Good day, and welcome to the Under Armour Q3 2023 Earnings Conference Call. At this time, all participants are listen-only mode. After the speaker's presentation, there will be a question-and-answer session and instructions will be given at that time. As a reminder, this call may be recorded.

I would now like to turn the call over to Lance Allega, Senior Vice President, Investor Relations and Corporate Development. You may begin..

Good morning, and welcome to Under Armour third fiscal 2023 earnings conference call. Today's event is being recorded for replay. Joining us on today's call will be Under Armour, Executive Chair and Branch Chief, Kevin Plank; Interim President and CEO, Colin Browne; and CFO, David Bergman.

Our remarks today include forward-looking statements that reflect Under Armour's management's current view and certain forecast elements of our business as of February 8, 2023.

Statements made are subject to risks and other uncertainties detailed in the documents regularly filed with the SEC including our annual report on Form 10-K and our quarterly reports on Form 10-Q. Today's discussion also includes the use of non-GAAP references.

Under Armour believes these measures provide investors with a useful perspective on underlying business trends. These measures are reconciled to the most comparable US GAAP measures, a reconciliation of which along with other further information can be found this morning's press release and at about underarmour.com.

With that, I'll turn the call over to Kevin..

Thank you, Lance, and good morning, everyone. Amid a continued dynamic environment, we're pleased to have reported solid third quarter results and are on track to deliver on our full year operational and financial goals for fiscal 2023.

By continuing to learn, evolve and grow as an organization, the Under Armour brand is strong, and this is an exciting time for us. We're making progress on our strategic refinements. And as I've said before, we will not miss the opportunity to reposition and establish our sector leadership wherever we compete.

When I consider Under Armour's journey, I've never been more energized and excited about the road in front with the organization we have in place as well as the future we are building. We are certainly not standing still, building on our transformative operational improvements and continuing to evolve our strategy from a position of strength.

We're working hard to amplify opportunities for our existing core business while strengthening our long-term ability to serve athletes beyond the gym, field and courts and throughout the entirety of their day.

At the end of this month, our strategic evolution will gain more momentum as we welcome Stephanie Linnartz as our new President and CEO and as a member of our Board of Directors.

Stephanie brings a wealth of experience to Under Armour after 25 years at Marriott International, the hospitality powerhouse overseeing a portfolio of 30 iconic brands, spending 138 countries.

She has a distinguished track record of executing best-in-class brand strategies and developing talent and led Marriott's multibillion-dollar digital transformation and award winning loyalty program, expertise that will give us a critical level up in one of our most vital areas of strategic focus.

I'm looking forward to the perspective that Stephanie will bring to the brand, leveraging our deep bench of industry experts to work in concert and unlock our full potential. And as brand Chief and Executive Chair, I'm excited to support Stephanie across the business with an emphasis on our product innovation pipeline and brand storytelling.

We look forward to the complement of our diverse skill sets and strengths to prioritize top and bottom line growth for UA with Stephanie's leadership as CEO. Further strengthening our brand, we recently announced two new Board members, Carolyn Everson and Patrick Whitesell.

Each brings a wealth of experience with successful careers across media, technology, sports and entertainment management. So fantastic new competencies to support the chapter ahead for Under Armour.

And as we look to this next chapter, we continue to build on our momentum as a brand, delivering industry-leading innovation and premium consumer experiences always obsessed with empowering those who strive for more in a uniquely Under Armour way.

To support this, we're making progress on the strategic refinements that we introduced on our last call, including broadening our product aperture to address the non-active moments of an athlete's day, maintaining UA performance and delivered with culturally relevant style, activating with greater precision to reach our target audience and inspirational muse of the 16 to 20-year old far city athlete and advancing our segmentation strategy across the spectrum of good, better and best, with a heightened focus on better and best level product offerings.

Under Armour will build amazing product that delivers on our promise of solutions you never knew you needed and once you've tried them could not imagine living without. As we finish out fiscal 2023 and round the corner into fiscal 2024, there's much to do. But let me be clear, when I say that Under Armour is in a good place. We're strong and tested.

We've got the right people and processes working together, and we're strengthening our leadership. We know what great looks like, and we expect to make significant strategic and operational progress this year as we set up to reinvigorate growth. And we're in this position, thanks partly to the man sitting next to me, Colin, we owe a lot to you.

Thank you for your steadfast leadership of Under Armour during this interim period. As Stephanie joins, I know you'll continue to be a vital partner for her and all of us as we move forward. We're fortunate. So on behalf of our Board, executive leadership team, thank you and cheers.

In closing, as we continue to push our evolution and scale towards a more significant global presence and realize our potential, we must never lose sight of our identity in the heart of who we are. As I said, our brand is strong. And we will continue to protect this house.

2023 marks the 20th anniversary of this iconic phrase, which helped establish and underscore our unique identity. As a core component of our brand, this concept is as raw now as it was then. And in today's dynamic world arguably even more relevant to sport, to identity, to community.

This year, we'll call this code back into action, inviting a new generation of athletes to protect this house. This constant has been there all along, and it's time to wake a giant, time to invoke a new future.

Colin?.

Thank you, Kevin, and good morning, everyone. It's been a great privilege to lead Under Armour during this transition and work more closely with our amazing teammates across the globe. I look forward to partnering with Stephanie when she joins on February 27, continuing to advance our strategy as I resumed my role as Chief Operating Officer.

Having had the opportunity to spend some time with her, I know she is an incredible leader who will bring a breadth of pressure to our business with a keen focus on consumer centricity and digitalization as we continue driving our strategy forward. In the meantime, as Kevin mentioned, we are not standing still.

Our purpose of empowering those who strive for more is internal. Our strategic evolution in creating the space necessary to broaden our product aperture, refining our target consumer to the 16-to 20-year-old varsity athlete and more effectively segmenting our product remains our immediate priorities.

To touch on these, I'd start by underscoring that is one of only a handful of authentic performance brands worn by athletes at all levels of competition. We've earned our reputation as a trusted brand for sports, the go-to apparel, footwear and equipment that athletes never knew they needed and once they have them, can't imagine living without.

In this respect, we're doing a great job of fulfilling the train, compete and recover moments of an athlete's day. That leaves the non-active or what we call live moments of their journey, which is a significant long-term growth opportunity that triples the total addressable market for Under Armour.

So how does this translate to a broader sports style offering where the train, compete and recover stages of an athlete's journey, our performance with style product, the live stage will be style with performance products, science rationale or our track science, consumers will ultimately decide.

