Q3 2021 Enerflex Ltd Earnings Call
Hello, Thank you for standing by and welcome to the third.
Third quarter 2021 results conference call at this time, all participants are in a listen only mode.
After the speaker presentation there'll be a question and answer session.
To ask a question. During this session you will need to press star one on your telephone.
Please be advised that today's conference maybe recorded.
Any further assistance please press star zero.
I'd now like turn the conference over to your Speaker today Stefan Ali. Please go ahead.
Thank you operator, and good morning, everyone here with me are Marc Rossiter, <unk>, President and Chief Executive Officer, Sanjay. Additionally, and reflects the senior Vice President and Chief Financial Officer, and Ben Park, <unk>, Vice President corporate controller.
During this call, we'll be providing our financial results for the three months ended September 32021, a brief commentary on the performance of our three business segments, and a summary of our financial position.
Today's discussion will include forward looking statements regarding <unk> expectations for future performance and business prospects.
We're looking information involves risks and uncertainties and the stated expectations could differ materially from actual results or performance.
For more information please see the advisory comments within our news release, MD&A and other regulatory filings.
Approximately one hour following the completion of this call a recording will be available on our website under the investors section.
During this call unless otherwise stated we'll be referring to the three months ended September 32021, compared to the same period of 2020. We'll proceed on the basis that you've all taken the opportunity to read yesterday's press release, I'll now turn the call over to Mark.
Thanks, Jeff and good morning, everyone. The third quarter saw continued strength across global energy markets as economies continue their recovery from the Covid induced downturn.
Across each of our operating regions market fundamentals remain very constructive as global energy supply has tightened commodity prices are responding rig counts are accelerating natural gas production is reaching new highs in key locations such as the Permian basin and demand for natural gas liquids is increasing.
Currently the industry's commitment towards maintaining capital discipline has further strengthened the bullish undertones for the energy complex setting the stage for another industry up cycle.
This dynamic was reflected in our third quarter financial results were for the fourth consecutive quarter. We saw continued improvement in activity.
Booking $191 million in new engineered systems projects, and increasing our backlog to $375 million.
Its highest point since the first quarter of 2020.
Demand was broad based with roughly half of these new projects being destined for end users in international markets and have for North American markets.
<unk> also benefited from emerging demand for low carbon solutions, where we sold over 10000 horsepower of electrified compression and multiple landfill gas handling applications.
In addition, we successfully completed the construction of an important power and gas treating plant in Colombia.
Commission the system will reduce flare gas and <unk> through a uniquely engineered solution that leveraged our cross regional experience and is a win for the environment.
Bidding activity remains strong across each of our three segments navigating today's challenges will be front of mind. The manufacturing business is in the early stages of the recovery in a very competitive environment, which may pressure margins until such a time as excess industry capacity is put to work.
In addition, global supply chain constraints that emerged earlier this year may impact the price and availability of certain inputs.
While we successfully navigated supply chain constraints to date, our teams must remain vigilant in neutralizing the impact of escalating costs on materials such as steel.
Our aftermarket services business saw improved activity in the quarter across all segments on improved demand for parts and components as well as operations maintenance and overhaul services.
We are also seeing operational efficiencies captured through instrumentation, and telemetry upgrades, which are maximizing uptime and value for our customers.
However, despite improved activity the Ams business remains very competitive and is also seeing supply chain constraints impacting the price and availability of OEM parts press.
Pressuring margins in the Ams business across all regions.
Turning to asset ownership, our global fleet continued to perform as expected utilization of our U S contract compression fleet improved to a third quarter average of 88%.
While exiting the quarter at 89% its highest utilization rate since entering the U S contract compression business in 2017.
With the drawdown in inventories of drilled but uncompleted wells to their lowest level since 2013.
Additional drilling will be required to replenish inventories and for producers to meet their production targets, particularly in locations with high well decline rates such as the Permian Basin.
Accordingly, if commodity markets remain constructive we expect demand for our rental solutions to continue.
We're also seeing increasing demand for electrified rental solutions as our customers turn their minds to managing their environmental impact and reducing scope. One emissions. We expect that demand for E compression will continue to strengthen in geographies, where it can be readily deployed as clients continue prioritizing their decarbonization efforts.
