Q1 2023 Evoqua Water Technologies Corp Earnings Call
Speaker 2: Thanks for watching!
Speaker 3: Stand by, your program is about to begin.
Speaker 4: Hello and welcome to the Evoqua Water Technologies first quarter fiscal 2023 earnings conference call.
Speaker 5: At this time, all participants have been placed on a listen-only mode.
Speaker 6: After the speaker's opening remarks, there will be a question and answer period.
Speaker 7: If you would like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad.
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Speaker 9: As a reminder, this conference call is being recorded, and your participation implies consent to our recording of this call.
Speaker 10: If you do not agree with these terms, please disconnect at this time.
Speaker 11: Thank you.
Speaker 12: I would now like to turn the call over to Dan Brailer, Vice President of Investor Relations. Please go ahead.
Speaker 13: Thank you Todd. Thanks everyone for joining us for today's call to review our first quarter 2023 financial results.
Speaker 14: Participating on today's call are Ron Keating, President and Chief Executive Officer, and Ben Staats, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will open the call to questions.
Speaker 15: This conference called includes forward looking statements, including our full fiscal year 2023 expectations, long term financial targets, statements relating to our pending merger with Xylem, statements relating to demand outlook in our end markets.
Speaker 16: Growth opportunities, our water pipeline, order conversion, gas generation, our acquisition strategy in pipeline, integration and performance, future performance, recent acquisitions, supply chain challenges, inflation, labor shortages, and general macroeconomic conditions.
Speaker 17: Actual results made different materially from our expectations. For additional information on a book book, please refer to the company's SEC Piling, including the risk factors described therein.
Speaker 18: On this conference call, we'll also discuss certain non-GAPF and interim measures. Information with respect to such non-GAPF and interim measures is included in the appendix of the presentation slides for this call, which can't be obtained at a Volkow's Investor Relations website.
Speaker 19: Now let's otherwise specify references on this call to full year measures or to a year referred to our fiscal year which ends on September 30th.
Speaker 20: means to access its conference call via webcast where it is closed in the press release which was posted on our investor relations website. Replace the this conference call with your archive and available for the next 60 days. With that I would now like to turn the call over to Ron. Ron? Thank you Dan and thank you for joining us.
Speaker 21: Before we present our results, I'm once again pleased to announce that on January 23rd, we entered into a definitive agreement for Xylem to acquire a vote and an all-stock transaction at a 30% premium to our closing price on the Friday before signing.
Speaker 22: Joining forces with Xylem is an exciting development for the market and an exciting opportunity for our team members. The combination provides a platform to leverage our combined strengths and we look forward to increasing our collective impact as we address increasingly complex global water challenges.
Speaker 23: As a company, we remain focused on executing our plan until the deal closes.
Speaker 24: We will operate as business as usual until the combination is approved by regulatory agencies and both sets of company shareholders.
Speaker 25: I'm pleased to provide insight into our PRR-4 results and we will appreciate you limiting your Q&A to our results and not to the combination or transaction.
Speaker 26: for our quarter results, and we'll appreciate you limiting your Q and A to our results, and not to the combination or transaction. Please turn to slide three.
Speaker 27: We're very pleased with our start to fiscal 2023. Our first quarter revenues were up 19% over the prior year period, with organic growth contributing 9.1%.
Speaker 28: We're pleased to report strong revenue growth across both segments. ISS Organic Revenue Growth was nearly 8 percent, and APT Organic Revenue Growth was more than 12 percent year over year.
Speaker 29: We have strong sales across all regions and most in markets, with price realization and volume both contributing to growth.
Speaker 30: FX continues to be a headwind primarily for APT as the dollar weakened throughout the quarter from its late peak in September .
Speaker 31: Adjusted EVA diet was up approximately 34% and margin expanded 190 basis points over the prior year quarter.
Speaker 32: We are very pleased that our LTM adjusted EVA.margin grew 40 basis points to 17.5%.