It's our job to give them more choices and therefore, more versatility to suit whatever part that they're outfit. Soft launched in October, this type of versatility is embodied in SlipSpeed, our unique training footwear engineered with a convertible heel to switch between active and recovery modes.

From early reads, SlipSpeed's strong DNA, also sees it slotted into the space in between moments of style and self-expression. As SlipSpeed launches globally on February 14, we're excited to bring this innovation to a much broader audience and learn even more about the possibilities of this hybrid platform.

To support this, we're opening a physical manifestation of our brand positioning with a pop-up store in the Flatiron District in Manhattan, which will showcase SlipSpeed and our newest apparel offering and a new format with less product density and enhanced storytelling. Of course, none of this happens overnight.

Still, you will see immediate progress and points on the board as we reimagining some of our Spring/Summer 2023 floor sets with enhanced merchandising and story talent to showcase how Under Armour can be worn away from training and competition.

In apparel, we've got the new structured wovens coming and introducing more variation of our unstoppable men's and women's bottoms to hit broader wearing occasions. We're also leveraging our leadership in performance tees and in the latest sports front.

And with programs like our new women's Meridian bottoms, which have significantly improved anti-pilling component, it's the only legging you'll ever need for style performance incumbents. In footwear, the near-term pipeline includes putting a younger spin on Phantom 1, Gemini and Forge.

And this fall, you'll see even more sports side launches, including dynamic outfitting, new silhouettes and new colorways and maybe even a footwear collaboration or two. Transition to our second strategic refinement, we're also evolving our marketing and omni-channel strategies to better connect with the 16 to 20-year old vastly athletes.

With an always-on social media activation approach, including a greater focus on unique content to amplify brand identity and drive cultural relevance. We're seeing early improvements in brand metrics with this demographic in the US and key international markets like Mexico and China.

All this feeds into our ability to drive excellence into our omni-channel presence, particularly in e-commerce, where we also started to see the early benefits of recent investments. So overall, encouraging, and we look forward to leaning in and applying even more in the coming seasons.

The third is the ongoing evolution of our segmentation strategy and better balancing of the top most parts of our product pyramid Consumers tell us that varsity athletes tend to buy more frequently at fuller and higher price points than other groups throughout the year.

In this work, we're doing category – we’re going category-by-category, addressing what premium looks like at every price point, determining opportunities to drive additional better and best level product assortments and what the marriage of innovation and style should look like as if we're designing unencumbered.

As we continue to sharpen and hone this strategy, we'll also heighten our storytelling to drive a more pronounced premium elements on athletes.

And speaking of driving greater influence, our incredible roster of athletes continue to inspire us all from Sharon Lokedi winning her debut at the New York City Marathon to Julio Rodríguez winning the MLB American League Rookie of the Year award to Justin Jefferson, breaking the Minnesota Vikings franchise, single season receiving record and Jordan Spieth, winning the match alongside Justin Thomas.

Under Armour continues to stand out, delivering performance and helping to empower athletes at the highest level of sport. And with 2023 in its early days, there's more in store for UA as we look forward to the second half of the NBA season for Stephen Curry and Joel Embiid.

And in partnership with Dany Garcia and Dwayne “The Rock” Johnson, we launched as the official uniform supplier of the XFL inaugural season on February 18th. So UA's brand momentum remains strong. So back to our third quarter performance. We delivered a solid quarter with revenue up 3% to $1.6 billion or up 7% on a currency neutral basis.

Clicking down into the results by region, North America declined by 2%, coming in at just over $1 billion for the quarter with wholesale down 6% and 1% growth in DTC, driven by strength in our e-commerce business, partially offset by recovery retail stores.

Though we continue to see solid demand in our largest region, we were more promotional during the quarter to manage inventory against this challenging retail backdrop. Despite the dynamic retail environment, we continue to focus on elevating the consumer experience across channels while driving operational excellence.

EMEA was a standout again for us this quarter with revenue up 32% to $265 million or 46% on a currency neutral basis. This growth was driven by a solid sell-through across wholesale and DTC along with earlier than planned shipments.

We are encouraged by our momentum in EMEA and intend to remain nimble given the continued marketplace uncertainty and building inventories.

APAC revenue was down 9% to $198 million, or up 1% on a currency neutral basis despite ongoing COVID challenges impacting retail traffic and store availability, Particularly in China; we grew our wholesale business during the quarter. In addition, outside of China, we saw positive momentum in our e-commerce business.

And finally, our Latin American business was up 45% to $64 million in the quarter or up 41% on a currency neutral basis. Turning to operations. We continue to see improvements across our supply chain with our factory partners making progress in returning to pre-pandemic production efficiency.

And ocean and delivery times continue to improve, which contributed to significant tailwinds and from less air and ocean freight during the third quarter, a trend we expect to continue into our fourth quarter. From an inventory perspective, levels continued to be elevated across our sector.

At the end of the third quarter, our inventory was up 50% to $1.2 billion. As a reminder, though, our inventory was quite lean in fiscal 2021 due to our constrained strategy and supply chain disruptions.

So a large part of this increase and the increase over the next few quarters is simply normalizing to levels to us being a close to a $6 billion brand. At the end of fiscal 2023, we expect a similar growth rate of about 50%.

But again, to contextualize this, this growth rate is up an $800 million basis [ph] from the prior year, which was similar to 2015 when we were a $4 billion business. We do expect our year-end inventory growth – we do expect rate to be the peak followed by elevated yet appropriate step-downs in the following quarters.

That said, we continue to feel confident about where we are relative to our plans and managing this aspect of our business. To this point, we expect inventory to stay around three turns as we work through this challenging environment. In closing, as I transition back to the Chief Operating role, I want to say how proud I am to be part of Under Armour.

It's been an honor and a privilege to lead this iconic brand. Over the last nine months, I have worked with our amazing global teammates and now have a much broader understanding of our business, which will help me support Stephanie as she steps into her role. I'll now hand it over to Dave..

Thanks, Colin, and good morning, everyone. With three quarters of our fiscal 2023 behind us, we delivered a solid quarter and are on track to deliver our full year financial and operational goals. As a reminder, due to our fiscal year change, our third quarter of fiscal 2023 ending December 31 is comparable to the fourth quarter of fiscal 2021.

