this ultra premium offering plays an important role in enhancing brand perception and signaling the future for betting innovation. Our North American direct-to-consumer business experienced an ASP uplift and 2% sales growth in the quarter, driven by our new Tempur-Pedic products, clearly outperforming the industry as a whole.
Scott Thompson: The recently introduced Active Breeze product, our advanced heating and cooling sleep system priced at approximately $13,800 for a cane, has resonated strongly with discerning ultra-luxury customers.
Scott Thompson: In addition to active climate management, this product integrates Sleep Tracker AI.
Speaker Change: and is driving premium tickets upward of $20,000 when bundled with complimentary items. While sales volume is expected to be moderate, we believe this ultra-premium offering plays an important role in enhancing brand perception and signaling the future for betting innovation.
Speaker Change: Our North American direct-to-consumer business experienced an ASP uplift and 2% sales growth in the quarter driven by our new Tempur-Pedic products, clearly outperforming the industry as a whole.
Scott Thompson: Our US Tempur retail stores and e-commerce platform reported a mid-single-digit expansion of ASP over the prior year, and both our Tempur-Pedic and Sterns & Foster e-commerce websites experienced strong traffic. Our value-price products also performed well in the quarter, supported by our recent distribution wins with two large US betting retailers. These wins drove solid performance within our OEM and Sealy brands, mitigating the impact of soft industry-wide demand for entry-level and value-oriented price points. Overall, our broad-based momentum from our new products and distribution wins drove mid-single-digit growth in North America mattress units. Excluding the growth in our OEM business, North America mattress units were down low-single-digits and mattress ASP was consistent with prior years, indicating consumers maintaining their willingness to invest in betting innovation.
Speaker Change: Our U.S. Tempur retail stores and e-commerce platform reported a mid-single-digit expansion of ASP over the prior year, and both our Tempur-Pedic and Stearns & Foster e-commerce websites experienced strong traffic.
Speaker Change: Our value price products also performed well in the quarter, supported by our recent distribution wins with two large U.S. betting retailers.
Speaker Change: These wins drove solid performance within our OEM and Sealy brands.
Speaker Change: mitigating the impact of soft industry-wide demand for entry-level and value-oriented price points.
Speaker Change: Overall, our broad-based momentum from our new products and distribution wins grow mid-single-digit growth in North America mattress units.
Speaker Change: Excluding the growth in our OEM business, North America mattress units were down low single digits, and mattress ASP was consistent with prior years, indicating consumers maintaining their willingness to invest in bedding innovation.
Scott Thompson: To support all our brand's products and third-party retailers, we continue to execute a balanced media strategy with focus on both broad-based and targeted digital outlets to engage consumers throughout the purchasing journey. Our recent creative campaign has streamed consumer interest across our product categories, supported the successful launch of our new Tempur offering, and fostered the continuing momentum of Sterns and Foster collection. In the second quarter, we introduced new targeted TV spots and digital assets to support the new Tempur Adapt Collection, which resonated with our target customer base in striving strong interest in our newly rolled out lineup.
Speaker Change: To support all our brands, products, and third-party retailers, we continue to execute a balanced media strategy.
Speaker Change: with focus on both broad-based and targeted digital outlets to engage consumers throughout their purchasing journey.
Speaker Change: Our recent creative campaign has strewn consumer interest across our product categories, supported the successful launch of our new Tempur offering, and fostered the continuing momentum of Stearns and Foster collections.
Speaker Change: In the second quarter, we introduced new targeted TV spots and digital assets to support the new TempurAdapt collection, which resonated with our target customer base and is driving strong interest in our newly rolled out lineup.
Scott Thompson: We're also continuing to support the Sterns and Foster product with campaigns that reinforce the brand's 175-year legacy with superior comfort, quality, and craftsmanship. This investment in Sterns and Foster advertising continues to drive among the fastest growing level of Google search interest in the category. In fact, we've realized nearly 30% increase in Sterns and Foster's search interest since January, outpacing search interest in the overall category by a factor of seven times.
Speaker Change: We're also continuing to support the Stearns and Foster product with campaigns that reinforce the brand's 175-year legacy of superior comfort, quality, and craftsmanship.
Speaker Change: This investment in Stearns and Foster Advertising continues to drive among the fastest growing level of Google search interest in the category.
Speaker Change: In fact, we've realized nearly 30% increase in Stearns and Foster's search interest since January , outpacing search interest in the overall category by a factor of seven times.
Scott Thompson: Second highlight: we are pleased with our performance with our international business, which continues to generate strong results against the challenging operating background. In the second quarter, the Tempur International Team delivered solid growth year-over-year, and the dream business in the UK also performed well in what has been a challenging market. Are recently concluded international rollout of all new Tempur mattresses, bedbases, and pillows to the key driver to these international results. The new lineup features consumer-centric innovation, a high level of customization, and a broader range of price points, ensuring we meet the diverse needs of the consumers across various markets and channels.
Speaker Change: Second highlight, we are pleased with our performance with our international business, which continues to generate strong results against a challenging operating background.
Speaker Change: In the second quarter, the Tempur International team delivered solid growth year-over-year, and the DREAMS business in the UK also performed well in what has been a challenging market.
Speaker Change: Our recently concluded international rollout of all new Tempur mattresses, bed bases, and pillows is a key driver to these international results.
Speaker Change: The new lineup features consumer-centric innovation, a high level of customization, and a broader range of price points, ensuring we meet the diverse needs of the consumers across various markets and channels.
