Earnings Call: H1 2020

Aug 19, 2020

Morning, good afternoon, good evening, ladies and gentlemen. Welcome to the Samsonite International 2020 Interim Results Earnings Call. Please note that this event is being recorded. I would now like to hand the conference over to Mr. William Yu, Director of Investor Relations. Thank you. Please go ahead, sir. Thank you very much, operator. Good morning, good afternoon and good evening, everyone. This is William. Thank you for joining our first half twenty twenty results earnings call. We have our CEO, Mr. Kyle Gendreau and our CFO, Mr. Reza Telangani with us today. And our CEO, Kyle, will kick off with a few comments. Thank you very much. Okay. Thanks, William. Thanks, everyone, for joining. So an unusual earnings release, as you would expect, given everything that's going on. What we're going to do is give you a good picture of how we're managing. And my first slide, I'm on Slide 4, William, is really around the activity and the actively managing through global pandemic that we're laser focused on as a company. I think just leading off given our experience of kind of managing through and being around for a very long time, we believe we will effectively manage through this the current environment. We expect the recovery to take a little longer than we've seen in other kind of disruptions to travel, but we have high degree of confidence in our ability to manage through. We're laser focused on cash preservation, as you'd expect and as most companies are. We've identified and I've been very impressed with how fast we're doing this. We've identified close to $600,000,000 of in year cash savings, inclusive of things like reducing operating expenses, we'll go through that in a good bit of detail for you in the meeting. Clearly, reducing advertising, a lever we've always had. We've pulled that lever fully. CapEx, we have virtually frozen in the business. As you know, we suspended the annual distribution to shareholders. And we've done an amazing job on managing working capital, which was Shadi as well, which we virtually stopped the valve there. We have significant liquidity. So at the end of June, off the back of what we talked about on our last earnings call, we have $1,600,000,000 of liquidity and we are highly confident that we'll navigate through the COVID-nineteen pandemic. While we continue just for other points and I'll show you a new product we've launched, we continue to drive the business while we're taking cost out making sure that we stay focused on innovation and things that have been part of who we are. A lot of things that were in the works as we stepped into the pandemic that have continued. We've launched a new product called Proxis. I started talking about this at the last call. We'll show you a bit of that. And we're also focused as you'd expect this business to be focused on things around what we can do to our bags and luggage and backpacks and such around the antibacterial technologies. And equally, if not more interesting, we're starting to do a lot of really interesting work on antiviral technologies that we'll be able to incorporate in our bags. Some will show up this year. Some will start to show up next year. And we're very excited about the progress we're making on that. And our supply chain remains strong. As you can imagine, we put a lot of pressure back on our suppliers. One of the strengths of this business is the variable nature of how we source our goods largely. And we're staying very close to our suppliers as we manage through shutting down our inflow of inventory and making sure that our suppliers are in the right place, so that they're able to navigate as well. And I've been very happy with how the team has managed that to date. I'm going to Page 5, gives you a picture of the numbers. And I'm sure none of this is overly surprising. So for the half, we're down around 55%. If you look across regions, you can see the impacts Q1 where it started and really Q2 at the bottom of the page is important. Fairly consistent story across regions as the pandemic is being managed across regions very similarly. So down 74% Q2 in North America, similar number for Asia Europe, which kind of get into it a little bit later, down 85% in Q2 and Latin America down 94% where they've had a kind of fairly big kind of pickup in this thing in Q2. But generally, these look about the same. And what I'll show you is there's an improving trend, but still remains under pressure as you all can imagine. The company has $1,600,000,000 of liquidity and we are laser focused on cash preservation and savings initiatives to reposition the profit profile of this business. So we'll spend a good bit of time on here at this page. We'll just give you a little bit of a snapshot. As you remember, we drew down on our revolving facility around $810,000,000 in March and $600,000,000 for good measure. We I mean in March May for good measure we brought in $600,000,000 on a term loan B. And we were able to work with our lenders to amend our covenants which gives us covenant relief largely on the financial metric measures until Q3 of 2021. Our cash burn for the half was $289,000,000 That's compared to $71,000,000 positive last year. In Q1, we burnt around $122,000,000 And in Q1 of last year, we had Q1 is always a burn month. We were burn of $36,000,000 Importantly, for Q2, we burned $167,000,000 of cash in the quarter against obviously a positive last year. At the last earnings call, we had thought the number was going to be somewhere of $300,000,000 and it's really an amazing testament to the work we've done and our teams have done on reining in kind of the cash flow and cash burn of the business. And so quite ahead of our expectations. We're quite happy with this. And what I would say is as each quarter moves on and as the business slowly sees upticks and recovery and our initiatives continue to play out that this burn will get smaller as we step into Q3 and forward. We are mitigating the impacts. And so we've identified and are implementing $580,000,000 of in year cash savings. Where is it coming from? A big piece is fixed operating expense reductions. The total number the net number is $235,000,000 but we've taken $272,000,000 of fixed cost reductions and that's offset by around $35,000,000 so of restructuring estimated restructuring expense. A lot of that's coming from permanent headcount reduction. We'll cover that a little bit later. Store reductions, both in store closures, many of which we've achieved, many more to come, and also in our ability to renegotiate leases and reduce the cost either on a temporary or permanent basis. We've taken full advantage of furloughs everywhere we can. So we've largely on the front end of our business been able to reduce costs and meaningful savings there. We've taken across the board salary reductions in the business. We've eliminated bonuses. We've gotten rent abatements. We've taken a lot of other temporary actions which have generated meaningful savings. The advertising lever we fully pulled. We think it's $130,000,000 of in year savings and that is doing exactly what we would expect it to do. Again, the distribution to shareholder was $125,000,000 last year. We suspended that for this year. And CapEx will generate $90,000,000 maybe even a shade more against what our original plans were for 2020 from a CapEx perspective, virtually frozen at this moment, hardly anything in Q2. I expect very little, if anything, in Q3 and Q4. And then tight controls over both our product purchasing, it's from an inventory manager, we'll cover that in working capital and our own manufacturing where we've virtually closed down our manufacturing facilities and taking advantage of furloughs everywhere we can to kind of stop the valve on the working capital side. And we continue to do a lot more. Reza will cover it a bit more in his section, but we are very engaged against continuing to drive further reductions, really repositioning the profit profile of the business. So as this starts to turn on, we will be in a better place than we went into looking at that from a savings perspective. From an update, if I go to Slide 8, so just a little more color on what we're seeing, okay. So from a sales trend perspective, we gave you I gave you the quarters. But if you look at where we are, we're down 53 for the half. You can see on the chart below, things started to pick up in March. April was the floor, down a little almost 81%. And since then, we've been seeing slow improvements, largely as we see restrictions coming off. So April, May largely the same, a little bit of improvement in May. June was down 74%. July is down 69.8%. My view to August where we sit today is we'll be down around 65%, 66%. So there is an improving trend, but obviously numbers are still dire as far as the level that they're down. And I do think we'll see a continued improving trend as we see more locations opening. We do see travel numbers slowly improving, but