Church & Dwight Co., Inc. (CHD) Earnings Call Transcript & Summary

Welcome back. So I'd like to welcome Church & Dwight back to the conference. With us today are Matt Farrell, Chairman, President and CEO; Rick Dierker, Executive Vice President and Chief Financial Officer, as well as the Head of Business Operations; and Mike Read, Executive Vice President of International. What we're going to do is we're going to have Matt, Rick and Mike kind of run us through a relatively brief presentation, and then we'll use the balance of time for Q&A.

Sounds good.

Okay. You're on.

Okay. Good morning, everybody. We're 3 presenters because, obviously, we must tire easily. And so safe harbor statement, I call everybody's attention and they can read that after the program. We always start with who we are and also what our track record is. If you look at this TSR track record for the last 1, 3, 5, 10 years and year-to-date, so we got a big black eye in 2022. We took a step backwards down 20%. That's been an anomaly for the company, particularly in my -- this is my 17th year with Church & Dwight. We seem to be back on the rails in 2023 and we hope to build on 2023 going forward. I am sure you all know our Evergreen model. 3% top line organic, 8% bottom line, and how we get there is gross margin expansion. We try to keep marketing flattish around 11% and then expand SG&A, and get SG&A leverage as we drive the top line. Here's our history of growth first on a reported basis is over 6%. That would be a combination of both organic and acquisitions. If you look at just organic, although we have an evergreen model of 3%, you can see that our 10-year average is more closer to 4% and our expectation for 2023 is 3% to 4%. We have 14 power brands. They're kind of listed on this slide here. They make up 85% of our revenues in profits. So they get the most attention within the company. Here's how we look as a company from a geographic standpoint, 3/4 of the company is U.S. 17% international. Specialty Products division is comprised of both an animal productivity business and our legacy business, which is bulk sodium bicarbonate, which the company was founded in 1846. A lot of runway to grow internationally, and Mike will tell you about it. We perform well in virtually any economy. Why? Because 40% of our portfolio is value, 60% is premium, and a long history of growth through acquisitions. We generate lots and lots of cash flow, acquisitions is the #1 destination for our cash. You can see if you went back to 2004, $1.5 billion. Today, we're about $4 billion larger. And if you look along the bottom of the slide here, virtually every year we've made an acquisition. All right. And those 13 of the 14 power brands were all acquired since the year 2001. The only brand we had in 2001 was ARM & HAMMER. But generally, all of our brands are #1 or #2 in their categories. And short story with respect to our business models, we have 14 brands today, I expect that's 20 tomorrow. Now Rick is going to come up and take you through some of the financials.

All right. Thanks, Matt. So we begin and end every presentation pretty much with the evergreen model, and it's not an annual model. It's our evergreen model. Matt walked you through the different steps, but we have our sight set firmly on the evergreen model. Our outlook for the full year, we started off in February with a few metrics, and we gave an update in April. And this is significant for us because Matt's 17 years and my 14 years, we rarely ever raised our full year outlook after 1 quarter. But we have tailwinds for reported sales growth. We've tailwinds for organic sales growth. Gross margin at the high end of the range. EPS raised as well and cash from operations. So just a very significant move in our mind early in the year. So Matt showed this slide as well. He had a reported growth of 6%. This is organic. So our evergreen model is 3%. But over the last 10 years, we've been tracking closer to 4%. Gross margin is super important to the company. Gross margin drives EBITDA, EBITDA drives cash earnings, and we are laser-focused on cash earnings. So in 2023, we expect to expand gross margin by 120 basis points. That gets us to 43.1%. If you look back at our history, and kind of pre-COVID, our high watermark was 45.5%. And that's about a 240 basis points difference to how we think we're going to end 2023. So over the next few years, we expect the stair-step back up to 45.5%. On marketing, again, if you look back at our track record, we've bumped around 11% and 12%. We think the right number for the company is 11%. Last year, we were 10%. Why? We had fill level issues in the supply chain. And so we don't want to go drive consumers to shelf when there's nothing to buy on the shelf. So we were depressed in 2022. So in 2023, we moved it up to 10.5%. That was about $25 million, $30 million. And we said, over the next year or so, we'd probably get up to 11%. As we continue to deliver in 2023, if we overdeliver on the top line or gross margin, you could expect us the #1 destination is marketing. And then EPS. So a long track record of EPS growth, either high single or low double digits, and in 2023, it was 2% to 4%. And our prioritized uses of cash flow, our capital allocation has not changed. Number 1 is TSR-accretive M&A. Number 2 is CapEx. You'll see in a minute that we're talking about CapEx investments for capacity. Number 3 is NPD. 4 is debt reduction. We expect to be about 1.8x levered by the end of the year. And return of cash to shareholders is number 5. Again, on capacity, we're making sure we have ample capacity for laundry, litter and vitamins, and that's why we have a bump up in CapEx about 4.5% in 2023. It will stair-step down, and we expect by 2025, get back to our historical levels of 2%. And I'll hand it back over to Matt.

