Q4 2022 Forum Energy Technologies Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies fourth quarter 2022 earnings Conference call. My name is Gigi and I'll be your coordinator for todays call. There is a process for entering the question and answer queue, a link with instructions can be.
Found on the company's Investor Relations website under the events section at this time all participants are in a listen only mode and all lines have been placed on mute to prevent any background noise to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message.
Advising your hand is raised.
Withdraw your question. Please press Star one one again this conference call is being recorded for replay purposes and will be available on the company's website.
I'll now turn the conference over to Rob Cockler Director of Investor Relations. Please proceed sir.
Thank you Gigi good morning, everyone and welcome to <unk> fourth quarter 2022 earnings Conference call.
With me today are Neal Lux, our president and Chief Executive Officer, and Lyle Williams, our Chief Financial Officer.
We issued our earnings release yesterday and it is available on our website.
Please note that we are relying on the safe harbor protections afforded by federal law listeners are cautioned that our remarks today may contain information other than historical information. Please.
His remarks should be considered in the context of all factors that affect our business, including those disclosed in <unk> Form 10-K, and our other SEC filings.
Finally management's statements may include non-GAAP financial measures for a reconciliation of these measures you may refer to our earnings release.
During today's call all statements related to EBITDA refer to adjusted EBITDA.
And unless otherwise noted all comparisons are fourth quarter 2022 to <unk> third quarter 2022.
I will now turn the call over to Neal.
Thank you, Rob and good morning, everyone.
Reflecting on our 2022 achievements I am pleased to say that we exceeded expectations and as we will discuss during today's call I think <unk> is just getting started.
Let's begin with some key highlights from our annual and fourth quarter results.
And our debt conversion.
Our teams delivered strong 2022 financial results.
We ended the year with the highest backlog since 2018.
Revenue and EBITDA grew by 29, and 194% respectively on a year over year basis.
Also during the year we.
We increased our gross margin by 230 basis points.
And doubled our EBITDA margin to over 8%.
This growth reflects our operating leverage and differentiated product portfolio.
In the fourth quarter, we had robust bookings and revenue growth of 35% and 29% respectively year over year demand for our products and solutions remain strong.
EBITDA of $17 million.
Within our quarterly guidance range and up nearly 300% versus fourth quarter 2021.
Finally, and most importantly for the company's future performance.
We were able to significantly improve our balance sheet during the quarter with the conversion of our long term debt the common stock.
The conversion marks a significant milestone for a number of reasons.
First pro forma for the conversion.
Our year end net debt was approximately $83 million.
One four times full year 2022 adjusted EBITDA.
<unk> credit rating was upgraded as a result of our significantly reduced leverage.
Second the conversion nearly doubled our market capitalization and.
And our daily trading volume has increased substantially.
Both of these factors have improved our investment profile.
Third the reduction in debt decreases <unk> annual cash interest payments by roughly $11 million.
Enhancing our free cash flow conversion.
And finally.
The balance of our long term debt is now significantly below year ending liquidity.
This achievement opens up several strategic options, including share repurchases.
Further debt reduction and acquisitions.
Lyle will discuss these options in greater detail during his remarks.
In addition to strategic options we.
We have an incredible foundation for organic growth as a result of the attributes that lifted during our earnings call in February 2022.
One our employees are key differentiators.
Industry fundamentals are expected to remain strong.
Three.
If continue continuing to develop and launch innovative products and solutions.
Four we have opportunities for significant margin expansion and.
And five.
<unk> is positioned to access growing markets outside oil and gas.
And now we can add a six attributes.
A solid balance sheet bolstered with meaningful positive free cash flow.
Our colleagues at <unk> are dedicated and focused on delivering value to the customer and the company.
And as we demonstrated with our impressive bookings in 2022.
Customers see the value, we bring through technology innovation and quality.
Today, our customers are in a good financial position because industry fundamentals are solid.
While commodity prices have recently moderated.
Some forecasters.
Such as the International Energy Agency.
Expect oil demand has surpassed supply in the second half of 2023.
This should put a floor under activity now and provide incentives for a prolonged energy investment cycle.
While increasing industry activity provides a tailwind for growth we want.
To grow faster than the market.
To accomplish this goal, we are introducing products and technologies that our customers value.
Our key components and consumable products enhance our customer's long life assets to make energy production safer cleaner and more efficient.
For example.
We recently showcased our new SaaS connect Frac automated switch technology system at a society of Petroleum Engineers Technical conference.
