Q1 2022 Select Energy Services Inc Earnings Call
Greetings welcome to select Energy services first quarter earnings Conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keep.
Please note. This conference is being recorded I will now turn the conference over to Chris George Senior Vice President. Thank you you may begin.
Thank you operator, and good morning, everyone. We appreciate you joining us for the select Energy conference call and webcast to review, our financial and operational results for the first quarter of 2022.
With me today are John Schmitz, our founder Chairman, President and Chief Executive Officer, <unk>, <unk>, Senior Vice President and Chief Financial Officer and.
Michael <unk> Executive Vice President and Chief operating Officer.
Before I turn the call over I have a few housekeeping items to cover.
A replay of today's call will be available by webcast and accessible from our website at select energy Dot com.
There will also be a recorded telephonic replay available until May 18 2022.
The access information for this replay was also included in yesterday's earnings release.
Please note that the information reported on this call speaks only as of today may four 2022, and therefore time sensitive information may no longer be accurate as of the time of the replay listening or transcript reading.
In addition, the comments made by management. During this conference call may contain forward looking statements within the meaning of the United States Federal Securities laws.
These forward looking statements reflect the current views of select management, however, various risks uncertainties and contingencies could cause our actual results performance or achievements to differ materially from those expressed in the statements made by management.
The listener is encouraged to read our annual report on Form 10-K, our current reports on form 8-K, as well as our quarterly report on Form 10-Q to understand those risks uncertainties and contingencies.
Also please refer to our earnings announcement released yesterday for reconciliations of non-GAAP financial measures.
Now I'd like to turn the call over to our founder Chairman President and CEO John Schmidt.
Thanks, Chris Good morning, and thank you for joining us I'm excited to be discussing select energy again with you today.
Overall I am very pleased with the continued progress we have made during the first quarter executing on our strategy of improving and bolstering our base business.
Advancing our technology sustainability diversification efforts and executing on our strategic M&A.
First quarter saw a strong sequential revenue growth, increasing 16% quarter over quarter with each segment achieving revenue levels not seen since the third quarter of 2019, well before the pandemic began.
We also expanded margins and continue to generate positive net income adjusted.
EBITDA increased 22% sequentially growing to $32 $2 million during the first quarter.
While free cash flow during the first quarter was impacted by additional working capital build and the settlement of certain <unk> liabilities I feel confident in our ability to generate free cash flow over the course of 2022 Accordingly, we strategically re initiated our efforts to return capital to <unk>.
Our holders with a $16 million open market share buyback executed during the first quarter on the sustainability front, we executed on a number of initiatives, including closing on a 270 million dollar sustainability linked the ABL.
Issuing our inaugural sustainability report and contracting additional recycling facilities and infrastructure development projects all of them.
Let Nick speak to the current credit facility in more detail, but I'll add and encourage listeners to give our sustainability report a full read which is available on our website.
As a market leader in sustainable water chemicals solutions, we take our commitment to water stewardship seriously.
We're proud of the accomplishments we've achieved to date and remain confident in our ability to set the bar high with ambitious targets for water stewardship and safety performance accountability for the future.
From a business development standpoint, we've seen a number of recent successes as outlined in Yesterdays earnings release.
During the quarter, we signed long term contracts for the development of additional recycling facilities.
Additional gathering lines, tying to existing recycling and disposal facilities.
The expansion of existing recycling and disposal facilities and the activation of acquired assets that were previously shut in are underutilized, we've even obtained a long term contract with another water midstream company to recycle their gather produced water volumes.
Scope and the diversity of these opportunities is very exciting we are starting to see the benefits of the sizable infrastructure footprint, we acquired with our recent acquisitions.
As these new opportunities that utilize legacy select infrastructure as well as assets, we acquired from each of the complete Agua Libre and Nomura acquisitions.
The contracts range from two to 10 years and are supported by acreage in wellbore dedication and minimum volume commitments or take or pay agreements.
