Huntsman Corporation (HUN) Q1 2020 Earnings Report, Transcript and Summary

Greetings, and welcome to the Huntsman Corporation First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ivan Marcuse, Vice President of Investor Relations. Thank you, sir. You may begin.

Thank you, Donna, and good morning, everyone. Welcome to Huntsman's first quarter 2020 earnings call. Joining us on the call today are Peter Huntsman, Chairman, President and CEO; and Sean Douglas, Executive Vice President and CFO. This morning, before the market opened, we released our earnings for the first quarter 2020 via press release and posted to our website, huntsman.com. We also posted a set of slides on our website, which we will use on this call this morning while presenting our results. During the call, we may make statements about our projections or expectations for the future. All such statements are forward-looking statements, and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. We will also refer to non-GAAP financial measures such as adjusted EBITDA, adjusted net income and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted on our website, huntsman.com. I will now turn the call over to Peter Huntsman, our Chairman, President and CEO.

Thank you very much, Ivan. Good morning, everybody, and thank you for taking the time to join us. Let's turn to Slides 3 and 4. Adjusted EBITDA for our Polyurethanes division in the first quarter was $84 million versus $124 million a year ago. Total MDI volumes in the quarter were up 2% as growth in the Americas and European regions for the first two months of the quarter were able to offset volume declines in Asia and slowing global demand trends experienced during March. Our differentiated margins remained relatively stable. However, we continue to experience pressure on polymeric and component margins as softer demand in differentiated markets added to the existing margin pressure in upstream polymeric with more MDI being diverted into the polymeric markets. Despite the near-term headwinds, we remain committed to our long-term strategy of investing in our downstream businesses and further differentiated product innovation. We are confident that the positive long-term trends for MDI urethanes around substitution and sustainable product solutions remain intact. Looking at Polyurethanes regionally for the first quarter. Our American volumes were up single-digits for the prior year, while automotive was lower in the quarter. Several of our construction-related markets saw growth versus the prior year. Our acquisition of Icynene-Lapolla, which closed on February 20, added 3% to our growth in the Americas and approximately 1% globally. The integration of this business with our existing spray polyurethane foam business has hit the ground running. Especially given the current environment, we are looking to move as quickly as possible to fully integrate this business and to achieve our synergy targets by the end of 2021. We expect to achieve approximately $15 million in annualized synergies. The combined integrated business is projected to have EBITDA margins well in excess of 20% and will be a leader in the sustainable high growth market. Within a few years, this will be a business with EBITDA in excess of $100 million. It's a remarkable ecofriendly product, especially so when integrated with our TEROL Polyols business. We take the equivalent of 1 billion PET bottles, otherwise wasted as feedstock and produce a polyester polyol that is blended with MDI to produce the best and most versatile insulation in the world. This is a very compelling, sustainable and ecofriendly alternative to traditional insulation products. We will continue to leverage our global footprint to grow this business in international markets. In order to appropriately manage our discretionary spending in the current environment, we have decided to push out our splitter project in Geismar, Louisiana by six months now estimated to commence operations in mid-2022. This will reduce our current year capital spend by $40 million. The project IRR remains well above our hurdle rate and we see this splitter as fundamental to our long-term differentiated growth in North America. Turning to the Asian region of Polyurethane. Our overall volumes were down 8%. Our insulation business was up 11% over the prior year, while nearly all other business categories were down double-digit, except for our footwear and ACE businesses that were down single-digit. Due to the COVID-19, most Asian markets saw sharp declines due to mandatory shutdowns and other restrictions which impact production, supply chains, and end use demand. While the region declined overall for the quarter, China saw improving trends starting at the end of February through March. We are cautiously optimistic that the worst is behind us in ACE in China. In Europe, we saw overall mid single-digit growth in the region. However, with the acceleration of the pandemic, we saw weakening volumes toward the end of the quarter. Now looking forward to the second quarter. All but a handful of our Polyurethane operations have remained running albeit at a significantly reduced rate. Up to this time, we have not lost any customers or orders due to the closure of these facilities. Our urethanes business is currently experiencing a significant impact on demand due to the global economic havoc reaped by COVID-19. This impact on demand is being felt in just about every one of our core markets. To be clear, we've never seen this sharp of a decline in global demand in such a short period of time. Our differentiated margins remain resilient, however, except for in China, both our differentiated and component product volumes are being significantly impacted. The seasonal uptick that we typically see in the second quarter is not happening this year as we have essentially lost the entire month of April everywhere, but China. Our expectation for May and June are for sequentially improving conditions. To give you some idea of the declines we've seen, our automotive-related businesses in North America and Europe saw orders in the month of April versus the prior year decline between 75% and 90%. Even in China, which is believed to be on the backside of the pandemic, we saw orders materially lower than a year-ago in our construction-related businesses, which would include insulation and composite wood products, orders were down around 40% in April in both America and Europe. Though the current global economic crisis is much different than the 2008 and 2009 financial crisis and ensuing recession, it is our best comparable period that we can point to. Important to note that we have learned a great deal from past crisis that has significantly improved our business over the past 12 years. I'd like to highlight some of the key differences between our Polyurethanes business today versus then. First, we no longer have our PO/MTBE business that we sold at the beginning of this year. Secondly, we've increased our overall capacity by roughly 370,000 kilotons or 38% with expansions in all three of our upstream sites in Caojing, China; Rotterdam, Netherlands; in Geismar, Louisiana. Also, and most importantly since 2009, we've meaningfully reduced our proportional exposure to the more commodity end of the portfolio and have greatly improved our overall product mix through our ongoing investments into differentiated businesses, including state-of-the-art splitters in Rotterdam and Caojing, strategic bolt-on acquisitions and global scale-ups. This increase in differentiated products amounts to approximately £800 million. Lastly in 2008 and 2009, we had meaningfully higher inventory levels, including excessive levels of high cost benzene, which resulted in a significant drag in profitability for ensuing quarters. This time around, we've entered this crisis with tighter inventory levels and significantly less benzene. Though our Polyurethanes division today has continued commodity and exposure, we believe that we have meaningfully lifted the level of recessionary trough EBITDA. Keep in mind that each recession is very different in terms of cause and effect, but because of the investments that we've made over the last decade, we believe our current trough EBITDA will be well above the previous trough, which was around $150 million during the 2008, 2009 period pro forma for the elimination