The SaaS connect system allows service companies to perform hydraulic frac operations without a traditional zipper manifold.
Through automation, our solution increases the safety of field personnel.
And stages completed per day.
While eliminating a significant portion of our manifolds operating expense.
In addition, the.
SaaS connect system significantly improves the environmental impact of our Frac fleet by eliminating degrees consumed.
If our system was adopted on every zipper Frac fleet.
We estimate operators would eliminate 18 million pounds of Greece from their well sites per year.
The environmental improvement would be astounding.
The total addressable market in the United States for this solution is between $300 million to $500 million.
Okay.
As an asset light manufacturer with an international footprint.
We address key markets around the world.
A great example is a recent electro static defaulter system award from one of our largest national oil companies in the world.
The system will utilize <unk> edge dissolving technology and for a mix our high efficiency multi phase technology.
The contract has a value of approximately $25 million with potential for meaningful subsequent awards.
I'm extremely proud of everything we accomplished in 2022.
But it's time to focus on 2023.
As I mentioned earlier I'm excited about <unk> future.
Long term market fundamentals remain strong.
Supply and demand imbalances will continue to fuel the need for more investment.
However, there are mixed views on where the U S rig count goes from here.
We anticipate moderate rig count growth during the year.
With the trajectory to be determined.
However, equipment utilization and service intensity will remain at high levels.
Our customers are telling us they are sold out and have essentially no spare capacity.
As they are older equipment wears out customers are upgrading and replacing it with more efficient and advanced capital items from our product catalogs.
As we demonstrated in 2022.
Increased demand for our differentiated products will enable us.
To further grow our EBITDA margins.
Okay.
The international markets are ramping up and <unk> will be there to participate in the growth.
Historically international revenue has been between 40% to 50% of total revenue.
As international markets grow so do we.
And I believe that <unk> has a unique advantaged.
With an optimized global footprint with a select number of manufacturing and distribution hubs that can strategically supplier customers.
With the products and solutions they need anywhere in the world.
In addition, we can service nearly every oil and gas producing country without spending any additional capital or adding roofline.
We can ship anywhere.
The offshore market is also heating up through.
Through 2022.
The offshore drilling rig count has increased meaningfully.
Service intensity of offshore operations exceeds land based activity and drive additional demand for <unk> products.
In the near term this reactivation should benefit our drilling capital products for mud systems and tubular handling operations.
Over the longer term growing subsea activity should drive demand for our world class and inspection rovs and related products.
With the opportunities we see in front of us I am confident we can deliver revenue and EBITDA growth and generate strong free cash flow in 2023.
We therefore expect <unk>.
EBITDA to be in the range of $80 million to $100 million.
And free cash flow of $20 million to $40 million.
I will turn the call over to Lyle for more detail on fourth quarter results.
Outlook for the first quarter 2023, and our capital deployment options.
Thank you Neal good morning, everyone.
Overall, <unk> fourth quarter financial performance met or exceeded our expectations Rev.
Revenue of $191 million beat.
Beat the top end of our guidance.
At 5% growth, we outpaced the U S rig count as demand for our products and services remains strong.
EBITDA of 17 million fell within our guidance, although our incremental profitability did not meet our expectations.
During the quarter two projects one in our subsea technologies and one in our coiled tubing product lines generated unfavorable cost variances totaling over $2 million.
Shifting to our operations each of our business segments posted increased revenue for the fourth quarter.
Drilling and downhole segment revenue was $81 million up 7% led by higher demand for drilling handling tools and capital equipment.
Our drilling downhole and subsea product lines all increased revenue.
Drilling and downhole segment orders increased by 19% with a book to Bill of 108% driven by strong demand for drilling capital handling tools and bearings.
This momentum should continue as global rig count grows, particularly outside the U S.
The segment currently generates roughly 50% of its revenue from international sales.
Despite the revenue growth segment, EBITDA decreased $2 million compared with a strong third quarter sub.
Subsea project costs and increased freight expenses, partially offset the revenue growth.
Unfavorable unfavorable product mix and year end production variances also impacted performance.
Completions segment revenue was $74 million, a 3% increase with higher demand for pressure control equipment, as well as radiators and power and power ends supporting pressure pumping activity.
Quality wireline revenue grew 7% breaking the revenue record set last quarter.
Bookings for the completions segment were $81 million up 3%, resulting in a book to bill ratio of 110%.