As mentioned earlier, our third quarter revenue was up 3% to $1.6 billion or up 7% on a currency-neutral basis. In addition to the regional comments Colin provided, from a channel perspective, wholesale revenue was up 7% to $820 million, with increases in our full-price and off-price businesses.

Direct-to-consumer revenue declined 1% to $715 million due to declines in our factory and Brand House stores, partially offset by a 7% increase in our e-commerce business. And licensing revenue decreased 19% in the quarter to $30 million, driven primarily by the timing of minimum royalty guarantees associated with our Japanese licensee.

From a product perspective, in a challenging retail environment, our apparel business was down 2% with strength in golf and team sports offset by softness in training. We also saw strength in men's and women's bottoms during the quarter, particularly the unstoppable franchise as well as a solid performance in outerwear.

In footwear, revenue was up 25% with positive results in all categories, benefiting from better product availability during the quarter.

Footwear growth was driven by strength in run with the HOVR Machina 3 resonating well, especially in APAC and EMEA, team sports, particularly basketball with the Curry 10 and American football with cleated products also performed well during the quarter.

And our core run product continues to achieve solid results with Rogue, Assert and Pursuit demonstrating strength in the period. And finally, our accessories business was down 2% in the quarter due to softer sales of cold weather accessories, which more than offset strength in our bags business.

Gross margin was down 650 basis points during the third quarter, driven by 400 basis points of negative impacts from higher promotions and discounting; 130 basis points of unfavorable channel impacts primarily related to higher distributor sales; 60 basis points of adverse effects from changes in foreign currency; 50 basis points of unfavorable region mix, related to higher EMEA and Latin American sales; and finally, about 50 basis points of unfavorable product mix due to the strength of our footwear business.

These negative drivers were partially offset by 40 basis points of favorable supply chain impact, driven by lower freight costs, which more than offset product cost headwinds during the quarter.

Our larger than expected Q3 gross margin decline was primarily due to higher than planned markdowns within our wholesale business and increased promotional activities within our DTC business as we manage through inventory. Third quarter SG&A expenses were down 11% to $604 million.

Several factors drove this decrease, including lower marketing, incentive compensation, and consulting expenses. Bringing it to the bottom-line, operating income was $95 million, coming in above our outlook of $75 million to $85 million. After-tax, we realized a net income of $122 million or $0.27 of diluted earnings per share.

Excluding a $45 million earnout benefit in connection with the sale of the MyFitnessPal platform and a $2 million benefit from a tax valuation allowance release related to prior period restructuring, adjusted net income was $76 million.

In addition to the operating income overdrive, more favorable FX hedging impacts within the other income and expense line and a better than anticipated tax rate helped us to realize $0.16 of adjusted diluted earnings per share, coming in above our outlook of $0.07 to $0.09 for the quarter. Moving to the balance sheet.

Since Colin already took us through inventory, I'll highlight our cash and cash equivalents, which was $850 million at quarter end with no borrowings under our $1.1 billion revolving credit facility. And finally, we've repurchased an additional $75 million of Class C common stock, allowing us to retire 8.8 million previously outstanding shares.

In total, under our two-year $500 million program, we have repurchased $425 million of Class C stock and retired 35 million shares to-date. Next, let's turn to our fiscal 2023 outlook. As a reminder, the comparable period is the trailing 12-month period from April 1st of 2021 through March 31st of 2022.

To start, we continue to expect revenue to be up at a low single-digit rate on a reported basis and a mid-single-digit rate on a currency-neutral basis. So, there is no change there.

Next, due to the higher than anticipated Q3 promotional headwinds, we now expect the full year fiscal 2023 gross margin decline to be at the high end of the previously provided 375 to 425 basis point range. This compares with our prior year's baseline rate of 49.6%.

Within this decline, we expect approximately one-third of the total to be from the negative impacts of higher promotions and discounting, one-third from elevated product costs, freight expenses and changes in foreign currency, and the remaining third is from mix impacts, including channel, product, and region. Moving down the P&L.

Full year SG&A should be down at a low single-digit rate versus our previous expectation of down slightly. In this respect, we remain committed to ensuring our investment dollars are optimized to the areas with the highest returns, while proactively identifying areas to manage expenses appropriately.

Dropping this through and in line with our previous outlook, operating income is expected to reach $270 million to $290 million. Excluding the company's litigation reserve, adjusted operating income is expected to reach $290 million to $310 million. Regarding items below operating income.

Recall that, we have been planning for a material benefit from a valuation allowance release that we expect to realize primarily in our fourth quarter. That said, we anticipate a significantly negative adjusted tax rate or tax benefit in the fourth quarter, resulting in an adjusted full year tax rate in the mid-single digits.

Putting it all together, diluted earnings per share is expected to be $0.71 to $0.75, which includes a $0.27 benefit related to the tax valuation allowance release. Of this $0.27 benefit, $0.15 is related to prior restructuring.

Additionally, there is an $0.08 benefit from our second year earn-out on the sale of the MyFitnessPal platform, and a $0.04 negative impact from our litigation reserve. Excluding these net positive impacts of $0.19, we now expect adjusted diluted earnings per share to be between $0.52 and $0.56.

This is higher than our previously provided range of $0.44 to $0.48 primarily due to favorable FX developments on the other income and expense line and a slightly lower tax rate.

Before I close out, even though we aren't providing a fiscal 2024 outlook until our Q4 call in May, we are anticipating the macroeconomic backdrop to stay uneven in calendar 2023 with elevated sector-wide inventories that could result in ongoing promotions lasting longer than previously expected.

In this respect, we are employing proactive measures to protect and ensure the health of our brand. To mitigate, these potential pressures as best as possible as we lay the groundwork for next year's operating plan.

So to close, I'd underscore that we are pleased with our continued momentum and remain encouraged by our evolving long-term strategy, including broadening our product aperture, refined consumer focus and efforts to create a more premium consideration through improved better and best level product.

Moreover, from an operational perspective, we are confident that our refined playbook and financial discipline position us well to navigate near-term uncertainty and drive Under Armour to our next chapter of pronounced growth as we continue to protect this house.

And with that, we finished our prepared remarks, so I'll turn it back to the operator for Q&A.

Operator?.

Thank you. [Operator Instructions] Our first question comes from Matthew Boss with JPMorgan. Your line is open..

Matt, are you there?.

Matt, are you there?.

Matthew, if your telephone is muted please un-mute..

Let's go to the next one, and we'll try to hop him back in, if he re-queue..