Okay. I think many of the long-term shareholders would be very familiar with what our operating model and why we've been so successful for so long. When you run your eyes across the page here, we've got to show you some numbers, balanced portfolio, low exposure to private label, consistent acquisition, and we are an acquisitive company, as you saw before. There's a split between household and personal care pretty much 50-50. Generally, personal care products have a higher gross margin than household. But balance, as Rick said, before, trying to get back to 45%. We have a low exposure to private label. The weighted average private label share of our categories has been around 12%. It's going further back than 2017, which as far back as this regular slide goes. Here are 6 of the categories that have more material amount of private label in them. And if you just look at the lines across the page, in general, you can see that the private label share is flat to down with the exception of Clumping Litter, which has ticked up a little bit over the past year. And some of our major categories, fabric care being our biggest one, particularly what's going in the category and what's going on with respect to trade down. You can see that value brands have picked up 1.6% share over time and premium down 2.3% over this period of time. This goes back to October of '21. Let's go look at litter. So on the left-hand side of this slide, you have dollars. On the right-hand side, you have units. So on the left-hand side, the gray bar is the category and the orange bar is Church & Dwight. So if you looked on the far left, the latest 13 weeks, you can see that Clumping Litter category is up about 13%, Church & Dwight up 14%. And on a 52-week basis, you see the same relationship. If we go with respect to units, because we've all been focused on volume. First start on the far right, say, on a 52-week basis, the category is actually down 2%. We've been up almost 1%. And then in the latest 13 weeks, you can see the same pattern starting to tick up with respect to the category, where we continue to be up over 1% in volume. All right, innovation. You heard earlier that our top line expectation is 3% organic growth. I'll remind everybody that 1/3 to half of that will come from innovation. So 1% to 1.5% of organic growth comes from innovation. And we've had a consistent track record of being innovative across all of our categories. This is just an array of all the launches that we have in 2023. And here's our acquisition criteria. This is very important, particularly to our long-term investors. #1 or #2 shares, high growth, high margin. I call attention to the fast-moving consumables. We got a black eye. And when we acquired FLAWLESS, we acquired that business in 2019. It was a devices -- or device, I should say, for facial hair removal prior to putting on makeup, but there might be a change in consumer behavior, we were wrong about that. We had a similar decision back in 2011 when we acquired BATISTE. But there was a change in consumer behavior there as people started to use dry shampoo between washings, that turned out to be true. That business has gone from $20 million in sales to well over $200 million with a huge amount of growth ahead of it worldwide. Why? Because of low household penetration. So #1 and #2 brands, fast-moving consumables that are high-growth, high-margin, asset-light. We like to leverage our considerable supply chain footprint to generate cost synergies. And finally, the brand has to have a long-term sustainable competitive advantage. Now if you look at the 2 most recent acquisitions that we made, the THERABREATH was in December of '21, HERO in October of 2022. And we're trying to get into larger categories. Now the numbers you see on this page, see mouthwash 1.7 and acne 0.8. This is just in measured channels. If you added online class of trade, these numbers would be a lot higher. And this is just the U.S. Both of these categories are global. So we have an opportunity to take these brands globally in the future. So this is another nuance with respect to how we're viewing acquisitions going forward. A little bit more with respect to THERABREATH. So THERABREATH is the #5 most loved brand by Gen Z. That's important because the brand age is younger. Consumers are typically loyal to their mouthwash brand. So if we get them young, they're going to stay with it on a long-term basis. Why is it growing? Well, we've got lots of new distribution. We have had a 100% increase in distribution since we acquired this brand in December '21. We also have a WATERPIK business. WATERPIK water floss as we call, and we have high volume dental offices in the United States. So those hygienists are now pitching THERABREATH to those offices. And Mike can comment later about the opportunity internationally as well. And THERABREATH, we're expanding out on shelf. We're getting it to kids this year. So I think that over time, as we introduce more and more variants, we'll be able to spread out on shelf. Hero, #1 most loved brand by Gen Z. And you can see on this page, just since the acquisition in October, we've increased distribution by 50%. And again, this is another brand or a category where we have an opportunity to expand internationally. And just like THERABREATH here, it also has a pretty stacked innovation pipeline. All right. Digital is our fastest-growing class of trade, both in the U.S. and internationally. So if you look at our overall growth for the company, it's a disproportionate amount is coming from online. So we aim to be experts in digital sales and marketing. There's some stats. So if you went back actually in 2015, only 1% of our sales were online. Today, it's -- 2022, it's 16%, and we expect it to be higher this year. Now how do you get there? You got to get people. And we've hired some really terrific people, blending them with our existing veterans in digital sales and marketing, really developing quite a skill within the company. We've made a lot of changes over the last 12 to 18 months with respect to our agencies, go for more contemporary agencies to support us. And like most CPG companies, we're focused on analytics, getting a lot of talent in-house in order to sift through consumer and retailer data in order to gain insights to grow the company. And 1 interesting thing you might be interested about, we acquired Hero in October. And they are a super-digitally savvy business. And of 50 individuals, half of them are digital marketing experts. We ask the Hero people take a look at THERABREATH. Say, if you own this brand, what would you do with it? And they gave us insights that we didn't have. So we're not a not-invented-here company. So we'll take good ideas from anywhere, but we do think that we're laying the foundation for the future. Now I want to bring up Mike to talk about international.

