Westport Fuel Systems Inc

TSX:WPRT

Earnings Call Transcript 2022-Q3

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Westport Fuel Systems Third Quarter 2022 Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Ashley Nuell, Senior Director of Investor Relations. Please go ahead.

[Ashley Nuell;Senior Director of IR, executive]

Good morning, everyone. Welcome to Westport Fuel Systems Third Quarter 2021 Conference Call, which is being held to coincide with the press release containing Westport Fuel Systems financial results that was distributed yesterday. On today's call, speaking on behalf of Westport is Chief Executive Officer, David Johnson; and Chief Financial Officer, Richard Orazietti. Not speaking today, but joining us on our call is Bill Larkin, our incoming CFO, who will assume the role following Richard's departure on November 30.

Attendance on this call is open to the public, but questions will be restricted to the investment community. You are reminded that certain statements made in this conference call and our responses to various questions may constitute forward-looking statements within the meaning of the U.S. and applicable Canadian securities laws, and as such, forward-looking statements are made based on our current expectations and involve certain risks and uncertainties. With that, I'll turn the call over to you, David.

[David Johnson, executive]

Thank you, Ashley, and good morning, everyone. I'm pleased to be with you today to discuss our third quarter. Once again, our team delivered solid results as we continue to execute our strategy and showcase our pioneering hydrogen HPDI technology to a wide audience amid the ongoing challenging macro environment. We continue to work through the industry felt headwinds and feel both prepared and poised to grow into the future. We believe that strong LPG price advantages, continued expansion in the new market, support of the global emissions reduction requirements and further OEM conversations about hydrogen HPDI will drive growth and profitability. We remain committed to our announced $1 billion of revenue and profitability goals, but also recognize that due to the headwinds we faced so far this decade and which we're continuing to face for at least the near-term future, the time to tie these goals will be later this decade.

The environmental, economic and regulatory requirements will not stop our weight and Westport is well positioned to respond. Today, I'll be walking you through an update from our hydrogen HPDI roadshow, where we've been promoting our technology at important industry and government events. I'll also dive into our recently announced Scania test results to clarify the import of what we've achieved. I'll discuss the rise of liquid biomethane, highlighting its growth, particularly in Europe and its increasing usage in heavy-duty transport and why Westport stands to benefit. Finally, I'll walk you through our independent aftermarket business where we see recovery through this year, which is being bolstered by the continued price advantage of LPG in many markets.

In Q3, we delivered revenues of USD 71 million, slightly lower than Q3 last year. As indicated in prior quarters, the Russian market has been historically important for West work through both our aftermarket and OEM channels. Now with the war in Ukraine, the sanctions on Russia and in combination with the weakened euro and high natural gas prices in Europe, we've been heavily impacted. If we're able to get the sets aside, our business would have grown by 15% in the third quarter. Absent changes in foreign exchange, our revenues grew by 10%. We also continue to experience the impact of rising inflation, supply chain constraints, higher utility costs and fuel price volatility that have weighed heavily on our industry. As many of you know, we are the only company with a technology used diesel cycle combustion with LNG and biomethane, and there are thousands of trucks on the road today using our technology.

Taking this a step further, our fuel system technology paves the path from natural gas and biomethane today to green hydrogen tomorrow. We were thrilled to continue to inform both industry participants and policymakers about our unique capabilities and the advantages of hydrogen HPDI with our Class 8 demonstrator vehicle at multiple industry events in Europe and North America. It isn't a surprise that as populations grow and economic development continues, will need to move more freight. Both the industry participants and the policymakers agree the numbers of trucks on the road will grow and the performance and cost effectiveness of lower carbon solutions will become increasingly critical. We truly believe that HPDI is the solution today and for the future.

Speaking more broadly about our business, fundamentally, the outlook remains strong. The demand trends for affordable mobility options that reduce emissions are encouraging, and we're seeing regulatory and policy support for options that utilize 0 carbon fuels like hydrogen and biomethane. We're capitalizing on this now with the advancements we've made with hydrogen HPDI and the further recognition of what HPDI technology can achieve today with natural gas and liquid biomethane, in addition to the work we're doing, developing fuel systems to respond to future regulations, including the pending EURO7 standard I wanted to quickly take the time to reiterate our 3-pronged go-forward strategy as a company and how we're positioning ourselves for the future.

We'll drive sustainable growth in our existing markets through a diversified portfolio of technologies, products and services. This will be seen across all our business units. Second, we aim to unlock new and emerging markets to the delivery of cleaner, affordable transportation solutions. Third, we'll continue as we've done in the past to drive operational excellence and maintain our reputation as a Tier 1 supplier with enhanced quality and reliability. Historically, when the word hydrogen has been used in relation to on-road transportation, only fuel cells come to mind. We're challenging this narrative. The future requires many options, including solutions best fit for certain applications based on factors like distance, payload, durability and affordability. Our technology is the solution for using 0 carbon hydrogen effectively in many applications with the required performance at an affordable price.

We're having these conversations now, including unveiling our hydrogen HPI fuel system equipped Class 8 demonstrator vehicle at IAA Transportation 2022 in Hanover, Germany, one of the largest commercial vehicle companies in the world. Further differentiating hydrogen HPDI from other technologies is the ability and opportunity to use existing manufacturing infrastructure, a key factor in the near-term adoption of sustainability solutions and a discussion point with all OEMs at the Hannover show. Minimizing investment, both public and private on the path toward decarbonization is a key component of our ability to achieve real change quickly. OEMs are taking notice. We've demonstrated that our technology achieved better performance in diesel engines with near 0 CO2 emissions, all while utilizing existing already paid for manufacturing infrastructure. The interest in our solution continues to grow, and IAA was a major stepping point in highlighting our technology to leading industry participants. The recognition and momentum around the product are growing. And so like many others, our excitement is growing.

In our discussions with global OEMs at IAA, it was clear they are beginning to understand that Westport's hydrogen HPDI fuel system solution addresses the portion of the market not addressed by electrification and does so in a more affordable way than a fuel cell. OEMs recognize that full electrification of all applications is not possible and utilizing internal combustion engines is a compelling option. The tide is turning and the conversations are shifting.