We continue to see broad-based demand across our key and markets, particularly in life sciences and food and beverage.
Our order flow remained healthy as well, with our book to bill ratio again over 1.0 and our pipeline remains robust.
Given the first quarter performance and the order momentum, we are confident in delivering on the years commitments made in our Q4 earnings call.
Networking capital increased in the quarter as we intentionally built inventory to support our order activity.
Operating cash flow was in turn impacted, though we still expect to exceed our 100% adjusted pre-cash flow conversion target for the fiscal year.
We were able to reduce our net debt leverage ratio to 2.5 times and our balance sheet is healthy and flexible and remains a top priority in this rising interest environment. Please turn to slide 4. For more information, visit www.fema.gov
Water is essential for daily life, whether for human consumption, industrial production, or commercial purposes.
Manufacturers are requiring more stringent levels of ultra-pure water while wastewater reuse has become vital in protecting, diminishing water supplies and reducing the strain on municipalities.
Water is becoming increasingly complex and Evoca is an essential treatment provider making clean water more accessible.
The long-term market trends are very favorable, and we expect our business to be resilient through normal market cycles.
This slide highlights key financial metrics that demonstrate our resilient business model, driven in part by our recurring revenue streams, with service and aftermarket making up approximately 60% of our revenue.
Digily connected outsource water, strong and growing in markets and our industry leading service are just a few drivers for organic growth in favorable and unfavorable market conditions.
As stated previously, cash flow is down for the quarter, but we continue to target adjusted pre-cash flow conversion of 100% and have achieved that level for several years.
Our management team is focused on driving strong and consistent cash generation that is supported by our base of stable, profitable, and recurring revenues.
We're making strategic decisions on working capital and will see opportunities for improvement as supply chain performance becomes consistent.
Please start this live, Bob.
This chart represents our second quarter expected order activity by end market compared to the prior year's second quarter.
We continue to expect strong orders across most in markets, particularly life sciences, food and beverage, and aquatics.
Microelectronics has been very strong in the prior year period and we expect similar results in the quarter. Microelectronics remains in a long-term up cycle, though timing and project schedules could create some volatility in this key-in market.
Overall, we expect to see stable, growing order demand across most of our end markets for the remainder of fiscal 2023.
And as I previously commented, our inventory investments have us well positioned to convert our backlog effectively and to achieve a higher rate of on-time customer delivery.
We've seen some project delays related to permitting issues and customer schedule management, but cancellations remain immaterial.
Please turn to slide six.
We look at our environmental impact through our own footprint on the environment, but also through the products and services we provide our customers.
We are pleased to highlight two recent handprint wins, which are expected to positively impact our customers' water conservation and reuse initiatives while generating an attractive return on investment.
Our first highlight showcases the potential impact of the infrastructure law with an industrial chemical manufacturing partner partnering with a regional municipal wastewater facility in Virginia.
Evoca was selected for the pilot to design, source, and assemble a wastewater treatment system that combined ultrafiltration and RO technologies in a mobile platform.
The pilot will test the treatment of wastewater for recycling and providing high quality feedwater for plant use.
The goal of the pilot is to determine the potential for a full-scale system with support from the new infrastructure bill.
A full-scale system would be designed to reduce the demand on the water treatment facility by 3,000 gallons per minute and to open additional drinking water capacity that could serve more than 14,000 homes in the region.
We also help the supermarket chain divert high strength organic waste using our anaerobic membrane bioreactor.
The biological process converts the waste into biogas that is then converted into renewable energy.
This system will treat up to 230,000 tons of food waste annually, reducing the landfill burden while producing 1,400 million BTUs a biogas per day, which is the average daily use of approximately 7,000 USM.
Please turn to slide seven.
While helping our customers improve their sustainability with our solutions, we're still addressing our own operations to minimize our footprint.
We are very pleased to announce that we were recently selected as one of only 19 companies to receive the Terra Carta Seal.
