Q2 2023 Modine Manufacturing Co Earnings Call
Good morning, ladies and gentlemen, and welcome to the Modine manufacturing Companys second quarter fiscal 2023 earnings conference call.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
One should require assistance during the conference. Please press Star then zero on your Touchtone telephone.
As a reminder, this conference call is being recorded.
I would now like to turn the conference over to your host Ms. Kathy powers.
Vice President Treasurer, and Investor Relations.
Good morning, and thank you for joining our conference call to discuss <unk> second quarter fiscal 2023 results I'm joined on this call by Neil Brinker, Our President and Chief Executive Officer, and Mike Lucarelli, Our executive Vice President and Chief Financial Officer.
We'll be using slides for today's presentation, which can be accessed either through the webcast link or by accessing the PDF file posted on the Investor Relations section of our website Modine Dot com.
On slide three is our notice regarding forward looking statements. This call will contain forward looking statements as outlined in our earnings release as well as in our company's filings with the Securities and Exchange Commission with that I will turn the call over to Neil.
Thank you Kathy and good morning, everyone I.
I am pleased to announce another strong quarter from both a financial and transformational perspective with sales up over 20% from the prior year, Despite a negative FX impact.
We have also had significant growth in our adjusted EBITDA and EBITDA margin, making further progress towards our targets.
Nick will go through our financial results in more detail, but before that I would like to provide an update on the progress that our segments are making towards the strategic objectives that we laid out during our Investor Day last June .
You may recall that our transformation had three core work streams.
Focus the organization.
A former deliver and accelerate profitable growth.
Our segment presidents provided specific goals for each of those activities and I'm very proud of the progress that our organization is making against each of those please.
Please turn to slide five.
Our climate solutions segment had a great quarter. This slide shows the strategic objectives for the climate solutions segment, and we are making progress towards both our strategic and financial goals first the climate solutions team is deep into 2020, and we are clearly seeing the results. In fact, we are driving 80 20 down to the business unit and plant led.
<unk>.
For example, in our heat transfer products business. Our 80 20 focus is on pricing for value and executing on new growth opportunities around the heat pump market. There are tremendous incentives in Europe for the heat pump adoption, many of which fully offset the premium associated with this technology, we believe that shifting resources to supporting this.
Market will drive growth for years to come.
Our leadership team is firmly in place for this segment and they are building a high performance culture focused on profitability and growth.
Our business segmentation process is complete and we are refining the data and implementing daily management tools to provide early indicators that will allow us to better manage our inventory and backlog.
As part of our transformational plan, we expect climate solutions to drive revenue growth over the next several years the.
The business had favorable market trends and.
And delivered double digit growth this past quarter with more to come.
We are reallocating resources to these attractive businesses by creating additional capacity within our existing manufacturing footprint. For example, this past quarter, we had approximately $8 million of Capex in climate solutions, which is outpacing the segments typical spend.
Additionally, our commercial teams are focused on building raving fans, including customers engineering consultants distributors and sales reps. There are many factors to winning in these markets and our products have advantages that are allowing us to gain market share.
And the data center World, having a global footprint is key to reducing carbon miles, which is very important to many customers in other areas. We are winning on lead time, such as in our heating and our indoor air quality businesses, where we are ahead of our competition and plan to stay there.
In addition, our focus on product line simplification is allowing us to increase our speed to market by reducing complexity and new sale engineering time.
Based on the activities and results you can see the climate solutions is rapidly moving through the first two phases of our transformation, which our focus and performance. They have now earned the right to start focusing on the third element, which is accelerating profitable growth.
As part of the strategy to accelerate growth climate solutions is providing full solutions to customers and is expanding geographically by bringing existing solutions to new markets.
This is especially true in our data center business, where we're not only bringing chillers to the north American market, but we are now also able to provide full system solutions in both North America and Europe .