Scott Thompson: Turning to the third highlight, in the second quarter, we achieved consolidated adjusted gross margin expansion of 200 basis points, an adjusted EBITDA margin expansion of 170 basis points year over year. Operationally, we continue to drive gross margin efficiencies through enhanced supply contracts, improve labor productivity, and optimize logistics. These efforts, coupled with normalized commodity prices, contributed to a significant gross margin improvement in both North America and our international segments. We successfully translated that gross margin expansion into increased profitability while concurrently investing in certain long-term growth initiatives.
Speaker Change: Turning to the third highlight.
Speaker Change: In the second quarter, we achieved consolidated adjusted gross margin expansion of 200 basis points and adjusted EBITDA margin expansion of 170 basis points year-over-year.
Speaker Change: Operationally, we continue to drive gross margin efficiencies through enhanced supply contracts, improved labor productivity, and optimized logistics.
Speaker Change: These efforts, coupled with normalized commodity prices, contributed to a significant gross margin improvement in both North America and our international segments.
Speaker Change: They successfully translated that gross margin expansion into increased profitability while concurrently investing in certain long-term growth initiatives.
Scott Thompson: Finally, I'd like to highlight the flexibility of our business model, which allows us to remain agile in a dynamic operating environment. Approximately 70 percent of our total cost flex was sales, helping to mitigate the impact of periods of software demand. In the second quarter, our flexible operating model adapted to the muted operating conditions while continuing to support our brands and delivering best-in-class service to our third-party retailers.
Speaker Change: Finally, I'd like to highlight the flexibility of our business model, which allows us to remain agile in a dynamic operating environment. Approximately 70% of our total costs flex with sales, helping to mitigate the impact of periods of softer demand.
Speaker Change: In the second quarter, our flexible operating model adapted to the muted operating conditions while continuing to support our brands and delivering best-in-class service to our third-party retailers.
Scott Thompson: Our strong cash flow and solid balance sheet continue to differentiate us from competition. In the second quarter, we reported a robust 122 million in free cash flow. Our strongest second quarter free cash flow since 2021. We also reported debt to EBITDA leverage of 2.7 times, well within our target range, and we expect our total leverage to turn down as we prepare for the matches from acquisition.
Speaker Change: Our strong cash flow and solid ballot sheet continue to differentiate us from the competition.
Speaker Change: In the second quarter, we reported a robust $122 million in free cash flow.
Speaker Change: Our strongest second-quarter free cash flow since 2021.
Speaker Change: We also reported debt to EBITDA leverage of 2.7 times, well within our target range, and we expect our total leverage to trim down as we prepare for the mattress firm acquisition.
Bhaskar Rao: And with that, I'll turn the call over to Boster.
Bhaskar Rao: Thank you, Scott. As mentioned in the second quarter of 2024, consolidated sales were approximately $1.2 billion, and adjusted earnings to share was 63 cents. There are approximately $7 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. These adjustments are primarily related to cost incurred in connection with the planned acquisition of Mattress Firm.
Speaker Change: And with that, I'll turn the call over to Bhaskar.
Bhaskar Rao: Thank you, Scott.
Bhaskar Rao: As mentioned, in the second quarter of 2024, consolidated sales were approximately $1.2 billion and adjusted earnings-to-share was $0.63.
Bhaskar Rao: There are approximately $7 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility.
Speaker Change: These adjustments are primarily related to cost incurred in connection with the planned acquisition of the mattress firm.
Bhaskar Rao: Turning to North American results. Net sales declined 4% in the second quarter. On a reported basis, the wholesale channel declined 5%, and the direct channel grew 2%. North American gross margin improved a robust 200 basis points to 41.9%, driven by favorable commodity, operational efficiency, and lost cost. He's improvements were partially offset by the mixed impact of the new distribution win for our OEM business units. North American operating margin improved 100 basis points to 18.4%. Driven by the improvement in gross margin, partially offset by investments and growth initiatives, including advertising investments to support our newly launched products and investments to support our growing direct and consumer business.
Speaker Change: Turning to North American results.
Speaker Change: Net sales declined 4% in the second quarter. On a reported basis, the wholesale channel declined 5% and the direct channel grew 2%.
Speaker Change: North American gross margin improved a robust 200 basis points to 41.9%, driven by favorable commodities, operational efficiencies, and lost costs.
Speaker Change: These improvements were partially offset by the mixed impact of the new distribution wind for our OEM business unit.
Speaker Change: North American Operating Margin improved 100 basis points to 18.4%.
Speaker Change: Driven by the improvement in gross margin, partially offset by investments in growth initiatives, including advertising investments to support our newly launched products and investments to support our growing direct-to-consumer business.
Bhaskar Rao: Now turning to international results. International sales grew 1% on a reported basis and 2% on a constant currency basis. As compared to the prior year, our international gross margin improved 170 basis points to 56.6%, driven by operational efficiencies and favorable launch cost. Our international operating margin declined 90 basis points to 12.5%, driven by investments and growth initiatives to support our new advertising campaigns and Asia joint venture performance, partially offset by the improvement in gross margin.
Speaker Change: Now turning to international results.
Speaker Change: International sales grew 1% on a reported basis and 2% on a constant currency basis.
Speaker Change: As compared to the prior year, our international gross margin improved 170 basis points to 56.6%, driven by operational efficiencies and favorable launch costs.
Speaker Change: Our international operating margin declined 90 basis points to 12.5%, driven by investments and growth initiatives to support our new advertising campaigns and Asia joint venture performance, partially offset by the improvement in gross margin.
