MP Materials Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2024

Key Takeaways

  • Upstream production at Mountain Pass hit the second-highest quarterly ore output in company history, driven by near-record plant uptime and early execution of the 60 ks expansion program targeting 50 % volume increase over four years.
  • The midstream NDPr separation business achieved its first non-China metal sales from Vietnam, expanded ex-China customer engagement, and is executing process optimizations expected to double production volumes in Q2 and accelerate further in H2 2024.
  • Downstream magnetics development reached major milestones as Fort Worth’s 1,000 tpa precursor capacity is fully committed, a North American electrowinning pilot succeeded, the magnet prototyping line began commissioning, plus a $50 million precursor prepayment and a $58.5 million 48C tax credit award strengthened the project’s financial profile.
  • Financially, MP Materials issued $747.5 million of 2030 convertible notes at a 3 % coupon to repurchase $480 million of 2026 debt at ~89 cents on the dollar, bought back 7.3 % of its shares for ~$200.8 million, and extended maturities to 2030.
  • The company ended Q1 net debt neutral, with over $220 million in additional cash expected from Stage 3 prepayments, IRS tax refunds and 48C credits, providing a robust liquidity runway amid weak rare-earth price conditions.
AI Generated. May Contain Errors.
Earnings Conference Call
MP Materials Q1 2024
00:00 / 00:00

There are 10 speakers on the call.

Operator

Afternoon. Thank you for attending the MP Materials First Quarter 2024 Earnings Call and Webcast. My name is Victoria, and I'll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Martin Chang, Head of Investor Relations.

Operator

Thank you. You may proceed. Martin.

Speaker 1

Thank you, operator, and good afternoon, everyone. Welcome to the NP Materials Q1 2024 earnings conference call. With me today from NP Materials are Jim Lutinski, Founder, Chairman and Chief Executive Officer Michael Rosenthal, Founder and Chief Operating Officer and Ryan Corbett, Chief Financial Officer. As a reminder, today's discussion will contain forward looking statements relating to future events and expectations that are subject to various assumptions and caveats. Factors that may cause the company's actual results to differ materially from these statements are included in today's presentation, earnings release and in our SEC filings.

Speaker 1

In addition, we have included some non GAAP financial measures in this presentation. Reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings release and the appendix to today's slide presentation. Any reference in our discussion today to EBITDA means adjusted EBITDA. Finally, the earnings release and slide presentation are available on our website. With that, I'll turn the call over to Jim.

Speaker 1

Jim? Thanks, Martin. Hello, everyone. As is our usual program, I will open by covering some year to date highlights. Ryan will then go through our financial performance and operating KPIs.

Speaker 1

Michael will follow that with an overview and updates on Mountain Pass operations, and I will then come back with some closing remarks before Q and A. So let's start on Slide 4. As Michael hinted at on our Q4 call, our concentrate production in the Q1 was outstanding. We produced the 2nd highest tonnage of OREO in Mountain Pass history. Plant uptime was at near record levels.

Speaker 1

This was a particularly impressive quarter of upstream execution given that we are operating with the backdrop of continued downstream optimization and site expansion efforts. As discussed in detail last quarter, we are tactically managing our refining ramp in light of the market environment. We are focused on near term cash flow optimization, while we position for maximum long term profitability. Consequently, record level production this quarter meant strong concentrate sales. In addition, the team continued to advance projects on upstream 60 ks, our effort to increase Mountain Pass upstream output by approximately 50% over the next 4 years with modest levels of incremental investment.

Speaker 1

We expect this to create significant value shareholders over time and we are very pleased with what we are seeing so far on this execution journey. Moving to the midstream. We made our 1st NDPR metal sales out of Vietnam in the quarter with most of that going to our Japanese partners through our Sumitomo relationship. We are steadily expanding our ex China customer base. With initial deliveries of NDPR oxide and metal to these new customers, we are building trust as a reliable supplier of on spec separated products.

Speaker 1

We expect these sales to ramp significantly as we support growing downstream demand outside of China. And of course, as Michael laid out in February and we'll discuss in more detail in a minute, we are making solid headway on dialing in process conditions and implementing important improvements to optimize production and reduce costs in our separations business, which we expect will allow us to make step change improvements in output in the back half of the year. Moving on to our Downstream Magnetics business. We made tremendous progress in the quarter. I am very pleased to announce that the initial 1,000 metric ton design capacity of Fort Worth is fully committed.

Speaker 1

We have a lot of execution to do, but this is certainly a major milestone in the development of the business and is risk reducing from a financial standpoint. As far as operations, we successfully completed a commercial scale North American electro winning pilot with exciting results. We advanced installation and commissioning activities of magnet precursor materials in Fort Worth. In addition, we began commissioning our magnet prototyping line, which by the way is quite a scaled operation relative to anything in the Western world. This is critical as we expect Fort Worth to be the IP generation and operational know how center for a powerhouse global manufacturer of scale.

Speaker 1

What we are building now is important. Finished magnets are very much an engineered product and there are a variety of market verticals. In addition to a wide range of standard magnet grades, each end magnet customer has its own requirement for performance, form factor, shape, coating and heat resistance.

Operator

Our

Speaker 1

pilot line allows us using smaller scale equipment similar to our commercial scale and often manufactured by the same vendors to prototype specific magnets for customer qualification and process optimization. This really matters for long term use cases beyond just scaling up for the EV hybrid, wind turbine or HVAC growth opportunities. Vast commercial and national security use cases such as humanoid robotics and drones are going to need suppliers who can be more of a partner with scale instead of solely sourcing with mass subsidized mercantilist manufacturers with competing priorities to say the least. But as we set up this business, we will be maniacal about sources and uses and overall capital return and efficiency. We have to be thoughtful about how we manage risk and what are the right approaches to take to scale.

Speaker 1

In April, we received an initial $50,000,000 prepayment for the manufacture and delivery of magnet precursor materials, which will begin later this year. We also recently announced a $58,500,000 award of advanced energy project tax credits from the U. S. Government, also known as the 48 C Tax Credit Program. It is important to note that the application process for this funding was incredibly competitive.

Speaker 1

We believe it was roughly 10 times oversubscribed. Winning this award highlights the significance of our mission, the unique technical and commercial capabilities of our team and the high impact nature of this project. Lastly, many of you have heard me talk repeatedly about how much capital structure matters, especially given the volatile nature of our industry and regardless of any short term oriented shareholder pressure, we have been consistent in highlighting how much we recognize that thoughtful financial execution is key to our long term success and value creation. I have made clear that we would act methodically when we could do thoughtful things with material impact. Well, in March, we were able to be opportunistic in a substantial way across our capital structure.