of the PO/MTBE results. In summary, our visibility into the second quarter remains tough. Currently, we can only see about three or four weeks ahead at best. With the expectation that our volumes could be down more than 30% versus the prior year, we expect our EBITDA could be around breakeven in the second quarter. However, this is highly dependent on the speed and timing of recovery in the number of product segments in the coming weeks and months. Let's turn to Slide number 5. Our Advanced Materials business reported adjusted EBITDA of $48 million down from $53 million in last year's first quarter. The decline in adjusted EBITDA was driven by 11% lower volumes in the quarter due primarily to softer demand in our commodity, industrial and aerospace markets, partially offset by improved demand trends in markets such as electronics and power. While China demand started off weak, we saw improved trends throughout the first quarter, which has continued into the second quarter. The specialty end of our portfolio did perform better than the overall segment average, but still declined 6%. As one would expect to see from a differentiated business with 85% of its sales revenue coming from a strong core of specialty products, our margins remain very resilient despite the volume headwinds we experienced. We remain on track to close on the recently announced acquisition of CVC Thermoset Specialties over the coming months. We look forward to integrating this high margin specialty business into our Advanced Materials portfolio. This business augments our already attractive portfolio in areas such as structural adhesives, coatings, and composites. Furthermore, it will significantly strengthen our business in the Americas and provide us commercial opportunities to leverage our global platform by taking this product into our well-established Asian and European markets. In the current environment, we'll look to accelerate the integration of this business and to achieve a full run rate of expected synergies as quickly as possible. We expect to achieve a run rate of approximately $15 million synergies within the next two years. COVID-19 will have a material impact on several of the core markets in our Advanced Materials business through the remainder of the year. However, it is worth highlighting several key differences between our Advanced Materials business today versus the 2009 recessionary environment when EBITDA fell by 50%. First, our exposure to commodity, basic epoxy resin and wind market is substantially lower today. Our portfolio today significantly more diverse and differentiated versus prior years with around 85% of ourselves now going into specialty markets. Additionally, in contrast to our business in the past recessions, we've taken approximately $40 million of cost out of the business. Although today, we do experience significant headwinds in our aerospace business, which is now a bigger portion of our EBITDA today versus 2009. I would like to point out that roughly 30% of our aerospace business today goes into other markets such as military applications and repair maintenance, which will be less impacted than new commercial aircraft built. Despite the likely volume challenges for the remainder of the year, the Advanced Materials business will remain focused on the integration of CVC, managing down costs, growth in certain markets to help offset weakness in others and in retaining the value of a specialty product in order to keep overall margin steady. Visibility remains low in segment EBITDA in the second quarter will be down more than 45% versus the prior year as volume weakness across most of its core markets will be partially offset by improving trends in Asia and the lower fixed cost. Let's turn to Slide number 6. The Performance Products segment reported adjusted EBITDA of $58 million compared to $45 million in last year's first quarter. Volume in the quarter went down 3% versus previous year, remained very solid throughout the quarter. Higher volumes and performance amines were offset by lower volumes in Ethyleneamines in maleic. Performance Products margins were favorably impacted by lower raw material costs, stable pricing, good cost control, and roughly $5 million in lower cost benefits that would not expect to be repeated. As a reminder, unlike our other three divisions, our raw materials are procured locally or locally to the plants and a drop in raw material prices is seeing much sooner in this division. Like all other businesses, we expect Performance Products to be impacted by the material slow down in the global economy. However, there are some significant differences between this segment today versus 2008 and 2009 time period that should be pointed out. Most obvious difference is that we've sold the Chemical Intermediates and Surfactant businesses. Performance Products today is primarily made up of our amines and maleic anhydride franchises. Our amines portfolio today is much more diversified and developed across different niche markets, end use markets and regions with a much improved manufacturing footprint. Our higher margin performance amines are a significantly larger portion of the total amines portfolio as well. Our maleic business today is larger and the industry is more balanced versus 2009 when the North American housing market was crashing and new maleic supply was coming into the market at the same time. Finally, Performance Products today has a larger overall exposure to the construction markets in North America and Europe versus 2009 and much less exposure to the personal care products. However, we expect the more diverse niche industrial markets to serve will help to offset near-term volume weakness in the construction market. With a reduced portfolio breadth of today's business, this division is more focused versus 10 years ago and we continue to look to control costs and grow in its high margin niche markets over the coming years. We expect weaker overall market conditions in the second quarter to put pressure across nearly all of our European and North American businesses within this segment, which will only be partially offset by strengths in certain markets in China such as wind. As a result, we expect second quarter EBITDA could be more than 25% below the prior year. Let's move on to Slide number 7. Our Textile Effects division reported adjusted EBITDA of $20 million for the first quarter, slightly down from the prior year. Total volumes in the quarter were fairly flat year-over-year, but our specialty volumes grew 5% as we continue to benefit from increased demand for our leading technologies that offer our customers ecofriendly and sustainable solutions. At the end of March and in April, we saw a sharp decline in volumes in our core markets due to mandatory government shutdowns impacting textile mills and regions such as India and Bangladesh. It has been compounded by significant order cancellations by retailers who are experiencing a sharp decline in customer traffic. But we've started to see some positive trends from retailers in China. Our volumes in the second quarter are likely to be at levels not seen since 2008. However, like our other businesses, Textile Effects today is much different than during the recession of 2008 and 2009. First about $120 million to fixed costs have been removed and the businesses have been geographically repositioned and aligned to today's textile industry. Also, our higher margin specialty businesses have grown significantly over the last 10 years, we've strategically deselected from lower margin and less profitable product. Lastly, the destocking that started in early 2018 has left inventory throughout the supply chain at very low levels, which gives us some confidence that once the global economies begin to open back up for business, we should expect to see improving demand trends and a quicker rebound been in past recessions. In the near-term, the usual seasonal strength we typically experienced in the second quarter is not expected to happen. We expect second quarter results to be significantly lower versus the prior year. Before sharing some concluding thoughts, I'd like to turn a few minutes over to Sean Douglas, our Chief Financial Officer, and at that same time wish him a happy birthday. He turns 48 years old today, and certainly the best CFO at least on this side of the table. So Sean?