Bhaskar Rao: Now moving on to the balance sheet cash flow items. At the end of the second quarter, consolidated debt less cash was $2.4 billion, and our leverage ratio under our credit facility was 2.7 times, within our historical target range of 2 to 3 times. We expect to continue to do leverage as we prepare for the Mattress Firm acquisition.
Speaker Change: Now moving on to the balance sheet and cash flow items.
Speaker Change: At the end of the second quarter, consolidated debt less cash was $2.4 billion, and our leverage ratio under our credit facility was 2.7 times, within our historical target range of 2 to 3 times.
Speaker Change: We expect to continue to do leverage as we prepare for the mattress firm acquisition.
Bhaskar Rao: Now turning to our 2024 guidance. We now expect adjusted EPS to be in the range of $2.45 to $2.65. At the midpoint of the range, this represents a 6% growth year over year, a notable expansion of profitability in a prolonged challenge market. Our guidance is based on slight sales growth in the back half of the year, resulting in full year sales that are approximately consistent with the prior year. This also considers our expectation that 2024 U.S. betting industry uniform will be down mid single digits, which implies the industry headwind will moderate sequentially but will continue through the back half of the year.
Speaker Change: Now turning to our 2024 guidance.
Speaker Change: We now expect adjusted EPS to be in the range of $2.45 to $2.65.
Speaker Change: At the midpoint of the range, this represents a 6% growth year-over-year, a notable expansion of profitability in a prolonged challenge market.
Speaker Change: Our guidance is based on slight sales growth in the back half of the year, resulting in full year sales that are approximately consistent with the prior year.
Speaker Change: This also considers our expectation that 2024 U.S. betting industry unit volumes will be down mid-single digit.
Speaker Change: which implies the industry headwinds will moderate sequentially, but will continue through the back half of the year.
Bhaskar Rao: Our sales performance is outperforming the industry due to recent distribution wins in the U.S. and the continuous success from the new product launches. With advertising spend approaching $475 million as we support our leading brands and new products, resulting in adjusted EBITDA of approximately $940 million at the midpoint of the range.
Speaker Change: Are sales performance outperforming the industry due to recent distribution wins in the U.S. and the continued success from the new product launches?
Speaker Change: With advertising spend approaching $475 million as we support our leading brands and new products, resulting in adjusted EBITDA of approximately $940 million at the midpoint of the range.
Bhaskar Rao: Our guidance also considers the following allocation a capital in 2024, catbacks of approximately $140 million, found significantly from prior years as our major capital projects are complete. This level of spend is driven by maintenance catbacks of 110 and gross catbacks of approximately $30 million. And the quarterly dividend of 13 cents, an increase of 18% year over year.
Speaker Change: Our guidance also considers the following allocation of capital in 2024.
Speaker Change: CAPEX of approximately $140 million, down significantly from prior years as our major capital projects are complete.
Speaker Change: This level of spend is driven by maintenance capex of $110 million and gross capex of approximately $30 million.
Speaker Change: and a quarterly dividend of $0.13, an increase of 18% year-over-year.
Bhaskar Rao: Lastly, I would like to flag a few modeling items. For the full year 2024, we expect DNA of approximately 200 to 210 billion, intersex sense of approximately 130 to 135 million dollars on a tax rate of 25% with a diluted share count of 179 million shares.
Speaker Change: Lastly, I would like to flag a few modeling items.
Speaker Change: For the full year 2024, we expect DNA of approximately 200 to 210 million.
Speaker Change: interest expense of approximately $130 to $135 million on a tax rate of 25% with a diluted share count of 179 million shares.
Scott Thompson: But that I will turn the call back over to Scott.
Scott Thompson: Thank you, Bhaskar. Nice job.
Speaker Change: With that, I will turn the call back over to Scott.
Scott Thompson: Turning to a brief update related to the mattress room acquisition. I'm pleased to share that we have recently successfully executed a new post-closing supply agreement with one of mattress firms' medium size mattress suppliers. This is one of several post-closing supply agreements that we've executed in preparation for our planned acquisition of Mattress Firm and is consistent with our plan for Mattress Firm to continue as a multi-branded retailer.
Scott Thompson: Thank you, Bhaskar. Nice job.
Scott Thompson: Turning to a brief update related to the mattress firm acquisition.
Scott Thompson: I'm pleased to share that we have recently successfully executed a new post-closing supply agreement with one of Mattress Firm's medium-sized mattress suppliers.
Scott Thompson: This is one of several post-closing supply agreements that we have executed in preparation for our planned acquisition of Mattress Firm, and it's consistent with our plan for Mattress Firm to continue as a multi-branded retailer.
Scott Thompson: We'll not be providing any further comments on Mattress Firm acquisition beyond what we've shared on our July 8 update call to replay, which you can find on the investor website. And because we're in litigation, we will not be taking any questions on the acquisition this morning. Thank you for your understanding as we move through this process.
Scott Thompson: We'll not be providing any further comments on mattress firm acquisition beyond what we've shared on our July 8th update call for replay, which you can find on the investor website.
Scott Thompson: And because we're in litigation, we will not be taking any questions on the acquisition this morning. Thank you for your understanding as we move through this process.
Operator: And with that operator, please open the call up for questions. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw your question by pressing Star 2.
Speaker Change: And with that, operator, please open the call up for questions.
Speaker Change: And at this time, if you would like to ask a question, please press the star and 1 on your telephone keypad.
Operator: We asked that you please ask one question at a time, and you can review if you would like to ask another question. Once again, that is star and one to join the queue.
