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Good day and thank you for standing by. Welcome to the Third Quarter 2023 Spectrum Brands Holdings, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to the Vice President of Strategic Finance and Enterprise Reporting, Faisal Qadir.

Good morning, everyone and welcome to Spectrum Brands Holdings Q3 2023 earnings conference call and webcast. I'm Faisal Qadir, Vice President of Strategic Finance and Enterprise reporting, and I will moderate today's call. To help you follow our comments, we have placed a slide presentation on the Event Calendar page in the Investor Relations section of our website at www.spectrumbrands.com. This document will remain there following our call. Starting with slide two of the presentation. Our call will be led by David Maura, our Chairman and Chief Executive Officer; and Jeremy Smeltser, our Chief Financial Officer. After opening remarks, we will conduct the Q&A. Turning to slide three and four. Our comments today include forward-looking statements, which are based upon management's current expectations, projections and assumptions and are, by nature, uncertain. Actual results may differ materially. Due to that risk, Spectrum Brands encourages you to review the risk factors and cautionary statements outlined in our press release dated August 11, 2023, our most recent SEC filings and Spectrum Brands Holdings' most recent annual report on Form 10-K and quarterly reports on Form 10-Q. We assume no obligation to update any forward-looking statement. Also, please note that we'll discuss certain non-GAAP financial measures in this call. Reconciliation on a GAAP basis for these measures are included in today's press release and 8-K filing, which are both available on our website in the Investor Relations section. Now I'll turn the call over to David Maura. David?

Hey, thank you, Faisal. Good morning, everybody. Welcome to our third quarter earnings update. And I want to thank all of you guys for joining us today. As usual, I'll begin with an update of the company's strategic initiatives followed by an overview of our operating environment. Jeremy will then provide a more detailed financial and operational update, including a discussion of the specific business unit results. I'd like to start today's call by thanking and congratulating our Spectrum Brands colleagues around the world for all their efforts and tireless dedication to the company. I am very proud of the Spectrum Brands team for managing through these unprecedented challenges this year, including significant inventory demand volatility from our retail customers and the unanticipated DOJ lawsuit to block the sale of our HHI business unit. Our retail customers' inventory management strategies have made it exceedingly difficult for our business units to accurately forecast sales. The lawsuit and protracted time line for the closing of the sale of HHI imposed a number of challenges, including executing our business strategies, maintaining employee morale with the uncertainty of the transaction and adjusting our operating and working capital use strategies to comply with covenants under the HHI operating transaction agreements and our debt instruments. I'm truly grateful to the Spectrum Brands team for managing these challenges and getting us to the close of the HHI transaction, which has placed us in a materially better position to deliver on our operating and strategic plans for our company. If I could move your attention now to slide six. As a reminder, we completed the sale of HHI to ASSA ABLOY for $4.3 billion in cash on June 20, subject to customary purchase price adjustments. And we expect $3.8 billion in net proceeds after fees and taxes. With the close of this transaction, we have now become a net debt-free company as we ended the quarter with $2.9 billion of cash in the bank and total debt of $2.1 billion. As we had indicated during our last earnings conference call, we've begun the process of deleveraging our balance sheet and we have repaid $1.1 billion of bank loans since receiving the HHI sales proceeds. We also received Board authorization for a $1 billion share buyback plan and we entered into and funded a $500 million accelerated share repurchase program that continues to transact in the market today. Additionally, since the end of our quarter, we have repaid another $450 million of our outstanding debt by calling our 5.75% 2025 senior unsecured notes, which were callable at par. We are going to patiently and thoughtfully explore various options for the use of the remaining proceeds, while we continue to earn investment income on our cash balances at rates that are well above our average cost of debt. On the strategic front, we remain committed to finding strategic and organic ways to enhance the value of our Home and Personal Care business. We are very focused on turning that business around, improving its profitability, while we continue to explore our strategic options. Now moving to our operating environment and financial results. I'd like to focus on two key messages. First, we are facing further short-term headwinds that are driving additional pressure on our top line, particularly in our Home and Garden business. That said, we remain confident in the long-term trajectory of our businesses, and we are seeing strong sequential profitability improvements. Secondly, our cash flow focus is paid off, and the company's balance sheet has never been stronger. We are now able to make decisions that are going to set up the business for long-term profitability and success. Building on the first theme, cooler-than-expected weather conditions and greater-than-expected reduction of retail inventory levels negatively impacted our third quarter sales in our Home and Garden business. We now expect this season and Home and Garden sales to be worse than we previously anticipated. We also continue to see pressure in the home -- small home appliance space due to lower consumer demand and continued higher-than-expected retail inventory levels. Our financial results reflect these conditions as our total sales declined 10.1%, while our organic sales declined 9.7%. Jeremy will provide more details by business unit in his comments. However, we are seeing the benefits of our earlier actions on cost reductions and price increases that are sequentially improving our gross margin rates. On the cost side, we remain focused on simplifying our business model and reducing costs further to operate as a leaner organization with a renewed financial discipline. To that end, we are seeing the benefits of our fixed cost reduction efforts. In fact, our EBITDA margin increased by over 600 basis points sequentially to 13.4% in the third quarter. With all the cost actions in place, we believe we are well positioned to face these short-term headwinds, while maintaining our key capabilities necessary to continue to now invest in the long-term growth of the business. If I could build on the second theme for a moment, you may recall, we started the year with our end markets in decline, especially in the Home and Personal care space, and our leverage peaked at over 6 times during this fiscal year. Our immediate focus at the beginning of the year was therefore on cash flow generation and cost management to the detriment of our sales and EBITDA growth. On that front, we have delivered strong performance by reducing our inventory levels by over $250 million since the end of fiscal ‘22. As I mentioned earlier, the completion of the HHI sale, we are now in a net cash position. With the strength of our balance sheet and our current cash balance, we have made the decision to discontinue our participation in various receivables factoring and early pay programs that we have historically taken advantage of to shorten our working capital cycle. Although these programs are a great vehicle when they're needed, they come at a cost, and that cost has been increasing with the backdrop of a much higher interest rate environment. We expect that the exit of these programs will result in one-time operating cash usage of over $250 million in the current fiscal year and potentially another $100 million in fiscal '24. Although our focus on the balance sheet has yielded significant reduction in our inventory balance, inventory at retail partners remain at an elevated level. We also continue to have some excess inventory, particularly in kitchen appliances. We are evaluating various alternatives to ensure we can improve the health of our inventory as we get ready to enter fiscal 2024. Moving to slide seven and our high-level fiscal ‘23 earnings framework, we remain pleased with the earnings performance of our Global Pet Care business, and we continue to see improvements in the Home and Personal Care business despite the headwinds in its end markets. We also remain very confident in the long-term strategy for our Home & Garden business, but we do expect this to be a difficult year for this business unit due to the cooler-than-expected weather and retail inventory-related sales declines. Given the additional pressure in the Home & Garden business in the second-half of this year, we expect to be towards the lower end of our earnings framework, excluding the investment income from the HHI proceeds. Now I'll let you hear more from Jeremy on the financials and specific business unit updates and insights. I'll turn the call now over to you, Jeremy.