You may have seen our press release last week, where we announced that we shipped our first chillers from our new production facility in Rockbridge, Virginia as part of a sizeable order from core scale announced in July . This is a very exciting milestone for the team which includes members from our Airedale operations in the U K and from our neighboring plant in Buena Vista with Chillers onboard.
We now have a complete data center product line, including computer room Air handlers and fan walls to support both co location and data center operations.
So to wrap up on the climate solutions discussion. This segment is executing on our strategic objectives and has earned the right to grow.
We are actively building our acquisition pipeline identifying actionable targets in several areas.
We are looking at everything from small bolt ons to opportunities that would move the needle across multiple groups I am very proud of this team not only are they demonstrating our purpose of engineering a cleaner healthier world, but are ahead of schedule for both revenue and earnings growth.
Please turn to slide six.
As I mentioned last quarter in performance technologies, we are focusing on the phased rollout of 80 20.
Whereas climate solutions as far along in the journey. The PT business is just getting started to be clear. This was a planned phased approach implementing 80 20 requires a lot of organizational change and each segment required our undivided attention and focus we elected to start with climate solutions, given the clear sizable and <unk>.
Media growth opportunities, while preparing performance technologies for the journey.
This slide shows the strategic objectives for PT segment that were introduced in June .
As I mentioned, we are early in our journey. So we are mostly working on the focus the organization activities.
As a reminder, our strategic transformation includes sizable margin improvements in performance technologies. We are focused on improving margins over revenue growth and are anticipating a significant change in business mix over the next several years.
This means exiting unprofitable legacy businesses, while rapidly growing the very attractive EV business.
We have completed the market segmentation for PT and have those senior leaders in place.
With that being behind US we have begun training the workforce across the organization in a similar manner to what we did for the CS segment last year. This has included numerous in person events with our leaders that are helping the local teams understand how <unk> can help reduce complexity and reallocate resources.
Meanwhile, our team continues to onboard new experienced leaders in key roles, who are helping to fundamentally change the culture within the segment.
This is a large complex business with considerable legacy challenges that we are actively addressing for example, we have long term contracts in this business that allow us to pass along material cost increases, but do not allow price increases for other rising cost such as utilities fabrication on labor our team is taking unprecedented.
Actions by successfully negotiating improved commercial terms outside of our standard contractual metals pass through.
This is having a positive impact on our margins, but it is not enough as we continue to deal with rising costs. This requires a renewed focused on materials productivity and plant performance.
There is still a tremendous opportunity for improvement in the business and our <unk> team is rising to the challenge all of this work is laying the foundation and driving towards our goal of simplifying and segmenting the business. So that we can focus on our most important priorities.
We are also beginning to start some of the activities under the performance deliver category as well. The first of these is product simplification and exit strategies, which include deemphasizing non profitable or end of life business in other words deciding what we stopped doing.
And our air cooled business, we are pursuing last time buys on certain products in order to simplify our product portfolio and in our liquid cooled business. We are improving our quotation process to improved commercial terms and reduce capital requirements.
And finally I want to give an update on our advanced solutions business, which includes our <unk> systems and components business.
We continue to allocate resources to this business as the team focuses on new product development and commercial excellence to capture value in their key markets.
We recently announced an initial order from shift for their Blue arc, all electric delivery vehicle, we're providing an integrated system for battery thermal management power electronics cooling and passenger comfort. We now have 18 production orders with bus specialty vehicle and commercial vehicle customers representing peak revenue of over nine.
This is only scratching the surface of our potential in the EV space and we plan to become a much larger player here as we execute our strategy to summarize our efforts we're moving at breakneck speed just as you would expect from a startup our teams are exploring new market opportunities and working on the next generation of products all.
While using their thermal expertise to develop prototypes that we expect will lead to additional production orders.
<unk> factor in this business isn't necessarily the rate of EV adoption, but rather the ability to produce we have seen some delays in orders and start of production mainly due to supply chain challenges. Despite this orders remained strong and I am confident that <unk> can become a substantial high margin business for us in the future I am proud of how this organization is approaching its Chad.