Our next question comes from Jay Sole with UBS. Your line is open..

Great. Thank you so much. My question is on the comments you just made about looking into the next fiscal year. It sounds like you're seeing a little bit of a change in the environment versus what you saw three months ago.

Is that more of a consumer -- change in the consumer and the consumer's willingness to spend, or is that more on the industry dynamic with still inventory, pretty heavy out there and maybe some of the supply chain costs taking a little bit longer to get better than you thought. Just a little bit more color would be helpful. Thank you..

Sure, Jay, this is Dave. I would say it's actually a little bit of both. We definitely have seen that the promotional environment went a little bit deeper and we believe it's going to go a little bit longer. And a lot of that has to do with some of the building inventories that are out there with all the brands.

And that is something that all of the retailers are going to need to work through in the coming quarters. And we are seeing that, that's probably going to take a little bit longer than what we would have expected maybe 90 days back. And the consumers are out there, the traffic is reasonable, but conversion is a little bit challenged.

And I think that folks are being a little bit more cautious here for a while. And so we expect that pressure to continue as we move through this calendar year for a while..

Got it. And maybe a question for Kevin.

Just on hiring Stephanie, can you just maybe elaborate a little bit more on what it was about her that made her the right person to come in the lead Under Armour from here? And do you have a Super Bowl prediction for us?.

Well, this is Colin jumping in here. Kevin is here, and Kevin's not in the room at the moment. But Stephanie, obviously, as Kevin alluded to in the script, Stephanie obviously has -- is an amazing executive. We've had the opportunity to spend some time with her.

She obviously has had an incredibly successful career and the level of kind of insight that she will bring with regards to how we're thinking about our consumer and building relationships as a brand is something that we can undoubtedly -- we can already feel in some of the early conversations with us.

So we're excited to welcome on board and looking forward to working with them..

Okay. Thank you so much..

Thank you..

Thanks, Dave..

Thank you. And our next question comes from Simeon Siegel with BMO. Your line is open..

Thanks. Hey, guys. Good morning. Nice job. I was hoping you could talk just a little you bet. So I would just maybe elaborate a little bit on your expectations for stores e-com wholesale, got to throw it all at you, sorry. But like channel product and region basically, just given the improvements in the progress you're making.

So as we think about DTC versus wholesale, as you look at maybe diverging trends with footwear and apparel, and then just would love any more color, if you could, on what you're thinking for China and Asia, if that's possible? I know that was a lot, sorry..

Yes, I was going to say there's a lot of – there's a lot of that is coming. I think let me kind of see if I can kind of pick it a piece a little bit and David can kind of jump in. I mean, as you've seen in our results, we're showing up incredibly well in Europe, and that's something which we're really pleased with the progress we're seeing there.

And part of that is the fact that the way the brand has been able to manifest itself in Europe allows us to really demonstrate the good, better, best kind of way in which we think about the brand. And when we get that right, it's very clear that it resonates well.

And so we're seeing that in Europe in spite of what is a difficult time in Europe at a macroeconomic level, Under Armour is resonating pretty well. At the same time, we -- if you go up to China, obviously, we obviously as did everyone else, challenged in the third quarter because of the number of lockdowns we had.

We had 35%, 40% of our stores closed for much of Q3. We're obviously now starting to see that open up a little bit more, and we're optimistic that we may see business continue to improve as consumers come back. Obviously, that's changing the dynamic of how people are shopping a little bit. People are going to stores as opposed to more of online.

So we're seeing that play out. And in North America, we talked about this a little bit already, but we are seeing a softer retail environment, but we continue to invest in building our own DTC, and that's really a key focus for us, thinking through how do we actually talk directly to consumers, opening the store in New York is a great example.

That’s really starting to step into that and really think through how we can build on that. And the investments we continue to make in unlocking the power of our omnichannel are all things that we feel we're well-positioned to lean into over the next 12 months. And Dave, I'm not sure if you want to add anything..

Yeah. I mean, maybe I'll just add a little bit from like an apparel footwear accessories perspective. Apparel, I think, is down 2% in Q3. But if you think about it, our first three quarters of fiscal 2023, we had year-over-year comparisons on a very favorable 2021 for a lot of folks that were in our industry in terms of demand.

And I think across the industry, apparel was impacted with higher inventory. So as a product category, it's been more promotional activity there, which definitely challenges the revenue growth a little bit. However, as we work through that, we expect that to normalize more and get back into the right growth place as we go into next year.

Footwear has been an excellent opportunity for us, and as you can see, growing 25% in Q3, definitely a strong area for us and one that we've always talked about as being a big opportunity. Now some of that is due to better product availability.

If you recall, with the impacts last year from production, a lot of that impacted footwear even more than apparel. So comping that is a little bit helpful this quarter. But again, super exciting area for us to keep driving on as we go into next year..

Great. Thanks guys. And then just one quick one, recognizing it's relatively new for you guys seeing the ASR.

Any guardrails or how we should think about your approach to buybacks going forward?.

Yeah. I mean it's something obviously that we continually look at. There's a lot of different ways that we want to be able to utilize our cash. And a lot of it is going to be navigating the current environment and staying nimble. We still have the full revolver availability, so we're very liquid as well.

But we want to make sure that we can reinvest at the right level in long-term growth, whether it be within our systems, processes, DTC, a lot of what Colin had mentioned as well. So we will continue to assess that. No decisions are made at this point in time, but we're going to continue to look at it as we go forward..

Great. Thanks a lot. Nice job and best of luck for the rest of the year..

Thank you..

Thank you. Our next question comes from Kate Fitzsimons with Wells Fargo. Your line is open..

Yes, hi. I guess, looking ahead to fiscal 2024, I'm certainly understanding that you are unwilling to guide here.

But I'm curious, just as you're looking at the gross margin opportunities and puts and takes as we look to the first half and the back half, just given the depressed levels that we're seeing certainly on the markdown front here?.

Well, as David already alluded to, it's a little early, it's only February. So we're not really giving too much, we're not calling out anything, providing any color regards to full year 2024 at this moment in time. But we are obviously continuing -- we talked already about the continued promotional environment.

But at the same time, we are starting to see some of these kind of supply chain issues that were currently previously with driving up costs. They're starting to destined to back out again. So things like shipping and container costs and this type of stuff. So we think there is an opportunity there.

But it's going to be a challenging year just because of half the amount of product that's out in the market from a promotional activity point of view. So it's going to take us some time to kind of work through that.

