Q1 2024 PHINIA Inc Earnings Call

Operator: Thank you for standing by, and welcome to the FINIA Q1 2024 earnings call. All lines have been placed on mute to prevent any background noise.

Thank you for standing by and welcome to the Affinia Q1, 2024 earnings call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Finally, a reminder that this conference is also being recorded. I would now like to turn the conference over to Gordon Muir, Vice President and Treasurer. Please go ahead.

If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question press the star one again.

Finally, I reminded that this conference is also being recorded.

Speaker Change: I would now like to turn the conference over to go to mute Vice President Treasurer. Please go ahead.

Gordon Muir: Thank you, Pauli. Good morning, everyone.

Speaker Change: Thank you Paul and good morning, everyone. We appreciate you joining us.

Gordon Muir: We appreciate you joining us. Our conference call materials were issued this morning and are available on FINIA's investor relations website, including a slide deck that we'll be referencing in our remarks. We're also broadcasting this call via webcast. Joining us today are Brady Ericson, CEO, and Chris Gropp, CFO. During this call, we will make forward-looking statements that are based on management's current expectations and are subject to risks and uncertainty. Actual results may differ materially from these statements due to a variety of factors, including those described in our SEC filings.

Speaker Change: Our conference call materials were issued this morning and are available on <unk>.

Speaker Change: <unk> Investor Relations website, including a slide deck I'll be referencing in our remarks.

Speaker Change: We're also broadcasting this call via webcast.

Speaker Change: Joining us today are Brady ericsson's, CEO and Chris <unk> CFO.

Speaker Change: During this call we will make forward looking statements, which are based on management's current expectations and are subject to risks and uncertainties.

Speaker Change: Actual results may differ materially from these statements due to a variety of factors, including those described in our SEC filings.

Gordon Muir: And with that, it's my pleasure to turn the call over to Brady.

Speaker Change: And with that it's my pleasure to turn the call over to Brady.

Brady D. Ericson: Thank you, Gordon. Thank you all for joining us this morning. Our team continued to execute on our strategies and delivered another strong quarter. We remain focused on consistently delivering value-added solutions to our customers while continuing to drive long-term value creation for our stakeholders. At the same time, we demonstrated resiliency in the face of challenging industry conditions in most of our markets. I'll start with some overall comments on our first quarter performance. Chris will then provide additional detail and her financial review before we open up the call for questions, starting on slide four.

Brady Ericsson: Thank you Gordon. Thank you all for joining this morning, our team continued to execute on our strategies and delivered another strong quarter.

Brady Ericsson: We remain focused on consistently delivering value added solutions to our customers, while continuing to drive long term value creation for our stakeholders.

Brady Ericsson: At the same time, we demonstrated resiliency in the face of challenging industry conditions in most of our markets.

Speaker Change: I'll start with some overall comments on our first quarter performance. Chris will then provide additional detail in her financial review before we open up the call for questions.

Chris: Starting on slide four.

Brady D. Ericson: Adjusted sales in the quarter were $846 million, an increase of just over 1% when compared to Q1 2023. This was driven by favorable pricing and currency, partially offset by lower commercial vehicle sales in Europe. Adjusted EBITDA and segment margins came in much stronger due to some one-time customer items, supplier settlement related to the prior year, and good execution by our operations. We reported adjusted EBITDA of $131 million and an adjusted EBITDA margin of 15.5%, a 160 basis point improvement over the prior year.

Chris: Adjusted sales in the quarter were $846 million, an increase of just over 1% when compared to Q1 2023.

Chris: This was driven by favorable pricing and currency, partially offset by lower commercial vehicle sales in Europe.

Chris: Adjusted EBITDA and segment margins came in much stronger due to some one time customer items supplier settlement related to prior year and good execution by our operations.

Chris: We reported adjusted EBITDA of $131 million and an adjusted EBITDA margin of 15, 5%.

Chris: 160 basis point improvement over prior year.

Brady D. Ericson: Total segment adjusted operating margins were 13.6%, a 270 basis point improvement over the prior year. Although I'd love for this to be our new normal run rate, some of the one-time items I just mentioned helped us by about 100 basis points in the quarter. Q1 2023 was also an easier comparison as we had limited inflationary recovery during the year ago quarter.

