Air Products and Chemicals - Q1 2024
February 5, 2024
Transcript
Operator (participant)
Good morning, and welcome to the Air Products first quarter Earnings Release Conference Call. Today's call is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products, and all rights are reserved. Beginning today's call is Mr. Sidd Manjeshwar. Please go ahead.
Sidd Manjeshwar (VP of Investor Relations and Corporate Treasurer)
Hi. Thank you, Jennifer. Good morning, everyone. Welcome to Air Products first quarter 2024 earnings results teleconference. This is Sidd Manjeshwar, Vice President of Investor Relations and Corporate Treasurer. I am pleased to be joined today by Seifi Ghasemi, our Chairman, President, and CEO; Dr. Samir Serhan, our Chief Operating Officer; Melissa Schaeffer, our Chief Financial Officer; and Sean Major, our Executive Vice President, General Counsel, and Secretary. After our comments, we will be pleased to take your questions. Our earnings release and the slides for this call are available on our website at airproducts.com. Today's discussion contains forward-looking statements, including those about earnings and capital expenditure guidance, business outlook, and investment opportunities. Please refer to the cautionary note regarding forward-looking statements that is provided in our earnings release and on slide number two.
Additionally, throughout today's discussion, we will refer to various financial measures, including earnings per share, operating income, operating margin, EBITDA, EBITDA margin, effective tax rate, and ROCE, both on a total company and segment basis. Unless we specifically state otherwise, statements regarding these measures are referring to our adjusted non-GAAP financial measures. Reconciliation of these measures to our most directly comparable GAAP financial measures can be found on our website in the relevant earnings release section. Now, with that, I'm pleased to turn the call over to Seifi.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you, Sidd, and good day to everyone. Thank you for taking time from your very busy schedule to be on our call today. As always, I would like to begin with the slide number three, our safety performance, which is our number one priority at Air Products. I'm very pleased to share that our employee recordable injury rate in first quarter was 78% than in 2014, and our employee lost time injury rate was at a record low, the best in the industry. Our ultimate goal will always be zero accidents and zero incidents. Now, please turn to slide number four, which summarizes our management philosophy. These principles remain fundamental to how we manage and grow our company. Now, please turn to slide number five. I would like to take a few minutes to discuss the results for this quarter.
Our first quarter adjusted earnings per share of $2.82 was 7% higher than last year. Our business performed well, and we are moving forward. There were several positive contributions to this result that included strong contribution margins, robust on-site activities in Americas and Europe, and higher quality affiliate income globally. Despite the year-to-year improvement that I just mentioned, our results diverged from the guidance range that we had given you due to several items that were not factored in our first quarter 2024 outlook. We had given you a forecast, and we are delivering less than the forecast, but again, I'd like to express that we are 7% higher than last year. These factors that affected our guidance are, number one, larger than anticipated volume headwinds from weak economic growth in China. We were too optimistic about performance in China.
Second one is lower helium demand in electronics, especially across the world. But I would like to mention that our pricing in helium stays very stable and very robust, but we have the volume was lower than we expected. We had experienced higher costs for the sale of equipment project and the impact of Argentina's currency devaluation. With this, let me talk about our revised full-year guidance range. Please turn to slide number six. We now expect full-year adjusted earnings per share to be in the range of $12.20-$12.50, which reflects the first quarter events I just discussed. It also reflects evolving geopolitical developments and uncertainties and continued weakness in Asia and helium volumes.
This new range is supported by expected positive volume contributions from several new on-site plants and improvement in our LNG sale of equipment business, as well as continuing cost productivity that we always pursue. For the second quarter of fiscal year 2024, our adjusted earnings per share guidance is $2.60-$2.75. We continue to expect our CapEx to be between $5, 5 million, sorry, $5 billion and $5.5 billion in fiscal year 2024. Now, please turn to slide seven. We are proud of our adjusted earnings per share improvement since 2014, and we have delivered on a consecutive basis for the last 10 years, more than 10% annual growth in our earnings.
I would like to take the time to thank each and every one of our employees around the world for their hard work and dedication and commitment, which has made it possible for us to deliver these excellent results. Now, please turn to slide number eight. In addition to investing in high-return projects, we believe creating shareholder value includes turning, returning cash to our investors by paying a healthy dividend directly to them. In January, we again raised our quarterly dividend to $1.77 per share per quarter, extending our record of 42 consecutive years of dividend increase. We expect to return approximately $1.6 billion to our shareholders in 2024, while continuing to execute hard-return industrial gas and clean hydrogen projects that support our customers in their sustainability journey and drive the energy transition.
This balanced approach to capital allocation will allow us to meet our capital needs while maintaining our AA2 credit rating. Now, please turn to slide number nine, which shows our EBITDA margin trend since 2014. Our margins have returned to roughly 40% since the second half of fiscal year 2023, showing a 1,500 basis point improvement versus 2024-2014. And our margins are leading the industry margins, and they reflect the continued strength of our business model. Now, it's my pleasure to turn the call over to Melissa Schaeffer, our Chief Financial Officer, to give you a summary of our first quarter 2024 results. Melissa?
Melissa Schaeffer (CFO)
Thank you, Seifi. Now, please turn to slide 10 for a review of our first quarter results. As Seifi stated, our business fundamentals are strong. In comparison to last year, we continue to show underlying sales growth with both positive volume and price. Overall, price for the quarter was up, despite lower energy costs across most regions. Volume improved 3%, driven by strong on-site volume, including higher demand for hydrogen and contributions from new assets, but partially offset by weaker demand for helium, particularly in Asia. Declining natural gas prices in Europe and North America resulted in 11% lower energy cost pass-through for the company overall. This had no impact on profit, but contributed to higher margins. EBITDA improved 8% as favorable volume, price net of power cost, and equity affiliate income more than offset higher costs, driven by higher planned maintenance, activities, and inflation.
EBITDA margin of 39.2% jumped more than 500 basis points, with lower energy cost pass-through, contributing to about three-fourths of this improvement. ROCE remained steady at about 12%. Adjusting for cash, our ROCE would have been about 13%. Sequentially, results were unfavorable, primarily due to seasonality in the Americas and sale of equipment headwinds in our corporate segment. Now, please turn to slide 11 for a discussion of our earnings per share. Our first quarter adjusted earnings was $2.82 per share, up $0.18 or 7% compared to last year, due to favorable volume, pricing, and higher equity affiliate income, partially offset by unfavorable costs. Volume was $0.11 due to improvements in Americas and Europe, which more than offset shortfalls in Asia and the corporate segment.