Thanks, David. Good morning, everyone. Turning to slide nine and a review of Q3 results from continuing operations. I'll begin with net sales, which decreased 10.1%. Excluding the impact of $3.5 million of unfavorable foreign exchange, organic net sales decreased 9.7% from lower consumer demand in hard goods and consumer durables, and reduced customer replenishment orders as they remain focused on inventory reduction, particularly in Home & Garden and kitchen appliances. Gross profit decreased $12.5 million with the reduction in volume, while gross margin of 35.8% increased 210 basis points from a year ago from improved pricing, cost improvements and favorable mix. Operating expenses of $388.2 million increased about 60% with the increase driven by the recognition of an impairment of HPC goodwill of $111 million and intangible asset impairments of $54 million, offset by the positive impact of fixed cost reduction efforts initiated in the prior year and that continued during the first-half of this year as well as overall spend management. The operating loss of $124.7 million was driven by the impact of the sales decline and the goodwill and intangible asset impairment charges I mentioned. The GAAP net loss and decrease in diluted earnings per share were primarily driven by the increase in operating loss and higher interest expense. Adjusted EBITDA was $98.5 million increasing despite the decrease in volume due to the positive impact of pricing, fixed cost reduction efforts, overall spend management and investment income of $5.3 million from the HHI proceeds. Adjusted diluted EPS increased by $0.21 to $0.75 per share, driven by higher adjusted EBITDA and the reduction in shares outstanding. Turning to slide 10. Q3 interest expense from continuing operations of $38.9 million increased $12.9 million due to a higher interest rate on our variable rate debt and $8.6 million of noncash fee write-off from our debt repayments. Cash taxes during the quarter of $9.9 million were $3.5 million higher than last year. Depreciation and amortization from continuing operations of $22.6 million was $2.8 million lower than the prior year. And separately, share and incentive-based compensation increased $5.5 million. Capital expenditures were $18.4 million in Q3 versus $20.9 million last year. And cash payments towards strategic transactions, restructuring-related projects and other unusual non-recurring adjustments were $10.3 million versus $29.3 million last year. Moving to the balance sheet. The company had a quarter-end cash balance of $2.9 billion and $587 million available on our $600 million cash flow revolver. Total debt outstanding was approximately $2.1 billion, consisting of $2 billion of senior unsecured notes and $89 million of finance leases and other obligations. Additionally, we ended the quarter at a net positive cash position compared to pro forma net leverage of 6.3 times at the end of the previous quarter. Now let's get into the review of each business unit to provide details on the underlying performance drivers of our operational results. I'll start with Global Pet Care, which is on slide 11. Reported net sales decreased 6.2%. Excluding favorable foreign currency, organic sales decreased 6.4%. The net sales decline was largely driven by continued softness in the global aquatics marketplace, especially in the subcategories of equipment and environments, which have benefited from higher-than-average pandemic-driven demand. In addition to lower aquatic sales, our North American sales were also adversely impacted by our aggressive portfolio management activities, which resulted in the decision to exit several non-strategic categories such as waste management and the discontinuance of hundreds of lower profit SKUs. These activities will reduce our North America active planned item count by nearly one-third and while the impact from a top line perspective is a purposeful headwind, we are very pleased with the effect this is having on margins, turns and cash flow. Sales in EMEA increased due to growth in the companion animal category mainly driven by our dog and cat food sales, which more than offset similar declines in aquatics. All of our planned price increases in EMEA announced during the first quarter have now been successfully implemented with the last few customers implementing pricing early in the third quarter. Across all regions, sales were helped by the annualization impact of the multiple pricing actions taken throughout last year and the benefits of the new price increases taken this year. On the cost side, we continue to experience some net inflation in line with our expectations, with declines in freight rates partially offsetting material, energy and labor inflation. We will continue to closely monitor these input cost trends and strategically price as necessary. On the innovation front, in the U.S., we are excited to share that our new cat treats line officially became available on chewy.com and will soon be expanding to other retailers. This is our first foray in the cat treats category in the U.S., which is roughly a $2 billion category. The new lines are anchored by three patented innovations: Stary Spinners, a two-in-one toy and treat; Savory Spoonables, a tasty interactive spoon-feeding treat; and Triple Flavor Kabobs, a long-lasting playtime treat. Staying with the theme of cat innovations, in EMEA we've also expanded our IAMS Vitality and IAMS Delight cat ranges and recently launched a new line of Eukanuba wet cat food. The cat nutrition and treats markets are some of the fastest-growing categories in the marketplace. So we're excited about the long-term growth potential of all of these new product expansions. Adjusted EBITDA for GPC increased by 31% to $53.6 million. The increase of $12.7 million was primarily driven by favorable pricing including the incremental pricing actions in EMEA, the exit of low-margin SKUs and our continued focus on cost reduction measures, including the fixed cost restructuring we initiated last year and further actions during the first-half of this year. This was partially offset by lower volume. We remain cautious about certain categories within the pet specialty channels, such as aquatic environments as the rates of new entrants settled to at or below pre-pandemic levels. But we expect the positive trends in companion animal consumable categories to mostly offset these pressures. Overall, the category fundamentals remain strong within consumables, especially nutrition-based categories. This is encouraging as our business is becoming more aligned to consumable products for your pet which represented over 85% of our revenues in Q3. As the margin structure continues to improve, we are shifting our focus to strategically investing more in advertising and trade promotion to engage consumers, drive top line growth and increase our share. The GPC team remains focused on the execution of our long-term strategy, which is centered around inspiring more trust to the delivery of unique and innovative products to drive demand for our portfolio of leading brands. Our pet business is a historically recession-resistant business with continued growth potential, and we remain bullish about the continued prospects for this business. Moving now to Home & Garden, which is on slide 12. Net sales decreased 6% in the third quarter, driven primarily by cooler than expected weather conditions across several key regions which led to soft POS and lower sales from replenishment orders from our key retail partners. The lower POS, especially in May and June also