Earnings Call: H1 2018

Aug 29, 2018

And gentlemen, thank you for standing by, and welcome to the earnings call for Samsonite First Half twenty eighteen Results Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I must advise you that this conference is being recorded today, Wednesday, 29th August, 2018. I would like to hand the conference over to your first speaker today, Mr. William Yu. Thank you. Please go ahead, sir. Thank you, operator. Thank you, everyone, for joining the earnings call today. We're very pleased to have our Chairman, Mr. Tim Parker and our CEO, Mr. Kyle Gendreau with us to go through our first half results. And without further ado, we will begin the presentation. So we'll send some opening remarks and then Carl to take over. Thank you. Okay. Thank you very much indeed, William, and a very good evening to everyone from Hong Kong. And we are very pleased and proud to present another set of record first half results for the company. In fact, the first half of this year has been very encouraging from a number of perspectives. We've had a bit of a following wins from currency. So the headline growth figure of 16.6% is reflective of an underlying 12.9 percent constant currency growth. And if we strip out the effect of the acquisition of Ebags, we're getting a period where we didn't own Ebags. The underlying organic growth rate of the business was 9.9%. So I think at all the in nearly every territory, as Kyle will explain in a moment. And some good progress with the gross margin as well, up 18.9%, 15% in constant currency. And that reflected in part the further excellent progress that we are making with improving the gross margins of Tumi. That's partly around pricing and partly around our sourcing initiatives. And the combined impact of all of that has been to move the EBITDA up by 14.5%, 11% in constant currency terms. Were it not for the impact of eBags and eBags, as I'm sure most of you will recall, is a business that we acquired with very little profitability with a view to improving significantly the return in that business. That business, of course, in the short term has had a dilutive effect. If we exclude eBags, then our EBITDA margin would have moved ahead 10 basis points. And of course, underlying all of that, our adjusted net income has moved up 19.5%. That in part reflects the increase in EBITDA, but also the excellent improvement that we have made in our financing costs. The interest expense was down, and that contributed again to a very healthy improvement from $100,200,000 to $119,800,000 Next slide please, William. And I thought it would be just worth reminding people of the record of the business over the last 5 years. We've yet to see the we're just waiting for the slide to change. Bear with me, everybody. Could we move to the next slide, please? Okay, good. So moving to the next slide, I thought it would be worth reminding us all of the 5 year performance of the group. And you can see here that underlying growth over the last 5 years in organic terms has been 9.4%. Obviously, if we add acquisitions, that's increased very substantially to 17.1%. And I think it's worth fact that the results of the business have been driven mainly through the increased performance of our core brands and that the company operates in a market which has very good structural characteristics. So our brands, which are the leading brands in the market, have been able to participate in what's been a very healthy growth of tourism and travel over the last few years and is projected in the future and of course, the impact that, that has generally on luggage, business bags and casual bags. So Kyle, it's worth looking at the model for our business. And the next slide, please. Okay. Hey, everyone. Thanks for joining the call. So I'm on Slide 6. And this page, I think, does a very good job of capturing what we're working on in the business and what successes we've had. So I'm on Slide 6. I don't think it's changed yet, but it will change very quickly. If I think about strong constant currency sales growth across all regions, if you look at the top right, North America was up 12.4%. That obviously had eBags in that. But if I adjust for eBags, that core North America business was up 5.1%. Asia up 14.4%, Europe 11.4% and Latin America 17% growth. So very strong double digit growth across all of our regions. When we look at our brands, all of our brands are performing very well. So our core kind of historic brand Samsonite, which is well penetrated at 5% growth Tumi, which is really starting to take stride in Asia and Europe and performed very well in North America, up 16.6%. And American Tourister, as we know, we're pushing with the Ronaldo campaign and some terrific new products, was up 24%. And other brands equally up across the business. We saw very good growth in our key categories. So our travel category, which is our historical strength, is up 10.8%. And as you'd expect with the initiatives, non travel is growing faster, so 16.3%. And you'll see business casual and accessories all growing at a very healthy clip. And then when we think about our channel strategy, we've been, as we've messaged in the past, very focused on our direct to consumer business. And you'll see that our direct to consumer business with retail sales is up 25.7% overall, with retail up 14.4 percent. And then our direct to consumer e commerce up 74%, which has the partial impact of eBags. So if I adjust that out, direct to consumer e commerce is up 25.7%. When we think about our overall e commerce business, which is our direct to consumer plus our wholesale e retailers, That has moved up from 10.5% in the first half of last year to 14.1%, so up 300 basis points as we're very focused on driving both our online direct to consumer and online wholesale customers. We continue to invest behind the business in advertising. It was about the same rate of sales, but up around 14.9% at 6.2% of sales. We are investing across all brands. And in particular, we've stepped up the Tumi advertising spend. So as we've now penetrated into Asia and Europe, our Tumi advertising is around 6.6%. And 8, American Tourister, we've invested as well to deliver the growth in American Tourister, we've seen this past year. And then since it's all this is kind of the business' ability to generate operating cash flow. When we look at the first half this year, it's a little lower than where we were last year. We generated $56,000,000 this year versus $152,000,000 last year, and that was in part due to some decisions to move to increase our working capital ahead of the summer selling season and kind of our push across the business. And if you recall, last year was unusually high because our working capital was a little bit lower. So you have kind of the swing because of that. I'll go through that more later in the deck. On Slide 7, I thought it'd be helpful just to kind of give you the building blocks of the growth, so you can kind of see it. So we've gone from $1,586,000,000 to $1,850,000,000 Our core business, this is core business excluding Tumi and excluding Ebags, was up 8.4%, with Asia up in the core 10.5 percent North America 4.1 percent Europe was up 11.7% and Latin America were up 15.9%. So this is core business excluding Tumi, which is really a terrific result. Each of these regions are really executing. It's a mix of American Tourister strategy along with just general growth across all of our brands. The Tumi business added $49,000,000 in sales first half to first half. And you could see by region very strong growth for the core North America business, up 8 point 2%, slightly ahead. We had a very strong first half with Tumi North America. Our own models had North America growing 6% to 7%, So we're outperforming in North America. Asia up 39%, a little bit of help from the distributor buybacks. But if I adjust for that, Asia is up close to 32%, So really strong Tumi growth. And in Europe, where we finished the last bits of integrating the Tumi business into our European business at the beginning of this year, is up 9.2%. And my expectation is the back half and into next year will be much higher for Tumi Europe now that we're fully integrated there. And