Sorry about that. Good morning, everyone. Thank you for attending the second day of Goldman Sachs 31st Annual Global Retailing conference. My name is Kate McShane. I'm very happy to introduce the members of the management team of Leslie's Pool Supplies. Today, we have Matt Skelly from Investor Relations, John Strain, the Interim CEO, and Scott Bowman, Chief Financial Officer, with us today. Thanks for joining us.
Good morning.
Thank you.
Good morning.
You had a big announcement a couple of weeks ago, and I wondered if we could maybe start the conversation there with your change in CEO and what we can expect to see?
Thanks, Kate. We had a change. We're really excited to have Jason McDonell joining our team. He starts on Monday, so happy to put him in position. This was a very thoughtful change. We've been working on this for quite a while. When Mike joined us back in 2020, I was part of the team that hired him. We were excited to bring him on, and he gave us a five-year window. We're at four and a half years, so we're kinda at that point in time. About a year ago, Mike urged us to start that process for looking for his successor. As a result, we went through a very structured process, very disciplined. We went through a bake-off for our retained search firms. We picked Spencer Stuart.
We had a tremendous experience with them. For the most part, we went through everything you'd expect us to go do. What's the right profile for us at this time? What's the next CEO look like? Job descriptions, market survey, top 25 from their perspective. We went through in detail, and as an entire board, Mike participated going through that process, and we found Jason. We're super excited to have him. We're excited for him to have an opportunity to meet with you all. What were we looking for? We were looking for somebody with scale, somebody who's at the right scale for us. Mike ran PepsiCo Foods Canada, which is a $2.5 billion business. He moved on to Advance Auto Parts, $11 billion business with 4,000 stores.
The retail aspect of it was pretty important to us, for obvious reasons. But the fact that he had run stores, e-commerce, omni-channel, merchandising, marketing, analytics, all things that are really critical for us at the stage we are at as a company, he brought that from Advance, so that was fantastic. But on top of that, the Advance business model for us fit very well when you look at both business lines and product lines. From a business line standpoint, in as much as they have B2B, B2C, pro, service, all of those things very much parallel what we do. So that was a great fit. And then from a, you know, product line basis, the idea to have hard goods, soft goods, you know, for them, the consumables being motor oil, for us, it's chemicals.
For them, auto parts, for us, pool parts. So there's a lot of dynamic there that I think made a ton of sense for us in that context. But what really separated Mike from the rest of the candidates was the softer skills. Coming out of P&G and PepsiCo, two of the best management development training programs that are out there, he obviously was a quick study. Through our interactions and through all of our references, just everything from communication, collaboration, general leadership, his ability to build and retain a team, these are all things that made us feel really great about Jason through the process. The other question we've been getting is, "Well, you know, why now?
What happened with Mike?" You know, there's two things that typically drive an executive change, one being a personal side, one being on the professional side, and from personal side, you'd have to ask Mike, "Why five years? What did that look like?" Well, that's for Mike to answer, but on our side, from a business perspective, why now? Once we initiated that search, we're gonna take the time that it took to hire the right person, and we think we've found the right leader in Jason. We're super excited to have him coming on board. We're excited for him to have a chance to meet with y'all.
Great. Thank you. I thought maybe we could start and back up a little bit just about what we've been through the last couple of years and what it has meant for Leslie's. On the most recent earnings call, you talked about the pool industry just going through a period of normalization post the pandemic, and Leslie's is not alone. There's quite a few hardline retailers that are still normalizing from what we saw. And there's also been extraordinary events that have impacted the pool industry, like with what happened in chlorine. So can you maybe walk us through some of those events and where you think the industry is today versus historical growth rates that we've seen?
Yeah, sure. Sometimes it's hard to define normal these days.
Mm-hmm.
But, been through a lot. So, starting back with the pandemic, Leslie's and a lot of, you know, companies, you know, saw similar things where, you know, people were spending a lot more time at home, and they weren't traveling and going out as much, and so they wanted to improve their home. And so, did a lot of home improvements, and they installed a lot of pools. And so, the average, you know, kind of, pool growth on the install base over time has been 1%-2%, and close to 6 million you know, pools today, you know, in the ground. And during the pandemic, that spiked to about 2%, and so the... And where we are right now is about 1%, you know, growth.
