Q3 2019 Earnings Call

August 7, 2019

Okay.

Good morning, My name is Michelle and I'll be your conference operator today.

Operator: Good morning. My name is Michelle, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Spectrum Brands Fiscal 2019 Q3 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers prepare remarks, there'll be a question and answer period. If you would like to ask a question during that time, simply press star, then 1 on your touchtone telephone. Should anyone need assistance at any time during this conference, please press star then 0, and an operator will assist you. As a reminder, ladies and gentlemen, this conference is being recorded today, Wednesday, 7 August. Thank you. I would now like to introduce Mr. David Pritchard with Spectrum Brands. Mr. Pritchard, you may begin your conference.

At this time I would like to welcome everyone to the spectrum brands fiscal 2019 third quarter earnings Conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers prepared remarks, there will be a question and answer period.

If you would like to ask a question during that time simply press Star then the number one on your Touchtone telephone.

Should anyone need assistance at any time during this conference. Please press Star then zero and an operator will assist you.

As a reminder, ladies and gentlemen, this conference is being recorded today Wednesday August seven thank you.

I would now like to introduce Mr., David Prichard with spectrum brands Mr. Prichard you may begin your conference.

Thank you operator, and welcome to spectrum brands Holdings' fiscal 2019 third quarter earnings conference call and webcast I'm, Dave Prichard, Vice President of Investor Relations for spectrum brands and your moderator for our call today.

Dave Prichard: Thank you, operator, welcome to Spectrum Brands Holdings Fiscal 2019 Q3 Earnings Conference Call and Webcast. I'm Dave Prichard, Vice President of Investor Relations for Spectrum Brands and your moderator for our call today. Now, to help you follow our comments, we have placed a slide presentation on the event calendar page in the IR section of our website at spectrumbrands.com. This document will remain there following our call. If we look at the presentation, and we start with slide 2, you'll see that the call will again be led by David Maura, our Chairman and Chief Executive Officer, and Doug Martin, our Chief Financial Officer. David and Doug will deliver opening remarks, and then we will conduct the Q&A session. If we turn to slides 3 and 4, you'll note that our comments today include forward-looking statements, including our outlook for fiscal 2019 and beyond.

David Prichard: Thank you, operator, welcome to Spectrum Brands Holdings Fiscal 2019 Q3 Earnings Conference Call and Webcast. I'm Dave Prichard, Vice President of Investor Relations for Spectrum Brands and your moderator for our call today. Now, to help you follow our comments, we have placed a slide presentation on the event calendar page in the IR section of our website at spectrumbrands.com. This document will remain there following our call. If we look at the presentation, and we start with slide 2, you'll see that the call will again be led by David Maura, our Chairman and Chief Executive Officer, and Doug Martin, our Chief Financial Officer. David and Doug will deliver opening remarks, and then we will conduct the Q&A session. If we turn to slides 3 and 4, you'll note that our comments today include forward-looking statements, including our outlook for fiscal 2019 and beyond.

Now to help you follow our comments, we have placed a slide presentation on the event calendar page in the IR section of our website at spectrum brands outcome. This document will remain there following our call.

So if we look at the presentation and we start with slide two you will see that the call will again be led by David Maura, Our chairman and Chief Executive Officer, and Doug Martin Our Chief Financial Officer, David then Doug will deliver opening remarks, and then we will conduct the Q and a session.

If we turn to slides three and four you will note that our comments today include forward looking statements, including our outlook for fiscal 2019 and beyond.

Dave Prichard: These statements are based upon management's current expectations, projections, and assumptions, and are by nature uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated 7 August 2019, and our most recent SEC filings and Spectrum Brands Holdings' most recent 10-Qs and 10-K. We assume no obligation to update any forward-looking statement. Please note that we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in today's press release and 8-K filing, which are both available on our website in the Investor Relations section. With that, I will now turn the call over to our Chairman and CEO, David Maura.

Now these statements are based upon managements current expectations projections and assumptions and are by nature uncertain actual results may differ materially.

David Prichard: These statements are based upon management's current expectations, projections, and assumptions, and are by nature uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated 7 August 2019, and our most recent SEC filings and Spectrum Brands Holdings' most recent 10-Qs and 10-K. We assume no obligation to update any forward-looking statement. Please note that we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in today's press release and 8-K filing, which are both available on our website in the Investor Relations section. With that, I will now turn the call over to our Chairman and CEO, David Maura.

Due to that risk spectrum brands encourages you to review the risk factors and cautionary statements outlined in our press release dated August seven 2019, and our most recent FCC filings and spectrum brands Holdings'. Most recent 10-Q's and 10-K ., we assume no obligation to update any forward looking statement.

Also please note that we will discuss certain non-GAAP financial measures in this call reconciliations on a GAAP basis for these measures are included in today's press release, and 8-K filing which are both available on our website in the Investor Relations section.

So with that I will now turn the call over to our chairman and CEO David Maura.

Thank you David.

David Maura: Hey, thank you, Dave. Just wanna thank everyone for joining us this morning. As our fiscal 2019 draws to a close, I'm very proud of our associates here at Spectrum Brands, as we are on pace to deliver the financial commitments we set about a year ago. All of this, despite headwind from tariffs, unfavorable weather in Home & Garden, distribution input cost increases across our business lines. Spectrum employees have risen to the challenge, and they're delivering on our goal of a year of stabilizing our businesses, solidifying our platform, and positioning our company to resume growth in 2020. We have also materially improved our capital structure from a peak leverage ratio of 5.8x in December 2018, to an estimated net leverage of 3.5x or better as we exit this year, fiscal year.

So I want to thank everyone for joining us this morning.

Those as our fiscal 2019 draws to a close I'm very proud of our associates here at spectrum brands as we are on pace to deliver the financial commitments, we set about a year ago.

And all of this despite headwinds from tariffs on favorable weather in home and garden distribution input cost increases across our business lines.

Structural employees have risen to the challenge and they are delivering on our goal of a year of stabilizing our businesses solidifying our platform and positioning our company to resume growth in 2020.

We have also materially improved our capital structure from a peak leverage ratio of 5.8 times in December of 18.

To an estimated net leverage of three and a half times or better as we exit this year.

Fiscal year, we expect to be in a very strong financial position with over $500 million of cash and full availability under our $800 million revolver.

David Maura: We expect to be in a very strong financial position with over $500 million of cash and full availability under our $800 million revolver. Additionally, during the fiscal year so far, we've repurchased over $250 million of our shares, leaving us with $750 million remaining under our buyback authorization plan. We continue to believe the opportunistic acquisition of our shares represents a high return on our capital. So far, during fiscal 2019, including our recently declared dividend, we have committed to return over $330 million of cash to our shareholders through share buybacks and dividends. On our Q2 call, we indicated we had undertaken a global analysis of our operating model, and the objective was to identify potential performance improvements.

Additionally.

During the fiscal year, so far we've repurchased over $250 million or more shares, leaving us with $750 million remaining under our buyback authorization plan.

We continue to believe the opportunistic acquisition of our shares represents a high return on our capital.

So far during fiscal 19, including our recently declared dividends, we have committed to return over $330 million of cash to our shareholders through share buybacks and dividends.

On our second quarter call.

We indicated we have undertaken a global analysis of our operating model.

And the puts and the objective was to identify potential performance improvements.

During the third quarter, we have moved from analysis into detailed planning and we've actually started the initial execution of what I'm, calling our global productivity improvement plan.

David Maura: During Q3, we have moved from analysis into detailed planning, and we've actually started the initial execution of what I'm calling our Global Productivity Improvement Plan. As we prepare to enter 2020, I'm actually thrilled that the teams are embracing our plan, which is expected to materially and permanently increase the operating efficiency and effectiveness of our company, while enabling growth investments in consumer insights, research and development, and marketing. This is very much in line with our strategy to reinvigorate Spectrum Brands as a leading innovator, brand steward, and low-cost provider, delivering growth in earnings and free cash flow over the long term for our shareholders. If you could please move to slide 7.

As we prepare to enter 2020.

I'm actually thrilled that the teams are embracing our plan, which is expected to materially and permanently increase the operating efficiency and effectiveness of our company.

While enabling growth investments in consumer insights research and development and marketing.

This is very much in line with our strategy to reinvigorate spectrum brands as a leading innovator brand steward and low cost provider delivering growth and earnings and free cash flow over the long term for our shareholders.

If you could please move to slide seven.

As we enter the fourth quarter.

David Maura: As we enter Q4, while the businesses do face a number of headwinds, we've got inflation associated with input costs, we've got tariffs that are in the news almost every day, distribution, logistics costs, and some sluggishness in the US housing market. We are affirming our full-year adjusted EBITDA guidance of $560 million to $580 million, and we expect to further improve leverage from net debt of 5.2x last year to 3.5x or better at this year-end. As you will hear more details from Doug about our results, I'll simply focus my comments on how our teams across geographies, functions, and business units are driving for vision, clarity, and focus. Our competitive positioning in the marketplace continues to improve, with incremental investments this year weighted toward our strongest brands. Our teams continue to innovate and enhance customer relationships.

While the businesses do face a number of headwinds we've got inflation associated with input cost Weve got tariffs that are in the news almost every day.

Distribution logistic costs and some sluggishness in the US housing market, we are affirming our full year adjusted EBITDA guidance of five 6% to 580, and we expect to further improve leverage from net debt of 5.2 times last year to three and a half times are better at this year end.