as Tim said earlier, we had some currency translation, which added to the last bit of growth in the business. So really delivering on all cylinders when I look about where the growth is coming from. And lastly, you have the eBags, just the extra 4 months of eBags here on the chart. So if I move by region, just to quickly walk you through kind of region. So again, North America increased 12.4%, 5.1% if I exclude eBags, and EBITDA margins were up in North America as well. And so when we look at the breakdown of the North America business, our wholesale business was up 2.3%. Our direct to consumer sales was up 31% and 10% if I exclude eBags. So you get kind of the underlying growth. Our e commerce business, as you'd expect, was up high with Ebags at 98%. And if I take that out, very strong e commerce growth in our core business, 13 point 3%. Retail net sales up 9.6% with a very strong retail same store comp at 5.2% for the first half. We added 12 new stores in 2017 to get the full year effect of those and then 4 stores in the first half of twenty eighteen. So all of that fueling a very good growth story for North America. All of our key brands are growing very nicely. So Samsonite in North America, as you recall, is very well penetrated for a long time. It was the only brand we're operating in North America, up 4%. Tumi net sales of 8.2 percent and American Tourister, where we start to get some inroads into pushing the American Tourister strategy, North America up 12 percent. And I think there's much more to go in North America with the American Tourister strategy. And then our other brands are up 36%. Some of that's around the eBags noise, and we have some other brands that we sell through that eBags platform, which we caught in other brands. From a category perspective, travel up 7.6% and non travel growth of 19 0.7%. It's partly due to the impacts of eBags, which added to more in the business casual and accessories, particularly area where Ebags are selling other brands that fit into those categories. And then last year, EBITDA margins are up 50 basis points. And if I exclude Ebags, which was slightly dilutive to the gross, our EBITDA margin North America would be up 100 and 60 basis points for the half. We saw terrific growth in Asia, 14.4%, led by markets of Hong Kong, China, Japan, India and generally across the market, all countries delivering very good growth. The wholesale channel was up 10.3%. The growth in direct to consumer was up 32%. Part of that is to do with the distributor buybacks. And when I look at e commerce, up 40% for the Asia business in the first half. And then retail growth again was up because of some of the new stores we took back through these distributor buybacks. But our comp store growth up 10% for Asia, and we added 54 stores in 'seventeen, and we added 9 new stores in the first half of 'eighteen. So really strong growth across both channels within Asia. By brand, we saw our core translate up 3.9%. Tumi, as I said earlier, up 39%, and if I adjust for the buybacks, up 32% or 31.7%, really terrific growth in Tumi and we're really getting into stride here. So you'll see us continue to drive terrific growth in Asia with Tumi. Net sales of the American Tourists were up 17 0.7%. If you recall, if you go back 2 years in Asia, the American Tourister had ended up close to flat, and we now have American Tourister moving with some very good advertising with the Renaldo campaign, but also some really terrific new product in American Tourister that's fueling very nice growth. And then other brands up 19%, chameleon, which is this very entry level brand up 57% and the brand High Sierra, we're using in certain markets in an entry level kind of way up 35%. Travel is up 13.7% and non travel, as you'd expect, up a little bit higher, 15%, with business particularly up 24% and accessories up 30%. Our EBITDA margin was largely flat in Asia. That is with a 30% increase in advertising. So as Tumi got moving, we stepped up some of the advertising in Asia. So EBITDA margin largely flat but with 30% 30 basis points up in advertising expense. If I move to Europe, we had a terrific set of results in Europe. This business was up $67,000,000 or 11.4%. We had very strong American Tourister growth at 49%. We're into, I would say, year 3 of a really solid push for American Tourister, and that fueled with the Ronaldo campaign has really helped drive terrific growth within that brand. Our wholesale channel was up 11%, a lot of that to do with American Tourister, which is sold through some of these wholesale channels. But our direct to consumer retail or direct to consumer business was up 12%, with retail sales up 10 point 4%. We had a very good comp of 3.8%. We added 32 stores in 'seventeen, and we added 28 stores in the first half of 'eighteen. And our e commerce business, which we now have moving very nicely in Europe, up 26.6%. If I go by brand, our Sam's site sales up 5.5%. Tumi, as we said earlier, up 9.2% and really picking up momentum as we move into the second half. And American Tourists are 49%. By category, travel is up 10.5% and non travel is as of familiar, you've seen trend across all of our businesses, where travel is strong. And as you'd expect, our non travel growing faster. So in Europe, that was up 13.5%. Our EBITDA margins in Europe were largely flat. We saw some gross margin improvement, part to do with the Tumi mix and general lot of growth in our direct to consumer business. Some of that was offset by the increase in SG and A expenses tied to the store openings that we've had in Europe as we push that. So I'd expect Europe to start to deliver some leverage as we move into the back half of this year and more particularly as we move into 2019 on the EBITDA margin side. And then Latin America is a market that continues to grow. I would say mid upper teens growth. We had 17% constant currency growth. It was led by Mexico, Brazil and Argentina, which had very strong years, very strong 6 months. We've seen a little bit of softness in Chile, and I'll cover that in a second. But if we look at our wholesale business for Latin America, up 18%. Our retail or direct to consumer business was up 15.4%. Retail net sales growth 13.4% off of a comp of 0.6 percent with 11 new stores opened in the first half of twenty eighteen, and we opened 29 stores in 2017. If I exclude Chile, which we've seen some pressures within that marketplace, our same store comp was up 16%, which is really being driven by great success in Brazil and Mexico on the retail front. Our Samsonite brand in Latin America up 18.9 percent and American Tourister off the back of Ronaldo came more than doubled to 10.8%. So off of a small base, but really starting to move very nicely in our Latin America business. And then in our other brands, the growth was around 2.1%. If you remember, in Chile, we operate some other brands, particularly Faxiline, Extreme and Secret. And as our Chile market has seen a little bit of pressure, particularly off of 2 things. 