Speaker 1

We issued a new $747,500,000 2,030 convertible with a low 3% coupon and in parallel effectuated a capped call that set the economic equivalent conversion price at a 100% premium to the VEN share price. This computes to a 4.7 percent effective cost of debt capital for MP through 2,030 until our share price exceeds $31 We primarily utilize these proceeds to repurchase $480,000,000 of our 2026 notes for about $0.89 on the dollar and most importantly bought back 7.3% of the company at a price we believe is heavily depressed relative to MP's intrinsic value. In addition, we have the added benefit of pushing the vast majority of our debt maturities out by a number of years to 2,030. So in summary, we navigated another quarter of difficult down cycle macro conditions in our industry with relentless execution, both operationally and financially. Material value creation is often recognized on a lag, and I think this quarter will be appreciated by investors turn it over to Ryan to go through our financial performance and KPIs.

Speaker 1

Ryan? Thanks, Jim. Turning to Slide 6, I will walk through our operating metrics for Stage 1 on the left hand side of the page and our Stage 2 metrics on the right. In the upstream business, we produced 11,151 metric tons of REO in concentrate in the quarter, a 4.5% increase over the last year and over 20% more than Q4, mainly due to near record uptimes and higher feed rates. This higher production combined with our focus on efficiently increasing NDPR production we discussed in detail last quarter resulted in strong sales of Oreo and concentrate of 9,332 metric tons.

Speaker 1

This is down year over year as we consumed nearly a quarter of our concentrate production for downstream operations versus last year when we had all of our concentrate production available for sale. Our realized price of REO and concentrate declined to $4,294 per metric ton due to the overall weak market pricing in rare earth materials. As we look at Q2, should prices hold in the mid $50 per kilogram range for NDPR, we would expect pricing to be down mid single digit percentages sequentially as we deal with the slight lag in price realizations. Moving to the right side of the slide, as Michael mentioned in February, NDPR production volumes were roughly in line with our Q4 output at 131 metric tons. As we look at Q2, given some of the continued optimization steps we are taking here in April May, even with our 1 week plant shutdown, which was just completed, we would expect NDPR production to roughly double in Q2.

Speaker 1

And as Jim stated, we would expect much more meaningful step ups in production in the back half of the year, which Michael will discuss shortly. Looking at NDPR sales volumes, we sold 134 metric tons of NDPR on an oxide equivalent basis, mainly to customers in Japan. I would note that NDPR sales volumes will naturally lag production volumes as significant portions of our production are being total processed into metal in Vietnam as we've discussed in prior quarters. This is part of the working capital investment you see on our balance sheet as we scale this midstream business. The lag on any given unit of production of course depends on a variety of factors, but we generally are seeing at least 2 to 4 months as we continue to fill the tolling channel and convert production into sales.

Speaker 1

Lastly, on the far right, you'll see our realized price per kilogram of NDPR was $62 which as we mentioned in February exhibits a more notable lag to market prices than that of concentrate with Q1 sales prices primarily based off 4th quarter market indices. As such, we expect Q2's realized prices to decline approximately 20% following the trend we saw in market prices for Q1 over Q4. Turning to Slide 7, revenues declined from last year to $48,700,000 driven by the lower concentrate realized pricing and sales, partially offset by beginning of sales of NDPR oxide and metal. Sequentially, sales improved 18% due to the increase in sales of NDPR oxide and metal. Adjusted EBITDA and related margins declined year over year to negative $1,200,000 and negative 3 percent respectively in the quarter, primarily due to lower realized pricing for concentrate just discussed, which impacts EBITDA on a dollar for dollar basis as well as the current subscale production of separated products.

Speaker 1

Adjusted EBITDA was impacted by a $6,000,000 inventory reserve taken in Q1, which was included in cost of sales on the P and L. So before this reserve and the costs for magnetics embedded in our operations, our concentrate business remains nicely profitable even at multiyear lows in commodity prices. As we discussed last quarter, our early cost of production of separated products is higher than our expected costs once we reach more normalized production levels. Given we are staffed for higher production rates and early production often requires additional processing, labor and certain rework that should not recur once operations normalize. With these impacts and the rapid deterioration in market prices, we reserved for certain inventory where costs are currently estimated to exceed net This is not unexpected as we ramp up the plant and may continue for a short period as we finish our initial optimizations.

Speaker 1

That said, we remain steadfastly confident in ultimately achieving a best in class per unit cost profile and we should see improvements later this year as our production ramps towards run rate levels. On the far right, you will see adjusted diluted EPS was a $0.04 loss driven by the lower adjusted EBITDA and higher depreciation from the significant amount of assets placed in service over the last year. This was partially offset by lower tax expense in the quarter due to lower pre tax income. GAAP EPS was also impacted by a $46,300,000 gain associated with the early extinguishment of the majority of our 2026 convertible notes, which leads me to Slide 8. We haven't shown a slide like this in some time, but given the significant transactions that took place in the quarter, we thought we would give an updated rundown of the changes.

Speaker 1

So running through the transactions. 1st, in early March, we issued $747,500,000 of new 3% convertible notes due in 2,030, strengthening an already solid balance sheet by materially extending the maturities on our debt with the primary use of proceeds being to buy back a large portion of our existing 2026 notes. The new notes convert at a 40% premium to the share price on the date of the transaction or $21.74 per share on a standalone basis. But in connection with this offering, we entered into capped call transactions to effectively increase the premium of the 2,030 notes to 100% or $31.06 per share. The 3% coupon on the notes, while higher than our near dated debt reflecting the current interest rate environment remains below the current market rate we receive on our cash investments, continuing to provide positive carry.

Speaker 1

And when including the cost of the capped calls, the all in cost of the notes is approximately 4.7% until conversion, a very positive outcome for the company. As mentioned, the primary use of proceeds from the offering was to repurchase $480,000,000 of our existing 2026 convertible notes, which we did for $428,600,000 or $0.89 of par value, which drove the $46,300,000 gain in the quarter. I would also note that we made the election to pay any principal remaining on the 2026 notes in cash at maturity. So the shares underlying the remaining principal will fall out of our diluted share count calculations in future periods. Importantly, we also used $200,800,000 to buy back 13,000,000 shares, a fairly substantial retirement of 7.3% of the company's outstanding shares.