We secured a number of jumbotron radiator orders that will be paired with environmentally friendly dual gas blend engines for Frac fleet upgrades.
In addition, we received a sizable order for pressure control equipment destined for international markets.
These awards were partially offset by lower orders for stimulation and coiled tubing products. Following large project bookings we received in the third quarter.
<unk> segment, EBITDA was $9 million down $1 million higher revenues were offset by unexpected project costs in coiled tubing unfavorable sales mix and higher freight costs.
In our production segment revenue was $36 million up 5%.
Primarily led by higher demand for production equipment.
Production segment bookings were $47 million for the quarter comparable with the third quarter.
The book to Bill ratio remained strong at 130% as demand for our surface processing equipment and technology continues.
Production segment, EBITDA was $2 million up $1 million, primarily on increased volume favorable sales mix and operating leverage in our production equipment product line.
EBITDA margins at four 7% continue a positive improvement trend bettering the three 5% in the third quarter.
The segment will drive margin improvement through operating leverage and continued cost management and focusing on higher margin emission reduction and alternative energy applications and the longer term.
Inventory management has been a key focus area for us.
In the first quarter 2022, we proactively built inventory to buffer our customers from the supply chain disruptions many companies faced.
As the year progressed, we challenged our operations to normalized inventory levels and increased turns.
Supply chain performance remains volatile and in some cases put a strain on our margins and ability to deliver.
For example, due to the supply chain challenges in the fourth quarter, we expedited materials in support of commitments made to our customers.
This accounted for most of the higher freight expenses I mentioned earlier.
In addition through throughout 2022 steel price inflation.
And availability impacted margins in our coiled tubing and production equipment product lines.
We struggled to increase prices to offset this inflation due to competitive dynamics and in the case of production equipment due to the long lead time between our receipt of orders and ultimate shipment.
We expect these steel and freight impacts to normalize through 2023.
Free cash flow of $45 million was a highlight for the quarter.
This result includes $32 million from our November 2022 sale leaseback transaction.
These proceeds over 10 times greater than the new annual lease commitments.
This accretive transaction furthers, our ability to improve returns.
Excluding the leaseback proceeds our quarterly free cash flow of $13 million was negatively impacted by large customers, who delayed payments at year end.
In large part because of this free cash flow generation, we ended the quarter with $51 million of cash on hand, and $156 million of availability under our fully undrawn revolver.
Liquidity increased by $60 million from September to a total of $207 million.
With this level of liquidity, we could retire our long term debt today, while leaving ample dry powder to fund operations.
The strength of our balance sheet highlights the transformative nature of the debt conversion and our 2022 financial performance.
We continue to believe FUT shares are undervalued as we traded a discount to other equipment manufacturing peers.
Therefore in the fourth quarter, we repurchased just over 100000 shares at a discount to last Friday's closing price.
Comparing this price with our $80 million to $100 million 2023 guidance implies a valuation of $4 2253 times EBITDA with many of our peers trading at seven to 10 times 2023 expectations.
We believe our stock has compelling upside.
Now, let me share with you our first quarter forecast.
Neal discussed how we see the market going forward and provided our 2023 EBITDA guidance earlier in the call.
We anticipate modest growth progression in the U S and stronger international activity growth through the year.
Thus far 2023 U S rig activity has been relatively flat and international activity is in the process of ramping.
Therefore in the first quarter, we expect revenue of between $180 million to $200 million and EBITDA of between 16 and $20 million with these values increasing each quarter throughout the year.
We expect first quarter free cash flow to be negative $20 million to $30 million.
<unk> payments of management cash incentives and property taxes as well as accrued interest related to converted notes will be partially offset by cash flow from EBITDA and net working capital improvements.
Let me provide a few data details for modeling purposes.
In the fourth quarter corporate costs were flat with the third quarter coming in a little better than expected in the first quarter, we expect corporate costs to be in line with the fourth quarter.
Interest expense to be $5 million, and depreciation and amortization expense of roughly $8 million.
We expect full year capital expenditures of approximately $15 million and cash income taxes of $5 million to $7 million.
Let me shift my attention to our capital deployment alternatives.
With a right sized capital structure ample liquidity and improving free cash flow, we are evaluating several options for deployment of our cash.
Through a lens of improving our financial metrics and maximizing returns.
One option is to repay our long term debt or repurchase additional shares realm.
Relative to other alternatives debt repayment yields a modest return.
Share repurchases are more attractive at current levels. However, we are limited by our indenture to an additional five $9 million of share repurchases.