Importantly, these opportunities also span across multiple basins, including the Permian Haynesville mid con and Rockies.
We remain very focused on growing our production related revenue and adding contractual revenues through our full life cycle pipeline recycling and disposal infrastructure ultra.
Ultimately this will further enhance and stabilize our cash flow generation capabilities differentiate select from its competitors and provide additional capital allocation opportunities, we're having additional constructive conversations with our customers every day and I believe we will continue to build on our <unk>.
Recent success with more long term contracts and development opportunities in 2022.
On the M&A front, we closed on the Nevers acquisition on February 23rd we're quickly making progress with the integration of <unk> operation that we did and we'll see some modest operational inefficiencies and additional costs associated with the integration and the first and second quarters, we can.
Antinion, making progress with yard consolidation across each of the acquisitions and have identified a significant amount of underutilized.
Absolutely our noncore assets within the acquired companies that we have been able to sale for cash.
With more than 12 million of year to date cash proceeds through March we have been able to largely self fund our capex program. So far this year.
I think we will find more equipment and more real estate that we can turn into cash in the coming quarters as well looking at our strategic investments and partnerships. We made additional commitments during the first quarter of about $3 $5 million between Aqua next midstream and isothermal harvesting Aqua.
<unk> continues to make progress in its development strategy and provide additional complementary options for our infrastructure strategy in the mid Con region.
Ice continues to see tremendous demand for its unique renewable thermal power solutions and we are very excited about the potential of energy transition opportunities. This investment provides.
As we look forward, we will continue to look for unique opportunities to invest in and advance our technology sustainability and diversity diversification initiatives.
While the first quarter saw a meaningful double digit percentage increase in drilling activity completion activity modestly lagged as the incremental drilling was necessarily to replenish the dwindling DUC backlog.
There remain a number of unknowns in the macro and geopolitical landscape, we expect to see more activity growth during the second quarter supported by a strong overall commodity price environment.
I'll, let Nick speak to our first and second quarter financial performance and outlook in more detail, but again I am pleased with our recent financial performance.
Recent acquisitions, our technology and sustainability strategy, our recycling and infrastructure projects and our other strategic investments and initiatives.
With growing activity strong commodity prices improve operational and financial performance 2022 is setting up to be an exciting year for select.
With that I'll hand, it over to Nick to discuss the financial performance and outlook in more detail.
Thank you John and good morning, everyone. During the first quarter, our business grew across all segments benefited by organic growth pricing improvements and strategic acquisition.
As John mentioned revenues increased by 16% quarter over quarter with each segment, reaching revenue levels not seen since the third quarter of 2019 Adil.
Additionally, we expanded margins and delivered positive net income.
We saw a positive monthly trajectory through the quarter, while our $295 million of first quarter revenue increased $40 million from the fourth quarter and $90 million from the third.
Cost inflation remains a challenge, but overall, we are finding success in our ongoing integration efforts in pricing discussions.
Gross margin for the company improved from 7% to eight 4% and adjusted EBITDA increased from $26 4 million to $32 2 million.
Net income of $8 million was slightly below last quarter's $11 2 million due to lower other income related to bargain purchase price gain from recent acquisitions.
Free cash flow of negative $25 million reflected a substantial working capital build of $44 $9 million during the quarter due to increasing revenue and acquisitions, most notably <unk>, which closed in late February .
Other significant uses of cash included $18 8 million for the retirement of these areas debt obligations $16 4 million for open market share repurchases $5 6 million in total deal costs from expenses related to our acquisitions as well as the closing of our sustainability linked asset backed lending facility three.
$5 million of partnership investments and net Capex of just $3 4 million.
Ultimately, we finished the quarter with a cash balance of $27 4 million no bank debt and approximately $215 million of total liquidity.
As we look forward, we anticipate substantial positive free cash flow over the remainder of the year as integration costs diminish working capital levels normalized and adjusted EBITDA continues to grow with.