Speaker 1

We have always said that we would be opportunistic on capital return given how we have positioned our balance sheet and given the confidence we have in our go forward plan as well as the substantial drawdown in our market value in line with the current down cycle in NDPR prices, we saw a significant opportunity to create value for shareholders while maintaining a prudent balance sheet. As of March 31, we are roughly net debt neutral after undertaking all of these transactions and continuing to invest in the required working capital to grow our midstream business. And despite weak commodity prices, we continue to expect our balance sheet to remain robust with several cash contributors in the short and medium term beyond our base business, including significant product prepayments in our Magnetics business as well as the substantial cash impacts of both our 45x and 48c tax credits, which I will discuss in more detail in a moment. To term out the vast majority of our debt maturities while capturing the value of both our depressed share price and the below par price of our existing notes, we expect will prove pressure as we look to a stabilization and recovery in our commodity prices as well as continued execution on our business plan.

Speaker 1

To put all of these transactions into a simpler form, particularly as it relates to the impacts on our share count, we have laid out the changes on the left hand side of the slide. Please note that our GAAP diluted share count does not incorporate the anti dilutive impact of the capped call transactions, which you can see incorporated in our adjusted figure on the bottom. And the table on the right side of the page walks you through the bridge from the left hand side to a calculation of market cap and enterprise value, which would capture the principle of the convertible notes in the debt calculation and not in shares or market cap. Regarding our cash balance, I'd note that subsequent to quarter end and so not reflected on our Q1 balance sheet, we received an initial prepayment of $50,000,000 for magnetic precursor products in Stage 3, and we expect a further $100,000,000 of payments, assuming we hit our operational hurdles over the next 12 months. In addition, we expect approximately $20,000,000 in cash from the IRS when we file our tax return here soon for 2023.

Speaker 1

And lastly, while timing and monetization options are still not finalized, we expect to realize $58,500,000 from our 40 8C tax credits that we've discussed in the not too distant future. All told that is over $220,000,000 in sources of cash that we can expect beyond our base business operations. As it relates to cash flow in this Q1, our cash from operations in particular our working capital was impacted by several discrete items which is bridged in a slide in the appendix. I would flag that our major NDPR metal deliveries were booked very late in the quarter, so cash was received in April. Further, we continue to build work in process inventory and finished goods inventory as we begin to further scale downstream production here in the next several months.

Speaker 1

And importantly, as we continue to feed the tolled metal sales channel. Lastly, we had a significant one time cash spend on transaction costs in the quarter from costs recorded in both the Q4 and Q1 P and L and made our typical Q1 annual bonus payouts to employees. Regarding gross CapEx, we spent approximately $51,800,000 in the quarter in line with our full year outlook of $200,000,000 to $250,000,000 including maintenance CapEx. With that, I will turn it over to Michael. Michael?

Speaker 2

Thank you, Ryan. Turning to Slide 9. Here is a picture of our leach circuit, one of the areas I spoke about last quarter, where our focus is on optimizing NDPR recoveries while sustaining high serum rejection. And on Slide 10, we have an overhead shot of our separations pad with the light rarer separation circuit on the far left, to the right of which are our product finishing circuits, water treatment plant and power plant. Slide 11 shows storage racks of our NDPR oxide in 1 metric tonne super sacks waiting to be shipped.

Speaker 2

The highlight of the quarter was, of course, the very strong production in our upstream business, where with the adjustments made in the prior quarter, we were able to achieve slightly higher throughput per operating hour with a stable recovery and grade. This combined with less unplanned downtime and better operational execution and some adjustments to the cleaner flotation operation resulted in solid production growth year over year. We had a modest headwind from reagent adjustments that temporarily impacted recovery. Looking ahead, the 1st upstream 60 ks projects may begin trial operations in the Q3. These include enhancements to the grinding circuit and the large scale pilot flotation cell to improve rougher performance and debottleneck cleaner flotation.

Speaker 2

As with most new processes, we expect these could cause instability and or lower uptime before the benefits come through, but we are very excited about the long term opportunity of both of these projects. As mentioned on last quarter's call, we spent much of the Q1 working to improve the efficiency of our midstream operations. We are making very good progress. As part of these efforts and improvements and given some unforeseen challenges, we ended up temporarily inventorying additional volumes of intermediate streams rather than seeing them through to finished product volumes. This partially contributed to the higher unit cost of production in Q4 and to a greater extent Q1.

Speaker 2

However, we made several breakthroughs that we expect to contribute to stable low cost production. In addition to those developments that I mentioned on the Q4 call, we made additional progress later in Q1 and into April in purification, separation and product finishing. Adding it all up, we saw a slight decline in production quarter over quarter to 131 tonnes. Of this, over half was packaged in March. April continued to improve on a production per operating day basis.

Speaker 2

In late April, we began our 1st semiannual site wide maintenance outage of 2024. We undertook 2 major projects that coincided with the end of life of assets installed by our predecessor. This included replacing and upgrading 1 of our power plant turbines and replacing the motor on our grinding mill. When complete later in Q2, the power plant turbine project should allow for higher generating capacity at lower operating cost and heat rate. The upstream business resumed normal production on schedule and we are quite pleased with the results since restart.

Speaker 2

Several debottlenecking projects were implemented in our midstream business, both during the outage and thereafter, with one important project still underway. As a result and as expected, there will be a slight offset in the timing of restart of some of these midstream assets compared to the upstream one. NDPR oxide production in Q2 will therefore depend upon the exact timing and trajectory of restart. Nonetheless, we are targeting to approximately double production volumes here in Q2 with another significant increase in Q3. So I would reiterate my previous guidance that we will only push volume when we can do so while also lowering our fixed and variable unit costs of production.

Speaker 2

All in all, we are feeling very positive about our recent operating performance. While we have enormous room to improve our processes and improve our internal execution, our largest challenges and frustrations are mechanical reliability that I strongly believe is in no way a reflection of our process conditions or design. Supply chains continue to be brutally slow and this has delayed our ability to address some of the problems. However, we are starting to reach the end of these long lead times and are seeing the benefit of more reliable equipment. With this, we expect to improve our throughput with lower fixed and variable cost of production with higher yields and less product rework.