The Terra Cardiceo was launched at the COP26 conference by King Charles III when he was the Prince of Wales.
It recognizes global companies that are driving innovation and demonstrating their commitment to the creation of genuinely sustainable markets.
The Tarar Carto was awarded to companies with ambitions aligned with the recovery plan for nature, people and the planet, which was launched in January of 2021.
We are also privileged to have ranked sixth this year on the corporate night's list of the 100 most sustainable companies in the world.
It is the second year that Evoqua has been included in the top 100 rankings and an improvement from our 19th position in 2021.
We are honored to be recognized as a sustainability leader, enabling our customers to become more sustainable through our solutions and with our services.
Last but not least, we received the Frost & Sullivan 2022 Global Company of the Year award in the Water Technology category.
The company was honored for our visionary innovation, market-leading performance, and unmatched customer service.
We thank Frost and Sullivan for recognizing us at the forefront of innovation and growth in our industry.
Our team has worked tirelessly to achieve these great awards and I'm thankful for their efforts and the progress that we continue to make.
I would now like to turn the call over to Ben.
Thank you Ron. Please turn to slide 8.
For the first quarter, reported revenues were up 19% to approximately $436 million.
Organic revenue growth contributed approximately 9% driven by broad-based price realization and volume growth.
We saw organic revenue growth in aftermarket services and capital, as well as across all regions and most product lines versus the prior year.
First quarter adjusted EBITDA increased approximately 34% over the prior year period to $72.7 million for an overall margin of 16.7%.
Bavailable price realization, mix, and higher sales volume, where primary drivers have improved profitability.
Adjust the EBITDA margins increased approximately 190 basis points over the prior year period.
We were pleased that price cost was positive and accretive to margins for the quarter.
Please turn to slide 9.
Our integrated solutions and services segments first quarter revenues were up approximately 25% to $305 million.
light in general, and life sciences saw strong growth. Organic revenues growth contributed nearly 8% driven primarily by price realization.
Service and aftermarket revenues were strong across most end markets.
Our capital projects and outsourced water pipeline is strong and growing. Digitally enabled revenues were up over 20% versus the prior year quarter.
Adjust needs to increase approximately 29% to 69 million due to favorable price and the consolidation of MARC-4's operations.
partly offset by material inflation and productivity. Adjustity of the margin for the quarter was 22.6% of 80 basis points from the prior year.
Please turn to slide 10.
We continue to see strong year-over-year growth in ISS backlog. First quarter backlog was up approximately 162 million, or 21 percent, over the prior year quarter, and up 3 percent versus Q4 of last year.
Our pipeline continues to be robust with opportunities across multiple end markets.
We expect to see our book to bill ratio remain above one in the fiscal year.
Please turn to slide 11.
Applied product technologies, first quarter revenues, were approximately 130 million up, more than 7 percent.
Organic revenue growth contributed 14.8 million or approximately 12 percent driven by strong volume growth and price realization with revenue growth across all regions and most product lines.
microelectronics, especially in APEC, saw strong growth. As Ron mentioned, foreign currency translation unfavorably impacted revenues.
adjusted EBITDA for the first quarter increased nearly 12% to approximately 25 million and adjusted EBITDA margins saw a 70 basis points improvement to 18.8% driven by favorable price realization, higher sales volume and mix partly offset by inflationary impacts.
productivity, and effects. Please turn to slide 12.
Capital spending, primarily for outsourced water orders, was approximately $23 million for the quarter, or approximately 5.2% of revenues.
First quarter, Networking Capital grew to 16% of LTM cells to facilitate strong order rate growth.
As previously stated, higher inventory levels and accounts receivable collection timing in the quarter primarily drove the increase in networking capital.
Specifically, we built stock for certain raw materials, such as resin and membranes, due to limited supply and extended international shipping times. Another portion of the inventory increase was working process. Needed to support strong, forecasted demand. We anticipate this will be utilized in the coming months as backlog is converted. We expect to reach our target of 100 plus percent adjusted free cash load conversion for the fiscal year.
