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Tesla cuts US prices for 3 of its electric vehicle models after a difficult week
A coffee roastery in Finland has launched an AI-generated blend. The results were surprising
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New York lawmakers pass $237 billion budget with policies to jump-start housing market
The House votes for possible TikTok ban in the US, but don't expect the app to go away anytime soon
Biden sees a $35 price cap for insulin as a pivotal campaign issue. It’s not that clear-cut
Hawaii lawmakers take aim at vacation rentals after Lahaina wildfire amplifies Maui housing crisis
S&P 500   4,967.23
DOW   37,986.40
QQQ   414.65
Tesla cuts US prices for 3 of its electric vehicle models after a difficult week
A coffee roastery in Finland has launched an AI-generated blend. The results were surprising
Autoworkers union celebrates breakthrough win in Tennessee and takes aim at more plants in the South
New York lawmakers pass $237 billion budget with policies to jump-start housing market
The House votes for possible TikTok ban in the US, but don't expect the app to go away anytime soon
Biden sees a $35 price cap for insulin as a pivotal campaign issue. It’s not that clear-cut
Hawaii lawmakers take aim at vacation rentals after Lahaina wildfire amplifies Maui housing crisis
S&P 500   4,967.23
DOW   37,986.40
QQQ   414.65
Tesla cuts US prices for 3 of its electric vehicle models after a difficult week
A coffee roastery in Finland has launched an AI-generated blend. The results were surprising
Autoworkers union celebrates breakthrough win in Tennessee and takes aim at more plants in the South
New York lawmakers pass $237 billion budget with policies to jump-start housing market
The House votes for possible TikTok ban in the US, but don't expect the app to go away anytime soon
Biden sees a $35 price cap for insulin as a pivotal campaign issue. It’s not that clear-cut
Hawaii lawmakers take aim at vacation rentals after Lahaina wildfire amplifies Maui housing crisis
S&P 500   4,967.23
DOW   37,986.40
QQQ   414.65
Tesla cuts US prices for 3 of its electric vehicle models after a difficult week
A coffee roastery in Finland has launched an AI-generated blend. The results were surprising
Autoworkers union celebrates breakthrough win in Tennessee and takes aim at more plants in the South
New York lawmakers pass $237 billion budget with policies to jump-start housing market
The House votes for possible TikTok ban in the US, but don't expect the app to go away anytime soon
Biden sees a $35 price cap for insulin as a pivotal campaign issue. It’s not that clear-cut
Hawaii lawmakers take aim at vacation rentals after Lahaina wildfire amplifies Maui housing crisis

Church & Dwight Q4 2023 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-K Filing

Participants

Corporate Executives

  • Matthew T. Farrell
    President and Chief Executive Officer
  • Rick Dierker
    Executive Vice President, Chief Financial Officer and Head of Business Operations
  • Barry Bruno
    Executive Vice President, Chief Marketing Officer and President, Consumer Domestic
  • Surabhi Pokhriyal
    Chief Digital Growth Officer
  • Michael Read
    Executive Vice President, International
  • Unidentified Speaker
  • Paul Wood
    Executive Vice President, Chief Commercial Officer

Presentation

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Okay, gang. I'll call everybody to attention. Hey, we haven't been together for a few years. The last number were down here was January of 2020. So it's been three years. It's really great to see so many familiar faces in the room. We've got a great show for you today. I'm going to start off with the safe harbor statement. I encourage everybody to read that when you have some time. And here's who is here from management today, which have virtually the entire management team. So when we're done with the presentation, everybody will come on up, fill the stage, and then we can do Q&A. All right. We've got a pretty packed agenda. Some of it will be familiar to you, but these are all the things we think we want you to walk out of the room knowing more than when you walked in the room.

All right. So, I am going to start with a look back at 2022. So, as you all know, we had significant inflation this past year. We had $250 million of increases in COGS year-over-year '22 versus '21. And how we reacted to that? We increased prices both in '21 and in '22. And in some cases, we raised prices more than once. You saw that in laundry and also on litter. We had really great success this year with several of our brands, which you can see on the page here, ARM & HAMMER litter laundry detergent and BATISTE at all time highs, record shares. And then if you look at some of our more recent acquisitions, and that would be ZICAM, THERABREATH and HERO acquired in 2020, '21 and '22, all had double-digit growth and all-time high market shares. And then finally, we know we've experienced a black swan event over the past few years.

We know there'll be others in the future. So, we've done a lot of work in '21 and '22, spent a lot of money, a lot of effort getting ready for the next one. And then finally, we ended the year strong. So, what you see on the slide here that the categories that we're in grew consumption, 13 out of 17. And just as kind of a leave behind, these are the 17 categories that we compete in. So, you can take a look at this after class is which categories went up and which categories did not.

All right. Now here's a slide that we show every year and this is a very different slide than we've seen in the 16 years that I've been with Church & Dwight. So, the first 15 years with Church & Dwight, every year, we've had significant TSR. And in many, many years, it's been double digit. And this year, we went backwards. And that's a disappointment to me, it's a disappointment to the management team, to the Board and our shareholders. And so grant that we have that disappointment, but now we're just going to broom ourselves off, pick ourselves up. We got a great company. We've got great brands. And we're looking ahead with optimism to '23 and we plan on starting another 15-year streak starting in 2023.

All right. So why do we have so much confidence in our future? First off, we'll go left to right U.S. So, Barry is going to come up in a little while and talk about our plans for the U.S. business and why we expect growth in the future. Mike Reid is going to come up and talk to us about International. For a long time, International has been growing at 6% annually. That by the way is our model. And he's going to tell you why we believe that to continue in the future.

Innovation as well, Barry is going to talk about innovation. Innovation -- we're a very innovative company. It's been a big contributor to our top line growth for many, many years. And Barry is going to take you through one innovation, in particular, which is hard ball. It's new letter that we're launching this year. We think it could transform the litter category. Surabhi is going to come up. She's our Chief Digital Officer. She is going to talk about how digitally savvy we've become and our plans for the future. And finally, the Evergreen model. Everybody in the room, particularly long-term holders, who are very familiar with our evergreen model, 3% top line, 8% bottom line growth. That model is healthy long term. We have strong fundamentals in 2023. We think we'll return to that model in 2024.

All right. So now who we are. So, we're a $5.4 billion company. You can see how we split. We're largely a U.S. business, 77% domestic, 70% International and our Specialty Products business, which is our legacy business is a business that the company was founded on, it's about 6% today. So, we have 14 power brands. Those 14 power brands make up 85% of our revenues and profits. One brand you won't see up there today is flawless. That's a business that we bought four years ago. It obviously didn't turn out the way we had expected as disclosed in the release. But as I said, these 14 power brands drive 85% of our revenues and profits.

So, here's our formula. We have a balanced and diversified portfolio. I'll take you through some stats in a minute. We have low private label exposure. The weighted average exposure is 12%. And innovation, Barre, is going to take you through a little while and we are an acquisitive company. We generate lots and lots of cash and the first destination for our cash is a TSR accretive acquisition. So, here's some of the diversity stats I want to share with you. So, we're 40% value, 60% premium. For as household and personal care split, it's about even 46% household, 48% personal care. And here's our weighted average private label exposure. And this is over a long period of time. It's generally around 12%. That really hasn't changed that much recently.

There are the five categories that we're most exposed to. You can see on the chart there, see how the private level has moved up and down over time, but it's generally stable even in this environment. And as far as consistent innovation, this is the lineup a lot of the new products we're going to be launching in 2022. The upper left, you see hard ball. I think you're really going to be excited about that when you hear about it later today.

All right. We have a long history of growth through acquisitions. If you look at -- go back 2004, $1.5 billion, we've added almost $4 billion to our top line and a lot of that is through acquisitions. You can see they're all laid out through the bottom almost every year, we add a new brand. And in the year 2000, the only brand we had was ARM & HAMMER. So with 13 of our 14 power brands have acquired -- been acquired since the beginning of the century. And most of those brands are number one and number two in their category. And we have very clear acquisition criteria. Got to be number one or number two in their categories. Notably, they need to be high-growth and high-margin brands that are fast moving consumables. Thus, we've added fast-moving consumables because of our experience with FLAWLESS.

Asset-light -- so we're a company that doesn't invest a whole lot in plants. We like to buy businesses that are already made by third parties, by co-packers. And we like to be able to leverage our considerable supply chain. And then finally, it needs to have a long-term competitive advantage. All right. So, the short story is, we have 14 brands today. We hope to have 20 tomorrow. All right. And I think that's it for me. I'm going to pass it over to Rick.

Rick Dierker
Executive Vice President, Chief Financial Officer and Head of Business Operations at Church & Dwight

All right. Thanks, Matt. So, we're going to go through quite a few things, Evergreen model, how we finished 2022. We're talking about 2023 and we'll also talk about capital allocation and cash flow. So first off, this is how we begin and end most presentations. This is our organic evergreen model. So, we start off with 3% of sales growth. We have gross margin expansion of 25 basis points. We have marketing that's usually flat on a percent of sales, but higher dollars. We leverage SG&A to get to 50 basis points and then we expand EPS by about 8%. That is our long-term algorithm.