Great. Thanks, Matt. Internationally, our evergreen model is 6% organic a year. The way to think about it is, we're in excess of about $900 million in annual sales. 2/3 runs through our 6 subsidiary markets. And the remaining, a little over 1/3 is our Global Markets group. That's worked through 400-plus distributors across 80-plus countries around the globe, but is our fastest-growing part of international. The way we're kind of set up is we have our 6 subsidiaries across Canada, U.K., France, Germany, Mexico, Australia. And then the remaining Global Markets Group is supported by 5 regional hubs within Shanghai, Singapore, Panama, London and our most recent one, a little over a year ago in Mumbai, India. So that's how we service around the globe. If you look back to 2022, and then historically, we've had a really strong track record of actually meeting or surpassing our 6% watermark. In 2022, we had a little bit of a step back, certainly impacts from some supply bumpiness last year as well as some downturn in the Chinese market largely with consumers locked down with COVID. I think the good news story out of that is if you look at even 2022, where we had a bit of a step back, all our subsidiary markets and 4 of our 5 global market regions were in really positive growth. That set the foundation for strong growth into 2023, which has occurred. So if you look at the first quarter of this year, we're up almost 12% organically and well on our way to achieving our 5% to 7% range that we put out at the start of the year. But most importantly, when I kind of look at it, all 6 subs and all 5 global market regions are in positive growth, which gives us great optimism for the rest of the year. Our brand portfolio travels extremely well. So we source from sort of 3 different points. One is we do leverage many of our U.S. power brands globally. So big brands like ARM & HAMMER, OXICLEAN, and our vitamin business as prime examples. But we do complement that with a host of international-specific brands, particularly in the personal care and OTC space, the brands like STERIMAR, FEMFRESH, Gravol, and Anusol are unique to the international portfolio, but high-margin, fast-growing categories. And then that's further supplemented by leveraging acquisitions. So WATERPIK has become a really meaningful part of our global portfolio. We're really excited about the opportunity to expand both THERABREATH and Hero on a global scale, big categories, universal opportunity for us to step into each of those. That gives a promise around kind of where we're underdeveloped relative to our peers on an international basis through our ability to continue to leverage that portfolio in more geographies gives us lots of promise and lots of runway around starting to close that gap. We are making some very specific investments, and we're quite committed to this around, a, improving our digital and revenue and pricing capabilities around the globe. We have put in a direct ERP system in China that's started to move direct into bricks and mortar into Mainland China. We've continued to service our supply network with local manufacturing where appropriate to be more closer to source. And as I mentioned, we're anniversarying kind of our latest regional hub in Mumbai, India, to start to build that region. It's one of our fastest-growing regions. So kind of in summary, from an international perspective, really a long runway from a portfolio and geographic perspective. The portfolio travels extremely well. We're really excited about the additions of our new acquisitions. They will be really important parts of our portfolio. We continue to fuel GMG as a primary growth driver for international and we are making some major investments and capabilities to get ahead of that future growth. Quickly, just on Specialty Products. We look at 5% organic growth as our evergreen model for our Specialty Products division. This is basically a 70-30 split between animal productivity and Specialty Chemicals. It's about a $350 million business, largely focused on the animal productivity space, so prebiotics, probiotics and nutritional supplements, largely historically around the dairy cow sector. We have expanded our species into cattle, poultry and swine, and we are also moving internationally. So similar to our consumer business, lots of opportunity to grow internationally. If you look back to 2015, it was a small part of the segment. It is now growing double digit, and now 12% of sales is international and expected to increase. So again, a trusted brand from an ARM & HAMMER perspective. That's how we go to market. We are aligned with a lot of the consumer trends around affordable proteins and population growth. We have diversified across the species range, which gives us lots more entry points into different markets. And we are growing quite rapidly and focused on global expansion. So with that, I'll pass it back to Matt.

