Good afternoon, everyone. My name is Joe, and I will be your conference operator today. Welcome to the Fortune Brands Fourth Quarter 2024 Earnings Conference. All lines are muted to prevent background noise. Following the speakers' remarks, we will open the call for a Q&A session. At this time, I'd like to turn the call over to Leigh Avsec, Executive Vice President of External Affairs. Please go ahead.

Good afternoon, everyone. And welcome to the Fortune Brands Innovations Fourth Quarter and Full Year 2024 Earnings Call and Webcast. Hopefully, everyone has had the chance to review the earnings release issued earlier. The earnings release and the audio replay of the webcast of this call can be found in the Investor section of our website, fbin.com. I want to remind everyone that the forward-looking statements we make on the call today, either in our prepared remarks or the associated question and answer session, are based on current expectations and market outlook and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. These risks are detailed in our various filings with the SEC. The company does not undertake any obligation to update or revise any forward-looking statements except as required by law. Any references to operating income, margin, EBITDA, earnings per share, or cash flow on today's call will focus on our results on a non-GAAP before charges and gains basis unless otherwise specified. Please visit our website for reconciliation. Joining me on the call today are Nicholas Fink, our Chief Executive Officer, and David Barry, our Chief Financial Officer. Following our prepared remarks, we have allowed time to address some questions. I will now turn the call over to Nicholas Fink.