So, in Q4, what happened. So, in Q4, we had a better-than-expected quarter. We were 300 basis points better on reported sales. Half of that was organic. Half of that was a little bit of FX and then the HERO acquisition did better than expected. So, thumbs up on reported sales growth, thumbs up on organic sales growth. Gross margin was a contraction. That's what we expected. And we've stair-stepped better throughout the entire year in 2022 and we expect that to continue in 2023. Adjusted EPS was $0.62 at the high end of our range and then cash from operations, I'll talk about on the full year, but we significantly beat our cash flow projections as well.

For the full year, we came in around 3.5% reported sales growth versus 3%, about 1.5% versus 1% on organic, and then gross margin was way down. And you heard Matt say $250 million of year-over- year inflation was the driver behind that. Adjusted EPS was $2.97, high end of the range. And then reported EPS was down 49% or $1.68 and that was really the flawless noncash impairment. And then cash from operations was $885 million versus our outlook of $800 million and that's really strong cash earnings and improved working capital, primarily inventories were coming down back in line especially for our discretionary businesses, which was good to see.

Okay, moving to 2023. So, we try to simplify the outlook. We have the detailed outlook on the next page, but this is a chance just to take a step back and say, how are we doing. Our outlook is 0% to 4%, hit the midpoint is 2% EPS growth. Before we get into the investments on marketing, SG&A and the impacts below the line, our core adjusted EPS growth is 10%, double digit. So, we're really pleased with how strong the business is performing.

We've chosen to make investments in brands and people. And so, we're increasing our marketing spend up to 10.5% of sales and that's about a $30 million investment or a 3% drag on EPS. Incentive comp normalization and we didn't have a very good incentive comp year this year, back to par is about $30 million or so and that's another 3% drag. And then interest and taxes is a 2% drag. Here is a detail of the financial outlook. So, 5% to 7% reported sales growth, 2% to 4% reported -- 2% to 4% organic sales growth, that 300-basis point difference is largely the HERO acquisition. The detail for organic is for the divisions is 2% to 3% for the domestic division, 3% to 5% for international and SPD at 5% to 6%. Gross margin for the first time in a long time expands by 100 to 120 basis points, that is exciting for us, right?

We've had a stair step down over the last few years. This is a road to recovery and we'll get into the details in a minute. Marketing that's the investment I talked about. SG&A is higher and we'll talk through that. Operating margin is flat. And then other expense, we're calling out as a drag of $110 million. We're $35 million higher on interest expense next year because of HERO debt and we have some variable debt that has rates going up. Effective tax rate is 23% and then the EPS growth is 0% to 4% and cash is strong, up 5% or so to $925 million. Here's a track record of reported sales growth. I don't think we've shown this slide before. We usually just show organic, but we thought we'd show both. So, over the last 10 years, we've averaged 6% of reported sales growth. And in 2023, we expect no different, 5% to 7%. Organically, here's the 10-year track record. Our average is around 4%. Our organic model -- Evergreen model is 3% and our range in 2023 is 2% to 4%.

Now one of the most important things about organic sales growth is how you get it. And I'd say if you look back at the last eight to 10 years, most of our growth is volume growth. Historically, our Evergreen model was 3%, then we would have 3% volume growth and pretty much flat on pricing. 2022 is a little bit of an aberration, all the pricing that's happening all over the industry because of the -- all the inflation that's happening all over the industry. But you can see in Q3 of 2022, we had really the low point for volume growth. And we have improvement in Q4. We have further improvement, although negative in Q1, further improvement, although negative in Q2, and then we inflect positively in the back half of 2023 is the expectation.

Now moving to gross margin. So, 100 and 120 basis points. Why do we believe that we can expand? Inflation is moderating. We still have inflation, it's just moderating. Productivity programs are doing well. Margin-accretive acquisition, that's CRO, and we're improving our case fill in a big way. So, you can see that 41.9% goes to around at the midpoint 43%. And if you look at the track record, 45% is kind of where we were. And so we have room to run over the next few years. And here's the detailed gross margin. This is the bridge in 2022. We were down 170 basis points and there is a massive headwind because of inflation. In 2023, we think yes, we still have inflation down 240 basis points, but price volume mix, plus productivity offset inflation for the first time in a long time and then we have help from our acquisition. So that's how we're up 110 basis points year-over-year.

On marketing, so a similar story. We have full year marketing support. We have better product supply. We're going to get to 10.5%. If you do the simple math and look at our high-water mark back in 2020, it was around 12%. Now remember, we took price these last three years and we don't raise marketing dollars just because we -- the price of the widget went up. So, 12.1%, effectively, if you strip out the price increases is around 10.7%. So, between 10.5% and 11% is equivalent to that 12%. So, by stair stepping up to 10.5%, we really feel good about the support we have for the brands.

SG&A is higher and it's higher for a few reasons. HERO has stand-alone SG&A. That business is off and running and doing a great job. $30 million of normalization for incentive comp and equity. And then number three, I also want to leave this group with our long-term evergreen leverage targets remain in place. We have a stair step up in one year, but the behavior doesn't change going forward. And we've had consistent strong adjusted EPS growth, low double or high single-digit growth for a long time is the track record. Last year, we took a step back down 1.5%, but we're taking a step forward this year in 2023 and we expect that to have further steps forward as we move along.

There is a first half, second half story. First half EPS is expect them to be down. Why? Because we had continued choppiness of our discretionary brands. We've kind of telegraphed that last quarter. We said for the next six months or so, we have continued choppiness for those discretionary businesses like WATERPIK, FLAWLESS and even vitamins as we're lapping Omicron impacts. International supply challenges return to normal promotional levels and higher marketing dollars, have higher marketing spend year-over-year in the first half than the second half. And the second half is impacted by improved productivity, improved global supply. We have volume growth. That was that chart I showed you earlier.

Moving on to cash flow. Our free cash flow conversion for many, many years has been industry leading, on average, around 120%. And this past year, we're around 97%. Why is that? Because of the CapEx investment we're making in capacity, laundry, litter vitamins. And then in 2023, we'll also expect free cash flow conversion to be in the 90s. How do we generate cash? Well, part of it is how we manage working capital. We've gone from 52 days cash conversion cycle all the way down to 19 days. So overall, just extremely happy on how we've leveraged our balance sheet and improved our working capital.

We took a stair step up in 2022 because we had elevated levels of inventory, primarily for our discretionary businesses. But as I -- as you heard in the Q4 release, we've improved those inventories. We still have more room to go, but we've improved those inventories. And then we have a really strong balance sheet. So, we ended the year at 2.1 times in 2022, and we're going to -- we expect to end the year at 1.7 times. So, we have plenty of firepower to do an incremental dealer deals. We have enough room to go up to $3.2 billion of a deal and stay and maintain our investment-grade rating.

Okay. Just talking about capital allocation. Number one, we always talk about TSR, accretive M&A. We want to do the HERO deal. We want to do the THERABREATH deal again and again and again, those businesses are great. Those are the fast-moving consumer goods that we're focused on that Matt just mentioned. CapEx for organic growth, we'll talk more about that in a minute. NPD, debt reduction and return of cash to shareholders. So, this is the capacity slide. Laundry, litter, baking soda, vitamins, all have capacity projects in place, technology, sustainability, all those things help drive our organic growth.

But overall, we're not a capital-intensive company. Look at a long track record for Church & Dwight, we're around 2% of sales. And in 2022, we took a step up to 3.3% as we started the investment cycle for laundry, litter and vitamins. In 2023, we'll be around 4%, 4.5%. And then in 2024, we expect to stay a step down. And then in 2025, we return to historical levels, that's our expectation. And then finally, our dividend increase, right? We had a 0% to 4% EPS outlook and this is the high end of the range. We've been paying a dividend for many, many years, 122 consecutive years. And then finally, I'd like to turn it over to Barry, who's going to talk through MPD and how the U.S. consumer business is doing.

Barry Bruno
Executive Vice President, Chief Marketing Officer and President, Consumer Domestic at Church & Dwight

Thanks, Rick. Hey, everybody, good afternoon. Nice to be back live with you here. I'm Barry Bruno. I lead our U.S. business and I'm going to talk to you a little bit about our categories, our brands, a little bit about innovation and then a new marketing campaign, we call it give it the HAMMER. You might have noticed that when you walked in as we've wrapped the building in Orange today. So pretty good work there that I hope you like as much as we do.

I may be biased as I lead the U.S. business, but I think our future is pretty bright. We're leaders in growing categories. I'll show you deeper what's going on in those categories in just a little bit, but we're number one or number two player in categories which are growing and healthy. We thrive in difficult environments. We've been through a lot over our 150-plus-year history and we thrive in those environments. We bring more consumers in. They stick with us as we emerge from them. And our acquisitions have a lot of room to run. I'm going to talk with you a little bit about ZICAM, a little bit about THERABREATH, and about HERO.

When I say that we're leaders in healthy growing categories, you can see what's going on here. Green means the category grew in that year. Red, it contracted. You can see we've added a few new categories over the years as we bought brands in the cold shortening, mouthwash and acne patch categories, but healthy gross -- healthy growth across each of those 6.4% weighted average last year. We also know how to hold and grow share, right? Seven of 14 last year is not ideally where we want to be. We had supply challenges and a number of them that we -- that held us back from where we'd like to be. Ultimately, we plan to do far better as we go forward as we aspire to be better than seven out of 14.