Okay. We'll wrap it up now before we get into Q&A with Steve. We have a very diversified portfolio, as you've seen. Some would say that it's complex, but we've reduced complexity by how we structure the company. So you get a sense for how we have our strategic business units listed here and which businesses actually run the different brands. So it's very manageable, not only for the portfolio today, but it gives us an ability to add new brands in the future. There are 5 operating principles, like we have brands consumers love. We're a friend of the environment. We have tremendously productive people. I'll demonstrate it with some numbers. We are asset-light and we have a great track record with respect to acquisitions. So I have talked about the brands already. So I'm going to jump right into sustainability. I won't read this. This is kind of a read behind, but sustainability has been around this company for a long, long time. The founders of the company were environmentalists. So if you go back into the 19th century or early 20th century, the company has walked the talk, and more recently, in the last few years, we've been planting trees in the Mississippi River Valley, millions of trees actually take CO2 out of the atmosphere. And more recently, we've committed to science-based targets, which essentially says now you're going to reduce the amount of CO2 you're putting into the atmosphere. We have environmental goals. We want to be 100% carbon neutral by 2025. That's through offsets. That's by planting trees. But again, you see on the lower left, we're also committed to reducing the amount of CO2 we put into the atmosphere. Water is important to us as well. It is quite a scarcity, particularly in the U.S., are trying to reduce our water usage by 10% annually. And then solid waste, we want to get to the point where 75% of our waste is recycled. It's less than that today. Lots of rating agencies out there that rate companies with respect to sustainability. I'm sure everybody is family with MSCI. This has just been our progress over the last 3 years, 2020, 2021 and 2022. So it's all going in the right direction. As far as leverage people, I think this is a really unappreciated statistic. It is our revenue per employee versus our peer group. As you can see, we have over $1 million of sales per employee. So from 2022, we had $5.4 billion in sales. And essentially, we have 5,300 employees. So we're obviously running through the halls. We have a very simple compensation structure. You can see them arrayed here, it's 20% for each of these revenue, gross margin, cash from operations, EPS, and strategic initiatives. Strategic initiatives was added this coming year. We're talking about strategic initiatives. We're talking about things like we want to expand internationally. There is a focus on sustainability. We're focusing on D&I and improving our statistics. So that calls attention to that. It also ties our annual incentive comp to making progress. And all of our employees are focused on gross margin because it's 20% of your annual incentive comp. Why is that important? It promotes financial literacy in the company. So employee is going to say, what's gross margin and how do I get it? Here's how we expand gross margin. Obviously, we have our Good to Great program, which is our continuous improvement program; supply chain optimization; new products, we launch new products to have a higher gross margin in the products that they're replacing; and then, of course, acquisition synergies. So we leverage assets as well. As Rick pointed out earlier, generally, we only have 2% of sales as our CapEx. We got a blip in the last few years. Why? Because we're expanding capacity in laundry, litter and vitamins. But we expect to get back to around 2% in 2025. So if you do the first 4 really well and you add on top of that being really good at acquisitions, you want getting great TSR, which is what we've had historically. You saw this slide earlier. So we've done an acquisition just about every year. As we said before, we have 14 power brands today. We hope to have 20 tomorrow. Now I'll turn it over to Steve for Q&A.

