Coty Inc. (COTY) Earnings Call Transcript & Summary

Great. This is Robert Ottenstein from Evercore ISI's global beverage household products and beauty team. And in the background with me is also Javier Escalante, our beauty expert. We're incredibly happy to have today the top management of Coty, which we still continue to believe is our most exciting story in our coverage. With us from Coty today is Sue Nabi, Chief Executive Officer; as well as Laurent Mercier, Chief Financial Officer. A lot to cover, so we're going to go right into it.

So Sue, can you kind of frame what you're seeing today in terms of global beauty demand? What is strong, and what maybe is a little bit slower than it has been? Thank you, Sue.

Good morning, Robert. Good morning, everyone. Thank you for giving us this opportunity. And indeed, I can tell you we have a lot of new market figures to share with you today, Robert and everyone listening to us. So regarding your question, we are continuing to see strong beauty demand globally across all categories, across price points and channels. As I always said, consumers continue to prioritize beauty in their spending habits. The recently published third-party data by Circana reinforces what we have been saying about the resilience of the beauty demand. In the U.S., if you take this example, beauty was the only category that grew units in calendar '23 out of all other consumer categories, and you can see it very clearly on this slide on the screen. This confirms that beauty is a preferred category and one that consumers are willing to pay more for as growth in prestige beauty units outpaced growth in mass beauty units, and this is again visible on this slide. The outperformance in Prestige for us reflects a healthier higher-income consumer segment, but also that consumers across all income tiers are looking for new benefits, new formats and, of course, the coolest and most desirable products. And beauty, in a way, allows consumers to indulge in luxury without the exorbitant price usually. At Coty, we are seeing our higher-priced products in each of our segments that are growing the fastest. And at the same time, our Prestige segment, as you know it, continues to outperform. So all of this, I have to say, reinforces our confidence in Coty's strong multi-category, multichannel and, of course, multi-market business model. Now if you look to this new slide, you can see that the global beauty market continues to have very strong momentum, especially in our core categories. If I take them one after the other, the global prestige fragrances market grew strongly by approximately 10% in the first half of fiscal '24, which ended at the end of December. And growth actually has been accelerating in the third quarter to 15%. In addition to this, we are continuing to see strong growth in the global mass beauty market, which grew a little over 10% in the first half of the year, of the fiscal, and grew approximately 6% during Q3. And last but not least, the month of April remains strong with the category trends that are broadly consistent with the most recent quarter. So in sum, I would say that we continue to see strength in each of our core categories and across price points.

Okay. Based on what you've shown us, it seems to be that there's maybe some structural shifts in the prestige fragrance market. Can you talk about those structural drivers? And are they global? Or do they tend to be more regional? And what's the long-term outlook, Sue?

Yes, Robert, this is the part where we have a lot of interesting figures to share with you. So again, the prestige fragrance market continues to grow, as I said it, at a strong double-digit pace as consumers globally are seeing fragrances as both affordable luxuries, but also feel-good items that are supporting the well-being but also social indicators, if you may say. And this is driving more and more people to enter the category. And for the first time, and this is very important, we are sharing new figures about the prestige fragrance market. In the U.S., the number of prestige fragrance buyers entering the category in calendar '23 increased by 5 million, 5 million or 6% year-over-year, which I have to say is quite impressive. And importantly, every cohort contributed to this 5 million increase of buyers, particularly Gen Zs, particularly men and Hispanic consumers but also higher-income consumers. On this slide on the screen, you can see that we also saw an uptick in the number of what we call heavy users or those who use fragrances 3 or more times per week. In the U.S., 1 out of 2 every consumers is now a heavy fragrance user, which is an increase of 2 points year-over-year. Against -- again, amongst Gen Z, this number of heavy users increased by an even higher percentage, and we are talking here about 8 points, 8 points year-over-year, reaching the huge level of 61% of heavy users. So we are seeing this increased fragrance usage not only in the U.S. but across geographies. In both U.S. and Europe, the prestige fragrance market continues to grow in both value and units as new users, as I just said it, enter the category, supplemented by existing users who are actually using fragrances more often. So more people and those who use more oftenly. In the U.S., the prestige fragrance market last quarter was nearly double 2019 levels with nearly half of that coming from unit expansion. If I take the example of Europe, the prestige fragrance market is 35% higher compared to 2019 with units contributing 1/3 of this expansion. Importantly, even with the robust fragrance demand growth we have seen in recent years, there is still significant room for continued fragrance penetration, as you can see it on this slide, especially in the U.S. and in China. If I take the example of the U.S., prestige fragrance penetration has grown strongly to the high-20s percentages, but penetration still remains well below that in Europe of over 50%. And we don't see any structural reason why the U.S. market penetration wouldn't continue to grow to eventually reach the levels of Europe. Similarly, in China, fragrance penetration remains in the single digits, whilst if you look at Gen Z consumers in Tier 1 cities, the penetration over there is already over 20%. And this is, for us, a great indicator of where the market is going in this country. So all of this, I have to say, support our view that structural changes in global consumer behavior are fueling strong fragrance demand and that this category will continue to grow above historical levels.