Speaker Change: You may withdraw your question by pressing star 2. We ask that you please ask one question at a time, and you can re-queue if you would like to ask another question. Once again, that is star and 1 to join the queue.
Susan Maklari: For the first question from Susan McClaury with Goldman Sachs, please go ahead. Thank you.
Speaker Change: We'll take our first question from Susan Maklari with Goldman Sachs. Please go ahead.
Scott Thompson: Good morning, everyone. Good morning, Susan. Good morning, Scott. I want to start with the demand side of the equation. There's been obviously a lot of focus on the health of the consumer and overall demand trend through the quarter. Can you talk about how things did change as we move through the second quarter? And how you're thinking about the setup relative to your guide for the back half to be up, back half revenues to be up modestly, the full year flat with the volumes down mid single digits. Just put some context to that, perhaps around those parts, and how we should think about it relating to the broader consumer.
Susan McClory: Thank you. Good morning, everyone.
Susan McClory: Good morning, Susan. Good morning, Scott.
Susan McClory: I want to start with the demand side of the equation. There's been obviously a lot of focus on the health of the consumer and overall demand trends through the quarter. Can you talk about how things did change as we move through the second quarter and how you're thinking about the setup relative to your guide for the back half to be up, back half revenues to be up modestly, the full year flat with the volumes down mid-single digits. Put some context to that perhaps around those parts and how we should think about it relating to the broader consumer.
Scott Thompson: Sure. Thank you for your question. I mean, if you look at the pace of sales during the quarter, the quarter started out of called solid positive. I think that was probably retail; retailers kind of loading up to the holiday and we're fairly optimistic going into the holiday. Then I think the sale through was a little weak during the holiday, and sales were a little bit lighter towards the end of the quarter. And even though you didn't ask, but to get full context, then you have to get after quarter end, sales kind of got back to normal while called normal.
Speaker Change: Sure, thank you for your question.
Speaker Change: I mean, if you look at the pace of sales during the quarter, the quarter started out, I'd call it solid, positive. I think that was probably retailers kind of loading up for the holiday and were fairly optimistic going into the holiday.
Speaker Change: Then I think the sell-through was a little weak during the holiday, and sales were a little bit lighter towards the end of the quarter.
Speaker Change: And even though you didn't ask, but to get full context, then you have to get after quarter end, sales kind of got back to what we'll call normal, and we're solid to, we'll call it sladdish, post-quarter end.
Scott Thompson: And we're solid to call it flatish post quarter end with high end, temper actually being positive after 630. So that's kind of the trend on the setup off. So you want to talk about, I think, the guide and I think the primary record. is probably a share game that we've continued to have each quarter. Absolutely. So when you think about the back half, as you put it out, Susan, we would expect flight growth in the back half and let's say international doing a bit better than the US. And as we think about, from a share opportunity standpoint, the continuation of what we've seen, continued outperforming the competitive set.
Speaker Change: Order in.
Speaker Change: with the high-end, Tempur actually being positive.
Speaker Change: after 630. So that's that's kind of the trend.
Speaker Change: On the setup, Basti, you want to talk about...
Bhaskar Rao: I think the guide and I think the primary reconciling item.
Bhaskar Rao: It's probably a share gain that we continue to have each quarter. Absolutely. So when you think about the back half...
Bhaskar Rao: As you pointed out, Susan, we would expect slight growth in the back half, and let's say international doing a bit better.
Scott Thompson: And fundamentally, that is focused on the new distribution that we have in our OEM channel as well as the continued set that we have with the new product on the Tempur side as well.
Bhaskar Rao: And fundamentally, that is focused on the new distribution that we have in our OEM channel, as well as the continued success.
Bhaskar Rao: that we have with new products on the Tempur side of the farm.
Rafe Jadrosich: We'll take our next question from Rafe B. Jadrosich with Bank of America. Please go ahead. Great. Thank you. Thanks for taking my questions. I just wanted to say, when you think about the promotional environment across the industry, it looks like price has held up even though the end market has been a little bit choppy.
Bhaskar Rao: We'll take our next question from Rafe Jadrosich with Bank of America. Please go ahead.
Unnamed Analyst: Great, great. Thank you. Thanks for taking my questions. Um, I just want to say when you think about the promotional environment across the industry, it looks like price has held up even though the end market
Rafe Jadrosich: Great, thank you. Thanks for taking my questions. I just want to say, when you think about the promotional environment across the industry, it looks like price has held up even though the end market
Scott Thompson: How do you think about pricing through the back half and into next year with the challenging end market environment? Have you seen any changes in the broader promotional environment? Sure. I'd say that the promotional environment is probably a tad bit more promotional this year than the same period last year. Generally, that takes the, it's being on promotional for a longer period of time as opposed to, we'll call it, depth of the promotion. Some of the manufacturers, you have tech-toothed capacity and fed some share issues have become a little bit more promotional. If you look at, you know, our way we think about it, we try to match promotions, but we also focus mainly on profits.
Speaker Change: It has been a little bit choppy. How do you think about kind of pricing through the back half and into next year with sort of the challenging end market environment? Have you seen any changes on the broader promotional environment?
Speaker Change: Sure, I'd say that the promotional environment is probably a tad bit more promotional this year than same period last year. Generally that takes the, it's being on promotional for a longer period of time as opposed to we'll call it depth of the promotion.
Speaker Change: Some of the manufacturers who have excess capacity and had some share issues have become a little bit more promotional.
Speaker Change: If you look at the way we think about it, we try to match promotions.