Okay. Good job. I guess maybe just to start. So there's a lot of discussion this week about potential headwinds building on the consumer, both in the U.S. and internationally. You guys, by contrast, seem like, highlight the good first quarter, consumption trends from what we see, seem very strong both in the U.S. and internationally again. So maybe just some context of what you're seeing with the consumer? How today's environment differs from what you've seen in the past? And then why you feel and how you feel Church is well positioned if things do get tougher?

Yes. When you're evaluating a CPG company, you have to recognize what categories the company is in. And you also have to have an appreciation for what is the split between value and premium. And we've been very clear on that. That is one of the things that really has enabled us to succeed in any economic environment. Now if you look at what happened in the past versus today, if you go back to the great recession, you see that we had double-digit unemployment in the United States and falling interest rates. What you have today? You have the full employment recession and you have rising interest rates. So when I say full employment recession, I mean, most of our major markets, the unemployment rate is 5.5% or less, with the exception of France, which is 7% to 8%. And what the consumer is experiencing over the last 2 to 3 years is price increases. So when the consumer goes to the shelf, they'll see the same array of products, but all the price points have moved up. So the consumer is squeezed from a disposable income standpoint. We do recognize the fact that there's been wage inflation as well, which, by the way, is a permanent increase in our cost of goods sold, but that also does help the consumer somewhat keep pace. But still what we focus on is what's happening, is unemployment ticking up? And are the categories still positive dollars? Things get more promotional when the consumption dollars are flat year-over-year, because now everybody starts promoting to try to get the next case and try to grow their revenues. Well, we would say, in the U.S., our categories are strong. You saw this trade down not only in laundry, but also in litter. And because you have #1 or #2 brands, they're going to succeed far better than the #3 or 4 or 5 brand in a difficult environment. And I'll ask Mike to comment on what we're seeing internationally as well, both in Europe and in APAC.

Yes. I think across the categories that we're competing in, our brands and the consumers have been quite resilient. And that's pretty broad based. So we have less exposure to our household categories internationally. But many of our personal care and OTC brands are very problem solution. Demand still remains high and the consumer seems quite resilient. But nevertheless, prices have gone up across the board as well. So the worry meter for us is around unemployment and also category growth in dollars. I might say, well, wait a minute, category growth in dollars has been driven by price. That's true. But those dollars do translate into net sales growth. When that flattens out, then there's more reason for concern.

Okay. Okay. So a year ago, at this conference, you guys were actually, I think, early to call a lot of these pressures that we're now still talking about. But at the same time, you were also very, very confident in your own business trends. And then subsequently, we had some demand shortfalls as you talked about as well as some cost surprises, which I think mostly have resolved. But as you look back on that experience, what did you learn? And how is the organization better equipped as a result to tackle future surprises?