drove retailers to continue to be conservative with their inventory planning and to further reduce inventory in the quarter. Adverse weather conditions, particularly in the Southeast, negatively impacted the overall pest controls category POS. Despite those conditions, we are experiencing growth in our controls category as we continue to win with consumers with our Spectracide brand, leveraging our strong brand positioning that delivers great efficacy at great value for our consumers. However, we are facing some pressures in the household category with our Hot Shot brand as the competitive landscape has become more challenging with key competitors' heavy investments, both in promotions at the retail level as well as top funnel advertising. The overall volume decline was partially offset by the impact of price increases. As I mentioned earlier, the shift in retailer strategy to maintain significantly lower inventory levels compared to last year continued to play out in our third quarter results. We expect this trend to continue and now expect retailers to target historically low levels of inventory for the end of the season. This continued inventory reduction will pressure our sales expectations in the fourth quarter. That said, July has seen a good recovery of POS, driven by both incremental support for our brands, which are trending positively so far in our fourth quarter as well as warmer weather. Sales of cleaning and restoration products experienced some growth in the quarter. The POS for the category remains challenged as demand for cleaning products continues to decline post-COVID and our performance in the category remains below our expectations. We are planning to increase investments for our Rejuvenate brand to drive top line sales as part of our renewed focus on driving long-term growth. We will leverage positive momentum in the market as we see consumers continue to recognize the efficacy and strong value of our products. Rejuvenate has been ranked as a best value for floor cleaning systems by Better Home & Garden magazine. Significant commercial innovation continues to be rolled out across our Home & Garden portfolio. In controls, we are expanding the presence of our Spectracide One shot platform across several other products. This is a strategic innovation that will allow us to bring superior performance to results-driven consumers but keep our strong value model in the market. In repellents, our new zone mosquito repellent devices, Cutter Eclipse and Repel Realm continue to gain traction with consumers. We will expand the presence of these product lines into several new national accounts, and we'll continue to build excitement for this new product offering. We are carefully monitoring POS and coordinating with our retail partners to ensure we can appropriately supply the products to meet consumer demand. But as I referenced earlier, we expect further retailer inventory reduction actions in the fourth quarter in parts of the channel. Adjusted EBITDA for our Home & Garden business was $38.6 million. EBITDA decrease was primarily driven by the sales decline. This was partially offset by positive pricing, benefits of fixed cost restructuring and cost improvement initiatives. We experienced higher product costs from raw materials and labor in line with our expectations. As we look forward to the balance of fiscal '23, we expect fourth quarter sales to be impacted by the continued retail inventory reduction. As a result, we expect sales to be down for the full year. Although we believe that the fundamentals of the consumer market remains strong, this is a difficult year for our Home & Garden business because of the challenges posed by the retail inventory strategies. And finally, Home & Personal Care, which is slide 13. Reported net sales decreased 16%. Excluding the unfavorable foreign exchange impact of $4.3 million, organic net sales decreased 14.7%. The unfavorable foreign exchange impact is mainly driven by currency volatility in Latin America. The organic net sales decrease was driven by continued category decline from lower consumer demand in kitchen appliances and retailer inventory reductions in North America. Overall, global sales increased in the personal care appliances categories. Sales in the EMEA region registered double-digit growth in both personal care and kitchen appliance categories as we continue to win in the marketplace and gain share through growth in the e-comm channel. Sales in LATAM and APAC also posted strong growth. However, the North America business continues to operate in a difficult competitive environment with the small kitchen appliance market down mid- to high single digits in the quarter. The retailer inventory -- on air fryers and toaster ovens as demand remained well below pandemic highs. We expect continued pressure for the remainder of the year for these product lines as retailers work down inventory through suppressed replenishment orders. Consumers are also looking for deals as retailers and competitors maintain the increased level of promotion in the marketplace, which will put further pressure on our results. Adjusted EBITDA increased to $11.4 million. The higher adjusted EBITDA margin was driven by lower cost inventory and positive year-over-year pricing. Ocean freight rates have continued to decline from the pandemic high levels, and we are driving further margin improvement through various cost improvement initiatives, including the fixed cost restructuring we've undertaken over the past two years. This was partially offset by lower volume and the impact of unfavorable foreign exchange rates. Looking forward to the remainder of the year, we continue to expect softer consumer demand, particularly in the air fryer and toaster oven categories and expect a continued challenging competitive environment in North America as retailers continue their focus on inventory reduction. As such, we will stay focused on actions to reduce inventory in the channel as well as our own inventory. Commercially, our renewed focus remains on driving fewer, bigger, better consumer-relevant innovations that enhance our current market position and simplify the operating model of the business. We'll turn now to slide 14 and update our expectations for 2023. As David mentioned earlier, given the additional revenue pressure in Home & Garden in the second half of the year, we expect to be towards the lower end of our earnings framework, excluding the investment income from the HHI proceeds. Additionally, we expect approximately $30 million of investment income in the fourth quarter based on the current interest rate environment. Turning to slide 15 now. Depreciation and amortization is expected to be between $105 million and $115 million, including stock-based compensation of approximately $15 million to $20 million. Full-year interest expense is expected to be between $120 million and $130 million, including approximately $15 million of noncash items. Cash payments towards restructuring, optimization and strategic transaction costs are expected to be between $65 million and $70 million. Capital expenditures are expected to be between $55 million and $65 million. Cash taxes, excluding any gain on the sale of HHI, are expected to be between $25 million and $35 million. For adjusted EPS, as usual, we use a tax rate of 25%, including state taxes. To end my section, I want to echo David and thank all of our global employees for their strong efforts during these challenging times and we're staying committed to our long-term strategic initiatives. Now back to David.

