Q3 2023 Linde PLC Earnings Call

Okay.

Ladies and gentlemen, good day and thank you for standing by welcome to Wendy's third quarter 2023 earnings teleconference and webcast.

At this time all participants are in a listen only mode.

Please be advised that today's conference is being recorded.

After the speaker's presentation, there will be a question and answer session.

I would now like to hand, the conference over to Mr. Guan Pliers head of Investor Relations. Please go ahead Sir.

Okay.

Thanks, Amy and thanks, everyone else my name's Rod.

Good morning, everyone and thank you for attending our 2023 third quarter earnings call and webcast.

I am wondering is head of Investor Relations and I'm joined this morning by Scott Barber, Chief Executive Officer, and Matt White, Chief Financial Officer.

Today's presentation materials are available on our website at <unk> dot com in the investors section.

Please read the forward looking statement disclosure on page two of the slides and note that it applies to all statements made during this teleconference.

The reconciliations of the adjusted numbers are in the appendix to this presentation.

Sandeep will provide some opening remarks, and then Matt will give up an update on <unk> third quarter financial performance and.

After which we will wrap up with Q&A, Let me now turn the call over to Sanjiv.

Thanks, a lot and a very good morning, everyone.

Linda employees delivered another solid quarter, despite the economic headwinds.

Our earnings per share grew 17%.

Return on capital closed at 25, 6%.

Operating cash flow was $2 5 billion and operating margins expanded 550 basis points, finishing at 28, 3%.

And we delivered these results, while continuing to responsibly deploy capital to high quality growth opportunities and consistent shareholder returns.

This is what our owners expect it's not new and not a surprise.

Simon again sort of recessions and global economic shocks Lindsay has consistently delivered industry, leading results through a relentless productivity culture, while increasing network density.

I see no reason why that won't continue going forward in fact, rather than waste time trying to predict what will happen. We are constantly striving to perfect. The model for all seasons.

Youre right Lindy, we acknowledge the world is a volatile place.

And as stewards of shareholder capital, we are focused on running an organization, which can sustainably deliver on owner expectations.

Quality earnings growth.

Return on capital and strong cash generation, a hallmark of our history and will be integral to our future performance.

I think it's important to remind investors of these key tenets that lindy, especially during uncertain times like today.

The combination of inflation rising interest rates and geopolitical tension is spilt tailing risk appetite and hence overall economic activity.

However, I remain confident and Lindsay the ability to weather any economic downturn based on the strength of our diverse portfolio and long term contracts.

Which is further demonstrated on slide three.

When you read the deal itself government statistics, I know, it's hard to be bullish on the global economy.

However.

When looking at underlying trends by end market.

We see a mixed picture with.

With some increasing.

Those are flat or slightly down.

Overall underlying sales were up 3%.

With base volumes down low single digit percent, which was more than offset by pricing and contribution from project backlog.

In other words, the Lindsay operating model allows us to quickly adapt to maintain steady and compounding value creation, regardless of the macro environment.

The resilient consumer related end markets, which represent about one third of sales.

Solid growth in food and health care.

But a mid single digit percent decrease in electronics now.

All sides electronic volumes remained stable.

With reductions in merchant and packaged gases, primarily from Red gas sales in Asia.

Based on customer feedback I believe we will begin seeing signs of recovery in the first half of 2020 full due to growing demand and inventory levels stabilizing.

Industrial related markets make up the remaining two thirds of sales.

And similar to the other sectors, we are seeing mixed trends here.

Manufacturing and chemicals and energy are bolt up.

Primarily led by the United States.

We continue to see U S packaged gas volumes stable at a high watermark, including met fab.

As well as a recovery in Gulf coast hydrogen pipeline volumes, which have carried into the fourth quarter as well.

Conversely metals end market volumes are down.

Likely from weaker economic conditions.

Overall higher prices and growth from contractual project backlog more than offset weaker base Williams.

This is because our long term customer contracts stabilized results through inflation adjustment and fixed payment clauses.

Said differently, we have the right business model and operating rhythm.

Weather any storm.

Looking ahead into the fourth quarter.

The U S economy continues to navigate at high levels with pretty much every end market expected to grow year on year and remained stable sequentially.

China volumes are expected to remain flattish, even as manufacturing chemicals and energy end markets May show, a mild recovery was still an electronic volumes continue to remain flat.

Regarding Europe, we have not yet seen an inflection point. So the expectation is that volumes will hold around the third quarter levels ex some normal seasonal impact.

Despite the softer macro environment and higher interest rates.

Fossil activity continues to be robust and our backlog has increased by 300 million to $8 1 billion.

Of which $4 5 billion sale of gas projects.

In addition, our clean energy projects continue to progress as well as our customers remain committed to decarbonize in their assets.

Finally.

Priority has remained intact be best in class in safety compliance sustainability and talent development, while maintaining a high performance culture, which remains focused on delivering on our commitments.

So although the global economy seems tepid I can only tell you that Linda will continue to deliver on its commitments.

I will now turn the call over to Matt to walk you through the financial results.

Thanks Sanjay.

Slide four provides a summary of third quarter results.

Sales of $8 $2 billion decreased 7% from last year and 1% sequentially. Although these numbers are not indicative of underlying trends.

Cost pass through which represents the contractual billing of energy cost variances to customers.

Decreased 6% from last year, but had no effect on profit.

In addition, the engineering business decreased 4% from prior year, and 1% sequentially due to timing of project billings.

When excluding these items along with impacts from FX and net divestitures.

Underlying sales increased 3% over last year and 1% over the second quarter.

Price increased 5% over prior year, and 1% sequentially as the business units continue to contractually recover higher levels of inflation.

In fact globally weighted CPI for our countries of operation also increased 5% in the third quarter further validating this correlation.

Okay.

Volumes were flat sequentially and decreased 2% year over year.

Primarily driven by the electronics and metals and mining end markets.

Overall year to date volume trends have tracked closely with globally weighted industrial production.

We regularly monitor tank and cylinder returns to validate this correlation and have not identified any material differences.

In other words, the volume decline is driven by existing contractual customers requiring less gas refills.

Since their production decreased proportionately with industrial activity and their local economy.

I fully expect volumes to recover in line with each local economy.

Operating profit of $2 $3 billion increased 15% over prior year and 1% sequentially.

Operating margin expanded 550 basis points to 28, 3% as price actions cost productivity and fixed payment contracts enabled greater leverage from the 3% underlying sales growth.

Excluding cost pass through operating margins expanded 400 basis points across all business segments led by EMEA at 600 basis points.

Note that America has experienced elevated power costs in the third quarter, which had a negative impact to merchant and package margins.

However, this will be recovered over the next one to two quarters.

Yes.

EPS of $3 63 incur.

Increased 17% as we continue to deliver on our stated goal of double digit percent EPS growth.

Capex of $950 million increased 24% from last year, primarily due to project capex spending in support of the $4 5 billion dollar sale of gas backlog.

As a reminder, the Lindy definition of project backlog is unique and the most stringent in the industry.

Inclusion requires assured growth.

Customer contract with fixed fees and explicit termination provisions to ensure investment returns.

Furthermore, this $600 million of base Capex includes $320 million of additional growth investments to increase network density.

Yeah.

During uncertain times like today shareholders want to sleep well at night, knowing their investment is safe and management's hands.

Which is further supported on slide five.

Proper capital management and quality cash generation have always been at the core of our operating rhythm.

We've been following the same capital allocation policy for decades.

It starts with generating true operating cash flow because contrary to what some might think.

Working capital does matter.

You can see the stable trends with the most recent quarter coming in at $2 $5 billion.

Recall that we had some cash tax timing impact in the first half of the year, which we've now lapped that.

Therefore, I expect the operating cash flow to EBITDA ratio to remain in the low to mid 80% range.

While our mandate is to maintain an a credit rating and grow the dividend the priority for our capital is to invest into the business.

This follows our time tested investment criteria.

Which has enabled lindy to consistently achieve industry, leading R. O C year after year.

After investing into the business surplus cash is used for share repurchases.

Having a strong balance sheet stable cash generation and an active stock repurchase program enables value creating opportunities during turbulent markets in fact, our best stock repurchases happened when equity markets overreact.

This is why we recently announced a new $15 billion stock repurchase program.

Allowing us to optimize our excess free cash flow and robust balance sheet.

We'll continue to take advantage of stock market dislocations and return capital to our owners in a tax efficient manner.

I'll wrap up with guidance on slide six.

For the full year, we're raising guidance to range of $14 to $14 10, representing a 14% to 15% growth rate.

Consistent with prior quarters.

The upper end assumes no sequential economic improvement.

We updated full year guidance implies a fourth quarter range of $3 38 to $3 48.

Excluding FX the midpoint is down 4% sequentially due to engineering project timing and base volumes, including seasonality. Although we are taking actions to improve this range.

As Sanjiv mentioned global volatility appears to be the norm. These days, so we must run our business in a manner, which navigate the uncertainty while executing our strategy and delivering on commitments.

And while no one can predict what will happen tomorrow, let alone next year.

Lindy owners can rest assured knowing their capital will be properly managed for sustained compound growth.

In any environment.

I'll now turn the call over to Q&A.

Thank you.

If you would like to ask a question. Please signal by pressing star one on your telephone keypad.