The cost realities and engineering limits for electric solutions for heavy-duty applications are syncing it with OEMs. We remain committed to the idea that there will be a full suite of options in the future that it's becoming strike and clear that electric doesn't meet the needs of heavy-duty long-haul transport, while hydrogen HPDI does. Following IAA, we spent time in Brussels in Washington, D.C., where we had policymakers and OEMs looking more seriously at internal combustion engines and alternative fuels and recognizing these will play a larger role in the solution for lower emissions future. In Brussels, we presented our hydrogen HPI fuel system to key policymakers highlighting its ability to substantially reduce CO2 emissions in alignment with EU decarbonization goals.

Becoming part of the conversation now is important as work is being done to shift sentiment given that internal combustion engine technologies were being recognized as part of the fusion for our future. It's our hope that the EU Commission and the member states prioritize the availability of green hydrogen from the transport sector in the coming years and support engine technology advances that will be key for the development of the whole hydrogen transportation sector.

Our message is clear, the lowest cost CO2 abatement is using internal combustion engines, fueled by HPDI technology, representing the most cost-effective pathway to deep decarbonization of long-haul road freight. In Washington, D.C., we participated in the Hydrogen Americas Summit, exploring the topic of hydrogen mobility applications. One of the focal points of the discussion is exploring opportunities for widespread mobility decarbonization through hydrogen combustion, an area in which hydrogen HPDI can take the lead for heavy-duty transport.

Every time we get in front of industry participants and policymakers, it's a win as we advance our story and highlight our lower cost solution for using advanced internal combustion engines with hydrogen to make a long-term contribution to use carbonization. -- engines equipped with our fuel system provides a superior combination of attributes as compared to fuel cell systems, diesel-fueled engines and sparkeneted IC engines, including greater efficiency, higher power density as well as lower total cost of operation, TCO. We think we have the solution for hydrogen utilization in heavy-duty transport and remain committed to spreading our message and educating potential OEM customers on the unique and significant potential our technology brings.

As our analysis has made clear and as industry observers have noted, IC engines fuel with hydrogen or biomethane can achieve equal or greater CO2 reductions as compared to fuel cells while preserving manufacturing and capital investments. Our hydrogen HPDI fuel system offers more power, more torque and more efficient use upping and therefore, the best opportunity for hydrogen IC engines and real-world usage. Biomethane and the growth we've seen this year in usage in heavy-duty transport is an area we're excited about as a 100% biomethane in HPDI achieved 100% well-to-wheel CO2 reductions. Let me say that again. HPDI with 100% biomethane achieves 100% well-to-wheel CO2 reductions. As the share of BioLNG increases and the size of the deployed fleet increases, the total CO2 reductions well to wheel rapidly. Continuing this momentum is key to mitigating the full effects of climate change and the speed of mitigation is paramount.

With the increasing substitution of renewable fuels like biomethane, our products can further decrease the greenhouse gas impact of transportation, and they do so much more affordably than battery electric vehicles, for example. HPDI with natural gas and renewable natural gas works and it works well. It's available now and can help lower operating costs while helping fleet to achieve their carbon reduction targets.

Take note of what's happening in Europe right now, support for renewables and biomass continues to increase in the wake of the EU energy crisis. In the third quarter, the European Parliament voted to increase the use of renewable energy from 40% to 45%, while bio-based joint undertaking is estimated to allocate $2.4 billion for private investment and biomass infrastructure by 2024. I -- while this talk about biomethane, you might ask, because biomethane is today's hydrogen. It's available. It reduces greenhouse gases. It's affordable. It's scaling right now and HPDI works today with biomethane and hydrogen tomorrow. Development and testing of our HBI fuel system solution is a key step to providing our customers with the pathway to significant emissions reductions. And we have projects under non now that I wanted to provide an update on.

We recently announced impressive test results from our joint demonstration program with Scania. As you know, we applied our hydrogen HBI fuel system to Scania's 13-liter CBE 1 platform. Scania's next-generation best-in-class engine intended for Euro 7 on-highway emission standards. Test results using our hydrogen HPDI solution, which requires a limited redesign of the cylinder head and no redesign of the system, external gas exchange system or crank case ventilation system show performance with peak brake thermal efficiency of 51.5%. This is complemented by a 48.7% break-the efficiency at road load conditions. This is a significant achievement given that the 50% break thermal efficiency mark with diesel has been seen as the industry's loftiest goal, and we're able to eclipse this number by 1.5 percentage points, truly validating our technology. In addition, we demonstrated that hydrogen can be combusted at the same compression ratios as the diesel engine uses without not limitation that all SI hydrogen engines are struggling with.

The fact that we've achieved higher BTE over and above best-in-class engine, simply by changing the fuel system while retaining the engine architecture and the on-engine HPDI fuel system components demonstrates the tremendous value and best-in-class performance that HPI offers. What further excites us is the strong potential for industrialization and a commercial product launch. This isn't just a laboratory test. Hydro HPDI has all the ingredients to be turned into a product appreciated by truck drivers and fleet owners. The feedback from the announcement has been significant. OEMs have been reaching up to us. We remain very optimistic that the compelling benefits of hydrogen HBI will lead to commercial availability later this decade. We're proud to partner with Scania for this demonstration program and are looking forward to next steps.

In addition to our work of Scania, we also have a program underway with TD and ABL aimed at combining advanced material and testing technologies with hydrogen HPDI. We anticipate being able to detail the results of this collaboration in late in the first quarter of next year. And just a reminder, Hydrogen HPDI offers low TCO, nearly 20% lower than a fuel cell vehicle, just within 5 years and 50,000 kilometers. For the truck customer, it's a lower upfront acquisition cost with a proven design and durability.

For the OEM, it's a familiar product and the ability to reuse substantial investments that have already been made in powertrain manufacturing and supply chain. A nearly 20% reduction is a significant number and is steering conversations with more potential OEM partners as is the opportunity to avoid new investments in fuel cells, batteries and motors and to reuse existing engine manufacturing assets. The results from the work we continue to do in these projects are informing our current customers and other industry players and importantly, are bringing us new potential OEM customers.

Now switching focus to lead to the LPG market. Despite the headwinds, which I discussed earlier, we're seeing strong demand and higher sales in key markets like Poland, Algeria and Peru. The large and increasing price advantage of LPG compared to Petrol is driving our results also in the Netherlands, Italy and Turkey.