Price, net of variable costs, contributed $0.15 this quarter, driven by both pricing actions and lower power costs. Cost had an unfavorable impact of $0.21, driven by higher planned maintenance costs, inflation, and our efforts to support our growth strategy. Equity affiliate income was $0.18 higher due to the contribution of the second phase of Jazan project, and positive results from our unconsolidated joint ventures across most regions. The remaining items, including lower tax rate, higher interest expense, and other non-operating expense, together had a modest negative $0.05 impact. Before I turn the call to Dr. Serhan, I would also like to thank the people of Air Products for their commitment to the company. I am proud to be working alongside them as we continue to execute our strategy. Now, to begin to the review our business segment results, I'll turn the call to Dr. Serhan.
Samir Serhan (COO)
Thank you, Melissa. Please turn to slide 12 for a review of our Americas segment results. Compared to last year, price and volume together were up 5%. Broad-based merchant price increase of 6%, this represents a 2% price approval improvement for the region overall. This drove contribution margin improvement. Volume grew 3% due to strong demand for hydrogen. EBITDA was up 9%, driven by strong price as well as favorable volume and equity affiliate income, while partially offset by higher planned maintenance costs. EBITDA margin was up by almost 800 basis points, driven mostly by lower energy cost pass-through. Sequentially, EBITDA decreased 7%, mainly due to seasonality as demand moderated and maintenance activities picked up during the winter. Now, please turn to slide 13 for a review of our Asia segment results.
The challenging economic conditions in China and the weak electronics market continued to put pressure on the region. Compared to last year, our volumes were flat for the region as higher on-site activity offset lower helium demand. Prices edged up 1% as we continued to focus on price over volume. EBITDA and EBITDA margin were down primarily due to the unfavorable helium volumes and higher costs. Sequentially, results improved relative to the unfavorable business mix in the previous quarter. Please turn to slide 14 for a review of our Europe segment results. Volumes were up 9%, benefiting from better on-site activities, including the new project in Uzbekistan. Compared to last year, merchant pricing remained stable relative to the decline in energy costs, contributing to margin improvement.
EBITDA was up 28%, driven by favorable volume, lower power costs, and stronger currencies against the U.S. dollar, which more than compensated for increased costs due to inflation and planned maintenance activities. EBITDA margin was over 1,000 basis points higher, about half of which was due to the impact of lower energy costs pass-through. Sequentially, results improved, driven by favorable price, volume, and costs. Now, please turn to slide 15 for a review of our Middle East and India segment results. Compared to last year, sales decreased due to lower volume. EBITDA improved due to the completion of the second phase of the Jazan project in mid-January of last year. Please now turn to slide 16 for our corporate and other segment results. This segment includes our sale of equipment businesses, as well as our centrally managed functions and corporate costs.
Despite higher sales from LNG activity, EBITDA declined due to higher costs in our non-LNG sale of equipment business, as Seifi mentioned before. Our activities related to the LNG equipment and technology business are robust. We continue to have constructive conversations with customers who are interested in our offerings, and we expect our LNG-related projects to improve the corporate segment moving forward. At this moment, I also would like to thank our teams around the world for their effort and demonstrating their determination to overcome the challenges we are facing. Now, I would like to turn the call back to Seifi to provide his closing remarks. Seifi?
Seifi Ghasemi (Chairman, President, and CEO)
Thank you, Dr. Serhan. Now, please turn to slide number 17. As I always say, our real competitive advantage is the commitment, dedication, and motivation of our people. I am proud to see that commitment and motivation in action every day in our company, and I'm very proud of our people. The fundamentals of our existing business are strong, and we are moving forward. The short-term issues we have discussed do not change the compelling long-term prospects of Air Products. Air Products is pursuing a first mover growth strategy with our core industrial gases business as the first pillar and our blue and green hydrogen projects as the second pillar.
Executing our strategy in these two pillars with sustainability and underpinning both of them enables us to fulfill our higher purpose as a company, which is to help solve significant energy and environmental challenges in our world. That is our highest purpose. First, our industrial gases business and technology solutions help customers across dozens of industries improve yield, increase production, reduce energy consumption, and lower emissions. In other words, to make more with less, while reducing the impact on the environment. Second, the world needs more energy and wants that energy delivered with a lower carbon footprint. At Air Products, we are demonstrating our leadership position, leveraging our decade-long experience, core competencies, core technologies, and our ability to execute world-scale hydrogen projects.
By producing and delivering low and zero carbon hydrogen at scale for heavy-duty transportation and industry, we can meaningfully contribute to the goal of decarbonizing the world. We believe that the first mover advantage will be substantial and deliver enduring long-term shareholder value, both in terms of return to Air Products and in generating a cleaner, cleaner future for everybody. With that, we are now more than happy to take your questions.
Operator (participant)
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We'll go first to Jeffrey Zekauskas from JPMorgan.
Jeffrey Zekauskas (Managing Director and Senior Equity Research Analyst)
Thanks very much. When did the Gulf Coast Ammonia project come on, and is that a meaningful income stream for you?
Seifi Ghasemi (Chairman, President, and CEO)
Gulf Coast Ammonia is consist of two different parts. One is the hydrogen plant, and the other one is the actual ammonia plant. I can comment on the hydrogen plant because we own that, and that is a sale of gas. That is on the stream, and it's producing revenue. On the other part, I don't want to comment because we don't own that facility, and I'd like the owners to make a statement on that if it's necessary.
In the
Jeffrey Zekauskas (Managing Director and Senior Equity Research Analyst)
Yes, thank you for that. In the quarter, the expense was materially higher year-over-year. That your expectations for 2024, you have a large cost-cutting program. And losses on sale of equipment would be smaller. There was significant room for improvement, particular line. Is that the case or have things changed?