Peter, thank you. I was 29 – I'm sorry, 29. Turning now to Slide 8. First quarter adjusted EBITDA dropped by approximately $39 million or 19% versus the first quarter of 2019. Our Polyurethanes divisions adjusted EBITDA declined by approximately $40 million or 32%, largely due to margin erosion in polymeric and component MDI products. Our Performance Products divisions adjusted EBITDA increased by approximately $13 million or 29% largely due to higher volumes and margins and performance amines. Our Advanced Materials division adjusted EBITDA declined by approximately $5 million or 9% largely due to lower volumes, partially offset by lower fixed costs. And our Textile Effects divisions adjusted EBITDA was down modestly by $2 million with flat overall volumes. Turning to Slide 9. Huntsman enjoyed a very strong balance sheet with robust liquidity. On January 3, 2020, we completed the sale of our Chemicals Intermediate and Surfactants business for approximately $1.9 billion. And on February 20, 2020, Huntsman completed the acquisition of a polyurethane spray foam producer Icynene-Lapolla for approximately $350 million. As of at March 31, 2019, Huntsman has a total liquidity balance of approximately $2.9 billion and a net debt leverage ratio of approximately three quarters of a turn. On March 16, 2020, Huntsman has signed an agreement to acquire the composites, adhesives and coatings business, CVC Thermoset Specialties for $300 million subject to customary closing price adjustments. Pro forma for this pending acquisition and the payment of approximately $375 million in cash taxes relating to the gain on the sale from our Chemicals Intermediate and Surfactants business all projected to be paid within 2020. Our March 31, 2020 pro forma liquidity position is approximately $2.2 billion with a pro forma net debt leverage ratio of approximately 1.5 turns. As of March 31, 2020, our last 12 months free cash flow conversion was a strong 48% or approximately 42% pro forma for the LTM one-time benefit of approximately $50 million from collecting overdue foreign value-added taxes, as discussed in our prior earnings call. Free cash flow for the first quarter of 2020 was better than we had projected from when we reported our fourth quarter 2020 results a few months ago. Largely because of proactive measures taken to reduce inventory levels in response to slowing global conditions, we did not experience as big of inventory build as was anticipated in the first quarter. Additionally, our change in net working capital benefited from improved accounts payable metrics. As we look into the second quarter of 2020, we anticipate a meaningful release of working capital, largely as a result of softer economic conditions and further actions taken to manage inventory. During the second quarter, we anticipate an inventory release of between $100 million to $150 million. The net working capital change for the remainder of 2020 will largely depend upon to what degree the overall economy rebounds. During the first quarter, we spent $61 million on capital expenditures. In response to the rapid change in global economic conditions, we have reduced our current year estimated capital spend by approximately 30% or $90 million and now expect to spend between $225 million to $235 million in 2020. This includes a six-month delay in constructing our MDI splitter at Geismar, Louisiana, which is now expected to be completed by mid-2022. The total spend is still expected to be around $175 million of which approximately $15 million was spent last year, approximately $40 million which will be spent this year and the remainder which will be spent in 2021 and 2022. During the quarter, we spent approximately $96 million to purchase approximately 5.4 million shares of Huntsman. Since we began our share repurchases two years ago in early 2018, we have repurchased approximately 26 million shares for approximately $580 million well above 10% of our total shares outstanding from when we started. Given the onset of the global economic crisis, we have suspended further share repurchases for the time being. Our adjusted effective tax rate for the first quarter was approximately 18%. This is lower than our stated expected range of approximately 22% to 24% due to the global distribution of income in the first quarter. We still expect that our annual adjusted effective tax rate going forward will be between approximately 22% and 24%. In summary, our balance sheet and liquidity have never been stronger. Our efforts over the proceeding years to consistently deliver strong free cash flow, build a strong liquidity position and a durable balance sheet have prepared Huntsman well for the current global conditions. We are focused on controlling discretionary spend and responsibly managing our net working capital in alignment with developing macroeconomic conditions. Lastly, and importantly, we are committed to our balanced approach to capital allocation, creating and returning value to shareholders. Peter, back to you.

Thanks Sean. So I think back over the past 20 years that I've been involved with a great team in managing this company, I reflect upon the economic fallouts of September 11, 2001, the oil and gas spikes and manipulation that's in our industry hemorrhaging cash. 2008 and 2009 wintered, one of the most profound economic shocks in the past 80 years. As I look at the economic chaos taking place around us, I can't help, but thinking of Shakespeare's great quote, This Too Shall Pass. So what have we done in light of past experiences? By the end of March, we emptied our inventories across the Board, take advantage of falling raw material prices. We more carefully tracked our cancellations of orders and the capacities of our manufacturing facilities. We cut our CapEx by 90% or evaluating every project to renegotiate better prices and better terms. We are carefully tracking the credit of each sale to make sure that customers remain current and low risk. We've implemented a hiring freeze and suspended merit increases for 2020. Our Polyurethanes business, we have accelerated our integration and expansion of our recent spray foam acquisition to create the world's largest and most advanced polyurethane spray foam insulation business. We're also reviewing our structure and cost to allow us to obtain further economic efficiencies and better downstream growth. Our Advanced Materials, we will continue to bring to market its product pipeline of new and innovative products. We will accelerate our focus to close on our recently announced CVC Thermoset business and simultaneously expand our products globally while integrating and cutting costs. Our Performance Products business will become better integrated into our other divisions as we further consolidate our shared service platforms and target an additional $15 million in cost savings. Between ongoing projects and Polyurethanes, Advanced Materials and other corporate shared services, we plan to create over $50 million of savings by the end of 2021. In short, these are but a few of the projects and changes that we've started over the past two months. Perhaps the biggest change in our company in past years is our balance sheet. We've taken decisive steps to focus on cash generation and portfolio management to set us where we are today. Let me be clear, after the safety and wellbeing of our associates, our number one priority is to maintain the strength of our balance sheet. To this end, as I mentioned earlier, we are cutting our CapEx by $90 million, suspending our stock buyback and reducing our operating costs. We will no doubt have the chance to create further shareholder value as opportunities arise that this will be done within the confines of preserving an investment grade profile and assuring our future. I can only guess where these markets will go in the coming weeks or even months, but I'm certain that Huntsman will emerge as stronger company than when we started 2020. I am confident that our products and technology will be on the forefront of lightweighting, energy consumption, coatings, adhesives, transportation, textiles, constructions, and thousands of other applications that will build our economy and improve our future. With that, operator, we'll open the line up for any questions.

Thank you. The floor is now open for questions. [Operator Instructions] Our first question is coming from Bob Koort of Goldman Sachs. Please go ahead.