Very interesting. And in that context, over the last couple of years, you've had some real blockbuster fragrance launches. Can you talk a little bit about those successes? And has the firm made any changes in your new product development that has helped driven that? And then kind of going forward, do you see Coty more focused on big blockbusters or line extensions? How do you see that playing out in the future in terms of growing the business?

Yes. Indeed, that's a very good question. Indeed, the company has been establishing a multiyear track record of launching what we call top-ranking blockbuster fragrance innovations. And they are all shown on the slide which is on the screen right now. So if we think about what we did 2 years ago in the beginning of fiscal year '21, we launched Marc Jacobs Perfect, and then we followed with, in fiscal '22, Gucci Flora Gorgeous Gardenia and the male fragrance Burberry Hero. Then in fiscal '23, we added Gucci Gorgeous Magnolia, Burberry Hero Eau de Parfum and Hugo Boss Parfum to this year's huge success with Burberry Goddess, which is, as you know it, Coty's biggest launch ever. We are continuing to build on this track record of exceptional fragrance launches with 2 new hits, which were launched this spring. I'm thinking about Marc Jacobs Daisy Wild and Kylie Cosmic, which are calendar year-to-date have reached the #2 and the #3 fragrance innovation spots, respectively, in the U.S. This is consistent -- this consistent, sorry, track record of winning launches has been enabled by a full reconfiguration of how we develop fragrances led by an internal team mastering scent creation, which is working closely with consumer insight teams, all of these teams empowered by an extensive database and activated within the market by a strong brand and market leaders. On this new slide, you can see that the goal of this innovation is to become the foundations of the future iconic franchises, which will grow with each successive year. As you can see on this slide, every single time we launch a new franchise, whether it's Burberry Her on the left, Burberry Hero in the middle or Gucci Flora on the right, in the following years, we have been continuing to grow the size of the same franchise by extending the depth of the range. It's not a new story that needs new support. It's really the continuity of the same story year-on-year. This can be accomplished by launching successively more concentrated formats of the same scents. And I'm thinking about eau de parfum or elixirs on top of eau de toilette or also by slightly modifying the scent and modulating the concentration of key ingredients. So the result of both of these approaches is that we attract additional customers and consumers to the franchise and that the marketing activation in each successive year provide a halo for the overall franchise. So it's all about extending the halo effect rather than inventing new stories. I have another slide to explain again in details. It's exactly the same way we've been able to grow Burberry Her, Burberry Hero or Gucci Flora year after year. So we expect to drive expansion for our blockbuster Burberry Goddess franchise, which is following the same path in fiscal year '25 and beyond.

Great. Now Sue, one of the things that a lot of investors come back on, and it's different in beauty and fragrances than a lot of what we're used to, is this licensed model. And I think a large percentage of your business is under license. So can you kind of discuss how you view the model, how you derisk that, how you think about risk there? And what -- how should investors think about that? Because we're all trying to model out the future, and this adds kind of an element of uncertainty.