Seifi Ghasemi (Chairman, President, and CEO)
Jeff, you are absolutely right. That is the case. In the first quarter, our costs were higher because of the sale of equipment issue that you mentioned, and we expect that in the, as we go forward, that would not be repeated, and therefore our year-to-year costs will be lower, as I had mentioned to you before.
Jeffrey Zekauskas (Managing Director and Senior Equity Research Analyst)
Thank you so much.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
Operator (participant)
Thank you. We'll go next to Mike Harrison from Seaport Research Partners.
Mike Harrison (Managing Director and Senior Chemicals Analyst)
Hi, good morning.
Seifi Ghasemi (Chairman, President, and CEO)
Good morning.
Mike Harrison (Managing Director and Senior Chemicals Analyst)
Was hoping that you could give a little bit more detail on what's going on within the helium business. Is that a situation where demand is lower, or a situation where you guys are struggling to get the volumes of helium that you need? And also, which regions have the biggest exposure to helium? It seems like this is mostly an Asia issue, at least in the first quarter.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you for the question. And that's an excellent question. Number one, we do not have any issues with having helium molecules for sale. We are actually the best. We have always been the supplier that has delivered helium to people when they need it. We have a tavern. We have significant production facilities around the world, so we are a very reliable supplier, and we have always been. The issue with helium is that number one, demand is lower, especially in electronics across the board, and particularly in China and in Asia. And the other thing is that, as I said, we operate on the basis that we want value for the product that we are selling. So we have held on the pricing, and whether we might have lost some market share, that is possible.
But we have no issues delivering the product, but we definitely see, as I said, a weakness in demand, across the board. And in terms of Air Products, in terms of helium volumes, obviously, Asia is a significant part of that. It's not. The other regions use a lot of helium, too, but Asia is the biggest one.
Mike Harrison (Managing Director and Senior Chemicals Analyst)
All right. That's very helpful. And then my second question is related to your guidance. It looks like the implied guidance for the first half of the year is around $5.50 in EPS, and you're expecting maybe something closer to $7 in the second half. Can you talk about the visibility that you have that gives you confidence on a much better second half? And maybe help us bridge the improvement that you're expecting in the second half versus the first half, that $1.50 or so.
Seifi Ghasemi (Chairman, President, and CEO)
Well, that's an excellent question. Obviously, the guidance is what is our best estimate at this point, right? We can't foresee the world events. But fundamentally, when you look at Air Products, during the years, we consistently deliver about 46%-47% of the year results in the first half, and we deliver it at around 53%-54% in the second half. So the second half is usually our strongest quarter because of seasonality. So you should take that into account. And then the other thing that we are, right now, by giving you the guidance, is that we are expecting that in the second half of the year, some of the on-site projects that we have will be running very strongly, and therefore, we will have a higher income from those. That is our estimate as of today.
How the world will turn, we'll see. That is how we bridge the gap of why we will be able to deliver the seven versus the 550 in the first half.
Mike Harrison (Managing Director and Senior Chemicals Analyst)
Thank you very much.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
Operator (participant)
Thank you. We'll go next to John Roberts from Mizuho.
John Roberts (Managing Director)
Thank you. Seifi, is the weakness in China also related to on-site operations? Maybe you could separate the gasifier business from other on-site.
Seifi Ghasemi (Chairman, President, and CEO)
John, first of all, thank you for your question, and I hope all is well with you. There is no weakness in on-sites in China. Our, you know, our on-site business is take or pay across the board, therefore, we don't see any issues there. The fundamental issue is on the merchant side and helium, and that is related to the economic activity. I'd just like to caution everybody on the call that the economic situation in China is not as robust as people might think. We, as you know, we make products that are used instantaneously. We are a great leading indicator, and things are not really that exciting, that part of the world.
John Roberts (Managing Director)
Thank you.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
Operator (participant)
Thank you. We'll go next to Steve Byrne from Bank of America.
Steve Byrne (Chemicals Equity Research Analyst)
Yes, thank you. I was just looking at the location of Jazan, and it seems to be within 100 miles of quite a few of these recent strikes in Yemen, and just wanted to ask: Is everything there okay at the plant, or do you see any access to labor or risks of this issue going on right now?
Seifi Ghasemi (Chairman, President, and CEO)
Well, first of all, up to now, we have not seen any incidents. None of these missiles and so on have been directed at the facility. So, I mean, I can't predict the future, but up to now, there has not been any issues. The refinery is running fully. Our investment, I mean, our performance there is great. I'm very proud of our people. We are operating 16 gasifiers, which are the largest in the world for gasifying the bottom of the refinery. Despite predictions for the worst, those things are actually working, and we are producing syngas, we are supplying hydrogen to the refinery, and we are making close to 4,000 MW of power that is delivered to the Saudi grid. So up to now.
Steve Byrne (Chemicals Equity Research Analyst)
Thank you.
Seifi Ghasemi (Chairman, President, and CEO)
Everything is fine. Thank you.
Steve Byrne (Chemicals Equity Research Analyst)
Very good. Thank you. And can you provide any more detail on the CapEx target for the year, the $5 billion-$5.5 billion? Can you just highlight what the largest projects within that list are? I was just curious whether you're moving forward with, say, the project in North Texas this year.
Seifi Ghasemi (Chairman, President, and CEO)
Right now, in that $5 billion-$5.5 billion, there is not a significant amount of money for the project in Texas because we are in the process of getting the permit and doing the preliminary engineering. But we will spend a few hundred million, but it is not a significant part of the $5.5 billion. The $5 billion-$5.5 billion is mainly going to be spent on our continuing operations in NEOM, in Saudi Arabia for our green hydrogen facility. A substantial amount of it will go to our blue hydrogen facility. Another substantial amount will be our blue hydrogen facility in Canada, and then obviously, our expenditure on the sustainable airline fuel facility in Los Angeles.
Then obviously, we have our maintenance CapEx and about $1 billion a year that we spend on our day-to-day investments, like any other industrial gas business, that they don't usually talk about it, and we don't put out press releases about how many small projects won, because we do win small projects like everybody else. But that is about $1 billion, too. Our maintenance CapEx is around $500 million-$600 million. So $1.5 billion is those, and then the rest of it is for the big projects.
Steve Byrne (Chemicals Equity Research Analyst)
Thank you.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
Operator (participant)
Thank you. We'll go next to John McNulty from BMO Capital Markets.