Yes. 2022 was the most difficult year in my 17 years with the company. We are completely unaccustomed to call downs and we had 3 of them last year for a couple of reasons. As you said, we didn't anticipate all the cost increases that even though we built in a significant amount in 2022. And also, our 2 discretionary businesses, which would be WATERPIK and FLAWLESS, given the fact that by summer last year in the U.S., you had $5 gasoline and the consumer really got pressed, food inflation as well. It was far worse than we had expected. We took our lumps with respect to FLAWLESS. We took a write-off last year that's no longer in the pantheon of power brands. WATERPIK, we still feel good about. It is the premium water flosser. We are not going to discount that product down for that reason. We did expose the fact that we don't have offerings and value for WATERPIK. We have a couple in mid-tier. We probably need more, so we have to develop those. So I would say that's how we would look on the top line side. When it comes to fill rates, when we went into -- when the COVID started, we had 15% of our supply of raw and packed materials, 15% we had redundant supply, and that served us well for many, many years. And that was to expose a huge killer shield for the company. And that was still with us going into 2022 and we've accelerated our redundancy. So by the end of this year, 2023, we'll have redundant supply for 50% of our raw and pack, trying to get ready for the next black swan event. 25% of our sales are made by third parties where we have co-manufacturers. It's one of the reasons why we can be asset-light. We've increased that group of co-mans by 20% over the last 18 months. So we think we're better prepared and going to be more resilient next time this happens, but we learned a valuable lesson over the last 2 to 3 years.

And just maybe one comment to add. As we look forward, a lot of optimism, because we're through a lot of the supply chain issues. We're not going to comment any further on supply chain. It's not going to even show up because we're back to the mid- to high 90s on fill rates. We have -- so those supply blocks that we had in 2022, just we don't think are going to reoccur.

The other business that I think caused some shortfalls, some headwinds was the vitamin business. That business seems to have relatively stabilized from my perspective. But how are you seeing it? And what's your level of optimism as you look forward?

Yes. So the vitamin business, we acquired it in 2012, and the whole category just a huge step up during COVID. And then we got into 2023, we thought, well, it's probably going to flatten out while it actually declined. In the third quarter of last year, the gummy category declined 8%, declined again in Q4 and in Q1, but not as much, down 8%, down 2%, down 2% in Q3, Q4, Q1. Now we declined even more. Why? Because we had difficulty with respect to getting supply out from third parties as well as internally. That's behind us now. So we now do have our fill rates back However, we did lose shelf space because we eliminated some variance just because we didn't have the ability to run all of them. That's costly to get that back on shelf. We now have to win back the consumer as well. So we have some work to do, some wood to chop, as I say, with respect to vitamins. Still a good category. Remember that the reason why gummy vitamins has grown steadily is because of the transition from pills and capsules to gummies. And also, it's fair to say that we're building additional capacity in 2024 because we believe this is going to continue to grow. And the other thing is we have not focused internationally on gummy vitamins. Mike can take a moment just to tell you that there are gummy categories outside the U.S.

Yes. The trend on VMS is pretty consistent around the globe. It's a really strong category, but it's still largely capsule. So that transition to the gummy format as a format of choice, just as varying degrees of penetration around the globe. So I think we're in a great position to start to capitalize on what we've got as a proposition on learning and a capability from a U.S. perspective and take that into global markets. So quite excited about that as a future growth.

Okay. Great. So I guess philosophically, to the extent you find yourself running ahead in the future, whether it's fiscal '23 or going forward, how do you balance your inclination to reinvest for future strength versus investors' desires, probably your own desires to catch up for '22, right? So are you thinking of '22 as the new base off of which to grow your evergreen model? Or is there a period of catch-up and overdelivery that we should be thinking about if things go well?

Well, we started the year with EPS call of 0 to 4%. And then after the first quarter, as Rick mentioned, it was unusual for us, but we actually went, okay, we're going to go 2% to 4% on a full year basis. because we're trending ahead of our expectations. Now with that to continue for the remainder of the year, we have the opportunity to expand, invest more into marketing. So you saw on that chart earlier, we hit a low watermark in 2022 with respect to marketing as a percentage of sales. It was 10%. That's not sustainable. That's not good for the company. So that's why we said we got to get halfway back in 2023. Now if we are over-delivering in the second half, we can say, well, we actually may have an opportunity to take it to 10.75% or even 11%. If we stay at 10.5%, we're going to have to step-up again in 2024. So we would like to reinvest in the second half in more marketing. And the long term holders that are listening or in the room know that has been our practice in the past. To the extent that we're running ahead of our expectations, we want to take the long view and reinvest in the business. The other places we can invest as well besides marketing would be, say, in international, so we have such an opportunity to take our brands internationally. There's always a long lead time. You have to register those products, and there's so many markets to register them in. We don't have all the resources in-house to register these products as quickly as we'd like. We could spend a lot of money this year and take 100 or 200 registrations that we might have done in '24 and '25, do them now. So we're now going to be able -- they'll actually get approved and be ready to launch sooner than expected. So it's always a target-rich environment, and there's lots of opportunities for us to reinvest. But I would say, right now, we're not going to -- I always put out an 8-K release with respect to what our full year expectations are. We're feeling really good about where we are. Our expectation is that were things to continue, we'll be able to reinvest, and that's really just good for the long-term shareholders.

