Good day, and thank you for standing by. Welcome to the Spectrum Brands First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Joanne Chomiak, Senior Vice President of Tax and Treasury. Please go ahead.

Thank you. Welcome to Spectrum Brands Holdings Q1 2024 earnings conference call and webcast. I'm Joanne Chomiak, Senior Vice President of Tax and Treasury, and I will moderate today's call. To help you follow the comments, we have placed a slide presentation on the events calendar page in the Investor Relations section of our website at www.spectrumbrands.com. This document will remain there following our call. Starting with Slide 2 of the presentation, our call will be led by David Maura, our Chairman and Chief Executive Officer, and Jeremy Smeltser, our Chief Financial Officer. After opening remarks, we will conduct the Q&A. Turning to Slide 3 and 4, our comments today include forward-looking statements, which are based upon management's current expectations, projections, and assumptions, and are by nature uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated February 08, 2024, our most recent SEC filings and Spectrum Brands Holdings most recent annual report on Form 10-K and quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking statements. Also, please note that we will discuss certain non-GAAP financial measures in this call. Reconciliations on a GAAP basis for these measures are included in today's press release and 8-K filing, which are both available on our website in the Investor Relations section. Now I'll turn the call over to David Maura. David?

Hey. Thanks, Joanne. Good morning, everyone, and welcome to our first quarter earnings results for 2024. Thanks everybody for joining us today. I'm going to start the call with an update on our operating performance and our strategic initiatives. Then I'll turn the call over to Jeremy, and he will provide a more detailed financial and operational update, including a discussion on the specific business unit results. If you remember, during our last call, I talked about how the actions we took in fiscal 2023 that put us in a strong position as we entered fiscal 2024 and I talked about our readiness to pivot into the opportunities that our strong balance sheet and improving margins now present us with. Today, I'm happy to report that the first quarter is showing that we are beginning the journey back to winning again. I'd like to ask you to turn your attention to Slide 6 and our financial performance. Net sales for our first quarter were down 3%, in line with our expectations overall. Retailer and consumer demand are behaving as we had expected heading into the year. We anticipated a continued challenging macroeconomic environment across our businesses and a competitive retail marketplace. In our Home & Personal Care segment, we expected suppressed demand, particularly in small kitchen appliances. In our Home & Garden segment, we expected home center retailers to be cautious in their preseason build of inventory. And in our Global Pet Care segment, we expected continued softness in our global aquatics business and slowing growth in our treats and chews businesses. Each of those expectations have come to be true, and our topline performance came in generally as we had anticipated, with an especially strong performance, however, from our global e-commerce sales group. They grew sales at 28.3% year-over-year.…

Thanks, David. Good morning, everyone. Let's turn to Slide 11 and a review of Q1 results from continuing operations. I'll start with net sales, which decreased 3%. Excluding the impact of $11.7 million of favorable foreign exchange, organic net sales decreased 4.6%, primarily due to lower consumer demand in North American small kitchen appliances, some softness within certain pet channels and the impact of the SKU rationalization decisions we made in fiscal 2023 within our Global Pet Care and Home & Personal Care businesses. The sales decline was in line with our expectations heading into the quarter and was incorporated into our earnings framework. Gross profit increased $43 million, and gross margins of 35.4% increased 710 basis points, largely driven by lower cost inventory and inventory-related expenses, along with a favorable impact from cost improvement actions, partially offset by unfavorable transaction FX and lower volume. Operating expenses of $219.9 million decreased 1% due to reduced project spend on restructuring, optimization and strategic transaction activities, fixed cost reduction efforts and lower factoring charges, offset by increased investment spend in advertising and marketing as we reinvest in our brands. Operating income of $25 million improved by $45.2 million, driven by the gross margin improvement and lower operating expenses I previously mentioned. GAAP net income and diluted earnings per share both increased, primarily driven by the higher operating income, higher investment income, lower interest expense, lower share count and a gain recognized on the repurchase of bonds. Adjusted EBITDA was $84.3 million, an increase of 111.8% driven by improved gross margins and the investment income of $23 million. Adjusted EBITDA, excluding investment income was $61.3 million. Adjusted diluted EPS increased by $1.10 to $0.78 per share, driven by higher adjusted EBITDA and the reduction in shares outstanding. During the first quarter, we reduced…