That's going to happen as our supply chain improves, right? You can see here where we were last year, Q1 below 80%, improving throughout the year. Some of those supply challenges has made share growth difficult. But as we get into the new year ahead, you can see we're at 93%, growing to 97% through the course of the year. That's good not only for us. it's good for our retailers as we bring growth back to these categories where again we're the number one or number two player. And you saw this before, we like difficult environments. We do pretty well in challenging environments. Our portfolio split 40% value, 60% premium, allows us to bring new consumers in, in tough economic times and keep them. And as Matt said about private label, relatively low exposure, only five of 17 categories have material private label.

This is a look at consumption in Q4. So, in 13 of 17 categories in Q4, growth took place. You can see some categories that are new to us. If you look at the top cold shortening. If any of you navigated November, December without a cold, the cough, COVID, RSV, I commend you, many of your fellow compatriots here in the U.S. did not do as well and you can see what drove category growth there. But what I like about this, categories that we've been in for a long time are growing, new categories are growing as well. So, let's take a look at some of those categories that matter to Church & Dwight. Fabric Care.

Left-hand side, category growth, right? You can see category growth was 6%, 7%, moderating a little bit in Q3 when the consumer took a step back. And then you can see what Church & Dwight growth was on the right-hand side. So, while we lagged the point in Q1, we grew faster in Q2, three times faster than category in Q3 and Q4. And as you all know, when you're growing faster than category, you're gaining share and that led us to an all-time share high, 14.9% as we ended the year. And I want you to take away, that's part of a long-term trend, right? We were at 11.5% share in 2017. We're at 14.9% now. Consumers who try ARM & HAMMER, love the brand and stay with us over time. And we think that's only going to happen more in this environment, right? You can see where the consumer is trading down from premium into value, which is where ARM & HAMMER squarely sits and we're keeping those consumers, as you saw in our all-time share hide.

Litter is another really important category. I'm going to talk to you about innovation in litter, but right now, let me show you where our existing business is, double-digit growth each quarter last year, 14%, 12%, you can see what's going on there. And again, the story of share growth here in tough economic times, we're continuing to gain share. You can see where we've gained a point and change over the year. But really, what's going on, our value orange box, cat litter, is gaining material share. Again, if you look at Q3, Q4, when the consumer was most stressed and they were trying ARM & HAMMER litter, they've moved to us and they're sticking with us. So another story about tough economic times in Church & Dwight persevering.

And it's not just economic times that are tough, cough, cold, flu, again, RSV, we really like the addition of ZICAM to our portfolio. You can see over years on the left-hand side how the category has been moving, took a step back in 2021. But in 2022, as consumers were socializing and going out again, masks were going away, the category bounced back and ZICAM share of cold shortening has built strength upon strengthens at a 77 [Phonetics] share. And actually, if you look at the far right here, we exited in December 78 [Phonetics] share of the category. And again, this is an interesting chart on the left, right? That is influenza reports to the CDC just in November and December of 2022 versus the last five years and that gives you a little bit of flavor for how severe the cough, cold season was and flu this year.

So that's good, and those are some important categories. We haven't even really talked about acquisitions yet. So, I'm going to talk a little bit about mouthwash and acne care. As a reminder, we bought THERABREATH in December of 2021. We bought HERO in October of 2022. So, HERO has only been with us for 90 days. But it's a story of strength to strength and growth. New distribution for THERABREATH plus our WATERPIK hygienist detailing it and have led to outstanding growth and HERO is on the same path. Let me tell you a little bit more about each of those.

So THERABREATH sales on the left here. So, percentage growth year-over-year, you can see where that business was up 59%, 45%, 50%. Ultimately, though, that growth far faster than the category has led us to an 8 [Phonetics] share of the overall mouthwash market. We're at almost a 20 [Phonetics] share of the alcohol-free mouthwash market category -- subcategory, right? We're the number two player there. We're growing as we're investing more in marketing and advertising and distribution. And speaking of distribution, when we last met with you guys, we talked about the huge runway that THERABREATH had. And you can see we're realizing some of that now up 60%, but we still trail all of our main competitors, ACT and Crest and Listerine were way under skewed. And as a brand that retails for double the category average, we're at about a $10 price point versus a $5 average, retailers are happy to engage in us -- with us in those conversations as we bring a lot of penny profit to the category. So, a great track record for THERABREATH already and that's going to continue into the future.

HERO, our newest edition. The acne patch category almost didn't exist five years ago. You can see $20 million in retail sales in 2018. It has grown dramatically to $340 plus million fueled by HERO. And you can see the percentage growth for HERO on the right-hand side in each month driving that category growth. And what's remarkable about that, I think HERO was only in distribution in bricks and mortar and Target and Ulta last year, right, on Amazon as well, but only Target and Ulta. That's why you can see the TDPs are difficult to calculate even in terms of how small they were. All of that growth is ahead of us as we look to get our fair share and drive more growth, and we're going to be launching in all of the major bricks-and-mortar retailers that you'd expect starting with CVS now and more to come over the course of the year.

So, the summary for that section, right? They're great categories we compete in. They're growing. They're healthy. We're the number one or number two player in most of them. We thrive in difficult environments with the portfolio that's 40% value. We bring consumers in and we keep them and our most recent acquisitions have tons of room to run. And we haven't talked about innovation yet. So, I'm going to spend a little bit of time on that. It might surprise you. I'm going to focus on cat litter because I think we've got something really noteworthy that our R&D group has created for us. The category, just to give you a look back, we started with our orange box products going back to 1998. We added black box, which is our premium back in 2016. We've had a 12% CAGR over decades in the business.

That value cat litter, $280 million in retail sales, that's orange box, that's one pillar for us. Second pillar, Clump & Seal, our premium price litter has been 80% incremental to us and we think we're on the cusp of launching our third pillar. We call it HardBall or lightweight litter perfected. Why do we care so much about lightweight litter? Well, we've got a 25% share in the total clumping category. We've only got a 5% share in the lightweight category. And lightweight is about a 16% subcategory of the total category. So absolutely going after our fair share there and we think HardBall is going to help us do it.

What is HardBall? It's a new and different kind of litter. It's sorghum, which is a sustainable, non-clay lightweight grain. We turn that into virtually indestructible clumps, which makes for easy no mess scoping. And I could tell you more about it, but I'm going to show you a video of some of our scientists having a little bit of fun that I think will bring it to life. Let's play the video, please.

(Video Presentation) I like the roof drop as the demo, right? That's a compelling one. Hopefully, that gave you a flavor to what HardBall is all about. Again, category benefits, it's surprisingly lightweight yet incredibly strong. It's virtually indestructible clumps, makes cleaning the litter box of breeze. If you've had to clean the litter box at home, it's probably one of the least favorite household chores and HardBall makes it far, far easier. And it's sustainable, right? Renewable, lightweight, easy to transport as well.

So that's only one of our innovations. You can see the top-left corner. We've got innovation across laundry and condoms and acne patches and water flossers and vitamins -- prep and smooth, by the way, a great new innovation that's going to make facial hair removal, far, far easier. BATISTE, SPINBRUSH and we're going to bring THERABREATH to a whole new generation of mouthwash users as we launch our kids line. So, lots of innovation across it. Carlos Linares can't be with us here today. He runs R&D and Leslie Dreibelbis is here. That team has done a great job giving us as marketers incredible innovation to launch.

I'm trying to tell you just about one more thing. We call it Give it to HAMMER. It's our new master brand campaign for ARM & HAMM you see it all around the building and. I don't know if technically, we're in a recession or not as judged by economists, but I can tell you consumer sure feels that we're in a recession.

If you look at the top right-hand corner, that consumer is paying $396 a month, more for goods this year than they were a year ago and that's forcing them to make difficult decisions, 53% are making different choices, 90% as you might imagine are anxious and stressed about that. And I grabbed a spot from a consumer that was posted here before we ever started this campaign, but this is the inspiration. When you worked hard to get a good job, but it doesn't even feel like it mattered. Gas is $5, rent increased by hundreds, frozen chicken is $25, it's impossible to buy a home and inflation is so high that the $1.03 is now the $1.25, right. That's what our consumers dealing with and they feel powerless about it. And it's leading to a wide-open window for brand reconsideration. Brands that were on autopilot are now being reconsidered. If you look at the bar chart, the chart at the bottom right there, 46% of consumers, according to McKinsey study are sharpen different brands and 42% plan to add them to their portfolio going forward. And we say ARM & HAMMER is made for this moment. We're the hard-working brand. It's packed with power, price to be accessible to all and eager to help. And we're launching a new campaign, a new video to consumers next week. We're going to share with you now. Let's play the video.

[Video Presentation]

So we think right message, right brand, right time, we're going to be launching it to consumers on Monday. So you guys have got a sneak peek here national TV, digital, all the influence and social media you'd expect on e-retail and through PR. We're excited about the campaign. We think it's going to be a whole new generation of consumers back into ARM & HAMMER and they're going to stick with us after.

So thank you for your time. I'm going to turn it over to my partner in crime and the leader of all things digital Surabhi Pokhriyal.

Surabhi Pokhriyal
Chief Digital Growth Officer at Church & Dwight

Thank you, Barry.

Barry Bruno
Executive Vice President, Chief Marketing Officer and President, Consumer Domestic at Church & Dwight

You're welcome.