Thank you, Leigh Avsec, and thank you to everyone joining us today. As we finish 2024 and begin 2025, I am proud of the progress we have made to continue to replatform the business and unlock our long-term growth potential. We took several important steps this past year amidst a challenging backdrop. We further focused our portfolio on the highest growth and most profitable opportunities within our categories. We simplified and aligned our organization, uniting our associates under a new vision. We saw market outperformance in key core portions of our portfolio, we integrated and scaled our digital business, and announced milestone partnerships in digital water. We had impressive free cash flow and made sustainable margin progress across our portfolio. We did so while also continuing to make strategic investments in brand building, innovation, and our ongoing digital transformation, all of which have delivered real assets that we plan to activate to accelerate growth. The actions we took over the past year to better leverage the strength of our aligned organization and sharpen our focus on our leading brand, meaningful innovation, and our advantage channel relationships give me confidence in our ability to outperform in 2025 and beyond. Our Fortune Brands advantage capabilities are now more effectively deployed across the organization, allowing us to advance our growth and margin journey by reducing costs, optimizing our pricing, and enabling our high-growth focused areas like digital product, luxury, and outdoor living. As we continue our transformation into one aligned organization, we will be able to further leverage our Fortune Brands advantage capabilities to create even more value. Fortune Brands was recently named to The Wall Street Journal's Top 250 Managed Companies list of 2024. This recognition is a testament to the progress we have made as a company, especially our growing prominence as a digital brand and our digital product portfolio, and reflects the tenacity and innovation of our entire team. Before we continue, I want to highlight our new modern and tech environment, which we call our new home. The result will be a world-class collaborative environment to fuel the company's innovation, accelerate our digital solutions, and grow our core product. Additionally, this campus will further our ability to retain and attract top talent and further build our exceptional culture centered around our values. We expect this action will drive bigger thinking and elevated execution even faster and will unlock opportunities for growth and shareholder value. We also announced that we have simplified our leadership structure. This allows the senior commercial leaders to now report directly to me, and it allows for quicker decision-making and more direct involvement across the business. Additionally, David Barry will move into a newly created role of President, Security, and Connected Product. He will lead our iconic legacy security business and have direct responsibility for growing Fortune Brands' digital business, including Yale smart residential locks, Master Lock connected lockout tagout, and the Moen smart water ecosystem, including the Moen Flow leak detection solution. These businesses will greatly benefit from David's focus on growth, his acute business insight and company experience, and his passion for our brand and our connected products opportunity. By deploying some of our best talent against some of our biggest opportunities, I am confident that we will achieve our exceptional potential. Now turning to the market and our results. On this call, I will walk through the highlights of our fourth quarter and full year 2024. I will also offer some thoughts on the current macro environment and why we believe Fortune Brands is optimally positioned now more than ever to deliver on our commitment to long-term growth and sustained value creation. I will then turn the call over to David Barry for a discussion of our fourth quarter and full year financial results and our performance expectations for 2025, including our view of the market. For the fourth quarter, we saw net sales of $1.1 billion, a 5% decrease versus the fourth quarter of 2023. Importantly, our fourth quarter sales were impacted by a third-party software outage at our security distribution centers, the hurricanes in the southeastern United States, and continued softness in China. Adjusted for these impacts, our fourth quarter organic sales were down 1%. Also notable is that when you exclude hurricanes and China, fourth quarter organic sales grew. Our water and doors business, and we estimate our total company point of sale excluding China and the one-time disruption outperformed a larger market. Fourth quarter 2024 EPS were $0.98, a 3% increase versus Q4 2023. Operating margins for the quarter were 16.4%, a 60 basis point improvement over the fourth quarter of 2023. For the full year 2024, our teams delivered net sales of $4.6 billion, flat versus 2023. Full-year organic sales were $4.4 billion, down 5% or 2% excluding China and the one-time fourth-quarter disruption. Our full-year operating margins increased 90 basis points versus 2023. Our impressive margin results reflect the actions we have taken to optimize our businesses, including strategically aligning our operational footprint and focusing our portfolio on the most profitable parts of our business. Importantly, the strong margin performance includes strategic investments that we have made to facilitate future growth. Our 2024 free cash flow was approximately $475 million with a cash conversion of more than 100% of net income. Our cash flow performance is another proof point of our more efficient organization. Our full-year earnings per share were $4.12, up 5% over the full year 2023. A strong balance sheet and advantage capital structure enabled us to strategically deploy capital both organically and inorganically. We invested inorganically in strategic platforms including water filtration and connected lockout tagout, both of which we believe have significant secular growth. Finally, we note that our board of directors has approved a new $1 billion share repurchase authorization, demonstrating the confidence we have in our cash generation as well as our focus on creating long-term shareholder value. Now I would like to highlight in more detail the actions we took in 2024 that will position our company for future growth. Starting first with our digital business. As a reminder, our digital business includes all of our digital products in both our water and security segments. In 2024, digital sales were $214 million with significant growth in the Flow business. At the end of 2024, our full digital business had 4.7 million users, inclusive of over 200,000 new device activations in the fourth quarter, and with a strong point of sale trajectory as we head into 2025. In our digital water business, Flow's success both in terms of sales and partnerships far exceeded our expectations. At the end of 2024, we had 12 partnerships with insurance companies and other key sales partners, including our precedent-setting partnership with Farmers Insurance. This is particularly impressive as we started 2024 with a new team and no partnerships. In 2025, we have already signed another one of the largest insurance companies in the United States with significant access to high-net-worth homeowners. As we discussed on the last call, the number of homeowner policies collectively represented by these insurance partners is in the tens of millions, and we are laser-focused on converting these opportunities into sales. For our fourth quarter, retail and e-commerce POS for Flow was up over 100% versus the fourth quarter of 2023, and sales for the full year grew well over 100%. We invested meaningfully in Flow, including innovative marketing designed to drive awareness, as well as key functionality and design updates to make the user and partner experience more seamless. We are converting sales opportunities faster, having recently added additional dedicated resources. In the quarter, we reduced the partner onboarding time by two-thirds, and we are now able to implement marketing and sales activation in less than 30 days on average. Looking to 2025, we will continue our focus on not only entering into new partnerships but accelerating our sales conversion with the partners that we already have. We expect our Flow sales to continue to increase rapidly and have already seen acceleration as we begin 2025. Based on the strong sales trajectory, we see a path towards $100 million in annualized sales in 2025. We are looking to launch new subscription-based pricing models in the first half of 2025. We have increased our awareness campaign in response to the inclement weather devastation as well as the tragic fires in California, which have elevated public awareness around the need to address the interconnected insurance and affordability crisis.