It was about $15 million of gross Capex during the first quarter, we continued to invest in new recycling facilities and gathering pipelines. Among other core business assets that are identifying and liquidating substantial redundant or underutilized equipment and real estate to do so.
Q1, we monetize just over $12 million in asset sales.
Of which came from our acquisitions.
We've been able to streamline our operations, while capitalizing on very strong retail markets, particularly for rolling stock and real estate, allowing us to reallocate capital towards high return opportunities.
On the financing front, we were pleased to close on an amended $270 million sustainability linked to asset backed lending facility extending the term by an additional five years.
We appreciate the partnership with our lending institutions and structuring what we believe it's a first of its kind facility in the oilfield service industry.
With this agreement with taking on additional accountability in regards to water recycling and employee safety with financial incentives and penalties is applicable to both.
We intend to at least double our volumes of recycled water provided over the next five years and substantially outperformed the industry and our employee safety performance.
Employee safety has long been a core value of our company with accountability applied throughout our management compensation structure, while water recycling alleviates demand for freshwater sources in water stressed regions as well as limiting waste disposal, which is particularly important in areas where seismicity concerns.
While these two priorities are part of the core foundation of our approach to sustainability. We are excited about many of our other near term sustainability initiatives, including additional technology emissions reductions and Green chemistry R&D investments.
Also began tracking and publicly reporting many other metrics in our inaugural corporate sustainability report, which as John mentioned was published last week.
I would encourage everyone listening to access the report from the sustainability section on our website and we welcome any feedback you have as we continue our sustainability journey.
As the industry continues its strong recovery in our earnings improve we renewed our shareholder capital returns program with open market repurchases of $2 3 million shares for $16 4 million.
An additional 362000 shares were repurchased for $2 5 million as part of annual tax related vesting activity that took place during the quarter.
We expect these higher earnings to translate to higher sustained free cash flow in the coming quarters, which will provide increased opportunity to allocate more funds to shareholder returns and evaluate new or expanded options to acquire that to this program.
Finally, before moving into segment guidance I'll touch on our strategic M&A activities.
No doubt that our 2021 acquisitions contributed meaningfully to the bottom line this quarter.
We have confidence the legacy <unk> operations will soon as well as we consolidate them into our systems and operations.
We are removing duplicative costs and inefficiencies, while we initiate highly accretive and targeted investments around much of the acquired infrastructure.
We still expect to complete the bulk of our integration and consolidation efforts by the end of the summer, which should drive further profitability over the course of the year.
Looking at the segments individually the water services segment grew its revenues by 16% in the first quarter to $164 million, while advancing gross margins to just over 16%.
Sharply increased fuel pricing through the quarter, especially leading up to and following the recommendation of Ukraine was a significant headwind.
However, we were able to put it in place pricing adjustments to recapture much of this going forward by the end of the quarter.
Looking forward to the second quarter, we expect 8% to 12% revenue growth for this segment with some continued modest improvements to margins, resulting from integration efficiencies and pricing improvements.
Water infrastructure revenue grew by 25% to $59 million in the first quarter as recycled volumes increase through recently constructed facilities and our new Mexico pipelines reported meaningful growth.
However, gross margin slipped slightly to 24% as integration efforts as well as maintenance upgrades and other investments around acquired infrastructure necessitated taking some facilities offline for periods of time, while winter weather impacted some operations, especially in the Bakken.
The second quarter is typically seasonally weaker in the Bakken However, the full quarter contribution of Nevada assets, coupled with the return to service system upgraded facilities should increase the segment's revenues in the second quarter by 5% to 10% with increased gross margins in the mid to high 20% range.
Additionally, our recent business development efforts should continue to drive revenue improvements over the coming quarters as new projects and expansions are brought online.
The oilfield chemicals segment consolidated its recent market share gains with a revenue increase of seven 5%, while growing gross margins nearly 200 basis points to 14, 4%.