Surabhi Pokhriyal
Chief Digital Growth Officer at Church & Dwight

Hi, everyone. So, good to see you. Flattered to be here leading Digital for Church & Dwight. My name is Surabhi Pokhriyal. So, I would say digital acceleration is actually a stated and acted upon priority for us because this is a new section. I'll do a little bit state of the union of what the industry is seeing and then give color on what Church & Dwight is seeing. So, you will notice here, we say 70% of all purchases in the US are going to be digitally influenced by 2027. Just for context, 60% of all sales in 2023 are already digitally-influenced. What that means is, not just the sales that we do on Amazon, walmart.com, target.com and so on, but sales that are happening in brick-and-mortar because of how the consumer feels inspired to make decision in store using the digital knowledge they have. So, when you're walking the target aisle and looking up a review on some other retailer, that's what we are calling digitally-influenced sales.

Similarly, the industry also tells us 81% of US consumers are omnichannel shoppers. That is every channel shopper because the consumer doesn't discriminate online or brick-and-mortar. They just want the right price, the right value and the right product. And we know from the industry that consumers that shop both online and in-store have a larger basket size. One example on online how the digital shelf changes, this is a gif image of every hour how our results change and how fungible and how volatile the online digital shelf is. It literally changes by the minute depending on what you're searching and how the results show up. So, we aspire to win on those Top Five to 10 results, so our brands show up and the consumer needs us.

This is one example. We really want to be there where the eyeballs are. So, in the last so many years, as we pivot to digital, as our choice of channel to communicate with the consumer, be it social, search, programmatic, we want to make those authentic, relatable relationships with the consumers and truly make it more edutainment. So, while we are educating them, we are also entertaining them, and not really throwing a media creative out explicitly. At the same time, the proverbial marketing funnel has so on flattened because the consumer has the right to go from inspiration liking a product, considering to buy it and actually buying it within milliseconds. So, you will notice on the right, we are actually doing campaigns, where consumers can go, be inspired about say, OXICLEAN in this case and go buy it at a retailer of choice all from within the creative media. And we see millions of clicks happening that way and flattening the marketing funnel.

Let's talk some numbers. Back in 2016, about six years back, only 2% of our sales were digital, "e-commerce sales". We closed 2022 upwards of 16%. Of course, COVID accelerated this behavior, because the consumer chose to buy online when they had no other options. But what we are seeing is when the consumer learns a new behavior, you cannot take convenience back from them. It becomes a very sticky behavior. And we see sustained post-COVID momentum, and that's how we see digital sales accelerating for us for all our brands.

Saying that we have a digital first ambition actually means that we are pivoting from digital being a capability builder to digital being a business builder. So, we come with the commerce worst mindset. We spend a ton of media in overall marketing and a large part of that is digital media. We also are very cognizant that digital cannot be a function by itself, and we need to elevate all boats and which is why we're investing a ton of effort into training and educating "traditional folks", who may not have a digital responsibility and launching educational programs internally.

This is a good example of how in-store and online. We want to make sure that we win with the consumer when she is on her way and doing footfalls in the store. At the same time, we want to make sure our content online is truly thumb stopping, so that we win with her in every single channel. So, in store, you want to be at eye level, easily reachable and have the right adjacency, but online, you want to have the right short-form videos, the product descriptions and so on. I'll give an example, like online, every keyword is actually an aisle in itself. So, you try up a litter, that's your endless aisle. You try up in dry shampoo, that's your endless aisle. And we want to win in both of those isles, both in-store and online.

Personalization is also a big focus for us. We know that the consumer yearns for a one-to-one kind of connection, and we can no longer serve the same creative to every demographic. So, in this example, a fantastic dry shampoo brand, the number one in the US, and with the largest market share, we saw a ton of consumer engagement and much high purchase intent when we started doing creative, which is the right media, the right messaging for the right hair type.

We also are conscious that digital being such a fast moving area. We cannot just accelerate what we already do in digital, but also be mindful of what might come at the helm in the future of. On the left, you will see a lot of examples from Douyin that is TikTok in China, and you have probably seen many examples of how live streaming is a huge thing in China. And we sold, say, 60,000 bottles of BATISTE in under five minutes. At the same time, in the western world, live streaming is a newer concept because it's not meant as much for social commerce as it is meant for social discovery. So, we are partnering with a lot of retailers, Walmart, Amazon included, to see how might live streaming be a bigger concept, and we have experimented a decent amount in this. This keeps us at tip of the spare to make sure we do well, not just what we already do it well in digital, but find newer avenues to scale.

Our current marketing spends of all the monies we spend in media, 70% is via digital channels. That is a big jump from -- if you see on the left-hand side, about -- till 2016, 2017, this number was 35%. So large part of the media used to be print, store and TV, where we just had a few asset types, each campaign. And now like Barry was showing, we have a variety of campaigns, everything from video, OTT, social, influencer, retail media, of course, and audio that we are able to reach a variety of consumers with dozens of assets per campaign. So, we are able to personalize the messaging at the cohort level and get better reach, sufficiency and, of course, media ROI for that. All this cannot be done without raising the intellectual capital of the most priced asset in our company, that is our people. We are very committed to raising digital IQ of everybody within the organization and we launched large-scale digital commerce certification programs for not just the people who do digital day-in and day-out, but "the traditional or analog marketers" so that nobody will be analog anymore, everybody has to jump on the digital bandwagon.

I'll quote Wayne Gretzky quickly here to say -- I scare to where the puck is going to be and not where it has been. That's exactly the sentiment will live and breathe in terms of digital acceleration in the company, be it consumer insights and analytics where we want to listen to the consumer using their ratings and reviews, consumer sentiment on social and design new product innovation or get back to them with the right solutions, beat our acquisitions with digitally savvy brands like HERO and THERABREATH, who do a fantastic job at elevating all boats within the company. And having a one commercial team mindset, where digital is truly a center of acceleration for Church & Dwight.

So with that, I will pass it on to my peer in international, that also see the ton of digital acceleration. So that is Mike Reed.

Michael Read
Executive Vice President, International at Church & Dwight

Thanks, Surabhi. Great to be here. My name is Mike Read, I run the International and the SPD business for Church & Dwight. So, I just want to take the next few minutes to talk about how we're doing in International and then close with some just updates on our SPD business.

So the international story. So from the Evergreen model, we're planning to grow 6% organically each year. And just to give you a little bit of a makeup of the business, we're about $900 million in sales, it's basically two different parts. We have our subsidiary markets, which are 6. This is a fully staffed, direct models that we have entities we sell directly to retail in Canada, UK, France, Germany, Australia and Mexico. That's about 65% of our business. The other 35% runs through our Global Markets Group, which we call GMG. That's essentially -- we work with more than 400 partners and distributor partners around the world in over 100 countries. And then we've actually supported that with five regional offices; China, Singapore, Panama, the UK, and most recently, in Mumbai, India, which we opened in March of 2022.

If you look back, we've got a very strong track record of growth against that 6% evergreen model going back to 2015. We did take a little bit of a step back in 2022. We've got really strong demand and orders in the system. We did have some supply challenges we referenced earlier in the presentation. And we did have some drag within our China market largely with some lockdowns and some water-flosser contraction. But overall demand is really, really strong and we've got a really strong track record.

If I unpack that a little bit, clearly, China has been a drag. But if you actually look at the -- our six subsidiary markets, as well as four out of our five GMG regions, we've really strong positive growth across the Board. Demand is really strong. Our portfolio is performing extremely well. I think as supply chain recoveries and as China starts to recover, we'll be poised to take advantage of that and get back on our Evergreen model.

The reason we have confidence in that I'd say is three-fold. One is just the strength of our brand portfolio. Our brands travel extremely well across the world. I kind of frame it up into three different ways. Traditionally, and certainly a big part of what we do today as we leverage our US power brands. So, ARM & HAMMER, OXICLEAN, VMS, TROJAN, etc. Those brands travel extremely well across the globe.

ARM & HAMMER across all segments is our single largest brand and some of those performed extremely well for us, but those are also complemented with a strong international portfolio in the personal care in OTC space, brands like Sterimar, Femfresh, Gravel and you sell those very unique brands to the International division, high margin and our high growth categories would perform quite strongly there. And of course, we've taken great benefit from our acquisitions that in many cases are US based, we're adding THERABREATH and HERO to the family in 2023. So, really excited about those. So across the portfolio, those are kind of the three ways we look at it. But together, it gives us a lot to play with internationally.

The second part is geographic expansion. So while we've got a great International story, we're still very early in our journey. If you look at most of our peer set, most of the revenues are in the 60% range, outside of the US. We're in that 17% to 18% range. So we have a long runway to go. Lots of geography, lots of brands to go into those geographies. So, really excited about the runway ahead.

And thirdly, and equally important is that we are making some key investments in the International divisions. We continue to invest in e-commerce and digital maturity and growth. Similarly, in pricing and revenue management, we're adding some supply chain within our Asia community, as well as putting infrastructure in people around quality, regulatory R&D in some of our key emerging markets, particularly in the APAC region.

So overall, very long runway of growth for International, very strong portfolio brands. So truly a matter of continuing to extend our portfolio into new geographies. We'll continue to leverage our acquisitions. THERABREATH and HERO will become really important brands for the portfolio. Most of our growth will continue to come from our Global Markets Group and within our emerging markets and we're going to continue to invest in key capabilities and resources as we continue to grow.