Thanks, Nicholas. As a reminder, my comments will focus on results before charges and gains to best reflect ongoing business performance. All comparisons will be made against the same period last year unless otherwise noted. Before I begin, I would like to take a moment to address my new role. I have found my experiences as CFO to be incredibly rewarding, and I am grateful to all those with whom I've built relationships, including many of you on the call today. I look forward to the next phase of my career and journey with Fortune Brands in my role as President of our Security and Connected Product businesses. I am fully confident in the long-term growth opportunities of both of these businesses, and I am excited to help advance our value creation. In the meantime, I will be assisting with the search for our next CFO and will partner closely with my successor, ensuring a very smooth transition. As Nicholas highlighted, our teams focused on a tight set of priorities amidst a dynamic external market while continuing to best position the company for the future. For the fourth quarter, sales were $1.1 billion, down 5%, and organic sales were down 1% when adjusting for the impact of China and excluding the one-time event. Consolidated operating income was $181.6 million, and total company operating margin was 16.4%. EPS were $0.98. Fourth-quarter free cash flow was approximately $212 million. For the full year, sales were $4.6 billion, flat versus last year, and organic sales were down 2%, excluding the impact of China and the one-time disruptions in the fourth quarter. Consolidated operating income was $780.6 million. Total company operating margin was 16.9%, a 90 basis point improvement. Our EPS were $4.12. Our total free cash flow generation was an impressive $475 million. Now let me provide more color on our segment results. Beginning with Water Innovations, sales for the fourth quarter were $645 million, down 3%. Organic sales were up 2% excluding the impact of China and the hurricane. For the year, sales were flat, with organic sales excluding China and the impact of the hurricane down 2%. Water Innovations' operating income was $152.6 million in the fourth quarter. Operating income for the full year was $603.8 million. Operating margin was 23.7% for the quarter and 23.5% for the full year. Consistent with our returns-focused investment strategy, our Moen brand investments are generating results as we focus on accelerating the consumer and channel awareness of our new-to-world Flow technology and invested in our core brand. As we discussed, we selectively focused on the portions of our portfolio with the highest potential for returns. In our luxury portfolio, we made key investments in capacity for our House of Rohl products. Now as one combined entity with Emtek, we are excited about the future of our luxury brand. In China, sales declined 30% in the fourth quarter and 31% for the full year. While the market seems to have stabilized, we do expect another challenging comparable in the first quarter of 2025 due to lapping accelerated completion in Q1 2024. Looking to 2025 and beyond, this business will continue to provide innovation and growth optionality. As a result of its replatformed size, it is no longer a material portion of our business, and future declines, if any, should be less impactful to our P&L. Turning to Outdoors, fourth-quarter net sales were $303 million, down 2%. For the full year, sales were $1.4 billion, up 1%. For doors, sales were flat in the quarter and up low single digits for the year. Decking sales were down mid-teens in the quarter and were down low teens for the full year as a result of a softer demand environment and destocking. Outdoor segment operating income was $55.2 million during the quarter, up 29%. Operating income for the full year was $218 million, an increase of 25%. Segment operating margin for Outdoors was 18.2% in the quarter, an increase of 430 basis points, and 16.1% for the full year, a 310 basis point increase. Outdoors delivered a strong sales and operating margin year. These impressive margin results are a direct impact of the work we are doing to drive innovation and expand distribution for our leading brands. Finally, turning to Security. As Nicholas discussed, we were impacted in the fourth quarter by a third-party software outage which impacted our distribution center. Fourth-quarter sales were $157 million, down 17%, or down 10% when adjusting for the outage. Our fourth-quarter operating margins were 9.3%. Full-year sales decreased 4% to $694 million, and organic sales decreased around 10% when adjusting for the impact of the software outage. Our full-year operating margins were a 10 basis point increase versus last year. The performance of this segment in 2024 did not meet our standards, and we have identified critical areas for us to focus on as we work to address these challenges directly and head-on. We have already taken actions under David's leadership, and I am confident that we will improve this business. We've made progress on some exciting brand and product work, which will be unveiled in 2025, including the first major branding campaign from Master Lock in several decades. We have already seen proof of our brand strategy in action. For example, recent safe advertising highlighting the performance and trustworthiness of our brand accelerated point of sale, which further improved after the recent tragic LA fires. As consumers face this terrible crisis, and as it was highlighted around the globe, the work that we have done around helping people understand what our brand stands for—namely safety, dependability, and quality—became even more important and gives us confidence in our larger strategy of focusing on meaningful brand and innovation. We saw significant point-of-sale growth in those markets where consumers were focused on these attributes. Looking forward to 2025, we have a new proven leader, a renewed focus on differentiating our iconic brand and product, and a robust partnership pipeline for Yale. We are rolling out a connected lockout tagout solution and see it as a breakout opportunity for our security business. To recap, 2024 was a year of transformation and execution for Fortune Brands amidst a dynamic external environment. Our teams built new assets across brands, innovation, and digital, which will accelerate growth as we deploy them in the marketplace. Our margin results and market outperformance in key parts of our portfolio give us confidence in the future. We took decisive steps this year to better position ourselves, and I am proud of what our teams achieved in 2024. In 2025, which I will speak to in greater detail, we will focus on driving above-market growth and accelerating our areas of advantage. We will look to sustainably grow margins and continue investing behind our most strategic opportunities. We will execute our larger strategy of focusing on our supercharged categories. We expect 2025 to be another breakout year for our connected products. We will take concrete actions in our business to ensure that we are best positioned for long-term growth. Additionally, we will manage any period of continued volatility, responding quickly and remaining agile while actively positioning Fortune Brands Innovations for the future. I will now turn the call over to David Barry.