And so over-index, you know, for sure on the pool installs, but also buying new equipment. You know, so at that time, you know, people spent more time with their pools, and, you know, a lot of them noticed that, you know, "Hey, my pool pad is outdated," you know, and, "My pump's making a noise." And so there was an upgrade cycle there, too. And there was a lot of new technology out at the time, too, with variable speed pumps and automation, where you could control your pool equipment from your phone. And so there was a lot of that kind of technology upgrade, you know, at the same time. And so equipment sales, you know, did really well during that time period, you know, as well.
And then, during that same time period, you know, there was supply chain disruptions that we've all heard about, and one of the major ones in our industry was a fire at one of the major trichlor producers, KIK BioLab. So plant caught on fire, based in Louisiana, and so that caused, or it actually complicated the problem of supply chain disruptions that were already in place. Fortunately, with our scale, we were able to procure more trichlor, more chlorine than other retailers, and so we got the benefit of that. And so we overindexed on our chlorine tab sales for a time because, you know, we, you know, had the supply, and many others did not.
Also caused a price spike, you know, and so, you know, I think the overall chemical volumes went up because of the install base, and people were using their pools more, but prices went up as well, and those prices have kind of stayed high, and so that was all the activity, you know, post-pandemic. You know, from 2020 to 2022, our sales at Leslie's increased about 70%, so clearly overindex. Then when we got into 2023 and this year, we saw some reversion, you know, back to what was more normalized.
And if you put, you know, kind of that five-year time period together, 2019 through today, you know, the actual CAGR growth rate is about 7%, which is close to normal, but you just see a big spike and then a dip. Okay, and so what we're seeing today in the industry is our chemical business, you know, that's more kind of a near-term need, okay? And so that is more normalized than other categories, okay? Which kind of makes sense. And for us, we've seen, you know, some positive signs there. You know, just in the third quarter, it's kind of a good example, and it really solidified our thought that we're not losing market share. So if you look at the third quarter, April and May, you know, weather was bad. It was colder, wetter than usual.
You know, a lot of analyst reports, you know, tell us that as well, and our sales were down, and so in April, for example, our traffic was - 10%, it was - 3% in May, and then + 3% in June. So nice progression, and the good thing that we saw was once we hit June and the weather normalized, and it was better, our sales instantly, you know, turned around, especially in the chemicals business, so chemicals were up 5%, you know, in June, so very encouraging for us that it was weather-related, and not a share loss.
And then to kind of solidify that, that thought, we get credit card data, you know, from BofA, and it's not technically market share, but it's arguably versus the industry, so it's a good proxy. For the first time in several quarters, Q3 was actually positive, you know, versus the industry of about thirty basis points. But if you just look at the month of June, we were up 670 basis points, so we felt really good about that. And so, you know, that gave us, you know, confidence that when the weather turned, weather was good, you know, we were getting, you know, at least, our fair share, if not more, you know, at that chemicals business. So I feel good about that. Now, the equipment business is a little bit different story.
We do think that there's been some normalization of equipment, but equipment actually underperformed, you know, our expectations. You know, we thought it'd be down about 10%, and it's down 15%. And so, you know, kind of looking into that difference, a lot of that is macro-related and related to higher interest rates, inflation, cautious consumer, okay? And so as we look at the categories within equipment, things like, you know, heaters, you know, are down, you know, significantly. And average price of a heater, pool heater is $4,000-$5,000, so high ticket item. These robotic, automatic, you know, pool cleaners, you know, $1,500, you know, average price point are down. You know, salt systems, you know, $1,500-$2,000 are down.
And so those are all kind of more nice-to-have items, because you don't have to spend $1,500 on a pool cleaner. You can buy one for a lower price, and it still does the job. So we view those as more of kind of our discretionary equipment purchases. Some of the more non-discretionary equipment, like pool pumps and filters, did better. And so that gave us, you know, pretty good indication that people were just being cautious on some of those more discretionary items. Another big category for us is hot tubs. It's about 10% of our business and about half of our discretionary business, and that's actually been a pretty good story. So, you know, the hot tub business was, you know, gangbuster during the pandemic. It was up 79% in 2022.
Everybody that wanted a hot tub bought a hot tub, you know, during that time period. Then we saw a dip in hot tubs, you know, after that cooled off. Just in the third quarter, we're seeing, you know, some evidence of good progression, good sequential improvement. In the first quarter, our hot tub business was down 18%. Second quarter, it was down 14%, and then in Q3, it was down 4%. Really good progression, you know, in that business. I think, you know, our hot tub business is more kind of the premium price point. You know, our average price point is about $13,000, and, you know, we carry the premium brands. It's more, I think, comparable to kind of a higher end pool.