I think the key word there is slowly improving. But there is a story and a trend that says this continues to improve as we go into the back half of the year. And I think that will be very helpful for us against the initiatives that we are talking about. In the first half, we reduced $59,000,000 of advertising as we pulled the levers in March. For the full year, it will be $130,000,000 So you get a sense for the second half, we'll largely have frozen our advertising spend. We're only spending here on some of the digital spend that continues to pay off and you will see that our e commerce business is performing a little better than our brick and mortar business. We are very aggressively cutting fixed operating expenses in the business, really the impact on the lower sales and to right size this business for the future as we see recovery taking some time next year. As I said, dollars 272,000,000 of in year savings that we've identified to date that we're executing on or have executed largely from headcounts, furloughs and reductions that I talked about. $124,000,000 of that was realized in the first half, dollars 147,000,000 from what we've identified will be realized in the second half. And I want to just reemphasize, we continue to work very aggressively here to identify more and there will be more as we move into the second half of the year. When we think about permanent savings for things that we've executed on or identified today, in year savings $57,000,000 annualized around $128,000,000 of which a little more than half is coming from permanent headcount reductions and another big chunk is coming from the SOAR actions that we're taking. And again, I expect this to grow as every month falls for us. We had meaningful temporary savings, dollars 215,000,000 in temporary savings, largely coming from furloughs, salary reductions that we've put across the entire organization, canceled all of our bonuses as you'd expect us to do, and also rent savings on a more temporary basis as we further negotiate with our landlords on the rents of our retail stores. I think a key measure and Reza has a slide in the back. Our SG and A, just to give you a sense for the magnitude of the reduction we've had on our cost side, our SG and A for the Q2 is down close to 50 48%, almost 50% reduction in our SG and A against the business, that's seen top line pressure. Pretty amazing piece of work in my view on both the fixed actions, but the temporary actions as well to reduce the cost structure of the business as we manage through. And we continue to monitor all government stimulus and payroll stimulus and take full advantage across the globe of potential benefits that we can get from government entities. We have taken meaningful action on the stores and there's much more to come. And I think this slide I attempted to capture, Reza will cover it a little later in the back, but capture what we've done to date and what I think we can achieve as we move forward. We've exited 71 stores in the first half and we've signed agreements to exit 58 more stores in the second half. That's piece deals in hand. We negotiated 33 leases as far as resetting with annualized savings of $3,000,000 and there's much more to come here. This is a very fluid ongoing process on the lease side. We are continuing to discuss either rent reductions or exits for 200 stores. And that is a very active discussion of which I feel very little over 100 stores that have lease terms that are coming that are in our preview of paying attention to that will probably break at the next level. So all in, we've taken action on a meaningful percentage of our stores. Almost 40% of our stores, we've taken some form of action or have identified actions that we're going to take, which will really be very powerful piece of our tool in resetting the structure of the business, particularly as recovery is extended into next year. On Slide 10, I gave you just a pictorial of kind of the sales trend. And I've done consolidated and I've put on e commerce because I think importantly we've been very focused on e commerce as you know for the last several years. And you can see that's performing a little bit differently here. And so March was down 41, April was the 4th, down 55. And you can see a fairly healthy kind of story against the heavy backdrop, down 50 in May, down 39 in June. I don't have July's yet. But on the consolidated view, you can see down 80%, 70 9%, 74%, 69%. And if I drew a line for August consolidated, it looks like it's going to be around 65%. So you can see a slow but improving trend there. When we look at kind of forward views, we're clearly seeing recovery. But I think what's important and I'll conclude later is we think the recovery is a little bit extended and different than prior disruptions in travel, but still a recovery. And we're positioning ourselves for that recovery as we step into next year. And I think if I go to the next slide, I wanted to give a picture of the diversity of our business both from an e commerce perspective, so you can get a little bit of a better picture of how e commerce is performing. But equally important, we have been driving this business from a mix perspective to have travel and non travel. And you can see that that's acting differently for us as well. And I think it's quite helpful when we see recoveries in certain markets performing a little better than others. It's around the mix of their business. So on the e commerce side, I covered this. But if you see for the first half, our e commerce business is down 35%. Our retail is down 60 percent and our wholesale is down 53%. And really the retail is down a little more because we saw basically wholesale kind of closure requirements across the globe on the retail front. Wholesale took a little longer to get there and we have some wholesale customers that are pure digital plate or customers that have brick and mortar that are selling digitally and those are performing a little bit better as well. So you can see the mix there. And then if you look at travel and non travel, no surprise our travel is impacted a little more. But our non travel, which is impacted because of largely the store closures, is performing a little bit better than that, but still down. So down 46% non travel and travel is down 57%. And if we go to the next slide, just one little snapshot on brands. We have some brands that are really not directly tied to travel and you can see the performance of those as well. So you can see our core travel brands are down even in Q2 80%, whereas in Q2 our non travel brands, brands like Gregory, Speck and Ebags blended for Q2 are down 46%. But if you look at the trend, April, May, June, every month they're trending better. And for the month of June, for example, these brands are down blended around 30%, so performing much better. And as a mix of our business, as a percent of sales, our non travel has become a bigger percentage. And our e commerce for Q2 just for scale is around 13.5% of our sales whereas last year it was around 9.5% of sales. So the diversity of the business is very helpful on this front. And then China, which was really kind of the first market to move in with COVID-nineteen, you can see that China's had its floor in February, continued to be strained in April, May, but we're seeing a pretty good trend as we move into May June. Again, against still tough numbers, but down 61, down 56 in June July August to be about the same levels down 56 or so. One of the positive note talking with Frank who runs our China business with the actions we've taken were positive EBITDA in July August in China with these reduced levels as they manage through this. And you can see our retail is performing and our e commerce is performing in China much better whereas the wholesale customers in China who are managing through their own inventory has been the market that's or the piece of the business that's been a little bit slower to recover. We continue to be focused on long term strength of the business. And when I say this, I say it carefully because we're ensuring we reduce costs, But we shouldn't lose sight of who we are as a company in the midst of this. And that's really the purpose of this slide, which is, 1, to remind you, we stepped into COVID-nineteen at the same moment we're announcing our 110th anniversary this year, which we were excited about. We continue to be excited about. We launched our responsible journey, which is our sustainability and our commitment to sustainability. And there is no doubt in my mind that we will lead this industry on a sustainability front. And we stepped into the pandemic with this in mind as we step out of this. This will be an important part of our story. We are driving innovation in products. And so I'm going to show you a slide on Proxis and we're going to attempt to play a little video, hopefully that will work, to show you this product line that we're very excited about and we'll go through some