Q3 2023 Forum Energy Technologies Inc Earnings Call
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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. This conference call is being recorded for replay purposes and will be available on the company's website I will now turn the conference over to Rob Kugler Director of Investor Relations. Please proceed sir.
Thank you Gigi good morning, and welcome to <unk> third quarter 2023 earnings Conference call with me today are Neil Lux, Our President and Chief Executive Officer allow Williams, our Chief Financial Officer, Yes.
Yesterday, we issued our earnings release and announced <unk> acquisition of Air Perm Energy services. Both press releases are available on our website investor presentation slides relating to the <unk> acquisition are also 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. These remarks should be considered in the context of all factors that affect our business.
Leading those disclosed in our SEC filings, our earnings release and very firm acquisition announcement.
Management's statements May include non-GAAP financial measures for a reconciliation of these measures you may refer to our earnings release and the very firm acquisition announcements during todays call all statements related to EBITDA refer to adjusted EBITDA, unless otherwise noted referenced references to Standalone comparative financial results are.
Third quarter 2023 to second quarter, 2023, and finally statements relating to <unk> and very firm on a combined basis, our trailing 12 months as of September 32023, I will now turn the call over to Neil.
Thank you, Rob and good morning, everyone.
As noted in yesterday's press release, we are extremely pleased to announce that there for energy services acquisition.
Wanted to welcome their perm employees to the SVT family.
We are excited to have you join our team and look forward to working together following closing in January.
I also want to recognize the strong support we received from our syndicate of credit facility lenders.
Before discussing our transformative acquisition I would like to spend a few minutes on Mpt's third quarter results and 2023 outlook.
During the quarter soft U S market conditions continued with rig count declining 10%.
This was counter to the industry and our expectations at the time of our earnings call.
We also saw a rapid decline in activity based capital equipment demand from our pressure pumping customers, who paused orders in response to softening well completion activity.
This led to a $14 million sequential revenue decline.
Our stimulation and intervention product line.
Excluding this product line.
Revenues would have been up 6% a.
A significantly higher growth rate as.
Compared to global rig count, which was which was effectively flat in the quarter.
While revenue was down.
We experienced an increase in bookings during the quarter demonstrating the benefit of our global footprint.
Our sales and marketing teams have been actively working with customers.
<unk> as a key partner.
And their efforts are paying off.
We had another strong quarter of backlog growth supported with a 111% book to Bill ratio.
In fact, all three segments posted a book to bill ratio greater than 100%.
Overall, I am pleased with how well our teams executed this quarter and managed through market headwinds.
We have successfully grown international revenues, which have mostly offset declining activity in the United States.
Even though revenue declined slightly gross profit and EBITDA remained steady.
In general we held our pricing firm and did not sacrifice margin for volume.
Also we managed expenses well through a combination of increased utilization and cost savings initiatives.
These efforts allowed us to deliver EBITDA within our guidance range and generate $24 million and free cash flow this quarter.
Looking ahead to the fourth quarter.
Indications are that the U S rig count may have finally bottomed.
The modest increase was seen the past few weeks have been encouraging.
However, we anticipate average rig and Frac fleet count will remain below third quarter levels. This is based on feedback from our customers that they anticipate a holiday slowdown due to budget exhaustion.
Internationally, we expect activity to remain high with rig counts modestly increasing.
Putting it together.
We expect the operating environment for <unk> to be similar to the third quarter.
Therefore, we are forecasting revenue and adjusted EBITDA to be flat compared to the third quarter.
And we are confident in delivering $45 million to $55 million of free cash flow in the second half of 2023.
Our ability to generate cash is an important part of our business and gives us flexibility to pursue strategic opportunities.
This leads us back to there for.
The company, we have been watching closely for a few years.
We previously outlined our acquisition criteria and this transaction checks all the boxes.
It is expected to be highly accretive.
Transfer for Mct's financial metrics.
And increase free cash flow.
The mix of cash and equity consideration allows.
Allows us to maintain conservative net leverage and strong liquidity.
This strategic acquisition demonstrates strong.
Industrial logic.