Please turn to slide 13. We had a strong quarter of revenues and profitability, which allowed us to build on our balance sheet health. Debt reduction remains a priority, and as Ron mentioned, our net leverage ratio is now at 2.5 times, just one year after the MARCORA acquisition.
I would now like to turn the call back over to Ron. Ron?
Thank you, Ben. Please turn to slide 14.
We had a strong quarter with outstanding results across most key financial metrics. In particular, adjusted EBITDA margin for the first quarter of 16.7% and LTM EBITDA margin of 17.5% are the highest margins we have reported since becoming a member of the United States of America, at e-minimal rate.
becoming a public company. Market demand remains strong, and we are pleased to deliver broad-based organic growth across both segments, all regions, and most product ones. Our pipeline remains robust, and our backlog continues to grow.
We continue to manage with rising costs and supply chain uncertainties, and we're pleased to once again be price cost positive for the quarter.
Customers continue to see the value of outsource water, which continues to contribute to ISS's growth and recurring revenue model.
digitally connected sales were again up double digits.
Heading into the second quarter, we are focused on sales and operational execution to convert our strong backlog.
Price realization is expected to be positive as inflation abates in some pockets and overall labor and material availability show signs of improvement as well.
We continue to monitor the timing of customer purchase orders and shipment requests as supply chain and regulatory uncertainties could create timing challenges.
Given our backlog and order activity, we are confident in delivering our commitments for FY23. However, given the pending transaction, we are not giving official forward guidance.
I will now open the call for your questions and remind you to please focus on evoqua performance and not the outlook for the pending transaction.
Thank you. At this time, if you would like to ask a question, please press the star and one on your touch tone phone.
You may remove yourself from the cue at any time by pressing star 2.
Once again that is star and one to ask a question, we will pause for a moment to allow questions to queue.
We'll take our first question from Dean Dre with RBC Capital Markets.
Thank you. Good morning everyone and congrats again on the merger agreement with Xylem.
Thanks, Dean. Good bye.
Thanks, Dean.
If we can start with the ISS pipeline, could you just take us through what kind of rank or the end markets where you're seeing the most interest? Can you talk about any kind of reverse inquiries that you're getting from customers?
that potentially either within these verticals, but also geographically. Are you getting any inbound questions from potential customers in Europe and Asia?
Yeah, thanks Dean. You know, as you look at slide five, we continue just to see strength across the majority of the end-markers as we've highlighted. You know, life science is a very robust, chemical processing continues to be very strong. You know, and the one that we had always pointed out is
The canary in the coal mine that we'd be concerned about keeping an eye out on was light in general industry and it continues to be a street of green so we feel really good about it. I lied it in the comments actually, we're seeing strong activity from power and renewables as well and we're certainly seeing that. So you kind of look at those markets, they're all very good.
As we think about microelectronics and we show it as neutral, last year this quarter was just fantastic and we anticipate it will be flat with last year. So we're feeling...
very good about the end markets that we're seeing right now. Reverse inquiries, we're really not hearing a lot right now, but we are hearing customers kind of come out and say, obviously, we know who you're partnering with. The outlook for the combination's fantastic. We have got
zero concerns coming out of customers. But I think, if anything, it'll be stronger as we start to make headway. And we're planning, obviously right now we're only in the planning phase and we can only plan until the deal closes. Thank Congratulationsggkm
But
international with APTs pretty, you know, pretty much a great opportunity out of the gate.
That's great to hear. And a follow-up for Ben on what's the expected free cashflow conversion timing for the year? You know, some of this you said there was some accounts receivable collection timing, so that would suggest.
you know, more near term conversion, but just kind of the pace of free cashflow conversion for the year.