John McNulty (Managing Director and Chemicals Analyst)
Yeah, good morning. Thanks for taking my question, Seifi. So we had a question on the dividend hike that you guys announced earlier. It strikes us as kind of smaller than, I guess, what we've seen in the past from Air Products. And I guess the question is, why is that? And is there any concern from, say, the rating agencies around the comfort with your capital spending, or is there some change why that hike would be as kind of modest as it's been? I guess how should we think about that?
Seifi Ghasemi (Chairman, President, and CEO)
Well, for the past six or seven years, I have always been telling people that I personally believe that dividends should be a percentage of the stock price. And we had given people a guidance that we target, that we pay about 2.5% of our stock price as dividend. And we were doing that, but now with the stock price where it is, and we are talking about now more than $7, it's significantly higher than that. So I don't see why we should significantly increase the dividend, and the stock price is where it is. Because the shareholders are getting more than 2.5% from the stock, and then 10% growth, then it becomes at least almost a guaranteed 12.5% return if they buy the stock. That, that.
There is no issue with respect to our cash or our cash flow and so on, but we also have investors who believe we shouldn't pay any dividend, but obviously, that will never happen, and we are never going to reduce the dividend. But the rate of increase is very directly related to the stock price, my friend.
John McNulty (Managing Director and Chemicals Analyst)
Got it. Okay, so it's more about the yield, not necessarily the, the earnings growth
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
John McNulty (Managing Director and Chemicals Analyst)
or anything like that. Okay. And then just as a follow-up question, it would just be on the, I, I know you mentioned earlier in kind of first half versus second half, there's a bunch of, you know, projects that should be running a little harder, running up more or, or coming on. I guess, can you remind us what projects, you know, aren't necessarily fully running in your first half of the year but will be in the second half of the year, just so we can kind of model that out or map that out a little bit better?
Seifi Ghasemi (Chairman, President, and CEO)
Well, that one, then I'm going to get into disclosing the operational details of our customers, and I'm not, I don't have the privilege of doing that because of the confidentiality agreements we have. So if you give me a break, I cannot answer that question in detail. Sorry about that.
John McNulty (Managing Director and Chemicals Analyst)
No, no problem. No problem at all. We'll, we'll definitely give you a break on that.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
John McNulty (Managing Director and Chemicals Analyst)
Thanks for the time.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you. I appreciate that.
Operator (participant)
Thank you. We'll go next to Vincent Andrews from Morgan Stanley.
Vincent Andrews (Managing Director)
Thank you, and good morning, everyone. If I could just ask on the helium, what was sort of the surprise in the quarter on the electronics side of the equation? Like, so what's really changing with those customers? Is it something in particular, or is it just the economy there is decelerating? And are we at the point with it, in the electronics piece, that you're comfortable that, you know, that aspect has flattened out, at a level that you're comfortable with? Maybe we could start there.
Seifi Ghasemi (Chairman, President, and CEO)
First of all, good morning, Vincent. Thanks for the good question. You know, usually what happens with the electronics industry, and you know this better than I do, is that they run very strongly during the third quarter of the calendar year to make all of the chips and so on, which are used for all the toys and everything that people are going to buy for Christmas. And then when that period is over, usually the fourth quarter of the year for the chipmakers is slower. That is the general thing. And then in addition to that, you do have economic conditions and all of that.
I am not an expert in terms of the dynamics of the electronics industry, but I would like to tell you that that is what we are seeing, that a lot of these people are slowing down. And then the other thing that might be in play is that with helium prices being high, it significantly affects the operational people at the chip manufacturing facilities to try to conserve as much helium as they can or other users. So there might be a little bit of a demand destruction, too.
Vincent Andrews (Managing Director)
Okay. And then as a follow-up, in the fiscal second quarter, you know, we obviously just had another winter storm or winter freeze in the Gulf Coast area. Are you anticipating that, you know, you're gonna have some downtime associated with that, or customers are gonna have downtime from some plants being turned off, you know, in preparation for that weather event?
Seifi Ghasemi (Chairman, President, and CEO)
That's a very difficult question to answer, quite honestly. That might be the case, but I don't want to predict that, Vincent. I don't know.
Vincent Andrews (Managing Director)
Well, I just meant what had already happened, the storm that happened in January. Is that already baked in?
Seifi Ghasemi (Chairman, President, and CEO)
Yeah. Dr. Serhan, do you have anything to add to that?
Samir Serhan (COO)
Minor issues really that happened. We still see very strong hydrogen demand, even during that phase.
Vincent Andrews (Managing Director)
Okay. Thank you very much.
Seifi Ghasemi (Chairman, President, and CEO)
Okay, Vincent. Thank you.
Vincent Andrews (Managing Director)
Yes, thank you very much.
Seifi Ghasemi (Chairman, President, and CEO)
Excellent.
Operator (participant)
Thank you. We'll go next to David Begleiter from Deutsche Bank.
David Begleiter (Director)
Thank you. Good morning. So staying on
Seifi Ghasemi (Chairman, President, and CEO)
Hey, David.
David Begleiter (Director)
Good morning. Just staying on helium, can you quantify the impact of the year-over-year helium profit decline in Q1 and your expectations for the full-year in terms of helium profit decline?
Seifi Ghasemi (Chairman, President, and CEO)
David, you're asking a question that, we have never answered. That is, we have never really disclosed the details of the performance of our helium business for competitive reasons, and I'm sure you understand that. So I do not want to quantify that exactly. But, if you look at the, You know, when you compare to last year, when we compare to last year, we are still ahead. What we are trying to explain is the difference between what we delivered versus guidance. Not, versus last year, we are still ahead. But we expected, we did not expect the weakness in helium, the way it has materialized. Would it continue in the second quarter and the third quarter, I mean, in the second, third, and fourth quarter of our fiscal year? Remains to be seen.
That is one of the reasons we lowered our guidance, because we are allowing for the fact that it might continue, but we don't know for sure.
David Begleiter (Director)
Understood. Thank you. And just on the Alberta project, now that we're within 12 months, hopefully, of startup, do you have timing of that project ramping up early next year? And how should we think about the earnings contribution throughout this calendar year 2025 for Alberta?