Raw materials costs and supply chain disruptions remained significant challenges. However, our team has been quite successful of dynamically adjusting pricing as quickly as term separated.
In spite of these challenges we expect the oilfield chemicals segment to demonstrate generally stable financial performance in the second quarter relative to the first with modest room for upside.
Looking at SG&A acquisition related costs accounted for about $3 $6 million of our total SG&A of $28 3 million during the first quarter.
Absent another major transaction, we anticipate transaction and integration related costs will decline in the coming quarters.
For the remainder of 2022 SG&A should settle modestly lower between this quarters total in the $25 2 million of SG&A reported in the fourth quarter of 2021.
Our continued strong growth at minimal levels of net capex demonstrates the value of our recent acquisitions and operational leverage of our asset light business model.
While our pipeline of high return investment opportunities remains robust.
And success with which we have monetized acquired or redundant assets to date at attractive valuations, while increasing our revenues and margins and enables us to lower our 2022, net capex guidance from $50 million to $70 million to $45 million to $60 million.
Generating robust free cash flow will be our top priority for the remainder of 2022.
This level of targeted net capex, when combined with continued pricing and activity growth and a reduction of working capital needs amid continuing integration efforts provides us with additional opportunities to build on our recent allocation of funds for its shareholder returns.
In addition to cash flow and return of capital. We are also intently focused on return on capital and anticipate continuing to generate solid positive net income in 2022.
We've made considerable progress in consolidating strategic assets at attractive valuations, while bolstering liquidity and diversifying our earnings capabilities.
Select is a recognized leader in providing sustainable water and chemical solutions and we seek to convert this leadership into sustained enhanced valuations for our investors through disciplined investing and capital management.
Thank you and with that we'll open it up to questions operator.
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Our first question is from Ian Macpherson with Piper Sandler. Please proceed.
Yes, thanks, good morning, everyone.
Good morning.
John you mentioned that.
Nick you May have said that.
The goal is to double your recycle volumes over the next five years, where does that mix today.
And maybe for selecting where do you think the <unk>.
Total industry is on.
The percentage of of.
Blackwater, that's that's recycled and I guess, what's what's the.
The value capture opportunity for select as you ramp up to a higher mix going forward I assume that there's going to be probably more of a value add opportunity for you.
And that journey than maybe there has been in your legacy.
Water services business.
Yeah.
Just to make clear on that facility. The target. There is an absolute volume amounts we did a little bit over 25 million barrels last year and so it's kind of in that view.
50 million barrels within that timeframe.
As far as the overall mix of about 15% we estimate.
Our current overall handled water volumes would be produced recycled.
Water there.
So obviously, we think that that percentage mix will.
Increase as a as a number while we increase the overall volumes.
Probably about a quarter of the overall handled water would be would be termed fresh and the rest being brackish or industrial sourced.
Water as far as what we handle.
Ian This is Michael Scott with you just to expand on what Nick said a little bit.
You are well aware the percentages that operators are using or the industry is using vary significantly by region. So it really starts with the Permian, where you have high water cuts you have disposal challenges and so we're seeing operators.
Really move quickly towards produced in treating produced water I'm not sure exactly where we are in terms of the overall market, but it wouldn't surprise me at all for us to be north of 50%.
Using that type of volume you moved somewhere like the northeast and you have a lot of you have produced water be use on a lot of fracs with relatively small amount given the production. There and then you have other basins that have.
Keith disposal and access to fresh a brackish water that really haven't migrated to produced water yet.
We do think that the lessons learned in the Permian that we've <unk>.
Implemented and others on recycling youre going to be applied to other basins.
They just haven't fully transformed yet.
Hey, Ian This is Joe this is John .
And the one thing we it was part of your question at the end, but the value to select is not only.