details there. And as I said at the start, we are launching, we've had some products in market already and across our regions we're launching products that have antibacterial benefits. We're quite excited about that both in kind of small bags, but also within our travel luggage and the touch points within our luggage. And we're doing some very exciting work on antiviral technologies that we can work into our bags. And my sense is you'll see us make some real progress as we step into next year on that front. As you would expect from this company, we're immediately taking pandemic on board and we're paying attention to how we can bring innovation to what we're selling. So on slide 15, just a quick snapshot of Praxis. You can see it. We're very excited about this product. This product is extremely light, extremely strong, one of the best products we've ever made. I think important here is it's fully made by us. The raw material turned into the sheets that we use for this bag. The forming process all done in our Hungary facility, really state of the art product. It's recyclable. So it's part of our sustainability story. The components of this bag are fully recyclable. The shelves and the handles, every piece of the bag can be recycled. And I think as recycling technology improves, you'll see more and more of our products being able to be recycled. It's very exciting. This is part of the times, but this is our first line that we launched fully digitally. We've done it in Europe and Asia. The pickup has been very, very nice. And you'll see this kind of expand out into U. S. And Latin America next year as we see further recovery. But we're quite excited about this product and we'll show you a small video now I think as we move forward in the presentation and then Reza will pick up right after the video. Okay. So we're covering the first half results highlights on Page 18 of presentation. Overall, Kyle has touched on some of these, but just to get into a little greater detail, we are reporting first half sales of $802,000,000 That's a decrease of 53.4 percent constant currency. The bigger point is really the breakdown between Q1 and Q2. So Q2 was down 77.9% with Q1 down 26.1%. As we work our way right to the page, gross margin, that's largely the effect that we saw coming in from the reduced sales. As we look at Q2, I think it's an important point just to raise that we talked about the different mix of the channels. So, obviously, the direct to consumer channels with our stores being shut impacts the gross margin level. So, as you can see in the bullet point on the bottom here, gross margin decrease was about 280 basis points due to the channel mix as our DTC channels were shut And you should also be aware that there has been some inventory obsolescence charges and manufacturing expenses that are working its way in there as well. The flow through of EBITDA is largely due to the fact that the sales environment has been under pressure. But Q2 adjusted EBITDA was down 256 $600,000 from the prior year. We have negative $123,000,000 of first half EBITDA because of that. But we've taken significant actions in terms of what we're doing on SG and A to try to improve that going forward. And adjusted net income negative $173,000,000 which is a largely the flow through from that. And in addition, we have some increased interest expense as well due to the additional liquidity that we took on to support the company during this time. So, on Page 19, we've covered the sales environment and EBITDA. I think it's important to note that we've taken significant actions on SG and A. We are going to be spending a lot of the next few slides talking about that. That has resulted in a restructuring expense of 28 $800,000 That's largely due to the severance actions that we're taking for reducing our permanent reductions on headcount. We also are reporting a non cash impairment charge of $877,000,000 We've talked about this on the last earnings call, so this is really a repeat now that we're publishing the half. But basically $820,000,000 of that is what we talked about in Q1. There is an additional amount of about $57,000,000 in Q2 that's largely due to as we look at some additional stores and the performance of those as well. On the next slide, net working capital, I think we are very pleased in terms of overall performance. Net working capital is $35,000,000 lower than what we had for the June period last year. We are highly, highly sensitive in terms of our product purchasing. And I think this is quite an achievement given the fact that sales have been in such decline year over year. So to be able to manage the working capital aggressively to make sure from a cash flow perspective, we continue to perform. So we're pleased with that. Capital expenditures, again, we've turned off the spigot on anything that's cash expense. And this is a testament to the flexibility of the business. So CapEx in Q2 was a whopping $2,300,000 And again, it's that's largely some maintenance CapEx that needed to be done. But beyond that, we are able to flex this up and down depending on what we need to do for the business. And if things start to return, we can slowly reintroduce it. But I think we are in a good place as it relates to overall CapEx with a virtual freeze on everything. So, overall, for the year, we're expecting a $90,000,000 reduction in CapEx as it compares. Net debt, we are at $1,600,000,000 as of June 30 and cash of $1,600,000,000 dollars approximately $159,000,000 of cash and equivalents as well. And overall liquidity, we have some undrawn revolver still as well. So overall liquidity stands at 1 $6,000,000,000 So I think we feel pretty good overall in terms of our liquidity position. That should be more than enough to allow us to weather the storm for quite some time well into next year. And as Kyle mentioned, overall cash burn for the half was $289,000,000 And I think we got a question actually on the call last time when we were on the earnings expecting. And our estimation for the quarter was that it could have been somewhat shy of $300,000,000 just for the quarter. So I think we would feel very, very good about the fact that Q2 cash burn actually came in at around $167,000,000 which is quite an improvement over what we were expecting. Moving on to Page 21, we're going to talk a little bit about what we're doing on the SG and A side. Actually, we're going to talk a lot about what we're doing on the SG and A side. So, we've identified permanent actions and temporary actions. And I think it's important to understand. Kyle touched on the fact that there's furloughs and other situations in the various countries that we're operating and that we're taking advantage of. We are not only focused on this year, we are actually focused on making sure that we set up the right cost structure for next year and beyond to make sure that our EBITDA margin gets to be to what we have always targeted, which is in the mid teens. And in order to do that, we are taking actions on the permanent side as well. So as you look at this slide, working our way from left to right, you will see that there is and we have broken it out by half just to give you a sense. So what we are saying here is that we have $124,000,000 of identified savings that were realized in the first half. Now that was realized because a lot of it were employees being on furlough, etcetera, stores being shut and that employee head count being picked up by government programs, etcetera, and that's the 114. However, as that flows through, we are also taking actions on actual layoffs, shutting down stores, etcetera, that are more permanent in nature. And you are starting to see that roll into the numbers. So as you work your way to the right of the page, we are expecting that all of a sudden there will be $46,000,000 of permanent actions that are identified. The temporary actions, some of that will roll forward. But as we look at what we're really setting our sights on, which is how does what is the flow through effect of this going into next year and beyond, that's what you see on the right hand side of the page in green. So the run rate savings that we have actioned so far or identified in our actioning is 128,000,000 dollars And that's a meaningful reduction in terms of our fixed cost base that's going to be rolling into next year and beyond. And we're furthermore have started to work with some 3rd party advisors because now we're looking structurally. We've done all the easy things we've done last quarter. Now we've taken really meaningful actions already and we're continuing to do that. So this 128, while meaningful, is not going to be the final number. And we're working with 3rd party advisors to identify further opportunities as well. And primarily what we're looking at is headcount reductions and saving from closing stores. So that's adding up to that 128 to give you a sense of it. And it's roughly split half and half between the non store