Thank you, David. That concludes our prepared remarks. We will now begin to take a limited number of questions. Since there may be a number of you who would like to ask a question, I will ask that you limit your initial questions to two and then reenter the queue to ask additional questions. I will now turn the call back over to the operator to begin the question and answer session.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Susan Maklari with Goldman Sachs. Please proceed.

Good afternoon, everyone.

Hi, Susan.

You did a nice job of outlining a lot of the initiatives and the actions that you've taken over the last twelve months in your remarks. I guess, given the environment that we're coming into in 2025, can you talk a bit about how we should be thinking about those efforts as we do look to this year, put some context perhaps around what some of them can mean for the business over the coming quarters?

Sure. I'd be happy to. And I'll give you some context and then maybe David can then mention some of that as we kind of think of how it moves through the year. But if I take a step back, just look at 2024, I mean, obviously, it was still a challenging although stabilizing towards the end of the year macro environment. And within that certainly some choppiness. But if I step back and kind of look at what were the big profit drivers of the business, and where do we look to see those? You know, if I look at water, you know, we take China out of the mix, which does create a lot of noise in the hurricanes. We had at the end of the year. You know, we got water growing 2% in the quarter. So nice growth there. I look at, you know, somewhere like Furniture, which is the profit engine of the outdoors business, you know, grew well above 2% in the fourth quarter. And so you had some really big parts of the core that are growing really nicely, and we're driving more momentum, I'll touch on that, into those. Then look at kind of future core. Right? We talked about the flow point of sale, that's retail and e-commerce point of sale. Being up. Over 100% in the quarter of flow itself. Inclusive of insurance, grew over 200% in the quarter and 100% for the year. And that momentum we see continuing in 2025. And so that boasts big profit drivers with momentum as well as future core momentum. Certainly, as I said in the remarks, security is a hot spot. Point of sale was down mid-single digits, so better than the reported result by far. But there is work to do there. To get that before that we're going. We've got some innovation coming and some brand work for the first time in a very, very long time. Coming for that business that we believe is gonna drive some real differentiation. So, you know, when I take a step back, I look at that. We've done a lot of work in the year to build digital assets. In the connected business those are coming online. You've seen the performance in flow in particular. We built marketing assets, which are a product of bringing the company together in a more aligned way and leveraging our marketing team across the entire business, I think you're gonna see those really for the first time ever come to life in 2025. We have a very solid marketing plan with solid investment behind it. And their innovation efforts. I mean, you'll see new products in places like Mars Select. You're gonna see, as I referenced already, you know, very innovative display. Rolling out in a place like Larson. So a lot of really solid assets developed in 2024, to drive growth in 2025. And then, you know, final point, you know, let's David some color if he wants, is we do lack a lot of noise in 2024. That won't be there. So, you know, we see China's actually normalized and stabilized in terms of quarterly sales. There's noise in the left that goes away after the first quarter. Then, you know, we walked away from a lot of commoditized business in 2024, things like steel doors or window lineals. Safety. And as we work through those laps, that was, you know, 150 to 200 basis points of headwind just in those. You don't have those repeat? In 2025. That gives us a lot of confidence in our outperformance of the market just based on the momentum of the other things I described.