Great. A couple of minutes left. I want to go back to both THERABREATH and Hero, because the success on those acquisitions I think has been pretty undeniable in terms of winning distribution. Is there a way to frame for us kind of what we should expect in terms of how to measure against your objectives, success in '23? And then how much runway is there? When do we start to see more expansion in your markets, Mike, for these brands over time?

Yes. These are 2 categories. You got bad breath and you got acne. And so these are promise solution categories. And by the way, those categories are going with us through good times and bad times. So we think those are great categories to be in. They are huge categories both in the U.S. and internationally. As you saw, we've grown our THERABREATH distribution 100%. The thing to keep in mind there is we really haven't spread out on shelf. There's so many opportunities beyond just kids, we don't have variants that our major competitors have. And in the U.S., you have 4 or 5 big competitors that have been there for many, many years. And if you're an American in the U.S., you know the names of Listerine, Crest, Colgate, Crest, and Biotene. THERABREATH has been around for 20 years. This is not a new brand, but it caught fire the last few years because it has captured the imagination of the consumer, shows up differently on shelf. The age is younger. We think that's the similar formula we can apply internationally. And Hero is the same way. But I do want to swing this over to Mike because I think the big opportunity is international for acne and for mouthwash.

Yes. We acquired THERABREATH, obviously, earlier than Hero. So we're a little bit further down on THERABREATH. We're actively commercialized in a number of markets and racing to kind of grow as quickly as we can in a number more. So we're really excited about what THERABREATH can provide to a huge category globally. So that playbook, we're already seeing the signs of that repeating. As part of the acquisition, we picked up a really strong established business in South Korea that's performing really well and giving us kind of good encouragement that it's not only just the U.S. acquisition, we're taking elsewhere. We've already got a couple of pockets of really strong performance that we can kind of playbook around the globe. Hero, which is more recent, requires registration in a number of markets where actively all those trains have locked the stations. So it's just a matter of kind of the speed in which we can register and get to market. But our intent is -- unlike probably past acquisitions, our intent is to actually mobilize both of those brands really quickly on a really large global footprint, just so we can capitalize on the trends and the size of the category.

Yes. The other thing I would add to that, Steve, as far as international goes, I think many people know, Mike mentioned that we've established offices in Panama, Singapore, Mumbai. This year, we have decided to add a lot of people outside the U.S. in regulatory new product development, back office, with an ERP system in China. And we're also adding a person for M&A, both in Europe and in APAC. And as many of the long-term shareholders know, we have one person who is our M&A department for the past 17 years. So we're going to triple that. Wow. But we want to get in deal flow outside the U.S. We have the infrastructure now outside the U.S. And historically, when we acquired a business, we focused on the U.S. It's a different show right now, as Mike is feeling it, both THERABREATH and Hero saying we got to run after this because these are big markets outside the U.S. So that's kind of a sea change. We're only 17 and 8% of our sales is international. We have such an opportunity to take our brands, and I think the international is going to be a big part of our story going forward.

And we're almost out of time, but just on that last point, I think one barrier to deals in the U.S. has just been asking prices from sellers are still high. Is that different overseas at the moment? Do you see more opportunity?

Yes. I just don't think we've been -- we haven't really been in that deal flow. So it's a little bit hard to comment because that hasn't been an active space, and that's what we intend to do. But I would assume that will start to shift over time in parallel.

Yes, I would say that if you paid 12x a year ago, you're probably going to pay 9x or 10x now just because interest rates are so high, prices are going to go up and down.

Great. All right. We're out of time, so we're going to leave it there. Thanks, everybody.

Thank you.

Thank you, guys.