The value around this asset base that we've just put together and added to the asset base, we got but once you put these asset bases together they really complement each other in a meaningful way when you think about what they can do and be used for.
But the other piece of it is as the industry is converted from fresh to produced.
If you will the water has gotten dirtier.
And chemistry is very important when you apply it to make that water source usable.
As well as chemistry is very important when you actually use the water and the frac process.
Being a dirty or water.
The solution is chemistry so.
We think it's a really big value with what we are trying to accomplish here at select.
Super Thanks Jensen and then I was also going to ask on your neck, when your second quarter guidance.
Chemicals trading a little bit flatter into Q2 and the water businesses.
Could you illuminate what's behind that and then how do you see the leverage that the chemicals business into the up cycle beyond Q2, and maybe what's keeping it what's holding it back a little bit here in the second quarter.
And Ian this is Michael again, I'll kind of start off and then let Nick Clean me up I think as you think about chemical revenues realized that we were up over 20%.
Top line from Q3 to Q4.
While we were up modestly in Q1, I think it was six or 7%.
Still looking at a couple of quarters back it's up meaningfully and then if you compare back to 18 or 19.
Q1 was actually the high watermark for our chemicals revenue.
We're pretty pleased with where we are today, that's not to say that we don't expect it to continue to grow and really for the reasons that John just mentioned as the industry uses more produced water and requires more complex chemistry it really.
Fits well into our strength and what we want to do so we do expect it to continue to grow.
And largely because of the shift we're seeing that we've been talking about.
Thanks, Michael appreciate it.
Thank you Ian.
Our next question is from Tom Curran with Seaport Research partners. Please proceed.
Good morning.
<unk>.
Nick for water services, how have the acquisitions changed that division's cost structure, and which should be its main inflationary pressure in supply chain challenges going forward.
In the last up cycle pre pandemic the gross margin target for water services was in the high Twenty's what should it be now.
Yeah, so as Youre aware theres, a higher production component there.
Some of that is around fluid hauling and so fuel.
Was the big inflationary challenge.
The current quarter given.
Given what we saw in the underlying crude price and diesel prices and where they are.
How much they move during the quarter.
So long term target, we think that that mid to high <unk> can.
It can be achieved.
Certainly we have continued integration consolidation.
The overlapping footprints of these organizations that we acquired with legacy select operations.
There is certainly some more more room to integrate there.
I think we do have more opportunity around the transfer of produced water and recycled water.
As a higher value opportunity there than the legacy freshwater via a more complex operations more blending on the fly.
The higher safety and environmental.
Components to those operations and so that that becomes a service that fewer.
Companies are able to do effectively and give the majors confidence on.
Automation has been a significant investment of ours, even in the down cycle of recent years here, we've been able to reduce costs through that as well as improving.
Safety and overall complexity of operations and the types of jobs, we're able to perform.
With automated equipment.
So I'd say mid twenties high twenties.
That's achievable it is not going to be next quarter, it's probably not going to be the quarter after that but we can get there.
Great and then for CFO working capital was a massive draw on cash in the first quarter you had foreseen for Warren just directionally it would be negative.
You're hardly alone.
Working capital build has been a widely seen phenomenon across cash flow results this earning season.
And that makes sense.
Why would be the case for you and many of your peers.
By quarter, how should we expect working capital to progress over the remainder of 2022.
And when should we see peak.
Peak up surges into positive territory that should enable you to finish positive for the full year.
Sure.
As I mentioned, we expect positive free cash flow over the remainder of the year, we expect net working capital as a percentage of our revenue.
The decrease over that time, but that's not to say that the absolute value of working capital will decrease given the positive tailwind we see around revenue.
For the first quarter the acquisitions typically it takes us 60 days or so to <unk>.
Integrate the billing systems.
Move tickets out to operators from legacy acquired operations into the select system. So certainly there is a significant amount that was stranded.
Receivable as of the end of our quarter, we expect to work through that in Q2, and then it becomes more of a revenue related.