headcount reduction and the savings from cutting the stores. On Page 22, this is just some greater detail on the impairment charges that we've talked about. Again, most of this was covered in Q1, as you can see on the Q1 column. But there was an additional $57,000,000 of impairment on the right of use assets. Again, this is the fund of IFRS 16 that we have to measure basically how the store performance is going. And in Q2, there was a $45,500,000 impairment charge on the right of use assets and another $12,000,000 non cash charge on the retail fixed assets for $57,000,000 in total. We also had $22,000,000 of restructuring expenses just in Q2, bringing the total restructuring expense to $28,800,000 overall. Again, I know I covered it previously, but the impairment charges are non cash, just to reiterate that point. And hopefully, we're breaking the back on that. So on Page 23, we thought it would be helpful just to provide an EBITDA bridge working our way back from 2019 to where we are today. And I'll just wait for the slide to change on the screen. Just a second. Okay. So just to go through it a little bit. So last year, if we are looking at our first half adjusted EBITDA for 2019, we were at 213.5%. If we do the walk over to the right, The FX impact for the year was a positive impact of $3,500,000 on that. The biggest component is this negative $524,000,000 $524,500,000 which is really the gross profit impact as a result of lower sales due to COVID-nineteen. And I think what's really important is if management has taken no actions, that would be an awfully negative number that we would be faced with. And so as we work our way to the right, I think it's helpful to recognize what have we been doing over the last few months to try to basically claw that back to a slightly better result. And obviously, we have more to do. So you have that negative $5.24 that has to do with the lower sales. You also have some decreased lower margin, which we've outlined in the box above. So there's another negative impact of about $54,000,000 that was partially offset with some cost reduction activity. But there's some promotional activity. There's some channel mix primarily because our DTC channels typically have a higher margin are the ones that are shut. And then we also have some manufacturing operations that are in Europe in terms of our facilities that have impact on the gross roughly $ roughly $58,000,000 impact. And if you think about the split between that, in Q1, that had a benefit of about $14,000,000 In Q2, that was $44,000,000 So very, very meaningful reduction in terms of what we've done on the advertising side. And then variable SG and A, we've always talked about this business being able to flex somewhat in terms of the components of that variable component. So the natural component of SG and A that came in just as a result of lower sales was about $83,000,000 of that. That was offset. We had a bad guy in terms of what has happened in terms of some other expenses. That includes things like bad debt, etcetera. Part of this is also due to a restructuring that we had in India with our Back Zone subsidiary that we acquired. So, we have to write off some receivables there. But overall, the biggest component that we're really proud of is in terms of the fixed SG and A component. So and again, you have to think about the amount of time that these have actually had its time to work their way into the results. So we've already had $124,000,000 of adjusted EBITDA benefit as a result of fixed SG and A reduction. So said another way, if we had basically done nothing, you would have been having a bar that would have been way lower as kind of the negative 300, negative 350 zip code. However, we basically clawed that back to get to this negative 122 number and as each quarter works its way forward to get the benefit of those reductions as well as the sales environment improving. On slide 24, again, this gives you a sense again in terms of that fixed variable is the question that we oftentimes get from all of you in terms of the fixed variable mix. So we thought we would just lay this out in a couple of bar charts. Really, I'll just draw your attention to the Q2 bar. So as you're looking at it year over year, you're looking at our Q2 and this is basically just showing you the SG and A, so the fixed variable and the advertising and promotion component of it. So Q2 of last year, we had $383,200,000 of SG and A. This year, we're at $195,000,000 a 48% decrease year over year. So that gives you sense. And again, you can see the breakdown of the components that's fixed, the components that's variable as well. And again, as we work our way forward, we expect this trend to continue as well. On to the balance sheet, we talked about this coming out of the results after the Q1. Obviously, we shored up the balance sheet even further. We have already basically gotten our covenant release which will get us to Q3 of next year. The other point on the balance sheet that I think is worthy is and we talked about this, but it's now you are actually seeing it in the results of the incremental term loan refinancing that we did. So we have another $600,000,000 of liquidity that has come in due to that. So overall, our liquidity position, we are at a little bit over 1,600,000,000 dollars with net debt of about $1,600,000,000 as well. The only covenant that's being measured as we go forward until Q3 of year, so about a year from now, is minimum liquidity. So we were basically showing $1,600,000,000 of liquidity against the minimum liquidity threshold of 500,000,000 dollars So we feel very good about that in terms of where we stand in terms of covenants. And we continue to monitor basically cash flow to make sure that we a strong balance sheet going forward as well. But I think overall, we feel pretty good in terms of where we stand in terms of liquidity position going into this. Working capital on slide 26. We covered this a little bit at the high level a little bit earlier. Overall, inventory levels, inventory from a year over year perspective is down $50,000,000 So if you think about that in an environment where sales are really under strain, we have managed to still work our way down in terms of inventory, which is a testament to the teams managing the product purchasing that's happening as well as making sure that we continue to have a tight rein on inventory. Overall, working capital, as you work your way down the slide, we are improved by $35,000,000 as compared to last year, which I think is, given where we are, is in a pretty good position. If you look at the inventory days, obviously, sales are not where they need to be. So inventory days is not anywhere near where we would want it to be. So it's gotten worse by 100 of 11 days. That will work itself out as sales pick up, obviously. And then going on to the next page, we covered CapEx at a high level. But just to give you a little bit breakdown in terms of the different categories of it. Overall, I think the point here is that we've turned this figure off entirely on CapEx with just doing the bare minimum that we need to. And that in Q2 was about $2,300,000 So with that, I'll turn it back to Kyle just to cover about the outlook and then we'll open it up for questions. Okay, great. Thanks. So just as a recap, I think you get the sense that we're actively managing through this. It's a business that's clearly facing pressure with travel under pressure. But we are across this entire senior management team very aggressively working through this. We know travel will recover. And when travel does recover, it booms back. And we'll be in a wonderful position as a business to capture all of that is really our focus with a profile on the profitability of the business that we're resetting as we speak. But where are we focused? This is near term and just really before we go to questions. First of all, we've been very focused on the safety and well-being of our employees, their families, our customers, partners, everything we're doing as far as managing this business, we've never lost sight of ensuring the safety of everybody. We are very focused and taking clear actions on preserving cash and focused on identifying additional savings. There isn't a day that we're not focused on driving actions to create more permanent savings in the cost structure of this business. Reza just gave you a good picture of where we are and where we are to date. But there is more coming. And for sure, and I'm deeply involved in all of that as Reza is. We are very careful. We have a plan to reopen stores. And we have been opening stores in a slower basis as we see opportunities in the markets open. But we're doing it in the most cost effective way and safe and efficient way. So ensuring as we reopen stores, our employees and our customers, they step back into our stores, they're in the right place and ensuring that we're paying attention and maintaining the savings we've been able to