1, consumer sentiment is a bit off. There's been some currency movement within Chile, but also Argentina as a market has opened up again. And so Argentines, which would have been shopping in Chile are back to shopping in there. And our core business in Argentina for small base is up 168%. So we've seen some shifting in where consumers are buying in Latin America. Travel is way up 20%. Our non travel was around 14%, and that's really a little lower than travel because of what we were seeing in Chile where the Secret brand, for example, which is a women's handbag business, has grown at a slower pace than the travel business. And adjusted EBITDA margin, largely flat, slightly down, and that's really around kind of laying the footprint for retail in Brazil particularly, and slightly lower advertising across that business. And slightly lower gross margin as the mix of the business shifts a little bit. So we've seen American Tourister growing faster that has a little bit lower gross margin. And in Brazil where we're driving and pushing that market, we are pushing with a little bit more promotion to drive the growth in that market, which puts a little bit pressure on gross margin. If I move to Page 12, if we look at by country, across all of our countries, we've seen very good growth. I won't read across the page. I might just out that Germany looks a little funny at negative 18%, but that has as a footnote for this has more to do with shifting of where we're booking our some of our Tumi sales and also some of our e commerce sales, which will look make Germany look like it's degrowing. If we adjust for that, Germany has a bit of growth. And then if we look at our combined growth in our emerging markets as we define them, we continue to have a really strong run there, 27.8% growth in emerging markets, in big markets like Russia, Brazil, Turkey, all doing really well. And you can read across the page, every one of our emerging markets are growing as you'd expect them to be. If I move to Slide 14, and I've covered this already, but I'll just kind of point out a few extra points. Our direct to consumer sales are growing as a proportion of sales for the first half of twenty eighteen at 33.6% versus 30.2%, up 3 40 basis points. Ebags helps a bit with that. Our direct to consumer business was up 25%, as I said earlier. We saw a terrific growth in retail, so our net retail growth across the business is up 14%. Our combined same store comp is 5.4%. And in the first half combined, we added 52 stores of 18127 stores in full year 2017, including the 30 from the Tumi distributor buybacks. As of June, the business operated 12 19 stores, of which 83 of those stores are Tumi. Our direct to consumer e commerce, really strong performance, up 74% with Ebags. We'll take Ebags up 20 6%. And this is a pace that you should expect to continue for us as we really focus on driving our direct to consumer e commerce business. And as I said earlier, the blended mix of our business wholesale and retail or sales to e retailers and around direct to consumer shifted to 14% of sales from 10.5% last year first half. And then if we go by brands, you've got a sense for this as we're as I was going through the regions, but our core brand Samsonite, well, these are all of our core brands, but Samsonite brand up 5% and reported up 8.9%. Tumi up 16.4%, American Tourister 24%. And then what we've grouped in is other brands, which are brands like Spec and High Sierra, Cameleon, those were up 22%, just under 22%. So really strong growth across all the brands in our portfolio as we deploy our multi brand strategy across the business. On Slide 16, I try to capture here for you Tumi, so you can get a sense for Tumi all in one place by region. So as I said earlier, North America really strong growth of 8.2%, slightly ahead of our own expectations. The business is really being driven by very strong e commerce growth, up 18.4 percent for Tumi, and the retail business up 8.4% with same store comps plus 3.2 percent. For 2,000,000 in 2017, we added 7 new stores, and we added 4 stores in the first half of twenty eighteen, and this is just in North America. And the wholesale channel increased by 3.6%. A little slower wholesale growth in North America for Tumi, and you'll see the same thing in the second half as we've stopped some shipments to distributors that we're actually selling into Asia and Europe. So as we've now got our foot on the ground in Asia and Europe, we wanted to stop some of the leakage of product being sold from North America into these other regions. So that will put a little bit of a strain on the wholesale growth within Tumi North America. We've seen very strong gross margin movement in Tumi North America, up 3 70 basis points. So we're getting pretty close to the 70% target that we have in mind for that region. And I'd expect as we move into 2019, we should be very close to that 70% margin. And when you think about the retail wholesale mix of this business, that's a natural place for the Tumi gross margin. Our Asia business, up 39%. Again, if I adjust for the buybacks, it's up 30 roughly 32%. We've seen really strong growth in all of our channels here with retail up 76%, e commerce up 2 11% and wholesale up 23%. We had a very strong same store comp for Asia, 11% growth. Same store, we added 4 stores in the first half of 'eighteen. We had 38 last year, of which 30 were from the distributor buybacks. So we continue to penetrate, and I expect this pace to pick up now that we're pushing both in Asia and Europe the 2 main strategy. And the gross margin for Asia up dramatically, 1100 basis points from 62.8% to 73.8%. That has a big piece to do with the distributor buybacks. So we've shifted from wholesale to directly operated margins for a big portion of those. And on top of that, some of the synergies around sourcing and benefiting the margins as well. In Europe, we had 9.2% growth, a little bit lower than the other regions, but we were still integrating Tumi within Europe. So we were kind of shifting the brand ownership and responsibility for Europe across each of the countries. And so we've seen 9 point 2% growth, retail and e commerce up 14% and 17%. We added 9 new stores in the first half of twenty eighteen, so we're really starting to push Tumi. Within the region, we had 7 stores added in all of 2017. So you can see the pace within Europe is picking up. And we've seen a same store comp that was slightly down, and some of this is around some cannibalization as we open stores. So you end up with markets that have more than one store. Then the calculation of same store comp, it will put a little pressure on that number. But we've also seen some and a few pockets, Asian tourists down in the brand as presented in Europe historically was largely catering to travelers. And as we position that brand to be more of a brand within market, we'll see much stronger growth. And I anticipate the second half for Tumi Europe to be very, very strong double digit growth for in Europe. And we've seen gross margin improvement just like the other regions as we shift from some distributor and some wholesale markets to more direct to consumer, so 800 basis point improvement in gross margin. We normally have a bunch of slides with product pictures. I've kind of narrowed that down to just a handful of pictures to give you some flair for some of the things we're working that are exciting from a product perspective. So we have the Samsonite EcoGlide, which is 100% recycled bag that we've had very good traction in North America. It's been picked up in Europe and Asia under different names. Really a terrific product. I personally bought 9 of them to give to all my nephews to try out, and it's a wonderful product and I think worth looking at. This American Tourister Curio or SandBox, this is was kind of the headline of the Ronaldo campaign. This is a terrific American Tourister product doing well in all markets that we presented it. In the U. S, we've added a Kevlar Samsonite backpack at a very interesting price point for the North America business, and it's doing very, very well, very well received. And I think probably the biggest kind of change from a product perspective is this Tumi Latitude, which is on the right side of the page. And this is the first Tumi product using the technology that Samsonite had as far as producing really, really lightweight, hard side luggage that the Tumi brand has needed. And the early reception of this has been tremendous. So I highly recommend you go check that out in stores. It's now fully penetrated around the globe and I think a wonderful product that I'm using myself. And then I put here a Lipo bag, which is a bit of a women's first strategy. In Lipo, we are pushing in select markets in Europe to get that moving in the right direction. From an advertising spend perspective, we're up 14.8% or 14.9%. It's about the same percent year over year, 6.2%. Last year, it was 6.3%. You can see by region, it's fairly consistent. It's down just a bit in Europe as American Tourister got into strides, so it starts to in Europe look like the rest of our regions and up just a bit in Asia as we start to spend a little extra on Tumi advertising, particularly in Asia where we are often running with driving Tumi in that region. And this on Slide 19, just some of the pictures of the Ronaldo campaign. And again, this campaign