<unk> head on and will continue to report on the progress now I would like to turn the call over to Nick who will review our results for the quarter and provide segment financial updates thanks, Neil and good morning, everyone.
Please turn to slide seven years either segment results.
Climate solutions had another exceptional quarter with solid revenue growth and excellent earnings improvement revenue was up 18% over the prior year and up 25% on a constant currency basis.
Data center sales were up 81% or 14 million and strong demand from both Hyperscale and Colocation markets.
HVA CNR sales were up 11% or $9 million with seasonal sales and heating and growth in school products.
Sales of heat transfer products increased nearly $16 million or 13% from the prior year.
There was broad strength across the North American markets, and we benefited from European heat pump growth.
We estimate that the underlying volume excluding pricing was up 18% from the prior year.
Adjusted EBITDA increased 93% with a 15% margin, which is up 580 basis points from the prior year.
The earnings and margin improvements were primarily driven by higher sales volume and commercial pricing initiatives.
SG&A was higher than the prior year, mainly due to wage inflation and higher sales commissions, but declined 50 basis points as a percentage of sales.
As Neil discussed climate solutions is progressing well on the 80 20 journey over the last two quarters. The average year over year margin improvement has exceeded 500 basis points.
Please turn to slide eight.
Performance technologies also had a good quarter with sales up 22% or $59 million.
Revenue was up 29% on a constant currency basis benefiting from growth in all product groups commercial pricing and metal pass throughs.
We estimate that the underlying volume excluding pricing was up 22%.
Within the segment advanced solution sales were up 21% or $6 million with growth in our electric vehicle product sales.
Liquid cooled product sales increased 23% or $22 million due to a strong rebound in the automotive market.
Lastly, air cooled product sales increased 24% or $33 million, primarily due to strong demand in the off highway and commercial vehicle markets.
Adjusted EBITDA increased 88%, resulting in a seven 4% margin and a 260 basis point improvement from the prior year.
As anticipated the impact of material cost increases on earnings was lower this quarter.
We are expecting to see positive net materials in the second half of the year based on current metals projections.
As Neil mentioned the performance technologies segment is relatively early in the 80 20 journey.
As we work further to segment the business, we expect margin improvement to accelerate towards our targets.
Now let's review the total company results, please turn to slide nine.
First quarter sales were up 21% or $100 million driven by strong gains in both climate solutions and performance technologies.
Revenue was up 28%, excluding a negative FX impact of $36 million.
In the quarter. The main revenue driver was higher volume of approximately $100 million, resulting in a volume growth rate of 21%.
The balance of revenue growth was comprised of material recovery and commercial pricing, partially offset by negative foreign exchange.
During the quarter materials increased $15 million from the prior year, we were able to more than offset this increase through our various pricing mechanisms.
SG&A increased $7 million from the prior year, yet declined 70 basis points as a percentage of sales primarily due to higher employee compensation related expenses and sales commissions.
I am pleased to report that adjusted EBITDA increased 73% or $22 million.
This represents a 260 basis point improvement and the third consecutive quarter of year over year margin improvement.
Adjusted earnings per share of <unk> 48.
Was 33 cents above the prior year.
Before moving on I'd like to point out that we had a few very small earnings adjustments in Q2 totaling 900000.
This was comprised of 600000 for restructuring expenses and 300000 for environmental costs.
Now moving to the cash flow metrics, please turn to slide 10.
We generated $29 million of positive free cash flow in the second quarter, which was a nice improvement from our first quarter.
This puts our year to date free cash flow at $33 million.
The year to date cash flow includes $10 million of cash payments, primarily for restructuring activities, including the European head count reductions announced last year.
Earnings growth and improved working capital have been the key to our cash flow generation during the first half of the year.
We expect positive free cash flow in the second half of the year, including approximately $9 million of anticipated cash restructuring payments, mostly tied to our European restructuring activities.