We're implementing price increases to mitigate the effect of inflation. To date, we've achieved some success at margins reflect in the quarter. Surely, we have more work ahead of us since there's no signs that inflation is going away. Fuel and geographic diversities are important core aspects of our overall offering. We can pick up market share in areas where the spread between petrol and alternative fuels is favorable. This includes growth in new markets like Thailand, Peru and Bolivia. All emerging markets of regulations emphasizing the need for cleaner transportation. In Peru, for example, we're seeing a growth trend emerge, the price of LPG compared to gasoline is nearly $0.70 a liter cheaper.

This is a significant spread in a cost-sensitive market. In India, despite the recent spread narrowing between CNG and Petrol, the overall trend continues to be positive. Currently, in the Indian market, the average running cost of the CNG fueled vehicle has jumped from INR 1.2 per kilometer to now 2.6 per kilometer. But the running cost of gasoline fuel vehicles is nearly double that at 5.1 per kilometer. This favorable operating cost advantage for CNG supports our positive outlook for our business in India. In fact, at IAA, we met with several Indian OEMs who have expressed interest in many of our solutions, including HPDI with methane and hydrogen.

The CNG selling network in India is expanding quickly with the government committed to have the number of filling stations increased by 10,000 by the end of the decade. Westport is poised to benefit from the impact of products we offer are used in all OEMs. In summary, despite the macro headwinds that we face, high fuel costs and continued focus on carbon emissions create opportunities for our business as both industry operators and end customers look for lower cost options. What we're seeing in key markets with LPG is a clear example of that. With that, I'd like to turn it over to Richard to go through our financials.

[Richard Orazietti, executive]

Good morning, and thank you, David. Despite a challenging macroeconomic and geopolitical environment, I want to start by highlighting that fundamentally, Westport delivered better performance year-over-year in the third quarter of 2022. However, this is not readily apparent due to the negative impact of foreign currency translation from the weakening of the euro against the U.S. dollar. Total revenues for the third quarter 2022 decreased 4% to $71.2 million compared to $74.3 million in the same prior year period, primarily driven by the weakening euro. Excluding the impact of foreign currency translation, total revenues increased by 10%, mainly due to a rebound in the performance of our independent aftermarket business and the resilience and growth in the portfolio of OEM businesses like delayed OEM, electronics and hydrogen.

This is a remarkable achievement given the significant challenges presented by the impact on sales volumes and volatile LNG and CNG fuel prices, sanctions on Russian customers, inflationary pressures on production and continued supply chain disruption. Loss from operations of $10.9 million and a net loss of $11.9 million for the third quarter of 2022 compared to a net operating loss of $8.6 million and a net loss of $5.8 million for the same prior year period. The increase in operating loss was driven mainly by a $2.6 million unrealized foreign exchange loss caused by the depreciation of the Canadian dollar and euro to the U.S. dollar.

In our adjusted EBITDA calculation, we exclude unrealized foreign exchange gains and losses to better reflect the underlying performance of our business. For the quarter, adjusted EBITDA was negative $4.5 million compared to negative $1.4 million in the same prior year period. Adjusting for the unrealized FX loss in the prior year period, the operating loss decreased by $1.2 million year-over-year due to higher gross margins generated in 2022, driven primarily through increased sales in multiple OEM businesses and a more normalized sales mix of heavy-duty OEM systems parts. However, this better performance was offset by the loss of equity income from the termination and sale of the Cummins West Point joint venture.

The comparative result in 2021 included $3.8 million in equity income from the joint venture. Turning to our business segments. OEM revenue for the third quarter of 2022 was $44.1 million, down 8% compared to the prior year quarter. The 6% decrease in the average euro rate versus the U.S. dollar for the third quarter was the main driver for the decrease in revenue. However, this was partially offset by higher sales in delayed OEM, fuel storage, hydrogen and electronics. Impact of Russian sanctions was significant to our light-duty OEM business as we generated approximately $3 million less than the prior year quarter.

The impact from the Russian-Ukraine war on CNG prices also negatively impacted our sales volumes to the European market. On a positive note, we saw an increase of light-duty OEM sales to our Indian OEM customers for the period. In our heavy-duty OEM business, our sales volume to our initial OEM launch partner decreased 16% as compared to the same prior year period but remains comparable on a year-to-date basis. This is a direct result of the unfavorable pricing differential between LNG and diesel in Europe. Higher LNG prices continue to cause a significant challenge in demand for LNG trucks, which is expected to temper our expected volume growth to our OEM launch partner until relative LNG prices return to a more favorable equilibrium. The operating loss of $7.3 million for the segment was comparable to the prior year due to better gross margin.

Gross margin improved to $4.7 million or 11% of revenues for the third quarter compared to $3.1 million or 6% of revenues in the prior year. We saw a strong increase in gross margin driven by increased sales in multiple OEM businesses as discussed before, and a more normal mix of HPDI systems components along with higher engineering services revenue. In the third quarter of 2021, we had a higher sales mix of spare parts in our heavy-duty OEM business for warranty purposes that had lower margins. Improvement in gross margin was partially offset by the annual contractual price reduction to our OEM launch partner and a decrease in margin in our light-duty OEM businesses due to a higher mix of sales to emerging markets that generate lower margins.

Further, we continue to experience higher production input costs from supply chain challenges and inflation in logistics, energy and other costs, which we have only partially been able to pass through to our OEM customers. R&D expenses for the third quarter were $6.5 million, slightly higher year-over-year. Our heavy-duty OEM R&D continues to focus on the development and demonstrations with potential OEM customers of next-generation HPDI fuel systems, particularly with the use of hydrogen. Our light-duty OEM R&D is focused on the development of new LPG fuel systems to meet upcoming Euro VI standards.

Now turning to independent aftermarket. Our business continues to be resilient in the face of macroeconomic challenges with some positive encouraging trends. Revenue for the quarter increased by 3% to $27.1 million compared to the prior year period. Despite the significant impact of foreign exchange translation discussed previously, higher sales in Eastern Europe as well in Algeria and Peru generated higher revenues year-over-year. Our focus on entering new markets and better competing in the markets we are currently in has enabled us to offset some of the loss of revenue to the Russian market from sanctions as a result of the Russia-Ukraine conflict, an impact of approximately $4 million for the 9 months to date in 2022.

Gross margin was $6.6 million or 24% of revenues for the quarter, down slightly compared with the same prior year period. The decrease in gross margin and gross margin percentage was mainly the result of higher production input costs occurring in material, transportation and energy costs. Looking ahead, supportive LPG pricing is creating a promising demand trend for our business as Westport continues to address and serve markets for customers looking to save money on fuel costs. Finally, I'd like to touch on liquidity.