All right, let's switch gears to Specialty Products. So, Specialty Products is aimed to grow 5% organically each year. Just to kind of break that down, it's about a $350 million business, it grew almost 4% this year, 2021 we grew at 12%. It's broken up two-thirds, one-third between animal nutrition which is 69% and specialty chemicals at 31%. The animal productivity is largely prebiotics, probiotics and food processing safety, it's all under the ARM & HAMMER masterbrand. So we have a whole host of product lines in order to service the animal productivity space.

And just if you go back to 2015, international was not a big part of the business. We have made a conservative effort to move into our global markets, not too similar to our consumer business. 2022, it's 12%, and we'll continue to grow our international footprint. But as we grow international footprint, we're also going into new species as well. So what used to be largely a dairy business is now cattle, swine and poultry as well. So diversifying also the specie range.

So with that, this is probably the last time we'll show this slide. And if you go back in history, we often had sort of our dairy business and our own productivity is largely linked to the fluctuations in milk prices. Since we've diversified in terms of our species to include dairy cattle and swine and also are moving internationally, we've been able to smooth out our revenue. So we won't have the ups and down cyclical effect that we've had in past years. So this will be the last time we showed this chart, but I think it's an important context to have much stable revenues moving forward on SPD.

So overall, trusted brand from a Church & Dwight, but also ARM & HAMMER umbrella brand, both in the animal nutrition and the specialty chemicals. We're very aligned with kind of key trends around prebiotics, probiotics and available and affordable proteins. We've got a diversified around multiple species, and we're growing internationally. So for all those reasons, we're pretty excited about where SPD is headed, as well as international.

So with that, I will hand back over to Matt Farrell.

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Okay. All right. Thanks, Mike. I can try to bring it home here. You haven't seen this slide before, we talk about how we run the company. And this is a snapshot of our consumer business. We have seven SPUs. You see the first six on the left side or the US businesses on international on the far right. So this is how we break down all the brands that we manage and we manage dozens of brands, but you see most of the power brands are listed here. Maybe wondering why ARM & HAMMER appears for Fabric Care, Home Care and Personal Care.

In Fabric Care, we have an ARM & HAMMER detergent. In Home Care, we have baking soda and litter. And over in Personal Care, we have a toothpaste and underarm Deodorant, etc. But we got -- these are all broken down into very manageable businesses. And over an international, as Mike just described, too, we have one-third of the business is the GMG, our export business and two-thirds is the subsidiaries.

Okay. So here are five operating principles, which I'm going to kind of walk through. The first thing is leverage brands. So we focus on brands that consumers love. It's not brands consumers like, it's brands consumers love. They're going to stick with you, they are going to walk out of the store, looking for your brand. The second thing is we've been a long-time friend of the environment. This company was founded in 1846 and the founders of the company were environmentalists and that's continued to this day.

Leverage people I'm going to talk about. We have a wonderful group of people in our company. We have 5,200 employees. We have over $5 billion in sales. We have over $1 million of sales per employee and leverage assets, many of you who are long-term holders now that we're focused on being asset-light. And finally, if you do the first four right, you get good returns, but if you're able to make smart acquisitions, integrate them and grow them, you're going to get great returns. And that's what we have gotten over the years.

Okay. Leverage brands already mentioned that. We have 14 power brands that make up 85% of our leverage of our sales and profits. Friend of the environment, and we'll go in a little bit deeper on that. So you've probably seen this before. It's a good reminder that if you went back to the 19th century, we were putting trading cards in our boxes of baking soda and those cards were pictures of birds. And they said, save the birds, save the planet. In 1907, we started to using recycled paperboard in our cartons, no one was doing that back then. We were the first to take phosphates out of laundry detergent back in the '70s. And we were the first and only sponsor of the first Earth Day. And 20 years later, in 1990, Church & Dwight was still the only corporate sponsor for Earth Day.

More recently, we started to plant trees in the Mississippi River Valley, trying to offset the carbon docs that we put into the air. And if I go all the way to the far right, we're never committed to science-based targets. So when you plant trees, you remember from fifth grade science, you take CO2 out of the atmosphere, since science-based targets what we're focusing on is spending money on capex, to reduce the amount of CO2 we put into the atmosphere.

All right. So here are some of our goals. So you see, we aim to be 100% carbon-neutral by 2025, that means, we will have planted enough trees since 2016 to offset all the CO2 we put into the atmosphere and it's pretty considerable. And for a small company like ours, we put 350,000 tonnes of CO2 into the atmosphere annually. So this is really important to us.

You see, we mention of science-based targets below there. Water, we're trying to reduce water uses 10% annually and in solid waste recycling, we'd like to recycling 75% of the solid waste from all of our sites. We got a lot of recognition about that, the FTSE, EPA Green Power, Safer Choice Partner. We've been a Safer Choice partner for the past seven years. And you know it's -- this is important to our management team, it's important to our employees, it's important to the families of our employees as well. It's also important to our consumers. So you can see it, it's a really a top priority for so many consumers that are particularly younger consumers.

All right, the fifth principles is leverage people. So we said, we have highly productive people in a place where people matter. Now when you invest in a company, you bet on people and you bet on ideas and their ability to execute those ideas. And I can tell you, we have a really strong management team. But it's not just the management team, it's also the 5,000 people that we have in our company. 3,000 of those people are in supply chain. It's 60% of the company, that is the backbone of Church & Dwight.

And when you think about what's the culture in Church & Dwight, any member of our management team could take you through this. It's a blue collar company, that's not a dress code thing.. This is how you go to work every day. It's a roll-up your sleeves environment. We got a lot of high aptitude people in the company, many of them have worked in other large CPG companies, who wanted to go smaller where they can make a difference. So it's blue-collar, high aptitude, underdog. So we compete against companies that are far, far larger than us, and you know who they are, we never use that as an excuse. We beat these big companies every day.

The fourth thing is getting the facts. So it's a company, we're maniacal about numbers and data. And once upon a time, people made decisions based on the person who had the gray hairs in the room, the gray beards like me. So I know best. I've got 40 years of experience, no more that is not how business is done. Now it's done based on data and we are oriented towards static. And we have data sciences in the company now and we're becoming more-and-more focused on predictive analytics.

Just to kind of round it out, digitally savvy is something that's very important to us. That's something we've focused on over the past five years or six years. Diversity is the last one -- second-last one. And finally, it's take risks. We want to be risk-takers in the company. Where we illustrate that we actually have a picture, Johnny Depp from Pirates of the Caribbean and we use when we're talking about this internally and say, hey, this is who we are. So just wanted to give you a little bit of background on that and here is some numbers. Here is all of our competitors, and it's our revenue per employee, and I think this is an under-appreciated statistic when it comes to investing. It can makes -- make some big difference when you have fewer people, you get focused on fixing things, making things better and its Magic.

All right. We have a simple compensation structure in the company. As many of you know, from following us for many years, it's revenue, gross margin, cash and EPS. And what that does is it makes the company financially literate. So when we're talking about gross -- when we're talking about gross margin in every part of the company. When I go into a plant, we have 15 plants. We do town halls with all three shifts. We'll talk about gross margin. What is it? How do you get it? It's part of our compensation. And then as far as how do you get gross margin? It was good to great is the name of our productivity program. It's a book that everybody has heard about, probably no one's read, but that's the name we use to describe our productivity program. Supply chain optimization, that's also how do we run our plants, what kind of capital we're putting in our plants, which plants should we make a product that, new products. If you introduce new products that have higher gross margins, it's going to help you as well. And then finally, acquisition synergies. We like to buy businesses that have gross margins that are at or higher than our current gross margins.

All right, leverage assets. Rick took you through this before. We pride ourselves on being asset-light. And historically, we've been around 2% of sales. It spiked back in 2009 when we built our gigantic plant in New York, Pennsylvania. It's spiking more recently, because we're investing in so many different categories. But that's a good signal. You don't put in new capacity if you don't think you're going to grow. So we're going to be able to fill that up over the next couple of years.

All right. And finally, leverage acquisitions. I mentioned that before. If you do that well, you can turn good returns into great returns. All right. And I just want to repeat the acquisition criteria in case you missed it previously. So we invest in brands that are number 1 or number 2 in their category. You're not going to see us invest in a brand that's number 4 or 5 and tell you the investor, we're going to drive that to number 1. That's not going to happen.

The brands are number 1 or number 2 for reasons. That's what we focus on. They need to be high growth, high margin and fast-moving consumables. Asset-light is our preference. We want to be able to leverage our substantial footprint around the world. And again, needs to have a long-term competitive advantage. So with respect to cash, we have 14 brands today, we are like 20 tomorrow.

I just want to kind of end on the look ahead. So you saw in the release, we said, hey, we got strong fundamentals going into 2023. We got top line strength, both reported and organic. We got gross margin expansion. We've got a terrific new product pipeline, you only heard about one today, but there are many others as well. We're jacking the investment in advertiser. That's going to help us not only in '23, but in future years. Rick took you through the capacity expansion. And finally, we generate lots of cash. And so, we're on the hunt for our next power brand.