really did great things for both Europe, Asia and Latin America. A little lesser extent, North America, where I'd call it soccer isn't as prevalent. And we saw 24% growth in our American Tourister business off of this Renato campaign. So now I'm on Slide 20. I'm not sure the pages have changed yet, but I'll put my interim CFO hat on. These are typically the slides where I kind of highlight some of the financial highlights. We've covered some of it, but I'll repeat. Again, our core business, when we think about the same when we think about constant currency growth, up 13%. If I take eBags up just under 10%, 9.9% growth in our business. As we said, Tumi grew 16%. And if I exclude Tumi, our growth was 12.1%. So really terrific growth story, as I've said, across all of our kind of avenues for driving sales growth. Adjusted net income was up 19.5%. And our we had strong adjusted EBITDA growth of 14.6% growth as well. Operating cash flow, a little lower than where we were last year, 56% versus 152%, largely off the back of working capital, which ended up with a little over $100,000,000 investment when we think about first half 'eighteen versus 'seventeen. In 'seventeen, we had an inflow. Initially, we have an outflow. I'll cover working capital in a second. The working capital efficiency was 14%. It's still in line with our targets, but slightly higher than the levels we've been running ahead of us. And a lot of this was around kind of having product leading into the summer selling season and also with the American Tourister campaigns, making sure we have the right product. You'll see by the end of the year, this will balance back down to a working capital level that's more consistent with where we were at the end of last year. We completed a refinancing in April. So we covered it off the quarter, but we closed in April of this year. I think this was a great refinancing where we're able to lower the interest expense for the business on an annual basis, approximately $9,000,000 We extended the maturity, and we're able to capitalize on effectively improved terms across all of our credit facility. We're able to tap into the European market with a euro bond, which is really attractive pricing and also lines up some cash flows from just a natural cash flow hedge against our debt facility. Our leverage ratio is at 2.57. If you recall at the time of the Tumi closing, we were roughly 3x. And so we continue to deleverage, and I think we'll see more by the end of the year. Our leverage ratio is coming into the 2.3 or thereabouts range at the end of 2018. Capital expenditures, dollars 41,000,000 largely focused on driving this direct to consumer and a bit of investments in kind of industry kind of product development, and I'll cover that in a second as well. Our tax rate was up slightly, 28.3 percent versus 24.3 percent in the half of last year. A lot of that has to do with the accounting for share based compensation. And as we saw our share price come down at the end of June, that will impact kind of the deferred tax asset that we're carrying, which drove the rate up just a bit. Our full year expectation for the tax rate is in line with where we were last year maybe a shade lower at around 26% to 27% effective tax rate for the And then from a cash distribution perspective, we in July, we paid out a cash distribution of $110,000,000 That was up around 14% or 13.4% to the previous year. When you look at our reported balance sheet and we think about profit to equity holders, I think I thought this graph would be helpful for people to understand the onetime impact of the debt refinance where we wrote off the deferred financing costs from the original debt issuance when we did the Tumi deal. So if I look at our kind of core growth in our profit to equity holders, we saw growth in net income. We also had lower acquisition costs. And so our reported our profit to shareholders before the write off of the deferred was up 28.8%. And you could see here, if I put in the deferred net of tax, our reported profit to shareholders is slightly down. But that underlying growth of 28.8% is how we're viewing the growth in our profit to shareholders. And that's part of the reason why adjusted net income is up close to 20% as well because I would adjust on that as well. From a balance sheet perspective, we've largely covered this debt reduced 20% I mean $20,000,000 The leverage continues to come down 2.57 times on the leverage, and we have $603,000,000 available under our revolver in the revised credit facility. If I move to working capital, really here is where you can see that we've invested a bit into inventory. So when we look at June of this year to June of last year, we're up around to 140 days of inventory versus 124 last year. I would argue last year was slightly low and this year was slightly high. I think we'll end up somewhere around 125 to 130 days. I'm hopeful by the end of the year, we'll be in that zone. And it was really around this kind of anticipated step up in the Ronaldo campaign and some are selling for the business. There's a little bit of timing of payables, but that usually normalizes out in the full year of use from the working capital perspective. And then from a CapEx perspective, again, a large part of this, as you'd expect, is going to our direct to consumer push. It's not a significant spend. When you look at it, the first half, dollars 22,600,000 where we're selectively opening retail in markets where it makes sense. And we continue to invest in product development, R and D and supplies. That was $8,700,000 We had a bit extra in the IT side as we shifted 1 of the 2 main offices, which had some IT spending. And we also put in some tax software for managing our tax provision, which added a little bit in the information technology side. And then if I just conclude on strategy, and I think when I think about the business, I'm sitting in a different seat, but I've been actively involved in this business for many years, as you know. Our strategy is largely intact. We have the benefit of operating in an industry that has terrific growth profiles. International Tourist Arrivals, which we think is a pretty good measure, is up 6%. That's even higher than what was forecasted at around 4% to 5%. And you can see across that growth is very, very strong. We continue to drive, what I would say, well diversified multi brand, multi category and multi channel strategy, across multiple price points now that we've filled in Tumi and we're executing very well with American Tourister. So that multi to consumer consumer as we covered, and you can see the results of that. And we see it's a natural transition for our business like many businesses, but we are embracing and driving the business towards driving this direct to consumer and particularly direct to consumer e commerce. And we're excited with what's to come there for us. We invest in our brands with advertising, and that will stay intact. So you should expect us to spend around 6% on advertising. We're spending it across all of our brands, particularly focused on Tumi, Samsonite and American Tourister, which are our key brands. And we have a terrific decentralized management structure with very strong regional presidents and regional and country level teams that really do make a difference in driving the strategy of this business at a very local level with really understanding the markets and the channels and the way they advertise in these markets. And lastly, as you know, we continue to invest in R and D, and that is that will not change. We're working on lots of new initiatives. And as a team, we're always focused on really delivering true kind of innovation to the marketplace. So you'll find that, that strategy is largely intact and we're and it's delivering results, as you've seen, off the first half. So with that very long winded, no pause presentation, I wanted to leave time for questions. So if we can, William, we'll open it up for questions. Yes, please. Operator, can we have the first question? Sure, sir. Ladies and gentlemen, we will now begin the question and answer Our first question comes from the line of Chen Luo from Bank of America. Please ask your question. Thank