Our cash position decreased by $11.7 million during the quarter to $86.5 million. The decrease was primarily from net cash used in operating activities, modest capital expenditures and repayment of $3.6 million of debt. Our net cash flow used in operating activities was $8.6 million in the third quarter, a decrease of $5.8 million from net cash used of $14.4 million compared to the same prior year period. The decrease in cash used was driven by net changes in working capital, specifically in inventory. Our inventory levels have remained consistent since the second quarter of this year due to lower-than-expected sales volumes in Russia and the timing of delivery of some tenders in the independent aftermarket we anticipated in the third quarter that have been pushed to the fourth quarter, resulting in less of an inventory reduction than expected.

Our net cash used from investing activities in the quarter was $2.5 million. primarily driven by our investments in capital expenditures for the expected growth in our portfolio of OEM businesses. Net cash flows used in financing activities were $3.6 million for the third quarter as we continue to pay down our debt. We anticipate that we will pay down an additional $3.1 million in the fourth quarter of 2022. We remain focused and disciplined with our capital allocation and resources to execute our strategic and operating plans and as such, improving profitability and liquidity. Although we saw some improvements in gross margin this quarter, we continue to see pressure on gross margin from inflation, and this is an area we continue to work to improve.

Work continues with our customers in both OEM and independent aftermarket to implement price increases and other actions to improve our cost structure. As David highlighted, -- we do see positive signals of growth in our business and a path to profitability as sales volumes grow in our heavy-duty and light-duty OEM businesses. We are also optimistic about a continued improvement in profitability of our independent aftermarket business from the current tailwind of favorable LPG prices. With that, I would like to turn it back to David.

[David Johnson, executive]

Thank you, Richard. Before my closing remarks, I'd like to welcome Larkin to the Westport team. Bill joined us in early October, me stepping in the role of Chief Financial Officer following Richard's resignation. -- having previously served as CFO of Westport Innovations and Fuel Systems Solutions, the deep industry expertise and capabilities he brings will be instrumental in realizing our growth and profitability goals. Finally, as this will be Richard's last earnings call with Westport, I wanted to take this opportunity to thank him. Since he joined Westport, Richard has led us through a critical period and has positioned us for long-term success by strengthening our financial position.

Richard has been a valuable member of our management team, and we wish him all the success in the future. Before we close, let me touch on the written notice we received from NASDAQ last week regarding the company not being compliant with the minimum bid price requirement. As we highlighted in our press release yesterday afternoon, we have 180 calendar days to regain compliance or until May 2, 2023. Let me be clear, we fully intend to resolve the deficiency and regain compliance with NASDAQ's listing rule. Our operations are not affected by the receipt of the notification nor is there any impact on the listing of our common shares as we continue to trade normally.

Finally, let me close on these few final points. Westport delivers market-ready transportation solutions to OEMs, fleets and individuals that deliver cleaner technology affordably right now. We remain encouraged by the long-term outlook for our business and are here as just 3 reasons why. Number one, low and 0 emissions transportation is our future, and HPDI is our story, performance, efficiency and even better with hydrogen provides an affordable solution to the market. Second, the growth of our LPG business, which continues to address in served markets, which can afford expensive electric and nonelectric vehicles but still looking for clean solutions.

And third, the growth we're seeing, and we expect to see it in our business in India. As a supplier of advanced fuel delivery components and systems for clean low carbon fuels, I'm confident in our ability to capture the additional market opportunities in front of us. All of these factors give us optimism in our ability to meet the needs of our customers and advance towards our financial objectives. And with that, I'll turn it over to the operator to open the call for questions.

[Operator]

[Operator Instructions]. Our first question is from Eric Stine with Craig Hallum.

[Eric Stine, analyst]

So you mentioned, obviously, some interaction coming out of a number of the demonstration demonstrations you've done conferences with some Indian OEMs on HPDI. I'm wondering if you can provide a little more detail outside of India. I don't know whether it's by number of OEMs, accelerated talks with OEMs, -- anything just providing more details and also how the greater break thermal efficiency plays in to those discussions?

[David Johnson, executive]

Yes, Gladly, Eric. I think we had the chance, as you know, to bring our truck to the Long Beach show back in May, Act Expo, and then we had our truck at the Hanover show in September. And the combination of this event was really fantastic for us. And frankly, what we've been doing with the truck, the roadshow we referenced just a moment ago, has been very effective in terms of getting the truck in the hands of key individuals at OEMs around the world. So as an example, of Hanover, I spent time with 9 different OEMs at the senior executive level, sometimes CEO, sometimes CTO and sometimes head of purchasing.

So really a great audience. Many times, a large contingent would come from an OEM and to our stand to talk to us and review our technology. And every time these were super useful conversations because I think in the grand scheme of things, our technology is not as well-known as it needs to be. And having the truck and going to the shows is really changing things for us as we sell and offer this important technology to the industry. So those discussions, we mentioned, Indian OEMs, but also Chinese OEMs, European OEMs, North American OEMs. So we really cover all the main markets of the world. I also had the chance to spend a week in Japan recently meeting with OEMs there.

So frankly, I think we're covering the base as well and really getting a fantastic response. -- then we pile on, I would say, with our latest results with our project demonstration with the Scania engine. This is just a fantastic result. I can remember in my career many years that the U.S. Department of Energy had hundreds of millions of dollars of funding available for companies to try and show a pathway to get to 50% break thermal efficiency. So just to kind of put things in perspective, most of the engines on the road today in all markets are on the range of 43% to 45% or 46% to maybe break thermal efficiency.

And these are an improvement over where we were in prior decades. The goal that the DOE has held for a long time has been 50% breaktime efficiency from a diesel engine. And now companies like Scania are achieving that kind of really record performance for a diesel engine. So then for us to put their engine in the test cell, apply our HPD hydrogen API system feed the engine with hydrogen and achieved 51.5% break thermal efficiency is really a tremendous accomplishment.

And just kind of sets the stage for what we'll achieve next in terms of the full map and the full capability of the engine as we continue those development projects with customers. So for us, this is a really, really important and exciting time. We've been in production with HPDI using methane as our, let's say, as our molecule for a long time. These trucks are really well received in the marketplace. But then to show that pathway that goes from fossil natural gas to biomethane and then hydrogen in the future is really compelling for OEMs around the world.