Thank you very much, Jeremy. Thank you everybody for joining us today. Let me just take a couple of minutes and recap the key takeaways for today on Slide 18. First, we're very pleased with our start to the year. Demand came in generally as we had anticipated. Our commercial and operational performance is improving, and our margins are expanding. Our balance sheet is strong. In fact, it's stronger than it's ever been in the history of our company. And this is a competitive advantage that is fueling the growth mindset for our company. We are returning cash to our shareholders. We bought back 26% of this company and remained essentially net debt free. We are beginning the journey back to winning by investing in our people, investing in our brands and investing in our operations. Although we are in the early days, we are encouraged by the results we've been seeing. We believe we are on the right track and the right path to returning to revenue growth with improving margins and EBITDA. However, we know this is just one quarter. And we are already facing new geopolitical and macroeconomic headwinds like the Suez Canal and the terrorist attacks in the Red Sea. And, frankly, continued interest rate uncertainty. So while we're encouraged by the start of our fiscal year, we think it would be prudent to maintain our full-year expectations and are thus reconfirming our earnings framework for the full-year. I'm excited about the future as I see our teams focusing on fewer, bigger, better innovations, and we are continuing to ramp up our commercial operations now through added investments in sales and marketing. With our operational house now in order, our primary focus is to return to revenue growth, and our aim is to deliver consistent operating performance and to realize a material uplift in the valuation of our shares. Now I'll turn it back to Joanne, and we'll take any questions you may have.

Thank you, David. Operator, we can go to the question queue now.

[Operator Instructions] Our first question will come from the line of Bob Labick with CJS Securities.

Good morning. Congratulations on a nice start to the year and thanks for taking our questions.

Bob thanks.

Good morning, Bob.

Good morning. Yes. So obviously, a nice recovery versus the last few years in HPC. You talked about it a little bit, but can you tell us what does it take to get that segment back to prior margins? And discuss the competitive landscape in appliances in a little more detail. Any changes of late that you alluded to, please?

I think – listen, I think the last two years, a lot of volatility in that category industry. I think with the pandemic and the supply chain problems, retail customers trying to get their hands on any and any appliance they could because people were living in their homes and had nothing to do except cook and clean. We saw a number of new entrants into the market, and these new entrants are willing to work for next to nothing. And so I think the industry experienced a tremendous amount of disruption. And quite frankly, you now see some of those players, as Jeremy referenced in his remarks, going bankrupt. And so I think as some of these small ankle biters, start-ups, fly-by-night companies go bankrupt, exit the market, we believe for some time the industry needs to be more rational, needs to be rationalized, needs to consolidate. I think you're just getting a return to normal. I think we still don't see demand patterns where they were prior to the pandemic, which is why we're maintaining kind of a low single-digit decline in sales kind of outlook. But hopefully, as we get back into a more replacement cycle post-COVID environment, we know the inventory levels at retail is back down. And so we expect more consistent operating rhythms and ordering patterns to be consistent with POS now. But look, for us particularly, we've got a brand-new management team. We've invested a lot in new talent. We just hired a new Head of North America, Tim Wright, who is running our European operations and quite frankly, doing an amazing job building brand equity franchises and teams over there. [Indiscernible] Russell Hobbs [indiscernible] and a very profitable growing Remington franchise in APAC. He is now taking over control of the entire business unit, and we're investing [indiscernible] operations. So pretty excited about Tim Wright's leadership there, the talent upgrade in that organization. It's only one quarter, Bob. We've got a lot of wood to chop, but we've told you if you could be patient with us, we can get that company back to health. Now we're getting on a better trajectory. We can relook at accelerating standing that business unit up on its own and potentially merging or spinning it.

And just as a follow-up, you talked about merge, spin, sale, et cetera. Who is the right owner? And what's the optimal structure for a deal for you?

Yes. I mean that's just a lot of specifics. Probably not prepared to get into that at this point. But we know that – like assets tend to have tremendous amount of synergies to them because most of these businesses are sourcing from the same vendors and selling to the same customers. We know that the industry still has too many players. We think we have a very strong EMEA, APAC platform. Our focus is on strengthening our North American platform. And then hopefully, we become a much more attractive partner to others. I think that would be my preferred outcome here is to find a merger partner with synergies that we could participate in. But the only thing within my control to do without a counterparty is a spin. And so we will pursue that, and we'll see where we come out.

Super. Thanks so much.

Thanks, Bob.

Thank you. Our next question will come from the line of Chris Carey with Wells Fargo Securities.

Hi. Good morning, everyone. So just to start, David, can you just talk about potentially any constraints you might have on additional deployments of cash and to share repurchases and specifically related to some of the constraints in the bond documents going through the summer? And in general, just how you're thinking about the balance of reinvestment versus M&A?