Thanks guys. This is Anthony Walker on for Bob. I was just hoping to understand embedded within the Polyurethane expectation of breakeven EBITDA, are you idling or containing utilization levels at certain facilities and as such, taking on some unabsorbed fixed costs? I’m trying to think through the moving parts of volume and price, which would get you down at those levels and just was hoping to better understand the moving parts?

No, I think that as we look at our Polyurethanes business, we will not be idling any of our MDI manufacturing facilities. We'll obviously be matching the rate of production to demand that we see further downstream. At the present time, we see the demand at our Asian facility at around 70-ish plus percent, the Americas probably somewhere between 55% and 60%, and Europe around 60%, and we expect in May and June that those will continue. I would just say, again, as we look at the visibility right now in the order books, and we talk about a breakeven scenario in Q2, I would hope that we're trying to be as realistic as possible when we look at the economic slowdowns that we've seen over the last 30 days. And with a visibility before us of a matter of weeks of orders and so forth, I would just put some caution. This is the first time we've really had a conference call that I remember over the last – well since we've been public, where we haven't given more granular focus internally on the coming quarter and the coming year. And that's just because of the lack of visibility. I mean, these markets can change if something were to come out with a vaccination or something forward with a cure, I think you'd see a materially better more optimistic future. If you were to see a second wave that we're to culminate here by the end of May, you might see a more calamitous second quarter. So I think that the numbers we talk about are breakeven, I think we're trying to get what we realistically see right now and we're matching that production of our MDI capacities with what we see in the market right now.

Thanks. And then you previously highlighted anticipated free cash flow conversion for the year. With the Geismar delay and your efforts around the working capital, any color you could provide in terms of how free cash flow conversion could play out on the pro forma basis with all the changes you're making?

Yes. Anthony, I think as we look forward to free cash flow, obviously some of those elements are fixed. We know how much we're going to pay out in terms of interest and taxes and pensions. I gave some color around the second quarter of inventory. We see a meaningful release of $100 million to $150 million there, but the lion’s share, as you know, will land on where we end up with earnings towards the end of the year. And that's something at this stage we're just not venturing out because we just don't have that clarity to give you that. So we're going to control what we can control. CapEx, we've reduced a significantly by $90 million. I'll give you some more color on some of the components. I think you noticed, cash paid for interest for the year will probably be around $90 million. Taxes will probably be around $85 million to $90 million. Cash paid for restructuring probably around $20 million to $30 million. Pensions probably around $90 million. And so as you put all those together, I mean we're going to be aiming to do the best we can here to keep that conversion going. But this year is an anomaly. And as we get back into normalcy, we still target that 35% free cash flow conversion target that we have and are confident that we're going to be able to deliver that when things are normal.

Thanks guys.

Thank you. Our next question is coming from Aleksey Yefremov of KeyBanc. Please go ahead.

Good morning, everyone. Thank you. Just trying to add up all the segments by the outlook that you just provided and sort of by high math, I arrived it around $30 million EBITDA in second quarter. Is this kind of the ballpark you had in mind?

I think that might be a little bit pessimistic, but you've probably have people around this table that would probably think that’s closer to a ballpark. Again, it's incredibly frustrating to me when we have such limited visibility as to where we're going to be in the quarter. But I wouldn't be too far off that number, but I would hope that it would be on the upside from that.

Thank you, Peter. And just clarification. On Slide 4, you showed downstream Polyurethanes EBITDA of $200 million. So that represents about 36% of your 2019 segment EBITDA. So how should we think about that in relation to the 70/30 differentiated component mix that you also show on that slide?

That $200 million should be looked at as the acquisitions that have been made and added to the business over the course of the last couple of years. So I would see those as being incremental to what we otherwise would have been making, had we been selling that MDI into an open and general market. Now obviously there's probably – you get a number that's that broad. There's probably some subjectivity. It's what that product could have been placed in the market and what that value was. But I think it's as accurate numbers as we can come up with, when you start adding all those components together. I'd like to think that’s – that is an earnings that we have achieved that we otherwise would not have had we not done those acquisitions.

Okay. Thank you, Peter.

Thank you. Our next question is coming from Kevin McCarthy of Vertical Research Partners. Please go ahead.

Yes, good morning. Either a two part question for you on MDI. I think you referenced that autos were down 75% to 90% in April. I was wondering if you could comment on what you're seeing in the other end use markets in April for MDI. And then secondly, benzene is obviously down a lot on the back of crude oil, if we look at this from a unit margin perspective, how do you see that progressing through the second quarter recognizing your inventory flow through effects and so forth?

Yes, I would say that we'll start seeing some of the benefit of lower benzene by the end of the second quarter, but most of that is going to be a second half. Even if our – by the end of March, we had a record low inventory of benzene, but just as a reminder, we buy that benzene globally, it shipped globally. It's stored. We make nitrile benzene. We then make aniline. In some cases such as our European site, we make that aniline in the UK. We ship it across the channel into Rotterdam. And so there's inventory in some of those areas. So when we look at that benefit of benzene, even if we had benzene literally running on fumes, which I think we are close to that by the end of March, it'll take two months or so – two plus months to work out through the system. So I think most of that benefit will be a second half sort of a bottom line impact. Now as we look at our businesses across the line, you asked about the segmentation of our Polyurethanes. And again, I would say that these are fairly accurate, but I mean, it's really what we're seeing right now, and these are obviously subject. I think to probably improvements, but as we look at automobile, order patterns in April, we're seeing kind of down 60% in urethanes across the Board. That's close to 90% something in the Americas and down maybe 20% something, 20%-ish in Asia. But globally, something like 60%. In May, that's around down, we would say over the previous year, about 50%. In June, we're forecasting, looking to orders and so forth down around 35% from a year. And I think as you look across CWP, the composite wood and the other construction markets, we'd see – April down 35% year-over-year. And by the time you get out to June, looking at orders and the best visibility we have in talking to customers, so that being down somewhere around 20%. So again, you're looking at an April succession of improvement taking place throughout May and June. And I would see a similar improvement to that in most of the businesses from elastomers, certainly going from 60% to 45% down year ago as you look out over April to June. And again, those are going to vary region by region. So when the automobile companies start manufacturing here in the next week or two, are they going to start up at 20%, 25%, I think it start up at 50%. The OEMs we think have very low inventory. We think that there's just a very little amount of product in that overall pipeline. I think that can be said for CWP as we look at our customer. So as we see this improvement in orders throughout April, May, and June, I've been in this industry long enough that you've just got to be an eternal optimist by this point. But I think as we speak to our customers, I think there's very little inventory in the supply chain. I think that you're going to see an impact of the improvement on a month-to-month basis. But again, when I talk about the visibility that we have, again, exactly, how many units of automobiles will be Ford or GM or BMW be running at the end of May. That hasn't been told to us. The OEMs don't seem to know at this point. And I think that's – a lot of that's going to be tied to what's happening at the dealer end and consumer sentiment and a number of other issues over the next 30 to 60 days here. So sorry, Kevin, that was a long rambling answer, but I think when you look at that sort of segmentation, that sort of improvement on a month-by-month basis, I can almost go to on a business-by-business, division-by-division basis. You're going to see fairly similar sort of recovery and improvements from April, May and June.