Seifi Ghasemi (Chairman, President, and CEO)
David, you’ve, we were broken up. I didn’t understand which project you were referring to.
David Begleiter (Director)
The Alberta project. When will it come on stream, and how should you think about the earnings cadence post its startup?
Seifi Ghasemi (Chairman, President, and CEO)
Sure
David Begleiter (Director)
early next year?
Seifi Ghasemi (Chairman, President, and CEO)
Excellent. I'll have Dr. Serhan answer that. Samir?
Samir Serhan (COO)
Thank you for the question. We remain incredibly excited about, about our first blue net zero hydrogen project, that's in the construction phase right now. We look to bring it on stream in fiscal year 2025, in line with our customer plans. There are no updates in regard to the deployed capital and also the government incentive. We provided that already. So again, we're really fully committed to this asset, and things are going well, and we're aligned with our customer, Imperial Oil.
David Begleiter (Director)
Will it be online the first half of fiscal year? Sorry.
Samir Serhan (COO)
It's in fiscal year 2025. I mean, in the second half.
David Begleiter (Director)
Second half. Thank you.
Samir Serhan (COO)
This is really in alignment with the plant, the renewable refinery.
David Begleiter (Director)
Thank you.
Seifi Ghasemi (Chairman, President, and CEO)
So basically, everything is going well for that up to now.
David Begleiter (Director)
Thank you very much.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you. Sure, sir.
Operator (participant)
Thank you. We'll go next to Josh Spector from UBS.
Josh Spector (Executive Director and Chemicals Equity Research Analyst)
Hi, good morning. So I wanted to follow up just on, on the guidance and maybe ask specifically, you know, when you talk about the challenges and uncertainty in China and helium demand, et cetera. I guess to hit your second half, do markets need to improve, or are you assuming any improvement there? Or is status quo plus what you see coming online enough to get to what your expectations are today for the second half?
Seifi Ghasemi (Chairman, President, and CEO)
No, we don't expect any improvement. We expect things to be the way they are. I just hope that things don't get worse because of the geopolitical developments. But, we are not factoring in any significant improvement in the world economy. No, that's correct.
Josh Spector (Executive Director and Chemicals Equity Research Analyst)
Okay, thanks. That's helpful. And just on the sale of equipment, so when you talk about the increase in cost there, is that cost to execute? Is that material issue, a specific contract? Just thinking about how unique or one-off that is. And when you talk about your LNG wins, and you've been talking about more projects coming online or sales, in the next couple of years, is that a risk we need to think about with some of those contracts underwater or some other cost issue?
Seifi Ghasemi (Chairman, President, and CEO)
If I may answer the second part, the LNG thing, we expect the projects that you're talking about are the projects which are already under execution, and we have won. So the risk on that is low. With respect to the sale of equipment thing, what we are talking about is inflation and delays in execution and all of that, that is costing us money. Okay?
Josh Spector (Executive Director and Chemicals Equity Research Analyst)
Okay. Yep. Thank you.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you very much.
Operator (participant)
Thank you. We'll go to Marc Bianchi from TD Cowen.
Marc Bianchi (Managing Director)
Hi, thank you. The question was asked earlier about the large components of CapEx, and you'd mentioned NEOM, the two blue hydrogen projects and SAF. You provided an update on Alberta just now. I'm curious if you could update us on the status of the other three.
Seifi Ghasemi (Chairman, President, and CEO)
Well, on the other three, we don't have anything substantial to report other than what we have told you before. So, things are going okay with them as of right now. So we do not have anything material
Marc Bianchi (Managing Director)
Could you remind us the startup?
Seifi Ghasemi (Chairman, President, and CEO)
that has happened to report to you yet.
Marc Bianchi (Managing Director)
Okay. Thank, thank you, Seifi. Could you just remind us the startup expectation for NEOM, Louisiana, and SAF?
Seifi Ghasemi (Chairman, President, and CEO)
NEOM, we are expecting, I mean, December 31st, 2026. With Louisiana, what we have said up to now has been fiscal year 2028. And, with SAF, it is somewhere around, fiscal year 2027, depending on us getting all of the permits that we need. So and with Darrow, I'm sorry, with Darrow, I'd like to correct that to 2027. I said I think I said '2028, but it's, 2027. That's, approximately the timeline, for those projects.
Marc Bianchi (Managing Director)
Okay. Thank you for that. The other question I had was: there have been some reports and news stories lately about natural hydrogen, so naturally occurring hydrogen deposits that could be quite meaningful. I'm curious what your view of that is, and if you have any involvement.
Seifi Ghasemi (Chairman, President, and CEO)
We do not have any involvement in that, and I don't want to give you a scientific answer, but that's a little bit of a pie in the sky, that there's hydrogen sitting there that you need to get rid of it, and it will come out at zero cost. But we are not involved in any projects like that, and we are not going to get involved in that because we just do not think that that is reality.
Marc Bianchi (Managing Director)
Thank you very much.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
Operator (participant)
Thank you. We'll go next to Michael Leithead from Barclays.
Michael Leithead (Director of Equity Research)
Great. Thank you. Good morning. Seifi
Seifi Ghasemi (Chairman, President, and CEO)
Good morning.
Michael Leithead (Director of Equity Research)
Good morning. Could you maybe update us on the state of your ongoing discussions for green and blue ammonia potential offtake? Should we expect some offtake announcements later this year, or do you still believe it's better to wait until closer to project startup to formalize some of those?
Seifi Ghasemi (Chairman, President, and CEO)
Well, on that, that one, you're raising a, an excellent point. We have, basically, told people that do not expect any announcement about any offtake until about a year or a year and a half before the plans come on the stream. And the main reason for that is that we believe that as we get closer to the deadlines that companies have to comply with the new environmental rules, they would, certainly realize that there are not that many real commercial facilities coming on a stream that has the product. Therefore, the value of our product will be higher than what people think it is today. So we are not in a hurry to sign any agreements. We think the demand is there, so we are going to take our time.
But in the meantime, if somebody wants to act sooner and gives us a contract, a long-term contract, at the prices that we expect, we might announce that sooner. But I wouldn't want investors to expect any announcements soon.
Michael Leithead (Director of Equity Research)
That makes sense.