[Eric Stine, analyst]

Yes. No, that's great. And good segue. I guess my next question was just going to be how the data points, which clearly, I mean, other OEMs are watching closely, I mean, how that gets others beyond your launch partner today to look at LNG as that interim solution. People who maybe were saying, "Look, I'm not going to move to HPDI utilizing LNG if I'm going to have sort of hydrogen in 5-plus years. Are you seeing that movement? Or is that something that you expect to see going forward?

[David Johnson, executive]

We're seeing it, and we're expecting to see more of it is the short answer. But let me just expand a bit. Fundamentally, I'll tell you in the marketplace, there has been so much pressure from various constituencies around the world, getting basically every segment, the media, investors, OEMs, fleets, all focused just on zero and this idea of electrification being the shiny object that we also pursue and fuel cells or the technology that we all need to move to and this idea, even that hydrogen equals fuel cells has pervaded the industry in every market around the world. And so when we show up with hydrogen HPDI and hand people the keys to a truck, they can see that no, no, there's another path that's really quite attractive from an economic standpoint.

All of the OEMs that we're talking to around the world have billions of dollars invested in engines, in internal combustion engine manufacturing in the supply chains for that manufacturing in the delivery and how that engine fits in the vehicle and then meets their customers in the servicing of those engines around the world. So we have a massive installed base of capability and manufacturing capability too, around the internal combustion engine.

So when we show you can keep that internal combustion engine and make it run on 0 carbon hydrogen and have all the power actually more power, more torque and more efficiency than you could have with a diesel engine or with a natural gas engine, that makes it very exciting. Kind of the second step in the thought process is, well, given that there isn't a massive installed base of hydrogen and this technology that Westport provides also works on methane and biomethane, why wouldn't we go there now. And just on that point with respect to methane, we spent a fair amount of our discussion points with customers at Hannover, for example, helping them understand the public data that's out there regarding the efficiency and the capability of our product.

I think there's a significant number of constituents in the universe in the public domain, again, media, investors and customers who think all natural gas engines are the same, that they all involve a spark plug, a reduced compression ratio, a 3-way catalyst and at the end of the day, deliver 15% lower torque and dramatically less efficiency. And so we spent time at our events and continue to spend time even privately with OEMs, of course, helping them understand that the product that we have in the market today with our lead OEM customer, the HPDI product preserves all of the capability of diesel lens in terms of power token efficiency.

And therefore, in real-world applications and real-world testing and usage is delivering a 30% lower consumption of natural gas. So whether it's natural gas or biomethane, reducing that fuel cost by 30% using HPDI as opposed to a spark plug is something that's not as well-known as it really needs to be. And so we're helping customers understand that and pointing to the data in the marketplace. And I think -- so now that combination of dramatically better fuel consumption figures, all the power and oil turk with methane with biomethane and with a path to zero carbon hydrogen is super compelling for OEMs around the world.

[Operator]

The next question is from Rob Brown with Lake Street Capital Markets.

[Robert Brown, analyst]

I think you mentioned in your script, some hydrogen revenue in the quarter or in the year. Could you kind of elaborate on the revenue you're getting from hydrogen at this point?

[David Johnson, executive]

Yes. So we have, let's say, 2 areas that I would call in the category of hydrogen. So we've been talking a lot already this morning about hydrogen HPDI. And I would say our revenues right now with respect to that are really on the demonstration project. And I would say, I would categorize them as low single million dollar figures with multiple OEMs and really in a cost recovery mode. We're basically partnering with them to demonstrate like we did Vasconia, our technology on their engines.

The other part of our hydrogen business is, I would say, going business as part of our growth opportunities for the company. We have been supplying hydrogen fuel system components to connect fuel storage, 700 bar and 350 bar tanks to fuel cells. And so we've been doing that business through our GFI brand for more than a decade, and we're seeing really great growth. And we are in this day a leader with that technology, with products available to companies like Plug Power and other fuel cell makers in both North America and China and increasingly in Europe as the European OEMs get their heads wrapped around how they're going to use fuel cells in their product metal. So that's a really important part of our business, a growing part of our business and keeps us very busy.

[Robert Brown, analyst]

Okay. Great. And then you sort of alluded to a path to profitability. -- you give guidance, but sort of what's your view on sort of that trajectory? Can you be profitable in '23? And what might that depend on?

[David Johnson, executive]

Yes. So we -- with respect to our profitability trajectory and has been, let's say, an evidence for quite some time that our JV would come in ended at the end of last year. And so we took this kind of step function reduction in our profit let trajectory. But we see this profitability growth that will get us to profitability. And that's where I talked about our -- what we previously called our mid-decade goals being a little further out fundamentally. And so that kind of $1 billion revenue and 20% gross profit targets were fully committed to. But clearly, after CoBiz supply chain and our war in Russia, we've had some setbacks from the timetable. But nonetheless, we see that coming.

It's fundamentally driven by growth, Rob. And so we need to see our HPDI volume growing and the hydrogen story we're telling right now will help with that. But certainly, we're also seeing now natural gas prices in global markets coming back down from the extraordinary peaks that they've seen in the follow-on aftermath, if you will, of the initiation of the war in Ukraine by Russia. So that whole dynamic and the change in landscape of flows of natural gas with increased exports from the U.S. and building new natural gas pipelines and LNG terminals and so forth, that takes time. And so we are seeing a decrease in natural gas prices, and that will help our growth and the growth is the key to our profitability.

[Operator]

Next question is from Amit Dayal with H.C. Wainwright.

[Amit Dayal, analyst]

Just quickly on the margin strength for the quarter relative to last quarter, unique this quarter than last quarter? And then going forward, should we continue to expect the 16% level gross margins?

[Richard Orazietti, executive]

Why don't I handle that one. I mean the biggest difference that we had probably quarter-over-quarter, for sure, there was increased performance in a portfolio of our OEM businesses, which are electronics and hydrogen. -- our fuel storage did very strong and delayed OEM. The biggest difference as well which may carry forward as we were -- we had a large amount of a particular HPDI component that actually had a lower margin, and that was because of a replacement of the component, and that has now gotten much better. And so in terms of the performance with regards to margins and heavy-duty that is somewhat improved. And so that should carry through somewhat. But in terms of modeling out a specific percentage, it does move around a little bit, Amit. But yes, we do expect a little bit of improvement, yes.