As you will hear more details from Doug about our results.

I'll simply focus my comments on how our teams across geographies functions and business units are driving for vision clarity and focus.

Our competitive positioning in the marketplace continues to improve with incremental investments this year weighted toward our strongest brands.

Our teams continue to innovate and enhance customer relationships.

David Maura: For example, Home & Garden grew outdoor control volumes under the Spectracide brand by over 10% year-to-date. That's despite the unfavorable weather that we experienced in the May, June time period. On a multi-year basis, we expect these brand investments to reach incremental customers and continue to grow share while leveraging our world-class manufacturing operations in St. Louis. In HHI, we are building on our number one brand position in the residential security markets by pushing innovation into the electronics category and our leadership position in the smart home connected market. With the addition of Aura, our new Bluetooth-enabled lock under the industry-leading Kwikset brand, starting this Q4. This convenient upgrade from a mechanical lock system incorporates simple, smart lock and programming to allow for secure access in a number of ways.

For example, home and Garden grew outdoor control volumes under the spectra side brand by over 10% year to date and that's despite the unfavorable weather that we experienced in the may.

May June time period.

On a multiyear basis, we expect these brand investments to reach incremental customers.

And continue to grow share.

While leveraging our world class manufacturing operations in St. Louis.

And HHS side, we are building on our number one brand position in the residential security markets by pushing innovation into the electronics category and our leadership position in the smart home connected market with the addition of Ora or a new Bluetooth enabled law under the industry, leading quickset brands, starting this fourth quarter.

This convenient upgrade from a mechanical locks system incorporates simple smart block programming to allow for secure access and them in a number of ways one through the quick SEC app.

David Maura: One, through the Kwikset app, a coded entry feature, and you can use a traditional key. In our Home & Personal Care results, we reflected growth this quarter in Europe, and that was derived from innovation and core personal care product lines. We have an entirely new leadership team focused on stabilizing the business here in the US, driving our core platforms and planting seeds for future growth. Clearly, this quarter, our Global Pet Care business was the highlight. Strong companion animal results reflected a combination of premium product category growth, coupled with significant market share gains from our DreamBone and SmartBones product lines. In fact, in Nielsen track channels, our double-digit growth in these brands is twice as strong as the overall category, and we will continue to innovate with new flavors and line extensions to come.

A coded entry feature and you can use a traditional key.

In our home and personal care results, we squeeze reflected growth this quarter in Europe and that was derived from innovation in core personal care product lines.

And we have an entirely new leadership team focused on stabilizing the business here in the us driving our core platforms and planting seeds for future growth.

Clearly this quarter, our global pet care business was the highlight.

Strong companion animal results reflected a combination of premium product category growth.

Coupled with significant market share gains from our dream bone and smartphone product lines.

In fact in Nielsen tracked channels, our double digit growth in these brands is twice as strong as the overall category.

And we will continue to innovate with new flavors and line extensions to call.

If I could have you turn your attention to slide eight.

David Maura: If I could have you turn your attention to slide 8. We continue to focus on building a faster, smarter, stronger Spectrum Brands of the future. After launching a detailed global productivity study, our teams have identified four primary areas of improvement. These areas include commercial and go-to-market models, procurement, supply chain operations, and G&A work streams, which we expect to unlock performance improvements as we continue to leverage our scale advantages, while further strengthening our customer and consumer relationships with strong brands, innovation, and consumer-facing marketing. During the quarter, the company invested approximately $20 million into these new Global Productivity Improvement Plan initiatives, and we have executed already on $35 million worth of sourcing savings. The majority of these will be realized in fiscal 2020.

We continue to focus on building a faster smarter stronger spectrum brands in the future.

And after launching a detailed global productivity study our teams have identified four primary areas of improvement.

These areas include.

Commercial and go to market models procurement supply chain operations and GE, many work streams, which we expect to unlock performance improvements as we continue to leverage our scale advantages, while further strengthening our customer and consumer relationships with strong brands innovation and consumer facing marketing.

During the quarter the company invested approximately $20 million into these new global productivity improvement plan initiatives and we have executed already on $35 million worth of sourcing savings. The majority of these will be realized in fiscal 2020.

We expect that a substantial portion of these savings will be reinvested into R&D marketing and technology, enabling capabilities to drive growth and improve our cost position.

David Maura: We expect that a substantial portion of these savings will be reinvested into R&D, marketing, and technology-enabling capabilities to drive growth and improve our cost position. Our Spectrum 2020 guiding principles are vision, where we're going, clarity, what we prioritize, and focus, how we execute. This is our pathway to a consumer-driven mindset, accepting nothing but outstanding quality and service, while increasing innovation and marketing investments behind our brands. These actions are driving a culture of greater accountability, quicker decision-making, with an experienced and energized leadership team that has been refreshed with new talent, and that are focused on operational excellence as we position our company for improved sales, earnings, and sustainable free cash flow growth. With that introduction, I will now turn it over to Doug to go over the quarter.

Our spectrum 2020.

Guiding principles, our vision, where were going clarity, what we prioritize and focus how we execute.

This is our pathway to a consumer driven mindset accepting nothing but outstanding quality service, while increasing innovation and marketing investments behind our brands. These actions are driving a culture of greater accountability quicker decision, making with an experienced and energized leadership team that has been refreshed with new talent and that are focused on operational excellence as we position our company for improved sales earnings and sustainable free cash flow growth.

With that introduction I will now turn it over to Doug to go over the quarter.

Thanks, David and good morning, everyone turning to slide 10, and a review of Q3 results from continuing operations beginning with net sales.

Doug Martin: Thanks, David. Good morning, everyone. Turning to slide 10 and a review of Q3 results from continuing operations, beginning with net sales. Net sales declined 0.7%, driven by unfavorable foreign exchange of 150 basis points, while organic sales increased 0.8%. Strong Global Pet Care sales were partially offset by lower revenues from Hardware & Home Improvement, Home & Personal Care, and Home & Garden. Reported gross profit was down 0.5%. Gross margin increased 10 basis points, as positive pricing and productivity were partially offset by input cost inflation, tariffs, and unfavorable product mix. Reported SG&A expense of $233 million increased 4.3% or 22.8% of net sales this year, compared to 21.7% a year ago.

Net sales declined 2.7% driven by unfavorable foreign exchange of 150 basis points.

While organic sales increased 2.8%.

Strong global Pet care sales were partially offset by lower revenues from hardware and home improvement home and personal care and home and garden.

Reported gross profit was down 0.5% gross margin increased 10 basis points as positive pricing and productivity were partially offset by input cost inflation tariffs and unfavorable product mix reported SGN a expense of $233 million increased 4.3% or 22.8% of net sales this year compared to 21.7% a year ago.

Reported operating margin of 9.1% declined a 130 basis points due to higher distribution costs, the absence of depreciation and amortization charges in the prior year from home and personal care and higher restructuring charges.

Doug Martin: Reported operating margin of 9.1% declined 130 basis points due to higher distribution costs, the absence of depreciation and amortization charges in the prior year from Home & Personal Care, and higher restructuring charges. On a reported basis, net loss and diluted loss per share were driven by the unrealized loss on our Energizer common stock, the absence of a large prior year income tax benefit, and higher tax expense this year related to the recently issued regulations under the 2017 Tax Cuts and Jobs Act, partially offset by lower interest expense. Adjusted diluted EPS of $1.35 increased 7.1% due to lower interest expense and shares outstanding compared to the prior year.

On a reported basis net loss into the diluted loss per share were driven by the unrealized loss on our energizer common stock.

The absence of a large prior year income tax benefit and higher tax expense. This year related to the recently issued regulations under the 2017 tax cut and jobs AG, partially offset by lower interest expense.

Adjusted diluted EPS of $1.35 increased 7.1% due to lower interest expense and shares outstanding compared to the prior year.

Turning to slide 11, Q3 reported interest expense from continuing operations of $33.9 million decreased $29.4 million driven by lower debt levels.

Doug Martin: Turning to Slide 11, Q3 reported interest expense from continuing operations of $33.9 million decreased to $29.4 million, driven by lower debt levels. Cash taxes of $7.6 million were comparable to last year. Depreciation, amortization, and share-based compensation from continuing operations of $49.8 million increased from $33.6 million last year, primarily due to higher share-based compensation and the impact of the HPC depreciation and amortization this year, as a result of moving the unit back into continuing operations. Cash payments for transaction and restructuring and related charges for Q3, including discontinued operations, were $14.6 million and $11.8 million, respectively, versus $27.5 million and $23.1 million, respectively, last year. The lower cash spend was driven primarily by HHIDC consolidation and divestiture activity in the prior year.

Cash taxes of $7.6 million were comparable to last year.

Depreciation amortization and share based compensation from continuing operations of $49.8 million increased from $33.6 million last year, primarily due to higher share based compensation and the impact of the HPC depreciation and amortization.

This year as a result of moving unit back into continuing operations.

Cash payments for transaction and restructuring and related charges for Q3, including discontinued operations were 14.6, and $11.8 million, respectively versus 27.5, and $23.1 million respectively last year.

The lower cash spend was driven primarily by a DC consolidation and divestiture activity in the prior year.

Now to business unit results, beginning with slide 12, and hardware and home improvement.