Yeah. And, Susan, I'm happy to give a bit of context around our guide, and what's implied sequentially throughout the year. I think, you know, one point as we step back and look at it, we are erring on the side of conservatism from a market standpoint, given the current environment. But accelerating areas where we have growth momentum to drive, like, 200 basis points of market outperformance regardless of the macro backdrop. So I'll start with that. If I step back and look at our first half, second half sales cadence, there's 49% of sales in the first half. We expect 51% in the second half. So a very normal seasonal build for us across the year. And, again, importantly, the guide does not include a significant ramp in the market in the back half. We're going to see a normal seasonal level of sales. You translate those sales to prior year comps, and you have the first half down around 1% the second half up around 4%. But again, very seasonal, cadence across the year from a sales perspective. Nicholas touched on some of the reasons to believe, but, you know, fully lapped low margin business, we've exited China being challenging in the first quarter. We expect it to be roughly flat the balance of the year. We're digital accelerating through the year. And then the non-repeating impact from the fourth quarter headwinds. So I feel confident in the sales guide we have that there isn't this big back half ramp, you know, driven by the market or other characteristics. Looking specifically at the first quarter, Susan, I'd say sales, that'll be our lowest quarter for the year. And again, inclusive of China, we see sales down around 4%. China's gonna be a 2 percentage point headwind. So that's low single-digit POS in the first quarter, and that's roughly what we've seen year to date. Our trends support that. And then looking at margin cadence, I say there are three things that we have really good visibility to given our inventory positions and lead times. So one, we see the timing of some operational costs and absorption coming off the P&L in hitting the first quarter specifically, those are gonna reverse out as we move through the year. We have some incremental investment timing, and then we have those favorable prior year comps in the fourth quarter that won't repeat. So as I look at our margin cadence, I see, you know, first half down or first half operating margin of 14.5% to 15% with the first quarter around 12% to 13%, including about 225 basis points of margin compression from those ops costs that ultimately reverse out that leaves the second half margin of around 20%. And again, no reasons to believe as we look at it. The cadence of those operational costs moving through and the absorption moving through the continued ramp of digital driving mix, and non-repeated one-times in the fourth quarter, they're gonna boost that margin as we get there in the back half. So but I think we're taking a prudent approach to the year and really looking to accelerate the growth momentum that we have and have really good line of sight to what's coming on off our balance sheet and in and out of the cost bar as we move through.

Okay. That's very helpful. Thank you both. And maybe just following up, it sounds from your remarks that the high end of the market is still holding on fairly well given what you've seen in Rohl and some of the other parts of the business. Just any commentary on how you're thinking about the state of the consumer coming into the year? And what you are seeing across the different price points and how maybe that could play out over the coming quarters?