In addition to our contract compression fleet, our international rental assets continue their strong performance across all geographies. We're progressing the 10 year gas infrastructure projects awarded during the first quarter of 2021 and subsequent to the quarter. We were awarded a new 10 year, roughly $200 million natural gas infrastructure contract.
For a customer in our rest of World segment.
We have dedicated resources over the years to increasing our capabilities and expertise in complex gas handling applications and are proud that our reputation for successfully delivering has assisted us in securing additional projects this year.
Turning to our energy transition efforts, we continue our work in understanding how the transition could unfold and are already seeing a significant number of inquiries for lower carbon solutions.
Including in respect of E compression carbon capture and sequestration renewable natural gas and hydrogen.
With support of oil and gas fundamentals and developing policy frameworks for the energy transition, we are modestly increasing our dividend.
Illustrating our commitment towards returning capital to our shareholders.
Looking forward, we are focusing our attention towards supporting our global customers and their development plans, while simultaneously building capabilities to capture opportunities within the energy transition landscape.
I will now turn things over to Sanjay to review our financial results.
Thanks, Mark second quarter revenue of $231 million decrease versus the prior year period, due primarily to lower engineered systems revenue on lower opening backlog and reduced contribution from some major projects that were largely completed by the third quarter of 2020.
Despite lower engineered systems revenue bookings of $191 million improved our backlog by over 150% relative to December 31, 2020, reflecting the improving conditions for the oil and gas industry and for our engineered systems business.
Aftermarket service revenue improved versus the comparable period as industry activity continued to improve.
Rentals revenue also benefited from a more constructive operating environment compared to the same time last year when the COVID-19 pandemic took significant volumes of production offline.
Rentals continued to benefit from improved utilization of our U S contract compression fleet and contributions from our growing portfolio of international boom and natural gas infrastructure assets.
Gross margin decreased over the comparative quarter on lower revenue, but the decrease was partially offset by increased contributions from recurring revenue product lines, which yield a higher gross margin as a percent of revenue.
Overall gross margins as a percent of revenue was in line with the comparative quarter, but may be pressured in the near term until excess manufacturing capacity is utilized and supply chain constraints are resolved.
SG&A increased versus the comparative period, driven by higher overall compensation cost and the wind down of pandemic related government subsidies.
During the quarter, we invested $9 4 million of capital towards units in our asset ownership platform. The majority of which funded the organic expansion of our U S rental fleet, which has grown to approximately 385000 horsepower.
From a capital allocation perspective, we are seeing several opportunities to deploy growth capex globally at attractive returns and with Counterparties with whom we have deep relationships.
As Mark mentioned subsequent to the quarter, we were awarded another 10 year in natural gas infrastructure contract with an international counterparty.
This project will be recorded as a finance lease such that costs related to its construction.
We will be accounted for as a work in progress rather than capex.
Accordingly, we expect to remain in line with the growth Capex range of $50 million to $100 million provided earlier this year.
Our balance sheet has been managed well through the downturn by managing working capital reducing debt and capital discipline.
We exited the quarter with a bank adjusted net debt to EBITDA of 138 times compared to a maximum ratio of three to one.
This bank adjusted net debt to EBITDA ratio relates specifically to the company's bank facilities and notes and excludes the new non recourse credit facility, which had approximately $42 million drawn on September 30th.
With substantial undrawn credit capacity and cash on hand, we remain well positioned to capture opportunities as industry activity continues to recover.
Our net debt decreased by $80 million versus September 32020, as we continue using cash flow to decrease net leverage and strengthen our balance sheet.
With respect to liquidity enter flex has a $102 million of cash on hand, and access to $664 million on our bank facility, giving us significant flexibility to manage our resources as the industry recovers and to consider both organic and inorganic growth.
Lastly, and reflects board will continue to evaluate dividend payments on a quarterly basis based on the availability of cash flow and anticipated market conditions yesterday, increasing its dividend to $2 five per share to be paid on January six 2022.
This amount represents a 25% increase to our dividend and is consistent with our long term strategy of maintaining a strong balance sheet and delivering sustainable returns to shareholders.
This completes the formal component of the webcast additional details can be found in our November 4th press release, we will now be happy to take any questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Okay.
Yes.
Our first question comes from Aaron Macneil of TD Securities. Your line is open.
Good morning, all thanks for taking my question.