Doug Martin: Now to business unit results, beginning with Slide 12 in Hardware & Home Improvement. HHI's 4.8% reported net sales decline reflected lower US residential security and builders hardware net sales, which were negatively impacted by $20 million of higher Kansas backlog shipments in the prior year, while plumbing grew modestly. Organic net sales declined 4.3%, excluding unfavorable FX of $1.8 million. I'll also do the math for you on the $20 million impact year-over-year on Kansas. That would have, if you strip out the impact of that, it would have resulted in about 1.1% organic growth. Adjusted EBITDA declined 8.4% to $67.7 million, with 70 basis points of margin contraction to 19.1% from higher input costs, partially offset by positive pricing.

Hey, guys, 4.8% reported net sales decline reflected lower us residential security and builders hardware net sales, which were negatively impacted by $20 million of higher Kansas backlog shipments in the prior year plumbing grew modestly organic net sales declined 4.3%, excluding unfavorable FX of $1.8 million and also do the math for you on that on the $20 million impact year over year on Kansas that would have.

If you strip out the impact of that it would have resulted in about 1.1% organic growth.

Adjusted EBITDA declined 8.4% to $67.7 million. This 70 basis points of margin contraction and 19.1% from higher input costs, partially offset by positive pricing.

Looking ahead, he sees continued growth and its electronic deadbolt and smart life product lines, especially given relatively low and fast growing us residential adoption rates.

Doug Martin: Looking ahead, HHI sees continued growth in its electronic deadbolt and smart lock product lines, especially given relatively low and fast-growing US residential adoption rates. In Q4, we also plan to introduce new products, benefit from price increases, and continue to invest behind cloud technology, mobile apps, and access control. To Home & Personal Care, or HPC, which is slide 13. Reported net sales fell 4.3%, negatively impacted by unfavorable FX of $10.3 million. Organic net sales were essentially flat. Net sales for small appliances decreased primarily from prior year loss distribution in the US mass channel in coffee makers and toaster ovens, while personal care sales fell predominantly in the US as a result of prior year haircare distribution losses in the mass channel.

In Q4, we also plan to introduce new products benefit from price increases and continued to invest behind cloud technology mobile apps and access control.

Now to home and personal care or HPC, which is slide 13.

Reported net sales fell 4.3% negatively impacted by unfavorable FX of $10.3 million.

Organic net sales were essentially flat.

Net sales for small appliances decreased primarily from prior year loss distribution in the us mass channel and coffee makers and toaster ovens, while personal care sales fell predominant in the EU in the US as a result of prior year hair care distribution losses in the mass channel.

These were partially offset by growth in Europe , primarily from E Commerce, and UK food and drug channels as well as growth across Latin America.

Doug Martin: These were partially offset by growth in Europe, primarily from e-commerce and UK food and drug channels, as well as growth across Latin America. The decrease in adjusted EBITDA and margin were attributable to higher transaction, foreign exchange, and input costs, partially offset by productivity. As we've said before, we are resetting HPC in fiscal 2019, rebalancing its cost structure, and investing more behind its brands to prepare for growth in 2020. The newly installed leadership team will continue to focus on innovation across core product categories, coupled with financial recovery initiatives in organizational streamlining, business simplification, and rationalization. Moving to Global Pet, which is slide 14. Building on solid first half sales performance, reported net sales increased 13.9%. Excluding unfavorable FX of $3.5 million, organic net sales grew a very strong 15.7%.

The decrease in adjusted EBITDA and margin were attributable to higher transaction foreign exchange and input costs, partially offset by productivity.

As we've said before we are resetting HPC in fiscal 2019 rebalancing its cost structure and investing more behind its brands to prepare for growth in 2020.

The newly installed leadership team will continue to focus on innovation at costs across core product categories, coupled with financial recovery initiatives and organize organizational streamlining business simplification and rationalization.

Moving to global Pet, which is slide 14.

Building on solid first half sales performance reported net sales increased 13.9%.

Excluding unfavorable FX of three and a half million dollars organic net sales grew a very strong 15.7% significantly higher net sales were attributable to continued strong growth in us companion animal predominantly dog chews and treats along with modest growth in us acquire mix.

Doug Martin: Significantly higher net sales were attributable to continued strong growth in US companion animal, predominantly dog chews and treats, along with modest growth in US aquatics. Net sales in Europe also grew, driven by favorable year-ago comparisons from distribution center fulfillment constraints. Adjusted EBITDA increased 11.7% to $39 million, with a 30 basis point margin decline to 17.6% as a result of increased volumes in companion animal and positive pricing, partially offset by higher manufacturing and distribution costs. In Q4, we expect another solid performance in our large US region, with new product launches supported by higher investments in data-driven digital marketing, aimed primarily at the rapidly growing e-commerce channel. Pet continues to work to lower its global manufacturing and supply chain cost base and trim selective, unproductive SKUs to drive a higher long-term margin structure.

Net sales in Europe also grew driven by favorable year ago comparisons from distant distribution center fulfillment constraints.

Adjusted EBITDA increased 11.7% to $39 million for the 30 basis point margin declined to 17.6% as a result of increased volumes in companion animal and and positive pricing, partially offset by higher manufacturing and distribution costs.

In Q4, we expect another solid performance in our large us region with new product launches supported by higher investments in data driven digital marketing.

Aimed primarily at the rapidly growing ecommerce channel.

Pat continues to work to gloat to lower global manufacturing and supply chain cost base and trim selective unproductive skus to drive a higher long term margin structure.

Turning to home and garden, which is slide 15.

Doug Martin: Turning to Home & Garden, which is slide 15. The 2.6% net sales decrease was driven by unfavorable weather conditions during most of the quarter, with reduced sales in household insect and outdoor controls being partially offset by growth in repellents due to strong early season home center orders. Adjusted EBITDA decreased 6.5% to $53.3 million, and EBITDA margin declined 110 basis points to 26.3%, driven by input cost increases and higher marketing and advertising investments, partially offset by productivity and pricing actions. Despite the weather challenges in Q3, we continue to expect Home & Garden to grow both sales and adjusted EBITDA in 2019 behind distribution wins. Moving to the balance sheet on slide 16.

The 2.6% net sales decrease was driven by unfavorable weather conditions during most of the quarter with reduced sales and household insect and outdoor controls being partially offset by growth in repellents due to strong early season home Center orders.

Adjusted EBITDA decreased 6.5% to $53.3 million and EBITDA margin declined 110 basis points to 26.3% driven by input cost increases and higher marketing and advertising investments, partially offset by productivity and pricing actions. Despite the weather challenges in Q3, we continue to expect home and garden to grow both sales and adjusted EBITDA in 2019 behind distribution wins.

Moving to the balance sheet and slide 16.

We completed Q3 in a solid liquidity position, including $724 million available on our $800 million cash flow revolver, and a cash balance of $161 million.

Doug Martin: We completed Q3 in a solid liquidity position, including $724 million available on our $800 million cash flow revolver and a cash balance of $161 million. Debt outstanding was $2.3 billion, down 51% from $4.7 billion at the end of fiscal 2018. Capital expenditures were $13.2 million in the quarter, versus $18.5 million last year. Turning to slide 17 and our 2019 guidance. Spectrum Brands now expects reported net sales to be comparable with the prior year, with foreign exchange having a negative impact of approximately 150 basis points based on current spot rates. We are affirming our full year adjusted EBITDA guidance of $560 to $580 million.

Debt outstanding was $2.3 billion down 51% from $4.7 billion at the end of fiscal 2018.

Capital expenditures were $13.2 million in the quarter.

Versus $18.5 million last year.

Turning to slide 17, and our 2019 guidance.

Spectrum brand now expects reported net sales to be comparable with the prior year with foreign exchange, having a negative impact of approximately 150 basis points based on current spot rates.

We are affirming our full year, adjusted EBITDA guidance of $560 million to $580 million.

Doug Martin: Depreciation and amortization is expected to be between $230 to $240 million, including stock-based compensation of approximately $55 million versus $12 million last year, with roughly $14 million of that expected in Q4. For adjusted EPS, the $29 million of catch-up depreciation and amortization in Q1 from HPC has been excluded. We are now increasing restructuring and restructuring-related cash spending to be between $60 to $70 million, relating to Project Galileo, and capital expenditures are now expected to be between $60 to $65 million. We have approximately $1 billion of usable federal NOLs remaining post the asset sales. This number has been updated to reflect the impact of the recently issued regulations under the 2017 Tax Act, as previously mentioned.

Depreciation and amortization is expected to be between 230 and $240 million, including stock based compensation of approximately $55 million versus $12 million last year with roughly $14 million of that expected in Q4.

For adjusted EPS, the 29 $9 million, a catch up depreciation and amortization in Q1 from HPC has been excluded.

We are now increasing restructuring and restructuring related cash spending to be between 60 and $70 million relating to project Galileo and capital expenditures are now expected to be between 60 and $65 million.

We have approximately $1 billion of usable federal and allows remaining post the asset sales.

This number has been updated to reflect the impact of the recently issued regulations under the 2017 tax Act as previously mentioned.

And finally for adjusted EPS, we use a tax rate of 25% including state taxes.

Doug Martin: Finally, for adjusted EPS, we used a tax rate of 25%, including state taxes. Thank you. Now back to Dave for Q&A.

Thank you and now back to Dave for acuity.

Thanks, David and Doug with that operator, you may now begin the Q and a session. Please.

David Maura: Thanks, David and Doug. With that operator, you may now begin the Q&A session, please.

David Prichard: Thanks, David and Doug. With that operator, you may now begin the Q&A session, please.

Ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press Star then one.

Operator: Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star then one. Our first question comes from Olivia Tong of Bank of America. Your line is open.

Our first question comes from Olivia Tong of Bank of America. Your line is open.

Okay. Thank you.

Olivia Tong: Great. Thank you. First question I had was just about gross margin. I know it was up only 10 basis points, the stabilization was nice to see. I'm a little surprised given the sales mix, given that you have an overage in one of your lower margin businesses. Can you talk about the offsets? Anything else that helped, you know, even if it was just one-time-ish?

First question I had was just about gross margin I know it was up only 10 basis points.

The stabilization was nice to see.

Pamela surprise, given the sales mix mix given that you have an overage and one of your lower margin businesses.

So can you talk about the offsets anything else that that helped even if it was just one onetime ish.

Yes, Doug Pamela sure sure Olivia I mean, it's a combination of things across all businesses and I understand that the mix element, you're pointing to but we did have.

David Maura: Yeah, Doug, handle that. Go ahead, Doug.

Doug Martin: Sure, Olivia. It's a combination of things across all businesses. I understand that, you know, the mix element you're pointing to, but we did have good pricing across the pet part of our business in the year and some continued good productivity. Even outside of our outside of our new productivity program, Galileo, where that's a broader restructuring program, but even outside of that, this business and our operators continue to drive good productivity. We also had pricing in HHI that was in place in the quarter. I would say that pricing and productivity are the primary drivers.

Good pricing across the pet part of our business in the year and.

And some continued good productivity so even outside of our.

Outside of our.

Our new productivity program, Galileo or that's a broader restructuring program even outside of that but this.

Business in our operators continue to drive good productivity, we also had pricing in.

Hi that was in place in the quarter.

So I would say that pricing and productivity of the primary drivers.

Got it and then.

Olivia Tong: Got it. Dave, last quarter, you sort of downplayed the potential for profit in EPS beats as your inclination would be to invest. Do you feel like you've got the right level of investment? Are there projects that potentially moved around, or were, you know, the projects just that you have in place just more successful than you had originally anticipated?

Steve last quarter, you sort of.

Downplayed the potential for profit EPS.

Since your inclination would be to invest so do you feel like you've got the right level of investment.

Are there projects that potentially moved around.

Or or the projects that you have in place just more successful than you had originally anticipated.

Yes. It is multifaceted I think look we want to continue to invest I really think we are probably.

David Maura: Yeah, look, it's multifaceted. I think, look, we wanna continue to invest. I really think we are probably Q1 or Q2 away from trying to hit our rhythm, a real rhythm and cadence to getting all the investments we need in terms of real R&D, NPD, and marketing. You know, look, what excites me is, quite frankly, you know, this effort started two years ago in isolation in pet, and you can actually see... You know, I'm telling you, these Q numbers are a result of two years worth of hard work, where, you know, you really did get the right consumer insights. You know, we really spent the money to invest in R&D to create a new product pipeline portfolio, that got the, not only the customer, but the end consumer, really excited about the product.

One or two quarters away from from trying to hit our rhythm real rhythm and cadence too.

Getting all the investments we need in terms of real R&D, NPD and marketing and.

Look what excites me is quite frankly this effort started two years ago and isolation in pet.

And you can actually see the im telling you these quarterly numbers or result of two years, where the hard work.

Where are you really did get the right consumer insights, we really spent the money to invest in R&D to create a new product pipeline portfolio.

The got the not only the the customer with the end consumer really excited about the product and then you put a little marketing on it to change the dynamic from just a push to a pull model and you can see the growth you can get out of it.

David Maura: Then you put a little marketing on it to change the dynamic from just a push to a pull model, and you can see the growth you can get out of it. Look, we put, you know, I think, you know, let me give you. You asked a lot of questions. Let me hit it. You know, on the Home & Garden side, you know, we did invest heavily to get distribution. It's frustrating for me to have a call like this where our results aren't even better there, because we did the right thing for the business. We, you know, we really did quite a good job. The team did an amazing job.

Look we put I think let me let me give you asked a lot of questions. So let me hit it.

On the home and garden side, we did invest heavily to get distribution and so its frustrating for me to have a call like this where our results are even better there because we did the right thing for the business. We we we really did quite a good job. The team did an amazing job. It's just when you get an entire month, where your washed out and you got tornadoes and I know I used to be on the sell side, you kind of hate that as an excuse and I view two but it just people arent spraying there their lawns and they're not fending off insects. When it's when it's just soaking wet for whole month. So unfortunately.

David Maura: It's just when you get an entire month where you're washed out and you got tornadoes, and I, you know, I used to be on the sales side, you kind of hate that as an excuse, and I do, too. It just people aren't spraying their wands, and they're not fending off insects when it's just soaking wet for a whole month. Unfortunately, you know, that impacts the short term, but, you know, that does not dull our enthusiasm or excitement for that business. In fact, you know, we've just hired a new head of R&D in Home & Garden, and we're building out an entire new R&D team there. You know, as part of 2020, we're gonna put additional resources behind that.

That impacts the short term, but that does not dollar enthusiasm or excitement for that business. In fact, we just hired a new head of R&D and only home and garden and we're building out an entire new R&D team there and as part of a 2020, we're going to put additional resources behind that.

David Maura: Again, I, you know, look, on the appliance side, I'm thrilled. I mean, we just went, you know, last quarter was a $2.7 million EBITDA quarter. You know, we installed an completely new team there, and to get that to $18 million EBITDA this quarter was a very nice rebound. Still a lot of wood to chop there. In HHI, we have to continue to find the right price point to get our velocity back up, just given the housing is a little slower than we originally planned at the beginning of the year. No, I think, look, I think we're gonna continue with what we're doing. I think, you know, we're just getting into the real throes of internally...

So again I am.

Look on the appliance side I'm thrilled I mean, we just went last quarter was a $2.7 million EBITDA quarter, we installed and into completely new team there and to get to 18 million EBITDA. This quarter was a was a very nice rebound still a lot of wood to chop there.

In EG Jive, we have to continue to find the right price point to get our velocity backup.

Just given the housing.

It is a little slower than we originally planned at the beginning of the year, but.

No I think look I think we're going to continue with what we're doing I think we're just getting into the real throws of internally Doug just mentioned the word Galileo is the internal project code name, but this this global productivity improvement program is really exciting.

David Maura: You know, Doug just mentioned the word Galileo is the internal project code name, but this global productivity improvement program is really exciting.

Great Thats helpful. And then just lastly on cash flow I know cash generation is typically very second half weighted but usually by now your question are running sort of flattish and you are not quite there yet year to date.

Olivia Tong: Great. That's helpful. Just lastly, on cash flow. I know cash generation is typically very second half weighted, but usually by now you're closer to running sort of flattish, and you're not quite there yet, year to date.

Thank you I want to reiterate that the EBITDA guide, but are you also expecting positive free cash flow for this year. We are we are it looks had but really that's the single biggest driver of the phasing of cash flow.

David Maura: Yeah.

Olivia Tong: I know you reiterated the EBITDA guide, but are you also expecting positive free cash flow for this year?

Doug Martin: We are. Really, the single biggest driver of the phasing of cash flow this year versus last year, Olivia, is the fact that we paid off so much debt earlier in the year that we've dialed back some of our factoring programs. As you know, we prepare to go back into the working capital build season in the next few months. We'll turn those factoring programs back on.

This year versus last year led is the fact that we paid off so much debt earlier in the year that we dial back some of our factoring programs and as you know we go prepare to go back into the working capital build season.

In the next few months, so we'll turn those factoring programs back on.

Great. Thank you.

Olivia Tong: Great. Thank you.

Our next question comes from Bob Labick CJS Securities. Your line is open.

Operator: Our next question comes from Bob Labick of CJS Securities. Your line is open.

Good morning.

Bob Labick: Good morning.

Good morning, Eric Hi, Great I wanted to dig into the global productivity plan said 35 million savings I think thats the.

Doug Martin: Morning, Bob.

David Maura: Good morning.

Bob Labick: Hi, great. I wanted to dig into the Global Productivity Plan. Said $35 million in savings, I think that's the from procurement.

Bob Labick: Hi, great. I wanted to dig into the Global Productivity Plan. Said $35 million in savings, I think that's the from procurement. Just to be clear, most of that gets reinvested? That's the first question. Most of that's going to get reinvested into the P&L next year?

From procurement and just to be clear most of that gets reinvested.

[Analyst] (CJS Securities): Just to be clear, most of that gets reinvested? That's the first question. Most of that's going to get reinvested into the P&L next year?

It's just that's the first question was that can get reinvested into the.

I will next year.

Yeah, I'd say, well, let me let me.

David Maura: Yeah, I tell you what, let me, I'm gonna give you a long-winded answer, but I want to give you as much granularity as I can, and we'll kind of get into this as we develop. Look, we've been thinking a lot about how much of this do we disclose, and when do we disclose it? You know, we wanna, you know, we just, we wanna disclose it as we get to it. This is really just phase I of it. There's a lot more to come, and, you know, the next couple of quarters will be a lot more work to be done on the program, and we don't want to get out ahead of our skis at all.

I want to give you a long winded answer, but I want I want I want to give you as much granularity as they can and.

And we'll kind of get into this is we develop but look we we have been thinking a lot about how much of this do we disclose the window, we disclose it and.