get as we've seen the traffic count, though. So carefully opening stores, opening stores where we see opportunities for traffic and managing the hours and how stores are opened as best we can as we start to see the world moving slowly again. We recognize that all of these actions impact our people. We're not only people that we've had to let go, and these are often friends and colleagues for all of us, but also the people that are left here running this business and making sure that we're that people are energized and empowered to navigate through this. And we spend and I spend a lot of time ensuring our teams are in the right place. And one of the real strength of this business for a long time has been the people of this business. And so we're going to look a little different on the other side. But one of our tasks is ensuring that this amazing organization has the right people in place to run it on a go forward basis. And I have a lot of confidence in that as well. We have a good diversified business. We spent the last 10 years working on that. And so you can see that in some of the pieces of our business that are performing a little differently. Our non travel categories are playing well. We have certain brands that are playing well with all the pressures because they're a little bit different than just our core travel. We've got a diverse distribution network, wholesale, retail and e commerce. And we're a lot of that will look a little different on the other side, but what you will see is the strength of our e commerce business continuing to power through. That will look as a percentage of sales off the back of this as a bigger percentage and I'm very, very happy with the progress we've made on that front. Our retail footprint will look a little different, but we will still have a very active direct to consumer retail business as well. And our wholesale customers are all navigating through this in varying degrees and we're staying close to them. And I think they will navigate as well and we're managing and adjusting our business accordingly with our wholesale customers. So that's a very active process and I feel very confident in kind of the mix of our business, as we carry into this thing. There will be many small players that won't make it through this. And so one of the advantages we've had in this business is our kind of general scale advantage, our ability to kind of navigate with the leading brands of the world. And there will be many that will struggle to get through this and our scale will allow us to navigate. I the pressure bigger than we are with nowhere to really run to. We have significant liquidity. And I have full confidence in the liquidity that have in this business to navigate. We've done an amazing job on the balance sheet, an amazing job on the cash flow side. We've got the runway to get through this. And I have full confidence and so does our team. And then lastly, our experience in navigating this. I think it's important that this is a business that's been around for 110 years. We know how to navigate through this. I think this has a little bit longer recovery cycle, but there will be a moment where travel will turn back on. Think every one of you know that. I think we're all feeling anxious around our ability to travel again. And when that does come back, I expect it to really come back. It may be staggered a little bit as the world navigates vaccines and whatnot. But when it does come back, it will be a strong recovery and we will be very well positioned to capitalize on that, as we start to see that hopefully towards the middle and end of next year as the world really starts to move again. So with that, William, let's turn it over to questions. And thanks everyone for listening. Great. Thank you, Paul, and thank you, Reza. Operator, we are we can begin taking questions. Thank you. Ladies and gentlemen, we will now pose for questions. Thank you. First question comes from Eileen with Jefferies, Hong Kong. Please go ahead. Thank you very much for the detailed explanation, especially on the cost savings. I have one question regarding the cost savings, the $124,000,000 in the second half. Does it comes with a sales assumption? For example, there is a breakdown between the fixed and also the temporary cost reduction. Just assume that if sales recover better than expected, does that mean that the temporary one will alter and will change? That's my first question. And my second question is on the U. S. Market, which is around, I think, 40% of your business. If market recovers, is there any risk that your wholesale partner, like the department stores and also some of the distribution chain, are they able to respond properly or they also have some issues? How do you look at like the hotel business in the U. S? Thank you. So on the temporary changes, I think what's important with temporary savings is one we're executing them everywhere we can. You can see in that page that Reza covered, it's a little less in the second half than it is in the first half, because we're starting to open things. And so in doing that where we might have had temporary savings for store employees, for example, as we cautiously open those stores, those savings are coming down. If there is a booming recovery, which I'm not anticipating, I think Q3 and Q4 continue to be under pressure, is my personal view. So I don't think that number will change much. But if that improved faster than what we were thinking, you might give up some of those temporary savings because we'll open things a little bit faster. But our view and really what we're focused on is, how do I turn as many temporary savings into permanent savings, because our real task is, 1, navigating through this year, but the real task is positioning this business for the moment next year where this is recovering and positioning this business for a strong rebound, not only on the sales side, which is a little less in our control, but on the profit side of this business, and really making sure that we're taking advantage of the situation here to make sure that we position ourselves as best we can. And that's really what Reza and myself and our entire team are focused on. Do you want to add anything, Reza? Yes. The only other point, the 128 number that I mentioned, if you look at that slide specifically, you will notice that it's lined up with permanent actions, not the temporary. So that $128,000,000 when we're annualizing that, that's basically reflecting the fact that a lot of these decisions that are being taken are being taken halfway in the year. So you get a full annualized benefit of it going forward for next year and beyond. So in addition to those temporary ones, we're not anticipating a lot of temporary savings going into next year. It's really looking at it and saying we're resetting the cost structure on the permanent side. And that's about that mid-120s number, which we hope will increase as well. Yes. And then on the wholesale side, we are staying close to all of our wholesale customers as you can imagine. And these have been really long relationships. And I think every wholesale customer is navigating in different places and many of them are in different positions generally. The hypermarkets and those types of stores are performing a little better than maybe kind of the higher end department stores. We're seeing mixes of their business perform differently brick and mortar versus their own e commerce, which is performing much better. What we are seeing in the short term so I guess that you will have to watch how wholesale customers navigate, particularly in the U. S, but many of them are navigating quite well. What we are seeing is, and you can see it in the trends that I showed, on the mix of our business, they'll probably be slower to start to buy in. They're watching and managing not only their travel sector, but their entire business. And so they're watching what segments are moving faster than others. So I expect that there'll be a slower kind of buy in from our customers, as we watch. So there'll be a lag effect of them kind of turning us back on in a more meaningful way. I would say we're staying very close. We just we're having virtual meetings and calls with our customers. We're coming into the office working with really exciting moments around here's what's coming next, here's what we're working on, here's the next line. But a lot of that's for next year, because we're all in this mode of and they're in the mode of managing what they have where we are. And we're being very careful about pushing too much new product development while we cycle through. So we don't create an inventory problem. But they are excited about what's coming. And so each one is managing at their own pace. I can't really comment on where we are. I think some will be under more strain than others. But we're not seeing any sort of, excuse the word wholesale, wholesale kind of issues with our customers. If I went to Europe, some