I'd like to highlight that <unk> board of directors recently renewed our two year $50 million share repurchase authorization.
During the quarter, we repurchased 100000 shares and plan to repurchase a similar level per quarter over the balance of the year.
As a reminder, our program is currently focused on offsetting the dilutive impact of our share based incentive compensation program.
Net debt of $300 1 million was $32 million lower than the prior fiscal year end.
Our cash balance was $70 million as of September 30th.
And we finished the quarter with a leverage ratio of one seven which is within our targeted range and improved from the prior quarter.
Now, let's turn to slide 11 for our fiscal 'twenty three outlook.
We're holding our outlook for fiscal 'twenty, three revenue growth at 6% to 12% despite ongoing foreign exchange headwinds.
We are currently forecasting more than $100 million negative impact on sales due to the stronger U S. Dollar.
After a stronger than expected first half we now anticipate that adjusted EBITDA will be in a range of 190 million to 200 million.
This represents an increase of 20% to 26% versus the prior year.
This is also an improvement from our previous range of $180 million to $195 million.
We expect Q3, EBITDA will remain strong and be in a similar range to Q2, and then improving sequentially in Q4.
As we just reviewed Q2 was extremely strong.
In Q3, we entered the favorable heating season, but also need to factor in the traditional holiday shutdowns.
And in Q4, we anticipate a further ramp up in volume combined with additional pricing adjustments with the new calendar year.
We remain quite positive regarding our full year outlook, but we also realize theres a lot of global economic uncertainty, we're balancing the positive signals from strong orders and backlogs against the risks are associated with a potential recession in Europe or the U S. We will continue to evaluate and adjust each.
<unk>.
To wrap up we're very pleased with the second quarter results as our business leaders are executing our planned improvements.
We're on track with our transformation targets presented in June .
Climate solutions is somewhat ahead of the pace, we're very encouraged by the revenue and margin outlook for this segment. In addition performance technologies has begun the 80 20 journey as.
As demonstrated by climate solutions, we believe that performance technologies can generate similar levels of improvement is 80 20 matures.
Combined the two segments will continue to drive top line growth and additional margin improvements in the future with that Neal and I'll be happy to take your questions.
Okay.
If you have a question at this time. Please press Star then the number one on your Touchtone telephone.
If your question has been answered.
You wish to remove yourself from the queue. Please press star one.
Our first question comes from the line of Matt Summerville with D. A Davidson your line is open.
Thanks, a couple questions, maybe let's start with the data center business.
All of those slide 11, it looks like you raised your outlooks I think plus 40 to 50 to plus 50 to 60, obviously Europe 80 here in the quarter. So a very strong start to the year I wanted to speak a little bit more towards something referenced in the press release, you put out the other day talking about the initial north American shipments.
In reference to the $100 million target students basically communicated there for the North American data center business to my recollection last year that would have been pretty minimal in terms of revenue contribution. So what kind of line of sight do you have in that business kind of multiyear.
Year outlook.
What's the backlog look like incoming orders could you put some finer points around what you're seeing in the data center side of things.
Hey, Matt and great to hear from you. This is Neil sure absolutely, we're seeing the growth through our geographic expansion.
So if we think about it last year, we didn't have a product set or product line, particularly chillers. They could serve the north American market and with our press release that came out that was specific to rock ridge that was the chiller expansion, where we expect to see.
The capacity that we put in and generate revenue similar to what you. Just described so this would be incremental in addition to the traditional data center revenues.
<unk> has produced in the past.
If you think about.
Pivoting over to one of your other high growth areas EV battery thermal management systems, you mentioned cumulatively.
Have 18 platform wins.
We'll forward 12 months from now what could that number look like and out of the 18 when you aggregate. The 18 whats the file value associated with that if you will annual.
Revenue book associated with that.
Yes, no thats a really good question, thanks, Matt It's Neil again.
We're engaged on a 101 different systems to date, if we go back to <unk>.