you. Hi, Tim, Kyle and William. This is Chen calling from Bank of America Merrill Lynch. Congratulations on the solid results in first half. I've got three questions. First of all, on the North America side, we noticed that in Q2 there has been some slowdown. This compare against a very strong U. S. Consumer market. I guess this may have something to do with spec business, but if we strip away spec business, what was the underlying trend in Q2 for North America? And the second question is on the can you give us some most recent trading update, some color on Q3 so far? And thirdly, in terms of EBITDA margin, if my calculation is correct, in Q2, actually our adjusted EBITDA margin actually improved by maybe around 60 bps. For first half because of the dip in Q1, the adjusted EBITDA margin was flattish. Are we still sticking to our full year guidance of at least 50 bps improvement for EBITDA margin? Thank you. Okay. So North America, I think we started off with a very strong Q1. And when we generally look at our North America business, we think that it's a business, if I strip out, the eBags noise should grow around 4% to 5%. So we're quite happy with the growth. We did see some discount channels in the Q2, slowdown on some volume. We also had a larger customer in Bon Ton that that business went away. And so when you look at our wholesale business, it's up around 2%, whereas our direct to consumer business was up nicely. So I think you have a little bit of shift in that kind of wholesale discounter channel that caused a little bit of strain in Q2. When I think about North America for the full year, I think we'll be in this kind of 4% to 5% range. And so but you'll always have little pockets of kind of movement as customers buy in and out. The what was the second question? I just wrote it, but I can't read my own writing. Q3 trading. Yes, Q3 trading. So generally, we see good momentum in the business. There is a little bit of what I would label kind of macro uncertainty in the marketplace within certain markets of the business. So if we deliver kind of double digit growth for the first half, I think Q3 will probably be high single digits. And then when I think about the full year, I think we'll still be in what I would label consolidated double digit growth. But there is some macro pressures in a few markets. We've seen a little bit of consumer sentiment changes in a market like China where we had a really strong first half. We're now seeing what I'd label kind of higher single digit growth from a double digit growth. Korea has become a little bit noisier as we go into the second half. Korea is a market that I think we've talked about in the past that's had its challenges with consumer sentiment in Chinese travelers. We were feeling optimistic in the first half with a little bit of positive growth in Korea, but we've seen that have a little bit of strain in as we lead into Q3. Past that, I think generally the business performing well. Our Europe business is continuing this amazing trend. We just for color, we have the strongest month we've ever had in Europe in the month of July just in total sales. So a lot of the strategy in Europe playing out very well. In Latin America, that core business is really performing well. Chile is still under a little bit of strain as we saw in the first half. We start to lapse that noise for Chile as we get into Q4. So I expect Latin America for the full year to still be in this kind of very solid high teens growth, maybe a little bit of noise in Q3 ahead of leading into Q4. And as far as EBITDA margin goes, my outlook as I sit today is I think we will deliver operating leverage. If I was to kind of rebase my thinking, it's probably in the kind of 20 to 30 basis points. I think we were probably thinking closer to 50 basis points and a half. I mean, at the end of last year, I still think we'll deliver good operating leverage to core business. If I just read back, it was up 10 basis points, and I expect in the back half, which is typically stronger than the first half in our business, we'll be able to deliver some of that leverage. But I'd probably moderate from the 50 basis points that we're thinking at the end of last year. And I'm still getting my arms around kind of all the moving pieces of the business. So as you know, I tend to be a little bit more conservative in my thinking, and that's where I would estimate we'd come in at this point. Yes. Our next question comes from the line of Anne Ling from Deutsche Bank. Please ask your question. Hi, management team. I have one question regarding the GP margin. Just to check for the first half, is it correct that for the GP margin for the Samsung X, Tumi business is flat year on year. Most of the growth is coming out from this from Tumi. And then should that be the case? How should we look at in the second half in terms of margin, given the fact that maybe some of the raw material prices have moved up? So I'd like to get a little bit of a guidance in terms of your price height strategy as well as your margin assumption on the gross profit side? Thanks. Yes. So for the first half what I would label our kind of pre Tumi business was about flat. We have 2 things going. You have direct consumer that's growing very nicely. That will bring up our gross margin. But we also have American Tourister growing very well. That will actually bring gross margin down. So you have a mix you have some mix effect in there. But the way I about our core ex Tumi business is we should stay fairly consistent. We do see some cost pressures on kind of the material side, but we also have currency that's in our favor in the back half as well. So our teams are pushing on both that and making sure we get the benefits of currency in our pricing. So our view is we should be able to maintain the gross margin for the back half. We have kind of normal price increases baked into some of our business, but nothing unusual. And for Tumi, we've seen a lot of this leverage that we're expecting in the core Tumi margin. We think there's a bit just a bit more to go in North America, and that's a big piece of the business currently. So as that margin moves all the way up to, let's say, 70% or run rate 70%, exiting 2018, we'll get a little bit more uptick from Tumi as well. So when I think about margin for the back half of the year, I think it's going to stay fairly consistent with what you saw in the first half from an overall margin perspective, maybe a shade higher for Tumi and maybe neutral to a shade lower on the core, but blended, we should be in this kind of 60%, 56.5% range for the full year. Our next question comes from the line of Erwan Rambourg from HSBC. Please ask your question. Yes. Hi. Good morning or good evening, gentlemen. Two questions, please. It's nice to see some margin expansion in Q2. And you just mentioned what you were expecting for the full year. I'm just wondering, it seems that margin at Tumi has been quite tremendous. But it's not the case for the other businesses. So I'm just wondering how you think about operating leverage opportunities for ex Tumi, not this year, obviously, but further out. Where do you see those margins going? And what are the puts and takes in terms of that margin expansion? And then secondly, I'm just wondering if you could tell us about your leveraging of eBags. Where are you in terms of your own brand within the channel, other brands, where is that going to? And is there a possibility to leverage Ebags or possibly under another name outside the U. S. Eventually? Thank you. Yes. So Erwin, as we've talked in the past, I do think there's operating leverage in that core business. We generally think that it should be in this kind of 20 to 30 basis point range. When I think about Tumi, we've seen there and we're losing the ability to report EBITDA margin Tumi as we integrate it in the business. But let's say that Tumi EBITDA margin was up around 400 basis points, maybe just a shade below that 4 of the half. As we push the direct to consumer business and our core business, we there's a lag effect of getting kind of the leverage for that. And so if you look at it within our SG and A expense, for example, that's up as a