Scott Thompson: And, you know, from a share gain, we had what it's called reasonable share gain in the US and good share gain internationally failed.
Scott Thompson: If you look at share gain to a profit standpoint, I imagine our profit performance would stand up extremely good; share gains from a profit standpoint.
Bobbi Griffin: But I would expect if the market stays kind of bouncing around the bottom or soft, it will be in a slightly more promotional environment as far as the link, the period, but not depth as far as I have to take. Question comes from Bobbi Griffin with Raymond James. Please go ahead. Good morning, Bob. Thanks for taking my question. Oscar, I want to switch over to gross margins; clearly, a lot going on in the industry. You guys are regaining some of the operation efficiency; you have to leverage maybe some commodity tailwinds and different things with the new manufacturer's facility.
Bhaskar Rao: But when you strip all that out, how do you view this level of gross margins? Is it sustainable? Is it over-earning? Is there anything we should keep in mind about this as we think about eventually getting to an industry recovery, and admittedly predicting that is becoming harder and harder to do on a quarterly basis?
Bhaskar Rao: Bobbi, great question. The way I think about our gross margin performance, we are seeing green shoots in the back half of last year, really driven by the operational productivity. Just as a reminder, back in the day, coming out of COVID, we made some investments to support our customers, and we committed to ourselves that we would get that back. And what we see here from an operational activity standpoint is that we are well within that journey. When I think about our gross margin, what I am really excited about is really the durability of what we have been able to demonstrate.
Bobby: Bobby Great question, the way I think about our gross margin performance, we are seeing green shoots in the back half of last year really driven by the operational productivity just as a reminder, back in the day coming out of Covid, we made some investments to support our customers and we committed to ourselves that we would get that back and what we what we see and hear from an operational activity standpoint.
Bhaskar Rao: So the operational efficiency that we saw in the second quarter, that does have legs; it has legs, it is going to drive gross margin and even dog improvement, both sequentially as well as year over year when you get into the back half of the year. And as I think about 2025, as I mentioned before, this is just the beginning of the journey; it is not the end of the journey. So there is opportunity not only from a gross margin. and Sampley, but that flowing through from an even top margin standpoint as well. I'd also add to that is I think everybody knows that it's a lot easier to get close margin expansion when the market's growing, so to be able to deliver really strong, those margin performance in a softer market is outstanding.
Bhaskar Rao: I think really both well for when the market turns around.
Michael Lasser: For the next question, comes from Michael Lasser. Where do you be at? Please go ahead.
Scott Thompson: Good morning. Thank you so much for taking my question. I know this is a great talk to you, Scott. I know this is a tough question to answer, but if interest rates come down, but that's because unemployment is weakening. What does that mean for the outlook for units and overall industry revenues for the next 18 months? And then separately, it does seem like, as the industry softness continues, some of the players are pulling back on promotional activity and advertising in an effort to preserve profitability. Doesn't that create an opportunity for Tempur Sealy to be more aggressive, gain even more market share and be in a better spot coming out of this downturn.
Scott Thompson: Some of the players are pulling back on promotional activity and advertising in an effort to preserve profitability. Doesn't that create an opportunity for Tempur Sealy to be more aggressive, gain even more market share and be in an even better spot coming out of this downturn?
Scott Thompson: Thank you very much. Thank you for your question.
Scott Thompson: Thank you very much. Yeah, thank you.
Scott Thompson: First of all, let's do interest rates because it's kind of interesting. And I'm going to call it a hundred basis point declining interest rates, just kind of time to put some math around it. And if you look at our business model, as we sit today, a hundred basis point decline in interest rates generates what, Oscar, probably about $10 million worth of a dollar. And that's probably a little bit more than you would probably initially think if you look through our variable debt, but the piece that you're probably missing is we also get a benefit on the retail side because of the cost of financing.
Speaker Change: Decline in interest rates, just kind of put some math around it.
Speaker Change: And if you look at our business model as we sit today, a 100 basis point decline in interest rates generate what Oscar probably about $10 million worth of EBITDA.
Speaker Change: And thats, probably a little bit more than you would probably initially think if you look through our variable debt.
Speaker Change: But the piece that you are probably missing is we also get a benefit on the retail side because of the cost of financing.
Scott Thompson: And our direct business has gotten to be a reasonable size, so we pick up about $5 million in interest saving from our variable debt, and they would pick up another $5 million in reduced cost financing through our retail operations. So that'd be the first kind of point. That's the direct benefit. Obviously, there's also an indirect benefit, which we don't try to compute. Which it allows our retail customers to help drive traffic through all the aggressive interest rate offers. So a little more interesting to probably think and clearly would be a tailwind for us and the industry.
Speaker Change: Our direct business has gotten to be a reasonable size. So we pick up about $5 million in.
Speaker Change: Interest savings from our variable debt and then we pick up another call it $5 million.
Speaker Change: And reduced cost financing through our through our retail operations. So that'd be the first kind of a point that's the direct benefit obviously, there's also indirect benefit which we don't try to to compute.
Speaker Change: Which has allowed.
Speaker Change: Our retail customers to help drive traffic through.
Speaker Change: Call it aggressive.
Speaker Change: Interest rate offers.
So a little more interest sensitive probably than you would think and clearly would be a tailwind.
Speaker Change: <unk> for us.
Scott Thompson: As far as like strategy, you're talking about as far as companies from some manufacturers that might be pulling back on advertising to the financial concerns. This financial concern has been here for quite a while. People have pulled back. I don't think there's more pullback in the industry from that standpoint. And yes, it has been an opportunity for us to gain share, and we continue to gain share in the US.