And with that, I'm going to bring up the rest of the management team and we'll do some Q&A play stump the band for a little while. All right. Come on up gang. It's a good looking group.

Questions and Answers

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

All right. Kevin, I'm going to call on you first.

Unidentified Speaker
at Church & Dwight

There's a microphone coming right behind.

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

No, we want to get you a mic.

Kevin Grundy
Analyst at Jefferies Financial Group

Great. Kevin Grundy, Jefferies. So thank you for the presentation. A question for the group with Matt, certainly start with you. So last year, certainly, probably one of the more challenging to get that the most challenging yet at the company has dealt with the macroeconomic environment, excuse me, certainly challenged, but it was for your competition as well. So as you kind of do a post-mortem on the year and you kind of think about supply chain, you think about your portfolio, you think about your relationships with retailers, what are sort of like the biggest learnings would you say operationally for the company? And then looking forward, what's the message for the investment community that there should still be a lot of confidence in the Evergreen target?

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Yeah. Okay. It's quite a big question. I think every companies have flexibility and so it creates options. And I think going into the COVID, the pandemic and certainly the recession this past year on our supply chain side, we didn't have the options. I think less than 15% of our raw materials had redundancy. And our target right now is to have 50% redundancy. So we've come a long way over the last couple of years. And that's why I said earlier that we're focused on -- be ready for the next black swan event.

As far as the portfolio goes, 80% of our portfolio did exceedingly well. And we had 20% of the portfolio went backwards. And some of it is self-inflicted, and that is with respect to vitamins and our ability to supply. That has certainly hurt us both on sales, as well as in the market share, but we're starting to turn underrun. And then from a device standpoint, certainly learned our lesson with respect to FLAWLESS. FLAWLESS struggled in '20 and '21 through COVID, '22 because of the pullback because it's a discretionary purchase. But WATERPIK is different.

WATERPIK is also a device, but do you have a secular trend towards interest in gum health. And that's the business we bought in 2017. It grew high single digits in '17, '18, '19, '20, '21. And went backwards this year. Why we had the recession, $5 gas, etc. But that's going to turn around, and that's going to be growing, not only in the US, but also internationally for us, but I could go on. But there are many areas of the company that I would say we'd look back and say, yeah, okay, we've been a little bit differently now, but now we're -- we got our eyes open going forward.

Thanks, Kevin. Rupesh?

Unidentified Participant
at Church & Dwight

Thanks for taking my question. So just on pricing, I guess, looking forward to this year, is there any pricing -- new pricing incorporated in your guidance for this year? And as you look at it last [Phonetic] how did they play out versus expectations? Have they gone back to where you historically been or are they still better than historically?

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Was that second question, price gaps elasticities?

Unidentified Participant
at Church & Dwight

Elasticities, is the question. Elasticities, how they compare versus your expectations versus history?

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Yeah. Will do with the elasticities first. Elasticities have been surprisingly good over the past year. So -- and I think you've probably heard that from all of our CPG competitors. The first part of your question was?

Unidentified Participant
at Church & Dwight

Just on pricing.

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Price? Yeah, well, I'll just start off, and it's going to have a little bit of chance to think of a better answer, but my answer would be the following. We already have pricing in place that's going to be in the marketplace in February and March, but we're sold in already. So we don't have anything ahead of us with respect to, hey, we got pricing plan in the second-half or in the fourth quarter because it's going to be -- it's becoming exceedingly more difficult in order to push price through. Take it away.

Barry Bruno
Executive Vice President, Chief Marketing Officer and President, Consumer Domestic at Church & Dwight

That was a great answer. The organic outlook for us is 3%, it's price in 2023 and volumes are flattish. We have that in the release. And that's really because we had carryover price from 2022 and then there's additional pricing that's already been sold-in like you said, that's effective in February. So that's really the preponderance of the 3% organic growth next year.

Unidentified Participant
at Church & Dwight

Okay.

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Yeah, Lauren.

Lauren Lieberman
Analyst at Barclays

Thanks. In the release this morning and then also in the presentation today, there was a notable absence of discussion around the VMS business. So thought it'd be great to just get an update on where things stand from an internal standpoint supply, raw-material availability and also from a consumer demand standpoint had early cough and flu, cold and flu. So where do we stand on kind of normalized demand or what you think that will look like?

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Yeah, that's a good question, I'll let Barry and Paul comment as well. But, the vitamin business in January, vitamin category in January was down 10% year-over-year. And the reason for that is because if you went back to last year, you had Omicorn and Delta, you had huge spike. In fact that -- in the first quarter of last year, you may remember from the slides, we had only 70% fill rate, because we just couldn't staff our plants. So that's an issue for the category right now. As far as our issues go, yeah, we've had some self-inflicted wounds over the year. Our supply is starting to come back as well. Now we have to win back the consumer. But I'll dish it over to Barry, first and then Paul, if you want to answer that.

Barry Bruno
Executive Vice President, Chief Marketing Officer and President, Consumer Domestic at Church & Dwight

Yeah, Lauren. I think we see the category as struggling as we're comping Omnicom and it's a discretionary category, right, when you're making a decision about $15, $20 vitamins. And as you saw in my give it the HAMMER campaign, your regular grocery bill is up $400. Consumers are stepping back from the category. So good news. Our supply rates are improving. Category is declining slightly. We're waiting to see what happens now as we get past the Omicron comp, how it looks. But we're going to be in a position to meet consumer demand as we get into the back half of Q1 here.

Lauren Lieberman
Analyst at Barclays

And just a quick follow-up. Does the outlook range, I mean it's the beginning of the year. It's not just early in the year and giving yourselves a lot of room as you navigate to your mix [Indecipherable]. So I'm curious, how much of the year's outlook is actually contingent on what happens with VMS because it's got attractive margins, a wide range of outcomes, right, in terms of where the category settles out, just curious how important that is to the full year outlook?

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Yeah, what we said in the release is we had the three categories that really hurt us last year through brands. That's WATERPIK, FLAWLESS and vitamins. And we said, the three of those together, we expected modest growth in the aggregate in 2023, but it's not going to be pulling the train. [Indecipherable]

Barry Bruno
Executive Vice President, Chief Marketing Officer and President, Consumer Domestic at Church & Dwight

In 2022, remember, those three businesses were about a 4% headwind to organic growth in the quarter, they were as well. Right. We had 0.4% organic. But we would have been at 4.5%, if not for those three businesses. And we said for the full-year, that's kind of true as well. 4% headwind just the absence of that headwind -- they're flattish to slightly positive next year.

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Olivia, your hand up before.

Olivia Tong
Analyst at Raymond James

Thank you. My question is around the cadence of margins because obviously you're starting the year at a lower point but you said that gross margin will be up in Q1. So could you talk a little bit about what's embedded in the outlook as you progress through the year because it's to expect that SG&A is up pretty considerably in Q1. Is that advertising or is there other expenses that we should be mindful of and what happens as the year progresses? Thank you.

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Rick, do you trust me to handle this one or you don't?

Rick Dierker
Executive Vice President, Chief Financial Officer and Head of Business Operations at Church & Dwight

[Indecipherable] Gross margin is, like we said, stairstep after the year. Part of that is the mix headwind in the front part of the year that we just experienced in the back half of this year because of the discretionary businesses like FLAWLESS, WATERPIK, Vitamins typically have gross margins. Other part of it is, as our fill rates recover, right, I think you saw a slide that Barry head-up there showing 93% fill rates in the first half, 97% fill rates in the back half.

So as you have fewer truckloads, as you have fewer fines from retailers, all those things help gross margin as your supply improves. SG&A, we haven't really got into the quarterly SG&A. SG&A is higher in Q1 and part of that we put in the release was just timing of equity grants as well.

Mark Astrachan
Analyst at Stifel Nicolaus

Thanks. Mark Astrachan at Stifel. Two related questions. So one M&A, which is a stronger contributor, I think than many expected in the fourth quarter. What drove that? And then how do we think about the contribution from M&A for '23 relative to what you said about Europe?

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Yeah, well, we had a really strong quarter from our new acquisition Hero. It actually exceeded expectations. I think just consumers are driving that. And we also had the opportunity to spend more in marketing in the fourth quarter for Hero. After we bought the business, it came in, in October. But as far as 2023, I would say, yeah, it's probably a little stronger than we expected when we first bought it. So that's going to help us. And then you can see our range, the gap between reported, which is on average 6% and 3%, which is organic. Most of that is the Hero business.

Rick Dierker
Executive Vice President, Chief Financial Officer and Head of Business Operations at Church & Dwight

And just to give you a couple of numbers, we will end the year for Hero in 2022 around $180 million. We said when we bought it, it would be 15% grower in 2023, you rolled out 4%, then that means it's about 3%. You're going to take the Q4 of 2022 out-of-the-comp, but It's about a 3% tailwind for 2023.

Mark Astrachan
Analyst at Stifel Nicolaus

And on the EBIT line, I mean I know what you said about interest expense. So what about from contribution there given the higher revenue same sort of flow-through?

Rick Dierker
Executive Vice President, Chief Financial Officer and Head of Business Operations at Church & Dwight

Well, we're investing more marketing and I'll let Barry talk to it a little bit. But we are -- as we expand distribution, we're going to spend more marketing for national campaigns, so it is a virtuous cycle for Hero.