Yes. Again, licensing has been a stable part of the Coty business for many years. And our focus is to create a strong balance between what we call owned brands and, of course, licensed brands. In fact, when this is done right, the licensing model has the advantages, and it's important to remind everyone about this, has the advantages of offering a higher return on capital and lower risk of -- on invested capital, sorry, and lower risk of expanding the portfolio if you compare this to M&A, which is often costly in beauty and has a mixed record of success. And as compared to building new brands from scratch, this is usually a very long-term endeavor. So of course, the critical element to our licensing model is assuring a very long partnership while, at the same time, continuously refreshing our license portfolio. As we've said it before many times, we have a long-standing license relationship, lasting over 25 years. As you can see on this slide, in addition to our owned brands, a significant part of our license portfolio is effectively perpetual, which together accounts for over half of the portfolio. And for the licenses with a stated renewal date, the majority have very long-term remaining durations of between 10 to 30 years. Altogether, I can tell you that approximately 85% of our portfolio is owned or under long-term license spanning from over 6 years to effectively perpetual. Of course, we have focused, as you know it, on reinforcing the full portfolio. And for the remaining 15% of our portfolio with a duration of approximately 4 years, we are actively derisking, to use your expression by, number one, proactively renewing and significantly extending our licenses. In fact, you know it, in the last 2 years, we have renewed and significantly extended licenses, which are accounting for over 25% of our sales, which confirms that our licensing partners continue to view the company as the partner of choice for the long term. Number two, we continue to overdrive, and that's very important, we continue to overdrive our own brands and our longer-duration licensed brands, supported by top-notch innovation and leading execution. And finally, we are adding new and very long-term licenses to the portfolio like Marni or Etro recently and our expansion into color cosmetics under the Marc Jacobs license in addition to many potential partners now approaching us. If we look to another slide to continue to explain on that question, another key part of our risk management strategy is driving strong growth across the full set of our key brands and assuring that no licensed brands becomes too big a proportion of the mix. This is really what we call balance. None of our brands account for more than approximately 10% of our revenues. In fact, you can see it also on this slide, our superior rate of innovation, marketing and distribution capabilities in fragrances assures that we can accelerate brand performance based on our strategic objectives regardless of fashion business dynamics. As you can see on this slide, again, in the last year, we have grown each of our larger fragrance brands by more than 10%, which explains the performance of the division, but also by overdriving our longer-duration brands regardless of the more muted performance of the corresponding fashion brands.

No, that's very interesting, interesting contrast with an M&A-driven model. So really kind of shifting gears now to the U.S. mass cosmetics market, Javier and I are kind of scratching our heads about what's going on. Because on the one hand, it looks like there's a trade-up cycle of sorts where prestige cosmetics are outperforming. On the other hand, e.l.f., which is lower priced, is also doing extremely well. So I was wondering if you could explain what's going on, and then in the midst of all that flux, how CoverGirl is doing.

Yes, in a way, it's a question of who you are instead of where are you sold? That's clearly a good summary. But let me get into more detail. So first and foremost, the overall global mass beauty market continued to grow by a mid-single-digit percentage during Q3. So the global growth remains healthy. And our Consumer Beauty business grew 6% like-for-like in the quarter and 7% like-for-like fiscal year-to-date, which is more or less in line with the mass market. So specific to the U.S., the prestige cosmetics continues to grow very strongly, confirming consumer engagement with the category. But similarly, mass cosmetics demand on e-comm channels like Amazon is also continuing to grow double digits. And in a way, we are strongly winning in this channel. However, mass cosmetics demand, specifically in brick and mortar, remains muted, which we believe is driven by a couple of drivers that I'm going maybe to quote here. Number one, the industry have been taking, as you know it, pricing to keep up with inflation in the recent years, which, as you can imagine, contributed to the higher growth of the category. But as this information has moderated, the benefit of pricing has also moderated at the same time by several points. So that is less of a building block for the category growth. Number two, this mass cosmetics consumption in the U.S. have been growing well above historical levels, I have to say, for several years. And we are now seeing some normalization here, particularly as consumers continue to shop in alternative channels. I'm thinking about Amazon, I'm thinking about Ulta. And finally, with the price increases in many mass beauty products, some mass brands are now bumping up in price point against entry prestige brands. And as a result, we are seeing consumers trade up to cooler and probably trendier prestige masstige products. So if you factor in Amazon coupled with Nielsen data, the U.S. mass cosmetics category grew by a few percent in recent months. That's very important. This is the full picture. And our Consumer Beauty portfolio continues to do very strongly on Amazon, including over 30% of growth globally and over 40%, 4-0 percent of growth in the U.S. during the last quarter. So in conclusion, I would say that, as you know it, we are going to double down on e-comm momentum together and combined with the strength we are seeing in other categories like mass fragrances, but also body care and also betting on the strength in other geographies. I'm thinking about EMEA region. I'm thinking about Asia excluding China. I'm thinking about LatAm. Again, if you couple all these together, we believe our Consumer Beauty business continues to grow solidly, which confirms the benefit of our multi-category, multi-market and multichannel model.