percent of sales versus the prior year as we really push some of this direct to consumer strategy, selectively in key markets like Europe and a bit in Asia. And so I do think that that will catch up. One of my views on when I think about Kyle's view on strategy, you're going to see me have a focus to balancing sales growth with delivering operating leverage in the business. And so I think on a go forward basis, the right way to model this business is we should be able to deliver this kind of 20 to 30 basis points of operating leverage, particularly as we move into 2019, I'll be focusing the business on that. With the balanced growth that we have growth that's sustainable while delivering profit, I'd like to get to the point that we're delivering operating profit growth faster than kind of the sales growth. And we know that, that can happen in this business. We've all modeled it. We've modeled it as well. So I think that balanced growth story is what I'll be focused on and you should expect that kind of range. I think there's a little more to go with Tumi. Again, as we squeeze the last bit of margin and we get it moving in some markets where it's not as penetrated, you'll get some leverage for Tumi as well. But if you blend the business together, I think that range of operating leverage is what you'd expect. That's what I'm expecting through the full year, and it's slightly lower than what I originally anticipated. And but I think that's kind of in line with kind of where we're projecting on the SG and A expense. When you look at our SG and A expense at the year to date June numbers. So as kind of the new appointed CEO, you'll find me very focused on balancing the sales growth with delivering operating leverage on a go forward basis. Okay, great. And then with an eBags. And on the eBags front? Yes, eBags. Yes, we're I would say we're not quite at mid stride with eBags. So eBags, we have been shifting the mix. Ebags is profitable from where it was. But for the half, it's something like $70,000,000 in sales and around, don't quote me on the number, I don't have it in front of me, but let's say kind of $1,500,000 of profit. So obviously still dilutive to the business but moving. A lot of that's coming the shift in the mix of brands, but we're probably still in this kind of 40% range of brands that are owned brands. And the reality is I think eBags really starts to look very attractive as you get the mix of our brands into kind of the 60% range and above. We've seen that worked really well with Rolling Luggage, as you know, and Chick Accent, which are a little bit of different business, but again, a multi branded kind of acquisition that we brought in. We're really excited about leveraging eBags across the rest of our business. And so we've recently made a leadership change where eBags is feeding in to our core North America business. So we're now integrating the way we think and manage the business with our core direct to consumer e commerce business within North America. So we can really start to leverage both sides of the business, both eBags into our own business and getting eBags to help push some of our core business as well, which is really what we always wanted to get to with eBags. And so we're now able to kind of make that transition. And I think over the next 12 to 18 months, you'll see eBags start to really move up both in the profit meter, but being able to benefit the rest of our business. We haven't quite decided for eBags outside the U. S. We might use the concept but maybe use a different name. We're testing some of that in Europe right now. And so that's to be decided, but it doesn't mean the concept we won't consider using outside of the U. S. And as you know, within that eBags business, there's a terrific brand called eBags, which has some really great products and we think that we can really leverage that brand to do other things on the technology side with bags to consumers as well. So we're focused there a bit with eBags as well. So but I'd say we're still cooking. We're not quite at half stride with eBags, and I think there's a lot more excitement to come with eBags. Okay, excellent. Thanks a lot for your answers. Thanks. Our next question comes from the line of Frock Volkowitz from ODDO BHF. Please ask your question. Hello and thank you for taking my questions. First of all, I have to ask. Excuse me. Can you speak up a little bit? Yes. Is it better now? Good, good, good, good. Okay. So I have to ask this. Can you comment on the situation with the reports made by Blue Orca? Are you currently investigating yourself? Or are you investigated by any other authority or entity based on any acquisitions, which have been made in May, especially on your accounting or on corporate governance? So is there any risk that you have to restate any financial items, any financial statements? No risk. We've put a very kind of concise answer to Blue Orca a few months back now. We've made in this interim report just this one adjustment to the supplemental disclosure around NRV. So you can see that in our results, but that had no impact to our reported profit or financial statements within the business. It's a supplemental disclosure. And we see no reason to think there's anything. We're kind of moved as a team off of BlueWalker and on to driving the business. And as you can see off our first half results, the business never missed a beat. So, and we've kind of put Blue Orca behind us is the way to think about it. And you are not, sort of investigated by any auditors or re audited or whatever? No. Okay, good. And what you said at your end of financial year, you will have a leverage around 2.3. Is this your desired leverage? Or what shall happen afterwards with your free cash flow? Well, I think this business will continue to delever. So when I when we talk about kind of free cash flow and the ability to repay debt, that's always been part of our story. And I think it naturally will project down below 2x. I was just giving you some sense where I think it will be at the end of the year based on kind of the growth in profits and cash generation of the So it will be somewhere between 2.3 and 2.4 at the end of the year. And if you remember, we were around 3x. So it's doing, I would say, exactly what I anticipated it would do. And you should assume on a go forward basis, barring any acquisition, that, that deleverage continue. We typically get the M and A question. You should know as a team we're very focused on the brands that we have in hand. There's a lot to do with Tumi. We're very excited about what's next for Tumi as we really continue to push it in Asia and Europe. And eBags, as I was just talking about, there's plenty to do there to really kind of capitalize on this broader direct to consumer e commerce strategy and really pushing that as well. So we're not actively pursuing anything. It doesn't mean we won't consider things that come along. But as a team, we're super focused on delivering this growth story with what we have in hand and letting the balance sheet continue to delever. Okay, brilliant. Any best guess what could happen? What could go wrong? What could stop your growth trajectory? I think we're really fortunate. We have so many tools in our kit to deliver growth. So you can have some of this kind of macro economic or political noises impacting pockets of the business. We're seeing a little bit of that in Q3 in a handful of spots. But we're pushing the business in so many avenues that for our ability to kind of deliver a sustainable growth story where we might have some distractions here or there in the business, makes me feel very good about our ability to continue to deliver. I think there is not much we're very focused on the strategy we have. We're continuing to invest behind the business with advertising and R and D and all that fuels into the strategy that's been delivering great results for us as Tim started the presentation with for the last 5 plus years. I can expect that to continue with what I can see in front of me today. Our next question comes from the line of Dustin Wei from Morgan Stanley. Please ask your question. Hi, management. Thanks for taking my questions. So my first