Speaker 2

Before I turn it back to Jim, I'd like to highlight that we recently completed our 4th full year without a lost time injury. This is a remarkable achievement considering the complexity and growth of the operation and the number of new employees we have brought into the NP Materials family. I want to thank all of our teams in Las Vegas, Mountain Pass and Fort Worth for their incredible efforts every day. With that, I will turn it back over to Jim.

Speaker 1

Thanks, Michael. Let's move on to Slide 12, where you can see a gorgeous night shot of our initial magnetics facility in Fort Worth. This looks like a rendering, but actually it is not. This is real and is the road front side view of our facility that spans 250,000 square feet and houses manufacturing operations, R and D and our Magnetix headquarters. As I said earlier, we are making a lot of progress across our businesses.

Speaker 1

Unfortunately, this was another dismal quarter for NDPR prices. We see some green shoots with recent price action, but the trajectory to a market recovery is, of course, outside of our knowledge and or control. As I've noted though, I strongly suspect that most of Chinese industry is losing money at these prices. Some of you may have seen headlines about a recent high level U. S.

Speaker 1

Government visit, including the Treasury Secretary to China last month, where discussion centered around China's state led economic behavior. I doubt any of us would be surprised if this topic heightened into a hysteric pitch as we approach the election season. Regardless of the cause, there is no doubt that recent market conditions have crushed Western and Allied attempts to broaden private investment in the rare earth supply chain. In addition, with so many investor revisions around expectations for EV penetration or at least the timing of it, critical materials investing in general, especially for those that are battery inputs is out of favor. There are some important distinctions though for rare earths and permanent magnets that will eventually matter.

Speaker 1

First, as it relates to EV penetration, there is still growth, albeit slower growth, and hybrids are picking up a lot of overall growth for This resulted in 19% year over year overall growth for electrified vehicles, I. E, those that are either battery electric vehicles or plug in hybrid electric vehicles. To remind you, permanent magnets are in the motors, not the battery. Hybrid still utilize a lot of permanent magnet content. So if the transition to full EVs involves increased short term penetration of hybrids, we believe the rare earth industry is somewhat agnostic.

Speaker 1

Moreover, as the West revisits and reorients assumptions, China is still leading the way on electrified penetration. The growth there was 35% in March on a larger base, and we should see electrified penetration in China in excess of 50% by next year. As we push through this tough period, there is something even more powerful happening that should remind everyone how important our mission is. In recent months, we have seen BYD, Neo, Li Auto and Xiaopeng introduce extraordinary electrified products at remarkably low cost to the rest of the world. For those of you who have followed us, we've been talking about this evolution since 2020 when we went public.

Speaker 1

The historical criticism around EV penetration was that they were too expensive. In all the bearishness on Wall Street in recent months, maybe some are not fully appreciating a

Speaker 3

broader point.

Speaker 1

Electrified vehicles are now essentially on pricing par with ICE, if not even cheaper in many cases, especially those made by Chinese automakers. To what extent then can state led behavior around resources, specifically the sale of rare earths at a loss persist in the face of a full on downstream expansion into global competition with all the major OEMs. Our guess is that for both economic and political reasons, the price of our products will eventually explode into true market driven pricing. Some Western companies are better positioned than others. We should expect to see major disruption in the coming years as Chinese OEMs displace some Western ones in global prowess.

Speaker 1

This leads to one final and more important strategic thought. This same theme around the rise of Chinese industry evolving from supply chain domination to full downstream leadership applies also in humanoid robotics and drones. Humanoid robots now accelerated into reality with AI are likely to utilize multiples per unit of magnet content versus that of EVs. The national security implications here extraordinary. For us in America, the runway to think about this issue is longer than in autos, but should begin now.

Speaker 1

There is no doubt though that the logical conclusion of all this is that MP's mission matters. With that, let's open it up for Q and A. Operator?

Operator

Our first question comes from the line of Matt Summerville with D. A. Davidson and Co. Your line is now open.

Speaker 4

Maybe help out a little bit with the expected go forward ramp cadence on Stage 2 in the back half. I know what you said kind of qualitatively, Michael, but I guess I'm curious as to at what time or at what price, and I'd like to try and distinguish between the 2, do you think the Stage 2 operation will kind of hit run rate? And is there a price where you're more likely to stockpile WIP or FGI versus put that tonnage into the market? What's the right way to kind of think about how that matrix, and I'm sure it is a matrix, how that all kind of looks here?

Speaker 1

Sure. Hey, Matt, it's Ryan. I'll start us off and then maybe Michael can give some specific examples. But I think the way to think about it is our viewpoint on ramping methodically based on maximizing cash flow has not changed. I think the great thing about our model here is that we do have a profitable further upstream product that we can sell where there's a significant amount of the profitability embedded.

Speaker 1

I think the thing that you're hearing from Michael and hearing from us is that we have very clear line of sight at this point given the optimizations that are ongoing and that have already been completed. We're talking about very specific mechanical optimizations where that framework that we laid out of lowering the incremental variable cost is very clearly ahead of us in the near term and over the next several quarters. And so with that, that gives us the confidence to tell you we see that and so we can start ramping. And so for sure, we will continue to sort of watch that trade off between the 2, but I think that's the core message. In terms of your question on stockpiling, I think what I talked about at the beginning is we have the ability to flex between separated products and more upstream products.

Speaker 1

And so that's generally how we would think about things. So we're implicitly holding back NDPR production at this point if you think about it that way. And so I don't know Mike if you have some thoughts on the specific items you're seeing here to help Matt on timing and quantum.

Speaker 2

So Ryan touched upon a lot of it. I think in the Q2 into early Q3, a lot of these long lead items that have been we've been waiting for should start to be received and installed. We've already started to see it in March April. And at that point, we'll have a greater ability to increase throughput and then we'll still be balancing the fixed and variable cost leverage as we look to how we execute into the market.

Speaker 4

Thank you. And then just as a follow-up question, as it pertains to Upstream 60, what are maybe the 2 or 3 kind of major milestones we should be looking for out of MP over the next 12 months? And will that 40,000 tons per year to 60,000, will that scale linearly? What's the right way to think about how that scales? Is it more front end loaded, back end loaded, etcetera?

Speaker 4

Thank you.

Speaker 2

Thanks, Matt. In terms of the cadence, I think we said it's I would look to it to be more back end loaded. There's going to be a series of incremental improvements, more step function and then perhaps even larger growth initiatives. Obviously, the larger initiatives will be more back end loaded. But we are optimistic about some of these smaller projects and what they can do.