Great. That's very helpful. So Sue, one of the areas that Javier brought to my attention and he's super excited about is Brazil. So I was wondering if you could discuss your strategy in Brazil, how important it is to your long-term plans and where you see that business going over the next 3 to 5 years?

Yes, indeed, this is one of the most exciting, in a way, also region for Coty on top of the others. So let me maybe contextualize. So Brazil is already a sizable business for us. It accounts for a high single-digit percentage of our sales, and it remains a growth engine for us as our core portfolio continues to grow by double digits. And we continue to gain market share while at the same time, unlocking new additional white space opportunities in this market by leveraging our strong in-market capabilities, global brand portfolio but also end-to-end capabilities in that country from factory to distribution. Again, our strong portfolio of local Brazilian brands include the leading -- the #1 nail brand in Brazil, which is called Risqué, and leading mass skin and body care brands like Monange or Paixao. Monange is more or less body care using skin care ingredients, and Paixao is body care that is having scents in it. And as we have -- we are continuing to leverage our strong local capabilities, our Brazil Consumer Beauty sales has been growing 1.6x, 1.6x higher versus fiscal year '29 (sic) [ '19 ], which confirms the success of our acquisition of this local beauty portfolio almost 8 years ago in 2016. So it's bigger by 1.6x. And we are further amplifying this success, as you can imagine. We not only have the leading market share in the nail category, but we have also grown our share by 190 basis points since fiscal '21, so in the last 2 years. Similarly, in mass skin care in Brazil, our share is up 160 basis points. And in categories like shower gels, we've recently entered this category, but we have already reached a 2.5% market share position. On this new slide, you can see that how we are unlocking the substantial also fragrance opportunity that we believe we have in Brazil. For context, as you can see, the Brazilian market is a very sizable market, it's above $2 billion. And Brazilian consumers are amongst the biggest users of fragrances with approximately, and this is highest ever, 68% penetration, as you can imagine. So while direct selling, particularly door-to-door, has historically accounted for the majority of the Brazilian fragrance market, this retail channel has been -- the retail channel, sorry, has been rapidly growing in both mass but also in prestige. And there, in this area, Coty is perfectly positioned to win as we leverage the global portfolio of mass but also prestige brands, our leading fragrance capabilities, our extensive distribution reach in a country big like Brazil as well as our local manufacturing capabilities. So only 1 year -- remember, we told you that we were extending our launch of mass fragrances in a new distribution. So only 1 year after launching a few of our mass fragrance brands in this market, we have already reached the #6 position with over 4% market share. Of course, we will continue to drive this through additional brand introduction, better productivity and, of course, expanded distribution in terms of doors. If you think about the other part, which is prestige fragrances, we took over the business from a distributor a few years ago. And we have now reached a 9% market share position, which is 190 basis points versus fiscal '21. And this is led by brands such as Calvin Klein or Hugo Boss, which are, as you can imagine, these entry prestige brands that are doing very, very well. As more Brazilian consumers enter the middle class, this should fuel the momentum in our prestige fragrance business in this country. So in addition to these opportunities within the country, you can see on this slide that our Brazilian business is also a fantastic platform to fuel our ambitions in the rest of the world. For example, we are establishing a center of excellence in Brazil to develop body care for the rest of the world, but also beauty for what we call melanin-rich skins, which is the majority of the skins around the world. We have also begun to expand the Risqué nail brand into other Latin American markets with, as you can imagine, opportunities also to take this brand into developed markets as a perfect value proposition with an average price point of under $4. So this is another white space for us. Finally, we are exploring leveraging our low-cost production facility in Brazil to use it for other emerging markets. So in sum, as a summary, our Brazilian business, which we acquired 8 years ago, has been a tremendous success and is now serving as a platform to capture new opportunities, both within but also outside of the country.

Terrific. One area we haven't discussed yet, which I know is very close to your heart as well as your expertise in R&D, is skin care. So obviously, some headwinds in China with a tough economy there, but can you talk about your progress in accelerating that business?