Perfect. I appreciate the color. And then as a second question, can you remind us how much of Advanced Materials is exposed to aerospace, and I guess what the margin and volume outlook is for that market or maybe currently or rearview mirror, how the profitability there would compare to the non-aerospace piece of Advanced Materials?

Yes. Well, as we look at the aerospace, it makes up about 35% to 40% of our EBITDA, it makes up about 15% to 20% of our overall volume. So on a pro rata basis, the profitability is proportionately higher on the aerospace segment. As I said in my comments, about 30% of that volume is made up of military, MRO business, other, so in about 70% of that, 35% to 40% of the EBITDA of Advanced Materials comes from the commercial OEMs of Boeing and Airbus and Embraer and other plane manufacturers around the world. So as we look at that commercial OEM, it's obviously has been devastated, but as we look out just in the last 48 hours in the revision of some of the building schedules coming back into line, personally, I don't think it's going to be quite as downward as the manufacturers say they're going to be. But I based out more on just the sentiment what's been said by Boeing and Airbus and so forth over the last 48 hours. But I think, again, we think that there's little inventory in that supply chain. And as you start seeing those aircraft lines coming back into manufacturing mode, I mean every aircraft manufacturing and assembly line has been down in the month of April. And then gradually we'll be coming back up in May and June. Those OEMs will be starting to restock and pulling product through.

Thanks very much and be well.

Thank you, Kevin.

Thank you. Our next question is coming from Matthew DeYoe of Bank of America. Please go ahead.

Good morning. I wonder if you could just talk a little bit more about how we dig out of the 2Q hole, and kind of what rate of change we should be expecting to EBITDA as orders come back. I think the decremental margins in general were a little surprising to 1Q. Obviously it makes more sense as far as the 2Q guidance is concerned. But if you were to look out to 3Q, 4Q, I know it's kind of hard to do, but assuming a modest recovery, what should we be expecting for earnings and for margins, particularly for Polyurethanes and what should be a more differentiated business?

Well, Matthew, I'm not trying to be at all evasive on an answer on this. There are just so many variabilities right now. As I look in Q3 and Q4, I think, if I look at where we're going, I think that you're going to see us by the end of the year. I think that you're going to see a material improvement. As I will go back and look at 2008 and 2009, we finished the year stronger not as a company, but as an economy. And I'm talking macro economy here. We finished stronger than we had anticipated we would. And I mean the negatives of any action and reaction are always right in front of us. And they're easy to grasp and are easy to worry about. The positive side and what can be the improvement and what are the new markets we'll be developing and so forth. I doubt that 30 days ago or, well, let me say 60 or 90 days ago that people would see the San Francisco Bay market as a end use consumer of a grocery bag – plastic disposable grocery bags where there was a law against using those. Now there's a law against using multi-use grocery bags. So I mean as you look around the markets, there's just such little visibility at this point. I hate to speculate. But a lot of this, I think bankers are going to have their own economic forecast, their own modeling and so forth. And as we look internally, as we come up with a more solid number and as a more solid projection, we intend to communicate that. But as I said in my prepared remarks, as we look at our trough economics from the last go round – of being around $150 million, we see that as being substantially better this go around and seeing an improvement around $150 million to $200 million as you look at – I mean, as we look at similar sort of market conditions and if you see a similar sort of recovery here. Again, that was a financial crisis. This is a health crisis that's rapidly turned into a financial crisis. So I think there are some similarities, but there are also some real dissimilarities as well.

Okay. And I just want to clarify. You answered to Aleksey’s comments, I mean, I would imagine there's going to be some debate around what actually mean the definition of a downstream or differentiated business. But the $200 million is not your cumulative downstream in differentiated EBITDA. Correct, because it's 70% of the volume mix, I would assume that on an EBITDA margin. The chart above shows the margin premium that the number would be considerably higher than $200 million. Correct?

Yes. Let me take that. That $200 million strictly only represents the downstream acquired entities, and you can see by the footnote, we've got a pro forma addition to it for the recent acquisition of Icynene-Lapolla. Those are just downstream acquired entities, does not include the systems houses and other things that we've developed that also produce and manufacture differentiated products.

Fair enough. Thank you.

Thank you. Our next question is coming from Frank Mitsch of Fermium Research. Please go ahead.

Good morning, and happy birthday, Sean.

Thank you, Frank.

Well, so obviously, that pegs the first question, Peter, what did you get him? Did you get him hand sanitizer or a high-end sneakers? What sort of present did you buy Sean?

No, I put three shots of gin in his Red Bull this morning. He didn't even know until now. So that's why he's still happy.

Toilet paper, Frank, toilet paper.

Yes.

A key necessity for sure. Hey, listen, I just obviously want to come back to the breakeven on Polyurethanes for the second quarter. Where was April? Was April negative in terms of EBITDA? Do you have a sense as to how the first months fair there?

Yes. April was very close to that sort of scenario, and so I don't want to get too granular in a month-by-month basis, but yes, it was progressively worse throughout the month.

Okay, fair.

Again, as I just give color on that, we expect to see that kind of a – I would look at second quarter as being very similar to the first quarter, but it inverted sort of a way, first quarter fell off very suddenly at the end of the quarter. The second quarter for us will end – will start very poorly. And I think we'll start digging out of that hole and how fast it digs out and so forth. Again, I don't want to be the pessimist here as much as I don't want to – I don't want to tell the market something that I can't deliver. So as I look right now, as our teams look about what's going on and so forth. That's really where we're coming up with the forecast that we shared with you.