Yeah, we expect to continue to improve as we go through the year and Q4 tends to always be our strongest free cash converging quarter, Dean. But, you know, we took the opportunity looking at our demand and looking at our outlook to make sure we secured the ability to meet that demand.
and secured some of the areas, in particular for the service organization like resins and membranes to make sure we had the stock. And then APT on their end, they certainly are building the work in process to be deliver on that, on the shipments that are coming. So we naturally expect free cash flow to improve as we head through the year.
And then as you know, we're a September year end and the calendar year end, you typically see companies that tend to, at times, particularly with uncertain times, hold on payables a bit, and we did see some of that in December , but receivables are looking fine as we go and we expect the vaccine look fine as we go forward.
It's all great to hear. Thank you.
That's all great to hear. Thank you.
Thank you. Our next question comes from Nathan Jones of Steffel.
Good morning everyone. Good morning Jason.
Good morning. Um, I'm gonna start with a bit of a follow-up to Dean's second question there on free cash flow And maybe a bit more on the inventory build I think you guys had been expecting kind of a higher mix of capital versus outsourced kind of projects relatively speaking in 23
Some of these inventory builds are related to what are more near-term deliveries on those capital kinds of projects.
And was this in the plan when we were coming into 2023, this build in inventory or has it been because you've seen better orders on the capital front?
We are seeing strong orders on the capital front, across the border seeing strong orders, then we anticipated. And so, as we saw those orders coming in as we went through the border, we decided, and the activity order rates, we decided to make sure that we secured our
or stock to make sure we can flip on those orders. And that's helpful. Go ahead.
So from a plan perspective, obviously it's things are developing stronger than plan. And you know we definitely want to, the good thing about this business is we have visibility and it gives us time to respond. So obviously we're responding accordingly.
Thanks for that. My second question was around a comment you made in your prepared remarks that price cost was actually positive to margins in the quarter. Can you provide a bit more colour around that and what the expectation is for price cost maybe as we move through the year?
do you expect it to actually be positive to margins rather than just dollar positive?
So certainly, I'm not going to provide a lot of outlook, but I will tell you we had 9 million positive on price cost in the course. It was strong and we did the math. It was certainly a nice healthy part of that margin expansion. You know the wild card there is always what happens to...
inflationary impacts, but holistically we seem to be seeing things settle down and we're certainly seeing the benefits of the price realization actions that we've been seeing in this place.
Yeah, Nathan, I think that was a tremendous benefit for us in the quarter has been highlighted and we've been waiting for these I mean we've been out in front of the cost curve with pricing actions and you know They they take a little bit to come into play and they just continue to flow through
I know you guys have been implementing strategic pricing increases as far back as 2021 that got a bit covered up by inflation over the last couple of years. Is it your intention to be able to hold pricing if you see actual declines in your costs?
Yeah, I mean if as I've highlighted in prior calls When we talked about this our pricing is very sticky So once we go with a price increase it is it takes quite a bit to pull that back It's a it's a sticky price that we feel confident in
Great, thanks very much for taking my questions. Thank you.
Thank you and as a reminder if you would like to ask a question please press star one at this time.
We'll take our next question from Sahil Manocha with Citigroup.
Hi, good morning. Good morning.
I just want to hone in on ISS margins really quickly. We saw the 80-bit improvement sequentially, and previously you had mentioned the onboarding and new service techs. Can you give us some color on how they're onboarding?
I'll be standing.
Yeah, we feel we feel very good about it. I mean, it, you know, it's taken a little bit of time. And we actually commented in our last call, that the onboarding had happened through the year, we were back to our normal run rate of openings at the end of, you know, at the end of the fourth quarter of last fiscal year. So what you're saying is you're saying, you know,
the fall through of more efficiency as we would normally expect to see. And we've got great confidence that that will continue on..
Awesome. I have a second question. So I've seen states like Maine, New York, California, and Colorado seem to be getting more restricted when it comes to PFAS. Have you seen a bump in your PEEP-oscillated work as a result of these recently passed restrictions?