If you press Star one a second time, you will be removed from the queue.

And we will pause for just a moment to compile our Q&A roster.

And we will take our first question from Mike Light head with Barclays. Your line is open.

Great. Thank you good morning.

Sanjiv, maybe to start you talked about some macro crosscurrents impacting risk appetite and I think there's probably been a bit of a pullback in the clean energy space, maybe a bit more economic rationality.

And some green ambitions. So can you speak to beyond what's already in your backlog if discussions at all or changing on potential new clean energy products or maybe how is bidding activity today versus maybe earlier this year.

Thanks, Mike and.

Youre right that you know there is there is a bit of a risk off in the market.

I have to do say that you know our approach to clean energy projects and at the risk of repeating myself from some previous conversations we've had on these calls.

We've always maintained that technology and scale up.

<unk> and projects that have a competitive position are the ones that are going to move forward.

And I want to reiterate today that we are seeing many of those projects that were currently developing on track for exactly those reasons Youre work with tier one customers who have a commitment of decarbonizing, but are also looking at cost competitive solutions to do that so in terms of proposal activity, we have gone into Boston had conversations about invest.

<unk> decisions of about $50 billion over a 10 year period, I would say to you that I feel reasonably confident about those numbers about 60% of that I see likely happening in the U S. Again, a very strong market where developments continue to be fairly robust in terms of both near term.

Operator: Ladies and gentlemen, good day and thank you for standing by. Welcome to Linde's third quarter 2023 earnings teleconference and webcast. At this time, all participants are in a listen only mode. Please be advised that today's conference is being recorded, and after the speaker's presentation, there will be a question and answer session.

In the past, Mike I've said decisions of about anywhere between 9% to 10 billion over the next few years I feel pretty good about that number as well the projects that we're currently working on and tracking all appear to be on that path and most recently you would've harden.

Earnings call a couple of days ago, Jim outlining the fact that their project in Alberta is moving <unk> towards the end of the year again, that's just a validation of the outlook that I've given you.

Juan Pelaez: I would now like to hand the conference over to Mr. Juan Pelaez, Head of Investor Relations. Please go ahead sir. Thanks a lot of you and thanks for pronouncing my name correctly.

One last comment you heard me based skeptical around developments in green.

Juan Pelaez: Good morning everyone, and thank you for attending our 2023 third quarter earnings calling webcast. I am Juan Pelaez, Head of Investor Relations, and I join this morning by Sanjiv Lamba, Chief Executive Officer, and Matt White, Chief Financial Officer. Today's presentation materials are available on our website at linde.com in the Investor section. Please read the forward looking statement disclosure on page two of the slides and note that it is going to apply to all statements made during this teleconference. The reciculations of the adjusted numbers are in the appendix to this presentation.

I've said in the past a number of times are a few factors that impact that one investment in renewable energy to make sure. There is enough renewable energy available well electrolyze us to produce green hydrogen that continues in this environment that continues to be a challenge, obviously technology and scale up on Green is also.

Lacking today are setting the Boston I maintain that's probably five to seven years away and I expect those developments to feed out you know as we see that point of inflection maybe a decade from now when green energy projects really are available at scale at a cost competitive level and add meaningfully to be deployed in the.

Juan Pelaez: Sanjiv will provide some opening remarks, and then Matt will give an update on linde's third quarter financial performance and outlook, after which we will wrap up with Q&A.

Sanjiv Lamba: Let me now turn the call over to Sanjiv. Thanks Juan and a very good morning everyone. And we delivered these results while continuing to responsibly deploy capital for high quality growth opportunities and consistent shareholder returns.

The energy transition.

Great. Thank you.

And we will take our next question from Laurent <unk> with BNP. Your line is open.

Yes, good morning, Ron.

Question on China.

Sanjiv you talked about flattish volumes I was wondering if this is a comment about the near term or and so that's how you see the bounded medium term and are you adjusting resources and productivity on tool.

Right.

Yes.

Laurent that's a good question. So let me why don't I, just kind of give you a feel for what I think is happening in China as we see it today and then we'll talk a little bit about the medium term as well so in the near term one of the good things in China, which is on a slow road to recovery I would say to you is that we supply tier one customers that are the most competitive in that field.

Sanjiv Lamba: This is what our owners expect. It's not new and not a surprise. Time and again through recessions and global economic shocks, linde has consistently delivered industry leading results through a relentless productivity culture while increasing network density. And I see no reason why that won't continue going forward. In fact, rather than waste time trying to predict what will happen, we are constantly striving to perfect a model for all seasons. Here at linde, we acknowledge the world is a volatile place.

And I've been quite stable through this downturn now let me give you a kind of a bit of a bit more color on some of the end markets that we're seeing over there I'll start with chemicals to begin with sequentially, we saw a bit of softness but year on year chemical production was actually pretty much flat for Q4, which is more near term, we're expecting potentially a mild recovery as.

Sanjiv Lamba: And as stewards of shareholder capital, we are focused on running an organization which can sustainably deliver on owner expectations. Quality earnings growth, leading return on capital and strong cash generation are hallmarks of our history and will be integral to our future performance. I think it's important to remind investors of these key tenants at linde especially during uncertain times like today. The combination of inflation, rising interest rates and geopolitical tension is curtailing risk appetite and hence overall economic activity.

The result of a bit more cautious view on domestic consumption and weak external environment and I see that.

Lay out hope you know I expect into the first half of next year as well.

Our steel volumes have been sequentially stable, but as you know and we mentioned this a few times now have been lower year on year.

Cloud, but is not expected to improve in Q4, obviously they have their own environmental production curtailments that happened in went up I expect that to play through and most likely into the first half of next year as well both steel and chemicals are impacted by the crisis out call. It in the property sector and unless that ship kind of.

Sanjiv Lamba: However, I remain confident in linde's ability to weather any economic downturn based on the strength of our diverse portfolio and long term contrast. Maxx, which is for the demonstrated on slide three. When you read the news of governments statistics, I know it's hard to be bullish on the global economy. However, when looking at underlying trends by end market, we see a mixed picture with some increasing while others are flat or slightly down.

Jones around you're unlikely to see a lot of tailwind for chemicals and steel.

On manufacturing.

Manufacturing PMI for China has been shrinking it shrank a little bit again in September that about 56 now.

We see volumes sequentially stable.

Automotive is probably the one bright spot.

In that space, but I'd say, we're seeing positive movements year on year, largely driven by EMEA production, you mean production, obviously growing in excess of 20% at the moment.

As a bit of momentum around that I expect that momentum to sustain into Q4 and beyond.

Sanjiv Lamba: Overall, underlying sales were up 3% with the base volumes down low single digit percent, which was more than offset by pricing and contribution from project backlog. In other words, the Linde operating model allows us to quickly adapt to maintain steady and compounding value creation regardless of the macro environment. The resilient consumer related end markets, which represent about one third of sales, saw solid growth in food and healthcare, but a mid single digit percent decrease in electronics.

On the other hand machinery and metal fab output remained weak in the third quarter I expect those to remain weak in Q4 as well.

Lastly, electronics volumes sequentially have been stable, but are below last year. As you know we've said before all the side. The electronic volumes are stable, we really see the volatility around merchant and package potentially around Reg assets, primarily overall chip output in China did improve in the quarter.

In Q3 was up about four 1% and I expect it to kind of remain at that level. As we go ahead into the last quarter. So that's kind of a near term view Lauren if I.

Sanjiv Lamba: Now, on site electronic volumes remain stable with reductions in merchant and package gases primarily from rare gas sales in Asia. Based on customer feedback, I believe we'll begin seeing signs of recovery in the first half of 2024 due to growing AI demand and inventory levels stabilizing. Industrial related markets make up the remaining two thirds of sales. And similar to the other sectors, we're seeing mixed trends here. Manufacturing and chemicals in energy are pulled up primarily led by the United States.

If I take a view on the mid term obviously a lot has to happen over the next six months to nine months for that a recovery to come back in shape I expect that to be around mid 2024, but more medium term. If you look at a two to four year horizon or two to five year horizon, I do see moderated growth coming out of China.

And we'd see that reflected in the IP numbers that will get.

Are you.

Just being a tool the way you're running the business in terms of management structures and.

And the resulting quick question.

Sanjiv Lamba: We continue to see U.S, package gas volumes stable at a high watermark, including MedFa, as well as a recovery in Gulf Coast hydrogen pipeline volumes, which have carried into the fourth quarter as well. Conversely, metals and market volumes are down, likely from weaker economic conditions. Overall, higher prices and growth from contractual project backlog more than offset weaker base volumes. This is because our long term customer contracts stabilize results through inflation adjustment and fixed payment clauses.

Let me, let me finish off that then.

And absolutely the answer to that is yes, we are creating China as a mature economy, one where we are focused on pricing productivity cost management, we've got that team reoriented and have done for more than 12 months now Laurence so in some ways, we don't comment on that because for us it's a give it.

Believe that our business needs to constantly look at what we do and align itself to market conditions and that's what we started doing in China 12, 12 to 14 months ago and that is now fully in execution today, we manage that business as I would expect any other mature business to be handled with focus on pricing productivity cost management every day.