We'll go back say a year plus ago that was almost in the single digit range. We're on prototypes of 56, which is up two from the from June and then we have the award wins of 18, which is two more than when we spoke last in June .
We go back a year and a half ago. Those numbers again, we're single digits with 818 awarded wins, that's roughly 90, roughly $90 million that we see is in terms of the run rate. The good news here on this bit where the team has been focused on is when we talked about the 16 wins that we had last year or this year.
We talk about specialty vehicles and buses. These two incremental wins are on the last mile delivery vehicle OEM fleets. So we're also looking at not only EV and specialty vehicle, but we've made a pivot with some.
Our battery thermal management passenger thermal management electronics cooling packages that can serve in the last mile as well as we see that as an opportunity at the same time and you saw a press release in regards to shift as we spoke about those wins.
Okay.
Sure and then maybe one more when you think about kind of where you're at with 80 20.
The performance side of the business, if you had to handicap. It today, how much of revenue do you think we could be looking at or or if you can frame it up in terms of product line simplification.
However, you will determine how much do you think gets moved out the door. If you will over the next over the next year or two how much revenue do you need to deliberately exit and in doing so just that actual alone how much would that improved profitability. Once you complete that iteration of 80 20. Thank you.
No great question, Matt we're thinking about it the same way as you as we mentioned we were really in the early stages of 80 20 in climate solutions and we've just.
Structured the team in a way to standup market verticals around our air liquid in EV.
<unk> business in order to get to those answers, they're working through the quads in terms of how they look at the products and customers they're looking at profitability.
And we've just set this up with a new general manager that we just hired as well to come up with these types of conclusions.
So right now there is there is a hypothesis.
We have some assumptions, we need to vet those assumptions and the hypothesis to determine exactly what those numbers look like.
Youre thinking about it the same way, we're thinking about it and just like we did in climate solutions will work through the meticulous calculations. So that we can come up with the right and proper range.
Got it thank you.
Again, if you would like to ask a question press star followed by the number one on your telephone keypad. Your next question is from Steve <unk> with Sidoti Your line is open.
Good morning, everyone. Appreciate all the color on the call.
Impressive margin improvement.
In PT. Despite you are at the early stages of 80 20 can you give a sense of how much.
More of a contribution that can be this year I know you are in the early stages and just how sustainable those margins are on PT, knowing that youre seeing.
Slowdowns from the European economies higher energy costs and also likely that.
Light vehicle production at least in Europe , probably Thompson.
Grow quite so substantially given some of these headwinds.
Hey, Steve Great question. This is Neill I'll start with some of the high level details of what we're working on in performance technologies, and then I'll, let Mike respond.
It's a really good question because youre right. There are some headwinds we see some of that but at the same time, we see opportunities within the business first and foremost is around complexity reduction as the team looks at its product line simplification and how we can do.
And be more efficient with with the products and then the plants that we work and we also see an opportunity within plant productivity and materials, that's going to be a major focus for the performance technologies team.
The team is really excited about 80 20 the team is.
<unk> has a lot of energy around this because they saw the impact in climate solutions and theyre ready to adopt it and embrace it and then there is a lot of great commercial excellence programs that are working on in performance technologies that I suspect, we will start to see some impact.
In the coming quarters commercial excellence around pricing surcharge minimum order quantities.
Nonrecurring engineering Theyre really smart this team in terms of how they're thinking about commercializing existing products and future products.
Yes, Steve I would just add.
When we laid out at our analyst day that the objective here in.
And by the end of fiscal 'twenty four over that two year period was to get this business to cross the double digit margin standpoint.
So we've seen good improvement from Q1 to Q2, and then we would expect based on all of the activities Neil laid out and the nice thing about that is a lot of 80 20 is our control versus the economic.
Environment out there so to your question I think we continue to anticipate further margin improvements in Q3, and then a further lift in Q4 on our track to getting this business to get to into a double digit range.