Speaker 2

And as I mentioned, we do have 2 that are coming online at the back of this year. As with all projects, we would assume that initially there'll be perhaps a negative impact from disruption and or uptime before we start to see the benefit. So I would say early next year before we would expect to start to see the real impact of 60 ks. But we still work on normal optimizations and that was what you saw evident this quarter. Understood.

Speaker 2

Thank you, guys.

Speaker 1

Next question. Thanks.

Operator

Thank you for your question. The next question comes from the line of George De Deriketz with Canaccord Genuity. Your line is now open.

Speaker 5

Hi, thank you for taking my questions. Speaking of value creation, and this is just sort of me reading the tea leaves here a little bit. It appears that a very wealthy individual or entity in Australia appears to be trying to do just that by acquiring significant stakes in several rare earth assets across the Western world and maybe trying to cobble them together. The extent you could share just a line maybe some line of thinking here, what are the synergies in doing that? And do you kind of see that as a rational response to China Inc, who appears to be trying to make life difficult for several Western suppliers as non Chinese refining ramps?

Speaker 5

Thank you very much.

Speaker 1

Yes, sure. Thanks, George. So I guess that was a creative, although somewhat expected way of asking the M and A question. So I appreciate it. So obviously, you're referring to Gina Reinhart and her stake in MP.

Speaker 1

I mean, for those who don't know, she's certainly a very well respected investor globally and in Australia particularly. So I believe she's the richest person in Australia. And she took a large stake in us. I think, obviously, it speaks to the value that we believe we're creating here at MP and how much value there is in our shares. And so I think that she sees that as far as sort of her motivations or the motivations of other shareholders or conversations that we may have with other shareholders or companies, I'm not going to comment on those kinds of things.

Speaker 1

But it certainly is it certainly always is nice to have a third party that understands your industry very well to recognize that your shares are undervalued.

Speaker 5

Okay. Thank you so much. And maybe just as a follow-up, different question. Just curious, to the extent you can bring down costs, as you discussed extensively in the call, can you kind of help us understand what your cost per kilogram of NDPR will be as we approach sort of the end of the year? Just trying to understand what where EBITDA positive is for you guys as you become more

Speaker 2

of a refined growth company? Thank you.

Speaker 1

Yes, sure, George. It's Ryan. I'll take that. What I'd say on the cost structure for the midstream business is certainly what we're seeing at this point is very much expected as you ramp a plant of the scale that we are. I think when you're operating something of this size under normal utilization levels and with all the puts and takes that we've talked about, the results aren't unexpected.

Speaker 1

And frankly, we have the data on a circuit by circuit basis that's highly granular that gives us a lot of confidence in the go forward cost structure that we expect to hit. We haven't put a specific dollar figure out there, but we have continued very strong confidence in being best in class when it comes to a unit cost perspective in the midstream business. To your question on EBITDA positive, look, we're in this period of transition and in a period of, in a lot of ways, max pain as we ramp it, as we fill the channel, etcetera. And so we do expect this to pass. But I would remind you also that given the puts and takes and the moving pieces for our EBITDA result this quarter, behind all of those things is a highly profitable concentrate business.

Speaker 1

And so think about the fact that we've got this ramp operation in midstream and we're subscale in addition to funding the magnetics business. We continue to have strong cash flow and profitability from the concentrate business. And so we'll continue to execute and optimize over the course of the year and remain very confident in hitting our targets.

Speaker 3

Thank you.

Speaker 1

Thanks. Next question? Thanks, George.

Operator

Thank you for your question. Our next question comes from the line of Laurence Alexander with Jefferies. Your line is now open.

Speaker 6

Everyone, this is Kevin Espich on for Laurence. I guess my first question is about electronics. So if that cycle turns up, I guess I'm just wondering, do you guys have more leverage to phones and smaller devices or maybe more to PCs and desktops?

Speaker 1

Sure. This is Ryan. In terms of magnetic content in sort of general consumer electronics, it is a real segment as it relates to magnetic content. I mean, it's probably teens or 20%. So it is real.

Speaker 1

I think that we've seen a confluence of events over the last 12 months, 18 months really, where hard disk drives have been, had been in a negative cycle, PCs were in a negative cycle, smartphones were in a negative cycle. So on a per unit basis, these magnets are very small, but in aggregate, they matter. I do think that all of them contribute. And so some of the things that we think about is what we've started to see from our customers downstream in the magnetic supply chain is the start of a more positive cycle in hard disk drives. And as you think about everything you hear out there with This is AI, mix in AI.

Speaker 1

Okay. AI. Here's AI for the bots. But no, really that cycle has certainly started to pick back up. And so we're cautiously optimistic that that can go from a negative contributor to magnetic demand to a positive one here hopefully soon.

Speaker 6

Okay, got it. Thank you. And then I guess my last question just curious to hear what you're seeing in terms of inventory build down stream or just sort of inventory levels?

Speaker 1

Yes, sure. Well, it's interesting. It's always given the concentration in China in our industry, it's always hard to read the tea leaves, as you've heard me say a million times. I know that Albemarle came out this morning and said that they were seeing very low levels of inventory, obviously, sort of different vertical, but some of the same effects. So that's a data point out there.

Speaker 1

We have seen sort of in very recent you can see in the last couple of weeks a little pricing green shoots. So it is certainly possible that you'll start to see a pickup due to low inventory. Our belief is that inventories are very low and that demand is starting to pick up. But again, I always say that with it's just so hard. We always caveat by saying we it's outside of our control.

Speaker 1

We don't know when pricing sort of reverses, but we certainly believe that that will come.

Speaker 6

All right. Thank you very much.

Operator

Thank you for your question. Our next question comes from the line of Carlos De Alba with Morgan Stanley. Your line is now open.

Speaker 7

Yes. Great. Thank you. Good afternoon, everyone. So Ryan, so with the guidance that you provided on volumes for NDPR doubling, I guess maybe a little bit of upside potentially on concentrate, if not flat, but substantial declines in prices, it's going to be tough for EBITDA not to be more negative.

Speaker 7

But important for us is the cash regeneration excluding the item, the $228,000,000 I think you mentioned in total. Excluding those items, how do you see working capital fluctuating in the second quarter and maybe you can venture into the Q3 just because in Q1 it was obviously a significant use of cash?