Seifi Ghasemi (Chairman, President, and CEO)
Okay? Thank you.
Michael Leithead (Director of Equity Research)
That's great. That makes sense. And then maybe on a similar note, I believe that the Treasury Department recently came out with guidance around the green hydrogen tax credit. I think most people viewed it as fairly strict, although I also believe Air Products' plans are pretty well aligned with this guidance. Bigger picture, do you have any concerns about the strict interpretations limiting the U.S. industry's ability as they take off, or do you actually see it as advantageous for Air Products?
Seifi Ghasemi (Chairman, President, and CEO)
No, we absolutely disagree with that point of view that this is limiting. I mean, how is it limiting? We are complying with every single part of what the Treasury Department has put out, the three pillars, and we are committing billions of dollars to build these facilities. Other people can do the same thing. Some people are trying to get money from the government by continuing to pollute the atmosphere, and we, we don't believe that. We believe very strongly in the three pillars. That means that any electricity used for production of green hydrogen needs to be additional. Otherwise, you're just going to use coal to replace that power that you use, so it has to be additional.
The second thing, it has to be hourly, because otherwise, in the middle of the night when there is no sun, if somebody makes green hydrogen, then you are drawing power from the grid, and that has to be replaced, again, from coal-fired plants and all of that. So additionality, hourly, and then the other thing is that it has to be on the same network. We are fully supportive, fully supportive of what the Treasury Department has put out. I'd like to applaud them for sticking to their principles, that the IRA was designed not to make companies rich, but IRA was designed to save the environment, and we should not allow people to get some subsidies if they are not doing something to reduce the pollution into the atmosphere. The IRA is not a handout.
The IRA is designed, that is why Congress approved it, to improve the environment, and we should all abide by that. Therefore, we are fully in line with the, those, rules that Treasury has put out, and, and I really hope that they keep their nerve and execute the, those, principles, because those are the right principles, and we are fully supportive of that. And, again, I'd like to stress that we are spending billions of dollars. We are, and executing projects right now, even before those rules come out, complying with those rules because we think they are the right rules. Okay?
Michael Leithead (Director of Equity Research)
Great. Thank you so much.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
Operator (participant)
Thank you. We'll go next to Duffy Fischer from Goldman Sachs.
Duffy Fischer (Equity Research Analyst in US Chemicals)
Yeah, good morning, guys.
Seifi Ghasemi (Chairman, President, and CEO)
Good morning, Duffy. How are you?
Duffy Fischer (Equity Research Analyst in US Chemicals)
Good, thank you. Question on cash flow, if I could. At least in the first quarter, cash flow was down, or operating cash flow was down double digits, even though earnings was up. Will that invert throughout the year? Would you expect operating cash flow to grow roughly at the same level of EPS this year?
Seifi Ghasemi (Chairman, President, and CEO)
Duffy, I'm glad you asked this question, but I'll have Melissa go through the details. But my friend, our EBITDA is going up. If our EBITDA is going up, the cash coming to the company is going up. The... What we are reporting is accounting and is the timing of the cash. We report the number because we book it, but when we get the actual cash, it's different because of our equity affiliates. But I think the best person to qualify to answer this, because I don't want to get into accounting details. Melissa, would you please explain that?
Melissa Schaeffer (CFO)
Yes, absolutely. Thank you, Seifi. And hi, Duffy, how are you? So first of all, Duffy, our
Duffy Fischer (Equity Research Analyst in US Chemicals)
Good, thank you.
Melissa Schaeffer (CFO)
Yes, thank you. So our EBITDA cash version is stable, and our distributable and investment cash flow are both positive. So that's in line with our year-over-year EBITDA improvement. Additionally, we have industry-leading DSO, so all very strong. We did see an incremental reduction in our operating cash flow to EBITDA this quarter. There are a few items that attribute to this. Namely, it's really timing component related to our distributions of earnings for our large equity affiliates. Again, not an issue with profit, just timing. And the second one is we do manage and look to de-risk our helium supply chain. So we are building some of our helium inventory, which obviously has an offset to operating cash, but obviously will attribute to profits moving forward.
Duffy Fischer (Equity Research Analyst in US Chemicals)
Great.
Seifi Ghasemi (Chairman, President, and CEO)
Okay, Duffy?
Duffy Fischer (Equity Research Analyst in US Chemicals)
Thank you.
You bet. Thank you on that one. And then just, on the announcement that the EPA was giving to the state of Louisiana, the authority, can you kind of explain how your relationship is with the state and how quickly you think that will speed up the process there, and when we might get permits for Louisiana?
Seifi Ghasemi (Chairman, President, and CEO)
Duffy, I'm glad you asked that question. We are very excited about that. I think it was the right decision, and that will cut about, we think about a year on the timeline of us getting the permit for the Class VI well. And we do have an excellent relationship with the state of Louisiana, but it's not the relationship. We are going to do the right thing by having the state of Louisiana review that. We gain time because the state of Louisiana will have less Class VI wells to deal with than EPA. So it's just a matter of the workload, and they did the right thing by distributing the workload. Therefore, now the state of Louisiana will have fewer applications, and therefore they can approve our project, by about a year faster than the federal government would have done that.
So that is why it is very helpful and very impactful and gives us a lot more confidence in terms of our ability to get the Class VI permit, if we need it.
Duffy Fischer (Equity Research Analyst in US Chemicals)
Great. Thank you.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you very much.
Operator (participant)
Thank you. We'll go to Kevin McCarthy from Vertical Research Partners.
Kevin McCarthy (Partner)
Yes, thank you, and good morning. Seifi, I want to come back to the helium market dynamics. I heard your comments on the demand side, but my question is: have you witnessed any material changes on the supply side of the global market, such as the operating status of Gazprom's Amur project in Russia? Or is it strictly a function of demand, in terms of the volume shortfall that you cited in the quarter?
Seifi Ghasemi (Chairman, President, and CEO)
Well, that is a very good question. Theoretically, whatever Amur produces in Russia, theoretically, there is global sanctions on that, that is not supposed to be getting into the market. Is it getting into the market illegally and therefore increasing the supply of helium, and therefore that is why people are buying from other people? It could be the case. I am not sure what the detailed dynamics on that are, and I don't want to be interpreting sanctions laws and all of that, But what you are suggesting is a possibility. We are looking into that. We haven't seen any significant factor from that yet, at least we don't see it yet, but it might be the case.