Okay.
That's helpful.
Beyond data centers, a couple of the areas you.
Highlighted don't want to see if you can quantify them a bit.
And also ask about the tailwind obviously you've benefited from.
The older School retrofits trying to get a sense of how much longer that tailwind could be and then if you can quantify in dollar terms, what you're seeing from the European heat pump market.
Yes, good question.
So relative to the cares act or the Essar Act in North America, and the fundings that's in place for schools.
We know that there is at a minimum three years' worth of funding that will be deployed across a 125 K through 12 months that are in the United States.
As a matter of the ability to install and at the rate that they can install during the off season, which is the summer seasons. When the schools are not in operation.
I suspect Steve that Thats going to go beyond three years, because the installations will not be able to keep up with the pace of demand, especially as schools and school boards and teachers unions, and Ptos really think hard about infrastructure spend and how to improve indoor air quality within the schools and classrooms.
So I think thats, a tailwind thats in place for several years.
In terms of the heat pump market in Europe .
We just recently broke ground on an expansion in Serbia, we are preparing and we are ramping for that we're deploying some more capex in more machinery and equipment. So that we can keep up with that demand and we expect to see that demand over the next.
Two two plus two to three years.
Great. So I guess that leads right into my next question, which is.
Capex priorities given that for 10 years now open it sounds like now Serbia.
On the heat pump how are you thinking about capex priorities moving forward and if I can group that in with your leverage ratio now it looks like youre going to be below what your old targets were and how youre prioritizing.
Capital allocation is.
As leverage is clearly.
At a very strong rate level and getting better.
Yes, Thanks, Steve.
Yes.
We're really happy with the leverage ratio as you pointed out for others.
We've talked for several years about trying to keep the company through a cycle between 1525 times, depending on acquisition pipeline economic environment and getting to $1. Seven this quarter is really happy with that I think.
Going forward.
We continue to expect that to decline and.
Part of that is it's good to go into any kind of economic uncertainty with that strong balance sheet, but equally so we talk about really ramping up our acquisition pipeline. So we're trying to ensure we have the balance sheet ready for any kind of economic event and certainly more important I think is strategically.
To support the acquisition funnel and our growth verticals and then.
You are right and then just on the short run even in the quarter out of $12 million of Capex, we spent.
At least $8 million in the quarter.
Quarter on our climate solutions side, so as Neil laid out priorities to continue to expand data center production to ensure we have adequate capacity for the rapid order book intake and then the other probably <unk>.
Capex, our PP&E, one in Serbia, as Neil mentioned to support than growth.
Off note European <unk> market.
Okay.
Great. Thanks, everyone appreciate the color.
Your next question is from the line of Matt Summerville with D. A Davidson your line is open.
Yeah. Thanks, just a couple of follow ups.
Nick can you talk about how we should be thinking about the cost savings realization associated with the European restructuring I know you're targeting about $20 million.
How should we be thinking about that fiscal 'twenty three versus what lands in fiscal 'twenty four.
Can you remind what the cash cost of that program.
Yeah. So we.
We estimated that we would get approximately half of the savings this year.
And more a little bit more heavily weighted in the second half than the front end.
And then the other half are $10 million next year, So we'll get the full amount.
Had originally estimated.
The cost would be about 20% to $25 million.
And we're.
We're still finalizing the program, but I'm happy to say, we're running clearly at the low end of that and an opportunity it might be able to do slightly better than what we had thought.
And then how should we be thinking about total capex for this year and if you have a preliminary view on that and then similarly, how we should be thinking about free cash conversion this year and next bearing in mind.
The capex aspect of things as well as the cash cost with this program.
Yes from a capex standpoint.
We're still looking in the $60 million to $70 million range for the year.
We are not we havent spend in the first half at that rate, but we have some heavier spending in the areas. We just talked about in the second half, it's about $60 million to $70 million. This.
This year, Matt from conversion.