Yes, absolutely. It's close to my heart, but it's also close to my brain, Robert, as you can imagine, because it's a lot of -- well, but again, we've been executing on skin care only for the last 18 months. So it's important also to reframe. It's not been -- we've not been doing skin care for 5 years. It's 1.5 years. And I can tell you that this category remains one of the biggest and the most strategic white space opportunity for the company. And we are fortunate to take on this immense market with outstanding skin care technologies and patent, this is very important not to be forgotten, and I have to say also a portfolio of iconic brands with very complementary and distinct positions. Our brands are experimenting strong momentum, and we will continue to build out our skin care presence in the coming years, as you can imagine. So number one, we have reinforced Lancaster's position in -- as the leader in photoaging prevention and photoaging repair, which are booming around the world and fueled more and more by Gen Z, which is a very new element. And this is perfectly embodied in the new podium that is done in China at Sephora that you can see right now on the slide with the new advertising campaign of the brand. So the result is that Lancaster sales are growing by over 20% like-for-like fiscal year-to-date. And looking to fiscal '25, we will be reigniting Lancaster in its core European market, where the brand is the #1 UV protection maker in France and in Europe with many new exciting innovations and, of course, marketing activations in store at the level of what you're seeing on your screen. Second brand, philosophy, an icon in the U.S. The brand relaunch has focused on the U.S. core market for the moment, leaning into its position as a science-backed skin care brand with an emotional core, underpinned by dermatological-grade technologies. This is really our dermatological-grade technology brand. We've begun to launch innovations driven by dermatology, which address specific dermatological concerns. I'm thinking about the dose of wisdom dark circle eye specialist eye cream we just launched. I'm thinking about the ultimate miracle worker, which is a retinol resurfacing body serum, first resurfacing body serum using retinol. At the same time, we are amplifying the brand's social advocacy with the recently, you can see it on the screen, opened state-of-the-art skin academy in New York, connecting the brands to dermatologists, to influencers, but also to other opinion leaders. Again, this effort have driven philosophy skin care business to grow by a double-digit percentage on a fiscal year-to-date basis. And this is really the mandate is that our skin care grows much faster than the rest of the company. Finally, our ultra-premium brand, Orveda, has quickly become one of the most heavily awarded skin care brand on the market. And the OmniPotent Concentrate, which is the latest launch that happened in September 2023, is now one of the most, if not the most awarded serum of the industry. Here, again, we continue to generate the right buzz, which is translating into significantly higher productivity. Fiscal year-to-date, Orveda door productivity is growing 3x to 5x year-over-year. So it's a huge jump. And we are now adding more and more new doors, accelerating in terms of opening, including the Orveda Maison in New York City, which is going to open in the coming months. So in sum, for the skin care topic, I would say that we have the brands. We have the technology to succeed in skin care. We are seeing early positive results across our brands as we focus on winning over the most discerning skin care consumers in the areas of photoaging, dermatologic wisdom or biotech-enhanced longevity.

Great. That's super. So why don't we shift gears a little bit, maybe give Laurent a chance to speak and just discuss some of the drivers for margin expansion going forward. And then I know we're getting close to running out of time. I've kind of gone to the conference coordinator and bought us another 5-or-so minutes in case we needed to really wrap up. But let me pass over now on margins.

Yes, absolutely. So Robert, as you know, we have already steadily improved our gross margin since fiscal '21 by a total of roughly 400 basis points. And we remain laser-focused on further expanding our gross margin across our business. So -- and importantly, we continue to expect our gross margin to reach mid- to high 60s by fiscal '27. And this is supported by multiple levers. So first of all, through our All-In To Win programs, we have generated savings from our ongoing productivity projects, including procurement savings, material value analysis and strategic revenue management programs, all of which support gross margin expansion. So we are on track to deliver another $110 million to $120 million in savings over -- in fiscal '24, and we will deliver another $75 million savings in fiscal '25. So in total, this will bring to an approximate $800 million from fiscal '21 to fiscal '25. So you can see it's really a lot of activities and big numbers. So these strong savings is also supplemented by very targeted pricing where relevant. And third, obviously, we are continuing to drive mix improvement and premiumization of our portfolio, and Sue gave already a lot of examples. So as we mentioned in the, indeed, in our presentation earlier, our Prestige division, which is margin-accretive, continues to grow as a percentage of the business, so moving from 59% in fiscal '21 to 64% of sales currently. And we are targeting for Prestige to reach more than 2/3 of our net revenues by fiscal '27. And the majority of the growth categories and channels that we discussed today, including Travel Retail and e-commerce, they are all margin-accretive and should support again our margins as these areas will grow as a percentage of our total business. So all these efforts, they are driving our gross margin expansion, which we continue to expect will be in the mid- to high 60s by fiscal '27. So based on our midterm algorithm, targeting 9% to 11% EBITDA CAGR, so we are tracking to have close to 20% EBITDA margin within the next few years.