Sanjiv Lamba: And differently, we have the right business model and operating rhythm to weather any storm. Looking ahead to the fourth quarter, the U.S, economy continues to navigate at high levels with pretty much every end market expected to grow year on year and remain stable sequentially. China volumes are expected to remain flatish, even as manufacturing, chemicals and energy end markets may show a mild recovery while steel and electronic volumes continue to remain flat.

While we continue to look at good opportunities for growth and we continue to want to invest there should that high quality growth come through which meets our investment criteria.

Thank you.

We will take our next question from Stephen Richardson with Evercore ISI. Your line is open.

Hi, Good morning, So Jim I was wondering if you could maybe talk about some of the recent project wins that your customers have disclosed.

Specifically, the Australian project and maybe the Indian oil project and these projects was particularly interesting relative to what you just mentioned in terms of.

Sanjiv Lamba: Regarding Europe, we have not yet seen an inflection point, so the expectation is that volumes will hold around the third quarter levels, ex abnormal seasonal impact. Despite the softer macro environment and higher interest rates, proposal activity continues to be robust, and our backlog has increased by 300 million to 8.1 billion, of which 4.5 billion of steel of gas produce.

Tier one partners and some of the risks around.

Green hydrogen specifically.

Justin So both of those wins recently announced so our entities in India. Obviously, you did a really good job in winning a large hydrogen supply scheme to Indian oil at Bonnie, but that's a premier refinery in India as.

As you know the Indian market is growing and most of the infrastructure projects as well as large refineries are kind of running hard to keep pace.

Sanjiv Lamba: In addition, our clean energy projects continue to progress well as our customers remain committed to decarbonising their assets Finally, our priorities remain intact, be best in class in safety, compliance, sustainability and talent development, while maintaining a high performance culture which remains focused on delivering on our commitments Although the global economy seems stupid, I can only tell you that Linde will continue to deliver on its commitments.

So good to see that full holistic package, we are providing the atmospheric gases as well as hydrogen do that refinery as they go into their expansion plans.

And again, given our strong relationship with Iowa.

Our Indian Indian oil, we are seeing continued momentum from the technology that we're providing to them and their appreciation of the package of technology and operating capabilities that we bring Tibet. We also supply them a thorough deep already for a number of years now.

Matt White: I will now tell the goal of a match to walk it through the financial results Thanks, Sanjiv. Slide 4 provides a summary of 3rd quarter results Sales of $8.2 billion decreased 7% from last year and 1% sequentially, although these numbers are not indicative of underlying trends Cost pass-through, which represents the contractual billion of energy cost variances to customers, decreased 6% from last year but had no effect on profit In addition, the engineering business decreased 4% from prior year and 1% sequentially due to timing of project billings When excluding these items, along with impacts from FX and net divestitures, underlying sales increased 3% over last year and 1% over the 2nd quarter Price increased 5% over prior year and 1% sequentially as the business units continue to contractually recover higher levels of inflation In fact, globally-weighted CPI for our countries of operation also increased 5% in the 3rd quarter, further validating this correlation Volumes were flat sequentially and decreased 2% year over year, primarily driven by the electronics and metals in mining and markets Overall, year-to-date volume trends have tracked closely with globally-weighted industrial production We regularly monitor tank and cylinder returns to validate this correlation and have not identified any material differences In other words, the volume decline is driven by existing contractual customers requiring less gas refills Since their production decreased proportionally with industrial activity and their local economy I fully expect volumes to recover in line with each local economy Operating profit of $2.3 billion increased 15% over prior year and 1% sequentially Operating margin expanded 550 basis points to 28.3% As price actions, cost productivity and fixed payment contracts enabled greater leverage from the 3% underlying sales growth Excluding cost pass-through, operating margins expanded 400 basis points across all business segments payments, led by Amia at 600 basis points. Note that America's experienced elevated power cost in the third quarter, which had a negative impact to merchant and packaged margins.

As far as South Australia is concerned it was an interesting project. We worked very closely with the government of South Australia I have to give them some credit for kind of doing some fast breaking work over here are what they are.

Trying to do is to build a hydrogen by Ed.

Peaking power blocks, essentially moving hydrogen into the power sector.

And really as a result of that we are now doing a feed study for them. It is a paid feed study.

To provide 250 megawatts of electrolysis on a lot of hydrogen storage to support that being planned right now as you know.

A peaking plant really is a bit more discretionary in the hydrogen that's provided but doing a feed study to assess what is required for a successful project to happen we are working with a reputed.

Our player.

In developing that project jointly and whilst the feed is completed we will work together with our partners to ensure that we can take that to a final investment decision.

Thanks, so much.

And we will take our next question from Duffy Fischer with Goldman Sachs. Your line is open.

Yeah. Good morning, guys two quick questions first.

When you look forward into next year, how additive should new projects be.

Into next year and then the second is the $15 or $15 billion buyback is very large relative to history and you already had two remaining so what should we read into that as far as pace of buybacks and maybe cash flow generation just anything why such a large size I guess.

Let me I'll, let <unk> cover those sure.

So first as you know Duffy will give next year guidance next year.

When we when we give that but I will say that you know and we've said this in the past when you kind of look at the backlog. We've always felt and stated that with three five to 4 billion backlog should be given us close to 2% of EPS growth. We're now at $4 5 billion. So we're a little above that so.

So I see no reason why that would continue and we always want to focus on EPS growth of the backlog.

The revenue impact can vary based on whether it's totally in our pass through rate on the energy, sometimes it'll pass through the energy, which makes higher revenue as you know, sometimes we take a totally and it'll be lower revenue, but the returns are consistent in how we look at it the terms and conditions are consistent and so from an EPS perspective, we fully expect that to.

A percent or so on top with that backlog.

As far as the buyback. We've also grown if we have to remember that and how I think about a 15 dollar buyback is the pace at what it should be should be consistent with how our use of the prior programs have been so as you know we've been a $1 billion ish per quarter already we are growing our cash flow.

Continues to be quite strong and so while we did not give any explicit date on this.

Matt White: However, this will be recovered over the next one to two quarters. EPS of $3.63 increased 17% as we continue to deliver on the stated goal of double digit percent EPS growth. CapEx of $950 million increased 24% from last year, primarily due to project CapEx spending in support of the $4.5 billion sale of gas backlog. As a reminder, the Linde definition of project backlog is unique and the most stringent in the industry. Inclusion requires assured growth, a customer contract with fixed fees, and explicit termination provisions to ensure investment returns. Furthermore, the $600 million of base CapEx includes $320 million of additional growth investments to increase network density.

I would expect that the timing of for us to go through this and it will be consistent with what we've seen in our prior program. For example, the 10 billion that we announced in the beginning of last year, but again, our priority will always be growth and investing in the business. It just has to meet our criteria. So we view that we have ample capital to not only pursue every.

That meets our criteria, but obviously.

Significant amount of excess capital that we can deploy towards this program.

Terrific. Thanks, guys.

And we will take our next question from Jeff Zekauskas with J P. Morgan Your line is open.

Thanks very much.

When you look at your cost of goods sold line you went from $52 85 to <unk> $43 2014, you went down 19%.

And your revenues fell seven.

I was hoping you could analyze.

Decrease in cost of goods sold now I know that there is cost pass through.

Sure.

Which is there and I know that your engineering business was much more profitable on a revenue basis, but can you talk about the real underlying cost inflation and why the gross profit increase was.

Matt White: During uncertain times like today, shareholders want to sleep well at night knowing their investment is safe in management's hands, which is further supported on slide 5. Proper capital management and quality cash generation have always been at the core of our operating rhythm. We've been following the same capital allocation policy for decades. It starts with generating true operating cash flow because contrary to what some might think, working capital does matter. You can see the stable trends with the most recent quarter coming in at $2.5 billion.

Whatever it was $330 million in the quarter.

Okay, Jeff, It's Matt I'll, yes.

I'll provide some response to that but I.

I don't think we have enough time to do a full walk on our Cogs.

But to your exact point, so you'll have to start with faster. Okay. So that 6% translates dollar for dollar as you know.

And obviously the cost of goods is a smaller number than sales, but the dollar amount is the same so that will create a larger percent variance on that on top of that to your exact point engineering will have some swings based on that and so that will create some of it you saw the engineering sales were down four.

Matt White: Recall that we had some cash tax timing impact in the first half of the year, which we've now lacked. Therefore, I expect the operating cash flow to EBITDA ratio to remain in the low to mid 80% range. While our mandate is to maintain an A credit rating and grow the dividend, the priority for our capital is to invest into the business. This follows our time tested investment criteria, which has enabled Lindy to consistently achieve industry leading ROC year after year.

<unk> percent due to some project timing.

Another factor you have to remember is just so we divested just as you know.

And this is the last quarter on lapping that but just with a high variable cost kind of low margin business that would also.

Matt White: After investing into the business, surplus cash is used for sharey purchases. Having a strong balance sheet, stable cash generation, and an active stock repurchase program enables value creating opportunities during turbulent markets. In fact, our best stock repurchases happened when equity markets overreact.

Result in a disproportionate amount of cards those all aside.

There has been a tremendous amount of effort on our productivity.

When energy escalates like it did while we pass through the energy itself, we pass it through at a very fixed sort of contractual consumption factor ratio. So if we are inefficient we have to pay for that but if we are efficient we're able to pocket that and so and a lot of cases, we have.