<unk> differentiated products and technologies complement our artificial lift product portfolio.
From a financial person.
Dave.
The comment meaningfully increases the scale and profitability of FEP.
Putting the two companies together.
Expands EBITDA to $121 million in.
And increases EBITDA margins to 14%.
This elevates SVT above many of our peers and improves our investment profile.
Also the transactions valuation and financing is highly accretive to earnings and cash flow metrics.
It's a free cash flow yield for the combined companies is similar to what <unk> is.
As recently experienced.
This acquisition will create significant value for shareholders.
And the acquisition is a continuation of the value our management team has created over the past few years.
For those unfamiliar with the <unk> story.
We entered the Covid pandemic.
With around $400 million in total debt.
We refinanced our senior notes in August of 2020.
During a time of exponential risk for the industry.
In addition, we streamlined our business.
Eliminated significant fixed costs.
And divested non core assets.
From a base EBITDA of $20 million in 2021.
We are on track to grow EBITDA by 250% in 2023.
The combination of these steps drove our share price.
And helped us achieve mandatory conversion.
Nearly half of our outstanding long term debt.
Through free cash flow generation asset sales and debt to equity conversion.
We reduced our net leverage from four eight times in 2019 to one four times EBITDA at the end of the third quarter.
More importantly, these actions allowed us greater flexibility to generate shareholder value, including through strategic and accretive acquisitions and that is where we are today.
With their firm.
We are acquiring a leading manufacturer of sand and flow control products for heavy oil production.
They have a great customer base of large cap operators.
And have maintained long term relationships in some cases over 25 years.
<unk> has four primary manufacturing locations and just under 300 employees.
They are highly engineered and customized products are protected with patents and proprietary manufacturing techniques.
As we think about longer term growth prospects.
<unk> has a clear path of increased customer adoption within Canada.
And upside from international and offshore markets using Svt's global distribution network.
Also.
This combination expands the total addressable market for artificial.
Artificial lift product family.
Together, we are a formidable manufacturer of highly engineered products and solutions for the energy market.
This is an exciting development for <unk>.
I am going to turn the call over to Leila for more detail on the acquisition and <unk> financial results.
Thank you Neil good morning, everyone.
As Neil mentioned, we are very excited about the <unk> acquisition, let me hit some of the details of the transaction and financial highlights.
This week, we signed agreements to acquire the equity of <unk> for total consideration of 2 million shares of <unk> stock and $150 million of cash.
As of signing this equated to roughly $195 million of total consideration or three seven times <unk> trailing 12 months of EBITDA.
We expect the transaction to close in January following Canadian regulatory approval and satisfaction of other customary closing conditions.
To give context to the regulatory review.
And bear firms do not provide overlapping products or services.
In addition to avoid closing delays all sources of cash had been secured and leave the combined company with a conservative amount of leverage and adequate liquidity to both manage future obligations and fund organic growth.
Cash consideration for the transaction will be funded through $90 million of cash from on hand balances and borrowings under our ABL credit facility.
And from the funding of a $60 million seller term loan.
Prior to closing the <unk> acquisition, we will explore an alternative financing arrangement to the seller term loan.
Following closing and without regard to any alternative financing arrangement, we expect net leverage to be one nine times EBITDA with liquidity of roughly $140 million.
I am pleased to announce that in conjunction with the acquisition.
Lenders have agreed to amend our ABL credit facility.
To among other things permits <unk> acquisition increased the aggregate revolving commitments for $179 million to $250 million.
And extend the maturity date to September 2028.
And allow us to sell our term loan.
The amendment is conditioned upon the closing of the acquisition once finalized the expansion of the revolver is advantageous.
And allows us to increase our borrowing base by between 20 and $25 million based on including Verifone working capital.
We are thankful to our banking group for their continued support of our growth. These banks include Wells Fargo Jpmorgan Bank of America and imaging.
And we are pleased to welcome Goldman Sachs, who has joined our credit facility as a lender.
Just sell or term loan would mature in three years and is pre payable at any time and without penalty.
The interest rate of 11% is subject to escalation after the first anniversary of the loan.