[Amit Dayal, analyst]

Yes. Understood. Richard a lot of macro challenges you guys are facing. In that context, what are the driver actors keeping present...

[David Johnson, executive]

I apologize. man, I'm really struggling to hear you. There seem to be a connectivity issue perhaps with your phone. Is there -- there's what you can do on your end because I can't get your question. I heard macro environment.

[Amit Dayal, analyst]

Yes. I was just trying to see if there is any solution to this ForEx pressure.

[David Johnson, executive]

I think just talking about foreign exchange, I mean basically, as a company, we are very strongly naturally hedged. The vast majority of our revenues are in euros. The vast majority of our expenses are in euros. And so that does kind of cushion us against the bottom line impacts of foreign exchange. Unfortunately, it doesn't do anything for the top line because we report in U.S. dollars, and so we have all those conversions that we do make. And so that translation of that business, about 70% of our business is in Europe, that translation, it will be what it will be. And so that's why we call it out when we announced our earnings and our revenues because fundamentally, our business is about 70% in Europe, and that's the currency, but it is naturally hedged. Richard, anything you want to add?

[Richard Orazietti, executive]

No, I think you described it well. I mean are functional currency, more likely than not actually is more the -- the Canadian dollars is what we have as our functional -- main functional currency and reporting in U.S. dollars is something we do because many and most of our shareholders are U.S. based, but it does create this distortion here because -- and that was my comments in terms of the prepared comments. The performance of the actual underlying business was about -- was about 10%. And this is during a period of obviously a lot of turbulence in both the macroeconomic and geopolitical environment. So the company actually did pretty good in this third quarter. It's something that we have not decided. There's no foreign exchange derivatives or instruments that we would use to modify that. It's an unfortunate part of our reporting that we've taken for investor purposes.

[Operator]

We seem to have difficulty hearing Mr. Dayal. The next question is from Colin Rusch from Oppenheimer.

[Colin Rusch, analyst]

Can you talk a little bit about the progress that you're making on engineering subcomponents for the hydrogen system? Obviously, producing a vehicle is a big deal that getting ready for mass production is another level of preparation. So just curious how that's coming along.

[David Johnson, executive]

Yes. Thanks for the question, Colin. So you're right that demonstrating a vehicle is a big deal. We're very happy about that. And fundamentally, to do that, we've used off-the-shelf components that are in production today for our natural gas production products. So from our perspective, those demonstrators work great. We fully recognize that there is some optimization and some development and validation cycle that we're proceeding with in this time so that we're ready for production hydrogen products. I do think those production hydrogen products are kind of in the 25 to '27 time frame.

And so -- because the normal cycle for OEMs is going to be a full development and validation of the calibration and the hardware, including both the engine, our fuel system, the fuel storage, the whole integration on the vehicle. And -- so that's kind of the cycle, but we continue to make progress and make investments, which are relatively modest because our hardware is largely the hardware that we already have in production. We expect some tweaks as you can imagine. So for example, when we develop the injector, we do CFD work to analyze the combustion system with hydrogen and how it's different than natural gas, and then we make modifications to nozzle. And so we're already testing and developing different nozzle patterns that fit both with our customers' engines as well as with hydrogen fuel. And so that is, I would say, a normal part of our business, but now a little bit of uniqueness relative to hydrogen.

[Colin Rusch, analyst]

Okay. That's super helpful. And then maybe I missed it, but just can you just give us an update on how the HQI 2.0 ramp in China is coming along and any signals that you're getting around inflection points on that in any way?

[David Johnson, executive]

Yes. Thanks for asking. Fundamentally, we didn't talk much about it in the call so far. There is progress. We do see that, but we're really a bit gun shy about calling any timing on when that product might hit the market. Fundamentally, a good thing that we see globally is what I referenced earlier about natural gas commodity prices coming back down. That will help the equation because fundamentally, product in China is going to be sold based only on TCO for the most part. And so we need that fuel price to come back down to make the -- any natural gas product in China commercially attractive. So that's happening.

Our customer has continued to do work to be ready to launch the product. And so we're anticipating that. But I don't have any timing that I can share with you other than to say there's work going on. And so they wouldn't be doing the work if there was an intention to go to market at some future date. Perfect. -- excess... And maybe I should just add, Colin, we actually are spending also a tremendous amount of our time and energy working with customers broadly in China with respect to the opportunity for hydrogen. Hydrogen in China today is already, I would say, like refueling infrastructure, more developed than the other market that I can see. So they have more than 1,000 hydrogen stations is the information that I've seen and heard about the Chinese market.

And so that push towards hydrogen in China is very, very real. You've seen a number of announcements perhaps of spark-ignited hydrogen engines, demonstrating and low volume and so forth. Of course, we see that with hydrogen HPDI and this is what we're talking to the OEMs in China as well as other markets, of course, about is the potential to have a much more superior product with hydrogen HPI, more power, more torque, more efficiency than is possible with the Spark and an hydrogen product. And so we think that's an important part of what we're doing right now that will pay benefits in the future.

[Colin Rusch, analyst]

That's actually quite helpful. I appreciate the additional color there.

[Operator]

The next question is from Jeff Rossetti with Cowen and Company.

[Jeffrey Rossetti, analyst]

David, you mentioned earlier you expect to release results from your ABL 2B demonstration at the end of Q1. And I was just wondering if you could provide any findings you might expect and how it might be differentiated from Scania? And if there was any update with testing with Cummins.

[David Johnson, executive]

Yes, sure. Glad to talk about those, Jeff. So first of all, on ABL 2P, we have an engine in test cell with our hardware, their engine, the an OEM engine with our hardware -- and we're starting that development. Now we expect to have some results. I would tell you in every case, it's up to our partners, in this case, AVL and Top to make the decisions on what kind of announcements we can make when. But we're hopeful to have some color, at least, if not some data to offer the market in Q1, as we said. What we expect out of that testing, I would say, is very similar to what we found with other engines, and that is that basically the application of our HPDI technology in combination with hydrogen on a otherwise formerly diesel engine will offer about a 20% improvement in power about a 15% improvement in Toric and about a 10% improvement in efficiency.

And these are really important numbers. I mean you don't typically get double-digit percentage increases in any of those parameters let alone all 3. But we've done this on a number of engines already, some you can see at YouTube. Some we talked about in our press release about our Scania work. And I would tell you, we expect the same kind of increment. And hopefully, we can demonstrate even more through the contributions that Dupi is making with respect to the engine structure. So having greater engine structure in terms of pressure capability can improve the engine and then get more out of our fuel system as a result.