Had the ability to make more investments on efficiency. This also just so much happens our scope one and scope two emissions reductions, which we've also been focusing on and so a combination between the work we've done on distribution and the work we've done on power management natural gas management has given us an opportunity with this inflation to be.

Matt White: Act. This is why we recently announced a new $15 billion stock repurchase program, allowing us to optimize our excess free cash flow and robust balance sheet. We'll continue to take advantage of stock market dislocations and return capital to our owners in a tax-efficient manner.

Be more efficient on our variable costs and so that is another component that is also helping on this so there is nothing in there that I view as any anomaly or not on a sustainable basis. Obviously the pass through will be what the pass through will be but that has no impact to profit.

But we're going to continue pursuing these are variable cost.

Matt White: Now wrap up with guidance on slide six. For the full year, we're raising guidance to a range of $14 to $14.10, representing a 14% to 15% growth rate. Consistent with prior quarters, the upper end assumes no sequential economic improvement. The updated full year guidance implies a fourth quarter range of $3.38 to $3.48. Excluding effects, the midpoint is down 4%, sequentially, due to engineering project timing and base volumes including seasonality, although we are taking actions to improve this range. As Sanjiv mentioned, global volatility appears to be the norm these days. So we must run our business in a manner which navigates the uncertainty while executing the strategy and delivering on commitments.

Efforts on efficiency.

Especially in a world, where there's more inflation because the payback opportunities greater.

Great. Thank you so much.

And we will take our next question from David Begleiter with Deutsche Bank. Your line is open.

Thank you good morning.

Sanjay can you discuss pricing sequentially, where are you still getting it I recognize that on a price mix basis pricing was flat sequentially and in the Americas and APAC, but where are you still getting pricing and we'll leave it at that thank you.

Thanks, David So.

Let's just talk about pricing I'll I'll start over the Americas, because you heard in the introductory remarks that we made that in the Americas, We did see a spike in power costs, which we expect to see recovered over the next couple of quarters. That's a typical lag that we've talked about in the Boston, we'll see that come through.

So that just to make sure that that's put aside now as you look at pricing across the board again, we've reminded.

Matt White: And while no one can predict what will happen tomorrow, let alone next year. Linde owners can rest assured knowing their capital will be properly managed for sustained compound growth in any environment.

Very often we reminded you in and our investors.

<unk> when you think about pricing for US you should be thinking about its correlation to globally weighted CPI on a long term basis.

I'm, taking the long term view over here because that is what plays into the sequential movement as well.

This quarter, our globally weighted CPI ended up at about 5% and you can see our pricing year on year ended up at about 5% as well. So again thats kind of a reflection of that long term trend and that's what's playing out sequentially. We expect to continue to see that movement variable we see.

Matt White: I'll now turn the call over to Q&A. Thank you.

Operator: If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you press star one a second time, you will be removed from the queue. And we will pause for just a moment to compile our Q&A roster.

Increased cost levels, we are more than out there to ensure that that recovery is taking place.

Michael Leithead: Can we will take our first question from Mike Lighthead with Barclays? Your line is open. Great. Thank you. Good morning. Sanjiv, maybe to start, you talked about some macro cross-currence impacting risk appetite. And I think there's probably been a bit of a pullback in the clean energy space and maybe a bit more economic rationality in some green ambitions. So can you speak to beyond with already in your backlog if discussions at all are changing on potential new clean energy products or maybe how is bidding activity today versus maybe earlier this year?

In the Americas as I said sequentially, you will see that happen over the next couple of quarters as well.

Matt anything.

Just add David Thanks Sanjay.

We're a bit of a victim of what I'd call rounding and footing in the Americas as well so when you actually calculate the sequential sales change it it comes to like 249%. So it rounded down to two but volume price and pass through all rounded to about 1% sequential improvement but.

For us it to two one of them had to go down. So we actually are getting healthy sequential price in Americas, I think it came to like <unk>, 7%, but given the rounding footing to just make the numbers work, we had to push it to zero. So while it says zero, it's really <unk> seven.

Michael Leithead: Thanks, Mike. And you're right that there is a bit of a risk off in the market. I have to say that you know our approach to clean energy projects. And at the risk of repeating myself from some previous conversations we've had on these calls, we've always maintained that technology and scale-up resulting in projects that have a competitive position are the ones that are going to move forward. And I want to reiterate today that we are seeing many of those projects that we are currently developing on track for exactly those reasons.

And it's a trend that we would expect given what the inflation is to <unk> point.

Thank you very helpful.

And we will take our next question from Peter Clark with Society Generale. Your line is open.

Yes, good morning, everyone I'm, sorry, I can't restrain myself I have two the first one was on the.

And the announcements of the hydrogen hubs, which you're not involved in I don't think anyway.

Michael Leithead: We work with tier one customers who have a commitment to decarbonizing but are also looking at cost competitive solutions to do that. So in terms of proposal activity we've gone in the past and had conversations about investment decisions of about 50 billion over a ten-year period. I'd say to you that I feel reasonably confident about those numbers. About 60% of that I see likely happening in the US. Again a very strong market where developments continue to be a failure of us, in terms of more near term.

I know a lot of it is focused on mobility.

But there is some industrial property and are now targeting quite a sluggish U S. Hydrogen production by 2030, I think it's 30%. So just wondering your views on that I presume, they're sending about ensuring returns from this and then the second question. The EMEA margins now ahead of America.

Over 30% I think of about 200 basis points from 2018, so really delivering on the old Linde <unk> platform.

Structurally I think they should be the highest margin regions anyway, given the mix, but just where you see the momentum from here because obviously you've seen this enormous Jim I know you're confident moving it forward, but just your views on that thank you.

Michael Leithead: In the past, Mike, I've said, you know, decisions of about anywhere between 9 to 10 billion over the next few years. I feel pretty good about that number as well. The project that we are currently working on and tracking all appear to be on that path. And most recently you would have heard in Tao's earning school a couple of days ago, Jim outlining the fact that their project in Alberta is moving to FID towards the end of the year.

Okay.

Thanks, Bill, let's start off with the daily hubs that were announced and we are actually embolden them and we've been awarded as one of the participants of the options hub, which is in California, where we have a market that we believe on mobility will be meaningful and therefore, we are participating in that we did participate in a few others, but remember for us.

Michael Leithead: Again, that's just a validation of the outlook that I've given you. One last comment, you've heard me be skeptical around developments in green. And I've said in the past number of times there are a few factors that impact that what investment renewable energy to make sure there is enough renewable energy available for electrolyzes to produce green hydrogen. That continues in this environment that continues to be a challenge. Obviously, technology and scale up on green is also a lacking today.

Peter the GOR off how we think about our business and also the development of the business going forward is all built around network density and that's the asset test that we applied to the development around the hydrogen hubs as well.

The <unk> has done a remarkable job in really kind of put this whole proposal forward, but of course, there is still a long way to go to get to that funding ensuring that you have a reasonably complex structure with multiple stakeholders involved in putting in positioning or one of those.

Michael Leithead: I send the past and I maintain that's probably five to seven years away. And I expect those developments to feed out, you know, as we see that point of inflection, maybe a decade from now, when green energy projects really are available at scale at a cost competitive level, and meaningfully to be deployed in the energy transition. Great, thank you.

So.

Well, we'll be watching out for those developments, but where we thought there was most impact for us in our business in California, we are participating in our part of the hub Thats been selected so just just that much on hubs, let's talk about EMEA and Youre right I mean EMEA margins at about 30% is a major milestone I do.

Laurent Favre: And we will take our next question from Laurent Faw, with BNP. Your line is open. Yes, good morning, Ron. I've got a question on China. Yeah, and if you talked about slantish volumes, I was wondering if this is a comment about the near term or also if that's how you feel about the medium term and are you adjusting resources and productivity at all? Lauren, that's a good question.

Recall, Peter in the past your comments around EMEA being the most profitable region or at least it should be we are demonstrating now that it can be you'll recall if you go back to 2018 below that.

<unk> margins were 19, 2% in the baseline so they have come almost 1100 basis points up from that and it's been consistent that has not been choppy. It's been a consistent and it's a hot processes you know and we talk about this all the time the grinder, making sure you do pricing and productivity every day, while we were.

Sanjiv Lamba: So let me, why don't I just kind of give you a feel for what I think is happening in China as we see it today, and then we'll talk a little bit about the medium term as well. So in the near term, one of the good things in China, you know, which is on a slow road to recovery at CT is a resupply tier one customers that are the most competitive in their field. And I've been quite stable through this downturn. Now, let me give you a kind of bit of bit more color on some of the end markets that we're seeing over there.

Chart, four all growth opportunities that come by I think thats the model Thats been applied and really at the heart of this is making sure. We're extracting full value from the high network density that we enjoy in the EMEA businesses, where we are so I feel pretty good about that now looking ahead.

Sanjiv Lamba: I'll start with chemicals to begin with sequentially. We saw a bit of softness, but you're on your chemical production was actually pretty much flat for Q4, which is more near term. We're expecting potentially a mild recovery as a result of a bit more cautious view on domestic consumption and weak external environment. And I see that play out hope, you know, I expect into the first half of next year as well. The seal volumes have been sequentially stable, but as you know, and we mentioned this a few times now have been lower year on year.