We want to we just we want to disclose it as we as we as we get to it and so this is really just phase one of it theres a lot more to come in and the next couple of quarters will be a lot more work to be done on the program and we don't want to get out ahead of our skis at all.

David Maura: Look, we've spent a decent amount of money now executing the first wave, and you're correct, that initial 35 is strictly coming out of procurement side. There's more to come on the procurement side. In fact, let me back up. This is really a very exciting time for Spectrum. I wanna thank all the associates that are listening on the call. I know a lot of employees call in. The team has really bought off on this, what I call GPIP, Global Productivity Improvement Plan. Look, this last year, you know, it's, you know, a year stabilizing the business, investing behind it.

And so look we we spent a decent amount of money now executing the first wave and you are correct that initial 35 is.

Is is strictly coming out of procurement side, there is more to come on the procurement side.

And in fact limit look.

Let me backup this is really a very it's really very.

Exciting time for spectrum.

I want to look I want to thank all the associates that are listening on the call I know lot of employees call in.

The team is really bought off on this on this what I call GE Pip global productivity improvement proven plan.

And look this list last year.

Has its year stabilizing the business investing behind it we're doing the right things to bear we're treating the route. So we can bear fruit a year or two from now.

David Maura: We're doing the right things to bear, you know, we're treating the root so we can bear the fruit a year or two from now. And look, we also significantly strengthened the cap structure, right? Our net debt reduction has been $2.4 billion in just the last couple of quarters, with more to come. To Olivia's question on free cash flow, we'll actually deliver the free cash flow that we told the board we would a year ago, so we're on track there. Operations is really what I'm getting jazzed about. And at times, look, we all get caught up with short-term numbers and quarterly results, and including myself.

And look we we also significantly strengthened the cap structure right. Our net debt reduction has been $2.4 billion in just the last couple of quarters or more to come in to Olivia's question on free cash flow, we will actually deliver the free cash flow that we told the board we would have a year ago. So we're on track there, but operations is really really what I'm getting jazzed about.

In the end it times, if we all get caught up with short term numbers and quarterly results, including myself foot, but look it's a very good we're taking some very real positive auctions today that will create really positive tangible results a year or two from now and Thats why I am excited I mean look we've made a lot of progress is way too early to declare victory. We've got a lot more work to do but if I could summarize it for you again 19, the whole goal is projected to be a year of stabilization.

David Maura: Look, we are taking some very real positive actions today that'll create really positive, tangible results, you know, a year or 2 from now, and that's why I'm excited. I mean, look, we've made a lot of progress. It's way too early to declare victory. We've got a lot more work to do. You know, if I could summarize it for you, again, you know, 2019, the whole goal was projected to be a year of stabilization, you know, assessing and repositioning the company for growth, right? Despite the substantial tariff headwinds, the challenging home personal care category, you know, the company's on plan through Q3, and it's expected to deliver the year. So, you know, check 1. You know, operational improvements continue to stabilize financial performance. Check 2.

Assessing and repositioning the company for growth right and despite the substantial tariffs headwinds the challenging home personal care category.

The company is on plan through Q3, and its good expected to deliver the year.

David Maura: So, you know, check 1. You know, operational improvements continue to stabilize financial performance. Check 2. Customer service materially improved across the board year-over-year. Check 3, okay? When I look at, okay, now where do we go? Structural changes are enabling progress. Each business unit has been established as an independent global entity. That's completely new in the last 12 months. The senior regional matrix structure has been eliminated, and operations have been streamlined, period. We have strengthened this organization, we've refreshed managements, we've replaced management teams, we have upgraded talents throughout this company in very key positions, okay? That's my point to. I promised you I'd be long-winded. You know, the biggest point, you know, we are improving culture, we're increasing accountability, and the teamwork is here. Business units are sharing best practices.

So check one.

Operational improvements continue to stabilize financial performance check to customer service materially improved across the board year over year check three okay.

David Maura: Customer service materially improved across the board year-over-year. Check 3, okay? When I look at, okay, now where do we go? Structural changes are enabling progress. Each business unit has been established as an independent global entity. That's completely new in the last 12 months. The senior regional matrix structure has been eliminated, and operations have been streamlined, period. We have strengthened this organization, we've refreshed managements, we've replaced management teams, we have upgraded talents throughout this company in very key positions, okay? That's my point to. I promised you I'd be long-winded. You know, the biggest point, you know, we are improving culture, we're increasing accountability, and the teamwork is here. Business units are sharing best practices.

When I look at Okay, now where do we go structural changes are enabling progress each business unit has been established as an independent global entity that's completely new in the last 12 months. The senior regional matrix structure has been eliminated and operations have been streamlined period. We have strengthened this organization. We've refreshed management's we've replaced management teams, we upgraded talent throughout this company in very key positions are gone. So that's my point to stop it from Shobi long winded.

But the biggest point, we are improving culture, we're increasing accountability and teamwork is here business units are sharing best practices, they're collaborating at a high level. Despite the separations recently of home and garden and pet, but you can see that separation is actually bearing fruit.

David Maura: They're collaborating at a high level despite the separations recently of Home & Garden and Pet, you can see that separation is actually bearing fruit. We have a quick candid acknowledgment of issues and actions that are addressed fast today. That was not the culture when I took the expanded role. We've got an open, productive discourse around strategy, risk, and problem resolution. We've enhanced operations, organization, and culture, and we have really positioned Spectrum to return to earnings growth. You know, on the Global Productivity Improvement Plan, look, it's gonna touch a lot of areas. Right now we're in wave one. That's strategic sourcing, okay? There's another wave to that, then we go into commercial has to do with our go-to-market strategies, okay? There's a G&A part of this. Yes, there is.

We have a quick candid acknowledgment of issues and actions that are addressed fast today that was not the culture. When I took the expanded role.

And we've got an open productive discourse around strategy risk and problem resolution. So we've enhanced operations organization and culture, and we have released position spectrum to return to earnings growth.

On the global productivity improvement plan look its going to talks a lot of areas. So right now we're in wave one that strategic sourcing okay. There's another wave to that and then we go into commercial and commercial has to deal with our go to market strategies. Okay. Then there is a gene a part of this yes there is.

David Maura: There's an IT enablement. There's a lot of things here that if we invest in IT, we can automate, we can get better data management, and quite frankly, we can do things a lot faster, a lot quicker, much more efficiently, and there's a supply chain organization component to this. It's multifaceted, it's a multi-year program. We're just giving you know, what we've progressed to date. We're updating you with that today in today's press release. The payback is generally a year to 18 months on these things, and there's a lot more to come. Does that help you?

And there is an I.T. enablement, we want Theres a lot of things here that if we invested 90, we can automate we can get better data data management.

And quite frankly, we can do things a lot faster a lot quicker and much more efficiently and there's a supply chain organization component to them. So this multifaceted, it's a multi year program.

We're just giving you what we progress today, we're updating you with that today in today's press release.

The payback is generally year to 18 months on these things and there is a lot more to come.

Does that help you.

[Analyst] (CJS Securities): Yes, that was terrific and tons of detail and much appreciated. You touched on... I'll do one other quick question and then jump out. Just, obviously, you've maintained guidance this year and done really well in the face of tariffs. Can you just give us an update on the, you know, expected impacts from the, you know, the May increase in tariffs and then the proposed, new, you know, 10% on the next $300 billion, I guess, you know, list 3 and list 4 tariffs, you know, expected impact going forward, probably minimal for this fiscal year, but how do you think about it, you know, annually or next year?

Bob Labick: Yes, that was terrific and tons of detail and much appreciated. You touched on... I'll do one other quick question and then jump out. Just, obviously, you've maintained guidance this year and done really well in the face of tariffs. Can you just give us an update on the, you know, expected impacts from the, you know, the May increase in tariffs and then the proposed, new, you know, 10% on the next $300 billion, I guess, you know, list 3 and list 4 tariffs, you know, expected impact going forward, probably minimal for this fiscal year, but how do you think about it, you know, annually or next year?

Yes that is terrific and tons of detailing much appreciated.

You touched on so I'll just I'll do one other quick question and then jump out, but just obviously youve.

Maintain guidance this year done really well in the face of tariffs.

Can you just give us an update on.

Expected impacts from the the May increase in tariffs and then the proposed.

Nude and 10% on the next $300 billion I guess three.

Enlist for tariffs.

No expected impact going forward.

Probably minimal for this fiscal year, but how do you think about it.

Annually or or or next year.

David Maura: Yeah, I'm gonna let Doug take the number side of it, but again, I just want to give a shout-out to the team. I mean, it, you know, tariffs, it's no joke. It's, it's a lot of work. The numbers are material, and, you know, it's, you know, it's easy to say, "Oh, take price." Those are difficult discussions. You know, demand is not inelastic everywhere you go. You know, you've got hard to have hard conversations with your suppliers, and you've got to get more efficient yourself. There's just a lot of work going on the surface here to offset that. I appreciate your comments as you led into the question. I am really grateful to all the team members of this company for pulling together and, for helping us get the offsets necessary.

Ill, let Doug take the number side of it but again I just want to give a shout out to the team I mean.

Tariffs, it's no joke, it's there's a lot of work.

The numbers are material and it's.

It's easy to say I'd take price those are difficult discussions and own demand is not inelastic everywhere you go.

And you know you've got hard hub to hub powered conversations the suppliers and you've got to get more efficient yourself and so if theres just a lot of work going on surface here to offset that so I. Appreciate your comments as you lead into the question.