We structured the cell alone with longer maturity than a traditional bridge with terms that fit within our existing debt arrangements.
If we utilize the cell alone we expect to be able to retire our remaining 9% senior secured notes in the third quarter 2024 without seeking any additional external funding.
This structure puts our balance sheet in a strong position.
Between the mix of stock and cash consideration.
The sale of our term loan and the credit facility Amendment, we believe we have the appropriate leverage liquidity and visibility for us to move forward confidently with the acquisition of <unk>.
Okay.
Neil has already covered the industrial logic between very firm in which we are excited about <unk>.
Let me provide a bit more color on the financial merits of the transaction before shifting to <unk> third quarter results.
The transactions valuation at three seven times trailing 12 months EBITDA provides meaningful accretion for FEP.
More importantly, the combination creates a business with increased EBITDA strong EBITDA margins and significant free cash flow on a combined basis, the company's revenue increases to $873 million.
EBITDA increased to $121 million and EBITDA margin improved to 14%.
Net of incremental interest combined free cash flow increases to $70 million.
Shortly after closing we will complete our purchase accounting analysis, then we'll have a more accurate approximation of pro forma net income, which we expect to be noteworthy.
Let me provide directionality to our per share metrics.
While share count will increase by just under 20%.
EBITDA improved 77% free cash flow increased 84% and net income improved substantially.
The per share improvement in all of these metrics will be significant and this is another reason why we're so excited about the transaction.
Now turning to third quarter results sequentially, our consolidated revenue decreased by $6 million as Neil detailed earlier, the rapid decrease in U S completions activity drove our stimulation and intervention revenues down by $14 million.
As pressure pumping customers idled fleets, they slowed purchases of consumable products and delayed demand for stimulation related capital equipment, such as power ends manifold trailers hoses and radiators.
Despite the decline in revenue EBITDA fell by only $1 million.
In the middle of the third quarter realize that U S market conditions had yet to Bob.
Our teams took action to control costs in the quarter, we reduced expenses by over $1 million through head count and variable cost reductions.
Highlighting international revenue.
Similar to the last quarter <unk> international sales growth nearly offset softer U S market conditions.
Revenue outside the U S increased by $10 million sequentially or roughly 15% driven by a significant increase in shipments for coiled tubing and an increase in project revenues for our forum process technology product family.
Most of these increases were recognized in the Middle East region, where nearly all product lines saw revenue growth.
And total revenue increased approximately 50%.
Benefiting from our strong international tailwind non U S revenues accounted for 42% of our total revenue.
The drilling and downhole segment at revenue and EBITDA growth of 500000.
Drilling product line revenues declined with activity in the U S. While downhole and subsea revenues increased.
A more favorable mix of products and our aforementioned cost management actions supported EBITDA margins, which increased by 50 basis points.
Segment book to Bill ratio was 117% as we booked an order for four Perry <unk> work class Rovs systems.
We remain excited about the continued strengthening outlook for international drilling and subsea opportunities as customers add capacity and upgrading equipment to support future oil and gas production and offshore wind farm development.
Completions segment revenue and EBITDA were impacted this quarter as the dramatic decline in well completion activity slowed demand for our stimulation and intervention products, where revenue declined by 30%.
Our global tubing business provided the bright spot for the quarter.
Revenues jumped on international shipments and profit drop through in the business was strong as the team favorably managed costs in the quarter.
Our segment book to Bill ratio was 104% slightly higher than we would expect for these activity based product lines.
Our production segment continues to improve and provide consistent results.
Segment book to Bill ratio was 105% driven by an improvement in orders for our valve solutions product line revenue.
Increased sequentially and on a year over year basis, and EBITDA margins continue to improve reaching six 8% this quarter up nearly double from a year ago.
Now, let me share with you our fourth quarter forecast Neil discussed how we see the market going forward. Our fourth quarter is in line with third quarter results with revenue and EBITDA ranges of $170 million to $190 million and $15 million to $19 million respectively.
With this forecast our full year EBITDA is expected to be between 67 and $71 million.