Sanjay can you, perhaps engage in a bit more handholding for us as it relates to that.
$200 million boom project.
In terms of revenue recognition funds flow and any other notes on accounting treatment.
Being accounted for as a financing lease.
Sure, Yes, good morning Erinn.
So it is a it is a finance lease and the number that was disclosed as.
The lifetime revenue associated.
Associated with the contract.
It will be much like the other finance lease contracts that we signed.
It will not it will not be counted as capex, but there will be an upfront.
Cash outlay on on the deal and then we earn back the revenue.
Over a 10 year period.
And it's.
High quality.
City International counterparty and were.
We're pretty excited about the deal.
Can you give us a sense of like what kind of.
Work in progress inventory build we.
We should expect or any of the moving parts in terms of materiality.
Yes, so really round numbers, let's call it $100 million.
Okay.
That's helpful.
And then a bit more high level for me.
Are.
Assuming we can all agree on the merits.
Incremental boom projects.
Or would you say to investors that maybe would have liked to see the company prioritize other capital allocation initiatives such as our dividend represented a much larger portion of free cash flow share buybacks or further debt reduction.
Over and above.
And the owned infrastructure.
Aaron I would say that this investment in the middle East is exactly the kind of thing that's been part of a core part of our strategy for a number of years now and we've signaled all of investors that investing in good return.
<unk> projects with good Counterparties as a priority.
And so that's what I would say to them that this is exactly the strategy we've been talking about for a few years, it's a great win for US, we like the business and it falls well within our ability to find it.
And we've got we've got low leverage so I feel like this project is just a great project exactly what we're trying to do and in line with our strategy.
Great.
One for me.
On the energy transition initiatives I know it's early days.
But could you maybe give us an update on the <unk>.
Types of business models, you might pursue or.
The timeline of when we might expect to hear a bit more.
Yeah sure I'll take that one Aaron we were really excited about carbon capture.
Really plays off our modular equipment history and expertise.
We will play in carbon capture as owners or manufacturers and servicers of the equipment. It's uncertain, how that market will shake out and I think it'll be different in Canada, and the United States, where were currently looking at projects, whether theres asset ownership opportunities for us or if it will be mainly as equivalent providers and service providers so that equipment.
Renewable natural gas non fossil fuel gas, where natural gas company. So we absolutely want to be in any new sources of natural gas, which is R&D and landfill gas.
Notice in the quarter, we had a good win for some landfill gas opportunities in North America, we're excited about that.
Looking really closely into RMG and trying to understand the space. We think it is a critical component of the natural gas grid going forward.
Although the market opportunity is quite a bit smaller than how we would evaluate carbon capture and storage.
But it's interesting to us its modular its natural gas, it's something that we should be involved with so we're looking pretty closely that I would say hydrogen as sort of third place for us. We think it's a little bit longer term. It may not play into our modular capabilities quite as nicely as <unk> and R&D.
But we've got a long history of building equipment for hydrogen mostly blue hydrogen manufacturers and we're quite active in bidding equipment in that industry still.
But it's not as much of a really differentiated etfs play as it is participating with their clients and have always been and hydrogen.
Timing.
Stefan and Sanjay here will be working on better.
Closures and descriptions of our strategy for Etfs early 2020 to mid 2022 will come out with more clarity and water strategy is there.
Great.
Thanks for taking my questions. Thank.
Thank you.
Thank you. Our next question comes from Tim Monticello.
<unk> capital markets. Your line is open.
Hey, good morning, everyone.
Alright.
Marketing issue focusing.
On the margin degradation of marginal system savings. So I'm wondering if you could speak a little bit to what youre seeing on the cutting edge in terms of new bookings that are coming in what does the margin profile look like that on that compared to what you have in your backlog.
Tim sector fundamentals are improving but the pricing pressures remain high and theres a risk of supply chain disruptions further challenging the margins going forward.
The Q3, and Q2 were great quarters for bookings, but there is a lot of margin pressure in those quarters.
We're seeing maybe in the last five weeks since the close of Q3 the markets continue to tighten we feel that our the one portion of our engineered systems business compression packaging. There is that there is a lot of supply of packaging capacity.
And we don't feel that that is so full that there's going to be a significant inflection in margins on that part of our business right away.