Speaker 1

Yes, sure Carlos. I'll do my best. Obviously, we don't get into quarterly cash flow guidance for a variety of reasons. But I did lay out a couple of pretty discrete and obvious cash flow items, just in terms of pretty chunky sales on the NDPR metal side this quarter, which came at the very end. And so from a receivables perspective, that had an impact back on our conversation a moment ago about certain potential transactions that were evaluated.

Speaker 1

There was a pretty significant use of cash there that we don't expect to repeat. And then just typical timing from other payments that tend to see lower cash flow conversion in the Q1 versus the rest of the year. So a lot of that combined to drive the result in the quarter. I'd say certainly as we ramp the plant, things will be lumpy. We are looking to drive incremental production, which of course we then need to for a lot of it get sent overseas and told etcetera.

Speaker 1

And so, we've always been very clear that this ramp into Stage 2 is a major transition for the business. And so that requires some investment in working capital. We think there were discrete items in Q1 that don't repeat, but certainly the faster we go that could have some impacts. And so hopefully, that can give you a little bit of color.

Speaker 7

All right. Thanks. And then so you are no longer going to disclose unitary cost, I assume. Is there any are you thinking about another metric that CalPERS follow how on a per unit basis your cost is evolving, maybe breaking out by, I don't know, Stage 2 and Stage 3?

Speaker 1

Yes. I would expect over time, Carlos, there likely will be a need as we start to recognize revenue in the downstream business to split that out for you. So that is something that's on our agenda once we have material revenue in that business. As I talked about, we already have started to see pretty material cash flow in this quarter, with the $50,000,000 prepayment and with more to come. But yes, I think you'll start to see some split out of that.

Speaker 1

As it relates to cost KPIs on the upstream and midstream part of the business, I think you guys have seen us perform now. I think this is our 14th quarter of reporting. We've had a very consistent cost structure on the upstream side. And so I think it's quite easy to sort of triangulate around that. And then when you think about our plant, which it's very, very integrated.

Speaker 1

And so it gets a little bit harder and less meaningful. And I think we've previewed this now for many, many quarters to try to report standalone metrics that try to pull apart. Think about a labor force that's working in the Millpad area, we call the Millpad area, there's actually a lot of separations activities going on up there. And so it really is quite integrated. And so we don't think that standalone KPIs are particularly meaningful at this point.

Speaker 1

And so we'd point you to, we have no reason to believe that the cost structure will change meaningfully for the upstream business. And in fact, as upstream 60,000 comes into play, we expect it to improve. And then with that, you can sort of see the sales that come through on the separated product side and you'll easily be able to back into these metrics yourself. And so that's sort of how we think about the progression of KPIs on that front.

Speaker 7

All right, great. And then my last question is on

Speaker 1

Did we lose you? I think we're off the call. I guess you can come back. Or there. No, no, we got you now.

Speaker 7

Yes, sorry guys. So my last question would be on just regarding the and I love my thought on the question. I'll come back later, okay?

Speaker 1

Okay. All right. Thanks, Carlos. Next question please.

Operator

Thank you for your question. Our next question comes from the line of David Deckelbaum with TD Cowen. Your line is now

Speaker 6

open. Hey, guys. I'm doing more for getting me on.

Speaker 1

Thank you, David. We appreciate that you appreciate that.

Speaker 6

Right back at you. I appreciate it. But I wanted to ask just on hitting what stage 2 in the context of what do you need to achieve to receive the remaining prepayment of $100,000,000 And is there some circularity around your motivations to ramp stage 2 to hit some of those milestones, either Ryan or Michael or Jim, just to try to understand what needs to be achieved in order to get that? And then, I guess, how many tons that's actually prepaying for? Is it a year's worth of output

Speaker 2

or is it longer than that?

Speaker 1

Sure, David. It's Ryan Damarregato for the question. I think there's probably some confusion on stage 2 for stage 3 on this front. So the prepayment is for magnetic precursor materials in stage 3. And from that perspective, we don't need to sort of work down the prepayment to receive the next prepayment.

Speaker 1

These are operational milestones in the Stage 3 business that we have line of sight to over the next 12 months that really have nothing to do with the ramp on the Stage 2 side. So those ramps are completely discrete and sort of are on their own trajectory. And so regardless of how things go on the Stage 2 side, we see line of sight on Stage 3.

Speaker 6

Okay. Yes. Sorry to confuse. I just thought of it as I know that you guys will consume maybe 600 tons a year of NDPR at Stage 3 to make 1,000 tons of magnets. I didn't know if you need to be able to show that you can separate 600 tons a year in order to inherently hit the targets that you would show at Stage 3?

Speaker 1

Yes. No, it's a fair question. I see where you're going with that though. But in terms of Stage 2. And so it's not really a matter of if we're able to, it's a matter of when we decide to.

Speaker 1

And Michael talked about all the items that are ahead of us. And so I think clearly our main customer probably shares that view given the focus here on operational milestones are exclusively as they relate to Stage 3 operational milestones. And so we're excited certainly that we got this initial prepayment based on a major operational achievement that Jim laid out some of the exciting things that happened over the last quarter And we do have line of sight to the rest of them. So hopefully that's helpful. Yes.

Speaker 1

And to be crystal clear for those who are listening, Stage 3 being Fort Worth, right? Go ahead, David.

Speaker 2

Thanks, Paul.

Speaker 6

Yes, Jim, I just this question is mostly for you, but I know you like to put on your strategy hat. So I'm curious with your outlook on potential market tightening and the majority of the market operating sort of below cost, are you seeing an increased interest? MP has done a lot of organic growth, albeit vertically integrated and you have your upstream 60 projects. Are you seeing more emphasis on sort of inorganic opportunities and seeing any softness in the market that you would otherwise want to take advantage of here to perhaps expand resource, perhaps expand things like heavy speed. Is that an area where we might expect MP, especially as you get more comfortable on ramping other parts of your supply chain to start looking towards?

Speaker 1

Yes. I mean, I would say that we get you can imagine that we get reach outs. We're considering things at all times, particularly given our seat and our expertise. Given where pricing is, it's just so tough. I mean, when I look at allocating an incremental dollar of capital and particularly given upstream 60 ks and all of the great progress that's happening in Fort Worth, the idea of investing in sort of some new greenfield project versus sort of the attractiveness of what we have at MP, That's really tough.