Barry Bruno
Executive Vice President, Chief Marketing Officer and President, Consumer Domestic at Church & Dwight

Yeah. We've never had a national campaign before because we weren't a national distribution, right. And it might seem obvious, but we're getting excited about launching the first campaign to tell people all about acne patches because they still don't even realize what they are in many cases, household penetration versus total acne care lags by 10 times, 20 times. So that form, we're going to educate about as the category leader we benefit from that. So that's all new as we're building distribution at the same time. So I think it's a pretty exciting Hero's story. We've kept the whole Hero team with us by the way. They're a great, strong team, and they are leading that business today. So excited about Hero going forward.

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Okay. Jonathan, over to you.

Jon Feeney
Analyst at Consumer Edge

I'll start. Thanks. Jon Feeney at Consumer Edge. You mentioned, Matt, a lot of CPG companies talking about elasticities are better. But yet, everybody's getting gross margin headwinds, and I wonder, the data set seems to say that consumers are quite receptive and yet you get retailers in November December time how hard things, argument, for one that was talking to some companies about why they need to lower prices.

So could you give us a little more -- shed us more light maybe unlike that pricing process, where, I mean if I ask, why wouldn't you just price in some of these categories until you've got the elasticity you were looking for and optimize the profit pool that way?

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Yeah, I'm sure you know the way it works. In order to raise price, you have to have a cost story and without the cost story, you don't get the price and the retailers have all the data about what's going on in the marketplace with respect to commodities, transportation, etc., so it is a negotiation about, hey, this is what we're seeing on cost side we need this price increase and then there is a debate.

And when Paul lives this every day, give Paul a mic and he can share a little bit with you. But yeah, that is it around the world will all retailers is you can only go as far as you can justify the cost.

Paul Wood
Executive Vice President, Chief Commercial Officer at Church & Dwight

Yeah, I'd simplify it as transparency. The retailers expect you to be transparent with them to that cost store that he said. I think we've been extremely successful in being transparent, that develops a trust. So when we do come in and share a transparent story and timing is important too, retailers have financial demands and controls on different things and I think we've been very good at being showing them where the world is moving where we expect. So we have these conversations, they are not surprises. So, trust, transparency, and timing, I would say it's been our secret sauce and while it may seem like a cliche and everyone should do it. I think that's what's allowed us to experience the elasticities we have and make the choices we have as well.

Jon Feeney
Analyst at Consumer Edge

Okay.

Anna Lizzul
Analyst at Bank of America

Hi, thank you, Anna Lizzul with Bank of America. I was wondering if we could go back to the conversation around marketing investment. Just wondering if you can talk a little bit more about how you're planning to allocate this increased investment between your legacy brands and maybe some of the more recent acquisitions?

And then just in terms of acquisitions, how are you thinking about maybe the personal care side versus discretionary, just given the success of some of your more recent acquisitions like Hero versus some which maybe having less successful in the past? Thanks.

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

I will let Barry comment on the marketing. With respect to acquisitions, we have -- we only have one person in our entire acquisition M&A department which is very Church and Dwight-like. So we're not like a dozen people that are studying categories say wouldn't it be wonderful to be in this category? Yeah, it might be, but you can only buy what's for sale. So anything is for sale, particularly in the US that's consumer products, we are aware of, and you know what our acquisition criteria is as well.

And we've, even in last six months, just three acquisitions that we diligence that we passed and good economics, but they just didn't -- we didn't think they had good long-term potential for the company, but because we're able to make so many different products and so many different categories, we can put liquid in a bottle, we can put powder in a box, you put anything in a tube, we know how to make lots of things. So, consequently, we can through a pretty wide net as far as things we might be able to take on as a company. But I'm going to dish over to Barry.

Barry Bruno
Executive Vice President, Chief Marketing Officer and President, Consumer Domestic at Church & Dwight

Sure. Yeah, we've got a lot of brands in our portfolio, right but we've got a classic brand classification approach we've taken, it won't surprise you there's seed and there's grow and there's sustain in milk, 80% of the incremental dollars that we're putting in is going into those seed and grow brands, it won't surprise you if I say a seed brand is a Hero is a thorough breadth, we're reporting kind of gasoline or maybe seed is better say pour in water on them maybe gasoline is a bad example, but that's where the spend is going, right.

We make hard choices about it. We'd always like to spend more, but those -- for end classification, we know where we want to put those dollars and that's how we allocate it. So I won't get into the specific brands here, but that's how we approach it. When you've got 14 power brands you are going to make hard choices but we know where to put those dollars to work. We think Hero is certainly one of them.

Anna Lizzul
Analyst at Bank of America

Okay.

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Okay, let's move to another table.

Unidentified Participant
at Church & Dwight

Thank you, guys. [Indecipherable] Citi. Some of your competitors have talked about retailers reducing their inventory levels. I wonder if you guys have seen any impact in your business and particularly what categories you have seen most of the impact?

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Yeah, okay well, Barry and Paul deal with this every day. But I can tell you that in the fourth quarter, we had a major e-retailer significantly reduce their inventories and their days of supply. So that was a hit with respect to the fourth quarter. We did see a lot of that pullback happen in midyear in 2022, but more recently, as more retailers but I'll let Paul and Barry, comment on that. Take it away.

Barry Bruno
Executive Vice President, Chief Marketing Officer and President, Consumer Domestic at Church & Dwight

Yeah, by and large, we're back to a ship to consumption model. I'd say that retailers -- some may have their other challenges within their own network, they want to ship more product, but they may have constraints at their DC's or getting it out of their own DC's to their stores. But by and large, it's a ship to consumption. You guys are in stores across the country, you see what I see. We need more inventory on the shelves. It's just a matter of catching up, but I do not feel like what Matt described last year is anywhere near more the other side of that bookshelf and we want to get back, they want to get back, it's just getting the product through their warehouse into their network, but very small.

Paul Wood
Executive Vice President, Chief Commercial Officer at Church & Dwight

It was really in Q3 and Q4 though, for sure, we felt it.

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Okay. Let's get a mic over here.

Chris Carey
Analyst at Wells Fargo & Company

Thanks, Chris Carey, Wells Fargo. So from a ship-to-consumption standpoint, we've continued to see scanner trends materialize stronger than your underlying results, right, so even in this quarter there might have been a 10-point gap between what you did in personal care, delivery versus what we can see in scanner?

And so are we starting to get to a point where non-e-tailer, so large e-retailer. That is going to remain noisy but are you getting back to its ship to consumption in your core brick-and-mortar retailers because, again, we're seeing strong results in personal care consumption than what you're actually reporting right and it's making it a lot harder to actually -- quarters and understand what the underlying trend here is right.

So if you're back to ship to consumption that would seem to be a positive development, but I guess, what I'm hearing is actually that inventory will remain volatile in the front half of the year. So I'm just trying to square that.

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Yeah, Chris, your -- the major difference between -- you guys can see in Nielsen or IRI versus what's actually happening on the personal care side is really what's happened in discretionary business like the WATERPIK coverage that you don't see, remember the universe is this small for your view through Nielsen or IRI. on the WATERPIK business. Your view is largely, some of the smaller for the FLAWLESS business as well.

I think those two things are a big part of the disconnect but you take a step back, a lot of the portfolio is growing consumption really well. I think as you see Hero add to distribution and other retailers, you're going to see that gets picked up correctly, it just has to get scaled up to a greater degree, anything you guys would add.

Unidentified Speaker
at Church & Dwight

Yeah, I was going to answer a few, to be first, I would say the syndicated piece does matter. A lot of the personal care brands and with those retailers are, which you can see versus what we see and that's not an excuse, that's just kind of where the businesses is and some of those just aren't tracked the way that you guys are seeing it in the system. So, I think Rick hit it.

Chris Carey
Analyst at Wells Fargo & Company

Just related if I could, but the supply-chain improvement, it's an inventory improvement initiatives consumption. We've seen promotions come back up specifically on your laundry business. Was that an impact on price mix in the quarter and can you just describe that promotional activity, whether, it certainly looks like it was more offensive as supply came back you promoted behind laundry, but am I reading that situation wrong? And just again, any impact on the quarter would be helpful?

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Yeah, let me give you some help with a sold-on deal for the categories that generally have lots of promotion and Rick or Barry or Paul can chime in. So if you look at the liquid laundry detergent. Okay. Q2 versus Q4, you'd see that the sold-on there was 31% in Q2. It's 33% in Q4 for liquid laundry detergent. If you look at unit dose it was 28% sold-on deal in Q2 and it's 33% in Q4. So, it was 500 basis points move and then the other category, there's a lot of promotion is litter. So litter was 11.5% sold-on deal in Q2 and it's 14% in Q4. So you've seen a move up.

Now historically, liquid laundry detergent is kind of mid 30's sold-on deal. Litter, however, is still low, it's typically high-teens. So things have heated up a little bit in the last couple of quarters, but it hasn't gone to the point where we're it's a rocket ship or it's a big spike sort of gradual. And as we look ahead to 2023, I would say our sold-on deal will probably similar to what we did in Q4 evenly throughout the year. So if anybody else wants to chime in you can.

Barry Bruno
Executive Vice President, Chief Marketing Officer and President, Consumer Domestic at Church & Dwight

I would also say year-over-year, yeah, it's a drag because we're lapping a period where we didn't really have as much promotion fill levels were low and so now as we get back to normal levels of promotion is a year-over-year drag, yes. Is it offset -- is it off base from what our historical numbers have been now?