Yeah. I'd say, look, you know, the consumer generally, I think, is still being very cautious. The way, you know, even in the start of the year, we're seeing a consumer behave pretty similar to Q4. You know, I would say even the point of sale, which, you know, we get daily read if we want. Is almost tracking maybe just slightly under. Which was consistent with how they tracked last year. On a dollar basis. So I think in general, the consumer is still very cautious, the general consumer. But you're absolutely right. At the higher end, we're seeing a lot of resilience. And, you know, to see that performance at a House of Rohl is great, and the House of Rohl's got a lot of stuff coming online. This year. So you're seeing a lot of back to resilience will continue to lead into that. And then, you know, for the rest of the portfolio, we've done a lot of work in 2024 that will roll out in 2025 to really better hit on the differentiation around our brands. And you heard a lot in the prepared remarks around the trustworthiness, the safety. And, you know, we've seen a lot I've talked about it before, you know, what we call counterfeit or impostor products in the marketplace. That are very sharply priced. And I'm not talking about private label that's been around with competitors that that's no problem. I'm talking about things that claim falsely claim to have product attributes or safety standards that they don't. We're going to we've already started to talk about some of that in our safes business. It's seen very strong response. On point of sale level. We're not gonna get talking about it more in water. And in other parts of security. And I think as you do then really sort of give into those reasons to believe, you know, why should a consumer pay for these products? I think absent that, there's a lot of consumer caution. I think with that, we see strong consumer response.

Good evening, everyone. Thank you for taking the questions. Can I ask on connected products? I think you spoke about 150 basis points additive to growth in 2025. I guess just a few questions if you can kind of level set us. I think I heard you say $214 million as a starting point, and correct me if I'm wrong. From 2024. So can you speak to the building blocks of the 150 basis points? Is that coming already in Q1, or does it kind of ramp through the year? And, you know, kind of what do you have clear line of sight to already versus kind of additional milestones we should be looking forward to?

Hey, Matthew. It's David. Happy to touch on that. And as Nicholas mentioned in his remarks, made significant progress in this space. And as I move into my role to work closer with this team, I'm really focused on executing sales activation and conversion. While also expanding the aperture on our strategy and where we can play and where we have the right to win. So I'm excited to do that as I get into this role. So if we look at what's embedded in the guide, it correct full-year impact on growth for the total Fortune growth is 150 basis points. You know, the first half probably 100-ish basis points of growth. The second half maybe closer to 200, maybe a bit more than that. Of growth. And remember in the second half, we're comping the Yale inventory reduction. So this is net sales growth that we're talking about and not POS. I mean, we continue to see POS ramp strongly. You know, it's up in the up, you know, 70-77%, you know, 70 to 80% in the first quarter of this year already. So that trend is continued for water. And we see POS growth on the security side as well in our core channels. It's really just on the partnership side, bringing new products in, transitioning old products out, and getting that back to growth as we expect to occur, you know, by about second quarter to third quarter. Excited. I mean, the momentum is continuing to build. The team continues to fill the top of the funnel from a partnership standpoint, and we're really focused on pulling those sales through the funnel and executing.

Okay. Got it. Thank you for that. And then secondly, I wanted to touch on the tariffs, which you had mentioned at the top. I think you said maybe low double-digit or 10% in or line of sight to getting below 10% in China, and I think you said Mexico was similar. Can you just elaborate a little bit on, I guess, what you could do specifically with Mexico? Since, you know, this is obviously newer this time relative to a few years ago. And then Canada as well, and specifically any other kind of international sourcing that we should consider given the kind of uncertainty for how this is all gonna play out? So just kind of any framework around the tariffs there. Thank you.

Yeah, Matthew. I'll start with just giving you some conceptually and philosophically how we approach it. David can give you some of the specifics. But yeah. And we've talked about this really over the last few years, but remember, like, going back, we circumvented this tariff thing since plywood tariffs first hit, I think, around 2017, we had to move $100 million worth of spend, and we did that very quickly. As the team has really built a very strong bench in managing tariffs. Our philosophy over the last couple of years has really been around supply chain agility versus trying to pick a specific geography to bet on. And so doing things I don't even know if it's a competitively sensitive detail that, you know, doing things around the portfolio that allows us to move products very, very quickly and then building out redundant supplier networks that allow us to move things very, very quickly around the place. And so, you know, while it's, you know, certainly been interesting to watch exactly where a tariff may land or may not land, we've done a lot of work to be able to move very quickly as that happens. And so that's been the approach, and I'll tell you, I'm glad we had it versus making, you know, a singular bet on one geography. You know, the other thing I'll just add spent a lot of time with Leigh Avsec, who also made she's external affairs. You know, in DC, talking to the administration, and, you know, it's clear that there certainly is the idea of, you know, trade and balance tariffs, but there is an idea around universal tariffs. And, you know, to the extent that that comes to fruition, we have a very strong North American and US Medivac today. You know, we're vertically integrated in some parts of the business and still have maintained, you know, a very strong manufacturing footprint. In all other parts. Of the business. And so, you know, we view that as potentially actually being quite a competitive advantage given that we can combine this flexibility with our existing footprint with a great workforce here, and we think we can very, very quickly move to service our consumers and customers in a competitively advantaged way.