International work gas processing process refrigeration is a different story and we really help them in the coming quarters there'll be the ability for us to garner more traditional margins.
Okay. That's helpful.
And in the commentary it also mentioned outside of that one large probably big one subsequent to the quarter.
Encouraging.
A few other projects that you won that I imagine are smaller in nature I'm wondering if you could just speak to that.
Sure. They are in our OWS segment, and they're sort of a blend of re contracting and moving idle assets to other locations installing them and getting them running so sort of a combination of.
Our ITK business, where we do the installation.
Reactivating idle equipment expanding certain facilities.
We had operating so let's say.
Around six a little bit less than six projects throughout the RW region modular equipment compression gas processing.
Right down the strike zone of what we're good at.
Okay and would those be ownership.
Yes. They are yes, they are boom projects with existing customers.
Okay, how should we think about capex for 2022.
So usually we.
Talk about the capital program.
In conjunction with Q4 results I guess, what I would what I would say as philosophically I wouldn't expect any change from how we've been managing the company.
Living roughly living within within cash flow.
Okay, and then last one to me.
Supply chain.
Can you speak to the lead time for for new.
Yes.
Or was that extended materially just given our ability to source Carson.
Critical inputs for for compression processing facilities.
It's longer lead times today than it was let's say a quarter ago.
It's manageable and I still think the lead times for our equipment is within the normal planning cycle for <unk>.
A&P companies and midstream operators.
Okay I appreciate all the details I'll turn it back.
Again to ask a question. Please press star one on your Touchtone telephone again Thats Star one on your Touchtone telephone to ask a question.
Our next question comes from coal Pereira of Stifel. Please go ahead.
Hey, good morning, everyone.
I just wanted to maybe start on the margins you've kind of identified two factors here call it and ramp up of manufacturing and maybe some.
Some work mix and then on the other hand, you have supply chains I guess.
Which one do you really see as being more material and more of a threat to forward margins because one kind of screens is more transitory, whereas the supply chain issue might be around a little longer term.
Paul This is mark I would say that the margin pressure.
Supply demand.
Was the more dominant issue the last two quarters and going forward.
Well can flip over to the supply chain portion of it.
Okay.
That's helpful. Thanks, I guess.
With that in mind, I mean, you kind of touched on it earlier, but how should we be thinking about margin improvement into Q4 and maybe into Q1.
It's difficult for us to predict I expect the margin pressures will will hang around for at least another couple of quarters as the supply side gets gets busy what we're optimistic about what might bring that in is the fact that we all know the commodity macro is extremely.
Positive.
And customers have been showing a lot of capital discipline. They continue to do so.
However, our bid pipeline is more solid it continues to be quite positive on that side and so if we're going into our third quarter. After the inflection from the crisis and as people continue to buy stuff. Then we expect the margins will come up when we compare this down cycle two other ones.
Definitely hasnt come up as fast as you may have modeled from 2015, and 16 or even from the global financial crisis, and I think the thing thats, making it less of a snappy rebound is definitely the capital discipline story amongst the operators in our main shale basins in North America.
Good part of it is that our exposure internationally the international customers.
Not quite as cyclical as North America, and we pointed out in our script that about half of our bookings were from international markets and Thats really positive for us where we're very happy to have that exposure.
There was one more thing I wanted to mention on that front.
Yeah.
I guess thats it thanks Paul.
Okay. Thanks.
And as well just.
Your comments on the landfill gas project I assume that that was the non fossil fuel based engineered systems work and are you able to just quantify exactly how much of that was or maybe give some kind of goalposts.
I mean, we obviously know how much it was but it's not something we would disclose it was meaningful enough for us to mention.
But.
I will leave it at that.
Okay. That's fair that's all for me I'll turn it back thanks.
Thank you at this time I would like to turn the call back over to Marc Rossiter for closing remarks.
Since there are no further questions I'd like to once again, thank you for joining us on the call. We look forward to giving you our fourth quarter results in February.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Hello, Thank you for standing by and welcome to the <unk> third quarter 2021 results conference call. At this time, all participants are in a listen only mode.
After the speaker presentation there'll be a question and answer session.
To ask a question. During this session you will need to press star one on your telephone.
Please be advised that today's conference maybe recorded if you require any further assistance. Please press star Zero I would now like turn the conference over to your Speaker today Stefan Ali. Please go ahead.