question is related to the same store sales growth. I think the 2nd quarter same store sales growth is stronger than the 1st quarter, recent trend that you are seeing for the July August? Well, if we go to North America and look at same store sales growth, it was very strong in the first half. We've seen a little bit of cooling in the comps. I don't have the numbers right in front of me, but as we've moved into Q3, particularly in gateway cities, we've seen some softness there. But we've also seen Europe picking up a bit. So we've seen this really terrific Europe number. And so I think particularly and we can see it in gateway cities where I think international tourists might be kind of shifting kind of where they were for the first half versus the second half. So you'll see if North America comps were kind of blended, let's say, 3% or 4%, I think we're still in positive territory, but maybe not quite as strong as we saw for the first half. I talked to the guys. We think it's a bit of kind of a summer incident. And I think we still feel very good about kind of our overall prospects for comp growth in North America for the full year. So it's quite strong. When I think about first half, the results were really, really strong. And when you look at the comp story across all of our regions, it was super strong. I'm not sure that if I were kind of modeling, I would say that that's a sustainable story. So but blended together, we'll still be in a very positive comp basis. But we had a really, as you pointed out, really good first half and Q2 had some really great momentum as well. How about Asia? So Asia, we as I covered earlier, a little bit of kind of uncertainty is the right way to describe it for China and Korea. That will have a little bit of impact. But the rest of Asia is continuing to do really, really well. Markets like Hong Kong, the growth rates have been incredible and they've continued into the second half. And so blended, it's probably not that far from what the blended story was for Asia. And then Tumi really is continued to be in stride in Asia, and we're starting to both see kind of comps within our own the existing stores as we continue to drive product and advertising, but we're also starting to push the pace of new stores. So I'm sure some of you guys traveled through Hong Kong, that new airport store we added in Terminal 5 is off to the races right out of the gate. It's really terrific. So you'll see a lot of that kind of retail footprint playing out for Tumi in both Asia and in a bigger way in Europe in the back half of the year as well. Thanks a lot. My second set of questions regarding the GP margin. May I clarify just based on the disclosure of the GP margin for Tumi by region, kind of get that 70% GP margin for the first half. And that sort of implied that the GP margin for the non Tumi was at 52% and that's compared to 53.6%. Is that my calculation right for the Anantoomi GP margin decline? I'm not sure how you're doing your math, but our math would say our core ex Tumi was maybe down 10 basis points. So you might have something wrong with your math. William can follow back up with you and point that out for you. I just don't have kind of the actual numbers right in front of me. Sure. Thanks. How about could you provide a breakdown for Tumi's revenue by wholesale and retail? And what's the SG and A margin difference? If you look at the page that I have for Tumi, I think I gave a pretty good picture of what's kind of driving wholesale and retail by region. And so and generally, when we think about kind of the retail mix, Tumi historically is a heavier retail mix business, and that should continue. So the Tumi business is probably today 70% retail and 30% wholesale. And from a margin perspective, the overall kind of retail margins for Tumi, if I look at North America, for example, overall, it's getting close to 70 percent. And I would say our retail gross margins are probably just a little above 70% for North America. So from a mix perspective, that's how you get to this blended 70% that I think we will end up for the when I get to 2019. So and that mix probably won't change. We'll continue to drive wholesale, but retail and direct to consumer e commerce will be big piece of the drivers for Tumi on a go forward basis. Right. So going forward, we are going to see higher, to me, gross margin is going to be like for like improvement in the same channel. It's not going to be driven by like a fixed for different channel? Yes, I think we there's a bit more to get out of the margin. So as we're kind of finalizing what I would say kind of the resourcing benefits, we'll get a bit more, but it's not going to be mix that will drive to the margin. I think on a blended basis, the retail wholesale mix will look largely the same. We'll see as it plays out. I think Asia and Europe will be learning as we go. It's really kind of early days in a market like Europe. And so I might reserve the right to change my opinion a year from now once I see kind of where the drivers of the business are. But in theory, it should look very similar with a strong push on the direct to consumer brick and mortar and also e commerce, which has been one of Tumi's historic strength. So the mix should stay largely the same as it grows. Okay. Sorry, my third set of questions is on the expenses. In terms of the A and P, are you going to sort of maintain the 6% for the full year? I think we'll be right in that range, let's say, plus or minus kind of 20 basis points. It kind of shifts around. But as a business, you should be thinking about us spending around 6% on A and P. We were a little higher than that in the first half, but a lot of the Ronaldo campaign for American Tourister was more first half weighted as we got that moving. So for the second half, that as a percent of sales probably will be a slightly lower number. I think as my models look right now, we're probably just a shade under 6% for the full year. And last year, I think we were 5.8%. So we're generally in line with last year, and that should be where you'd expect us to play, right in the 6% range. Got it. And for the distribution cost, I think the Q1 and Q2 stayed a similar trend, I think above 100 basis points up year on year. Is that related to the DTC? And is that going to continue with that kind of continuing increase of the distribution cost ratio? Well, I think it will when we talk about kind of balancing growth and getting to kind of some operating leverage, I think that maybe that pace will come down over time. You had also two things happening with the distribution expense in the first half this year versus last year. You had the Tumi distributor buybacks in Asia, which naturally brings up the SG and A because we're kind of managing those things directly versus the wholesale. You had eBags, which has a disproportionate mix as we fold in eBags first half this year versus half last year. And you have some of the direct to consumer push, particularly in Europe, where you'll see their kind of SG and A, slightly higher as those retail stores. We were kind of rapidly moving to ad doors in 2017 and into the first half of twenty eighteen. And so those will take a little time to true up. I think that pace will balance out, and you should see that the a lot of the leverage that we're talking about will come from this area. So that's sort of suggesting that for the second half of this year or next year, distribution cost ratio will not expanding as fast as what we are seeing now? That's my read at the moment. So I'll be we'll be working on our plans for next year. But in theory, that's what should be happening. If I just adjust for the distributor buybacks and eBags for sure, you'll see that effect. Thank you. And on G and A, I think it's down quite a bit in the Q2 versus the Q4. I noticed that there's no more advisory fees paying for the implementation of accounting policy change. So should we expect sort of the low 6% kind of range for G and A going forward? Yes. I think that's a range we'll continue to deliver leverage. We finished the revenue recognition accounting standard, but we now have the lease accounting standard. So you shouldn't assume that some