You know, so when you look at kind of the pool industry and installs, the higher end is doing better, you know, less, you know, prone to interest rates. In the middle and the low is doing worse, you know, and we're seeing that with our hot tub business. You know, it's a higher end product, and so we're seeing less resistance, you know, because of interest rates, and so that's a positive story for us. And so where do we go from here? And, you know, as far as the outlook, you know, I think the outlook for us for equipment longer term is good, you know, because anybody that owns a pool, you have to replace your equipment every so often.
And, you know, I think when they do replace their equipment, you know, there's this new technology that's an added incentive for people to replace, okay? And so I think that will continue. And so I think for us, you know, we have to look for ways of how we can take advantage of that customer and, you know, gain more market share of just that, you know, area of the business. It's about 25% of our business, so it's an important piece. And the way that I think about it is, if when you buy equipment, the top three, there's three, you know, top equipment providers, and they have MAP pricing, okay? And so the... There's always, you know, some rogue, you know, violators out there, but for the most part, it's sold at that MAP price, and they control that.
The advantage for us in that scenario is that's kind of a level playing field, you know. You know, all of the sellers online and everything else, you know, are really tied to that MAP pricing. But for us, we have a couple of advantages. One is, we can offer install, and many of the online sellers cannot, and so that's a big advantage for us that I think we need to amplify. You know, buying from Leslie's versus, you know, a lesser-known, you know, online seller, I think is an advantage for us as well.
We can also repair the equipment, so if you buy, you know, a piece of equipment for us, a pump or an automatic cleaner, you can bring it into our store, and we can repair, you know, that unit if need be. So there's those advantages which we have, which I think we just need to amplify, and I think that can, you know, lead to higher share. And then when you think about, you know, things like Trichlor and chemicals, chemicals are about half of our business. You know, we are really important to our suppliers, and so, you know, we have really good conversations with them. The overall supply-demand dynamics are really good, you know, right now, in the chemicals business.
You know, we've been able to have good conversations about, you know, how do we both win together? You know, how do we sell more product? So both of us, you know, us and our suppliers, are motivated by selling more, and so there's good conversations there because, you know, the supply is there, you know, to be able to do that. And so, you know, we've actually gotten, you know, some lower cost, you know, Trichlor that we bought earlier in the year, that we're now starting to recognize the benefit of that. Next year we'll benefit even more from that. And then negotiations for next year actually start within the next, you know, 30-45 days, and, you know, we're, you know, cautiously optimistic about, you know, how those conversations may go.
But just to let everybody know, you know, when we get a better cost, you know, on Trichlor, it doesn't realize itself in the financials right away, because we have, you know, these layers of inventory. It's a weighted average cost model, so if we get a lower price today, it takes time to roll through, you know, that weighted average cost model, okay? Six to eight months, just depending on our terms, and so that's what we're now starting to see in the fourth quarter, is some of that benefit that, you know, is product that we bought earlier in the year, okay? And so we think that, you know, will continue, so overall, looking forward, I think chemicals, you know, good situation, good supply dynamics, good relationship with our suppliers. Same with equipment.
I think equipment has a little bit longer tail in terms of normalization and kind of calling that bottom, but we're working through that. We're getting there. And then hot tub business is encouraging, you know, with the uptrend we've seen.
So I just have a couple follow-up questions for each product category. First, with chemicals, I know, you know, maybe a year ago, you weren't priced exactly where you thought you should be with chemicals. How should we be thinking about where you're priced today?
Yeah. I think we're in the sweet spot today. So what happened back in 2023, you know, that the pricing kept going up and up, and so, you know, we kind of were raising, you know, prices along the way as well. But, you know, back in June of last year, we actually reduced our prices, and the reason that we did that is because we realized that we were higher than where we needed to be in terms of other retailers, okay? And our loyalty members were telling us this: "Hey, we think you're a little bit overpriced." So we took a look at it, and, you know, what we saw was we raised prices, and our competition didn't follow, okay?