Thank you, Jeremy. Thanks, everybody, for joining us on the call today. I'd like to take a couple of minutes to recap the takeaways here on slide 17. First, with the successful close of the HHI sale, we are now operating in a net cash position compared to over 6 times leverage in the previous quarter. We've already taken steps to deleverage our balance sheet and our returning capital to our shareholders. We are continuing to explore the deployment of the remaining proceeds to drive the best outcome for all of our stakeholders. This transaction also has brought us closer to our long-term goal of becoming a faster-growing, higher-margin pure-play Global Pet Care and Home & Garden Company and will allow the team to now devote the resources to and prioritize long-term growth of our remaining businesses. Second, with the successful close of HHI, we are even more focused on our core businesses, and we have successfully pivoted the teams to focus on profitability and long-term growth. Last, we are facing additional headwinds in our Home and Garden business related to weather and retail inventory levels that are more -- that were more severe than we expected. We remain confident in our long-term strategy here and our ability to deliver value to our customers. We are, therefore, maintaining our earnings framework for fiscal '23, excluding investment income but expect to be toward the lower end of that guidance range. I want to close by reiterating that I'm optimistic about the future of our company, and I believe we are well positioned to execute on our operational goals and return our company to earnings growth in fiscal '24. I'm very excited about the strategic pivot after the sale of HHI, and I want all of us to know that the future of Spectrum Brands is bright. I'll now turn the call back over to Faisal for questions. We look forward to hearing from you.