Yeah. And, Matthew, I would add just to clear what's in the guidance. We have the impact from the 10% incremental China included in the guide, and we also believe our EPS range captures any potential impact from Mexico and Canada. You know, given what Nicholas said, the team is working on, you know, for Mexico specifically and for Canada actually, the, you know, structuring options, you know, different ways to think about our US content in those products. To reduce our exposure and ultimately, you know, reduce the price that we would take in the market. But ultimately, while we work, all of our internal levers and actions, at the end of the day, what's left will pass through and then invest behind what we passed through to tell the story of our brands and why they are superior.

Hey, everyone. Good evening. Just on gross margin, it really stepped up nicely in 2024. From 2023. Can you maybe talk about the drivers behind that and how sustainable that is going forward?

Yeah. And I'm happy to do it. You know, it's been on a nice trend all year. Right? And we talked about some of the actions we've taken, like, closing our Milwaukee plant for security. To help boost our gross margins. Our continuous improvement initiatives as a result of our new aligned supply chain driving incremental sourcing. And then some product mix benefits as the portfolio continues to shift to higher margin opportunities. So we do think it is sustainable. I think it is the right jumping-off point as we look forward to 2025. As I mentioned in my talking through the guidance in the phasing, there'll be some lumpiness in the quarters based on how some of our inventory is moving from the balance sheet into the P&L at a higher cost base, but that'll even itself out through the year. As we look at the full year, then we do expect gross margin expansion again in 2025.

Okay. Great. And then just on the share repurchases, you know, big authorization here. It looks like based on the guide and the share count that you're not building in any repurchases beyond maybe the January number that you gave. I guess, is that just conservatism? Do you still expect to, you know, repurchase shares in 2025 given the authorization?

Yes. So I'd say consistent with our guiding practice, we put in share repurchase authorization to offset dilution, so that's what's in the guide. It's our intent to be aggressive when we see dislocations in our share price. You know, we're generating a lot of cash and pursuing incremental opportunities to reduce our working capital. We have some process improvements going into effect this quarter and looking at some other working capital initiatives. To actually even accelerate our cash flow guide above and beyond where it is today. So we'll be aggressive when the opportunity exists. To buy back shares and still be mindful of our leverage target. But I think given the cash generation we're able to do that and still delever down towards where we wanna be.

Yeah. And I just had I, you know, to refine. We're very focused on that cash generation. So this year, we're I mean, 2024, we're very pleased with cash generation over 100%. Targeting in 2025 to be somewhere between 115% and 125%. Right? So targeting $600 million-ish. As David said, there's some initiatives we have in mind that we think we can get even more out, and I think as David described, the phasing of margins for the year. You'll see us be able to turn some inventory into cash earlier in the year. And, you know, while that has a short-term margin impact, that cash generation, particularly when we see dislocations, can be a very favorable thing. So we're very focused on it. And we think it's something that we can use to really create shareholder value here.

Hey, guys. Thank you for taking my questions as well. Maybe the first one just on the CapEx outlook of $100 million to $140 million. I mean, that's down pretty meaningfully obviously year over year. It almost seems like it could be approaching kind of maintenance CapEx levels. Am I thinking about that correctly? And are you comfortable with the ability to, you know, continue investing in growth?