of our business in Europe are mom and pop luggage stores and I feel for many of them who are feeling a lot of the strain that are selling largely travel goods and some non travel goods which are performing better. So we're watching and working closely and our European team is staying very connected with some of our smaller wholesale customers there to see how they navigate through this as well. And there'll be some that won't we'll decide not to continue through, but many of them will and we're staying close to them as they manage through with this. If you think about it, it's all part of our family. These are relationships we've had for a long time. And so when we say we're actively managing, we're managing with them as well. Right. Thank you. And one final question for me. Carl, your best guess regarding the recovery in how many quarters or how many months do we need to go back to the year 2019 level? I think who knows I guess is the answer. So we can all draw our views. But I think next year remains under some pressure particularly in Q1 and Q2. The wild card is to me it's around vaccine and distribution of vaccine. I have some optimism that as we get to I have some optimism that as we get to Q4 Q3 and Q4, we start to see things moving better than what we'll probably see in Q1. So I know that's not so specific. But I think we're into 'twenty two before we start seeing opportunities get back to 2019 levels. And that might even be a trailing story as we get into kind of Q1 and Q2 of 2022. But what I do expect is we will see some steady improvement next year. We won't get back to the levels obviously, but I think as Q1, Q2, Q3, Q4 and our own views that should be a steady improving story against the 2019 levels. And there's a lot of data points you can look at. It's hard for me to give predictions as you'd expect. What I would say, and I think this is important, we are making we are taking actions on a more conservative view so that we position the business the right way. I think where companies can make mistake is assuming that there's some magic opportunity that you get to the middle of the year and things are looking better. So we are cautious on our outlook so that we take the right actions on the cost. I'm quietly hopeful that we'll see a pickup. And I might reiterate and I kind of said it I think in my closing. When travel gets to the point that it turns back on, all past experiences are it turns back on in a big way. I think there will be a huge pent up demand. The question for us and for all of us is around what's the timing of that. And I think different than prior pandemics, it's relying a little bit on kind of science, medicine and just how the world kind of navigate through, which I think just has a little bit longer tail here, as you'd all expect it to. When it comes back, we will be in a wonderful position to capture it. Yes. Got it. Thank you. Thank you. Our next question comes from Yifeng Chiao with MF Trinity Hong Kong. Thank you. Hi, thanks very much. Congratulations on your amazing results. First of all, I just have three quick questions. The first one is, can I just clarify on the €580,000,000 savings? So that's can we assume that this is the savings that you can achieve this year and the savings that you kind of identified for this year so far and there'll be more to come or pretty much we should assume $580,000,000 saving is enough to? There will be in my view, there will be more to come. That is what we've identified and have executed on. So but we continue to work on initiatives. As Reza said, we've engaged in 3rd party advisors to help us. Every next slice you take into kind of trying to adjust the cost structure of the business gets a little bit harder. But we've got some advisors helping us. My expectation is that will be a bigger number as we get to Q3 and we'll report on it and we're very focused on it. But there's a lot in this $580,000,000 This is an amazing piece of work. When you really think about We've been at this for, call it, 4 months now. I've been so happy with the way our teams have actioned and executed on this. It's the obvious levers we've pulled and we're now into some really kind of meaty impacts to the business, which are painful for all of us to do, but we're doing them. And I would say it's an every as I said, it's an everyday task for us. We are very focused. You will see more on this front from us as we continue to work through it. Thanks. How much upside are you talking about? Are you talking about like double digit, like 20% more, 30% more or like 5% more? Like it's like what's the ballpark estimate? I'll say it's double digits off of the savings, but let's leave it at that. Okay. And my second question is about your confidence flexibility. Mean, it's great news that you've got confidence the wafer into 3Q 'twenty one. But I don't want to point this out, but I'm just thinking in a dire situation where, for example, like vaccine gets delayed, we don't get vaccines until, I don't know, like Q4 next year. How flexible is this continent? I mean, and maybe this is something to do with this is a question to with regards to your relationships with bankers. Like, let's say, investors stay for like 6 months and we wanted to conference concern again then, is it like not difficult to get like another 6 months of waiver? Or like how should we look at this? Well, we love our lenders and they love us is what I would say. But if we're in that situation, we won't be alone in that situation. So we have a lot of confidence. We've put a very conservative view forward and we're taking actions against that to make sure that we're sitting in the right position. And again, I think where companies will make mistakes if they're not realistic and conservative in their views. Our current view is with a very conservative positioning, we get there. And we're laser focused on it. We're laser focused on Q3 next year. What are we doing? What action are we taking against a business that's under pressure because of kind of the external impacts of COVID-nineteen. So we are not cutting ourselves short at all on that exercise. If the world takes a more dramatic turn, it's not Samsung. We'll all be kind of in that situation. And I was quite impressed with what we did in April May of this year with our lenders. And so it doesn't mean that you can't have another conversation, but we're not falling back on that. We're falling back on making sure we take actions and we're bold enough to get there. But you don't know. And but again, I think if we're in that situation, the whole world is in a spot and we'll be working together on that front. And just bear in mind the way the covenant actually gets calculated, it's not like these quarters are rolling into that because the way the covenant gets calculated is it's substituting 2019 EBITDA for these quarters anyway. So the question is really Q3 of can you please just can you please just update on the breakdown of the source the product source region like where you saw the products between China, India, Europe and ASEAN? I know that you aim to cut the China ratio to 50% by the end of this year. And like how about next year? Is that ratio going to be down even further? Yes. We're way ahead of it. We'll be better than 50%. This is for the U. S. Business. And from where we're sitting today, it looks like next year is probably going to be closer to 35%. By the end of the year. Plus or minus 5 percent for U. S. Source in China. So we'll be down to kind of 30s, let's say 30% to 40% just to give you a range, much better than kind of where we were. And the run rate coming out of this year will be below 50% for sure. So in the midst of this, we've continued to push on that and it's an important piece of work for our U. S. Team. And they continue to amaze and surprise me as far as how much progress we're making on that front. And it's a testament to not only our guide, but also our sourcing partners. Often when we're shifting, it's because it's somebody that we've been working with for a long time that are realizing we're the player that will be here on the other side and they're kind of managing and helping us make the shift as well. So it's a combination of those 2 that's really powerful. But we're ahead of our expectations. And I thought we're ahead of our expectations at the end of last year and we're even further ahead of kind of my reset expectations. So it's going very well. So 35% by the end of next year for the U. S. Market basically from China? I think that's I think we'll be in that zip code, yes. Okay. But moving out of China like increased costs or I mean reduce costs? On a net basis, it's because the tariffs are so high, on a net basis, it's a benefit. Maybe initially, it's not as efficient, but even there we're seeing opportunities to make to get the efficiency in these kind of newer facilities up there pretty fast. So there's a reason why we're in China in the first place because it's a very