Rick Dierker
Executive Vice President, Chief Financial Officer and Head of Business Operations at Church & Dwight

Yeah,, but supply allows us to get back to advertising and trade that are at normative levels, I would say, right, we're not wildly off where we've been historically but that allowed us to, in Q4, get back to normative levels.

Chris Carey
Analyst at Wells Fargo & Company

Okay.

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

All right. Finally, this side of the room, coming to life.

Unidentified Participant
at Church & Dwight

I'll take a second shot at M&A. And I think some of it was in the earlier question was, if perhaps you're thinking about discretionary differently in the context of future M&A, it does feel like when you think about something like ZICAM where you bought a cold remedy company at a time when nobody was getting hold, it will also sounds like a lot of discretionary assets that you might be looking at are also equivalently struggling forgetting about what's in your business right now. So can you maybe just talk about how you're thinking about M&A in terms of -- is discretionary still on the table or has this recent experienced maybe changed your mind about discretionary as part of your plan?

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Yeah. Let's go back to the ZICAM for a minute. We bought ZICAM, that's a brand I'm very strong brand equity and we were buying it in the middle of COVID. With our long-term, this is a business that opportunity to grow and the opportunity with respect to ZICAM is similar to a brand like emergency which is not episodic now and it's sort of an everyday brand that many consumers use. That's the opportunity for ZICAM. Our long-term it's converted. Also is having ZICAM in a gummy form.

Got to keep in mind, we were in supplements with VITAFUSION. So it made a lot of sense for us to add onto that as ZICAM. So just to give you give them a little bit of context. Now as far as the discretionary versus non-discretionary, a recent experience does influence our attitude going forward. And certainly, if you're going to buy a discretionary brand, the question is going to be how resilient it's going to be the downturn in the marketplace. Because obviously with certainly with respect to Vitamins, FLAWLESS and WATERPIK, the economy did affect the performance of those brands over the past year or so. Does that influence us, that doesn't mean that we're -- it's hard and fast would have been extra through them, but I will say the devices you can put an extra going-forward. Thanks. Steve?

Steve Powers
Analyst at Deutsche Bank Aktiengesellschaft

So Steve Powers from Deutsche Bank. So I wanted to go back to pricing. Two-part question. The first one is just pricing in the quarter relative to what we're seeing in scan data, pricing came in late. So I don't know how much of that is the promotion and how much that is some of the mix that we don't see. But just you can bridge that gap would be helpful.

And then as you go forward, for as much pricing as you have taken and are taking, your pricing net of cost inflation is still has not cut up and it's not expected to catch up in your gross margin bridge, all your gross margin is productivity and fill rates and mix which is great. Lot more emphasis on volume resumption in your messaging and value. So just philosophically, how you're thinking about that and I guess a little bit to Jon Feeney's question about just why not price a bit more, if your assets is are favorable to close that price versus cost inflation gap?

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

I'll start and I'll dish it to Rick. So as far as the fourth quarter goes, certainly, mix had an impact, as we talked about earlier with respect to WATERPIK and Vitamins and FLAWLESS year-over-year promotions, which I went through. Also since that's kind of been heating up Q2, Q3, Q4. It's gradual, but it's still had an impact in the fourth quarter, but I would say the two factors would be mix number one and number two was heat up and sold on deal, as far as the trend with respect to price-mix.

Rick Dierker
Executive Vice President, Chief Financial Officer and Head of Business Operations at Church & Dwight

And as for 2023, if you look at the components in the gross margin bridge that all squished together. But I'll tell you, by the end of 2023, we do think that we've the priced dollars on inflation. Okay. What you're seeing there is a negative mix again from the first half of the year on the FLAWLESS, WATERPIK environment businesses. Now we talked last quarter as an example of -- in WATERPIK units we're flattish to down slightly, but everyone was trading down to lower-priced units, that's where it shows up on the gross margin bridge as a headwind.

But overall, we feel really good about our pricing and what we've done. And if you remember, rewind the clock a little bit, we were the first to go out with laundry pricing, right. We're not the leader in that category, we were the first to go out and litter pricing. Because we knew it wasn't if -- but just went. And so we had the cost story, we have the justification we moved. And so we feel really good about our pricing, it's a core competency in the company now. I would say about seven years ago, we just started a pricing department. And we have people that all they do every day. Just look at pricing, where we should be and what we should do. And so we have all these plans in place and we've had it successful. So in retail, because we have transparency and we have the facts to back it up.

Barry Bruno
Executive Vice President, Chief Marketing Officer and President, Consumer Domestic at Church & Dwight

So we're not tendered about raising prices, you know. Steve, as you just heard the -- what the history was with respect to when we've raised price. But we also have to be cognizant of what's going on in the category and the category dynamics and our price gaps with our competition. So I think, I mean, you and Jon are beating on the same topic, but we've taken it as -- we think as far as we can at the moment with that because we do need [Indecipherable] further. Yeah. Andrea?

Andrea Teixeira
Analyst at JPMorgan Chase & Co.

Thank you. Just -- Andrea Teixeira from JPMorgan. Just to squeeze in to Steve's question on the pricing and also the volume side. I guess, you had a big impact on the fourth quarter and the full-year 4% for those 20% of your businesses that were down. So I'm thinking, as we're thinking through the first half of these a year, right, you were calling for a decline in volumes. Is that mostly on that or you're adding on a bit of elasticity in this first half of the year? It seems, let's say if it's opposite, like the existing, the other 80% is going to grow volumes.

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Yeah. I would say, it's more of the same what we just experienced in Q4. All right. The 80% of the business is doing well, volumes are up and it's really the drag from those other businesses that we said mid-choppy for the first six months of 2023.

Andrea Teixeira
Analyst at JPMorgan Chase & Co.

Thank you.

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

Okay. It's a comment now. All right. We got a mic on the center of the room.

Peter Grom
Analyst at UBS Group

Thanks. Peter Grom, UBS. So Rick, you showed the slide talking about gross margin performance overtime and recognizing you're expecting to have a nice bounce-back here in '23. You're still kind of 200 basis points or so below kind of the 2019, 2020 gross margins. And I don't want to sit here and ask question for 2024 guidance as in February of 2023. But you spoke to multi-years of opportunity gross margin expansion.

So I guess, how big of a priority is that in terms of getting back to that level over time? And as you think about the cadence of the year and kind of look forward here, how quickly can you get back to 45% gross margin? Thanks.

Rick Dierker
Executive Vice President, Chief Financial Officer and Head of Business Operations at Church & Dwight

That's a great question. Number one priority in the company is always to grow our brands, right? Have brands consumers love, gross share over-time and good categories. The number two priority is probably gross margin. Gross margin expansion leads to EBITDA expansion leads to cash flow, right. We're known for cash flow generation. And I would say, two things really helped give us confidence over the next few years.

If you look back at our history, we normally have about $50 million of inflation. We haven't had $50 million inflation, it feels like for a decade, it's only been three years or four years, but it feels like so long, $290 million of inflation in 2021, $250 million in 2022, we're calling $125 million in 2023, that is not normal. We're going to return to the days of normalized inflation and meanwhile our productivity program is alive and well, even stronger than it's ever been.

So as that -- you saw in the bridge, I think that was closer to a 100 plus basis points. We target closer to 2% on productivity. So if that equation normalizes, I think that's a great way, we're going to have gross margin expansion. And then number two, as our businesses like TheraBreath and like Hero, continue to grow and expand globally, that's going to be a great tailwind too.

Peter Grom
Analyst at UBS Group

And just some math, I think our gross margin just few years back, pre-COVID around 45%. It's 41.9% in 2022. We're calling 100, 120 basis points improvement. So pick the midpoint, so you go, 41.9% to 43% in 2023. And then they should over to respond from -- and by the way Matt Duffy is here today, he is one of people that drives our good to great program and we target 2% of sales for cost savings, annual, its a $100 million that's a big number. So huge effort to make that happen, but -- that works referring to weaker for to sustain that going-forward, any kind of help from commodities and input costs. We'll be able to return to expanded gross margin in the future. But Rick, anything to add about the target-rich environment? You've all seen Top Gun?

Rick Dierker
Executive Vice President, Chief Financial Officer and Head of Business Operations at Church & Dwight

Four years ago, we made a conscious effort to increase our focus on our good-to-great program, our productivity program. We brought Matt Duffy and who's in the room as Matt said to lead the program. And it was a push in the beginning, we couldn't get a lot of traction in the company. It's now a part of our culture. We have marketing leaders asking us what else we can do to drive cost savings. We have the R&D community focusing on it. We've created a value engineering team, whose sole focus is to break down our products and figure out more effective ways to go-to-market with those products from a cost standpoint. So it really is part of the culture now and it's driving much bigger savings than it was four years ago.

Matthew T. Farrell
President and Chief Executive Officer at Church & Dwight

As far as [Indecipherable] to point out that our entire M&A department is actually here on the stage [Indecipherable] whole department. So if you want to talk to him after class, please do. All right. Any other questions in the room? I guess that concludes it today. I was so happy. We're able to do this in person this year and look forward to seeing everybody next year. Thank you.

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