Where we wanna be from a positioning standpoint in terms of price is at or below other specialty retailers that, you know, are like Leslie's, you know, pool supply retailers, but slightly above the Mass and home channels, okay? We can be below the other specialty pool supply retailers, because, you know, we operate, you know, at a lower cost, we have more scale, and so we can still be more profitable in that scenario. We think we can be slightly above the Mass and home channels, just because of all of the other advantages that we have, you know, with the quality of our product, with our water testing, with our expertise, and all of that, and that has played well, you know, in the past.
And so that is kind of our sweet spot in terms of positioning. And so we reduced prices, you know, back in June of last year in order to, you know, get back to that positioning. And so since then, you know, we were overlapping, you know, higher prices, and, you know, it impacted our sales. But once we overlapped that in June of this year, then, you know, our sales comparisons got better. Okay, and so that's one of the reasons why we're up 5% in chemicals in June. But we're also up in pounds, which was encouraging, but, you know, we got that extra boost because we were no longer overlapping those higher prices.
Okay, and then within equipment, I think it's helpful to understand that there is a more discretionary element to some of the equipment and big ticket that you listed-
Yeah.
- that I don't know is fully appreciated. So I wondered if you could maybe talk about the mix differential between maybe what's needed equipment or more, you know, versus truly discretionary, where we are maybe in the replacement cycle, you know-
Yeah.
... for equipment?
Yeah.
How much of a role does innovation play?
Yeah, so innovation plays a big role, and, you know, so if you look at kind of the discretionary piece versus the non-discretionary, the non-discretionary is slightly bigger 'cause it's got all the pumps and filters, and things like that. But the more discretionary is, you know, an important, you know, part of that whole, you know, mix. And so where we are in the replacement cycle, you know, all those people that bought, you know, new equipment during the pandemic, you know, so, you know, equipment, you know, does have, you know, 5+ year life. A little longer for pumps, a little shorter for pool cleaners. And so we're, we're kind of, you know, mid-cycle there.
But, you know, I think, you know, going forward, you know, people will continue to pursue innovation. And so even though their equipment may be working okay, you know, the ability to control your equipment, you know, from your phone is pretty enticing. And, you know, so that does drive, you know, some of that replacement cycle a little more quickly than you would usually see. One of the things that we're also seeing, too, is with that cautious consumer, you know, kind of mindset is we have seen more repairs of equipment than replace.
And so that kind of service business and repair business has actually picked up a little bit for us, 'cause we repair equipment in store, and so we've seen that pick up a little bit, and it tells us that, you know, some people are still delaying some of that, you know, replacement and just, you know, repairing their equipment, for the time being. But eventually they'll need to replace it-
Mm-hmm.
... if they're starting to repair.
I wondered if we could, pivot to the competitive environment. You talked a little bit about where you like to be priced versus your competitors, but I wondered, you know, if there were more points of distribution selling pool supplies today than there were pre-pandemic?
Yeah, Kate, I think on the margin, you know, there may be a few other points of distribution, but the magnitude is fairly small, I think. So, for example, you know, in some places you can buy liquid chlorine in the grocery store, right? I don't think that's a big piece of market share, but you see on the margin, some of those locations that, you know, sell some sort of pool supplies, that, you know, you didn't see a few years ago. And, you know, from an online standpoint, you know, there's been, you know, sellers that come and go, you know, there as well. But, you know, overall, I don't think there's been a huge expansion of more distribution points.
How do you think about just your overlap with some of the broadline and home improvement retailers? Is that... Has there been more overlap or more encroachment from that competitive set over the years?
Yeah, I don't think there's been a big change there.
Mm-hmm.
You know, the only change that, you know, I would point out is in some cases, some of those home improvement club, you know, stores may hold on to chlorine tabs a little bit longer in the season. But outside of that, haven't really seen major changes because most of those businesses are, you know, seasonal in nature, and they'll switch out, you know, chlorine tabs and then bring in, you know, more holiday or Halloween or things like that to build that seasonal space.
I wondered if we could talk a little bit about the pro market. I know when you came public in 2021, that the pro was a big growth opportunity.
Yeah.
Continues to be a big growth opportunity. You've added new locations, I think you've converted some stores. Could you remind us about how Leslie's is thinking about the pro, how big it is as a percentage of sales?
Yeah.
You know, how much wallet share do you get from the pro today?