This estimate for the full year 2023 is lower than our forecast provided in last quarter's call driven by softer U S activity in both the third and fourth quarters.
We remain confident in our long term increasing market outlook as the world solves a structural shortfall in energy supply.
Here are a few details for modeling purposes.
In the fourth quarter, we anticipate corporate costs to be generally in line with the third quarter interest expense to be 5 million and depreciation and amortization expense of roughly $9 million.
For the full year cash income taxes are expected to be around $8 million.
Primarily due to Canadian income.
Capital expenditures for 2023 are expected to remain below $10 million.
Turning to cash in the balance sheet, we generated free cash flow of $24 million driven by a decrease in net working capital from strong collections.
Given the softness in the U S market. Our teams continue to drive down working capital by tightening our supply chain and reducing the flow of inbound raw material to match market conditions.
And we are working with our customers to achieve more appropriate collection timing.
We are pleased with the turnaround in free cash flow in the second half of the year in line with our forecast.
We ended the quarter with $37 million of cash on hand, and $155 million of availability under our revolving credit facility for total liquidity of $192 million.
As of September 30, our net debt was $97 million with a corresponding net leverage ratio of one four times.
<unk> remains well positioned to fund operations with ample liquidity and a strong balance sheet.
Let me turn the call back to Neil for closing remarks.
Thank you Lyle.
We believe that their firm acquisition as transformational.
However, it does not change who we are.
We remain a manufacturer of highly engineered and differentiated products.
Operating in niche markets, where we have competitive advantages.
We are a global company, whose solutions are utilized around the world make.
Making our customers' operations safer more efficient and environmentally friendly.
We believe demand for energy and the investment required to supply it will continue to grow.
Revenue, we have a long term tailwind.
And we can grow faster than the market.
Through the introduction of new products.
While remaining committed to our capital light business model.
Adding a great business like their curve.
The <unk> story, even more compelling for existing shareholders and new ones.
Gigi.
Please take the first question.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
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Please standby, while we compile the Q&A roster.
Yes.
Our first question comes from the line of John Daniel from Daniel Energy Partners.
Hey, guys congratulations on the acquisition.
Hopefully you can hear me okay.
Thanks, John Okay, Okay, sorry, just driving here.
I know you mentioned there is not necessarily a product overlap per se.
With the transaction, but I'm curious.
Is there an opportunity where the person you are selling to within the customer base might be the same person.
And I'm not trying to get to like a bottomline concept, but just where you are bringing more to the table. If you will.
Buyer that makes sense.
That does John yes.
Yes, I think theres, a great opportunity for our multi list.
Product family as you think about the world, where <unk> products are are being utilized generally there's an ESP.
Involved on the on the production well.
And we think Thats, a great opportunity to cross sell or utilize I think bear firms great great success with with their customers.
We also share some of that from other parts of our production segment, where we sell through distribution partners. Many of the end users are are the same customers that <unk> sells to today. So I think we have some but I think this is a great opportunity to expand that as we integrate and get to know each.
They are even better.
Okay.
And I know everybody wants to talk international saw up my next few parts of that question, but.
Landside coiled.
Coiled tubing I don't know if you saw some pretty impressive announcements by multiple providers in terms of the total distance <unk> been achieving in terms of the wells.
What are you guys seeing right now on not just the demand for the equivalent itself.
But any any changes in designs as these laterals keep going longer.
Yes, absolutely John that that's a key focus for our teams as I think as you may have known over the years. We've spent a lot of time.
Hiring engineers specific that are coil that have experience in the field and developing specific designs they get to longer laterals.
And we believe with the designs and kind of proprietary approach that we take.
By utilizing our product versus our competitors you can get more reach and more weight on bit with products from global tubing.
Okay is there a theoretical maximum that you guys see.
In terms of how far largely go out seems to keep getting longer.
Yes.
I think it really comes down to our our customers our customers equipment and the ability to move it but I think.
What I've seen and I've been involved in the business now for many years.
Is that are they.
Our customers are always seem to find a way to overcome challenges, whether it's the transportation or amount of piping. It on a real so I think as long as our customers and the service companies remain creative I think we have the product that can allow them to do the job.