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

Thank you. [Operator Instructions] One moment for our first question. It comes from Bob Labick with CJS Securities.

Yes, hi, good morning. It's Pete Lukas for Bob. Can you talk a little bit about how you think about a possible sale divestiture of HPC? What are the likely options and potential timeline, if any?

Yes. Look, I mean, we definitely want to stand that up and create a separate business. And we were optimistic we could get that done sooner, but we've clearly entered a year of kind of unprecedented, I would call it a post-COVID hangover, where everybody bought a lot of durable goods. I think in the last year, you can definitely see money flows out of durables and consumables. And I think particularly here in the U.S., given the stimulus payments, you just see a lot of money flowing into the services space and so your airlines are full, your restaurants are full. People are traveling to Europe. I heard there's a lot of Americans in Italy this year, this summer. But we do think that given the bankruptcy of one of our competitors in the space, stress on some of the other players, this should revert a little bit more toward the mean. And we want to be responsible when we spin merge or put this unit on its own. We need it to be financially healthy. So we definitely want to take the next couple of quarters to see if we can't get the earnings profile of our appliances business on a much better trajectory and we'll continue to assess as we enter and go through fiscal '24. But our strategic objectives remain the same. I would just say it's been a little bit delayed.

Great. And then jump into the M&A environment. What are you looking for in terms of acquisition criteria? And how do you evaluate that versus additional share repurchases?

I don't see anything in the market that we want to buy at this point in time. I think our shares are cheaper than anything I could possibly buy outside the company. I think we need to stick to our knitting here. I think we need to -- given the fight with the government, given the unprecedented -- we had a pandemic, we had inflation problems. We had supply chain problems. We're really looking forward now to a clean balance sheet, being able to invest in revenue growth and revenue drivers and really getting what's under our house here not only stable but growing again. And that's really the priority for fiscal '24.

And then last one for me. You discussed it a bit in terms of Pet and Home and Garden as far as the pre-pandemic the -- sorry, how did the pandemic disruptions impact the earnings power of those segments? And what's the medium-term growth outlook and key drivers for those? I know you mentioned in pet, some of the consumables there. Just wondering about other -- the key drivers for both that we should think about.

I'll hit what I think are the top notes, and I'll let Jeremy or Faisal kind of take the rest. But look, I think the Pet Care business is a phenomenal space and there was definitely a lot of adoption during COVID, and you can read news articles of people trying to get rid of pets because discretionary income is getting pinched. But we see the companion animal space as continued in growth mode. And we had to take a lot of pricing because of inflation and that hurt unit volumes. And being a 6 times levered credit and higher for the bulk of this fiscal year, we just -- we didn't have the muscle we wanted to kind of really punch growth drivers. And so I think we can really kind of get back on to marketing our brands, investing in the brands. We just launched a cat treat business, which is brand new for us on Chewy. That's got a lot of innovation, and it's pretty exciting. There was a press release, I think the Pet team put out a couple of days ago. The punchline is, "Who says you can't play with your food?" And there's some really exciting innovation and really high-quality treats coming into the fee line cat market for us. Again, if you're a listener on the call and you've got a cat, please go to Chewy and check it out. It's under the Meowee! brand that we brought over from Europe with the Armitage Good Boy acquisition, which has been a fantastic acquisition for us. But look, we think pets would be in growth in '24, we clearly got a little bit of headwind from the durable fish tanks being higher priced and people pulling back there but that's not an excuse. We want to view aquatics' growth as well. And we've got some initiatives there that we can talk about as we get into '24. I think look, Home & Garden, super disappointed in it this year. I really had much higher expectations for it. I think we all did. I think the issue with that is when you sell the bulk of your product annually in a 90-day period and it sounds like an excuse, and trust me, I wish it wasn't the case, but I just don't think our sales team saw the amount of inventory that retailers wanted to move and get back down to kind of pre-2019 levels. And so I think while everyone was following during the pandemic, clearly, everybody was in their yards and bought a lot of our product and our retail customers ordered a lot of our product. And so we had tremendous factory shipments during those days. But I think there's a hangover here now where everyone is on a plane to Paris this summer. The big box guys had a lot more inventory than our sales team had visibility to, and they needed to destock that. And so that really crossed our factory shipments, our production and our factory wholesale sales to them, in addition to the fact that the weather was absolutely -- was not cooperative. We've definitely seen a turn in the business July. July was a much better month, but it's just -- it's too late in the game to save the season for us.

Very helpful. Thanks. I'll jump back in the queue.

Thank you. One moment for our next question, please. It comes from the line of Peter Grom with UBS.

Hi, Peter. How are you doing.

I’m doing good. How are you?

Same, feeling a lot better going to bed with cash in the bank.

It sounds like it. Maybe just one quick housekeeping item. The $250 million impact from exiting receivables factoring that you mentioned, did any of that occur in the third quarter? Or is that all still yet to come?

Pretty small amount in the third quarter, Peter, most of it is in Q4.

Okay. And then I guess, my bigger question is -- I was hoping to get some perspective on the earnings power of the company, not necessarily long term as, David, you've kind of articulated the $400 million number for some time. But just as we think about where we're exiting this year, well below that, how much of the gap do you think you can actually close in '24? You previously mentioned some capitalized variances, which are pretty substantial. But just any thoughts on how we should be thinking about getting back to that $400 million number? Any sort of time line around that? And then just maybe any sort of building lots you would emphasize at this point for '24 would be great. Thanks.