Well, Peter, that's kind of understood. I mean, if I look back on 1Q as late as March, as late as late March, you guys were saying $145 million to $155 million in terms of EBITDA and you came in at $165 million. And yes, I mean, I would think that with auto plant starting up on May 18, yes, we should start to see some recovery there and what have you. Just the start of it is obviously a little bit eyeopening. And if I could just follow-up on the delay in the MDI splitter, you're not operating in a vacuum here. Other companies obviously are pulling back CapEx. What are you seeing more broadly in terms of – or what are you expecting more broadly in terms of MDI capacity additions by others in the industry and where operating rates are, et cetera.

I think that the operating rates as an industry, I can only imagine. I think they're fairly close to our operating rates, that I mentioned earlier. And the operating rates that I gave you earlier, I kind of want to be clear on that, those are kind of April-ish sort of numbers. Those aren't Q1 sort of numbers. And I would assume that the rest of the industry is operating around the same rate as us. But again, I don't have any intelligence that would tell me anything different than that. And what other companies are doing with operating rates and additions expansions and so forth. I only get what I only read and know what I read in the public press. But needless to say, if people are doing the same thing that we're doing, not necessarily canceling projects, but pushing them back six, 12, 18 months and so forth, it's probably a prudent thing to do in these sort of markets.

Yes, it seems reasonable. All right. Thanks so much.

Thanks.

Thank you. Our next question is coming from P.J. Juvekar of Citigroup. Please go ahead.

Yes. Good morning, Peter and Sean. Happy birthday, Sean.

Thank you, P.J.

A lot of people are expecting China to show V-shaped recovery. I know you guys have pretty good intelligence on China. And based on your comments, it seems likely that – it seems that they have started up the plants, but the demand isn't there. So what are you seeing in China at your plant and at your customers and all that?

Well, I look at the business is kind of in two phases for us. And depending on the products and so forth, I mean mostly focused on Polyurethanes because that's the lion's share of our business in China. Think of something like 80-20, 75-25 sort of split of domestic versus export. Now that's not an exact number because a lot of domestic people will take part of their product and export it and part of it's used internally there. But as we look at the Chinese domestic markets, I think we said on our last call that we are seeing those markets recover. And we were uncertain as to how much of that was inventory restocking and how much of it was real economic recovery. I think as we look now in those markets, we think that it's mostly economic recovery. It's more than just restocking. And so as I look at that 75% to 80% of our business and consumption in China, it's tracking orders and consumption fairly close within a couple percentage points of where we were a year ago. As I look at the 20%, 25% of our business that is going downstream into export-oriented, thing is something like footwear. If you're producing running shoes, you're going to have – part of that is going to stay in the Chinese domestic market, a growing segment, great segment for us. As you start looking at the export markets, though that's going to be down 75%, 80%. So 20%, 25% of your business is just hit the wall. And that's that that is exportable in your export segment. Your Chinese domestic business, which is one we've tried to focus on the last couple of years and really building a Chinese domestic where we're producing in China, we're selling in China. We’re marketing, product development, billing, customer service, everything takes place in China management all locals. And as you look at that, the vast majority of that Chinese business, I think that domestic business is actually doing quite well. So what I would say is over the last quarter, what's changed is, I think we've changed at least of saying that the Chinese business has gone from – restocking has gone from real economic, seems to be real economic vitality. We've seen about 4% growth in the Chinese business of our urethanes versus a year ago. And greater Asia, we're seeing down 10% to 15% depending on the country and the margin, markets and so forth. And so Asia all in all is about up 1%. As we look at the present demand as far as where we are right now, again, with China being the lion's share of that. And this is probably too anecdotal to say, but I'll say it anyway. As we kind of look around the three major markets around the world, China, Europe and the U.S., think of Europe being four to six weeks behind China. And think of the U.S. is being kind of four to six weeks behind Europe. You kind of think of when the lockdowns started, when the auto plants, aerospace, everything stopped. And so as we look at China, we're quite bullish about what we see. As we look at Europe, I think that we definitely are coming from the bottom or what we would consider to be the trough of this particular cycle, and we see a gradual rebuilding. As we look at the Americas, I think that we are at that trough, and I think in the coming weeks, not months, but weeks, you'll start to see that pickup of automotive, aerospace and so forth as those products gradually come back into the market. Again, as I said earlier, when we look at automotive as they come back to the market at 25% build rate, 50%, 75%, that's yet to be seen. And that will be, I think the flywheel that will indicate by the end of the quarter just how strong and how solid of recovery do we have in North America.

Great. Thank you for that detailed color. Thanks.

Thank you.

Thank you. Our next question is coming from Matthew Blair of Tudor, Pickering, Holt. Please go ahead.

Hey, good morning. Glad to hear everyone is safe and sound. It sounds like higher cost benzene is hurting you in Q2 even though you've reduced your inventories to low levels. Is there an opportunity to maybe store up on benzene, while it's cheap now and enjoy some wider margins down the road?

I think we've looked at that, again, I want to be absolutely clear. We are buying as of the beginning of April. I think we’re buying very low cost benzene. But again, you buy that in April, and by the time you move it through your inventory, it's going to be the end of June, middle of June. By the time you start to see the economic benefit of that. Now where benzene goes from here? When I saw crude oil this past month at $10 a barrel for the first time in 20 years, I learned a lesson 20 years ago, never do invest in commodities. I thought how much lower can crude oil go than $10 a barrel? And I thought about going long on crude oil, and the next day, I think it went down negative $50 a barrel. I think that we might look at some of those – some pre-purchasing on benzene, but in today's world, we're refining demand, crude consumption, driving patterns, the byproduct of aromatic production on the refining and on the chemical level, the number of people that are shifting from a light slate to a heavy slate in an ethylene cracker, the benzene, toluene, xylene production, economics improving to the side of the heavy consumer versus the light. I mean, if I just add all that up, it tells me that we're probably going to be well satisfied on the benzene side for probably the better part of this year, if not very well satisfied. So I'm not sure that that's a place that we necessarily want to tie up a lot of capital. But again, it's something that we look at on a fairly regular basis. And I would just remind you too that as we look at our North American Polyurethanes pricing to our customers of our commodity side of the business, we have about 30% of that that's locked in on raw material pull through that moves with benzene, with natural gas. So some of that we – I'm not sure that hedging some of that – now we're not getting into running the business, we're really getting into financial instruments that I know absolutely nothing about.