Yes. I mean listen, I mean I think we've been really – I mean the one thing we've been very consistent about is that we believe that a higher growth, higher-margin Pet and Home & Garden platform deserve a higher multiple. And we had this unfortunate delay that cost us two years with the DOJ, and that's behind us. And when I look externally, and I see the people want 15x EBITDA and 17x EBITDA and all these multiples for private assets. And we happen to own, I think, an amazing Pet franchise, an amazing Home & Garden franchise. Our view of the world is, hey, if we can pay our debt off – which we just did, right? We had $3 billion plus of debt. Now we've got none. We were almost 7x levered at the peak there and getting amendments from our bank group. Today, that's done, I don't have any bank debt on the balance sheet, except for a revolver that I'm not using. So now, get our operational house in order. So a big shout-out to Dave Gabriel, Steve Keller, Bob Vollmer, Mike Wilcox. I mean I have an amazing S&OP team. And if you guys look, 18 months ago, I had to replace a lot of people, and I told you we were going to create a world-class working capital business and S&OP process. We've got that. And so now my operational house is in order. We're expanding our EBITDA. We're growing again, margins are expanding. And we want to be responsible. We want to return a lot of capital to our shareholders. We want to reward shareholders. I'm a big shareholder. I like getting rewarded. Our shares have not performed the way I want them to, and we want to materially lift the share price. And I think the next step toward doing that is to continue to shrink the float, be very prudent about our debt obligations come June, July. But if we can demonstrate consistent operating performance, shrink the float and spin appliances, I don't know why we as shareholders can't materially benefit from that. And that's what we're going to go do.

Okay. Very helpful. Just on the – one follow-up on the Garden side. Just any early read-throughs on competitive activity and shelf placement? I think one of your peers in the space not necessarily on the control side is talking about a lot of incremental pacing. So just what are you seeing for your own portfolio? Thanks.

Look, we think it's a really competitive market out there. We think the retail environment is challenging. We respect our competitors, but we got a debt-free balance sheet. We're planning to win. Game on.

Okay.

Yes, I think we are seeing, Chris, from the home centers that they're going to lean back into more displays than they did a year-ago. I think that strategy was a difficult one for them. So we're seeing more displays, more off-shelf placements and we're winning, I think, more than our fair share of those as we head into the season.

Okay. All right. Thanks so much.

Thank you.

Thank you. Our next question will come from the line of Peter Grom with UBS.

Thanks, operator, and good morning, everyone. I hope you're doing well. So maybe just one for me. Obviously, a very good start to the year across the board. And I totally understand that it's early, I wouldn't necessarily expect you to kind of alter your guidance at this point, particularly with the bulk of Home & Garden still to come. But how would you characterize your confidence in the outlook today? Last quarter, I think, Jeremy, you were kind of mentioned that you thought it was balanced or was it your stability? How has that evolved at all given the strong start?

Yes. A couple of things I'll start with, Peter. One, David mentioned that we do have a headwind that we had to absorb into our earnings framework from this Red Sea challenge. We're seeing surcharges really globally in ocean freight. That's probably a $10 million to $12 million headwind for us on the year. The good news is we're covered contractually against the spot rate increases that we're seeing at these volumes, but the surcharges are hurting us. So we're absorbing that. So that's kind of one headwind. And the other thing I would just point out is that part of our first quarter be – quite frankly, is we didn't spend as much in our increased brand investments as we expected. I think we increased around $5 million year-over-year. That's probably about half what we had allocated to. And so we've moved that spend into the back half of the year where we think there'll be more robust consumer demand. So there are some timing elements to it as well. But overall, I would say with what we've experienced from the consumer demand side and what we're hearing from home centers and seeing in displays and off-shelf, I'd say we feel slightly more positive than we did 90 days ago. Still there, Peter?

Our next question will come from the line of Brian McNamara with Canaccord Genuity.

Hey, good morning guys. Thanks for taking the questions. On Home & Garden, I think we've heard some mixed messages in the marketplace over the last couple of days. One of your peers saw its garden business benefiting from early season shipments, another expects more seasonal load-in. You have been pretty consistent in your messaging in terms of home centers being cautious in the preseason build of inventories. Can you provide a little more color on what's going on here, both on Q1 for yourselves and your expectations for Q2 in Home & Garden? Thanks.