Expect Lindsay overall to continue down the path of giving you between 20% to 50 basis points of margin expansion every year at the task, we hold ourselves to and I think EMEA up just because it gets to that 30% doesn't mean, we'll be wave that I think they will work that there they're all there.

The actions necessary to ensure that they actually deliver as part of that 30 to 50 basis points improvement that we look for breo.

Thanks for the color. Thank you.

Sanjiv Lamba: See loud, but it's not expected to improve in Q4. Obviously they have their own environmental production cut ailments that happen in winter. I expect that to play through and most likely into the first half of next year as well.

Yeah.

And we will take our next question from Geoff Haire with UBS. Your line is open.

Oh good afternoon.

Good morning, I should say.

Sanjiv Lamba: Both steel and chemicals are impacted by the crisis, I would call it in the property sector. And unless that ship kind of turns around, you're unlikely to see a lot of tailwind for chemicals and steel.

Thank you for the presentation I had a quick question for you I think at the end of your prepared remarks, you mentioned that you were taking actions to potentially lift the top end of the EPS guidance range for this year.

Sanjiv Lamba: On manufacturing, you know, the manufacturing PMI for China has been shrinking. It's shrank a little bit again in September. Is that about 50.6 now? You know, we see walling sequentially stable.

Wondering if you'd like to give some details on what those options are.

If I understood it right.

Yes sure Jeff.

As Sanjay mentioned in his remarks, the economic environment is challenging I think we can all agree on that and given that we have to get ahead of it we have to do things, especially in those geographies most affected.

Sanjiv Lamba: Automotive is probably the one bright spark in that space where I'd say we're seeing positive moments year on year, largely driven by EV production. EV production obviously growing in excess of 20% of the moment. There's a bit of momentum around that. I expect that momentum to sustain into Q4 and beyond.

It was discussed earlier things like we're doing in China, but we are taking certain actions on the cost to tighten up discretionary spend where we can to be very focused on head count additions.

Sanjiv Lamba: On the other hand, machinery and metal fab, you know, outputs remained weak. In the third quarter, I expect those to remain weak and Q4 as well.

And it's to not only get ahead of a situation, but ideally prevent any further need for more severe actions. If we can get early on this we've done very similar approaches when we were frankly heading into 2020.

Sanjiv Lamba: Lastly, electronics, you know, volumes sequentially have been stable, but are below last year. As you know, we said before, on site electronic volumes are stable. We really see the volatility around merchant and package, potentially around red gases primarily. Overall, chip output in China did improve in the quarter. In Q3 was up about 4.1%. And I expected to kind of remain at that level as we go ahead into the last quarter.

We've done this into 2022, we've done this back when you look in prior years as well when we start to see slowing conditions. So we're taking a significant global efforts across discretionary spend head count.

<unk>, such as that to essentially tightened down and be prepared for what will happen because while we don't know what will happen, it's better to prepare for the worst and hope for the best and that's how we need to go about this.

Sanjiv Lamba: That's kind of a near term view, Lauren. If I take a view on the mid term, obviously a lot has to happen over the next in a six to nine months for that recovery to come back in in shape. I expect that to be around mid 2024.

Okay. Thanks.

We will take our next question from Vincent Andrews with Morgan Stanley. Your line is open.

Sanjiv Lamba: But more medium term, if you look at a two to four year horizon or two to five year horizon, I do seem moderated growth coming out of China. And we'd see that reflected in the IP numbers that we'll get.

Thank you and good morning, everyone method, you mentioned before the margin impact in the Americas from the power issues.

Yeah.

We did not give a specific number but consistent with what we've had in prior power spike situations in which you probably know you had in the United States, we tend to take an unfavorable impact to merchant and package margins in the quarter. It occurs and then we recover in the following one to two quarters and we.

Sanjiv Lamba: Are you, so are you adjusting at all the way you're running the business in terms of management structures and in resolving good question. Let me let me finish off that then. And absolutely the answer to that is yes, we are treating China as a mature economy, one where we are focused on pricing, productivity, cost management. We've got that team reoriented and have done for more than 12 months now, Lauren. So in some ways, we don't comment on that because, you know, for us, it's a given.

Fully expect the same situation will happen again here as we saw a pretty severe power spike, especially in the southern part of the United States.

Maybe I could just ask it this way what would Americas margins have been higher than EMEA margins without the power space.

Sanjiv Lamba: I believe that our business needs to constantly look at what we do and align itself to market conditions. And that's what we started doing in China 12 to 14 months ago. And that is now fully in execution today. We manage that business as I would expect any other mature business to be handled with focus on pricing, productivity, cost management every day. While we continue to look at good opportunities for growth, and we continue to want to invest there, should that high quality growth come through which meets the investment criteria.

They would have a three handle.

Operator: Thank you.

Okay. Thanks, very much that's very helpful.

Yeah.

And we will take our next question from Kevin Mccarthy with vertical research partners. Your line is open.

Yes, good morning.

Would you provide your latest thoughts on the helium market, both fundamentally in terms of operations or lack thereof.

Competitor in Russia.

As well as the upcoming U S helium auction of reserves and related assets would you expect that to.

Stephen Richardson: And we'll take our next question from Stephen Richardson with Evercore ISI. Your line is open. Hi, good morning.

Have any material impact on that market moving forward.

Sanjiv Lamba: I said, Jeff, I was wondering if you could maybe talk about some of the recent project wins that your customers have disclosed, specifically the Australian projects and maybe the Indian oil project and these projects is particularly interesting relative to what you just mentioned in terms of pure one partners and some of the risks around green hydrogen specifically. So both of those wins recently announced our entities in India, obviously, did a really good job in winning a large hydrogen supply scheme to Indian oil at funny pub.

Sure Kevin So helium as you know it's been a market that's been reasonably volatile.

I expect helium market continued to be Daiichi have seen that reflected back in the prices as well and again in the near term.

Kevin I do not see anything that's going to fundamentally change that.

There's been a lot of speculation around what's happening out of Russia.

And reconfirmed to everyone on the call that we have canceled our contracts in Russia and were no longer involved with that project.

Sanjiv Lamba: That's a premier refinery in India, as you know, the Indian market is growing and most of the infrastructure projects as well as large refineries, you know, are kind of running hard to keep pace. So good to see that full holistic package, we're providing the atmospheric gases as well as hydrogen to that refinery as they go into their expansion plans. And again, given our strong relationship with Iowa or Indian Indian oil, you know, we are seeing continued kind of momentum from the technology that we're providing to them and their appreciation of the package of technology and operating capabilities that we bring to bed. Okay, we also supply them at power people ready for a number of years now.

I expect there are technical challenges that that project will continue to go through.

And reliability of any supply chain is coming out of Russia will always be suspect, particularly given the increasing sanctions, including around movement of product out of Russia.

Terms of helium as well so I was just kind of what I am expecting near term as far as <unk> concerned Mike.

My view is I think BLM.

Complex divestiture that the government is trying to undertake.

There is some litigation around that already with one of our competitors going out and litigating that I expect that will be a long drawn out process, but you know that over the last many years people have relied less and less on BLM. It is important in the larger scheme of the helium infrastructure globally, but plans are.

Sanjiv Lamba: As far as South Australia is concerned, it was an interesting project. You know, we worked very closely with the government of South Australia, I had to give them some credit for kind of doing some fast breaking work over here. What they're trying to do is to build a hydrogen-fired speaking power plant, so essentially moving hydrogen into the power sector. And really as a result of that, we are now doing a feed study for them.

Much smaller roles today than it would have if you go back five to 10 years. So people are kind of factor that in our supply chain. They're all developed with a view that we understand the BLM limitations and we understand how that gets factored in so I think I'll, just kind of wrap up by saying expect a tight market.

Sanjiv Lamba: It is a paid feed study to provide 250 megawatts of electrolysis and a lot of hydrogen storage to support that speaking plant. Now, as you know, you know, the speaking plant really is a bit more discretionary in the hydrogen that's provided. We're doing a feed study to assess what is required for a successful project to happen. We're working with a repeated power player in developing that project jointly. And once the feed is completed, we will work together with the partners to ensure that we can take that to a final investment decision. Thanks so much.

I don't think its kind of going along anytime soon.

Yeah.

We will take our next question from Patrick Cunningham with Citi. Your line is open.

Hi, good morning, when on a sequential weakness in electronics should we expect some additional drag in the fourth quarter and you also pointed to signs of recovery in the first half piece.

Pace of recovery do you see given current visibility.

So my expectation is that on electronics, you should think about that.

Patrick Fischer: And we will take our next question from Deputy Fischer with Goldman Sachs. Your line is open. Yeah, good morning, guys. Two quick questions. First, when you look forward to next year, how additive should new projects be to next year. And then the second is the $15 or $15 billion buyback is very large relative to history and you already had two remaining. So what should we read into that as far as, you know, piece of buybacks and maybe cash flow generation, you know, just anything, you know, why such a large size, I guess? Yeah, let's go with those. Sure.

Patrick in kind of two separate pieces the onsite electronic volumes as I as I had mentioned earlier on remained stable and I expect that stability to continue sequentially through enter this quarter and beyond it's that volatility is largely coming around the inventory that is held around electronics special gas.