I'll leave it there. Thanks to the color.

Thank you. Our next question is coming from Laurence Alexander of Jefferies. Please go ahead.

I guess most of the things I wanted to ask have been covered, so just very quickly the – in the slide deck and in your comments, you've highlighted various businesses where the margins are expected to be fairly stable. If you roll all of those up, roughly how much of your business is in the stable margin, but driven by volatile volumes as opposed to having sort of the spread swinging round.

Sean, what would you say looking at that?

Well, Laurence, good question. Look, I think that 95 – you go to the portfolio. You've got 95% of Advanced Materials, which is pretty much a stable margin business. We talk about our urethanes business. You're looking at 65% to 70%. That's stable. You go to textiles, margins are pretty stable there. It's a volume drill there. And then you get into Performance Products, and I would say you got a high percentage of stability there. Average that all together, I'm just throwing a wild number out there, but I'm going to say you're looking at probably somewhere around 75% of the portfolio, 80% of the portfolio. That's pretty stable margin. But volume is the issue we face in today's market, is just volume.

Yes. In preparation to this call, I wanted to give color, if we're seeing an erosion of margins. And I'm really quite pleased with the resiliency. Something I didn't see in the last recession. I think our portfolio was far more tilted to commodity than even we suspected at the time. And we got crushed with volume and with margins. For us, this is 90% of the battle here, 80%, 90% of the battle here is a volume drill. And as you start to see aerospace and automotive and CWP and so we’re coming back into the market, we're not going to be out there having to necessarily push through a lot of pricing and so forth.

And then has the current environment changed kind of what the pipeline looks like in terms of smaller bolt-on urethane acquisitions?

I think that – right now, I think that there still is a separation, I mean, we've looked at a number of transactions and continue to look at transactions. I think that there's still a gulf between what people think assets are worth from the selling side and from the buying side. That's I think to be expected on something like this. So the buyers always want to look forward as to what I'm buying, what I'm getting into. And the seller always going to say, yes, look where I've been, look what I've accomplished, look what I've done. And I think that over the course of the next quarter, you'll probably see those two start to come together a little bit. Again, having said that, right now, until we get a little more visibility as to the profile of the pandemic that we're in and we start to see things like the macro economy and where job, autos, construction, some of these big numbers are going to be. I think capital preservation is going to continue to be our number one priority.

Thank you.

Thank you. Our next question is coming from Mike Sison of Wells Fargo. Please go ahead.

Hi. Good morning, guys. Happy birthday, Sean. Just one quick question. Peter, when you think about Polyurethanes, longer term, if demand comes back, hopefully over time, what do you think profitability or absolute EBITDA margins should get to at – when volume does come back?

Well, I think that as volume comes back, again, what we want in our urethanes business, the nirvana for us, is consistency and reliability, reliability of operations and making sure that we can have a financial result there that is consistent. So if I look at our downstream end use MDI today, and I look at our margin last year at 27%, our margin this year, Q1 2020 at 29% and Q4 2019 was at 29%. So I mean, we've got – I think those downstream margins that consistent. I think first and foremost, we need to make sure that we keep that. And the volume will come back. The volume is going to do what the volume is going to do. We're not losing customers. We're not losing applications. We continue to make headway and we continue to get into new applications and so forth. But if you consistently get a downstream business that has a high 20% EBITDA margin and you continue to build that business, that's going to be our priority and that's going to –I think quarter-by-quarter, I hope that we can continue to see that.

Thank you.

Thank you. Our next question is coming from Hassan Ahmed of Alembic Global. Please go ahead.

Good morning, Peter, and happy birthday to you Sean.

Thanks, Hassan.

Just a quick one in the interest of time. You guys put out a really good sort of slide kind of showing us where we are today in terms of the portfolio relative to sort of past downturns and the like. I think one of the things, I guess it was there in the early part of the last decade, but now it seems to be a bit more acute. Is this a sort of extreme volatility in both sort of crude oil and crude oil derivative prices as well as nat gas and nat gas derivative prices. How are you guys feeling about the portfolio positioning relative to yesteryears in dealing with this sort of energy price volatility particularly on the Polyurethane side and particularly as you guys have gone further downstream on the Polyurethane side of things?

Well, Hassan, that's an excellent question. I think that as we look at the overall portfolio and we look at our consumption, I mean here we were just couple months ago, where we were tracking ethane pricing, a lot more the commodity chemicals and ethylene pricing and purchasers of propylene and so forth. Today our single largest raw material is benzene, which we buy about 200 million gallons a year. And then you drop way down, and I think it's probably butane or maybe utility costs or something. Our raw material, especially if you start looking into Advanced Materials and into some of our other divisions, that volatility of raw materials, yes, it's there, and it's something we track very carefully. But volumetrically, we're just not saying – we're just not being whipsawed like we would have been a couple of quarters ago. And as we look at benzene market, and our position in benzene in MDI, all of our competitors essentially by benzene. I don't know if any of our competitors – I suppose Yantai has a coal to benzene and they're producing benzene internally. I don't know how much and what the economics of that would be, but it's not like all of our competitors are producing their own benzene, and we're the only ones that are not. Everybody kind of starts at the same benzene price. Everyone kind of has – I won't say they all have the same technology, but 70%, 80% of the MDI industry, I would imagine has a cost that is within 5% between the leader and the lagger for the top 75%, 80% of the producers. And so, again, I don't want to brush off and say raw materials aren't important, but I'm not sure that it's going to impede us any more than with somebody else. And so the real question then is how are you managing the physical volumes of working capital and the impact that that has rather than the pricing side of that.

Very helpful Peter. Thank you so much.

Thank you.

Thank you. Our next question is coming from Jim Sheehan of SunTrust. Please go ahead.

Thanks. Good morning. Could you talk about the spray foam business and how demand for energy efficiency is likely to hold up with a lower oil price environment? And also regarding your proportion of the portfolio that consists of differentiated Polyurethanes, it's still around 70%. When do you expect it to move higher? Is it after you integrate Icynene that that numbers moves up?