So we're very much looking forward to bringing that development through the cycle and then sharing results when we can. You asked also about Cummins and that work is basically completed from our side. We've done the necessary studies that come invest us to perform, and they're now evaluating where does PDI sit in their portfolio, and we look forward to some opportunity to do some more work with them.

[Jeffrey Rossetti, analyst]

Great. And I appreciate the detail you provided on your path to commercialization of hydrogen HPDI. Just wondering, I think you called out 25 through 27 as a potential time frame for commercialization. Are there any milestones that you are targeting for, say, 2023 to put you on that path?

[David Johnson, executive]

Expect in 2023, you'll hear more from us with respect to developments like the kind we've already done the ALT news, for example, I expect there'll be more OEMs that will be testing our fuel systems on their engines. I expect with the OEMs that are already worked with like scans and others, there'll be next steps that we'll have a chance to announce. So I think you'll hear that kind of news from us in the coming quarters. But looking out further, I'm very keen on the opportunity to make some demonstration fleet -- so fundamentally, you've seen this in the fuel cell world, for example, Hyundai and Switzerland has been demonstrating fuel cells.

There's quite a few fuel cell applications that have been announced. And so I think that same kind of activity for us would be quite straightforward. As you saw with our demonstration vehicle that we showed in Long Beach and also in Hannover. This is a driving prototype. It tows 40 tons, so 80,000 pounds of freight. It drives very, very well and all on or hydrogen, zero carbon hundreds actually making demonstrator vehicles. There are some certification and exemptions and things like that, that we need to do. But I think that's the activity that maybe we'll be announcing some of that also in 2023 for deployment in 24 25, 26. So this is basically the path that we're expecting. My pleasure.

[Operator]

Next question is from Chris Dendrinos with RBC Capital Markets.

[Christopher Dendrinos, analyst]

I just wanted to, I guess, hone in a little bit more on some of your comments around policy here. And I think one of the bigger investor concerns out there is that most of the policy and incentive programs right now are focused more on the battery side of technology. So as it relates to your discussions in Brussels and Washington, what's kind of the receptivity of policymakers to the technology that might not be exactly 0 emissions? And I guess, what's their understanding of the technology today?

[David Johnson, executive]

Yes, it's a great question, Chris, and thank you for asking it. So we feel it's very important for us to carve out the time with the truck and our team to go and speak with and inform and educate policymakers around the world because fundamentally, even just 2 years ago, there was no idea, no concept, no discussion around internal combustion engines with hydrogen. Primarily, I would tell you because most people, 99.9% we're thinking about a spark-ignited product, which has tremendous challenges with respect to preignition, NOC and so forth because hydrogen is so combustible. And so I would tell you that the basic mentality, policymakers and much of the public domain is around if it's hydrogen, it must be a fuel cell.

And so we're having to -- we need to, it's our task to do so, educate people about the opportunity that we've unveiled and demonstrated in our test cells and with our demo trucks. And so that is what we're doing now. And I think that in all my experience in the industry, regulators like to write regulations like regulator right regulations in most cases, for technologies that they know can be applied to achieve that regulation. -- kind of this was the work of the U.S. DOE over decades has been let's go demonstrate this possible so that the regulators can write a regulation forcing it to happen. And so whether it's a 50% BTE goals they had for many, many years. And so that's kind of the -- I'll call it the Motion of regulators is to write regulations for technologies that they know of, and they know can be deployed.

So therefore, as we go to D.C. and Brussels and help policymakers understand this is possible. Now here in here the key drive it. Here's the data. Here's the development path. This is going to be ready. That will inform future regulatory making. That's our approach to the marketplace and approach to policy. And fundamentally, I believe they're going to be really happy about this, and they're going to be willing to make those changes to regulations because the significant opportunity to decarbonize long-haul trucking, which is super, super hard to decarbonize. Let's just call it out, right, Tesla's had access to tremendous amounts of capital and yet their truck is still not out announced 4 years ago. And why? Fundamentally, because it's got a lot of batteries on it, it will have less payload capability. It's going to be super expensive to acquire, and it's a super challenging application to electrify. It's not Tesla.

It's about the physics, the economics and so forth. And so for long-haul, heavy-duty trucking, and I'll go a step further. We talk we're a Canadian company, there a lot of mining in Canada. We talk about mine haul trucks. These are super hard to decarbonize because they use so much energy and they run so many hours. And so they can't stop and recharged -- this is where we play. This is where we play in helping regulators understand that will allow the write regulations that then promote and encourage our technology to come to market. So we think it's a really important part of what needs to be done, what we are doing, and we expect it to be effective. It will take some time to be effective.

[Christopher Dendrinos, analyst]

I guess maybe just kind of switching gears here really quick, focusing maybe on some of the inventory levels. I think you had previously mentioned that you were looking to monetize some of that or draw down and, I guess, have a maybe more efficient use of your working capital. Can you provide any, I guess, updates on that process? Kind of what are you thinking right now and maybe the ease of the ability to monetize some of that?

[David Johnson, executive]

Yes. So good question. Happy to talk about our inventory. For sure, it's too high. It's not at the level that we wish to have and we expect to sustain. So it is an active effort on our part to move that inventory and reduce our levels. I would tell you there's 2 fundamental drivers in that. There's a lot of drivers, of course, but 2 big elements. One element is on the electronics side. You all recall, I was sure how chips were in short supply and still aren't so easy to get. And we had a lot of our chip suppliers come to us and say, "Listen, we need to know exactly what you need. And so please place orders now for material 18 months out. And you can't cancel these orders, you can't change these orders.

We need to know and you need to commit to it. So we're sitting on quite a bit of inventory of chips. And every day, we're working to get that last chip that's required to make that ECU or that controller that we need to make. And so moving to a more, let's say, normalized supply chain dynamic with respect to electronics will allow us to unlock on the order of $6 million, $8 million of inventory that's on our books right now, just in electronics. So that's kind of a, I'll say, a perturbation of the market that's happened right now, whether you call it from COVID or inflation or whatever the data makes that cause the supply chain to do that, we're just dealing with it. And we expect to unwind that and monetize the inventory in electronics as an example, going forward. The other one is our HPDI inventory. Our HPDI inventory is higher than it should be, and that's because we haven't seen the growth volume in sales that we were forecasting.