Dave, do you want to add any more color?.

Yeah. I mean, obviously, there's a lot of different areas that we're pushing on, and we want to keep moving the ball forward. But to Colin's point, it is early. And so at this point, we're going to kind of take advantage of the next 90 days to really dig in and continue to drive forward and be ready to speak more about it on our next call..

Yeah, Kate, I would say to you, it's not that we're not willing. Like you used the word unwilling, I just wanted to kind of correct that. We didn't do this last year as well. It was one of the reasons we changed our fiscal year primarily due to visibility because in February, we're still barely into the order book for the fall/winter season.

So lot of moving parts, but we'll definitely obviously get to it in our May call, but certainly, a lot of considerations as we move forward..

Can I just ask – it's a fair point. Can I just ask one follow-up on the inventory level, I certainly understand that, you guys are kind of shifting towards the prioritization of growth here? But with guiding the year-end inventory by 50%, you're noting greater caution just overall in the environment, maybe the consumer.

I guess, I'm just trying to balance opportunities on growth as well as maybe a potential return to positive gross margins next year? Again, I understand kind of willing to talk about trajectories on gross margins next year.

But I'm just trying to understand the balance there between growth and profitability as we're looking ahead, especially with some of these inventory investments?.

As we already – we spoke a little bit about it, I think we're in somewhat of a different place than much of the industry. We were actually reasonably happy with where we now sit from an inventory perspective, because as we called out in the script, we were running the constrained model last year.

We also walked away from some demand because we just couldn't see we'd be able to service it. So our inventory levels were incredibly slim last year. We're now getting our inventory back to what I would call kind of a steady state kind of number, which is – okay, that 50% increase is a big number.

But when you actually look at the amount of inventory we're now holding, we're holding the right level of inventory for a $6 billion business. So we're comfortable where we are from an inventory perspective. And our inventory is right-sized for the way in which we expect our business to kind of evolve next year..

And Kate, this is Dave. I think maybe what I would add a little bit there too is we have done a deep dive to kind of see what product we have that is more seasonless that we can pack and hold over to next year as opposed to liquidating it at very low prices now. And that's part of what's assumed in our outlook as well.

And so that is something that is in our inventory growth numbers now that we'll be able to draft off of a little bit next year at least from a cash perspective. And then I think just thinking about where we are right now as a kind of around a return to Colin's point, is a pretty healthy spot for us.

And as we move through next year and deal with any of the excess, we still will be managing our third-party liquidation in a reasonable spot.

We would expect to stay kind of in that 3% to 5% range, hopefully at the lower end of that, which is what we've been doing and continue to do to make sure that we're keeping the brand healthy out there and leveraging our outlet stores as best as we can. So we feel really good about that. And to Colin's point, the growth rate looks high.

But if you look at the actual health of the inventory and you look at our actual turns, we're actually in a reasonable spot, and we're ready to drive into next year..

Great. Best of luck for spring season. Thanks so much..

Thank you..

Thank you..

Thank you. Our next question comes from Bob Drbul with Guggenheim. Your line is open..

Good morning. Just a question on the marketing and the focus on the 16- to 20-year old varsity athletes, you talk about just some of the early improvements in the metrics for this demographic.

I was wondering if you could share a few of those with us? And then I think the other question is just where -- on this year, where are you going to end up the marketing like levels or the rate of marketing spend this year? I'm just trying to understand that as it relates to more of a longer term perspective on how much you're going to invest? Thanks..

Yes. And thanks for the question, Bob. Yes, as you mentioned, we have shifted our target audience to the 16 to 20-year-old varsity athlete. And I want to stress that, that's the target audience. That's not the target market.

This is the inspirational news that we're looking to kind of work with and build relationships with, which would allow us to amplify the brand as part of our broader strategic evolution. Early days here, we really only made that shift in the back end of last year. So, we're starting to look at the marketing metrics around that.

And it looks as if the work we're doing, and we're starting to see the results, certainly from the point of view of how we've been selling in things like our created foot ore is landing incredibly well, some of our team sports work is landing incredibly well.

So, a lot of the work we're now starting to do and the way we start to think about focusing our marketing to ensure that we're meeting that athlete is really starting to resonate. And we're seeing that kind of show through in some of our results as well.

From the point of view of our marketing, it's still -- it's focused on middle to top funnel activations. And again, continue to be focused on increasing awareness, engagement and consideration as we would do.

And this sub-suite is a great example of us how we're looking to lean into that when it comes to that other part of our strategic evolution with what we call our lay of our sports style stuff. So, overall, we feel as if we're moving -- we've got a great story to tell, and this 16 to 20-year old athlete is the individual we want to tell it to.

But Dave, do you want to give some clarity around number?.

Yes. Just from a dollar perspective, we finished Q3 a little below 11% of marketing dollars to revenue. And we're still managing through that operating objective of keeping marketing kind of in that 10% to 11% of revenue, and that's how we're going to keep driving forward. And then we'll talk more about next year as we get to the May call..

Great. Thank you very much..

Thanks Bob..

Thanks Bob..

Thank you. Our next question comes from Brian Nagel with Oppenheimer & Company. Your line is open..

Good morning. Thanks for taking my questions. So, the first question, I guess there's a bit of philosophical. I mean just to understand better what you're seeing out there as far as the overall backdrop.

So, it sound -- the comments you made today it sounds like -- sounds suggests at least to me that maybe in your view, the backdrop has gotten a bit worse from a demand perspective. So, the question I have there as you think about how the consumer is behaving, how the consumer is reacting to the Under Armour brand.

But at the same time, you and others are in this clearance activity to sort of say, rationalize excess inventories.

Are those still two distinct events? I mean, is the consumer potentially weakening here at the same time you're strategically clearing inventory, or is that -- that clearance activity now either leading to consumer weakness or fueling consumer weakness?.

Yes, I think that from our perspective, we're not necessarily seeing it as a developing consumer weakness. I think it's more a little bit of a math situation. A lot of the brands had produced a lot more inventory for 2022, thinking it was going to be as strong as 2021, not realizing how big of a bounce back banner year 2021 was for most of the brands.

And so with all that heavy inventory out there, it's really a math equation of being able to move through it. And so you see a lot of the brands are -- have been heavily discounting and we've had to play in that a little bit more than we wanted to in Q3. And now we're starting to protect a little bit more in Q4 here as we drive through.