Thank you operator, and good morning, everyone here with me are Marc Rossiter, <unk>, President and Chief Executive Officer, Sanjay. Additionally, and reflects the senior Vice President and Chief Financial Officer, and Ben Park, <unk>, Vice President corporate controller.
During this call, we'll be providing our financial results for the three months ended September 32021, a brief commentary on the performance of our three business segments, and a summary of our financial position.
Today's discussion will include forward looking statements regarding <unk> expectations for future performance and business prospects.
We're looking information involve risks and uncertainties and the stated expectations could differ materially from actual results or performance.
For more information please see the advisory comments within our news release, MD&A and other regulatory filings.
Approximately one hour following the completion of this call a recording will be available on our website under the investors section.
During this call unless otherwise stated we'll be referring to the three months ended September 32021, compared to the same period of 2020. We'll proceed on the basis that you've all taken the opportunity to read yesterday's press release, I'll now turn the call over to Mark.
Thanks, Jeff and good morning, everyone. The third quarter saw continued strength across global energy markets as economies continue their recovery from the Covid induced downturn.
Across each of our operating regions market fundamentals remain very constructive as global energy supply tightens commodity prices are responding rig counts are accelerating natural gas production is reaching new highs in key locations such as the Permian basin and demand for natural gas liquids is increasing.
Concurrently the industry's commitment towards maintaining capital discipline has further strengthened the bullish undertones for the energy complex setting the stage for another industry up cycle.
This dynamic was reflected in our third quarter financial results were for the fourth consecutive quarter. We saw continued improvement in activity booking $191 million in new engineered systems projects and increasing our backlog to $375 million.
Its highest point since the first quarter of 2020.
Demand was broad based with roughly half of these new projects being destined for end users in international markets and have for North American markets.
New bookings also benefited from emerging demand for low carbon solutions, where we sold over 10000 horsepower of electrified compression and multiple landfill gas handling applications.
In addition, we successfully completed the construction of an important power and gas treating plant in Colombia.
Commission the system will reduce flare gas <unk> emissions cure a uniquely engineered solution that leveraged our cross regional experience and is a win for the environment.
While bidding activity remains strong across each of our three segments navigating today's challenges will be fronted by the manufacturing business is in the early stages of the recovery in a very competitive environment, which may pressure margins until such a time as excess industry capacity is put to work.
In addition, global supply chain constraints that emerged earlier this year may impact the price and availability of certain inputs.
We successfully navigated supply chain constraints to date, our teams must remain vigilant and neutralizing the impact of escalated costs on materials such as steel.
Our aftermarket services business saw improved activity in the quarter across all segments on improved demand for parts and components as well as operations maintenance and overhaul services.
We've also seen operational efficiencies captured through instrumentation, and telemetry upgrades, which are maximizing uptime and value for our customers.
However, despite improved activity the Ams business remains very competitive and is also seeing supply chain constraints.
<unk>, the price and availability of OEM parts pressure.
Pressuring margins in the Ams business across all regions.
Turning to asset ownership, our global fleet continued to perform as expected utilization of our U S contract compression fleet improved to a third quarter average of 88%.
While exiting the quarter at 89% its highest utilization rates since entering the U S contract compression business in 2017.
With the drawdown in inventories of drilled but uncompleted wells to their lowest level since 2013.
Additional drilling will be required to replenish inventories and for producers to meet their production targets, particularly in locations with high well decline rates such as the Permian Basin.
Accordingly, if commodity markets remain constructive we expect demand for our rental solutions to continue.
We're also seeing increasing demand for electrified rental solutions as our customers turn their minds to managing their environmental impact and reducing scope. One emissions. We expect that demand for E compression will continue to strengthen in geographies, where it can be readily deployed as clients continue prioritizing their decarbonization efforts.
In addition to our contract compression fleet, our international rental assets continued a strong performance across all geographies. We are progressing the 10 year gas infrastructure projects awarded during the first quarter of 2021 and subsequent to the quarter. We were awarded a new 10 year, roughly $200 million natural gas infrastructure contract.
For a customer in our rest of World segment.
We have dedicated resources over the years to increasing our capabilities and expertise in complex gas handling applications and are proud that our reputation for successfully delivering has assisted us in securing additional projects this year.