And so we were building inventory to -- not even trait, we have the pipeline full for a certain kind of volume expectation that was pre the war with Russia and Ukraine. And so as LNG prices have gone up and the volumes have been flattening, we've built some inventory in HPDI that we do expect to monetize. And that includes expectations on our part that we will move product to China with Weichai. And so those things, we still have on our list of things to do, and that will help us to unwind that inventory and turn it from inventory into cash. My pleasure.

[Operator]

Next question is from Bill Peterson with JPMorgan.

[William Peterson, analyst]

And Richard, just want to say is a nice way of working with you over the last couple of years, so good luck in your next endeavors. On conventional HDP, or getting understand, last year, you had some really nice growth in your lead customer in Europe. So I think you said you have 1,000 trucks in a row or thousands of trucks on the road. I wanted to discuss what you're seeing in terms of reliability and uptime relative to diesel. You talked about some of the performance benefits.

But I guess, was the warranty issue related to that at your lead customer, trying to understand what the interest in these trucks could look like, should nat gas pricing start to normalize, if you can answer that. And then I guess that second point about nat gas normalizing, but the U.S. still actually is a relatively less expensive place compared to other places and diesels in short supply, particularly in the Northeast. So do you see additional interest maybe stemming from that spread?

[David Johnson, executive]

Yes. Great questions, Bill. Thanks for joining us this morning. So with respect to the durability or reliability of our product in Europe, we have been on a, let's say, a journey from the launch in 2018 through now. And we have had a variety of challenges with the product along the way, but the team has done exceptional work to really stop out those problems early and minimize the impact. And so right now in the marketplace, I would tell you that people are thrilled with the durability reliability. And the primary reason for that is because fundamentally, we've developed the system, we've solved the early problems.

And it's -- the basics of the system are based on a diesel engine. So we're not asking the engine itself to do anything that it's not used to doing. And I guess, just to contrast that, spark-ignited natural gas engines run hotter, they have challenges that diesel engines with our HPDI system don't have. And so we feel we're in a very good place. The fleets love the product. And really, all that's tempering demand at this point in time is the high price of natural gas. And so as we see that commodity price come down, we need to see that commodity price flow through all the way to the pumps. So the fleets can say, "Let me buy more HPDI chip trucks, so I can deliver freight and do it with a lower TCO. So that's really the story there.

With respect to U.S. and natural gas prices and frankly, your point on scarcity of diesel, fundamentally in the marketplace for all of our products, the equation isn't so much about the price of natural gas or the price of LPG and the price of gas or the price of diesel, it's really about the delta between the 2. Can I save money by using natural gas versus diesel? Can I save money by using LPG instead of petrol. It's the price differential between the 2 fuels. So when diesel gets scarce and diesel prices go up, that will help our natural gas and our LPG business as people look for alternatives. And I'll say it even more broadly, fundamentally, in every market around the world when energy gets more expensive to all energy, electric by the way, with its natural gas, petrol diesel, when energy gets more expensive, people go looking for alternatives. And it's where there's that price differential that offers our customers a savings by using natural gas, biomethane, hydrogen or LPG, that's where we win because we're the gases fuel specialist.

[William Peterson, analyst]

Okay. I think the next one is probably for Richard, and I asked this the last quarter, too. But when we think about the cost and use of cash, OpEx, you should be getting advantages, I guess, in OpEx the same way with the USD relative to other currencies. But offsetting that, you have inflation. So trying to understand how we should think about OpEx trajectory looking out over the next few quarters. And then I think in terms of CapEx, you -- I think you talked about maybe around $15 million. It looks like you're going to be probably ending up a little short of that. But I guess, is this push into next year? Or I guess, any color on how we should think about capital intensity as we're looking ahead to 2023 in terms of the use of cash?

[Richard Orazietti, executive]

Thanks, Bill, and thank you very much appreciated your comments before. It's been great working with you as well. The -- with regards to per share on the foreign exchange because we do -- a lot of our engineering is done in Canada. And so we did get the benefit of that. We're in a rationalization moment right now because we're quite well aware of our liquidity and trying to be responsible, we call it, fiscal discipline on that. So next year, I mean, we're in the neighborhood between $15 million and $20 million. We're trying -- we've got obviously a lot of investments in the future in hydrogen being one of it, and we're doing some work on LPG for Euro 7, and then there's the natural increase of capacity for HPDI.

But we're trying to stay in that number. And the purchasing that we're doing is in euros predominantly. So there's a little bit of advantage there, but we are purchasing certain equipment from the U.S. With regards to OpEx, that we spent a little bit more money this year, probably we're trying to promote HPDI and build awareness specifically with hydrogen, there is, we'll call it, the sort of the education process that David referred to, and that's gaining a lot of actual interest within the industry that it didn't just come from us if everybody -- every major OEM is considering hydrogen ICE programs as well as part of their portfolio. And so there was a little bit of extra money that we had spent there. But generally, the -- our operating expenses will be more or less aligned if anything, we're tightening the belt as well as the year progresses.

[Operator]

This concludes the question-and-answer session. I'd like to turn the conference back over to Mr. David Johnson for any closing remarks.

[David Johnson, executive]

Thank you very much, and thanks, everyone, for joining our call this morning. I think at the top line for our company, we've been through a very challenging time and the challenges keep coming, but we keep making progress. Fundamentally, to think about our revenues being up 10% year-over-year on a absent foreign exchange, which is just a translation error. In the context of a place where we've got high natural gas prices, both CNG and LNG, a war in Russia constrained supply of LNG. I think there's a lot of people out there that can understand in 2025 and 2030 in Europe specifically, we need to make really big improvements in CO2 of long-haul trucking, 15% by 2025, 30% by 2030.

And everybody in Europe is thinking about how do we make those standards tougher. And when you think about a technology like hydrogen HPDI being able to offer a 98% reduction in carbon and do so very affordably, right, that will have a huge impact on the fleet average for those fleets. So we really see a bright future ahead. I appreciate the chance to speak with all of you today and good your questions, and I look forward to the chance to meet with investors at the Craig column Conference next Thursday in New York City. And then we have got an upcoming Capital Markets Day that we'll do in Toronto in December 8. So I look forward to continuing the discussion and helping understand better the future for Westport Fuel Systems. Thanks again for your time. Have a good day.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.