Which includes some high value Reg assets, and I think thats, where most of that volatility has been again my expectation going into Q4 is you should expect sequential movements to largely be flat, but the recovery is some some way away potentially.

Sanjiv Lamba: So first, as you know, Duffy, we'll give next year, guidance next year, wouldn't we, when we give that. But I will say that, you know, and we've said this in the past, when you kind of look at the backlog, we've always felt and stated that, you know, with three and a half to four billion backlogs, we should be given us close to 2% of EPS growth. We're now at four and a half billion.

Middle of next year, when Youll see that move now DRAM youre seeing a little bit of a recovery at the moment around pricing I don't think thats enough to kind of move the needle on that on that market by itself logic has obviously been a lot more stable, but notwithstanding that my expectation based on feedback that we've had from different customers.

Sanjiv Lamba: So we're a little above that. So I see no reason why that would continue. And we always want to focus on EPS growth of the backlog, because the revenue impact can vary based on whether it's totally in our pass through on the energy, sometimes it'll pass through the energy, which makes higher revenue, as you know, sometimes we take a totally and it'll be lower revenue, but the returns are consistent and how we look at it, the terms and conditions are consistent. And so from an EPS perspective, you know, we fully expect the 2% or so on top with that backlog.

<unk>.

Half mid mid next year is when that recovery will result in significant more reasonable volume growth.

Great. Thank you.

Yeah.

We will take our next question from Steve Byrne with Bank of America. Your line is open.

Yes. Thank you both of you mentioned network density a couple of times in the call and it leads me to want to ask you about.

Matt White: As far as the buyback, you know, we've also grown and we have to remember that. And how I think about the $15 buyback is the pace that what it should be should be consistent with how our use of the prior programs have been. So as you know, we've been a billion ish per quarter already. We are growing our cash flow continues to be quite strong. And so while we did not give any explicit date on this, I would expect that the timing of for us to go through this, you know, will be consistent with what we've seen in our prior program, for example, the 10 billion that we announced the beginning of last year.

The <unk> acquisition, you made earlier in the year.

Presumably that was.

A competitor of yours in U S packaged gas packaged gases.

Is that acquisition enabled you to get even more aggressive on price and margins.

Are those those stores now more back integrated into the into your liquid plants.

And has this allowed you to change the footprint.

Of where your stores are located.

Matt White: But again, our priority will always be growth and investing in the business to just have to meet our criteria. So we view that we have ample capital to not only pursue every project that meets our criteria, but obviously a significant amount of excess capital that we can deploy towards this program.

Steve.

Let me just you'd mentioned network density and sometimes you know, we live and breathe it over here. So we've taken a a grounded everyone's on the same page as far as that definition is concerned so I'm going to spend a minute just talking about how we think about network density and then I'll talk about <unk> and a bit more detail lets just when you think about network density. It is about a combination of factors, but really what stands.

Matt White: Perfect. Thanks guys.

Jeffrey Zekauskas: And we will take our next question from Jeff Zikowski with JP Morgan. Your line is open. Thanks very much. When you look at your cost of goods sold line, you went from 50 to 85 to 43, 14. You went down 19%. And your revenue fell seven.

Over there is creating a dense network that has an opportunity to leverage core product economics, and ensure that you're fully leveraged that to look at your cost to us of optimizing that and enhancing margin. If you would eventually think about it the difference of network density the way, we think about it.

It's a rifle shot.

Matt White: I was hoping you could analyze the decrease in cost of goods sold. Now, I know that there's cost pass through, you know, which is there. And I know that your engineering business was much more profitable on a revenue basis. But can you talk about the real underlying cost inflation and why the gross profit increase? was, you know, whatever it was, 330 million in the quarter.

It's a small targeted area, where we have intense.

The density of customers, we serve and obviously optimize how we do that and that's not what that network density isn't is a scattergun approach that you would see all over the place. So that's kind of how we think about network density now let's play that into the next <unk> acquisition. So the headlines on Nexstar acquisition is performing better than our expectations and forecast.

Pretty good about having gone in debts that Nexsan was.

We did have a minority holding in next there and we were able to buy out the rest of the shareholders to own it fully now and integrated back into our system. So to your point, we are going through that process of integration, we are supporting them and their aspirations to grow on the south of the U S. A very attractive market.

Matt White: Okay, Geoff, it's mad, I'll provide some response to that, but I don't think we have enough time to do a full walk on our cause. But to exact point, so you have to start with pastor, okay, so that's 6% translates dollar for dollar, as you know, and obviously the cost of goods is a smaller number than sales, but the dollar amount is the same, so that will create a larger percent variance on that.

But you're seeing a lot of incoming investments, particularly given the near shoring a reassuring sent.

Sentiment that's there in the U S. At the moment. So we are seeing three benefits. Obviously there are some integration benefits that we're fully kind of working our way through in addition to that we have the opportunity for creating some revenue upside by cross selling into that existing next air network that exists where obviously density.

Matt White: On top of that, your exact point engineering will have some swings based on that, and so that will create some of it. You saw the engineering sales, we're down 4% due to some project timing. Another factor you have to remember is just so we divested just as you know, and this is the last quarter on lapping that, but just with a high variable cost kind of low margin business, that would also result in a disproportionate amount of cost.

He is playing a big role now and being able to goods served that market.

Thirdly, as new investments happen to that space.

We're looking at expanding the network density that exist over there and to a large extent what variable we have some complementary opportunities between our stores and they're making sure that we're optimizing and ensuring reach and penetration of the market continues to grow.

Matt White: Those all aside, there has been a tremendous amount of effort on our productivity, you know, when energy escalates like it did, while we pass through the energy itself, we pass it through at a very fixed sort of contractual consumption factor ratio. So if we are inefficient, we have to pay for that, but if we are efficient, we're able to pocket that. And so in a lot of cases, we've had the ability to make more investments on efficiency.

All in pretty happy with an exar acquisition, where it's at.

Thank you.

And we will take our next question from Laurence Alexander Jefferies. Your line is open.

Hi, Good morning, this is Kevin on for Laurence Alexander.

So you've touched on hydrogen I guess any sense of how many of those hydrogen projects are insensitive to interest rate and I guess, how many could be viewed as maybe more likely to being delayed if rates continue to move higher from current levels. Thank you.

Matt White: This also just so much happens our scope one and scope to the mission reductions, which we've also been focusing on. And so a combination between the work we've done on distribution, the work we've done on power management, natural gas management has given us an opportunity with this inflation to be more efficient. On our variable costs. And so that is another component that is also helping on this.

So I've said before not just mentioned and again most of these large hydrogen projects and again I would emphasize that at this point in time, while I want to consider I wanted to find these projects as low carbon intensity projects, but are easier definition.

Matt White: So there is nothing in there that I view as any anomaly or not in a sustainable basis. Obviously the past through will be what the past through will be, but that has no impact to profit. But we're going to continue pursuing these variable cost efforts on efficiency, especially in a world where there's more inflation because the payback opportunities greater.

Matt White: Great. Thank you so much.

<unk> hydrogen projects I find that the ones that continue to make good progress.

And we are finding that despite the high interest rates and some capital cost inflation in the marketplace as well that there is an economic case to pursue doors, particularly given the incentives that come out of the IRS. So there is a lot of support policy support for these at this point in time, we're not seeing any of the larger projects that we have.

David Begleiter: And we will take our next question from David Bigmeider with Deutsche Bank. Your line is open. Thank you. Good morning. Thank you very much. Can you discuss pricing sequentially? Where are you still getting it? I recognize that on a price mix basis, pricing was flat sequentially in the Americas and APAC, but where are you still getting pricing? And we'll leave it at that. Thank you.

Currently developing for our with our customers and partners.

Scaled backwards in any shape or form they are all on track and progressing well.

The challenge I think for hydrogen development tends to be around the green projects, where all of these factors that you mentioned are obviously, taking a toll given that the technology isn't quite at scale and there isn't fundamental competitiveness in the product that comes out of that those projects I've said before my expectation $5.

Matt White: Thank you David. So let's just talk about pricing. I'll start over the Americas because you heard in the introductory remarks that we made that in the Americas, we did see a spike in power costs, which we expect to see recovered over the next couple of quarters. That's a typical lag that we've talked about in the past and we'll see that come through. So that's just to make sure that that's put aside.

Seven years until a point of inflection where youll see green.

Green hydrogen technical technology solutions and available renewable energy provide momentum and a lot more larger development on that on that on that front.

Matt White: Now as you look at pricing across the board, again, we've reminded, you know, it's very often we've reminded you and our investors broadly, that when you think about pricing for us, you should be thinking about its correlation to globally weighted CPI on a long term basis. And I'm taking the long term view over here because that is what plays into the sequential movement as well. This quarter are globally weighted CPI ended up at about 5%, and you can see our pricing year-on-year ended up at about 5% as well.

Great. Thank you very much.

Yeah.

Andrew We will now take our final question from Mike Sison with Wells Fargo. Your line is open.

Hey, good morning, guys.

Just curious.

If you had told me.

Have negative volume growth in any given year. It seems like it's tough to grow EPS, but you are growing now mid teens can you maybe run through the growth algorithm make sure I understand how youre doing that in <unk>.