Probably the easiest way, we think about it especially externally as this year looking at free cash flow to a sales margin or conversion about two 5% to 3%.
And then improving further next year when we laid out our in our transformation strategy, we wanted to be within the 24 month window, 3% to 5% of sales.
And then from three years on obviously push above that range. So hope that addresses your question.
Okay and then.
M&A I guess.
You guys feel good.
About the climate business to start talking about M&A I would've been under the impression maybe coming out of last quarter that we were maybe still at least six if not 12 months off.
Four we would start to have.
Before you start to have the discussion with us like like Youre, having today. So maybe talk about Neil what gets you comfortable to start thinking about M&A now as it pertains to that business you mentioned youre looking at opportunities on a couple of areas will be coupled with technology areas may be speak to that.
In a little more detail and then I'd be curious as to how you are feeling about the maturity of the funnel and what kind of the high end.
Deal size, you might be willing to look at for that business.
Yes, all good questions, Matt and you are right. We are thinking about it in terms of climate solutions, we have each one of the market verticals inside of climate solutions that are segmented internally a little bit differently in terms of hyper growth or growth or we want to maintain existing size and EBIT dollar. So.
There is specific.
Markets inside of climate solutions that were more aggressive with in terms of how we're thinking about.
Filling the funnel with M&A activity and what we focus on those areas are the ones, we often talk about.
We look at not only.
How to gain share in that space, but also adjacencies and technologies or channel that would complement what we do today, one or two degrees adjacent space.
How we think about that orbit.
We have worked.
Pretty hard to build out a business development team.
We've put some new individually actually press release came out this past quarter in terms of pulp Board, who we just brought in to drive business development and generate and create this funnel with the support of our Gms. So I feel much more comfortable than say a year ago, where we have gms that are in the spaces that have been identified for inorganic growth.
And that they are building out targets and they are cultivating relationships.
Based on their status in terms of where we want them to spend time on M&A activity and then we also are now creating at the corporate office, our business development engine to where we can execute on on the process. Once you get through cultivation and then you get into say the stages of diligence. So we're a lot further along than we were because our.
Gms are now in place for over a year and they can set the strategies. They know their markets. We're building out the support and infrastructure at the corporate level and.
We've accelerated the.
Earnings improvement in climate solutions that allows us to really focus on this and spend more time talking about it as you know you can never time these things, Matt but to have the funnel and then that is why does it is versus what we had last year I feel much more comfortable where we're at today.
Yes.
Yes, Matt I'd just add.
The net debt side.
<unk> I'd just add in what Neil said Super hard to answer based on all of those factors.
I view it as our role in Nairobi.
So to position the company so the opportunities may come in smaller pieces, which we can't necessarily control and the other hand, we saw this years ago with Nevada.
We have the new bank facilities, we've got plenty of flexibility in our covenants.
So I think the governor on size is our current bank agreements and covenant ratios there, but it gives us a lot of flexibility to do larger transactions, but ultimately it all comes down to all the details based on this specific opportunity.
Okay.
Got it.
Thanks, Neil Thanks for that.
You got it.
I am showing no further questions at this time.
I would now like to turn the conference back to Kathy powers.
Thank you and thanks to everyone on the call for joining US. This morning, a replay will be available through our website in about two hours.
We hope you all have a great day.
Ladies and gentlemen, thank you for participating. This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
Okay.
Okay.
Okay.
Okay.
Yes.
Okay.
Yes.
Okay.
Sure.
Okay.
[music].
Thanks.
Okay.
Yes.
No.
Okay.
Yes.
Sure.
Yes.
Yes.
Yes.
Yes.
No.
<unk>.
Yes.
Okay.
Yes.
Yes.
Yes.
Sure.
Yes.
Okay.
Okay.
Okay.
Thanks.
Yes.
Okay.
Okay.
Yes.
Yes.
Okay.
Paul.
Yes.
Okay.
Yeah.
Yes.
Sure.
Yes.
Yes.