But I don't necessarily see it as a demand issue. I see it more as a situation with the numbers that are out there. And as we go further through this calendar year, that will -- we believe that, that will start to subside but it is going to take longer than what we expected, probably 90 days back.

And then the other pressure that we saw more in Q3 was relative to China, as well with COVID, now very resilient consumer in China. So we're starting to see that bounce back a little bit, which is great, and we hopefully will continue to see that. But that's kind of what we're seeing out there, and we're going to keep driving forward.

But I think the first half of our coming fiscal year will be a little bit more pressure than we expected 90 days back..

Yes. And let me just jump in there. The way I've been kind of explaining, it's -- the inventories are bloated, and it's pretty stagnant out there at this moment in time. So it's just going to take time for it to kind of work through. I think the consumer is still there.

And we're confident that certainly this -- the categories we're in and our business can certainly continue to win within this environment. But we do think, in some respects, actually, this actually gives us the right time to actually lean into the strategic work that we've already got in flight.

We've already talked about the 16- to 20-year old vast athletes. How do we build that product, how do we start building that relationship. So this actually gives us a great time to do that. How do we start to bring live and sports styles in the market. Again, great time for us to do that as the industry works through the inventories.

And first thing, our strategic segmentation, thinking about how we're continuing to build good, better and best product and how do we actually really start to bring that better and best product to the consumer.

So yes, I understand it's bloated and it's stagnant out there, but actually from the point of view of how we can now start to play in this market, we can position ourselves incredibly well. So as this starts to play out, we can power out of it..

That's very helpful. And the second question, a follow-up. I'm recognizing you haven't given guidance beyond the current fiscal year, but lots of moving parts right now with respect to top line or across geographies, across product categories, distribution channels, et cetera.

Longer-term, as we're watching this business and watching business continue to recover, how should we think about what should be kind of a healthy top line growth rate for Under Armor?.

Brian, this is Dave. Great question. And we're excited -- as excited or if not more, to talk about the future. I think when you step back, we probably would go back to what continue to be some of the biggest opportunities for us.

When you think about the footwear growth and the continued potential there, and how small our footwear business is in total to our mix, when you step back and look at where we are from an international perspective and being able to return to healthier growth in Asia Pacific as we get past COVID more, EMEA is a very healthy market for us, and we're driving forward there as well.

So still a lot of great opportunities for us as we think about internationally. And then from a DTC perspective, it is an area that we've been over-indexing on relative to investment there, whether it be within the platform itself, whether it be within our loyalty, CRM, et cetera. So -- and you see that coming through in the e-com growth.

So there's a lot of things to be excited about. Also, we continue to make progress relative to how we want to attack full-price brand house stores.

And then on top of all of that, we have a new opportunity as far as expanding the aperture and going into that fourth quadrant for us or the Live Quadrant or Sportstyle project which we're super excited about. And that has a little bit of a longer lead time. You'll see some of that product coming into the market.

But as far as bigger dollars and bigger volume, that's going to be a little bit more of a fiscal 2025 and beyond. So when you think long-term to your question, there's a lot of great opportunities out there. But as far as giving color on growth rates and things like that, we're going to hold back for now until we get more further down the road..

Got it. Very helpful. Thank you..

Thank you. Our next question comes from Jim Duffy with Stifel. Your line is open..

Thanks. Good morning. Thank you for taking my questions. So I'm interested in really more about go-to-market strategies behind efforts to expand the wearable occasion for the brand.

First, can you speak about the allocation of marketing dollars that effort versus the more sporter activity or dimensions of the brand? And secondly, can you speak about how you leverage partner athletes to raise awareness for the new product dimension? And then finally -- and I'm particularly curious here, can you speak to the buy-in of wholesale channel partners? Are there examples of commitment to point-of-sale representation for that product?.

Hey, Jim, yeah, let me kind of lean on -- let me kind of kick that off. Obviously, just thinking through how we think about this new segment, the Live, which is, again, just to remind you, this is kind of the fourth quartile of train compete recover Live.

And we -- and building a little bit off the previous question, this changes our total addressable market enormously. So it's a huge opportunity for us to lean into that.

We're building -- currently building this thing to our go-to-market model at this moment in time and understanding how we can optimize what we currently have in addition to how do we then think about bringing it to market differently. And all of that's work in flight at this moment in time.

But the store that we're opening in New York is perhaps a great manifestation of how the brand wants to show up differently and intends to show up differently. And the teams are working through that, and you'll see more of that come to life over the next few quarters.

With regards to how we're thinking about the utilization of athletes, obviously, we've got such an incredible roster of athletes that -- and many of them are really keen to have access to this kind of product.

One of the expressions we used around here is tunnel walk, because we do an amazing job of providing athletes with products they can wear on and off to feel when they're training.

But how do we allow them to have that swagger? How do we give them this tunnel walk kind of swagger that they deserve if you're operating at that level within the sports world? So again, many of the athletes are really up for this. They're really keen for this. They're really engaged and want to be part of this journey.

And again, we've been talking with many of our key athletes with regards to how that comes to life. And you'll continue to see that in the way in which we're showing up from a marketing perspective as well. And again, we're just starting to build these relationships with our wholesale partners.

We've had these conversations with them to build on your third question. They're excited about it as well. And the opportunity for us to -- again, the opportunity for us to increase our TAM, our total addressable market is something they can clearly see and they can see that we have an opportunity to play there.

Dave, do you want to supplement that?.

No. I mean I think that not surprisingly, one of the bigger opportunities is being able to more aggressively expand into the mall channel and some of the great partners that are in the mall business. So that's going to be a big opportunity for us, but there could be other distribution opportunities as well.

It is early days at this point, but definitely a lot of potential. And within the walls and outside the walls of Under Armour, we're really excited about what that can mean..

And then just following up on that, Dave, this builds on some of your earlier comments, should we think about fiscal 2024 as a foundational year for this and you build on it in fiscal 2025, or will we begin to see meaningful revenue contribution from these product categories in fiscal 2024?.

I think that, that's a fair assumption. Fiscal 2024 is going to be a little bit more foundational. If you think about our product life cycle and developing into more of the sports style and building out that aperture a little bit more so you might see a little bit of that coming in back half of fiscal 2024.

But from a material perspective, it's really going to be fiscal 2025 and beyond where that big opportunity is..

Understood. Thank you..

Thank you..

Thanks, Jim..

Thank you. Our next question comes from Laurent Vasilescu with BNP Paribas. Your line is open..