Phenomenon and dynamic so.
Second quarter onward positive free cash flow you can see the.
Difference between that.
<unk> adjusted EBITDA growth that we anticipate and the net capex guidance that we gave.
In first quarter, we had a couple I guess you could call them one offs around deal cost.
Refinancing.
The tax vesting on shares those are relatively small numbers, but.
A little bit of.
Cash consumed in those transactions there and so we will see a very positive dynamic here as we shift into the later quarters.
Great.
Return to the queue.
Our next question is from.
Don Crist with Johnson Rice. Please proceed.
Good morning, gentlemen.
It sounds like you've got to work pretty quickly once you incorporated the recent acquisitions on on exploiting some low hanging fruit can you talk about what further opportunities there may be out there from a low hanging fruit perspective too.
Boost operations in the next quarter or two.
Okay.
Sure So Dan.
There is.
The asset base that we've acquired has largely been.
Under invested in for various reasons and so we've built a team around that asset base to go out and try to make investments in it.
That's why you've seen some deferred maintenance and some capex. It's also.
The reason you've seen some of our success on these projects.
We delivered we have delivered a couple of recycling facilities, we've had been able to tie in some pipelines to disposal wells do you take a disposal well and you turn it into a disposal system.
Those conversations are ongoing we have a backlog of projects that were readily working that are in various stages.
And I would say that I expect us to continue to be able to deliver on the projects.
Similar to the ones that we announced this quarter throughout the duration of the year.
Yes.
<unk>.
Sorry, Yes. This is John .
I'd also add to that on this acquisition as you know we do have the asset base like we said they really once you layer in these assets across that.
By the various companies and the ones that we owned but then we also as Nick said, we have eliminations, we ended up with two yards or three yards in the same town.
We're consolidating those yards getting that efficiency cell and the real estate same.
Same way with yet.
Yes.
Pure asset base of the equipment.
The yard for full of stuff.
We're going to use what we need in kidney.
Can get efficiency out of it and we're going to sale.
The.
Assets that are not need or non cord and so.
<unk> got good got good movement, there too though.
That's.
All positive and there's been a lot of market chatter.
Recently, particularly in the Permian.
That water.
Either fresh water or disposal capabilities could be pretty big issue as we move into kind of a mid 'twenty. Three are you seeing any urgency amongst the e&ps out there too.
<unk>.
Partner with somebody like select.
Hum.
Make sure that their water needs are met going into 'twenty three.
We are seeing that so the recycling facility, we announced in Lea County, New Mexico is with an operator that we have.
We have worked for in the past and have another recycling facility with and so they had a good experience with the first one they wanted to make sure they could secure that.
Disposal solution as well as a produced water solution for their completions and so it was a rinse and repeat system.
I think we're going to continue to see more opportunities.
With our existing operator base.
And it's the biggest issue is certainly the Permian from.
Water sourcing and disposal standpoint, you've got the seismicity concerns that are sparring are cycling.
You have movements from ESG is moving away from fresh and even brackish water towards producing treating produced water. So we're seeing more interest in getting more having more discussions on those topics than we did a year ago.
But frankly, they are occurring beyond the Permian as well so we've got opportunities we mass we announced the expansion of our facility up in the DJ we have projects going on.
Throughout Texas.
Outside of the Permian, where we're continuing to work on these solutions with operators as well.
Okay I appreciate the color there and one just quick one.
Last one for me on the share repurchase it was a little bit unclear in your 10-K, how much availability you had less to buy more or are you kind of maxed out and fully utilized on that today.
I'll speak as of March 31, So we had authorization of $25 million there.
So there is some room.
Left in that authorization.
Okay I appreciate the color I'll turn it back thank you.
Thanks, Sean.
Our next question is from John Daniel with Danielle Energy Partners. Please proceed.
Hi, Thank you for putting me in.
My questions were.