Yes. I think the first thing would be – just because we have certain competitors that are publicly traded, it doesn't mean that our mix of sales is the same. And so I think you need to look at the mix of sales of our competitors, a lot of them sell seed and growing media stuff, and we don't. And before you have weeds, you need to grow something, and we come in and kill the weeds after you grow stuff. So there might be a timing difference there. Jeremy, anything you want to add to the question other than...

I think that's exactly right. I think the earlier load-in for home centers happens for a lot of those things that we don't do that David just mentioned. So I think that's why you hear what we are – that's why you hear what you hear from competitors.

Okay. And then secondly, on HPC, I mean, I think we're six quarters in on some pretty significant declines on the topline. I guess, what gives you guys confidence that we should see a return to growth in H2? And any color on the phasing as it relates to Q3 and Q4 would be helpful? Thanks.

Yes. Look, I think the last 12 months – again, sing Tim Wright's praises, he and I have been on a lot of airplanes. We've been meeting with a lot of customers. We've been making up for past sins, and we've been trying to fix relationships, mend fences and bring them better product offerings. And so I think a couple of years ago, we were telling retailers we were exiting certain brands. And I think we had some missteps with an acquired business. And we've spent a very good amount of time in the last 12, 18 months really fixing relationships, cleaning up the marketplace, owning our sins and then bringing forth new product and new innovation. And so actually, I'm pretty bullish on regaining listings as we go forward. Even some of them hitting as early as the fourth quarter of this fiscal year. So much more solid footing. And again, all credit to the team. A lot of new talent particularly being hired in the North America market as we fix that and make that more profitable and restore it to growth like our European markets.

Maybe if I could just squeeze one last one in for Jeremy on the housekeeping front. On gross margin, obviously, a big expansion year-over-year in Q1. Is this kind of mid-30s range a reasonable run rate to expect for the full-year?

I think it is, yes. I think not a lot of variables that we're seeing on inflation. The only real caution that we see on the radar right now is the Red Sea surcharges that I mentioned. So we're watching that closely, obviously, but I would expect that we can continue at this pace as the year progresses on gross margins.

Thanks a lot. Best of luck guys.

Thank you. Our next question comes from the line of Ian Zaffino with Oppenheimer.

Great. Thank you very much. I just wanted to ask one more question on HPC. As far as divesting or any corporate action there, why now? What's giving you the confidence to maybe move forward on that? I think when you did Tristar, I think you guys threw out like an over $100 million EBITDA number. We're not quite there yet. So what are you sort of planning for as far as EBITDA in that business? What do you think maybe the underlying profitability of it is? And do you still think it's at that level you previously said? And again, why now versus waiting to bring it back maybe to that level? Thanks.

I mean actually, I think our investor base believes, as I do, that we have higher multiple trading businesses in Pet and Home & Garden. And I think our investor base believes that separating appliances out will allow our main co to trade at a higher valuation. That's the premise of doing it in the first place. I think that we clearly anticipated trying to get it out sooner rather than later, and we entered the pandemic and supply chain and all the wonderful things that we talked about earlier in the call. And I just – I think as we get it back to health, it belongs – to stand up on its own. We'd like to continue to have some management and some ownership in it, but the only thing we can control within our – without a counterparty is a spin. And so that's our fiduciary obligation. And – but we're putting a lot of money behind it. We're hiring a lot of new talent, and we believe that we can build a global champion with that appliance business and stand it up. But I think – talking to shareholders, shareholders would like me to get it independent of Pet and Home & Garden. And so we're just letting you know as we did all of last year, we need to get this thing healthy profitably. We don't want to spend something out that isn't healthy, and so we want to get the company healthy. But as we restore health and profitability, we're going to ramp up efforts to separate it.

Yes. And I'd just add, Ian, from the color, from a timing perspective, right? I mean, look, we just reported a quarter where we doubled EBITDA year-over-year, $26 million and change. And as I mentioned in my prepared remarks, we're expecting really each quarter the next couple of quarters sequentially for the topline to improve. We mentioned that every region, with the exception of North America, is now growing organically. And so we're implying that North America is going to get better. It got better in Q1. We think more of that's coming. We're winning more in e-com. We're starting to get more shelf placements with some of the legacy brands that we had lost some in the past couple of years. And so I think all those things just lend themselves to a better marketing story for the business in any event, whether it's a spin or a private transaction. So that's the point of us saying we're going to accelerate that now as we see the forecast improving.

Okay. Thank you very much.

Thank you.