Yeah, it's a great question. You know, it's interesting and one of the things we've talked about is, you know, the states and municipalities that were out ahead of it already were putting projects in. So we've already been operating in those specific areas that you're highlighting with PFAS treatment. It speaks to that $100 million pipeline that we talk about typically on every call and we're...
We're hearing it's pending very soon, but I would say until that happens, you're kind of going to see that PFAS market be flat.
Thank you.
Thank you. Again, to ask a question, please press star 1. We'll take our next question from Joe Giordano with Cowen.
Hey, good morning guys. Hey, Joe. Hey, Joe. Hey, so your color on light industry in general, be doing well sequentially. That was surprising. I mean, just in the early earnings we're hearing across our coverage, that is absolutely not the commentary of other companies within those markets. So
maybe if there's like some distinction you can point to between like maybe what some of your customers are facing from their own demand and then what they're demanding from you.
Yeah, so you know Joe is as you
Look at our end market exposure. It continues to give us pretty high confidence. We are very heavily concentrated in North America, as you know. The near-shoring and on-shoring have continued to carry a pretty good order activity for us in a fairly robust pipeline.
And the other thing that we speak about with regularity, the scarcity of water, the challenges on treating water to a level that is more difficult, and then people trying to do, and companies trying to do what's right, around ESG metrics with recycled reuse, minimizing their water footprint, feeds. You know, it really aligns very well with the focus offering.
Ben, if you could just clarify on the organic growth disorder, how much of that was price versus volume? Ben, I'm just wondering, how much of that was price versus volume? Ben, I'm just wondering, how much of that was price versus volume?
We certainly had a lot of price in there. With ISS it was heavy on the price side. With APT it was relatively proportional.
Thank you guys.
Thanks guys. Thanks Joe. Thanks Joe.
Again, if you would like to ask a question, please press star one. We'll take our next question from Patrick Bauman with JP Morgan.
Hi, good morning. Thanks for taking my question.
A quick question on, you mentioned a couple different times around customer schedule management, I think, and you talked about…
And probably that's being felt most, you know, if it's specific end markets, because you also mentioned lumpiness, I think, in microelectronics. Maybe that's what you're talking about. Just.
yeah just anything scattered recognition of the hell
Oh, just looking for incremental color around kind of the scattered comments you made in the...
in your commentary around project delays, lumpiness in kind of projects that that sort of thing. Yeah, so you know actually as you think about our project outlives.
And this is one of the difficulties we've had through the entire supply chain difficulty is we're working, we're aligned, we're ready to deliver. It is customer sites being prepared for us to deliver to. So the larger and the more complex the.
the system that we're selling, the more challenging that is for them to be on time, because they're having to coordinate multiple other subcontractors, multiple other supply chains to be ready for our system to go in. Again, when our system goes in, it's toward the end.
because they're getting ready to turn on the water. The system goes in, it gets delivered, and then until they turn it on and start the operation, it delays our billing around operating and maintenance or build on operate top contracts. So you kind of think about when you look at page five.
The more complex the larger systems like a microelectronics that I highlighted would be the ones that would be a little more lumpy on customer timing and customer delays against the remainder of the project.
That's something that you had previously embedded in your outlook, I think you're saying. So that's not something that is a surprise to you. It's just something that you're highlighting. Yeah, okay. We've been dealing with this from the, you know, the...
I would say the supply chain challenge, we deal with it always. But certainly the supply chain difficulty has exacerbated that issue and we've been managing this for the past two years. Thank you and God bless you.
Thanks for those comments. Can you comment on how Marcor performed in the quarter? How that business is kind of performing versus expectations? Yeah, I would say it's right on track. We feel very good about Marcor. Where it is, it's right on track. We still have an expectation.
for our SAP roll out in the month of February . And things are lined up exactly as we anticipated.
Okay, great. Thanks for answering the questions. Have a great day. Thanks. Thank you too.
Thank you. Our next question comes from Mike Halleran with Bayard.