The one that made mention of a healthy backlog of potential projects and I'm just curious if.
All of them came to fruition.
We kind of frame what that capex potential could be in.
How quickly could you deliver on all of those projects.
That's a good question John .
From a from a 2022 standpoint, if all of them came to fruition, we would not be able to execute them all.
This year in terms of construction and certainly not from a billing standpoint.
And as you know the projects.
Theyre never done until the ink is dry on the paper so.
So we have some that we rank is really high probability feel very good about it.
Occurring in this year and others are kind of the outside chance that it's a lower probability conversations been going slower.
They could turn on a dime and materialize. This year early next year in terms of the exact dollar amount.
I'm not sure what the probability weighted total of all of them would be what.
I would say is the large variance we provided and Capex for this year is largely project driven so if we.
To hit the high end of that range.
Projects that we have a high likelihood of occurring.
And in being able to execute this year would need to materialize to hit the low end of that range, you're probably not going to have.
Meaningful projects occur and spend occurring this year.
John .
Yes, Sir there is something else thats very important to understand is.
When you think about recycling disposal pipeline opportunity to put assets together and make them more valuable to the customer base and they were by singular.
<unk> Standalone.
If youre looking at projects in thinking about these contracted positions that were being able to execute the most expensive piece of that project is what we bought in these transactions.
Catalysts.
Okay. That's helpful.
And some of the other.
Businesses that we follow you here about long lead times on engines transmissions.
So I've got a dumb question.
Bruce that you purchased from a growth Capex perspective, where your longest lead times today.
Do you have any.
Yes, so the longest lead time.
It really varies but I would say that anything that involves the chips that you've heard about with vehicles that still that's still tight and that's still a major delay.
We're having to really plan in advance for for all of our equipment purchases, we're having to be.
Proactive from everything from new vehicles to engines to pipe.
Really across the board.
It's forcing us to engage with the customer earlier than we have historically in the past to make sure we can hit.
Timing of production times, so from it's a challenge, but there is also a bit of an opportunity there in terms of giving us a little more visibility.
And bringing people at the table sooner than planned.
Planning standpoint, then we may have otherwise.
And John I might add.
Certainly more of a challenge than.
What we've seen historically, but as look around the oilfield into some of the other timelines there are very significant assets, where you're talking 12 months 18 months.
Around <unk>.
Current types of operations.
We are by and large not there yet so we're pretty asset light, we're not ordering a lot of.
Highly over engineered overseas type equipment that you can see a year or more.
And so we're making it worked pretty well here, but to that point I mean, some of the automation equipment, which wouldn't be overly engineered or incredibly specific I mean, we've seen nine months lead times on some of that so if I had to pick a single item it would probably be some of the stuff around automation.
Fair enough and then just.
Last one for me I'm not asking.
Thanks, Sean.
M&A necessarily I'm curious like what it does it does a lot of deals for now focus on integration.
Now.
How much deal flow are you still seeing something on the M&A as hot as it was accelerating as it moderate.
Give us some.
Description of what Youre seeing in terms of deals being brought to you.
Theres certainly a lot of deals being being brought to us a lot of.
Although sellers looking to monetize but as you mentioned our focus for these coming quarters here is really on integration ringing the value out improving the margins and driving value and the operations I'm sure there'll be a time, where we.
Look around more.
As we grow the industrial segment, particularly.
That's not something where we're very active on currently with a lot of them.
Ideas and deals we're seeing organic expansion investing in the infrastructure we've acquired.
And streamlining the operations.
Fair enough. Thanks for letting me ask some questions.
We have reached the end of our question and answer session I would like to turn the call back over to management for closing remarks.
Yes, thanks, everybody for.
We're participating today listening in or asking questions. We appreciate it and as we said we're pretty excited about it.
The forward movement, we got here going through 'twenty two 'twenty three so thanks, again and look forward to talking next quarter.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Yes.
Okay.
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