Yes. Look, we're not going to shy away from it. I think that was clearly a premature statement on my part. I didn't see the massive downdraft in earnings that impacted our small appliance business. It's pretty unprecedented what's going on in that industry. And I certainly wish we were better at forecasting our Home and Garden factory sales. I think it's a multiyear process at this point. And we've got to get our operating house in order. I'm not pleased with our operating results at all this year. And we've hired some new talent, and we've got some new strategies in place, and we've got some new product launches. But I don't want to get out in front of our skis. This company has got to -- note that the balance sheet is fixed. I think you could look at '23 as the year of getting our house in order from working capital. Dave Gabriel, we brought him in, did a fantastic job of squeezing -- just getting healthy on the inventory lines. And I mean, obviously, the close of HHI kind of puts -- tips us over the edge here with -- we have more cash than debt, and we're continuing to delever the balance sheet, and we're buying back shares to return cash to shareholders in addition to paying a dividend. And I think our work is cut out for us in '24. We got to regain some credibility on the operating side. We've got to drive revenue. We've got -- I think if you look at this quarter, you can see, hey, maybe you give management a little bit of credit. We did start cutting costs a year ago. We did take pricing and you can see a pretty big spike in our margin structure. And so if we can maintain that healthier margin structure and really get this top line moving in the right direction, I think that's what's best for all of us as shareholders. But we've been out in front of our skis and we need to be conservative here, and we need to let numbers talk as opposed to these conference calls. So stay tuned.

Thanks so much. I’ll pass it on.

Thanks, Peter.

One moment please for our next question. It's from the line of Chris Carey with Wells Fargo Securities.

Hey, good morning.

Good morning.

I just wanted to follow-up on Peter's line questioning just about next year, I think it's totally reasonable to speak to a more kind of conservative phasing into that earnings power, which completely makes sense. I guess I'm also just looking at EBITDA consensus up almost 20% next year and you're talking about the need to reinvest, drive top line. What is the balance between delivering margin and getting your top line going again to kind of build a more durable long-term model, clearly, with your cash balance, you have room to invest to get some of that momentum going again. So I just wonder how you think about the balance of top line and EBITDA in the context of what seems like pretty substantial growth expectations for EBITDA going into next year?

I'll let the team take that. I'm just -- I think you understand from me that '23, we got the balance sheet fixed, in '24, we want to get the P&L fixed. And everything is not a straight line, and I certainly want to see better performance, but I certainly don't want to overcommit. I don't like taking numbers down. I didn't enjoy doing that this year, and I'm sure as hell, I don't want to do it next year. And quite frankly, that's the sin of the public company model is that you try to do your best to give guidance because that's what everybody expects. But running a business for long-term health is sometimes damaging the quarters. And the first quarter of this year, into the second quarter, we saw that this is going to be a tougher year than we thought. And we started running the business for cash and working capital because when you get in trouble with banks on covenants like some of our competitors are right now, that will put a lot of distraction on the organization. It will limit the resources you can put in to grow on your top line and it's not a place we want to be. And so we spent the year running a business to really drain our inventory lines, to get healthy, to get our inventory turns up. I think that's the one area we did great on. I don't give us very good marks on the sales line or the EBITDA line, obviously. But I want this to be a different story next year, but I very much do not want this team to get over its skis. We want to give you the best outlook we can, but we need to get in the business of building credibility. Jeremy, do you want to get involved there?

Yes. Chris, look, I think good question. I understand the question. Obviously, we're a quarter away from providing our thoughts on fiscal '24, which we'll do in November. But I think it's important to look at each business because they're all in a little bit different place, right? So if you look at the third quarter results with the Global Pet Care business, EBITDA above $50 million, I think we're getting back to where we wanted to be as we expected and profitability in that business. And now it's really about growth. In the quarter, we were down a little over 6% organically. About half of that was just from SKU rationalization, so purposeful. And we're starting to annualize the impact of the aquatics environments being down big. So I think there's a path to return to top line growth. And as you can see, in third quarter results, it leverages well in that business. So I think we're in a good place there. I think Home & Garden, as always, it's a complicated business and a difficult business to forecast for us, for you guys, for shareholders based on the weather. What we do know is that our sales were significantly below our POS this year based on the retail inventory reduction. We'll thoughtfully analyze that, do our best to estimate what we think '24 looks like. We'll talk more about it in November. But fundamentally, we like the business. We like the consumable nature of it. We like the efficacy and the value for consumers, and we think it's an excellent trade down in difficult economic times. So I think it was good growth potential there to get back to where we've been in the past. Just not quite sure how long it takes to get back to the previous peak EBITDA levels, but we'll give more thoughts on it in 90-days. And then HPC, David and I talked about a lot in our prepared remarks, it's really the tale of the different regions in the world. I mean EMEA, LATAM, APAC have really all recovered from the post-pandemic glut of inventory and kind of lack of people being at home. And actually, I think as we talked about, they all posted growth on the top line. And you can see our third quarter results improved substantially from an EBITDA perspective from Q2 to Q3. So we're pleased with that, but we've still got to deal with this U.S. issue, and it's a tough issue. It's affecting us, all of our peers. You've seen bankruptcies in the space. So it's not a '24 full recovery in that space because of what's happening in the U.S. But as it relates also to your question on how do you think about ramping up investment in the brands. The reality is, to David's point, we've been pretty handcuffed and we're not now. And so in Q4, really all three of the businesses are modestly starting to ramp up investments back in the brands. And we'll just measure returns on that very thoughtfully and pragmatically as we go through Q4 and then that will really give David and I, the visibility to how much brand investment will authorize for F '24, because we want to see the return on that. So that's kind of full some thoughts on it. Again, we can't provide guidance on '24 today. We're not going to, but that's kind of the state of the union.