That's great. So to wrap things up, and again, I bought us another 5 minutes or so, I think, could you guys discuss over the next 3 to 5 years, the major growth drivers by category and region, and then maybe bigger picture, maybe think about what could be the real game changers for the company over time?

Yes. So indeed, I can give you really the key element. So Coty's global and multi-category, multichannel presence has proven to be a key area of strength, and this we have demonstrated over the last year. So the e-comm channel is nearly 20% of sales. And strong growth in Prestige and Consumer Beauty e-comm sales drove our e-comm growth of roughly 20% fiscal year-to-date. So second, our global Travel Retail, it currently accounts for 9% of sales, and it continues to be a robust growth driver for the company in both the near and long term. So in fact, our Travel Retail business is now over 20% higher versus 2019 even though, as you know, international passenger traffic, in fact, is not yet back to 2019 levels. So now from a category perspective, we are still small but rapidly unlocking opportunities in growth categories like skin care, as Sue has just explained, which grew by double-digit fiscal year-to-date; and prestige cosmetics, which also grew at a very strong double-digit percentage like-for-like fiscal year-to-date. So -- and finally, while we are also still small in niche fragrance, we are expanding through our ultra-premium collections under brands like Chloé Atelier des Fleurs, Burberry and Hugo Boss. And we have, as you know, very recently launched our internally developed Infiniment Coty Paris brand to tap into this rapidly growing ultra-premium niche fragrance market. And the early results have been very, very promising. So in addition to these developed markets, we are also focusing on growth engine markets where we see a lot of opportunities to grow our business, so including Brazil, as you have just seen, but also Mexico, China, Southeast Asia, India and Africa. So we are capturing white space opportunities in these growth engine markets, which currently account for about 18% of our portfolio and have been growing by over 20% fiscal year-to-date, so nearly double of the company. So now looking out over the next 3 years, we continue to expect a like-for-like revenue CAGR at the upper end of 6% to 8% with balanced contribution from volume, mix and targeted pricing in each of our key categories. So beginning with Consumer Beauty, if we exclude skin, we expect our business to grow at a mid-single-digit percentage CAGR, outperforming the market growing low to mid-single digit. So this outperformance will be supported by our acceleration in emerging markets, lifestyle scenting and nail, while market share gains in our core markets will offer, in fact, some potential upside. So now in our largest segment, which is prestige fragrance, we expect to grow a high single-digit percentage, which is ahead of the market growth of mid- to high single-digit percentage, which is still above the historical category levels, category growth levels of low to mid-single digits. So our growth in the prestige fragrance will be driven by our strategy to overdrive core and new markets while, at the same time, accelerating in the ultra-premium fragrances. So now in prestige cosmetics, we expect to grow at a CAGR of 10% to 20%, focusing on steady and profitable expansion and definitely with potential upside from our launch Marc Jacobs Beauty. And finally, in skin care, we expect to grow at a CAGR of 15% to 25% as the portfolio expands through a typical S-curve cycle led by our prestige brands. So overall, we continue, as you see, to execute strongly in our core categories while, at the same time, we had significant white space opportunities across channels, categories and markets as we continue to capture share with our strong and diverse portfolio.

Great. And I always like to end with Sue summing things up. So Sue, any final comments? Any major game changers that we haven't discussed yet that may not be on our radar screen, but are on yours? Love to get your final thoughts.

Yes, exactly. Let me take a few seconds because I know we are late, as you said, but I think it's important. We are now nearly 4 years into outperforming the beauty market. And we've been delivering or over-delivering versus expectations. In the coming years, we are confident in continuing our track record of winning innovation and brand expansion, enabling the medium-term algorithm for sales to grow at the high end of the 6% to 8% range. We are confident, and this is important, in achieving an investment-grade profile by end of calendar '25 with leverage towards 2x through our free cash flow generation and EBITDA expansion. So as such, fiscal '25 and fiscal '26, we believe, will be pivotal years for us as we reach our target leverage while delivering on our superior growth algorithm. So this will give us the full flexibility also to return cash to shareholders in a variety of ways and, of course, to unlock additional white space opportunities we've been describing at length today.

Sue, Laurent, thank you so much. Really appreciate you taking the time to speak with us and our investors. Congratulations on the progress. Super excited to see how things unfold over the rest of this year and the coming years. Thank you again.

Thank you.

Thank you, Robert.