efficient market. But as time has moved on, the rest of the world is becoming a little more efficient as well. But the tariff, just to get out from under the tariff cover is an important piece of us. That's really part of the reason we're shifting here is particularly for the U. S. Market. So even though a new plant might be a little less efficient, net net it's more efficient than being in China for sure. And that efficiency usually takes about a year to work its way out. And then the next level of efficiency is the supply chain. So you have transport costs and things like that. Yes. But on all fronts, it's been very good. Our U. S. Business, when we think about gross margin, our U. S. Team has really high degree of confidence in an improving margin story for next year. And Reza and I, we've kind of started talking in the 1st rounds of plans for next year and we put pressure on them. And the reality is the confidence to level on achieving margins for that U. S. Business is very high. So we'll see how it all plays out, but it's very positive from where we sit today. Thanks. Can you just like give the breakdown the rest of the breakdown, like where is the product sourced from, like the rest of 50%? We'll come back. If you don't mind, maybe William can follow-up for you. Is that okay? Sure. Sure. Thanks. Thanks very much. Yes. Thanks, William. Thanks. Thank you. Next question comes from Dustin Wei with Morgan Stanley Hong Kong. Please go ahead. Thank you. Thank you. Hi, management. So first question regarding China. Could you please provide the latest trading trend for July August? Is it better than June? It's about the same. I think July for China July took a little twist in China. I think it was down 59 and June was down 56. Percent. And then August looks to be somewhere between 53% 55%. So it's slow, Dustin, but it's definitely an improving story. And again, as I think I said on the call, one of the real positives in that environment, Frank, has adjusted that business that we're back to making positive EBITDA in China even with that kind of level of sales. And what we're seeing in China is our own brick and mortar retail stores and our e commerce are performing better, but our wholesale customers in China are slower to start buying in. And I think there'll be a little bit of a lag there like the rest of our business, but that we continue to see that in China. But Frank is pretty optimistic. When we had a Board call earlier, we were talking to some of our Board members that are in China and there's parts of China that are moving quite well. Domestic travel in China is, I want to say it's booming, but it's moving. We're seeing kind of hotel occupancy rates way up. We're seeing domestic flights way up. There was a big I think it was the national exams in China that were happening, which causes a good number of students to travel in China. That actually carried out. And so China as a market, I think, probably can lead the way as far as kind of recovery. And let's all knock on wood that they manage the virus, but they seem to be doing that very well as well. So we're cautiously optimistic for China. We're seeing it. If you think about our overall business down around 65% in August and our China business to be little north of 50%. It's still down, but it's better than kind of the overall company average. Yes, of course. Thanks a lot. Sorry, you mentioned that the adjusted EBITDA could turn profitable with certain sales number. I missed that number. Could you repeat Well, no, I think all I said was China in July August had positive EBITDA. So off of these kind of lower sales and off of the action that Frank's has taken, they've moved into positive territory. And to be a testament to kind of the work Frank's doing there and kind of the flexibility of that business there. That was all I was guiding. Right. Okay. Got it. Thank you. So regarding the all the cost saving, I think that also result in the reduction in the channel capacity, including some of the retail POS being shut. So when the demand really coming back, like when we talk about like end 2021 or 2022, are we really able to capture to back to the full 2019 sales? Or are we going to rely more online sales to achieve that because we should have shutting down the offline capacity? Well, I think there'll be a I think largely there'll be a wholesale shift in the way the world's moving, right, Dustin? So not mine to predict exactly, but I expect our mix of e commerce to be higher. We'll still have a meaningful retail fleet. Often that the if somebody is buying luggage, they'll find their way to another one of our channels, because if you think about how we're distributed, we'll pick them up digitally, we'll pick them up in a wholesale account or in another store. It doesn't mean you can't start opening stores again as we see things moving up. But the reality is, we'd be making a mistake by kind of waiting. So we're adjusting stores that, in our view, are on the cusp, at a with a slow recovery. There will be an opportunity to open stores. I think the retail landscape is going to look differently. And so there will be a moment where that will probably have a bit of a reset and we will be able to step back into that as we need to. So I am not so I hear what you are saying. We are not afraid to take the actions because I think that's the right thing to do. In the world, we'll have a repositioning and we'll be able to capture that. One of the real powerful pieces of this business is we are when you think about where people buy luggage, we're able to kind of capture them everywhere where they're thinking about that. And so if we shut some and the world shifts the way they're buying, we're still going to pick up those customers. Thank you. That's great. On GP margin, if the calculation is right, the implied Q2 GP margin seems to be like 33%, 34%. So how should we think about the GP margin assumption for the second half or early next year when the sales still down meaningfully? Will you just have those kind of inventory charge to bring down overall GP margin or it's going to be back to mid-forty level? There are 2 pieces there. 1 is, we were actively shutting down our so one of the things that happens when you're at the low sales is we do have some manufacturing that has some cost structure to it that ends up in that margin line. And so we were actively kind of shutting down those plants and putting people on temporary benefits. Some of that trickled into Q2. So I think Q2 is clearly the floor on the margin side. And we were very aggressive on impairments in inventory and just inventory reserves and we pushed the organization to really assess that. So I think a lot of that happened in Q2, so it will be better in Q3. And as you don't need much kind of sales recovery for that to quickly kind of absorb itself up. My sense is the second half margins will probably have a 50 ish zip code, 50%, 51%. It's not so clear as we watch kind of the recovery in sales. And then as we get to next year, our view is we'll be in the same zip codes of where we've been running on the margin side before even with kind of reduced levels. At the same time that we're taking kind of what we would call classic fixed cost reductions, we're also rationalizing our own manufacturing and trying to get as much of that temporary savings into permanent savings and really making sure we're rationalizing there as well so that margin profile carries through. And so I think Q2 is probably the floor is what I would say, Dustin, and it will get better from there. Thank you. That's great. So given all the efforts for the cost reduction, what kind of the sales recovery level versus 2019 that company can turn profitable at EBITDA line? Yes. I'd say that we're still cooking. If I've just told you that I think we're hitting our covenants in Q3 based on our early reads, I think you can do the math on what that kind of means. And I have a I am pushing the organization to breakeven in Q1 of next year or better. I think we will be there. And we're still dialing in on the savings initiatives to give you a good view to that. But I think we're getting there. But I would hate to throw a specific number out right now. Yes, of course, Hal. But is there any assumption for that breakeven? For example, if you gave the Q1 next year sales down only 30%. Is that okay to get the profit level? Or you think it's going to be like 80% of like 20 nineteen's level that a company can get profitable? So I want to try to measure the relationship now between the profit and the sales, because company already cut so much costs, right? So not necessarily going back the previous level to get to the previous process? Yes. So we're still cooking it is the way I would tell you that. But you should assume that my view is Q1 is still under some pressure. There's no reason why Q1 versus 'nineteen, when you think about kind of the trend and the pace of improvement we're seeing, there's no reason why that