Thank you. Our next question will come from the line of Olivia Tong with Raymond James.

Great, thanks. Good morning. I wonder if you could talk a little bit more about what you're changing to position yourself to drive the innovations and eventually topline growth that you're talking about, whether it's additional personnel? You mentioned some managerial changes, investments that you have made or planning to make. And when you – when do you think you actually start to see that year-over-year improvement in aggregate? And then just sort of where that growth is necessarily coming from? And then you talked about profitable growth, but can you talk about also magnitude of brand spend, especially as you pivot to more of a focus on revenue growth? It's obviously been a tough – tough go over the last couple of years. So as you consider new products, innovation, et cetera, what you're doing in order to support healthy launches when the time comes and what's embedded into the outlook? Thank you.

I think the main thing is the mindset shift. I think years ago, we had an approach where each R&D department or NPD Group would look at 50 or 100 projects. And I don't think any one of these particular projects in the past were big bets. I think people looked at, okay, let's tweak this packaging, let's tweak the color, let's tweak a feature. Maybe if we get a listing here, it's another $1 million, if it fails, it's not that big a failure. And you just can't move a needle if you're constantly trying to launch 100 products a year in Home & Garden or a 100 new products a year [indiscernible]. We put it in the press and in the script, we've hired a lot of new talent, and we've changed the mindset to be – we want to take more risk. We want to launch fewer, bigger, better innovations. And it brings a lot of focus and clarity, quite frankly, to your organization. If instead of focusing people on 100 new SKUs, you say, look, we want 10 new products and we wanted to really move the needle where can you move the needle. And so you've already seen it. You see little green shoots of it, right? We're very, very good in dog chews and treats, but we've never been in cat. We did an amazing acquisition in the U.K. called Armitage. It brought us a brand called Good Boy, and it brought us Meowee. And we're taking those businesses and we're launching complementary products into the pets space in the U.S., particularly cat treats. The other thing that is very different that we never did in the past – and a lot of credit to [Mir] and our Comm Ops team – we do stuff now called test and learn. And so we don't work on a product and then take it to every brick-and-mortar and say, here it is, we want to test and learn that product with the customer in real time so that we get feedback on that product. We refine that product with – not some survey, not some theory, but thousands of customers telling us what's good with it, what's wrong with it, and then we refine that product offering to create a fat pitch. And that is a very different approach, but we believe it has potential to yield big results. And so that's – I think that's a little bit of the answer to your question. Hopefully, it helps a little bit. Jeremy, is there another part of that question?

Yes. I think the last part of the question was on timing. We're seeing some wins. I think they start to impact our financial results in the second half of the year from a topline perspective, which is why we talk about our confidence in growth in the second half. So it's – I think it's coming very shortly.

Thank you.

Thanks, Olivia.

Thank you. Our next question will come from the line of Michael O'Brien with Wolfe Research. Michael O’Brien: Hi. Good morning guys. Just a quick one here. So regarding the margin structure. So obviously, you have this high-cost inventory rolling off, which is going to be a tailwind to the business. Could you provide a little bit more color though on any other margin improvement initiatives that you're currently undergoing? And then my second question is to offset some of the volume decreases, are you planning to increase price in the back half of this year as well? Thank you.

Yes. I think on the latter, I'll start there, Michael. I don't anticipate significant pricing actions in the second half of the year from where we sit today. Clearly, external factors could change that if we see a more material impact from some of the political and geopolitical challenges that we see, Red Sea, I mentioned earlier, could be one. But right now, no, I don't think that's necessary. On the additional cost reduction efforts, what I would say is if you look at gross margin or gross profit dollars in the quarter, up $36 million, $37 million. As we talked about last year, we had the higher cost inventory last year that was cap variances of around I think $26 million, $28 million in the quarter. So we actually – we're improving gross profit dollars more than that lower cost inventory benefit that we're receiving. And that's on topline decline of 3%. So that, I think, shows you the improvement in operations and the efficiencies that we're getting. And a lot of that comes from continuous improvement activities across our supply chain and manufacturing operations. And I'll give all the credit to the same people that David mentioned earlier. I think they're doing an extraordinary job in partnering with our commercial business units very well to get those savings, to maintain our fill rates and actually still grow share, all with lower inventory dollars on the balance sheet. So I think we're in a really good place there. Michael O’Brien: Great. Thank you.

Thank you, sir.

Thank you. Our next question will come from the line of William Reuter with Bank of America.

Hi. I just have one.

Good morning, Bill.