Well, I mean, as we look at our spray foam business, you kind of look at on that 2019 sort of economic performance around $80 million, and as we kind of look at the synergies and so forth going forward. I think that we're on track. A couple of things. I want to just lay the groundwork here. As we look at that, I think that we're well on track, perhaps even a little ahead of track of seeing that business get to a $100 million sort of in EBITDA. Now as we look at the near-term on the spray foam, no doubt that we've seen about a 40%, 45% drop in our orders on the near-term. But longer term, people don't – half of this business is new residential construction and a growing segment of this business more and more are states that are mandating insulation and energy conservation and building codes. Here's a unique situation where a chemical company is out lobbying for tougher building standards and tougher building codes, which is what exactly what we're doing. So as we look longer term, I think that you're going to continue to see a focus around energy conservation. As you look at utility costs by and large and the taxation that are on those utility costs and so forth, there's just not a lot of – especially in North America and Europe, where a lot of people are heating or cooling a building based on a raw material that's dependent on crude oil. Most of it's all natural gas. That natural gas price hasn't really moved a great deal in the last decade. I think you're still going to see that push for energy conservation. I think you're going to continue to see longer term growth in that industry. And I think that as you say, longer term what we're doing and being able to consume a 1 billion PET bottles, and that will be increasing this year as the second plant comes on in Taiwan, upwards of the equivalency of 1.5 billion PET bottles to make an insulation that's conserving CO2. It’s a great story to be told. And it's one that we want to market very aggressively as we go through 2020 because we see a lot of growth that will be taking place there.

Thanks a lot, Peter.

Your next question is coming from Mike Harrison of Seaport Global Securities. Please go ahead.

Hi. Good morning. Within the Performance Products business, can you give a little bit more color on what was driving the strength in the performance amines business? And maybe any view on when we could see some improvement in the competitive environment in ethyleneamines?

I think a lot of that is going to be the improvement that we've seen in wind and gas treating. In the first and at the beginning, we saw that throughout the first quarter. I would say that we'll probably continue to see a fairly strong demand for wind. I say that relatively speaking, but for wind is going to be fairly decent, particularly in China. Gas treating, that's another story. I think it was a falloff in crude prices. We're going to see a real falloff in demand in Q2 on the gas treating side of that business and Performance Products is going to be seeing some of those same headwinds because of that. But I think that by and large it's a competitive platform that we have. We have global reach, global marketing and it's going to continue to be, I think a very strong end of the business. And I think that first quarter is a great demonstration as to how strong that division is.

Thanks very much.

Thank you. Our next question is coming from John Roberts of UBS. Please go ahead.

Thank you, and happy birthday as well Sean.

Thanks.

I think the textile chemical business has been characterized as non-core in the past. And often in a downturn, this consolidation, do you think we might end up with merging your business as a path to exit eventually out of the textile area?

John, it's a good question. And if we were in the midst of such discussions of a merger, I would say no comment. The fact that I'm not saying no comment, probably tells you that nothing's taking place. But again, I think that there is room for consolidation in the industry. If that comes about, we'll see. But I think that business is poised. I think that as we look out over the next 12 months here, we're going to see a real opportunity in the PPE area, where I think that we will excel amongst our competitors and the product, the pipeline that we have and the opportunities we have to grow that end of the business. I think that we're also going to see some real growth in the synthetic fibers end of that business. As you see a lower crude and lower raw material on that side and now put pressure on cotton and it will put – I think it will probably give rise to opportunities and product innovations over going into the synthetic fiber end of the business. So look, any divisions that generates cash, generates positive EBITDA for me is a core business. And Textile Effects, when you look at that business today in comparison to where they were in the last recession. It's going very well. I continue to say that it's a core business of ours. And at the last recession that business was losing as much EBITDA as it is making now. That's a phenomenal turnaround and tremendous credit to that – to the wonderful team that we have there. So right now, it's a great business. It's got a great amount of upside. And I would just say, in the first quarter, I think when I think back on our quarterly call a quarter ago, we were talking about a recovery in that business. I think we were seeing for the first time in a year or so, quarter-on-quarter, year-on-year sort of growth in that business. I mean, it literally was coming out of the ashes of a textile industry that had been – that had been pretty badly beaten up in 2019. So anyway, I think that business will continue to improve.

Thank you.

Operator, I know that we've got some competition right now with some of the other chemical companies that are also reporting, and I really appreciate those people that have stayed on. Why don't we take one more question here? We usually try to end at the top of the hour, and I want to make sure that we try to address as many questions as possible.

Certainly. Our last question today will be coming from Arun Viswanathan of RBC Capital Markets. Please go ahead.

Great. Thanks. Good morning. Thanks for sticking around, and thanks for everything you're doing on COVID. So yes, I guess I just wanted to ask real quickly on the differentiated side. You guys had made a push to grow downstream in the last couple years. I guess when you look at the margins going forward, are you getting any indication from your customers that there's any substitution away from maybe more value-added materials, would you expect that, I guess, in the future? And if so, would that be – how would that impact your business? Thanks.

No. I think Arun, great question. I think to the contrary, we're seeing just the opposite. If I look at the industry in – a tilt in the industry, yes, we're no doubt facing headwinds in the aerospace, in the lightweighting of aerospace. But longer term, planes are going to be lighter, they're going to be flying longer, and they're going to be more efficient. Automobiles, and the lightweighting that's taking place in automobiles and so forth. What's taking place with adhesives and coatings and insulation, building materials to the contrary, I think that we have an excellent opportunity. About half of our growth takes place in our downstream businesses from GDP growth, and about half of it takes place of us going out and replacing someone else's product and someone else's technology and product that goes into those downstream applications. And if anything I would hope that that would accelerate. And as we look at this opportunity downstream, I'm not hearing anything from our customers. I think that from a corporate point of view, look, we're in an excellent position to continue to feed that downstream growth. We have a strong balance sheet, got cash on that balance sheet. And while we're slowing some of our CapEx projects, we are not going to starve this business. We are going to continue to feed that. We have the balance sheet. We have the cash to be able to do so. And perhaps at a time when others are going to be pulling in their horns, we're going to be out aggressively pushing into those new markets and those new applications. So if anything in the coming month or so, I hope that we're growing our business, our downstream business in particular, disproportionate to overall GDP growth and accelerating beyond that. No reason why we shouldn't. We certainly have all the balance sheet, the product, people, technology to be able to do that.

Great. Thanks.

Thank you.

Operator, thank you very much and thank all of you for taking the time to join us. And if you have any questions or would wish to send any salutations to Sean Douglas, please feel free to do that throughout the day. So thank you very much.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time. And have a wonderful day.