of the noise on these kind of these new accounting pronouncements is gone. So and that lease transition, which is effective onetwenty 19, is a big piece of work as well. So I wouldn't necessarily say that, that line will shift, but we should be able to continue to deliver some leverage on the G and A side. Our next question comes from the line of Rosanna Bercheri from Artemus. Please ask your question. Yes. Hi. Can I have a little bit more color on the inventory position? Because I noticed from the publication of the results that the operating cash flow before net working capital is actually increasing half year over half year. So there is really this go down in terms of net working capital. And I remember that Tumi had higher inventory days when it was quoted. But I just wanted to try to understand if with the move from wholesale to direct to consumer, it's actually a trend that we are going to keep on seeing? Are we going to see even more seasonality during the year just to be comfortable on the free cash flow generation over the long term? Thank you. Yes. So I would say, I think about kind of inventory and working capital is a little bit of a pendulum. And we consciously made a decision to bring inventory up at the end of last year off the back of the start of last year where we were slightly lower than we wanted to be. If I were critical of us, the pendulum may be swung a little too far to the right. So we have 140 days of inventory at the end of the year. That's higher than what we historically feel like we should be at. And so I would anticipate that our inventory days will play into this kind of 125, 130 days. And if we do that, our working capital efficiency is somewhere in the 13 percent range, little kind of plus or minus 10 to 20 basis points, which I think is a good place for this business to be. You obviously have timing of AP, but on a blended basis, that's the coming from coming from e commerce, which can be managed with our kind of central inventory. So it's not that e commerce and the shift in direct to consumer with our kind of e commerce portion growing very rapidly will have a big impact on the inventory levels. Tumi, when we bought them, had slightly higher inventory date, but we've helped manage to bring those down more in line with the date that we have today. So I think even with Tumi blended in, thinking about a business that's got 125 days to 130 days of inventory versus 140 days that we're at today is the right kind of sustainable level for the business. Don't see that changing. We don't have a lot of, kind of seasonality swings in the business, and we don't have a lot of kind of seasonality in our products. So you won't have these kind of unusual gyrations in inventory because of kind of fall and spring sell ins. It's changed a little bit from where we were 3 or 4 years ago, but as a mix perspective, not enough that it moves the needle on kind of the working capital measures between quarters per se. So you'll see it swing down. The other thing is when you look at the cash flows, last year's was unusually low. And so you get the kind of swing effect of that within our cash flows. As a team and me personally, we're very focused on kind of the cash generation of the business. So you should see this kind of dynamic change as we get into 2019 for sure. Thank you. We have a follow-up question from the line of Anne Ling from Deutsche Bank. Please ask your question. Hey, hi. Sorry, I have more questions. First one is on the American Tourister. For the first half, we have a very good set of results with a very successful campaign. So how should I look at like in the second half, should we think that it should normalize? And how should we look at the brand's growth in year 2019 and onwards? And also, like in the presentation, you also mentioned about widening the price range for your product. Does it mean that you're planning to move it higher or lower? I understand that for a different price point, you have different brand in terms of positioning. So when you talk about widening your price range, does it mean that you are referring to like, within each of the brand, you're trying to expand your range either up or down. Would you help me understand a little bit more on this part? Thank you. Sure. So it's always a good question when you have a great first half with the brand, what's it going to play out to, right? So it's very strong first half American Tourister, 24%. We've seen very good momentum carry into the second half. And so as I said earlier, Europe had a kind of record growth. Latin America has had really tremendous success with American Tourister and Asia continues to. So from a blended basis, I don't think we'll keep that pace, but you'll see a very strong double digit growth for American Tourister for the year. I'd probably say in kind of high teens level for the full year, and that's kind of natural as you're coming off kind of the push of the campaign. When you get to next year, I think American Tourister is a brand that has lots to go at. And this really feeds into the widening price range topic. Less around us taking brands and stretching their price points, but it's pushing brands that play in certain price points within markets where there's opportunity. So we've been seeing that play out in Europe. We're seeing it play out in Latin America. I still think there's opportunity in North America. We saw American tourists were up 12% in North America. I think that should continue, and it's a bit of a white space for us within North America. And as far as Tumi goes, I think the price position is right. We're not looking to dramatically shift that. It's really around executing Tumi at that price point. I think the one brand that there might be some range to push up a little bit is Samsonite. And so we haven't kind of baked it into our model, but there is a pretty good gap between Samsonite and Tumi. And so as a business, we will probably be looking at that as well, but that won't be anything other than filling in some opportunities. It won't dramatically move kind of the outlook for the brand Samsonite, but I think there might be some opportunities there. The rest of the brands, I think, are playing in the right price zones within the business. Okay. Thank you. We have a follow-up question from the line of Dustin Wei from Morgan Stanley. Please ask your question. Hello, management. I kind of have a question that I kind of hate to ask, but I sort of hate to. This is about the trade tension and tariffs. So I know there's a lot of uncertainties going on. But just want to know in terms of your scenario analysis, if sort of the worst case happening, Why are you going to deal with the potential tariff increase that are you going to pass through that cost to the customer or you what kind of strategy that you currently have in place? Yes. So it's so we're watching it closely. And as you know, we're already subject to some tariffs, but there's a step up in the tariffs in the latest proposals for our industry. So the reality is, I think if it goes through, it will have an impact to cost and it will impact the entire industry within North America. And so you should assume that we'll be pushing enough of that increase through to kind of maintain the margins of our business. So and we won't be alone in that space. So the shame of that is consumers kind of lose out on that front, but we'll be doing everything we can to maintain kind of and maintain the total balance of kind of cost of products to manage the pricing of our product. But the reality is that it pushes through us like everybody else in the industry will be feeling exactly the same pressures. So All right. That's very clear. Okay. Operator, I think we're good. Yes, sir. There are no further questions at this time. Please continue, sir. Okay. I wanted to thank everybody for joining the call. A little different format this year, but hopefully, we're able to get everybody in different time zones. And so appreciate you all joining and look forward to seeing some of you as we move around over the next few weeks. So thank you very much. Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may all disconnect. Thank you. Thank you.