Good morning. Thank you very much for taking my question. I wanted to ask about EMEA. Last December, it was up 23%. This time, it was up 46%.

Is the growth driven by a balance of footwear and apparel? If you can give a little bit more color on what you're seeing by regional performance within EMEA? And Dave, how do we think about 4Q performance for EMEA?.

Yeah. I mean, a couple of things. EMEA has been a very healthy region for us, and we've made a lot of progress there, which has been great. The team is doing an incredible job there. And we saw increases in Q3 in wholesale, but also on the DTC front.

I will say that, a little bit of that was some earlier-than-planned shipments that were originally planned for early Q4 that ended up coming in and making it out in late Q3. So that did help a little bit.

And we remain agile in the region despite uncertainty, including inflationary pressures and rising energy costs and things that, that region is dealing with. But we're in a very good spot relative to our key account relationships. We're starting to open more full-price Brand House stores, which we're excited about.

So, definitely a DTC emphasis there and we continue to see it as a very high-growth region for us, and we would continue to expect that in Q4 as well.

I wouldn't expect the Q4 growth to be as high as the Q3 growth, because there is some timing in there that I mentioned, but we still believe it's going to be a healthy growth area for us as we continue forward..

Yeah. And building off that, and you asked about the countries, I mean, the UK has been a huge focus for us and somewhere we decided a couple of years ago, we really needed to win. And that's working incredibly well. We have – again, to Dave's point, we have great relationships with our whole partners there.

And we are in the process of opening a number of stores in the first half of calendar 2023, which will all be opened up between London and up in Liverpool and Manchester and Birmingham. So stores opening up across the UK, as we really start to lean into it.

Again, it's important to understand Europe is really where the brand manifests itself in the way that we want it to show up – and when we show up the right way, we clearly resonate with that core consumer. So the UK is incredibly important.

We also have a major focus on Germany as well, thinking about how we're kind of continuing to grow in that market. We're a little bit further behind in Germany. But we've got other places in Europe. We're now starting to lean into more aggressively from Spain and Portugal through to France. So we're working our way through the region.

But we really wanted to make sure we win in a couple of those core markets before we kind of roll out too aggressively in the region, but it's working. And it's a model that we're looking to kind of replicate back here in the US as we build those relationships further..

Very helpful. And then, Dave, I'd love to ask about Kate's question around gross margin, just following up around those three buckets. It sounds like the third one mix is more structural in nature.

Is that the right way to think about it relative to the other two buckets? And then you alluded to inventory turnover of three times over the foreseeable few quarters, how do we think about inventory growth year-over-year over the coming quarters, when does it kind of match revenues?.

Yes, I would say a couple of things. Relative to gross margin. As we think about that, I mentioned a third is the higher promotions and discounting, that's probably the biggest kind of individual piece for this year.

The second bucket around elevated product cost, freight expenses, changes in FX, the two bigger pieces in there would be the product cost headwinds and then also the FX headwinds. Freight was a big headwind in the front half of the year, but has now kind of flipped the other way a little bit.

And then the last one, which was more to your question, it is a little bit more structural. So, the mix impact, which is the other third remaining, probably the biggest piece of that is just having a higher mix of distributor revenue, which is a little bit lower gross margin business for us, but still very profitable on the bottom-line.

And then there's a little bit of product mix in there with the higher percentage of footwear revenue, which is a little bit of a gross -- a little bit lower gross margin for us. And then a little bit or even a smaller amount impact with the region mix. But the biggest one in there is the channel mix with the higher distributor sales.

And we'll provide fiscal 2024 inventory color when we get to our fiscal 2024 outlook in May..

Very helpful. Thank you very much..

Thank you..

Thanks Laurent..

Thank you. Our next question comes from Matthew Boss with JPMorgan. Your line is open..

Great. Thanks. So, Colin, maybe as we enter 2023, you mentioned an uneven macro backdrop.

But how are you seeing the progression of trends in the North America athletic channel, maybe post-holiday? And then, Dave, maybe just as a follow-up, could you speak to the composition maybe below the surface within inventory? What's durable versus what's at risk for markdown? And then to your point on the continued promotions, is there any parameters for us best to think about gross margin next year?.

Well, Matthew, thanks for the question.

I think the word I used earlier is -- I think the industry, certainly, the sports industry is pretty bloated at this moment in time just because the amount of inventory that has hit the stores over the past six months, the overhang and I kind of call it the hangover from COVID a little bit where we had so much product that was late that was all kind of coming in at the same time as we saw perhaps a slowdown in demand somewhat, but we saw a correction in demand.

So, you've got all of those things happening at the same time. So, you've just got a lot of inventory out there. And I think as we talked about already, I won't belabor the point, but I think it's going to take some while for that to kind of work its way through. I think, again, I think we're in a better position than most to kind of manage through it.

But when the inventory -- when the industry sneezes, we catch cold somewhat as does everyone else. So, we're having to play within that environment. But I think we're in a better position because of half of the way we've managed inventories to power out just quicker and hopefully kind of protect our bottom-line as we go forward.

Dave?.

Yes, I think, Matt, when you think about our inventory, we are in a fairly healthy place. We do not have a lot of aged inventory. So, if you look at what's in that 50% growth, it's not like there's a whole bunch of stuff that is two, three, four seasons old. It is all much more current.

And therefore, we feel more comfortable of being able to move through that in a reasonable way. And we did, as I mentioned before, to take a lot of the seasonless product and we're going to pack and hold that and sell that next year as opposed to kind of moving that through liquidation or something at a lower margin or less brand accretive way.

So we're in a position to be able to do that. We're comfortable doing that. And when you think about gross margin next year, we are going to wait until the May call to give color on that because there's just a lot of puts and takes. You would think that back half of next fiscal year you would probably have some less promotions.

You would think that next year, we would have lower freight costs than what we've dealt with at least the front half of this year. But then on the flip side, footwear is probably still going to grow faster than apparel. And that's a little bit of a headwind, which we're comfortable with.

And relative to foreign currency, who knows right? I mean it's difficult. So there's a lot of puts and takes out there. Obviously, we're going to continue to drive forward, and we've got a lot of initiatives to do so. But we're going to wait until the May call to be able to give more color there..

Thank you. Our next question comes from Tom Nikic with Wedbush. Your line is open..

Hey, good morning guys. Thanks for taking my question. The last couple of years, you've done a lot of work around retraining the consumer to look for you at full price and pulling back on discounts and pulling back on the off-price channel.