Kevin McCarthy (Partner)
Okay, that's helpful. And secondly, I had a few, sort of housekeeping questions, you know, possibly for Melissa. I think you mentioned the evaluation of the Argentine peso, and we talked about the cost overrun from the sale of equipment project. Can you quantify the impact of some of those issues in the quarter?
Seifi Ghasemi (Chairman, President, and CEO)
I don't think we want to quantify the details of every one of them, but the Argentine currency is easy. I'll answer that, make life easy for Melissa, is that effect was about $10 million on our bottom line. For the Argentine currency, about $0.03.
Kevin McCarthy (Partner)
Hmm. Okay. And, the SOE, no, no comment on that one?
Seifi Ghasemi (Chairman, President, and CEO)
No, the rest of it, we don't want to break down how much was helium, how much was the sale of equipment, and how much was the
Kevin McCarthy (Partner)
Mm.
Seifi Ghasemi (Chairman, President, and CEO)
Slowdown in China, because then we will be giving away too much competitive information, if you don't mind.
Kevin McCarthy (Partner)
I see. Okay, thank you very much.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
Operator (participant)
Thank you. We'll go next to Patrick Cunningham from Citi.
Patrick Cunningham (VP and Senior Analyst)
Hi, good morning. Could you maybe comment on the direction of price in Europe and, you know, how sustainable these margins are going forward?
Seifi Ghasemi (Chairman, President, and CEO)
Well, quite frankly, we did, that is one of the areas where we did better than we expected. Our results in Europe are excellent. The margins are up 1,000 basis points, and that is because people have done a good job hanging on to the price, while energy prices are going down. How this will develop in the future, obviously depends on what happens to energy prices and so on. But I'm very proud of our people in terms of their performance and in terms of making sure that they maintain, they maintain the pricing, and we have been successful. And quite honestly, and as Dr. Serhan was saying, our European business did very well during the quarter.
Patrick Cunningham (VP and Senior Analyst)
Great. And then maybe just a related follow-up on the Uzbekistan project. You know, how much volume was up on Uzbekistan, and what sort of contribution should we have throughout the year? I know previously you talked about about $0.35 per share. How is Uzbekistan performing relative to your expectations?
Seifi Ghasemi (Chairman, President, and CEO)
Dr. Serhan, would you like to answer that?
Samir Serhan (COO)
Yes. Just wanna start by saying this project really has been a great fit for both, Air Products and Uzbekistan. It leverages our core competencies and address the country's desire for energy independence and socioeconomic development. This project includes the world's largest ATRs, autothermal reformer. And just to remind everybody, to produce a blue hydrogen, you need to use autothermal reformers, and those are the largest in the world, or you need to use POX units, which are the partial oxidation, which is the technology we bought from GE Gasification. We are excited about the operational and technological synergies by operating these large ATRs. The asset was brought on stream in October 2023. We expect the asset to contribute around $0.35 for the full-year.
Seifi Ghasemi (Chairman, President, and CEO)
Okay?
Patrick Cunningham (VP and Senior Analyst)
Great. Thank you.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
Operator (participant)
Thank you. We'll go next to Mike
Seifi Ghasemi (Chairman, President, and CEO)
Hopefully, this would be the last question, okay?
Operator (participant)
Okay. We'll go to Mike Sison from Wells Fargo.
Seifi Ghasemi (Chairman, President, and CEO)
Oh, sorry.
Mike Sison (Managing Director and Senior Equity Research Analyst)
Hey, good
Seifi Ghasemi (Chairman, President, and CEO)
I made a mistake about the timing. We can answer some more questions if necessary, if people have questions. Go ahead.
Mike Sison (Managing Director and Senior Equity Research Analyst)
Hey, good morning, everybody. I guess my first question on fiscal 2024 EPS growth. You know, the projects that's recently come on stream, the four that you've noted in the slide, are those contributing what you thought they would contribute in 2024? And I guess, you know, sort of the follow-up is that, the delta between the 13% growth to the 6%-9% growth now, has nothing to do with the projects, more of the other stuff that you talked about in terms of the headwinds?
Seifi Ghasemi (Chairman, President, and CEO)
Well, the thing is that, I'd just like to give you a general answer in the sense that if we are up year-over-year, and in the meantime, China is going down, helium volumes are lower, and we have had these headwinds, then the only reason that it's going up is because some of the other projects are contributing, of course. So that, that's the way I would like to leave it with you. Okay?
Mike Sison (Managing Director and Senior Equity Research Analyst)
Got it. And
Seifi Ghasemi (Chairman, President, and CEO)
Because we have a lot of negatives, and we are still going up, therefore, the other projects are contributing. Yes.
Mike Sison (Managing Director and Senior Equity Research Analyst)
Yeah, that's great. And then, you know, beyond 2024, when you think about 2025, 2026, 2027, more of a longer term sort of view, how do you think the growth algorithm changes or maybe doesn't change as we look out of those years, in terms of EPS growth?
Seifi Ghasemi (Chairman, President, and CEO)
I think Air Products will deliver on the average an EPS growth of the 10% that we have delivered before. That's our goal. And, you know, one year we might be 9%, one year we might be 11%, but overall, we are going to continue on that trend. And, we promised that 10 years ago, we have delivered, and I fully expect that we will continue to deliver that.
Great. Thank you.
Thank you, sir.
Operator (participant)
Thank you. We'll go to Lawrence Alexander from Jefferies.
Daniel Rizzo (VP and Research Analyst in Packaging and Chemicals)
Hi, this is Dan Rizzo on for Lawrence. Thank you for getting me in. I just wanna make sure that of the projects under execution that's listed on page 19, the next one that's going to come online is the one in Alberta, Canada, correct?
Seifi Ghasemi (Chairman, President, and CEO)
Yes. Alberta, Canada, is the next one, which is going to come on the stream, and as Dr. Serhan said, we expect that to be in fiscal year 2025.
Daniel Rizzo (VP and Research Analyst in Packaging and Chemicals)
This will be my second question is, should the other projects come on right behind that, or will there be, I don't know, year-like delays, or how? I'm trying to think of the cadence of as, as these are coming online.