Another option is funding for organic growth.
Our plan for 2023 includes significant organic growth driven by market share gains and new product introduction.
Funding for this growth is already included in our healthy free cash flow forecast.
We will continue to seek and evaluate additional organic investment opportunities to generate outsized returns.
Finally, as another option accretive M&A transactions could further transform our product portfolio the.
The market for transactions has improved with many sellers exploring strategic alternatives.
We look for transactions with good industrial logic and that are accretive to our earnings.
Importantly, we are committed to maintaining reasonable net leverage and will use an appropriate mix of cash and equity to achieve this goal.
In short the conversion of our debt not only enhances our story today, but it also opens a number of investment opportunities to gain greater rates of return.
I will now turn the call back over to Neal.
Neal.
Thank you Lyle.
2022 was a transformative year for <unk> we.
We executed at a high level and achieved what we set out to do.
So to the SETI team, thank you and job well done.
The markets remain tight equipment utilization and service intensity are at high levels and significant investment will be needed over the coming years.
<unk> will be there to provide our customers with the technology and solutions they need to operate in this up cycle.
Similar to last year, we have set high expectations and I am confident our people will deliver on.
We're excited about what we can do in 2023.
Gigi please take the first question.
As a reminder to ask a question. Please press star one one on your telephone and wait.
For your name to be announced deal with Joy. Your question. Please press star one one again please.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of John Daniel from Daniel Energy Partners.
Hey, good morning, Thank you for squeezing me in here.
Just two questions for you. The first is on your prepared remarks, you talked about opportunities with conversions and I missed part of that so I apologize but is that.
Just the Radiator's or is there other content that you.
Participating and then is.
Is it.
Color around whether it's accelerating steady just near term thoughts.
Sure.
Good question John Good morning.
On the upgrades that we're seeing the radiators are a big part of that just nearly every every new engine, we'll put a new radiator.
And generally they are they are choosing to go with the GHT jumbotron, an option, which is again, whether thats radiators and in the business and.
In addition to that there is opportunities for power and that we are supplying as well.
And then finally is the.
Upgrades continue we are seeing more and more customers to utilize our flexible hose and manifold solutions. So those those are going hand in hand.
I think our acceleration or speed is really dependent on the upstream of what's going on in supply chain of us from deliveries of engines.
The packagers that put everything together so.
Bookings are there and I think it will just go through the year to see to see how well the.
The supply chain delivered we're prepared already.
On that side to deliver.
Okay. Thank.
Thank you and then one final one for me I'll, let others and on the M&A.
Would you characterize your youre looking at these tuck in opportunities or would you look to do something more transformative and then are you casting a wide net if you will or are you trying to is there a certain one or two products services that you are keen on bringing in the portfolio just just a little bit more color on that.
Yes, great Great question.
I'll start and I'm sure Lyle will add in.
For those who followed FCT.
<unk> always been an M&A company, we've always looked at different opportunities.
We're open to both a tuck in acquisition or a transformative acquisition.
It can meet our criteria and really the key there it has to be accretive.
<unk> be a good strategic fit so areas that we really like are those in and artificial lift or areas, where we can consolidate with existing product lines like in trailing our completions.
Also we want to have acquisitions that improve our financial metrics.
Prove our EBITDA margins.
Free cash flow cash flow profile.
And finally, we want to maintain or reduce our net leverage. So we can get the right deal done with cash or look to an appropriate mix of cash and stock and again were open to using equity.
We think our stock is undervalued, but we need to have a partner that sees the same value as well.
Okay fair enough. Thank you all very much.
Thanks, John .
Thank you one moment for our next question.
Our next question comes from the line of Eric Carlson.
Good morning, Eric Good morning.
Congrats on another good quarter, just a couple of quick questions. So are the sale lease.
Sale leaseback proceeds required to go to the debt similar.
Two what happened 12, 31, 2020 with the valves business.
Okay I understand your question good question and I know Theyre not there are.
Carve outs within the indenture that that allow us to use that cash.
On a per transaction basis. So we've got some good cover there and we do not have a requirement to return that cash back to our bondholders. Okay. That's helpful.
And then just wanted to think about.
The debt a little bit I mean, what what is kind of your ideal level and then I mean are there opportunities in the market I mean, I know rates have increased but.
Current rate on the debt isn't I mean.
Phenomenal by any means.
Are there opportunities to refinance and reissue stuff with.
Less restrictive.