Speaker Change: The industry as far as like strategy, you're talking about as far as companies.
Speaker Change: Some.
Scott Thompson: And that's it.
Peter Keith: Our next question comes from Peter Keith, Wade Biperson. Please go ahead. Hey, thanks. Good morning, everyone.
Scott Thompson: I was hoping you could talk about the North American business, maybe with a few more specifics. I think if we're looking at industry data points, we'd generally suggest that Q2 was less negative than Q1 industry-wide, but your sales did get a little bit worse. Could you pull that apart a bit, maybe with the lapping of four models, and did anything change on the competitive front? Absolutely. Just from a quantitative standpoint, let's say that the industry was slightly better, exponentially, from Q1 to Q2. However, when you look at our performance, just be mindful on a year-over-year basis; we did have large four models on a year-over-year basis.
Scott Thompson: So when you, on a print, we've got 6% up on units, it's really being benefited from the new distribution. And if you were to factor out four models, we still captured share on a year-over-year basis.
Bradley Thomas: Next question comes from Keith. You speak the truth. Please go ahead. Thank you. My question was international. You said in prepared comments it would probably be greater growth of higher numbers than domestic.
Scott Thompson: The 2%, excluding currency on a quarter, is that kind of what you're expecting for the second half of the rest of the number we're looking for? Good question. Is just one thing to be mindful of in the first half of prior year; that's when the new products are launching. So what we commented on is that the underside of the underlying legacy international business has been approaching double-digit growth through the back half of last year. And once you factor out four models, you see that again. So, as it was implied in the guide in the back half of the year, it's called admitted to high single-digit growth from an international perspective.
Speaker Change: I had been approaching double digit growth through the back half of last year and once you factor out four models is you see that again, so what's implied in the guide in the back half of the year is call. It mid to high single digit growth from an international perspective, and really what's happening is it's not an improvement necessarily in trend is just now you can see.
Scott Thompson: And really what's happening is it's not an improvement necessarily in trend. It's just now you can see the growth because we're not copying a four model.
Speaker Change: The growth because we're not comping of four models.
Operator: And we will move next.
Operator: And we will move next, Brad Thomas with KeyBank Capital Markets. Please go ahead.
Speaker Change: And one of those next Brad Thomas with Keybanc capital markets. Please go ahead.
William Reuter: Brad Thomas, we have a key bank capital markets. Please go ahead. Thanks. Good morning.
Brad Thomas: Thanks, Good morning, I will follow up on the margin side of things Bosco wondering if there's any more color you could share.
Bhaskar Rao: I will follow up on the margin side of things, foster wondering if there's any more color you can share about how you're thinking about margins and 3, 2 and 4, 2. Thanks. Absolutely. So the bottom line from the gross margin and EBITDA margin standpoint is, in each quarter, we would expect both of the margins to improve, both in Q3 and Q4. Just as a reminder, most of our seasonally third quarter is the biggest. So just as historical pattern would indicate, our gross margins in the third quarter would be higher in Q3 versus Q4. Again, we would see expansion both in the EBITDA margin as well as gross margin, both sequentially as well as on a year-over-year basis.
Brad Thomas: How youre thinking about margins in <unk> absolutely.
Speaker Change: Absolutely so.
Speaker Change: So the bottom line from a gross margin and EBITDA margin standpoint is each quarter, we would expect to both of the margin to improve both in Q3 and Q4, just as a reminder, most of our or seasonally the third quarter is the biggest so just as as historical pattern would indicate our gross <unk>.
Speaker Change: <unk> in the third quarter would be higher in Q3 versus versus Q4 again, we would see expansion both in the EBITDA margin as well as gross margin.
Bhaskar Rao: However, one thing to be mindful of is the rate of expansion that we saw in the first half; we would expect a little bit less than that in the back half as we start laughing summer productivity initiative. The other items I would just call out is the beauty of our business model is that we do have some natural flex in the business. So, from an advertised standpoint, we've called out about $475 million versus where we were prior. So as you think about phasing a vast, just think about holding that rate in the back. At the end of the year.
Operator: Our next question comes from Seth Basham with Woodbush Securities. Please go ahead.
Scott Thompson: Thanks a lot, and good morning. I'd like to follow up on the share performance in the US. It seems like you are still gaining share, but especially if you strip out some of the OEM business wins, the share gains are more limited, and that could be within the higher end potentially. So any commentary there would be helpful.
Scott Thompson: And then, relatedly, as we see, the anti-dumping measures go into effect in the US, are you seeing inventory levels of the importers coming down, such that we could see more share gains for you guys at the lower end of the industry, despite the excess capacity that many, many factors of the US have. Yeah, let me see if I can impact some of that. I'll continue to clean the up. I mean, the second part of your question. Yeah, I do think the importers are coming down from the imported goods. And yes, theoretically, that should benefit us on the low end.
Scott Thompson: As you know, there's relatively little profit at that low end. So I don't think it'll be huge to us from a profit standpoint, maybe from a sale to a unit standpoint. It certainly be somewhat of a tailwind. When you go to share gain, everything that we've seen when you look at it from an industry standpoint, we're talking US. It would indicate that we gain share in the second quarter. The amount of share gain is probably less robust than it was in the first quarter, probably mostly due to promotional activity, which we chose not to participate in.
Scott Thompson: So it's slightly less, but as I think I've explained before, you know, we manage sales and profits, not just sales. So it's a bit a little bit less, but I remember everything I've seen. I would expect us to have share gains in the US for the next few quarters, based on what I can see.