Okay. That's all I got thank you for including me.
Thanks, Thanks, John.
One moment for our next question.
Our next question comes from the line of Jeff Robertson from water Tower research.
Thank you good morning, good morning.
You all talk to me about your fourth quarter outlook can you add any color on the kind of conversations youre, having with customers as they are based on how they're thinking about 2024.
Yes, I think it's a.
Depending on which which part of the the completion side or drilling side that they set.
Get a little bit of a different color, but I think the general view is that the second sorry. The first half of next year will be it will be stronger than the first I think it's first or second half of this year. So I think the.
Really the idea is how fast do we start out of the gate. We have a quick first first quarter ramp up as the E&P companies utilize their budget budgets or not.
I think that that would be that focused on U S land now internationally.
We're just.
We just had a great show it in early October.
And I think that shows that again record attendance and I think that reflects the the sentiment that we're seeing seeing internationally.
When you think about the very firm.
Offerings Suite, you mentioned international if you take some of those products to international markets places like the Middle East is there some sort of an adoption process that they would have to go through.
To be certified.
Yes.
I believe there would be.
Every every operator has different different standards, but I think what's helpful and what value that we can provide as we've gone through those evaluations with with our other product lines and have the.
Contacts have the long term stability again, we've been we've had a company in Saudi Arabia for many years now our footprint. There. Similarly in Abu Dhabi, I think having that long term footprint relationship and knowing the landscape that we operate in.
He's the.
Our speed up the adoption or qualification if we if we approach that.
A question on the margin improvement that you show on slide four.
Of the deck.
Is there when you combine these products product lines excuse me and think about 2020 for 2025.
Do you see the opportunity for further margin improvement beyond what youre showing on this slide.
Yeah, Hey, Jeff, it's while I will take that.
So the slide just so we reference back to what we're looking at it as just a combined TTM of the two companies from September 30.
And so no. We haven't included any any synergies we've talked about that but we haven't stuck any synergies in those numbers I think what's unique about it.
As the manufacturing products company and it fits with Vera Perm as well.
Is the concept of operating leverage.
Each business has relatively low fixed cost, but the cost that we do have can be leveraged across more volume. So as revenues increase and we do see tend to see improved margins from operating leverage and I think another thing that's similar about both businesses is the capability of introducing.
And in growing the revenue from higher margin more differentiated products.
<unk> been doing that for a number of years and driven up our margin effectively that way and I expect we see the same opportunity for Vera Perm. So yes, I do think we have the opportunity for some margin expansion there and those are two of the key drivers.
Thanks, and if I can one last one just on the financing while you talked about retiring 9%.
<unk>.
Next year.
With the bigger with a larger balance sheet scale would you expect to retire those through free cash flow or would you expect there maybe.
Combined some sort of financing to extend the.
Extending the maturities out.
No. Good question, there and just to be clear, what our comment was related to us.
With the.
The financing structure that we've already talked about and free cash flow generation that we expect for next year, we'd be in a position to organically without without any other kind of debt retire those notes I think anything else, we do we'd be opportunistic as we look at the market.
Thank you thanks for clarifying that.
Yes.
Thank you Jeff.
Thank you one moment far next question.
Yes.
Our next question comes from the line of Eric Carlson.
Hey, guys good morning.
Congrats on the announcement.
Sure.
What are you talking about acquisition.
Acquisitions in the past and it's almost seemed.
I'll give you a hard.
A hard thing to accomplish to buy something they can actually make you use cheaper on a go forward basis. If I was just kind of.
Running our numbers now and that is at about four five times trailing 12 month EBITDA, so kind of combined with the purchase of it looks like at the end of the year.
Assuming the stock price to kind of where it is about four times so that seems.
As we have reiterated many times.
Very cheap and then I think a lot of people kind.
Kind of.
Focused on.
The accretion, but when you look at cash flow.
The ability of that given the year to be very flexible whether it's retire the notes the cash if you can do a larger broader financing and <unk>.
Free that up too.
Accretive and more value and then.