Covenants or I mean have you looked into that at all.
We have Eric and I think probably the first highlight is our.
First comment would be.
Looking back leverage on a pro forma basis at the end of the year would have been one four times, so down to a reasonable level I think as we think long term, we want to make sure that we think about our debt in relation to our working capital specifically things like receivables.
If there is ever a market slowdown we want the ability to have those receivables monetize and be able to manage our debt load. So we feel like we're at that level now and they have a comfortable level of debt and clearly with our liquidity on hand.
We're in really really great shape.
I think on the positive note the debt markets.
For our industry have improved dramatically in the last end of last year and beginning of this year. We saw some some debt deals get done in the public markets on the high yield side in particular.
And see and so we've seen that capital come back into the space I think that being said our quantum of debt is still relatively small.
And so that makes it challenging to to find alternatives that might be out there.
We've got plenty of runway on our <unk>.
On our indenture debt is not due till 2025, so there's no burning platform that says we need to resolve that today. So we will keep our eyes open and watch the market and see if there is an opportunity to as you say reduce our interest slowed or find less restrictive debt, but I think it is today.
What we have it feels like a pretty good piece of paper.
Okay great.
Yes, My last question would be.
Guys kind of touched on kind of the relative value of the equity to peers.
When you see.
And I guess, you've kind of answered my question already by saying, there's only so much you can actually put equity buybacks at this point, but.
The convertible debt holders now becoming equity holders I am not sure that theyre necessarily long term equity holders, but theres been a few filings with.
A few of those debtholders that now own approximately 10% apiece. So theres I think theres two holders out there they are probably around 20% equity.
It's just an interesting dynamic given.
Yeah.
The fact that the equities same thing.
Incredibly cheap and Theres, probably people willing to let it go at what probably long term equity holders wouldn't let it go.
It's mostly a comment rather than looking for your your remarks, but I mean, it would be great to be able to find some liquidity you can take both of those guys off the table.
No.
Definitely agree with that Eric one of the things that that we have seen.
Is the change marked change in our average daily trading volume if we go back to the fourth quarter, we traded about 30000.
Shares a day.
So far in the first quarter, we traded three times that over 90000 shares a day. So we've seen a market increase in that.
And that came about the time of our debt conversion. So so theres clearly more activity. That's a good thing we believe for our stock to get more liquidity for investors in.
Also I think if you think about.
Our new shareholders any of those who want to move out of the stock the market is more liquid than it was before so that should provide some opportunity to to be able to do that.
Sure.
Well, if I had I appreciate it thanks, guys. Thanks, Eric Eric.
Yeah.
Thank you one moment for our next question.
Our next question comes from the line of Dan Pickering from Pickering Energy partners.
Good morning, guys. Thanks for doing the call today.
I guess I wanted to come back Neal your comment around.
Sort of M&A you indicated.
Neal I think you both talked about this but.
You indicated accretive as well.
One of your your measures.
Is that accretive to you.
EBITDA margin is that net income at what metric are you thinking about there just so we can kind of gauge as you move ahead.
Okay accretive.
Accretive to EBITDA margin.
Got it okay.
Okay. Good.
<unk> fit.
Thats the key where we're not we wouldn't look to do M&A just to get bigger, but we want to have the right strategic fit and obviously improve our financial metrics.
Sure and and so.
The EBITDA margins I assume that also means you'd look for things.
Granted you are trading at at cheap valuations about Jude.
You'd look for something that would be.
Accretive on an <unk>.
<unk> EBITDA basis as well.
Correct.
Yes, yes, okay.
You talked a little bit about the areas.
In terms of your product lines do you think Opex I mean, maybe cast for us.
While you said the markets are better.
If you think about sort of your.
Your chalkboard of things that you're that you are evaluating.
<unk> in terms of potential acquisitions, do they skew more international versus domestic and or the <unk>.
Are the numbers I mean, the number of opportunities is it up.
Notably or flattish just kind of give us some color there.
Sure.
Generally the opportunities we've seen it been more U S focused.
However, with the age of the companies that we're looking at they would be ideal to ramp up and utilize our international footprint to expand sales I think that would be a a key business logic in synergy we would look for there.
Okay.
Lyle looks at deals every day and then comment on the rate of change that we've seen that Dan I'd say, we've seen activity level pick up.
Pretty meaningfully here over the last several months.
More and more private companies looking to find an opportunity here in this market.