Speaker 1

And frankly, that is the environment. I think, given what is happening to pricing, I think it's fair to say that there's been an overall enormous chill on the private sector investment across the board. And so, if the question is, are there projects that will come to us? Yes, we look at everything and there's nothing that is imminent that I think would make a ton of sense given the state of the world. I think that the economics are just so tough.

Speaker 1

And that obviously makes us that much more bullish about our in place assets is that I think getting more supply online is just that much harder. Certainly, there's a lot of for the private sector, a lot of confidence that's been lost given how quickly prices sort of came off over the past year. But of course, that's what creates cycles, right? That's what's going to make for such a violent upcycle, again, just like we saw a few years ago. And then probably if you want a strategic thought, we can go into sort of the longer term aspects of as electrified penetration really starts to hit over the next few years.

Speaker 1

And then when we think about robotics on top of that, there's going to be an enormous violent upcycle and sustainable. But again, when and how it starts, we don't know. And so, we'll probably make other investments interesting. But again, it's always hard to think about the timing and the cost of capital. And right now, I'm really pleased with what we were able to accomplish on the capital structure front this quarter.

Speaker 1

And I think that's going to be a great value creator for us. And then we'll just take it as it comes day by day.

Speaker 2

Thanks guys.

Speaker 5

Sure.

Operator

Thank you for your question. Our next question comes from the line of Lawson Wunder with Bank of America. Your line is now open.

Speaker 8

Sure. Thanks, operator, and good evening, gentlemen. Michael, you mentioned some mechanical reliability issues that are kind of dogging the ramp up, but you mentioned it certainly wasn't related to design or material quality and you elaborated a little on what you thought was driving it. Could you maybe provide just a little more detail and discussion on what you think is driving that? Thanks.

Speaker 2

Sure. Thanks. I guess, I think some of it relates to initial startup and commissioning and some operational challenges during commissioning, where we had unusual equipment failures. An example of which would be in one of our filtration circuits where we had an unusual number of pump failures. And then in terms of how that impacts the operation, in order to continue to operate, we were forced to use sort of temporary measures that were inefficient from a process yield, operating and maintenance cost, labor productivity perspective.

Speaker 2

And so as we are able to bring on kind of the appropriate equipment, the appropriate permanent equipment, that then work quite well, we could see a dramatic impact on the operability, the yield, the reduction in loss, and then much lower labor cost and much lower amount of labor allocation to that area and rework. So we've got a number of issues like that and that sort of underlies the confidence in how the trajectory will improve as the supply chain delivers.

Speaker 6

And then would it be fair

Speaker 8

to say that you've kind of identified the majority of these issues? Are they recurring and less easy to identify? Are there some that you're still trying to figure out?

Speaker 2

I would say optimization is a permanent continuous process. So we'll always have these kind of things. Certainly, we've identified all the ones that we see in front of us now. As I've said in the past, we were able to run a lot of the circuits at pretty significant throughput rates. It's kind of pulling it together and sustaining that and having them all run together at the same time.

Speaker 2

So we could see how the bottlenecks will progress as we ramp. And we're obviously addressing those in advance of being there. But it's really not so much throughput as uptime and reliability.

Speaker 8

Okay, great. And then just one follow-up if I could on the plant shutdown. You mentioned the that in April it was a little there was one in April. Just any color on future shutdowns for 2024 would be really helpful. Thanks and that's it for me.

Speaker 2

So each year we schedule 2 longer maintenance outages, 1 in the spring and 1 in the fall. So we continue to target that. Given we have the upstream and midstream assets now versus in the past just upstream, There's a little bit of a lag. We first focus on the upstream assets and then some of the midstream assets follow and then the upstream refills, the midstream. We would expect that pattern to continue because the midstream is younger.

Speaker 2

The duration of the downtime in those areas is shorter than in upstream. But because of the lag and feed and the inventory and re inventory there may be the actual outage drags on a little bit longer.

Speaker 1

Thanks. Next question?

Operator

Our next question comes from the line of Bill Pearson with JPMorgan. Your line is now open.

Speaker 3

Yes. Hi, good afternoon and thanks for taking the questions. Wanted to expand on earlier question around the demand environment, I guess, in the context of what you're calling it, I guess, some kind of imminent violent improvement in fundamentals. If we think about this year's demand environment, EVs is down, but in the U. S.

Speaker 3

Replaced by hybrid electric. You have wind, then you have a lot of the standard HVAC, consumer electronics. Can you walk through the different end markets on what you're seeing?

Speaker 1

Tough year for wind. 2023 had lower growth in EVs. I think a lot of people say no growth, but growth was very robust. It wasn't as robust as expected. And then you also had some of the cycles I talked about on the electronics side.

Speaker 1

Couple that with Yes. Thank you. A version of that that also not only applies to trying to stoke EV demand, but also HVAC appliances etcetera. And then you're seeing a turn in some of the other electronics. And so again, we can't predict the exact quantum or timing, but it does feel like the things that drove sort of negative revisions last year hopefully are maybe turning to fruition.

Speaker 1

And just adding on to that, that's great. But Bill, in really simple terms, and we've talked about this before, but I think it's definitely worth repeating because it's kind of a simple framework to think about this. Roughly 75% of demand are sort of your think of them as your legacy historical use cases, GDP or plus or minus oriented electronics, HVAC, etcetera. But then when you go in the other 25% or sort of the electrification use cases, And those are even in despite sort of short term Wall Street Armageddon in a sense, those are growing very quickly. And so what you have is a base effect, right?

Speaker 1

You have 75% that can take a macro hit, particularly given that it is mainly centered around China, where if that's a 5% or 10% hit, that can really trump 20%, 30%, 40% growth of these bigger use cases. But there's a compounding effect there, right? As that 25% is growing at 30% a year, you look out a few years out and it becomes so much more material relative to overall demand that, the sort of the short term cyclical macro items have much less of an impact. And then the reality of the electrification, which has never happened before in our supply chain, really starts to impact demand. And by the fact that these projects are so long term, that's where you sort of get violent pricing effects when sort of those realizations hit people in real time.

Speaker 1

Commodities are a spot market. They're not really a long term pricing market. So even though you can see this coming in the short term, if there's a supply demand imbalance, the pricing adjusts. And so and then lastly, and again, this is longer term, but when we think about all these electrified use cases, particularly, I'm a big believer that for all a lot of the hype around AI, aside from chips and data center build out, one of the real world use cases we're really going to see a lot quicker than people think is going to be around robotics. And there's much smarter people than me saying this and making investments and showing you real products.