Just one of the things I was interested in is obviously the springs.
CFS back into the mix switch.
It's probably not a long term holder just given the nature of their business and when you look at that cash flow, if we were able to.
Kind of do a broader long term debt package.
Is there an opportunity there to take advantage of.
Perhaps them needing or wanting to sell once the lockup wood wood.
Yeah.
Aspire I'm just kind of curious on when you think broader.
And kind of continuing to manage the balance sheet you guys have done a phenomenal job off the bottom.
You kind of touched on where that has moved from then to now, but just kind of thoughts on the balance sheet and the optionality in gist.
Thinking about our go forward plan.
Understanding that a lower float stock like you guys have.
Has some challenges, but that also offers a lot of opportunity so.
Yes, just thoughts would be great.
Great great great questions, there, Eric and definitely things that we thought about.
And this acquisition in our prepared remarks are really aimed at <unk>.
Lot of time was spent on making sure we got the balance sheet right and stable. So we'd be in a super spot going forward and I think we've achieved that now we have as you mentioned and that flexibility. So so we will generate free cash flow. We do have the opportunity just organically retire notes, we don't have to look outside.
And so I do think that creates some options for us.
As we do think about Scf, we're pleased to have the current shareholders of bear firms become shareholders.
I think that was a vote of confidence by them in the business that they're selling but also in the combined company and.
And as you mentioned long term. These are probably sellers of the notes we do have a 180 day lockup on those shares agreed with the sellers to give time for the acquisition to integrate and to marinate here, but after that we expect those shares to be be freely traded.
Out in the market. So I think maybe the ultimate end of that increased float as a good thing for us that will get more volume out there and under the right financing structure timeline like you talked about how it provides us the opportunity to potentially acquire some of those shares with our stronger free cash flow.
Great Yes.
This is exciting and it looks great appreciate the work.
Yes.
Keep it up thank you operator.
Thank you one moment for our next question.
Our next question comes from the line of Daniel Pickering from Pickering Energy partners.
Good morning, gentlemen.
Good morning, Dan.
So I'm going to.
Bear with me I'm going to ask a number of questions about their problem just because it's obviously it's a.
Very meaningful transaction for you and we're just kind of learning the business I appreciate the the deck that you put on your website about it.
And so when we look at this business.
I guess first question is.
We're seeing the results on a historical trailing 12 basis is there anything.
Equipment sale base business and so is there anything lumpy about the last year, just thinking about what the next year or 2024. It looks like this is is 23, a representative look to 'twenty four any lumpiness in the revenue profile.
Yes, Dan I don't think there is any any large projects that were unusual that they delivered in 2023.
As we look ahead and as we model the business. Our focus was was looking at whats, what's the kind of demand is going to come from the maintenance maintenance drilling right just to keep production flat and I think that's where.
Our expectation is that 90% to 95% of the go forward was really just to keep it.
To make up for decline declining activity.
Climbing production.
And Dan I would just chime in on that if you look if we look back over time at the business they've got a really great correlation with energy prices and with activity very similar to our business and probably mirrored the more activity driven side of <unk>, rather than a bit lumpy lumpy capital side of <unk>. So.
Expectation is that over time this will be a dampener of volatility on combined.
Revenues and I think.
Another interesting driver that I'm not sure if you heard John Daniels comment on longer longer laterals. That's another great driver in this business as they continue to drill newer wells and fill in.
The development they are extending their laterals, which for <unk> and the combined company will be more product per well so as EMEA as a meter like grow we have more more revenue per well.
Got you.
Product as it is a new well products. So it's not a.
There aren't a lot of maintenance revenues associated here. It goes in the well when the wells drilled in that and then you are waiting on the next next well drilled to generate your next set of revenue.
Correct I think there is some occasionally remediation work.
I'll go in an existing well, but I think the typical is that it's a new well.
And a new set of wells gives me an injector producer that's in the ground.
To to fill in the maintenance capital and utilize the steam generation of the central processing plant.
Got you and as you think about your.
Your opportunity set internationally. So this is this is a heavy oil application.