Okay. That's helpful. Just a couple quick modeling kind of questions. For Q4, would you expect your share count to be quite a bit lower than Q3? Are you booked -- ASR, it sounds like that's continuing into this quarter. Will the ASR be down this quarter? I mean, shares were only down, I don't know, like 0.5 million approximately quarter-over-quarter. Should they decline substantially in Q4 versus Q3? And then just the second question, then I'll be done.

Yes. So we retired 5.4 million shares at the start of the ASR. I believe that was on June 21 or 22. But the share count in the quarter is an average share count across the quarter. So you didn't get much of an impact of that with just eight or nine days. So you will see a substantial step down to the tune of that 5 million share count in Q4 regardless of whether the ASR is completed, and we don't have direct visibility to when it will be completed, but that will happen, regardless and that's the whole point of the ASR. You can retire 80% of the shares upfront.

Okay. And then the second question that I've done is just on free cash flow. So if the factoring program is mostly Q4, Q3 did look weak. And I guess I'm just trying to understand -- certainly talked about converting about half of the EBITDA. It doesn't sound like, obviously, that's going to happen this year and probably not next year, if you have $100 million factoring versal. But would you expect to get to that number or be able to get close to that number, excluding kind of the impact of the factoring. That's it for me.

Yes, we do. We do. Fundamentally -- look, we've had a good year of working capital, right? First nine months, we took out $250 million of inventory just in continuing operations. So we're really pleased with, as David mentioned, David Gabriel and the broader team there. On the factoring and early pay programs, a lot of companies in our space participate in them. But with the rise -- the increase in interest rates, I mean, the cost of those programs is well over 6%. And so it just makes sense to -- with net cash on the balance sheet to exit those programs and benefit earnings. So -- but without that, yes, I mean cash flow is very healthy.

You just look at -- you got to look at it as a capital allocation decision, right? I mean, some of these facilities, this company has been on for decades. It's just we had a zero interest rate environment for the last 12 years. The last 12 months, it's kind of shot up. And so if I can -- by paying off one of these facilities, if I can earn more than 6%, that's the use of capital. But it's one-time. And I think it's the best -- if I own the company personally and that's the decision I would make, and that's what we're doing.

Okay, thanks a lot.

Thanks, Chris.

One moment for our next question, please. And it comes from the line of Ian

Hi, great, thank you. Thank you very much. Can you give us an update on inflation expectations, how they're tracking versus what you initially told us and then maybe even by division, right, because I would imagine HPC is large freight inflation that's now sort of come down, but you mentioned that there's other some offsets. So maybe you can kind of give us an idea of what's going on, on the inflation side of things.

Yes. I mean, honestly, I think the year is progressing pretty much as we expected it would. The inflation started to wane Q4 last year, and we entered the year with that $55 million or so of excess cost on the balance sheet. As we talked about, that was all flushed in Q1 and Q2 and we saw both gross profit and EBITDA margins expand nicely from Q2 to Q3 sequentially. So as we look forward, the inflation headwinds are actually pretty small, subsiding in some materials, but energy, labor remained high, ocean freight is down. So it's kind of a mixed bag out there. But as we expected. So honestly, as I look forward to F '24, I don't see it being much of a conversation other than the first half year-over-year, we should have a tailwind from not having that excess cost on the balance sheet entering F '24.

Okay, thanks. And then on HPC and a potential separation, I mean, do you think if you fix the fundamentals, you could then spin it off? Or do you feel like you need to get more scale, do it JV or any other type of alternatives.

Look, I think we tried in the past with strategic partners. I think there's synergies there. There's a lot of companies in this space and they have identical cost structures. And so -- it's not the most efficient thing, 20 appliance companies all selling toasters with the same supply chain distribution network. So I was kind of hoping we could have something that was synergistic and added more value to us as equity holders. But no, if it comes to it, I mean the one thing the Board can control is a spin, and we've been preparing for that. And so if it comes to it, that's what we'll do.

Okay, thank you very much.

But we got to spend something out that's healthy, though, right?

Understood. Thanks.

Thank you, Ian.

Thank you. One moment, please. All right, and our next question comes from the line of Brian McNamara with Canaccord Genuity.

Hey, good morning, guys. Thanks for taking our question. On destocking, I'm curious how much visibility you guys have into the wholesale channel inventory that as we've heard from several other companies related and unrelated at the worst of destocking is largely behind us. Can you give us a sense of sell-in versus sell-through, particularly across Home & Garden and HPC?