And I think unfortunately, because of this inventory bloat that you've talked about, I think, obviously, you've been more promotional than you want it to be.

How do you avoid I guess, having the customer be trained to look for your brand at a discount? And how do you eventually rein in the discounts and the promos that are occurring right now without facing pushback from the consumer who has been able to buy your brand and your competitors at a discount..

This is Collin jumping in here, and thank you for the question, Tom. I think there's a couple of areas that I think are relevant to this. Number one, as you've talked about already, we've walked away from quite a bit of undifferentiated retail at this moment in time, and we have no intention of going back.

So from the point of view of ensuring that we protect that core product that we have. We don't see that sliding again. We've also managed to Dave's earlier point, we're also making sure we control our liquidation at an appropriate level as well.

So from the point of view of not allowing us to slide further into that trap, we're working aggressively to make sure that, that doesn't happen. At the same time, much of the work that we've been done recently is working through how do we bring more better and best product to the top of the house.

We've got a really good level brand here in the US, but the opportunity for us to build into that better and best is what we're working on and where Kevin is spending a lot of his time because his history and his context for the brand really helps us understand that at the same time.

We're also working through building out our wholesale distribution strategy to try and increase the opportunity of landing this stuff at a wholesale level and working through how that segmentation works and how we show up.

Moving through to Live clearly gives us an opportunity to think about that a little bit from the point of view of where we show up. And Dave talked about a little bit about how do we make sure we're showing up in the right places at the mall because that gives us, again, a huge opportunity to lean into that as well.

And finally, we've been continuing to make oversized investments in our own omnichannel and DTC parts of our business and certainly thinking about how we show up at retail, the Flatiron store in Manhattan is a great example and a first step on that journey.

But at the same time, continuing to invest in our loyalty programs, which, again, we rolled that out last year. We're looking to roll that out more broadly here in the US later this year, and we're seeing great results from that. So it's a question of offense and defense.

We're defending by making sure we don't slide back into that lower channel kind of network of retail. But at the same time, putting in place really strong plans and strategies to ensure that we're driving -- continuing to drive the brand up to that next level..

That’s helpful. Thanks, Colin and best of luck this year..

Thanks, Tom..

Thanks, Tom..

And we’ll take our last question from Michael Binetti with Credit Suisse. Your line is open..

Hey, thanks for all the detail here and particularly my question. So if I could just follow that last one very quickly as you look at the distribution map in North America for 2024.

Are there also parts of the US distribution map that you need to mix away from to get to that targeted better, best mix on product as you kind of rethink distribution more broadly? And then I guess, one on SG&A. You talked a little bit about gross margin and how to think about some of the themes for next year.

But same way, marketing, you commented on the near term to Bob's question earlier, it sounds like 10, 11 is where you plan to live next long-term, I guess. As we think about the other buckets, I'm guessing incentive comp, everybody would hope it will come back next year.

are there any other buckets to just be mindful of maybe some front-loaded investment as you build the teams for Live, any other buckets that we should be thinking about as we look out to next year into the May call?.

Well, thank you, Michael. I'll take the first part of that, and then I'll pass it over to my partner in crime [ph] Dave, to take the SG&A part. But -- if I had my -- our plan here, Michael, is to not shrink the bottom of the market, but grow the top of the market. We want to get bigger as an overall brand.

We believe -- and when we look at the way we resonate with consumers, when we look at the data, we see – we see from a consideration point of view, we have a huge opportunity out there. And part of that is not necessarily about shrinking the bottom end of the market.

I think we've already done that to a large degree by walking away from much of those kind of differentiated doors, which just didn't make sense. But it's really about how do we grow at the top end of the market.

So our focus is more about trying to elevate the brand and again, protect the core and elevate for more or want the better way of putting it, is kind of how we're spending our time and thinking through the product we're developing, the stories we're telling the consumer we're engaging with and the entire strategic evolution that we've got in place and we're working through will hopefully help us deliver against that.

And Dave, do you want to jump into the SG&A?.

Yes. I mean I think from an SG&A perspective, through a lot of difficult work over the years. We are now more nimble. And so we're able to proactively manage much better than we were years back. And so think about this year with some of the pressures that have developed in the market, we've slowed down and prioritized hiring.

We prioritized marketing investments differently and better continuing to manage things like consulting and T&E and things like that. And doing that has been not as difficult as it used to be in the past.

And I think some of that also goes to the enterprise mindset within the company, whether it be the alignment of our leadership team and being able to make tough calls and drive through and prioritize further to be able to protect the bottom line or even if we just think about all the teammates that we have across the world and how much they're looking out for the brand, and trying to spend as if it's their own money and kind of make $1 spend like $3.

And that enterprise mindset goes a long way for us. And it's just been -- I don't want to say the word easier because these are tough decisions but we've been able to act more quickly and more proactively on the cost structure, and we're going to continue to do that as we drive into next year and beyond.

So I think we're set up well for that, and it's time to drive forward, time to go..

Yes. And I'll just close out. I think we've done -- I think over the past few years, we've built an operating model that clearly works. We've had a solid quarter I think that demonstrates the fact that we've got it.

We have a strategic refinement that we're putting in place at this moment in time, and they're starting to build out and starting to flow through the markets and starting to flow through to work with our teammates to kind of bring it to its full manifestation around – and I'm excited about how that's all going to come together.

I think we're well feed up for future success..

Can I follow up with just one more? I think you used the word stagnant twice in regards to the inventory clearing you're seeing in the marketplace today.

Obviously, we have your revenue outlook for the fourth quarter, but would you mind elaborating a little bit on where you see pockets of stagnation and POS out there, perhaps where you're surprised to see that inventories are turning slower than you expected coming out of holiday?.

I think there's just a lot out there. I think, I'll use bloated again because I think I've used that a couple of times as well. So that may be the key word with regards to inventory. I think it's just bloat. I think it's different channels, obviously have different, different issues that they're dealing with.

And different brands are obviously handling it in different ways. But you only have to go and look on websites to see how many people are running discounts out there to see how challenging it is – so yeah, again, I think it's just going to take some time for it to work through..

All right. Thanks, guys. Great detail. Appreciate the help..

Thanks, Michael..

Thank you, Michael. Take care..

Thank you. This concludes the question-and-answer session. Thank you for your participation. You may now disconnect. Everyone, have a great day..