We've talked about it before but there are a number of private to private equity firms who have been in their deals for quite a while and they are starting to see this is a market where maybe they should do something when we think kind of types and areas of focus.
A couple.
Areas. There one we feel like we've proven and could be a very logical logical consolidator of space. So about this time last year, we announced our acquisition of Hawker well works relatively small business, but fit within our drilling products and allow us to consolidated a really neat Mitch in the well services Mark.
<unk>.
Another example of what we might look forward as things that have technology.
And we've mentioned before but a key way, we think we drive margins higher in the future as through the deployment of new technology and our products. So.
Couple of areas, whether that's a consolidation of space or or new technology in the last criteria I would say is looking at things there'll be more attractive to us are more well count driven rather than aimed at the more capital and of our of our sector.
The enrollment criteria to look at.
That's helpful and then.
Just to try and understand expectations or set expectations. So we've got the balance sheet. So much better and we've got cash we've got a lot of liquidity.
Im.
But wrap this all together in terms of your comfort we can I guess, we can use some debt.
For acquisitions.
If you wanted equities on the table, but.
Roll that all together what do you think you are.
Size wise.
If you actually had 2003 with.
Is it $100 million worth of deals is a good year is it 200, I mean, I'm just trying to understand kind of sizing comfort level with leverage comfort level with using equity it all rolls into kind of how much do you think you can do.
Yes, I think Dan we have.
We're looking at a lot of target today, but we want to have the right the right deal and as we as we look we have to find a partner that sees value in our equity as well.
That's a key.
All of our key screen. There is they have to understand that we are undervalued and I have to say that the value in that if were to do a deal.
Yes, yes, and I think the other way to think about this use of the capital Dan is to focus on returns.
Uh huh.
Our floor of returns would be just retiring our long term debt.
Eric asked earlier, we've got a 9% coupon on that.
So we did get an okay return.
But our job is to find better returns and so how much capital can we deploy thats really going to move the needle on returns on margins.
And things like that so I don't think we want to get bigger just to get bigger we want to get bigger to get better and that'll be our focus.
And I think going back to the good strategic fit being accretive improved slightly improving our financial metrics were open to tuck in deals multiple tuck in deals or potentially a transformative one.
Okay.
Thank you.
And it's a great opportunity to be thinking about playing offense as opposed to playing defense, where the whole industry spend for a while.
I want to come back to the kind of forward look in terms of you've guided us to $80 million to $100 million of EBITDA for 2023.
Yes.
Some of US may have more optimistic.
Patients around rig count or whatever it is.
When we think about incremental margins is that 30% target still the right target given some of the things you are seeing on cost supply chain et cetera.
Yes, Dan.
As a reminder, we've talked about kind of incremental margins being north of gross margins and kind of in that 30 to 40 with the high end of that coming with a lot of incremental price.
I think as we look at this year I would I would guide us towards the lower end of that range.
We see not as many opportunities for price increases with the market being a little softer primarily in the U S.
And I think our big push for incremental margins could come from our newer and more innovative products, where we provide a lot more value to our customers and capture more of that in terms of margin. So out of the gate for this year I think it's probably more in that low end range 30 is definitely achievable on a full year basis, and we would look to.
Do that or better.
Okay.
Lyle you indicated the cost.
The freight expediting et cetera would moderate as we move through 2023 do you think we'll still see some impacts of that in Q1.
I do I do I think we'll see that in Q1 and really if we think about the length of some of our supply chains are like our some of our costing on an average cost basis. It takes a little while to get that that steel inflation that we saw heavily in 2022.
Through the back end of the snake here in 2023.
Got you.
And so net net rolling all this together I think I heard although we're going to we're going to burn cash in Q1.
Remind me again, I heard 22 $20 million to $40 million for 2023 in aggregate to your expectation, including cash taxes working capital all of the dynamics that you see so far.
That is correct.
So it was 20% to 40 I was looking at my notes.
Yes.
Accordingly, 40 million free cash flow for 2023, and then again on our on our current valuation really good cash flow yield for the year.
Yeah, absolutely well good luck good luck, finding finding those opportunities and congrats on the debt.
And that was really important and the balance sheet looks in great shape I appreciate it very much. Thanks. Thank you Dan Thanks, Dan.
Yes.
Thank you I would now like to turn the conference back to Neal Lux for closing remarks.
Thank you for joining the call today.
We are excited about <unk> future and look forward to.
Even better days to come.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.
[music].
Yes.
[music].
Yes.
Okay.
[music].