Matt White: So, again, that's kind of a reflection of that long-term trend and that's what's playing out. And sequentially, we expect to continue to see that movement wherever we see increased cost levels. We are more than out there to ensure that that recovery is taking place. In the Americas, as I said sequentially, you'll see that happen over the next couple of quarters as well.

Environment stays the same in 'twenty four 'twenty five is this sort of a new.

Range of EPS growth you guys can do given there's not a lot of.

Demand and volumes.

So Mike.

We've gone out and made a commitment of 10 plus percent EPS growth we.

Matt White: Yeah, I would just add, David, thanks, Sanjiv. You know, we're a bit of a victim of what I'd call rounding and footing in the Americas as well. So when you actually calculate the sequential sales change, it comes to like 2.49%. So it rounded down to two, but volume price and pass through all rounded to about a percent sequential improvement, but to force it to two, one of them had to go down.

We referenced that earlier on in our introductory remarks, as well and Thats, what you should expect us to be doing as we move forward.

The growth algorithm is fairly straightforward and I'll kind of walk you through that very quickly.

No rocket science here as you would expect.

There are three key levers that we've pulled and ensuring that that EPS growth is delivered and why we feel confident making that comment of 10 plus percent and obviously, we've beaten that over the track record over the last four to five years, let's start with the backlog our expectation is as as our backlog.

Matt White: So we actually are getting a healthy sequential price in America's. I think it came to like 0.7%. But given the rounding footing to just make the numbers work, we had to push it to 0. So while it says 0, it's really 0.7. And it's a trend that we would expect given what the inflation is to Sanjiv's point. Thank you. Very helpful.

Growth and you've seen it grow in terms of the larger projects have been doing our backlog has been growing annually as you see it grow you will see that contribute between 1% to 3% of our EPS growth. So.

Peter Clark: And we will take our next question from Peter Clark with society general. And your line is open. Yes, good morning, everyone.

Strong contracted growth with high quality customers developing projects that we feel pretty good about and as Matt has reminded you in his remarks as well we have a very stringent definition, we do not put Mou has an LOI is into the backlog or backlog.

Sanjiv Lamba: Sorry, I can't restrain myself. I have to. But the first one was on the DOE and the announcements of the hydrogen hubs, which you're not involved in, I don't think in any way. I know a lot of it's focused on mobility, but there is some industrial probably in there and they are targeting quite a slug of US hydrogen production by 2030. I think it's 30%. So just wondering your views on that.

It's only recognized when we have a signed contract in place with guaranteed cash flows for the future contracted them. So that's our backlog, 1% to 3% in terms of EPS growth coming from there. The next big lever. We have is a combination of pricing and productivity.

Sanjiv Lamba: I presume there's something about ensuring returns from this. And then the second question, EMEA margins now ahead of America over 30%. I think they're up 1200 basis points from 2018. So really delivering on the old Linda Rage platform. Structurally, I think they should be the highest margin region anyway, given the mix, but just where you see the momentum from here, because obviously you've seen this is almost jump. I know you're confident of moving it forward, but just use on that. Thank you. Thanks, Peter.

That will give us between 4% to 6%, we flex that combination of pricing and productivity on pricing I've said.

And in a response to a question that you should expect us to be slightly ahead of weighted global CPI and.

And again, we've demonstrated that consistently you know our track record on pricing, but just as a reminder, over the last 20 plus years.

Sanjiv Lamba: Let's start over the DOE hubs that were announced and we are actually involved in them and we've been awarded as one of the participants of the Archers hub, which is in California, where we have a market that we believe on mobility will be meaningful and therefore we are participating in that. We did participate in a few others, but remember for us, Peter, the core of how we think about our business and also the development of that business going forward is all built around network density.

Always have positive pricing.

And it's a muscle we know well that we have developed well reflects well and again, we've been applying that in high inflation environments. Obviously, we've also said previously inflations where inflation play we're happy when there is a bit of inflation. It gives us the opportunity to go and have that pricing conversation, a little bit quicker and easier and we.

You know kind of you've seen that track record play out over the last many years. So you will expect us to continue down that path on productivity deeply ingrained in the DNA of the organization.

Sanjiv Lamba: And that's the asset test that we apply to the development around the hydrogen hubs as well. The DOE has done a remarkable job and really kind of put this whole proposal forward, but of course there's still a long way to go to get to that funding and ensuring that you have a reasonably complex structure with multiple stakeholders involved in putting and positioning, you know, one of those projects. So, you know, we'll be watching out for those developments, but where we thought there was most impact for us in our business in California, we are participating in our part of the hub that's been selected.

Every year, we run thousands of projects, we've tracked them, we replicate them year to date, we have more than 11% to 12000 projects in play already this year.

And we ensure that those projects get done the results get validated and Thats what drives the Cogs reduction that Matt referenced in a question earlier on as well as consistent and relentless.

Action to make sure productivity delivers to the bottom line. So put those two together, 4% to 6% EPS growth will come out of that.

Sanjiv Lamba: So, just that much in hops. Let's talk about it, Mayor. And you're right. I mean, a mayor margins at about 30% is a major milestone. I do recall Peter in the past, your comments around, a mayor being the most profitable region or at least it should be. We're demonstrating now that it can be. You recall if you go back to 2018, Peter that the mayor margins were 19.2% in the baseline. So they've come almost 1100 basis points up from that and it's been consistent, it's not been choppy, it's been a consistent and it's a hard process as you know and we talk about this all the time.

There is another lever that we are not relying on at the moment in the current economic climate, which is volume.

I do want to remind you that in our earnings and our guidance for earnings we've said that even though the top and we're not expecting any help sequentially.

Look even at zero percent volume today.

Even modestly negative at the midpoint of our guidance, we are being able to demonstrate that we have the resilience in the business to be able to deliver these EPS growth numbers that we're talking about imagine what happens when the volume grows and you have a bit of a tailwind that we demonstrated that 2021 go back and look at 30%.

Sanjiv Lamba: The grind of making sure you do pricing and productivity every day, while you watch out for all growth opportunities that come by, I think that's the model that's been applied. And really at the heart of this is making sure we're extracting full value from the high network density that we enjoy in the email business. This is where we are so I feel pretty good about that now looking ahead, I'd expect Lindy overall to continue down the path of of giving you between 20 to 50 basis points of margin expansion every year at the task we hold ourselves to and I think it may have just because it gets to that 30% doesn't mean will be wave that I think they will work that they're they're all the actions necessary to ensure that they actually deliver a spot of that. 30 to 50 basis points improvement that we look for every year. Thanks for the color, thank you.

<unk> growth so.

But we get that tailwind from from volume in the economic activity. It's a really good level that helps us push that earnings growth beyond our numbers.

Additionally scene, but even without that today, we are committing ourselves to that 10 plus percent EPS growth. There was a final level that really is.

The outcome of the cash generation across the business again, you have $2 5 billion solid cash this quarter.

<unk> talked about in the low to mid <unk> in terms of conversion to EBITDA again, all of that plays into making sure. Our capital allocation policy has followed and as part of that we've said we will invest in every high quality project, we can but surplus cash gets swept into share buybacks, we've announced a $15 billion.

Sanjiv Lamba: And we will take our next question from Jeff here with UBS, your line is open. Oh, good afternoon. Good morning, I should say. Thank you for the presentation amount. I had a quick question for you. I think at the end of your preparation marks. You mentioned that you were taking actions to potentially lift the top end of the EPS guidance range for this year. I certainly if you'd like to give some details on what those actions are.

Graham and that share buyback impact provides around 2% of an uplift to the EPS growth as well, but it altogether, you've got that 10 plus percent feel pretty good about that and really I would say in whatever economic environment. We are in.

Thank you.

Yeah.

And I would now like to turn the call back to <unk> for any additional or closing remarks.

Sanjiv Lamba: If I understood it right. Yeah, sure, Jeff. You know, a strategy of mentioned in his remarks, you know, the economic environment is challenging. I think we can all agree on that, you know, and given that we have to get ahead of it. We have to do things, especially in those geographies most affected. You know, it was discussed earlier things like we're doing in China, but we are taking certain actions on the cost to tighten up discretionary spend where we can to be very focused on headcount.

Thanks, everyone for participating todays call.

If you have any further questions feel free to reach out to me directly have a safe day.

Care.

Yeah.

And ladies and gentlemen that will conclude today's conference call. We thank you for your participation and you may now disconnect.

Okay.

[music].

Sanjiv Lamba: Additions and it's to not only get ahead of a situation, but ideally it prevent any further need for more severe actions if we can get early on this. We've done very similar approaches when we were frankly heading into 2020. We've done this into 2022. We've done this back when you look in prior years as well when we start to see slowing conditions. So we're taking a significant global efforts across discretionary spend, headcount actions such as that to essentially tighten down and be prepared for what will happen because while we don't know what will happen, it's better to prepare for the worst and hope for the best. And that's how we need to go about on this. Okay, thanks.

Yeah.

[music].

Vincent Andrews: And we'll take our next question from Vincent Andrews with Morgan Stanley. Your line is open. Thank you and good morning, everyone. Imagine you mentioned before the margin impact in the Americas from the power issues. We did not give a specific number, but consistent with what we've had in prior power spike situations of which you probably know you had in the United States. We tend to take an unfavorable impact to merchant package margins in the quarter to curse and then we recover in the following one to two quarters. And we fully expect the same situation will happen again here as we saw pretty severe power spike, especially in the southern part of the United.