Hey, good morning everybody. This is Pez on for Mike.
Morning.
Quick question for you. Obviously, the margin performance was pretty exceptional and a healthy amount of price helping there on the price cost side of things.
Could you maybe talk about the margins embedded in the Expanding Backlog, particularly given the current mix, and just the sustainability of margin performance?
Yeah, I mean we feel good about it. We look at the margins of the backlog with regularity and again one thing that we highlighted is our pricing goes out, it's very sticky, it stays. Our backlog is already priced against price increases and we feel good around the way that we're managing the business and able to manage the supply chain.
And then a bit of a clarifying question. I believe I heard something about...
some permitting hang-ups. Just a quick clarification. Is that a broader comment on changing the note?
permitting environment or is that I suspect that's more of a one-off comment associated with a subset of projects? It's a few specific projects in certain market areas and again that really goes to the question I had previously around how are we dealing with delays on a customer site?
When they're dealing with delays around permitting, around getting their supply chain, the rest of the infrastructure in place for us to be able to deliver is something that we manage against with regularity. It creates some lumpiness in the recognition of revenue against backlog on occasion. But it's nothing new that we haven't been dealing with in the past.
Great, that's what we thought. Appreciate the color. Thanks guys. Thank you for watching and I'll speak to you again soon.
Thank you.
Thank you.
Thank you. Once again, if you would like to ask a question, please press star 1 at this time.
And it appears at this time we have no further questions. I would now like to turn the call back over to Ron Geeting for any additional or closing remarks.
Thank you again for your interest in Evoque. As always, I want to thank our team members for driving and delivering every day very safely to take care of our customers to deliver against the expectations that our customers have of us in the marketplace and making sure that we make them more competitive.
We've got a fantastic team of people. I look forward to continuing to deliver against the market guarantees that Evoqua makes and the promises. I appreciate all of you having an interest in speaking with us today.
I look forward to continuing to deliver against the market guarantees that Evoqua makes and the promises. I appreciate all of you having an interest in speaking with us today. Thank you. Thank you.
Thank you. That concludes today's Evocal Water Technologies first quarter fiscal 2023 earnings conference call.
You may now disconnect your lines and thank you for your interest in Evoqua.
I.
I'll see you next time.
the stock. And then APT on their end they certainly are building the work in process to be deliver on that on that on the shipments that are coming. So we naturally expect free cash flow to improve as we head through the year. And then as you know we're a September year end and the calendar year end you typically see companies that tend to at times particularly with uncertain times hold on payables a bit and we did see some of that in December but receivables are looking fine as we go and we expect the Maxine look fine as we go forward on collections. That's all great to hear. Thank you. Thank you. Thank you. Our next question comes from Nathan Jones of Stiefel. Good morning everyone. Good morning Nathan. We'll start with a bit of a follow-up to Dane's second question there on free cash flow and maybe a bit more on the inventory build. I think you guys have been expecting kind of a higher mix of capital versus outsourced kind of projects relatively speaking in 23. Some of these inventory builds you know related to what are more near-term deliveries on those capital kinds of projects and was this in the plan when we were coming into 2023 this build in inventory or has it been because you know saying better orders on the capital front? We are seeing stronger orders on the capital front across the board we're seeing stronger orders than we anticipated and so as we saw those orders coming in as we went through the quarter we decided and the activity order rates we decided to make sure that you know we secured our our stock to make sure we can live on those orders. That's helpful. Go ahead. So from a plan perspective obviously things are developing stronger than plan and you know we definitely want to the good thing about this business is we have visibility and it gives us time to respond so obviously we're responding accordingly. Thanks for that. My second question was around a comment you made in your prepared remarks that price cost was actually positive to margins in the quarter. Can you provide a bit more color around that and what the expectation is for price cost maybe as we move through the year? Do you expect it to actually be positive to margins rather than just dollar positive? So certainly I'm not going to provide a lot of outlook but I will tell you we had nine million positive on price cost.