Yeah, it's a good question, and I think, I think it continues to be an opportunity. So, I'll start off by saying about 30% of pool owners use a pro to take care of their pool, okay? Our mix internally is 15% of our sales, okay? And so when I first came to the company a little over a year ago, I was like, "Well, that's- that seems low." And I've worked for, Sherwin-Williams Paint Company for about 10 years, and so similar model, you know, they have the pro DIY or lots of stores. Their mix is about 60% pro, and so I'd like to be at 60%. But it's a different business, but I, I think there's opportunity there.
So as we kind of look at our wallet share and our opportunity and our value proposition for the pro, it comes back to a couple of things I mentioned a little bit earlier, is we have to be priced right. You know, because the alternative to the pro is, you know, come to Leslie's or go to a distributor. And so we have all those benefits I mentioned of convenience. You can get in and out of our store, you can call ahead, so tons of opportunities and convenience factors for the pro that make us, you know, a better option. But we have to be priced right. And so we've taken a closer look at that pricing, making sure that we're kind of on par, you know, with those distributors.
And we want to sign more of those Pros up into that Pro Partner Program, 'cause that gets them that good pricing that's equivalent, you know, to a distributor. But also for us, you know, they need to buy at least $10,000 worth of a product, you know, to get that good pricing. And so it's kind of a win-win there. And actually, those Pros that are in that program spend, you know, closer to $15,000 a year. So every Pro that we sign up, you know, we get that benefit. And we've grown that base, you know; it's a little over 4,200 Pros that are in that program. It's up about 15% year-over-year, but I think there's room for, you know, a lot more.
The other benefit of having the Pros in that program is that they're very sticky. You know, their level of spend is much more consistent, and it doesn't ebb and flow, you know, as much, because that's more of a stable business anyway. You know, with that commitment of $10,000 a year, they're more likely to stay with us once we get them into that program. So that's a benefit that we're going for. The parts assortment is really important as well, to make sure that you know, we have the parts that you know, they need, so they don't have to go to the distributor for that. They can get it all at Leslie's.
And so that was the feedback that we've taken in, and we've taken some actions on. So I think that's an opportunity, you know, as well. And then the Pro conversions that you mentioned. You know, so, we have about 108 stores now that are the Pro format. And as we kind of look about, across, you know, the landscape of the stores that aren't in the Pro format, a lot of those stores have a very high Pro penetration, and so we continue to look at those stores for candidates to upgrade to the Pro format. And for us, it's a pretty easy, conversion. You know, what we do is we know that the SKUs that are very important to the Pro, we make sure we have job lot quantities of those SKUs.
We put a Pro sign up instead of a Leslie's sign, so that's an easy fix. We make sure that the hours are consistent with, you know, what the Pro's needs are, so we open earlier, and sometimes we're open a little bit later. And we take a hard look at the staffing to make sure that staffing is in place, to make sure that those Pros can get in and out, you know, quickly and be on their way.
Along with the Pro opportunity, you've talked about growth opportunities, 700 new market opportunities, which would be an opportunity for expansion, whether it be stores or digitally. I wondered if you could update us on how you're viewing that opportunity, and just given some of the challenges that we've seen over the last year and a half, if there's any thought around refining the store base or taking-
Yeah.
... a look at the overall store base?
Yeah. So we continue to look for those opportunities, and the 700-800 stores opportunity is still out there, right? And so, you know, as I kind of mentioned, you know, 55% of the market share is those independent, you know, pool supply retailers that do what we do. And so, more recently, especially on the M&A side, we've kind of taken a pause on that, you know, to, you know, generate more cash, you know, because, you know, our first priority right now is to pay down debt. You know, that's, you know, number one, you know, from a capital allocation standpoint. But that doesn't mean that we stop. You know, so what we've been doing is, you know, we've, number one, been building the pipeline of those M&A targets, potential targets.
And so we have, you know, over a hundred, you know, targets, you know, kind of in that, in that pipeline that that we're kind of researching right now. And so when we do re-engage that activity, the timeline will be much shorter, you know, to pull that trigger. And then from a new store standpoint, we're looking at those opportunities as well, to understand where we do well today, and where there is opportunity to build more stores. And, you know, I think an important, you know, fact here, too, is, you know, just how we look at the build versus buy decision. And so as we look at those 700 or 800 opportunities, by market, you know, across the, the country, the way that we look at that is, is basically by, yeah, density.