Yeah. Yes. Absolutely. So maintenance CapEx, John, for us is about 1% of sales. So, you know, call it in that $50 million range. So this would include growth capital. Why it's stepping down? You know, as a reminder, we've put in incremental capacity over the past couple of years. I think we've been clear that that CapEx rate of 2023 and 2024 were not the go-forward rates for this business. You know, that said, we now have capacity and as volume comes back, you know, we have more efficient newer capacity in certain parts of the business which will lever substantially through the P&L. But part of that strong cash flow generation is actually getting back to what is more like that 2% to 3% of sales CapEx rate, which is our longer-term target and still leaves us plenty of capital for growth. We're not starving the business for any growth initiatives by any stretch.

I'd just say to go a little further on it, I mean, just over the last few years, yeah, I've mentioned, I think, within the remarks, we've opened just in last year until this year, two new facilities for water. We put more capacity into outdoors, obviously, with the footprint moves in security, incremental capacity going in there, more insights. Actually, the business is now really well capacitized. And, you know, we're confident that over the next few years, we're gonna be able to not just generate a lot of cash, but really grow into that capacity and leverage through it. So, you know, from that perspective, I think we're actually in a really good spot. And the fact that we've been able to grow while doing this, I think it's a testament to how we've been leveraging the Fortune Brands advantage across the entire company to be super efficient. We're deploying extra cash into capacity. We're deploying cash into things like digital and yet growing margins at the same time, which really sets us off as volumes come through to drive a lot of leverage to the business.

Okay. That's helpful. And then maybe just a point of clarification. I thought last year at this time, you guys had talked about digital sales kind of running at an annualized rate of $250 million. I mean, in that context, the $214 million that you guys printed in 2024 seems a bit light. So I wanted to ask that. And then just on the Flow portion, can you provide any more color on the other insurance company wins?

Yeah. Why don't I start I can give a few more specifics. Let's say, firstly, on the, you know, on the dollar, we wanted to sort of give it for the year. And then as we progress through 2025, we'll, you know, we'll tell you what the run rate is. Flow, performing as we said, you know, exceptionally well. We see a lot of business now coming online, and then you know, Yale, sort of interesting as we integrated that business and brought it on board, we've always said, sort of mid-cycle startup, and, you know, it kind of acts like it so they sign big partnerships. I think we said 14 in 2024. But then you also exit old products, you exit old partnerships. And so there is choppiness in the number, and we saw a lot of that choppiness in 2024, frankly. Where it actually went backward. But as the 14 new partnerships ramp, then it returns to growth. I think part of our objective for that business needs to be to we need to smooth that out, which we will do by maintaining and building those B2B partnerships, but also building out more of a B2C business as we have in Flow. So you have as we do in Flow, so the B2B insurance, we have the B2C business, and you get a much smoother ramp. So that good choppiness in the number, but I'd say if you step back from that and you look at what we're signing up and when you look at what's going in, we're absolutely delighted with it. And then, you know, from the insurance partnership perspective, you know, there are a variety of flavors from let's say, affiliates recommended to discounts to mandate. You know, the reason we talk a lot about farmers and the reason we think Farmers is a milestone deal is really it was the first where an insurer says, you know, this is mandated for a certain subset of homes. If you want to continue insurance, we have to take cost out of the system. You have to put the product in. We continue to sign up insurance of all three types. And we'll, you know, continue to do that, and watch it ramp. I think you'll see more happen, and it's somewhat regulatory where it can happen, but I think you'll see more happen in both that discount as well as the mandate. Another thing that we talked about we're gonna start trialing in this quarter is a subscription recurring revenue model around this business, which we think will make it much, much easier not just for those consumers, to absorb the cost, but also for the insurer to mandate it because the, you know, entry-level price point, if you will, will be a much, much lower number than the cost of installing a device, you know, from the get-go. I will tell you though, financials actually work out much better for us in the long run because you develop lifetime customers, and the lifetime value of those customers is far greater than a single one-time sale, but we view that as the next big milestone step forward in bringing these partnerships to life.

Great. Thank you.

Thank you. This concludes our Q&A session. And this concludes today's conference as well. You may disconnect your lines at this time. And enjoy the rest of your day.