Hey. Good morning. Following up on Chris, his question earlier, talking about capital deployment. David, in your response, you talked about multiples of 15x and 17x. It certainly sounded to me like you believe your stock is far cheaper than any M&A opportunities that are out there and that M&A is not a focus in the near-term. Did I read that correctly?

I mean, I've personally been buying shares. So I should tell you, I think the stock is cheap. We bought back 26% of the float, and we're accountable to where it goes in the future. And yes, private assets continue to cost more than where we trade, and we're working hard to fix that. And we think the two big levers to pull there to basically become a very consistent operating performance business and to separate out our appliance business. And we think that through consistent operating performance and separating out appliances, we will experience a material uplift in multiple. That said, we're not going to shrink ourselves to greatness. And if we do find a great acquisition in Pet or Home & Garden, we're going to pursue it. I don't see anything to do right now, and I'm not looking at anything, but we have a very good track record of acquiring assets in the Pet division, a very good one in Home & Garden. We're fixing Rejuvenate, and we'll see where we go.

That's a very helpful response. Perfect. Thank you. That's all for me.

Thanks, Bill.

Thank you. Our next question will come from the line of Carla Casella with JPMorgan.

Hi. Great. It's Carla Casella here. Just wondering – what?

Carla, good morning. Nice to hear your voice.

Good morning. Good to see you too. Could you say which bonds you had bought back in the quarter?

I couldn't quite catch it.

Oh bonds. We bought a bunch of different bonds, all kind of different coupons. Typically, they'll [indiscernible] the lower the dollar math, then I'll buy them, but you guys keep bidding them up. So I don't know if I'm interested anymore.

No, I know because people are assuming more. So that goes to my second thought, to get to your 2.5x leverage target, it clearly means bringing leverage up from where it is today. I'm assuming that happens through share buybacks. I'm just wondering if you expect to have to come back to our market or, absent M&A, any debt activity we should expect?

Yes. I mean it's three-pronged, right? We've definitely been using the buyback of shares to absorb our excess cash. And so we're entering a net debt position now, albeit small. And if we exhaust the remaining buyback plans in place, I still don't think it puts us over – right around one turn of leverage. And then we have enough cash on hand, quite frankly, to basically meet the bond obligation this summer, if we don't do any M&A before then. But clearly, the covenants allow us to do M&A. And if we were to find something to acquire, that would reduce our need to offer cash for the bond. So we're looking at all those things. We're monitoring interest rates. Right now, we're very happy to keep a large amount of cash on deposit, get paid some interest income, buy back our shares and focus on operations.

Carla, I would just add to that. There's just – there's no hurry in the fiscal year to get to that 2x to 2.5x debt leverage. That's our longer-term target. We'll be prudent in how we get there, we'll make sure that capital is deployed in the right way.

Okay. And then on the bond obligations to pay down this summer, that's if you don't fully invest, can you say how much of investment spend you have left? Because I'm not sure what calculates an investment or not.

Yes. What we've said publicly, Carla, and we're going to stick to that through the summer when we actually get to that point in time, which will be June, July time frame is that we would expect it currently with no incremental material M&A to be over $1 billion required.

Okay. And that's across all tranches, right?

Yes.

Okay. Can I ask one business question or a margin question? You mentioned gross margin improvement. Part of it was driven by, as you mentioned, lower shipping rates. I'm assuming that's still the really high shipping rates from 20 – from 2022 still flowing through some of your inventory? Is that correct? And if so, when are we back to like a baseline before we have to start worrying about Red Sea and any other increase in shipping rates?

Yes. So you're right. The comparison to last year in first quarter 2023 was the 2022 high shipping rates still flowing through the P&L in the first half of last year, the whole first half of last year. When you look at our run rate in Q1 right now, I think what you see is reflective of the current environment, which is predominantly under contract for us through the majority of the fiscal year. The Red Sea challenges that I talked about, you'll start to see a headwind from that in our P&L in – most likely mostly Q3 and Q4. And as I said, it's around $10 million to $12 million for the year.

Okay. Great.

Thanks, Carla.

Thank you.

That concludes...

Go ahead, Liz. Thank you.

That will conclude today's question-and-answer session. I'd like to turn the call back to Joanne Chomiak for closing remarks.

Thank you. And with that, we have reached the top of the hour, so we will conclude our conference call. Thank you to David and Jeremy. And on behalf of Spectrum Brands, thank you for all of your participation.

This concludes today's conference call. Thank you for participating. You may now disconnect.