Speaker 1

And so I think in the next few years, we're going to see humanoid like robotic products. You can certainly do plenty of your own research around that. But just as an example, and again, I think it's so important and you've heard other people talk about this, an EV is a robot on wheels. A robot is obviously a robot with legs and an EV will have 1 to 4 motors whereas a robot will have dozens of actuators, right? Those are the things that are think of them as joints in the human body that will move.

Speaker 1

And so, if you are somebody who does believe and again, you'll start to see this building out, it's not the 2024 event. But if we think about the sort of global units of vehicles as being 1,500,000,000 and maybe 90,000,000 or 100,000,000 a year of new production, and then we're talking about billions of robots that will have double or triple the magnetic content of an EV, it doesn't actually take that full bill out. It starts to get sort of really ridiculous in the potential demand. And so I think that that is something that could create another step function change expectation vertical in our space and look for the statements that Xi and China has made around building out this industry in 2025. And so this is stuff that actually was kind of a couple of years ago pie in the sky kind of stuff and now it's stuff that you'll start to see it in the next couple of years actually become a real material demand vertical.

Speaker 1

And so we're really optimistic about it. That means nothing though for 2024. But it does mean a lot for the value that we're creating here and how we think about the business over the next 3 to 5 years.

Speaker 3

That's well understood between the legacy versus growth drivers. So just thinking about capital allocation, I guess, in the context of your bullish outlook looking 2 to 3, 4, 5 years out. Do we think about buybacks being actionable given where you think your share prices today?

Speaker 2

How should we think about the use

Speaker 3

of cash from here or further debt pay down? Would you rather kind of keep driving out or forward things M and A or otherwise?

Speaker 1

Bill, we just bought back 7.3% of the company last month. I think after the bell, Apple announced $110,000,000,000 buyback and there's lots of excitement on the news, how huge that is. That's 4% of their company, right? So we look at all the press tonight and in the morning about the scale of that buyback and we did nearly double that last quarter. So I mean we've certainly and for a number of quarters, when prices were much higher, people asked us and we've said repeatedly, we'll act when we can act in a substantial way with material impact and we're not going to telegraph these kinds of things.

Speaker 1

And that will that remains the case. And so certainly our we think that there's a lot of value here and we've sort of made that clear. And but I think we've also sort of voted with our purse, so to speak.

Speaker 3

Next question. Thank you.

Speaker 1

And this will be the last one I think working on.

Operator

Yes. We have time for one last

Speaker 9

Hi, guys. Am I off mute? Hey, Matt.

Speaker 1

So I'll

Speaker 9

make it quick. Very pay. You're very passionate about demand. I'm a believer in that too. I just want to understand about kind of the other part of the investment case is all you're working for.

Speaker 9

If you see the size of like the bifurcation pricing distinction between the made in America versus China from net customers or because of the current environment just right now in near term, no one really cares. It might not be a fair question with GM to all be done, but just wondering how those conversations have changed. It's like, as you said commodity, and do you think it's not the lower commodity at some point because you're made in America, you get a premium for that?

Speaker 1

Sure. So Ben, I think I heard most of it. It sounded like you're at a car wash or something. I hope you're somewhere for fun. But I think actually and so I hinted at this a little bit in the comments.

Speaker 1

And I think certainly as we look at our market today, there is no question that it is effectively pricing is just effectively controlled in China, right? They're the vast majority of production and downstream usage and with the vast majority of their industry operating at a loss, I think it's fair to say that one could conclude that there are other than free market things going on there and that there may be sort of strategic things happening to the pricing in our industry. But if we look around the world and we've been talking about this for a few years, but I think this year in particular, it has exploded. There was actually an article on Bloomberg today about, Geely is going to be introducing a product to this summer. I guess that was announced at the Beijing Auto Show.

Speaker 1

There were 100 plus new models there of exciting products that Chinese industry, Chinese OEMs have created at very low cost, but there's a Geely car that's going to be a very much equivalent of a Model Y that's going to be coming to market substantially cheaper, 1,000 of dollars cheaper. And given sort of the Volvo aspect of it will not be subject to tariff. And I think what you're going to find and then there were also other stories of BYD building a plant in Mexico and certainly excess capacity in China that will now make its way around the world. I think the big picture thing here that is so important is that when we thought about EV penetration globally, it used to be a situation where EVs were much more expensive than ICE. And so kind of a bunch of rich people could get them, but then when would it really sort of be mainstream and how much subsidy would have to happen.

Speaker 1

But actually what's happened now is that the Chinese have put so much capacity on the table that they have now moved downstream to the point where their OEMs will be displacing Western OEMs in the West. And you see that, you see that really and I think you're going to see it in a huge way this summer. And I think it will probably hit fever pitch as we approach the election. And it will continue to be an issue because there's no question that there's going to be stress and distress across some of the Western OEMs as the competitive landscape completely changes. It's a great thing for consumers in the sense that there are great products that are cheaper than ICE vehicles.

Speaker 1

And so this whole issue of demand and is this it's really just a pendulum of EV, whether regardless of what people think, the electrified penetration is greater than 50% in China. So it is fake complete. It is happening around the world. And so our expectation is that and frankly I think it's a pretty good bet that for political but also economic reasons that as you see this unfold, market pricing or close to market pricing will eventually take hold. It's going to be very hard for Chinese OEMs to sell a lot of products in the U.

Speaker 1

S. While losing money upstream in some of these critical commodities having a strategic advantage relative to other OEMs. And so I think that what we have and certainly there need to be more of the supply chain and we're not the only vertical that this pertains to. But I think as we see this dynamic unfold, the battleground will move from the upstream to the downstream. And of course, I haven't even begun robotics and drones and other things that are electrified that have even broader national security applications in the world as we see it.

Speaker 1

And so again, that is all speculative on our part, but I think that we've sort of been on top of this issue for a few years and I think that we'll start to see that change. I don't expect it to be in the couple of months, but certainly in the next couple of years.

Speaker 9

Thanks, Joe.

Speaker 1

Sure. All right. Thank you. Well

Operator

Go ahead. I'm so sorry.

Speaker 1

Okay. Yes, I was just going to conclude and say domo arigato to everybody. Thank you and we'll see you next quarter.

Operator

That concludes today's call. Thank you for your participation and enjoy the rest of your day.

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