Yes. I mean I think it's a fair assessment that most of it is behind the market. I think the exception is -- even the majority of it is behind the U.S. kitchen appliance market, but it's still out there and a challenge there. And Home & Garden, I don't think we've seen a significant change in retail strategy during the quarter, but we did see the lower POS than everybody expected, and that just means it's taken longer for those inventory positions to dwindle out. As I said earlier, I think we'll talk more on the next call about what we think sell-in versus sell-out has been in Home and Garden. But really, the areas that we still see challenges will be North American kitchen appliances and a little bit in Home & Garden.

Thank you.

Thank you.

Thank you.

One moment, please. Our next question comes from the line of Jim Chartier with Monness, Crespi, Hardt.

Hi, thanks for taking my question. I just want to follow-up on the prior question. What's kind of your POS expectation for each business for this year?

In terms of growth?

Growth or declines, yes. So if you can give us kind of what your expectation for POS for Home & Garden, for Pet and Home & Personal carriers for the year, just so we can have a better idea of what the destocking impact is for the year.

Yes. I mean, at this point, there's still a little bit of season left in Home and Garden, but it's flat to down low single digits, I think, for the year, but we've seen pockets of high single digit down, and we've seen pockets of high single-digit up as the year is going on. And GPC, to tailor two things really, in companion animal and consumables, which is about two-third of our business are a little better. We've seen low single-digit growth blended, but aquatics has been down double digits with environments down 25%, dragging to hold us down. I think a lot of that is behind us as we get into Q4. So I think Q4 look a little bit better than the organic growth performance we saw in Q3. And then in HPC, as we said on the call, the whole market, we think, has been down high single digit to low-double-digit, particularly here in North America. And when we look at the peer group and ourselves, it's basically organic shrink of 10% to 15% which is probably slightly worse than what actual POS is in those markets, but it's -- we don't have great visibility to it.

Great. And then on the exit of certain categories for Global Pet, when did that start to impact sales for the business? And should we expect kind of a similar impact going forward?

It's really in a late Q2 and Q3 set of action items. Like I said earlier, it was about half of the organic shrink, about 3% impact. And it will continue at that rate for probably another two quarters or so. But again, as I said earlier, I still expect sequentially that the organic top line performance will improve.

Great. Thank you.

Thank you.

Thanks. One moment for our next question, please. All right, and is from Olivia Tong with Raymond James.

Hi, thanks, good morning.

Hi, Olivia.

Hi, great. The environment was pretty tough this year. Some of that is out of your control, the weather, there's only so much one can predict on that. But now that you have the bandwidth, both from a financial and quite frankly, headspace perspective, what's your view on investment levels through here, not only just the pure sales but also to help with forecasting and inventory management as well.

Well, look, we continue to make investments in this company throughout the last couple of years even with where leverage was and uncertainty in the economy. We put in SAP, IVP in our businesses. I think that has contributed to our inventory performance this year. So we're very comfortable there. And I think we've talked about before, we are in the middle of a new greenfield SAP S/4HANA investment that is about to go live from a pilot perspective and then we'll roll out over the coming couple of years. All of those tools will help us in forecasting and understanding what's happening in our business globally in a much quicker and more thoughtful way. And then the reality is we are a consumable consumer business, and we can't always predict what POS is going to happen. So we're always going to have that variable out there as are our peers and competitors.

Got it. And then obviously, you're in a net cash position right now. You've been very clear over time that your long-term intent is 2 times to 2.5 times on a net basis. So after the debt paydown, share repurchase plan, including the end of the quarter, you still probably have just under $1 billion in proceeds. So how should we be thinking about deploying that into that over the next several years?

Depends on where the share price is. That really does. I mean [Multiple Speaker]

Got it. Thank you.

Thank you.

Thank you, Olivia.

One moment please for our next question. And it is from Mike O'Brien with Wolfe Research.

Hi, good morning, guys. Thank you for taking my question.

Good morning.

So the first question I have. So, David, you mentioned that you're not interested in pursuing strategic M&A at the moment. However, when we're looking at the June press release following the HHI close. You guys mentioned strategic M&A as a potential way to deploy capital, so I just want to confirm that you're not looking at M&A right now at least in the near term. And then the second question, I have is regarding your margin. So, you guys obviously have made material improvement on your EBITDA margins for particularly on the pet care business. So when I'm looking at EBITDA guidance for the year, down mid-single digit, keeping up a little conservative given that you guys are making some headway with your margin improvement on the pet care business. Thank you.

We have certainly not been conservative enough. And so that's, so I will answer your second question. Your first question is never say never, I learned to never say never, in my life. So if something comes along in pet, it's a beautiful asset and sellers' expectations are right, we'll buy it. I'm just telling you today, I've got nothing in my sites. And I think the share price is the best use of our cash. Got it. Thank you, guys. I appreciate it.

Thank you. And that concludes the Q&A session, I'll turn it back to Faisal Qadir for any final comments.

Thank you. With that, we've reached the top of the hour. So, we will conclude our conference call. I thank David and Jeremy and on behalf of Spectrum Brands. Thank you all for your participation.

Thanks, everybody. We'll talk to you soon.