Scott Thompson: And I just can't see any further out from that.
Scott Thompson: On the international side, I would say our share gain probably expanded in the second quarter versus the first quarter, as Oscar mentioned, is the new product is doing very well internationally, moving more into the meat of the market internationally.
Bhaskar Rao: On the international side, I would say our share gains probably expanded in the second quarter versus the first quarter. As Bhaskar mentioned, the new product is doing very well internationally, and we're moving more into the meat of the market internationally. Question comes from Phillip Blee with William Ayer. Please go ahead.
Laura Champine: Next question comes from Philip Lee with William Eric. Please go ahead. Hi, good morning. Thanks for taking my question. It seems like newness continues to be a big driver of demand in the space.
Scott Thompson: So can you speak about how some of your products are performing relative to the rest of the assortment, and then any key drivers behind the variance and performance, whether it's price, advertising, or just consumer appetite, and then anything about how we should think about sustainability of that going into next year. Thank you. Sure. I mean, the newer products, almost by definition, perform better than the older products, and then the new shiny penny on the floor. The adaptor product has been wildly successful. We're looking forward to a relatively large, or it would be the largest launch in silly history, the 2025 silly brand, which we would expect to be very robust, no matter what the industry is.
Speaker Change: To the rest of the assortment and then any key drivers behind the variance in performance, whether its price advertising or just consumer appetite and then anything about how we should think about sustainability of that going into next year. Thank you.
Scott Thompson: Here, I mean, the newer products, almost by definition, perform better than the older products, and the new shiny penny on the floor. The Adapt product has been wildly successful. We're looking forward to a relatively large and what would be the largest launch in Sealy's history, the 2025 Sealy brand, which we would expect to be very robust, no matter what the industry is, who launched that product.
Speaker Change: Sure I mean.
Speaker Change: The newer product almost by definition performed better than the older products and the new shiny Penny.
Speaker Change: Floor.
Speaker Change: The adapter product has been wildly successful we're.
Speaker Change: We're looking forward to a relatively large would be the largest launch in <unk> history.
Speaker Change: The 2025, Sealy Sealy brand, which we would expect to be.
Speaker Change: <unk> robust no matter what the industry is as.
Scott Thompson: As we launched that product. It drives businesses, obviously; advertising, consumer confidence, innovation. Those things continue to be foundational in the industry.
Speaker Change: As we launched that product.
Speaker Change: What drives businesses, obviously advertising consumer confidence innovation those things continue to be foundational.
Speaker Change: And the industry.
Operator: And I'll bust you to join the queue.
Speaker Change: And our Boston can you add anything to this question I.
Speaker Change: Okay.
Speaker Change: Thank you and as a reminder, that is star one if you would like to join the queue. We will move next with Laura Champine with loop capital. Please go ahead.
Operator: We will move next with Laura Champine with Loop Capital. Please go ahead. Thanks for taking my question. It's really about your marketing spend. I think maybe last quarter you talked about continuing to spend, to try to drive people to the category which may or may not be working.
Scott Thompson: So I just wanted to talk about, you know, where those marketing dollars are going, if you've switched channels at all or focus on this, whether it comes to top, bottom, or mid funnel. Yeah, great question. As I said in the prepare remark, it's kind of a balanced media mix. We really haven't changed the mix. We have redirected some of our advertising dollars to support emotional activity. So the way we think about it is we move a little bit from the top of the funnel, which is to drive customers into retail stores and move some of those dollars more to promotional expense.
Operator: Yeah, great.
Scott Thompson: So that our product is on sale at the same time other products are on sale. We've had a little bit of a mismatched last couple of quarters on that. And we decided to go ahead and match off. So when a customer comes in, our product will be on sale like others. The good news is it's pretty much EBITDA neutral for us as we just shipped around the dollars between advertising and promotion.
Jeffrey: Almost next week. Do you want to say what's key with Jeffrey?
Scott Thompson: I'll move next with Jonathan.
Scott Thompson: Please go ahead. Great. Good morning, and thanks for taking my question.
Bhaskar Rao: I wanted to ask about commodity costs, tailwind, progress margin, this quarter. Could you just expand on kind of the puts and takes that drove that and then elaborate on the expectations embedded in the guide to the second half. Thanks so much. Absolutely. So, from a commodity standpoint, call it about 100 basis points benefit on a year-over-year perspective. And when I think about the puts and takes, I would say the tailwinds that we've seen, whether it be steel, chemical, TDI, MDI, cotton, et cetera, is that those continue to help us. However, one thing that we are mindful of, and it's embedded in the guide, is just the cost of transportation, specifically in cargo and whatnot.
Bhaskar Rao: So that was a bit of a drag in the first half and specifically in the second quarter. As I think about the outlook, is that we do expect the benefit to moderate as we get into the back half.
William Bruder: And really, as you think about how commodities have flowed over the last year or so, is that we started seeing improvements in the We will move next with William Bruder, thanks for coming.
Scott Thompson: Good morning. The expectation that industry declines will moderate in the second half of the year. It seems to be a little bit in conflict with what the markets are telling us about how the consumers are feeling and recent anxiety about weakness. I guess is your expectation that lower interest rates are going to benefit you more than they may consumer products spending in general? Or to what do you attribute the fact that you expect trends to the declines to accelerate across the industry? Yeah, great question because I think it really has more to do with industry specific issues, which are the comps are much lower.