Where do you see the top two or three or four countries that you might.
An expanded sales effort.
Yes, I think we will want to focus on areas, where we have a good footprint, where we can utilize our fixed cost and do this in a.
And a good and profitable way I think the middle east in the areas around there.
And the countries around the middle East are really are going to be our key focus and again, that's where we <unk> seen the most activity and I think if we step outside of Canada, I think thats the next big area.
Okay.
And the kind of historical information that you showed in the.
In the acquisition press release highlighted they had a couple of million Bucks of Capex on a trailing 12 month basis.
That would be your expectation so low capital intensity here for the business.
Absolutely.
Strong conversion of EBITDA to free cash flow, which I think is something that really really drew us to this business along with.
What's the team's available accomplish and the technology customer relationships and then the outcomes they have I.
I think just really are all fantastic.
Okay.
Hi.
Cost opportunities.
Are there any existing business here in existing business.
Is there any is there any overlap here should we expect you to save some money out of the combination.
Dan.
As we look at their firm very well run private company.
Expect a lot in the way of cost synergies or even are cost editions for that matter as we integrate them into two <unk>. The business is really well run and they've done a great job and so expectation is that they would.
They will continue on their current path.
Perfect.
Again, thanks for letting me press on all of these things so Scf was mentioned earlier.
A locked up for 180 days I saw that in your commentary.
Is.
Yes.
Is there any restriction and allowing them after that 180 days to distribute out to their shareholders to do they have to control the stock or could it windup out with there.
Our Lps.
So there'll be no there'd be no shareholders that I'm, sorry, no no no restrictions after that 180 day okay.
On the shareholders. So again, our expectation is getting those extra shares and float out in the market could actually be beneficial to territory.
And so we look forward to look forward to that.
And and.
While any.
We didn't see any announcements so no scf person comes on board post.
Post the close of the deal.
That's right that's right. So we've got a.
As you know and others know, we've got a great independent board a lot of experience in the industry and they do a super job of representing all of our shareholders.
Perfect and then.
Then.
Yes.
Don't laugh because you're just you've now had this announced for a grand total of 12 hours or something like that but im assuming that <unk> was not the only potential acquisition that you guys have been looking at it as a big one.
You've you've now got that in place, but as we think about.
Your history of making acquisitions.
As you have success begets success.
So as you think about sort of looking into 2024 and the other things you've had on the list here does this sort of take you out of the acquisition game for ALS.
I'll ask you.
Integrate their perm or do we keep thinking about are there other potential things like this out there for you.
I think our near term focus will be the successful closing and integration of their perm, but the thesis that we have is still in place that we think there are number of good businesses that are out there and the consolidation of absolutely. It makes sense, but we're going to continue to analyze and screen.
And identify good fits and where they make sense, we don't want to let good opportunities good bye.
And and while you've mentioned several times.
It doesn't it doesn't hurt to have an increased float for your your business. We're taking we're taking that up here.
One nine times.
Is there is there any thought and I know you've got some flexibility on the seller note is there any thought that that you need you need more equity as a component of this transaction in other words, there's one nine times on comfortable is at a comfortable level.
Do you think about this mix.
Of cash.
Cash, but there's a lot of debt here debt versus equity.
Yes, Dan Greg Great question and as mentioned, we really are pleased with the mix that we have on equity and cash plus debt consideration for the transaction of <unk>.
One times is a comfortable number for us.
And primarily because as we look forward both.
<unk> and <unk> were well set to generate cash free cash flow going forward and manage that debt.
And so we feel very good about the directionality, where we stand and where we can take it and then just as a reminder, hitting on the fact that we would expect net leverage to drop by the end of next year to between one and one three times I think that's indicative of what can happen with that cash flow and with even modest growth.
And EBITDA, we could get there.
Great. Thank you guys I appreciate it.
Thank you thanks, Dan.
Thank you I would now like to turn the conference back over to Neil Lux CEO for closing remarks.
Thank you Gigi and thank you all who are on the call today and for your support and participation. We look forward to talking to you again next year in early March to discuss <unk> fourth quarter and full year results.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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