Seifi Ghasemi (Chairman, President, and CEO)
Well, after that, we will have, in 2026, by the end of fiscal year 2026, we will have, by the end of calendar 2026, we will have our green hydrogen project in Saudi Arabia. The year after that, we will have our blue hydrogen project in Louisiana, and the year after that, we will have, hopefully, other projects that we will announce.
Daniel Rizzo (VP and Research Analyst in Packaging and Chemicals)
Okay. Thank you very much.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you. Thank you.
Operator (participant)
We'll go next
Seifi Ghasemi (Chairman, President, and CEO)
Any other questions?
Operator (participant)
Laurent Favre from BNP.
Laurent Favre (Managing Director)
Oh, yes, good morning, and, thanks for squeezing me in. I'd like to go back to the SAF project, actually. I think you just mentioned that, the startup would be in 2027. In May last year, you had it in, I guess, for a startup in 2025, and in August it was still part of the, the group of projects that should be up and running by 2026. So I was wondering if you could talk about, I guess, what are the specific reasons for this, more than one-year delay? Is it the customer side or is it execution on your side? Thank you.
Seifi Ghasemi (Chairman, President, and CEO)
Well, it is related to the fact that we are building this plant in California, and you know, in California, it usually takes a long time to get permits. So it is dependent on the timing of the permits for construction for that facility. Once we have a final ruling on the permit, then we will be able to give you a definite date about when that plant is going to come on stream.
Laurent Favre (Managing Director)
Could you cite for us the potential cost overun on top of the $2.5 billion that was initially slated? Are we talking about a material difference?
Seifi Ghasemi (Chairman, President, and CEO)
I'm not sure I understood the question.
No, I think, Lawrence, on that one, the capital, we own the return on the capital of the project. We don't anticipate any capital updates there.
The return on the project is fixed. We are going to get a return on the capital that we spend, no matter what the capital is. Okay?
Laurent Favre (Managing Director)
Okay. Thank you.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you, sir.
Laurent Favre (Managing Director)
Thank you.
Operator (participant)
We'll take our last questions from Sebastian Bray from Berenberg.
Sebastian Bray (Head of Chemicals Research)
Hello, good morning, everybody, and thank you for taking my questions. My first one is on merchant pricing as it stands today. Is this stable in Europe or in the US? Has it started to decline, or has it started to go up? The answer seems to be stable, but I wanted to double-check. My second one is on guidance. Are we just assuming when setting the EPS growth rate guidance for 2024, the dollar rates, as they stand today, hold for the rest of the year?
My third one is a more philosophical question on pricing: Is the desire to wait longer for the clean ammonia and clean hydrogen project offtake agreements, a reaction to try and hedge out the risk that IRA subsidies may be changed from 2025, i.e., if that industry shakes out and it turns out the projects need clean, higher, clean hydrogen pricing to be economic with fewer subsidies available, is the APD approach to say, "Well, we'll wait for the industry to shake out and see what comes"? Thank you.
Seifi Ghasemi (Chairman, President, and CEO)
Well, you are asking a very, very good question, and I would like to tell you that we are the first mover in these projects. We are investing significant amount of money being a first mover. We obviously, My job is try to maximize return for the investors. And if we were the first mover and we took the risk of, as they say, building these facilities before we had contracts, we should get rewarded by, by that and not just have projects which have the standard returns, but be rewarded with a higher return. That's one thing. And then the second thing is that we genuinely believe that where we are in these projects, we will have a product which will be in significant demand as we get closer to people trying to comply with the rules that are already in place, in Europe, especially.
By 2028, a lot of the industries have to use the products that we make, and we don't see that many people making the product. So in that case, we are not in a hurry to give it away. Obviously, our job is to maximize profit for the company, get the best that we can, and that, that is the philosophy that we are following. It is not because of concerns about the other things that you mentioned. No, I think that the subsidies and so on are going to get enacted. Every day that goes by, you see the governments taking action. Recently, it was Japan. Before, it has been Europe, is well established, U.S. with the IRA.
Events, as you go forward every day, points in the direction that hopefully our strategy is the right strategy, and we want to take maximum advantage of that.
Samir Serhan (COO)
Actually, Seifi, there has been a report from the International Energy Agency that indicated that out of all of the projects announced for green hydrogen by 2030 to come on stream, only 7% will actually eventually come on stream by 2030.
Seifi Ghasemi (Chairman, President, and CEO)
Okay. Sorry, we gave you a long answer, but I hope we addressed your issue.
Sebastian Bray (Head of Chemicals Research)
No, it's appreciated, Seifi. Thank you. And the merchant pricing and the question on FX assumption for the rest of the year-
Seifi Ghasemi (Chairman, President, and CEO)
Yeah.
Sebastian Bray (Head of Chemicals Research)
On a more, tactical short-term basis.
Seifi Ghasemi (Chairman, President, and CEO)
Yeah, well, that's again a very good question. We make our estimate, Melissa. Why don't you answer that?
Melissa Schaeffer (CFO)
Yeah. So let me give you an answer on the merchant. So merchant on merchant pricing was up slightly. So we had stronger merchant on merchant pricing in the Americas and Asia, which was partially offset by some small decreases in Europe. However, I do want to mention that in Europe, our conversion margin stayed strong because the power costs decreased at a faster rate than our [inaudible] So the conversion margin maintained strong in all three regions.
Seifi Ghasemi (Chairman, President, and CEO)
With respect to FX, when we give you an estimate, we give you an estimate based on the exchange rates as of today. So, that is, we are not assuming any significant change in the exchange rates.
Sebastian Bray (Head of Chemicals Research)
That's very helpful. Thank you
Seifi Ghasemi (Chairman, President, and CEO)
Okay.
Sebastian Bray (Head of Chemicals Research)
[audio distortion] for the time and questions.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you very much. I really appreciate that. Operator, since there are no other questions, I would like to thank everybody for joining our call today. We again appreciate your interest in Air Products, and we look forward to discussing our results with you in three months. All the very best, and thank you for listening.
Operator (participant)
That does conclude today's conference. Thank you for your participation, and you may now disconnect.