Scott Thompson: Yeah, great question, because I think it really has more to do with industry-specific issues, which are the comps are much lower. The bedding market, mattress market specifically, went into, we'll call it, recession slash depression earlier, so our comps are much easier, as opposed to us having a more of a sunshine kind of opinion about the general economy. It's really a comp issue.
Scott Thompson: The betting market, mattress market specifically went into a call of recession flash depression earlier. So our comps are much easier. As opposed to us having a more of a sunshine kind of opinion about the general economy. It's really a comp issue to step over. That's right. And when you think about second half expectations, it's got said it is cop driven. And when you think about first half, back half or second quarter to back half, we're just talking about a very slight improvement on a rate year-over-year perspective.
Operator: Our next question comes from a peer key.
Operator: Sweet by Person.
Bobbi Griffin: Please go ahead. Oh, thanks again. So there's been, I guess, some bankruptcy risks with a few of your distributor partners. I think one is going through a full liquidation.
Scott Thompson: Is that factored into the outlook, and maybe what percentage would that be as a hit to sales for the back half? Yeah, that's fully considered in the guidance. It's insignificant to the portfolio. It's also generally low in betting. So, you know, I think what 98% are receivables are current; you know, clearly in an elongated downturn. You're going to have some, we'll call them blitz. And generally, that would be in the retailers to retail primarily lower in mattresses. And we are seeing you can pressure there from some accounts, which are obviously public, but not this in the guidance, but also don't think it's I was considered to be significant from financial standpoint.
Laura Champine: And maybe maybe what what percentage would that be as a hit to sales for the back half.
Scott Thompson: Yes, that's been fully considered in the guidance. It's insignificant to the portfolio. It's also generally low-end betting.
Speaker Change: Yes, that's fully considered in the guidance.
Speaker Change: Insignificant to the portfolio.
Speaker Change: It's also generally low end bedding.
Speaker Change: So.
Speaker Change: I think with 98% of receivables are current correct.
Speaker Change: And an elongated downturn youre going to have some.
Speaker Change: Called Blips.
Speaker Change: And generally that would be in the retailers, who retail primarily lower in mattresses and we're seeing we've seen some pressure there from some accounts which are obviously.
Speaker Change: Public, but it's in the guidance, but I also don't think it's I would consider it to be significant from a financial standpoint, just the double tap on that when you go back in history coming out of Covid, the retailers, where perhaps in the best health.
Bhaskar Rao: Just a double tap on that. When you go back in history, you can come out of COVID. The retailers were perhaps in the best health that we've seen, at least in my time. However, as Scott mentioned, with the elongated downturn, is that we have seen pressure. What I would say is that we are broadly distributed, and you can find us as a consumer wanting to interact with our brand and product. Is that they can find it's an alternative, an alternative distribution point. And as Scott mentioned, as it relates to from a credit exposure standpoint of fairly, fairly healthy at 98%, and it is.
Bhaskar Rao: Just to double-tap on that, when you go back in history, coming out of COVID, retailers were perhaps in the best health that we've seen, at least in my time. However, as Scott mentioned, with the elongated kind of downturn, we have seen some pressure. What I would say is that we are broadly distributed, and you can find us as a consumer wants to interact with our brands and products. They can find us an alternative, an alternative distribution point.
Speaker Change: That we've seen at least in my in my time, However, as Scott mentioned with the elongated kind of downturn that we.
Scott Thompson: We have seen some pressure what I would say is that we are broadly distributed and you can find us at the consumer want to interact with our brands and products that they can find it an alternative.
Bhaskar Rao: The other thing I mentioned is the customer doesn't go away; the customer ends up showing up in another channel. And so our other channels, quite frankly, do a better job moving customers into hiring products.
Bhaskar Rao: And so it's sometimes some of those changes are net positive when you work through the system and realize how well.
Operator: Thank you.
Bobbi Griffin: We will take our last question from Bobby Griffin with Raymond James. Please go ahead. Hey guys, thanks for letting me get back in. Bhaskar, I was just hoping maybe we could talk a little bit more detail on the moving parts around floor samples. If my notes are correct, the floor samples, given the timing shift this year, would be a year-rear revenue headwind to report it to Q North America revenue. And then what was it to 1Q? Was it actually a tail end to 1Q 24? So when I want to think about the sequential performance, I need to neutralize that.
Unnamed Analyst: Hey, guys. Thanks for letting me get back in.
Bhaskar Rao: Bhaskar, I was just hoping maybe we could talk a little bit more detail on the moving parts around floor samples. If my notes are correct, the floor samples, given the timing shift this year, would be a year-over-year revenue headwind to reported 2Q North America revenue. And then what was it to 1Q? Was it actually a tailwind to 1Q24? So when I want to think about the sequential performance, I need to neutralize that, correct. So it was, it was.
Bhaskar Rao: That's correct. So it was it was a slight benefit in the first quarter, call it 8%, and as you think about the second quarter, call it 3% on a consolidated basis with most of it being in North America. Very astute observation. Thank you.
Scott Thompson: And I will now turn the call over to Scott Thompson for closing remarks. Thank you, operator. So our over 12,000 employees around the world. Thank you for what you do every day to make the company successful. Our retail partners. Thank you for your outstanding representation of our brand, your shareholders, and lenders. Thank you for your confidence in the company's leadership and its Board of Directors.
Operator: That ends our call today, operator. Thank you.
Operator: Thank you. And this does conclude today's conference. Thank you for your participation. You may disconnect at any time.
Operator: And just as conclude today's conference, thank you for your participation. You may connect at any time.