But I'm really grateful to all the team members this company for pulling together and for helping us get the offsets necessary, but Doug why don't you take the nitty gritty yet sure.

David Maura: Doug, why don't you take the nitty-gritty?

Doug Martin: Yeah, sure. Bob Labick, round numbers, the impact of all the tariffs that are implemented to date, I'm excluding the most recent week because there's just not clarity yet on what that's going to impact and what the timing will actually be. We think we know what the timing is. We don't know what the scope of it is. I'm going to talk to what's out there. What's out there impacted will impact 2019 by about $70 million. In the fully annualized amount of that, which will be realized in 2020 on a runway basis, is $120 million. Another $50 million step up going into next year. That to date has been... You see this in our gross margin.

So Bob round numbers, the the impact of all the tariffs that are implemented to date, so I am excluding the them.

Most recent week because there are there is just not clarity yet on what that's going to impact and what the timing.

We'll actually be we think we know the timing is we don't know at this the scope of it and so when I talk to what's out there and what's out there impacted.

Will impact 2019 by about $70 million and then the fully annualized amount of that which will be realized in 2020 on a run rate basis and $120 million. So another $50 million step up.

Going into next year and that to date has been and you see this in our in our gross margin it's been.

Doug Martin: It's been largely offset by a combination of pricing and productivity. Our plan is to continue to manage those two levers as we go forward. As David said, you know, pricing is are not easy discussions. They're challenging discussions with retailers, but we have been with our customers for several months and everybody understands the landscape. We'll continue to do that and continue to press hard on productivity elements.

Largely offset by a combination of pricing and productivity and our plan is to continue to to manage those two levers as we go forward, but as David said pricing pricing is.

Is that are not easy discussions, they're challenging discussions with retailers, but we have we have.

Then with our customers for several months and everybody understands the landscape. So we'll continue to do that and continue to press hard on productivity elements.

Net net tariffs are tough were tougher will manage them.

David Maura: Net-net, tariffs are tough. We're tougher. We'll manage them.

Terrific all right. Thank you very much.

[Analyst] (CJS Securities): Terrific. All right. Thank you very much.

Bob Labick: Terrific. All right. Thank you very much.

Thank you.

Doug Martin: Thank you.

David Maura: Thank you.

Our next question comes from Faiza Alwy of Deutsche Bank. Your line is open.

Operator: Our next question comes from Faiza Alwy of Deutsche Bank. Your line is open.

Hi, Thanks, good morning, good morning.

Faiza Alwy: Hi. Thanks. Good morning.

David Maura: Good morning.

Faiza Alwy: I guess just to follow up on the tariff question, I know, Dave, you mentioned sort of, you know, varying elasticities across categories. It seems like you've taken some pricing so far. Can you share sort of what you've learned so far? You know, which categories have you found to be more elastic than others?

So I guess, maybe just a follow up on the tariff question.

I know, Dave you mentioned sort of different varying elasticities across categories.

So it seems like you've taken some pricing so far can you share sort of what you've learned so far.

And do you know, which categories have you found to be more elastic than others.

No I really don't want to go into that and ill be honest for competitive reasons.

David Maura: You know, I really don't want to go into that. I'll be honest, for competitive reasons. You know, listen, it's intuitive, right? Obviously, we have the strongest brands. You have dominant market share positions. You tend to have more pricing power. Honestly, listen, we've taken price across the entire business line. We, you know, we can do that. Yeah, I mean, there have been instances where we've taken price. You can see the elasticity. You know, we are a vertically integrated manufacturer. So sometimes you just have to reassess.

I'll just listen it's intuitive right. Obviously, we have the strongest brands you have dominant market share positions. You you tend to have more pricing power, but honestly listen we've taken price across the entire business line. We know we can do that.

But yes, there are I mean, there have been instances, where we've taken price.

And you can see the elasticities and.

It's we're vertically integrated manufacturer and so sometimes you just have to reassess.

David Maura: You know, listen, that's what's so fantastic about this Global Productivity Improvement Plan is, you know, we're going to free up resources by running the company a lot more efficiency, free up cash, a lot of cash, and we can now invest that into R&D, NPD, advertising, marketing, et cetera. We can also potentially invest that in margin, right? Assuming we get that luxury over the next couple of quarters, then we can ramp up volume again. That's why I said in some of my earlier remarks, you know, that's why I'm excited. It's been a lot of hard work this year, stabilizing platforms, but everybody's bought into this.

And that's this and Thats whats so fantastic about this global productivity improvement plan is we're going to free up resources for running the company a lot more efficient free up cash a lot of cash.

And we can now invest that into R&D NPD advertising marketing et cetera. We can also potentially invest that in margin right, assuming we get that luxury over the next couple of quarters and then we can ramp up volume again, and so that's why I said in some of my earlier remarks.

That's why I am excited it's been it's been on.

It's been a look through payments, but this has been a.

It's been a lot of hard work this year stabilizing platforms, but everybody's bought into this there is no. We are going forward with this program. We're at the tip of the iceberg and Theres Theres, just a lot to be had and it's going to I think its going to meaningfully improve.

David Maura: You know, there is no, you know, we're going forward with this program. We're at the tip of the iceberg, and, you know, there's just a lot to be had. I think it's gonna meaningfully improve our ability to navigate the competitive tariff waters we find ourselves in today. I really don't want to add more color than that.

Our ability to navigate the competitive.

Tariff orders, we find ourselves in today.

I really don't want to add more color than that.

Faiza Alwy: Okay, understood. Can you talk a little bit more about. I know you've mentioned sort of, you know, productivity and, like, sourcing benefits, things like that. Are you doing anything from sort of reducing the tariff exposure from that perspective? Like, are there changes that you've made in terms of sourcing, whether it's, you know, moving out of China or moving into other countries or moving to the US?

Okay understood.

Can you talk a little bit more about I know you mentioned sort of productivity in sourcing benefit things like that are you doing anything from sort of reducing the terrorists exposure from that perspective like are there changes that you've made in terms of sourcing whether it.

Moving out of China are moving into other countries are moving to the U.S.

Let me look there are some small supply teams is that we are doing but theres nothing of the magnitude you read about in the press.

David Maura: I mean, look, there are some small supply chains that we are doing, but there's nothing of the magnitude you read about in the press. You know, picking up a supply chain and moving it is a big decision. You know, as a financial allocator of capital, you would need to know that this is going to be the tariff landscape for the next 60 months. Otherwise, you could make a decision that might look good on paper today, but if something changed in a year, would be a, you know, be a very negative return, you know, capital return, you know, return on capital. You got to be careful to not have a knee-jerk reaction, but you also, you need to protect your company in the short term.

Picking up the supply chain and moving it.

Is it was a big decision and.

Is a financial allocator of capital you would you would need to know that this is going to be the turf landscape for the next 60 months otherwise you could make a decision that might look good on paper today, but if something changed in a year would be or will be a very negative return.

Capital return on capital so.

You got to be careful to not have a knee jerk reaction, but you also need to protect your company in the short term and so I would say look we've done a little bit around the margin.

David Maura: I would say, look, we've done a little bit around the margin, and we're always looking for ways to hedge exposure, but nothing dramatic. Doug, do you want to?

And we're always looking for ways to hedge exposure, but.

Nothing dramatic to Doug do you want to know I agree with that yes.

Doug Martin: No, I agree with that. Yep.

David Maura: Cool.

Good.

Faiza Alwy: Okay, just last question from me. Dave, it seems like it seems like you think that there are a lot of investments that you would like to make in the business, sort of above and beyond than what you've made this year. In that context, can you share with us how you're thinking, I know it's early, but how you're thinking about 2020? You know, what level of investments do you think are required in the near term to get the businesses to continue to grow or grow at the pace that you would like them to grow?

Okay. Just last question from me, Dave It seems like you.

It seems the using the there are a lot of investments that you would like to make in the business that are above and beyond what you've made the CR.

So in that context can you share with us how you're thinking I know, it's early but how you are thinking about 2020 and what level of investments do you think are required.

In the near term to get the businesses to to continue to grow we'll grow at the pace that you would like them to grow.

And I would like to kick the can on that and talk about the time, we have our LP plans you know in October .

David Maura: Yeah, I'd like to kick the can on that and talk about that. We have our AOP plans, you know, in October. I'd really like to talk more about that, you know, as we get into next year. I mean, if you're asking me, you know, can we make these investments and still grow the top line and grow the bottom line in 2020, I'm gonna tell you, yes. I, you know, I'm not gonna go into, Hey, I need another $5 million R&D in this division by this time. I just, you know, Yeah, sorry.

I really like to talk more about that.

As we get into next year, but I mean, if you're asking me.

Can we make these investments and still grow the topline grow the bottom line in 2020, I'm going to tell you yes.

So what I.

Im not going to go into Hey, I need another 5 million R&D in this division by this ties I just.

There is.

Yes, sorry.

Okay got it thank you.

Faiza Alwy: Okay, I get it. Thank you.

Our next question comes from Sam Reid of Wells Fargo. Your line is open.

Operator: Our next question comes from Sam Reid of Wells Fargo. Your line is open.

Sam Reid: Awesome. Thanks for taking my call. Wanting to dig a little deeper on your growth in the Global Pet segment. Obviously, results here were pretty good, and I think maybe a little bit better than a lot of people were anticipating on the organic line, at least. Could you give us a sense as to sort of how much of that reflects maybe the underlying strength of the business versus anything that might be more one-off, like, you know, better-than-expected shelf space gains or maybe catch-up from some of the headwinds you guys faced last year? Thanks.