isn't down 50% or 60% to last year. And I'm pushing this business to be positive for Q1, okay. So just for scale, right. And Dustin, you can take what Kyle just said on China and just extrapolate from that as well, right? So there's an environment where you're down kind of mid-50s in sales and Frank is printing EBITDA again. So he's ahead of breakeven. Yes. So we are trying to basically look at that for the entire business and say, in a stress environment, we still want to make sure that we are EBITDA positive and then obviously EBITDA growing. Yes. And then all these other actions we're pursuing really just kind of put us over the top on that. But I'm sorry I'm not being so specific because it's like the $1,000,000 question that a lot of companies are cooking through and we're still cooking. But I have when I tell you I have a high degree of confidence in where we're pushing the reset of the profit profile of this business, we can see it's a wildcard as you just said Dustin is what the sales levels look like really around kind of the external factors. But assuming things stay and we're being conservative. So assuming things still look a bit dire in Q1, we have a desire to be positive cash flow, positive EBITDA in Q1 and that's what I'm pushing the organization to. But I don't want to be more specific than that because there's a lot of moving pieces on it. Yes, of course. Lots of impressive job being done. So last qualitative question is that, how's the company organization more rail now? I can imagine that staff probably quite downbeat because of furlough, because of pay cut, But it sounds like your staff and the manager are still doing amazing jobs to help organization staff costs. And how are you how do you encourage them to do so? And are you going to provide them more like share options or some of the incentive schemes to drive them? I think we're really fortunate, Dustin, that we have really people that are really passionate about this business. We're a business that has been around for 110 years because of who we are as people and we're all in the muck, right? We're all dealing with really tough decisions And we all feel it every day is the way I would describe it. But we feel a sense of kind of duty to get this business position in the right way. We've been here before too. This business has navigated blips like this before. We know what to do. Many of the people that are making these decisions navigated this thing through 'eight, 'nine. I was part big part of that team. So we hold each other up, I guess, is the way I would say it. I stay very actively connected. I'm on almost every call. I'm going to detail discussions around what we're doing. I'm joining these calls. They feel the support. We've got a very supportive Board as far as what we're doing. The numbers are tough for Q2, but there's a lot of really positives in Q2 as far as the actions we've taken and how much we've been able to shift the business. And I think people are drawing off of that as well. I'm holding a town hall meeting with our entire what I can say our entire kind of senior team. So my direct reports and their next levels reports, we're doing that next week on a virtual call just to keep everybody in the right place. And the real messaging is, there's clear confidence in getting this thing to the other side, of which I fully believe. There's clear confidence that the actions we're taking are exactly the right actions to take. We're all in it together. The whole world is in a tough place. There isn't anybody that's hiding from the impacts of COVID-nineteen, children in schools and my own college age kids and just the whole world is dealing with Having a positive tone as you navigate through really tough stuff is very important. We've had a long history of being like that we hold each other up. I'm really quite happy with the team. I think when I took over as CEO, you heard me talk about the power of the team and the people here. We're all we've shrunk that a bit, really painfully. But that power and energy of the people and the team is really what's carrying through. We've all taken pay cuts, but that's not unusual in this environment. We've frozen all of our bonus incentives. We'll turn those on next year. We'll be careful about pay increases for next year. But my plan is to put incentives back on for next year, which, against the back drop of real progress. And I think people are because of the passion of their connection to this business, are well placed to be there to navigate through this. And so I think it's the reason we're being so successful is the people that we have in this organization. Right. That sounds wonderful. Thank you, Kyle. Thank you, Riza, William. Best of luck. Thank you. Thank you, Dustin. And operator, we're coming close to the end of the session. So we'll just take one more caller's question before we end. Thank you very much. Thank you. Our final question comes from Louise Lee with BOS Freitas Hong Kong. Please go ahead. Thank you. Hi, management. This is Louise. I have two questions. So one the number one is, could you please provide any color on the recovery trend of the other Asian countries other than China, for example, Korea or Japan? And my second question is about the cash burn you mentioned in the slides. It's around like RMB160 1,000,000 in the second quarter. So do you can we assume this is a worth looking for the upcoming quarters in terms of the cash flow level? Okay. Thank you. Yes. So I think I'll let Reza cover the cash burn. But we're seeing kind of mixed stories as you'd imagine within markets. And so Japan is a bit more muted. There was a moment where Japan felt like it was moving a bit better, but they've been a little bit more stagnated. But it's still in the zip code. Korea manages quite well. They took a big uptick, I say big in relative terms. But then more recently, they've had a little bit of a stutter step. So almost I think it's the same story across the globe if you really look around. China is probably the only market that's showing a little bit of a little bit ahead of the curve, but everybody else is really kind of in the same place. India has been under some strain. India is, I think, going to be a little bit slower to kind of start to move again. But my friends in India and the teams in India, there's a little bit of a new normal of kind of what's going on in India. People are starting to get back into the offices in India. But I think India will be a little bit slower to recover. And so I don't have like the specific growth rates in front of me, but I think if you just watch kind of the flow of the world news on which countries are performing, our business is kind of following those trends fairly closely. And even when you to Europe, there's pockets that are moving a little better than others, but on average, they're not so far apart from each other. Our U. S. Business, because of some of the mix of the brands we have, is in this kind of down a little bit better than the rest of our businesses because we have brands like SPAC. Gregory is a big piece. Those are performing a little bit better. And so you get a little bit of a better effect in the U. S. And in the U. S. Itself, you've seen the stutter effects of states trying to open and then states kind of retrenching. And but blended all together, we're not there isn't any one region that's off quite so much different than any other. So I don't know if that answers it. It's a bit of a roundabout answer. Pocket is a little bit better than others, but none that are so far ahead. Other than China, that feels like it's a little bit ahead of the curve for us. And as it relates to cash flow, we do expect it to be improving. Q3 will probably be somewhat similar to Q2 because there is still some restructuring that we are doing. There will still be some restructuring charges that will work its way in, etcetera. But really going into Q4, I think you're going to start to see an improvement. I can tell you on working capital specifically, we're expecting working capital to roughly it will fluctuate $20,000,000 to $40,000,000 up and down between now and the end of the year. But we are going to be largely in line in terms of the same sort of levels that you are seeing right now. We are being very, very aggressive on that. But in terms of the operating cash flows for the business, we do expect it to be improving from here, really after Q3. Yes. My sense is Q2 is the 4, Q3 maybe a tad better, but not so far off. But that's largely around kind of the continued actions that we're pulling the triggers on as we step into Q3. Okay. Thank you. Very clear. William, we're good? Yes, we're good. Thank you, Kyle. Thank you, everyone, for joining in tonight. Yes, really appreciate it. As you know, you can always get a hold of William and we really appreciate appreciate everybody joining the call. Thank you. Thanks everybody. Thank you. Thank you for participation. This concludes the conference.