Turning to our energy transition efforts, we continue our work in understanding how the transition could unfold and are already seeing a significant number of inquiries for lower carbon solutions.
Including in respect of E compression carbon capture and sequestration renewable natural gas and hydrogen.
With support of oil and gas fundamentals and development policy frameworks for the energy transition, we are modestly increasing our dividend.
Illustrating our commitment towards returning capital to our shareholders.
Looking forward, we are focusing our attention towards supporting our global customers and their development plans, while simultaneously building capabilities to capture opportunities within the energy transition landscape.
I will now turn things over to Sanjay to review our financial results.
Thanks, Mark second quarter revenue of $231 million decrease versus the prior year period, due primarily to lower engineered systems revenue on lower opening backlog and reduced contribution from some major projects that were largely completed by the third quarter of 2020.
Despite lower engineered systems revenue bookings of $191 million improved our backlog by over 150% relative to December 31, 2020, reflecting the improving conditions for the oil and gas industry and for our engineered systems business.
Aftermarket service revenue improved versus the comparable period as the industry activity continued to improve.
Rentals revenue also benefited from a more constructive operating environment compared to the same time last year when the COVID-19 pandemic took significant volumes of production offline.
Rentals continued to benefit from improved utilization of our U S contract compression fleet and contributions from our growing portfolio of international boom and natural gas infrastructure assets.
Gross margin decreased over the comparative quarter on lower revenue, but the decrease was partially offset by increased contributions from recurring revenue product lines, which yield a higher gross margin as a percent of revenue.
Overall gross margins as a percent of revenue was in line with the comparative quarter, but may be pressured in the near term until excess manufacturing capacity is utilized and supply chain constraints are resolved.
SG&A increased versus the comparative period, driven by higher overall compensation cost and the wind down of pandemic related government subsidies.
During the quarter, we invested $9 4 million of capital towards units in our asset ownership platform. The majority of which funded the organic expansion of our U S rental fleet, which has grown to approximately 385000 horsepower.
From a capital allocation perspective, we are seeing several opportunities to deploy growth capex globally at attractive returns and with Counterparties with whom we have deep relationships.
As Mark mentioned subsequent to the quarter, we were awarded another 10 year natural gas infrastructure contract with an international counterparty.
This project will be recorded as a finance lease such that costs related to its construction.
We will be accounted for as a work in progress rather than capex.
Accordingly, we expect to remain in line with the growth Capex range of $50 million to $100 million provided earlier this year.
Our balance sheet has been managed well through the downturn by managing working capital reducing debt and capital discipline.
We exited the quarter with a bank adjusted net debt to EBITDA of 138 times compared to a maximum ratio of three to one.
This bank adjusted net debt to EBITDA ratio relates specifically to the company's bank facilities and notes and excludes the new nonrecourse credit facility, which had approximately $42 million drawn on September 30th.
With substantial undrawn credit capacity and cash on hand, we remain well positioned to capture opportunities as industry activity continues to recover.
Our net debt decreased by $80 million versus September 32020, as we continue to using cash flow to decrease net leverage and strengthen our balance sheet.
With respect to liquidity and reflects has a $102 million of cash on hand, and access to $664 million on our bank facility, giving us significant flexibility to manage our resources as the industry recovers and to consider both organic and inorganic growth.
Lastly, and reflects board will continue to evaluate dividend payments on a quarterly basis based on the availability of cash flow and anticipated market conditions yesterday, increasing its dividend to $2 five per share to be paid on January six 2022.
This amount represents a 25% increase to our dividend and is consistent with our long term strategy of maintaining a strong balance sheet and delivering sustainable returns to shareholders.
This completes the formal component of the webcast additional details can be found in our November 4th press release, we will now be happy to take any questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Okay.
Our first question comes from Aaron Macneil of TD Securities. Your line is open.
Good morning, all thanks for taking my question.
Sanjay.
Perhaps engage in a bit more handholding for us as it relates to the two.
$200 million boom project.
In terms of revenue recognition funds flow and any other notes on accounting treatment.
<unk> accounted for as a financing lease.
Sure, Yes, good morning Erinn.
So it is a it is a finance lease and the number that was disclosed as sort of a lifetime revenue.
Associated with the contract.