Awesome. Thanks for taking my call I am wondering to to dig a little deeper on your growth in the global Pet segment. Obviously results here were pretty good and I think maybe a little bit better than a lot of people were anticipating on the organic line at least.

So could you give us a sense as to sort of how much of that reflects maybe the underlying strength of the business.

Versus anything that might be more one off like better than expected shelf space gains or maybe catch up from some of the headwinds you guys faced last year. Thanks.

Yes, and the only the only significant.

Doug Martin: Yeah, Sam, the only significant year-over-year comp issue, and it is significant, it's about a $6 million impact from last year when we were starting up a European DC, and some orders moved from Q3 to Q4. Other than that, we're seeing underlying strength in our companion animal business. Our treats business, in particular, in the US market has been strong. European market overall continues to perform nicely for us this year. Even US Aquatics grew a little bit this year, and that's the one that we have the most difficulty, you know, pegging from a year-to-year basis. It's never gonna move in a huge way, one way or the other, but this year it's broken a little bit favorably for us.

Year over year comp issue and it is significant it's about a $6 million.

Impact from last year, when we were starting up a a European DC and some orders move from Q3 to Q4 other than that we are seeing underlining our underlying strength and.

In our companion animal business, our treats business in particular in the US market has been strong European market overall continues to perform nicely for us this year.

And and even U.S. aquatic school little bit this year and that's the one that we had the most difficulty.

Pegging from year to year base, it's never going to move in a huge way one way or the other but this year, it's broken out a little bit favorably for us.

Look.

David Maura: Look, Listen, let me give you the bigger picture. You know, this was for me, this was 10 years of doing acquisitions. As long as I did an acquisition, you know, everything kept growing great. What's going on right now is, in my new role, we're actually fundamentally investing behind organizations organically to grow. You know, that's what I thought was getting done but wasn't getting done. You know, after 2018, that's the reset of 2019, is to actually put seed in the ground through R&D, through new product development and marketing, and drive the businesses organically so they don't need acquisitions. You know, it's ironic that I'm the one saying that and leading the program, I'll tell you that.

But let me listen let me give you the bigger picture you know.

This was this was for me. This was 10 years of doing acquisitions and as long as it is an acquisition, we just everything kept growing great.

And what's going on right now is in my new role is we're actually fundamentally investing mine organizations organically to grow and that's what I thought was getting done but wasn't getting done and so after 18. That's the reset of 19 is to actually put seed in the ground through R&D through new product development marketing and drive the businesses organically, so they don't need acquisitions and.

It's ironic that I'm, the one seeing that and leading program I'll tell you that but ice.

David Maura: I, you know, I'm telling you that the pet business is a shining example of when you actually do the hard work, and you bite the bullet, and you invest in R&D, you have true new products to excite the consumer to basically excite the retailer, but get the consumer to be excited about pulling it away off the shelf and get the velocity up at point of sale, and then you've got something to write home about. I, you know, I, this is no one-trick pony. You know, I think the pet business in the early innings of a real bull run, and it's fundamental work. That's again, that's why I'm really jazzed about...

I'm, telling you that the pet business is a shining example of when you actually do the hard work and you bite the bullet and you invest in R&D you have true new products to excite the consumer to basically the excite the retailer, but get the consumer to be excited about pulling in a way off the shelf and get the velocity of the point of sale and then you've got something to write home about and.

Hi, This is no one trick pony.

I think the I think the pet business in the early innings over real Bowl we're on.

And its fundamental work and Thats again, Thats why I am really jazzed about look to get through the December and March quarters, we have coming up we're taking real actions to make sure that that's going to happen in the remaining three units.

David Maura: Look, you know, through the December and March quarters that we have coming up, we're taking real actions to make sure that's gonna happen in the remaining three units.

Got you know that's that's super helpful. I appreciate the color there.

Sam Reid: Got you. No, that's super helpful. I appreciate the color there. I wanted to maybe switch gears a little bit and touch on HHI just for a second. It looks like the growth there actually still accelerated on a two-year basis even after stripping out some of that backlog last year. I wanted to know if that's a reflection of the underlying category growth. I know you mentioned a little earlier on the call that you were still seeing some weakness there at least in the new home market, or whether that's also just a reflection of some of your pricing actions. Thanks.

I wanted to maybe switch gears, a little bit and touch on H. I just for a second it looks like the growth. They are actually still accelerated on a two year basis, even after stripping out some of that backlog last year.

I wanted to know if there's if that's a reflection of the underlying category growth I know you mentioned a little earlier on the call that you were still seeing some weakness there.

And at least in the new home market or whether that's also just a reflection of some of your pricing actions. Thanks.

David Maura: All right. You're one of the first to notice that. I thought most people would take a much more negative view there, but you're not wrong. If you actually strip the noise out, you're right. I'm still cautious. I know, you know, everybody's mad at me because I think I was a little negative on housing on the Q1 call, going back, I guess, it was two, three quarters now. You know, look, my again, I'm not an economist. I will tell you this: I think, you know, we've got the right brands. We actually have a pretty healthy NPD pipeline. We're launching new products. I think that's the one area where we actually can do a few things on some levers that we control ourselves to stimulate more velocity at POS, point of sale.

The year one of the first to notice I thought most people would take a much more negative view, there, but you're not wrong, if you actually strip noise.

You are right.

I'm still cautiously I know everybody's Mad at me because I think I was a little negative on housing on the first quarter call going back I guess was through three quarters now, but you have to look at it.

And again I'm not an economist.

I will tell you. This I think we've got the right brands, we actually have a pretty healthy NPD pipeline, we're launching new products.

I think thats, the one area, where we actually can do a few things on some levers that we control ourselves to stimulate more velocity Pos.

Point of sale and so.

David Maura: Look, I, you know, I also will tell you this. If you look at housing starts, I mean, they really haven't gone up. They've been on their back ever since kind of the 2009, you know, the 2008, 2009, the Great Recession. I mean, this country hasn't produced 1 million new home starts in God knows how long. You're still in this 600, 650, 700-ish range. You know, the backdrop, if you really look at it, is not that bad. You know, interest rates are on the floor. Everybody seems to have, you know, wants a job, has a job. I think the big two restraints that are macro here are, you know, student loan debt.

Look I.

I also will tell you this I.

If you look at if you look at housing starts I mean.

They really havent gone up that they've been on their back ever since kind of view nine.

Oh wait onein the great recession, I mean, this country hasn't produced a million new home starts and God knows how long and so you are still in the 606 5700 ish range, but you know the backdrop.

If you really look at it is not that that interest rates are on the floor.

Everybody seems to have once a job has a job.

I think the big two were strings that are macro here, our student loan debt.

David Maura: But, you know, millennials grow up, and they want kids, and, you know. Look, multifamily continued to be a strong point, and that's where I think we have a lever with our SmartKey technology. I was in a hardware store the other day, and a guy told me that SmartKey related to one of our Kevo or one of our Aura products. I was like, no, it's the ability to change your lock in 90 seconds or 60 seconds or less, without having to call a locksmith. We've had this great IP, this patented technology. Actually, I talked to a multifamily guy the other day, and the business unit's actually bidding the guy now on a deal.

And but you know millennials grow up and they want kids and so.

Multi family continued to be a strong point and that's where I think we have a lever with our smart key technology I was in a hardware store today and the Guy told me that smart key related to one of our.

Kibo or one of our or our products and as of now exceeds the ability to change your locked in 90 seconds or 66 was what I would call a locksmith. So we've had this great IP. This patented technology and it is talking to home actually talk to a multifamily guy the other day and of the business units actually bidding the guy now on on on a deal but this guy owns billions of dollars of apartments around the country and I was telling them about smartly and he didnt know about us and my God.

David Maura: This guy owns billions of dollars of apartments around the country. I was telling him about SmartKey, and he didn't know about it. I said, My God, you know how much ease and money you could save yourself if you used our SmartKey technology? Again, I think there's a lot more we can do there, but I actually don't think the backdrop is as bad. I think, you know, I've talked to some people that think we could have a super cycle, almost where, yeah, it's slow growth, but it goes for a really long time, given the rate and the income backdrop. But, you know, look, trying to be specific to your question, I think there's a couple levers we can pull to get growth going better at HHI.

Ease in money you could save yourself, if you used or smart key technology. So again I think there is a lot more we can do there, but I actually don't think the backdrop is bad and I think I've talked to some people to think we could have a super cycle, almost where yet slow growth, but it goes for a really long time.

Given the rate in the income backdrop, but but.

Trying to be specific to your question I think there is a couple of levers we can pull to to get growth going better to John .

Also note that is incredibly helpful. Thanks, so much guys.

Carla Casella: Awesome. No, that is incredibly helpful. Thanks so much, guys.

Sam Reid: Awesome. No, that is incredibly helpful. Thanks so much, guys.

Doug Martin: Thank you.

David Maura: Thank you.

Thank you.

Our next question comes from Anza Pheno of Oppenheimer. Your line is open.

Operator: Our next question comes from Ian Zaffino of Oppenheimer. Your line is open.

Hey, Good morning, guys. This is mark on for Ian Thanks for taking our questions.

[Company Representative] (Oppenheimer & Co.): Hey, good morning, guys. This is Mark on for Ian. Thanks for taking our questions.