And what I mean by that is, how many pool supply retailers are there in a market versus the number of pools? Okay, and we know where all the pools are, right? So that's the easy part. And so if a market is highly saturated, you know, with pool supply retailers relative to pools, that's more of an M&A play-
Mm-hmm.
You know, to take out the competition. If it's more of an underserved market, then that's a market that, you know, would be more likely to build a new store, you know, because there's room to do that. Okay, and so that's how we kind of size up, you know, each market to get an idea of what that mix, you know, may be from an M&A versus new store. For us, you know, over a 3-5 year time period, we're really agnostic because we make really good returns on an M&A target as well as new builds.
In our last few minutes here, one of the questions that we get from investors is focused on your margins, and if you can return to the gross margins you were at previously. Maybe you could talk to just how much the cost structure has changed.
Yeah.
... over the last couple of years, and if this does prohibit you from getting back to the level of gross margins we've seen in the past.
Sure. Yeah, on the last earnings call, I mean, we talked about, you know, kind of what, you know, our targets for gross margin and SG&A and operating income are for the future, and what we're really driving towards. So gross margin, you know, we're trying to get back to 40%, you know, gross margin. Midpoint of our guidance puts us at about, you know, 37% for this year. We're also trying to get, you know, back to about 30% SG&A, and so that would give us about a 10% operating margin, which would translate into a low teens adjusted EBITDA number, okay? And so that's what we're driving towards. So just to address the gross margin piece of that, couple components there. You know, number one is just the costing side, right?
And so I mentioned, you know, the relationships we have with our main suppliers, and those dynamics today are actually very good. And, you know, they're willing to work with us, on, you know, product costs. They're willing to work with us on things like co-funded, you know, promotions... MAP holidays, you know, to drive sales, okay? 'Cause they have the capacity to do it, and we both want the same thing, so we're in a good place there. We've already gotten some of those concessions already, which has helped us, but there's more to come, you know, I think, in this coming year. So, negotiations will, you know, start to occur in the next 30-45 days, but, you know, we're optimistic of where that could go for us.
Then over the last year or so, we've made dramatic improvements in our cost structure, specifically in our distribution costs, in our supply chain, as well as inventory adjustments. You know, last year we had way too much inventory and a lot of offsite facility to store all this excess inventory. So now that, you know, at the end of the third quarter, we were $130 million lower in inventory than we were the prior year, and so that simplifies things a lot. We're no longer in offsite warehouses. We're much more efficient with our labor, much more efficient with our freight, and the team has done just an outstanding job, you know, from a planning standpoint, but from an execution standpoint in our distribution centers.
Those costs are way down, our scrap is way down, and so structurally, that will carry forward into next year, because we've already made those process improvements. That process has been throughout this year, and so where we stand today, we're much more efficient than we were at the beginning of this year. We'll actually have the full year effect of that next year, plus any incremental improvements that we make, okay? We're in good shape there, and that cost structure will, you know, help us for the foreseeable future. Another thing I would point out is, the way that the accounting works for DC costs is, when you build inventory, you put costs on the balance sheet, and then when you sell through that inventory, you bring those costs to the income statement.
From an accounting standpoint, that's just to match, you know, the cost of distribution to the selling of the product, okay? So with us, you know, pulling down inventory so much, you're dropping more expenses to the income statement, right? Once we get to a more normalized state, you know, in a normal scenario, you will build inventory in the first part of the year, and then you would sell it in the back half of the year, you know, during pool season, okay? If your inventory is relatively the same, beginning and ending, then you shouldn't really have a big effect of those capitalized costs, you know, 'cause they ebb and flow during the year. For this year, you know, it'll cost us...
So it cost us about 85 basis points in Q3, because we were bringing down inventory, you know, more than we were building. In the future, that will virtually go away, you know, if we keep inventory at relatively, you know, normal levels, you know, throughout the year.
Mm-hmm.
The last thing I would mention is, the other impact that we're seeing right now with lower sales is just deleverage on fixed costs.
Yeah.
And that's on our occupancy expenses.
Mm-hmm.
For the most part. And so, you know, for the third quarter, that was about 50 basis points of headwind, that again, once we get back to that more long-term normal mid-single-digit growth number, that goes away as well. And so you add all those pieces, parts together, and that's kind of the path that we're looking at to get back to 40%.
Okay. Thank you. Thanks for joining us today.
Thank you.
Appreciate the time.
Yeah. Thank you.