Yes.

[music].

David Begleiter: David Begleiter, David Begleiter, David Begleiter David Begleiter, David Begleiter, David Begleiter, David Begleiter, David Begleiter, David Begleiter, David Begleiter, David Begleiter, David Begleiter David Begleiter, David Begleiter, David Begleiter[inaudible] David Begleiter, David Begleiter, David Begleiter, David Begleiter David Begleiter, David Begleiter, David Begleiter David Begleiter How mid-next year is when that recovery will result in significant or reasonable volume growth? Great, thank you. We will take our next question from Steve Bern with Think of America.

David Begleiter: Your line is open. Yes, thank you. Both of you have mentioned network density a couple of times in the call, and it leads me to want to ask you about the next year acquisition you made earlier in a year. Presumably, that was a competitor of yours in US packet gas gases. Has that acquisition enabled you to get even more aggressive on price and margins? Are those stores now more back integrated into your liquid plants?

David Begleiter: And has this allowed you to change the footprint any of where your stores are located? Steve, let me just mention network density. And sometimes, you know, we live and breathe it over here, so we take it, we're granted everyone's on the same page as far as that definitions concern. So I'm going to spend a minute just talking about how we think about network density, and then I'll talk about next year in a bit more detail.

David Begleiter: Let's just, you know, when you think about network density, it is about a combination of factors, but really what stands out over there is creating a dense network that has an opportunity. You leverage co product economics and ensure that you fully leverage that to look at your cost to serve optimizing that and enhancing margin. If you want to visually think about it, the difference of network density, the way we think about it, it's a rifle shot.

David Begleiter: It's a small targeted area where we have intense, you know, density of customers we serve and obviously optimize how we do that. And it's not what network density isn't is a scattergun approach that you would see all over the place. So that's kind of how we think about network density.

Sanjiv Lamba: Now let's play that into the next air acquisition. So the headline on next air acquisition is performing better than our expectations and forecast. So I feel pretty good about having gone in there. Now next air was we did have a minority holding in next air and we were able to buy out the rest of the shareholders to own it fully now and integrated back into our system. So to your point, we are, you know, we are going through that process of integration.

Sanjiv Lamba: We are supporting them in their aspirations to grow on the south of the US. That's a very attractive market, which is seeing a lot of incoming investments, particularly given, you know, the neoshoring or reshoring sentiment that's there in the US at the moment. So we're seeing three benefits. Obviously there are some integration benefits that that we are fully kind of working our way through. In addition to that, we have the opportunity for creating some revenue upside by cross selling into that existing next air network that exists.

Sanjiv Lamba: Where obviously density is playing a big role now in being able to go and serve that market and totally as new investments happen to that space. We're looking at expanding the network density that exists over there and to a large extent wherever we have some complimentary opportunities between our stores and theirs making sure that we're optimizing and ensuring reach and penetration to the market continues to grow. All in, pretty happy with the next air acquisition where it's at.

Operator: Thank you.

Kevin Suck: And we will take our next question from Laurence Alexander, Geoffrey's. Your line is open. Hi, good morning.

Sanjiv Lamba: This is Kevin Suck on for Laurence Alexander. So you've touched on hydrogen. I guess any sense of how many of those hydrogen projects are incentive to interest rates and I guess how many could be viewed as, you know, maybe more likely to be delayed if rates continue to move higher from current levels. Thank you. Just before I just, you know, mention it again, most of these large hydrogen projects and again, I've emphasized that at this point in time while I want to consider, you know, I want to define these projects as low carbon intensity projects, but for easier definition, you know, blue hydrogen projects, I find are the ones that continue to make good progress.

Sanjiv Lamba: And we are finding that despite the high interest rates and some capital costs inflation in the marketplace as well, that there is an economic case to pursue those, particularly given the incentives that come out of the IRA. So there is a lot of support policy support for these at this point in time, we're not seeing any of the larger projects that we are currently developing for or with our customers and partners kind of scale backwards in any shape.

Sanjiv Lamba: They're all on track and progressing well. The challenge I think for hydrogen development tends to be around the green projects where all of these factors that you mentioned are, you know, obviously taking a toll given that the technology isn't quite at scale and there isn't fundamental competitiveness in the product that comes out of that those projects. I said before my expectation five to seven years till a point of inflection where you see green hydrogen, you know, technical technology solutions and available to renewable energy provide momentum in a lot more larger development on that on that on that front.

Sanjiv Lamba: Thank you very much.

Mike Sufam: And we will now take our final question from Mike Sufam with Wells Fargo.

Mike Sufam: Your line is open. Hey, good morning guys. Just curious, you know, and if you've told me you have negative volume growth in a given year, it seems like it's tough to grow EPS but you're growing down mid teens.

Sanjiv Lamba: Can you maybe run through the growth algorithm, make sure I understand, you know, how you're doing that and, you know, the environment stays the same in 24 or 25 is this sort of a new range of EPS growth you guys can do given you know there's not a lot of demand and volumes. So Mike, you know, you know that we've gone out and made a commitment of 10 plus percent EPS growth.

Sanjiv Lamba: We referenced that earlier in our introductory remarks as well and that's what you should expect us to be doing as we move forward. The growth algorithm is fairly straightforward and I'll kind of walk you through that very quickly. No rocket science here is as you'd expect. There are three key levers that we've pulled in ensuring that that EPS growth is delivered and why we feel confident making that commitment of 10 plus percent and obviously we've beaten that over the track record of the last four to five years.

Sanjiv Lamba: Let's start off with the backlog. Our expectation is as our backlog grows and you've seen it grow in terms of the larger projects that we're doing our backlog has been growing annually. As you see it grow, you will see that contribute between 1 to 3% off our EPS growth. So, you know strong contracted growth with high quality customers developing projects that we feel pretty good about and as Matt has reminded you in his remarks as well, we have a very stringent definition.

Sanjiv Lamba: We do not put MOUs and LOIs into the backlog a backlog is only recognized when we have a signed contract in place with guaranteed cash flows for the future contracted in. So, that's a backlog 1 to 3% in terms of EPS growth coming from there. The next big lever we have is a combination of pricing and products. That will give us between four to six percent. We flexed that combination of pricing and productivity on pricing.

Sanjiv Lamba: I've said earlier in a response to a question that you should expect us to be slightly ahead of weighted global CPI. And again, we've demonstrated that consistently. You know I try record on pricing, but just as a reminder over the last 20 plus years, we always have positive pricing. And it's a muscle we know well, we've developed well, we flex well. And again, we've been applying that in high inflation environments. Obviously, we've also said previously, inflation, we are in inflation play, we're happy when there is a bit of inflation, it gives us the opportunity to go and have that pricing conversation a little bit quicker and easier.

Sanjiv Lamba: And we've kind of you seen that track record play out over the last many years. So you will expect us to continue down that path on productivity deeply ingrained in the DNA of the organization. Every year, we run thousands of projects, we track them, we replicate them, you know, today we have more than 11 to 12,000 projects in play already this year. And you know, we ensure that those projects get done, the results get validated.

Sanjiv Lamba: And that's what drives the cost reduction that Matt reference in a question earlier on as well, a consistent and relentless action to make sure productivity delivers to the bottom line. So put those two together, four to six percent of EPS growth will come out of that.

Sanjiv Lamba: There is another lever that we are not relying on at the moment in the current economic climate, which is volume. I do want to remind you that in our earnings, in our guidance for earnings, we've said that even at the top end, we are not expecting any help sequentially. Look, even at 0% volume today, you know, we are even mostly negative at the midpoint of our guidance. You know, we are being able to demonstrate that we have the resilience in the business to be able to deliver these EPS growth numbers that we're talking about.

Sanjiv Lamba: Imagine what happens when volume grows and you have a bit of a tailwind and we demonstrated that 2021, go back and look at 30% EPS growth. So, you know, when we get that tailwind from volume and the economic activity, it's a really good level that helps us push that earnings growth beyond numbers that you've traditionally seen. But even without that today, we're committing ourselves to that 10 plus percent EPS growth. There is a final level that really is, you know, an outcome of the cash generation across the business.

Sanjiv Lamba: Again, you heard 2.5 billion solid cash this quarter, you heard Matt talk about, you know, in the low to mid 80s in terms of conversion to EBITDA. Again, all of that plays into, you know, making sure our capital allocation policy is followed. And as part of that, we've said we will invest in every high quality project we can. But surplus cash gets swept into share buybacks. We've announced a $15 billion program. And that share buyback impact provides around 2% of an uplift to the EPS growth as well. Put it all together, you've got that 10 plus percent. Feel pretty good about that.

Sanjiv Lamba: And really, I'd say in whatever economic environment we are in. Thank you.

Juan Pelaez: And I would now like to turn the call back to Juan Pelaez for any additional or closing remarks. Thanks everyone for participating today's call. If you have any further questions, feel free to reach out to me directly.

Operator: Have a safe day. Take care.

Operator: And ladies and gentlemen, that will conclude today's conference call.

Operator: We thank you for your participation and you may now disconnect.