Mark Zhang: Hey, good morning, guys. This is Mark on for Ian. Thanks for taking our questions.

On our system.

David Maura: Hi, Mark.

[Company Representative] (Oppenheimer & Co.): Hey, how are you guys? quickly, can you guys touch upon the growth of e-commerce? It seems like, you know, it continues to grow in Europe. you know, I guess, like, you know, how big is e-commerce now as, you know, a portion of HPC, and where would you guys like to see that grow to? Thanks.

Mark Zhang: Hey, how are you guys? quickly, can you guys touch upon the growth of e-commerce? It seems like, you know, it continues to grow in Europe. you know, I guess, like, you know, how big is e-commerce now as, you know, a portion of HPC, and where would you guys like to see that grow to? Thanks.

Hey, how are you guys.

Just a quick question can you guys touch upon the growth of ecommerce it seems like it will continue to grow in Europe .

I guess like how big this ecommerce analysis.

A portion of HPC, and where would you guys like to see that grow too. Thanks.

David Maura: Yeah, look, you know, thanks for asking the question. E-com is a really big bright spot at Spectrum Brands. E-com grew, I think, 20% this quarter. Doug, somebody, correct me if I'm wrong.

Yes.

Thanks for asking the question E Com is really big bright spot at spectrum brands.

E Com grew I think 20% this quarter, Doug somebody correct me, if I'm wrong little over 20% Thats right, So north of 20% growth and that's the corporation.

Doug Martin: A little over 20%. That's right.

David Maura: North of 20% growth, and that's the corporation. You know, I mean, you know, e-com used to be zero. I think we're over $400 million. You know, I'd like to get that number bigger, faster. Listen, again, it's, it's part and parcel with the whole Global Productivity Improvement Program, and we're deliberately hiring, you know, digital experts, guys that actually understand, like I don't, how to write and read algorithms and how to get the product viewed and placed at the right point and how to bid ads. You know, it's a, it's a great opportunity for us. It, it clearly is a bright spot, and we've got a lot more room to run. I don't know if Doug and anybody-

E com used to be zero, I think were over $400 million I I'd like to get that number bigger faster.

But.

And Weve listen again with it it's part and parcel with the whole global productivity improvement program and we're we're deliberately hiring digital experts guys. It actually understand like I don't how to write read algorithms and how to get the product viewed and.

Placed at the right point, how to how to bid ads and.

So it's a great opportunity for us it.

It clearly is a bright spot we've got a lot more room to run on Nov dug in and Mark the only thing I'd like to add to that just for clarity is.

Doug Martin: Yeah, Mark, the only thing I'd like to add to that, just for clarity, is we measure e-commerce, or we're talking to you about e-commerce in the US and in Europe. We have, obviously, e-commerce platforms in Latin America and Asia Pacific, too. It's just more difficult for us to separate what's going to brick-and-mortar from pure play or from e-com. We obviously grew a little faster in Europe from a rate perspective than we did in the US, but both very healthy.

As we measure ecommerce or were talking to you about ecommerce and.

In the us and in Europe .

We have obviously.

E Commerce platforms in Latin America, and Asia Pacific too is just more difficult for us to separate what's going to brick and mortar from pure play or from from E com, but.

I would say we grew a little faster in Europe from a rate perspective than we did and you asked but both very healthy.

Okay terrific. Thank you guys very much.

[Company Representative] (Oppenheimer & Co.): Okay, terrific. Thank you guys very much.

Mark Zhang: Okay, terrific. Thank you guys very much.

You bet.

Doug Martin: You bet.

Our next question comes from Karru Martinson of Jefferies. Your line is open.

Operator: Our next question comes from Karru Martinson of Jefferies. Your line is open.

Good morning.

Karru Martinson: Good morning. It's been a while since, you know, we haven't heard you talking about M&A and talking about reinvesting in the business, like you said. You know, does that change the rating agency's perspective of you, and does that change the way the equity market looks at you?

Been a while since we haven't heard you talking about M&A and talking about reinvesting in the business is like you said it does that change the rating agencies perspective have you and does that change the way the equity market looks at you.

Manic group. Please can you make phone calls to two places forming.

David Maura: Man, Karru, please, can you make phone calls to two places for me? Yeah, I know I did all the deals for 10 years, and now I'm fixing the ops. No, look, you're not wrong, right? I mean, our, you know, look, I think we're trying to be conservative, saying we'll be 3.5x levered or less closing this year out. You know, our free cash flow is going to materially improve as we go into 2020. Yeah, I thought less levered credits should trade at higher multiples in terms of the equity value. I appreciate your comments. I don't know how to execute them. I'm doing everything I can on my side.

Yeah.

I did all the deals for 10 years now fixing the ops, but no look you're not wrong right I mean, our.

You know look I think we're trying to be conservative, saying will be three and half times levered or lost close and this year out.

You know on our free cash flow is going to materially improve as we go into 2020.

And yes, I thought less levered credit should trade at higher multiples in terms of the equity value. So.

I appreciate your comments I don't know how to.

Execute them.

I'm doing everything I can or myself.

Okay, and then in terms of that stub piece of the six high rates of the 20 twos.

Karru Martinson: Okay. Then in terms of that stub piece, so the six and five-eighths of the 2022s, you know, what are your thoughts on the capital structure that this company should have for the long term?

Wonder what are your thoughts on the capital structure that.

This company should have for the long term, yes, and I'd listen I'd like to get those out of there yesterday.

David Maura: Yeah, no, listen, I'd like to get those out of there yesterday. You know, if we didn't have another tariff tweet, you know, it'd probably go sooner rather than later. Clearly, the 10-year Treasury down at 1.6% doesn't hurt, but equity volatility doesn't help. And, again, it's just another lever we can pull to lower our interest expense and, you know, pay down our debt and generate more free cash. Yeah, you're not wrong. That's another low-hanging fruit. We see it, and at the appropriate time, we'll go get it.

If we didnt have another tariff tweet.

I would probably go sooner rather than later clear the 10 year Jersey down at 1.6% doesn't hurt but equity volatility doesn't help.

And.

Again, that's in just another lever, we can pull to lower our lower our interest expense.

Pay down our debt and generate more free cash flow you're not wrong. That's another of low hanging fruit, we see it and at the appropriate time, we'll go get it.

Thank you very much guys. Appreciate it no. Thank you Sir.

Karru Martinson: Thank you very much, guys. Appreciate it.

David Maura: No, thank you, sir.

Hey, operator, it looks like we have time for one more question and my one question or lot. Please.

Doug Martin: Thank you.

Dave Prichard: Hey, operator, it looks like we have time, for one more question, and one question left, please.

David Maura: Hey, operator, it looks like we have time, for one more question, and one question left, please.

Our next question comes from Carla Casella of JP Morgan Your line is open.

Operator: Our next question comes from Carla Casella of J.P. Morgan. Your line is open.

Hi.

Carla Casella: Hi, most of my questions have been answered, but just one thing on the tariffs. Can you just say how much of your product was covered by the first three lists of tariffs versus the list four?

Most of my questions have been answered, but just one thing on the task can you just say how much.

Of your.

Product was covered by the first three lists of terrorists versus the lift for.

Are you able to quantify any impact from thus far but how much of your products were covered under that less far well, we'll have to get back to you.

Doug Martin: Uh-

Carla Casella: I know you couldn't quantify any impact from list 4, but how much of your products were covered under that list 4?

Doug Martin: Uh-

Carla Casella: I know you couldn't quantify any impact from list 4, but how much of your products were covered under that list 4?

Doug Martin: We'll have to get back to you on that one. I don't have that in front of me or even... We'll have to actually slice the data a little different way to get that because it looks at the entirety of the supply chain. So far, HPC, the appliance business, has actually been impacted less than some of our other business. HHI's been impacted in a meaningful way, pet in a meaningful way, and then Home & Garden, much lesser as well. Dave or Kevin will follow up with you, Carla, on the details.

On that one we don't I don't have in front of me or even we'll have to take a slice of data a little different way to get that because it looks at the entirety of the supply chain, but so far.

HPC the appliance business has actually been impacted less and some of our other business eight days.

Been impacted in a meaningful way.

Pat.

In a meaningful way and then home and garden, much lesser and lesser as well, but Dave or Kevin I'll follow up with you all Carlyle and the details.

Okay. Thank you. Thank you.

Carla Casella: Okay. Thank you.

Doug Martin: Thank you.

Okay with that we've exhausted our questions on a pretty much close to the top of the hour. So we will conclude our conference call at this stage.

Dave Prichard: Okay. With that, we've exhausted our questions and are pretty much close to the top of the hour, so, we will conclude our conference call at this stage. Certainly want to thank David and Doug, and on behalf of all of us here at Spectrum Brands, we'd like to thank you for participating in our Fiscal 2019 Q3 Earnings Call. Have a good day. Thank you.

David Prichard: Okay. With that, we've exhausted our questions and are pretty much close to the top of the hour, so, we will conclude our conference call at this stage. Certainly want to thank David and Doug, and on behalf of all of us here at Spectrum Brands, we'd like to thank you for participating in our Fiscal 2019 Q3 Earnings Call. Have a good day. Thank you.

I certainly want to thank David and Doug and on behalf of all of US here at spectrum brands, we like to thank you for participating in our fiscal 2019 third quarter earnings call have a good day. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect.

Operator: Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.

Everyone have a great day.

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