Chris: Total segment adjusted operating margins were 13, 6%, a 270 basis point improvement over the prior year.

Chris: Although I'd love for this to be our new normal run rate some of the onetime items I just mentioned helped us by about 100 basis points in the quarter.

Chris: Q1, 2023 was also an easier comparison as we had limited inflationary recovery joined it during the year.

Brady D. Ericson: We continue to make good progress on the transition from our former parent and believe that we're on track to exit all material transition service agreements, or TSAs, and all contract manufacturing agreements, or CMAs, by the end of this summer. Our balance sheet remains strong with $325 million of cash, net leverage below one times EBITDA, and ample liquidity. Our focus on shareholder value continued as we returned $35 million to shareholders in the quarter, up from 26 million in Q4.

Chris: During the year ago quarter.

Chris: We continue to make good progress on the transition from our former parent and believe that we're on track to exit all material transition service agreements or TSA and all contract manufacturing agreements or <unk> by the end of this summer.

Chris: Our balance sheet remains strong with $325 million of cash net leverage below one times EBITDA and ample liquidity.

Chris: Our focus on shareholder value continued as we returned $35 million to shareholders in the quarter.

Chris: Up from $26 million in Q4.

Brady D. Ericson: Our solid financial position is being recognized by the investment community as evidenced by the strong investor demand for our 2029 Senior Secured Note Offering, which we opportunistically upsized from $425 million to $525 million. The transaction closed in early April, at which point we repaid our Term Loan B and the outstanding balance on our revolver. Not only will this significantly reduce our run rate interest rates and interest costs, but it also eliminates the restrictive covenants of Term Loan B and provides us with more flexibility under which we can continue to support the future growth of the company, as well as return capital to shareholders. Let's move to slide five.

Chris: Our solid financial position is being recognized by the investment community as evidenced by the strong investor demand for our 2029 senior secured note offering, which we opportunistically upsized from 425 million to $525 million.

Chris: The transaction closed in early April at which point, we repaid our term loan b and the outstanding balance on our revolver.

Chris: Not only will significantly reduce our run rate interest rates interest costs.

Chris: It also eliminated restrictive covenants of term loan B and provides us with more flexibility under which we can continue to support the future growth of the company as well as return capital to shareholders.

Chris: Let's move to slide five.

Brady D. Ericson: Providing great products and service for our customers continues to be reflected in strong new business wins across all product lines and in all regions. These include several with commercial vehicle and off-highway customers, products for alternative fuels, and complete systems, which include the ECU. Some specific examples are Contract Extension and Volume Uplift to supply diesel fuel injectors to a leading global commercial vehicle OEM in Europe; Contract Extension and Volume Uplift for a GDI system with a leading OEM in support of their localization plans in South America.

Chris: Providing great products and service for our customers continues to be reflected in strong new business wins across all product lines and in all regions.

Chris: These include several with commercial vehicle and off highway customers products for alternative fuels and complete systems, which include the ECM.

Chris: Some specific examples are.

Chris: Contract extension and volume uplift the supply of diesel fuel injectors to a leading global commercial vehicle OEM in Europe.

Chris: The contract extension, an uplift for a <unk> system with a leading OEM in support of the localization plans in South America.

Brady D. Ericson: Conquest Business to supply GDI fuel systems to a leading OEM for one of its light vehicle platforms in North America. Importantly, as we think about our new business wins, ConQuest continues to be a large portion of our recent wins and was particularly strong during Q1, which bodes well for a continued market share gain.

Chris: Conquest business to supply <unk> fuel systems to a leading OE up for one of them is light vehicle platforms in North America.

Chris: Importantly, as we think about our new business wins conquest continues to be a large portion of our recent wins and was particularly strong during Q1.

Chris: Which bodes well for our continued market share gains.

Brady D. Ericson: In terms of new product launches, 2024 will be an exciting year for us as we have a lot going on. Let me discuss a recent product launch that we're proud to announce. In a global first, PINIA will provide our high-performance 500 bar GDI fuel system to Chang'an Auto for a hybrid vehicle that launches in Q2. This advanced system can significantly reduce particulate emissions, lower fuel consumption, and lower the overall vehicle cost.

Chris: In terms of new product launches 'twenty 'twenty four will be an exciting year for us as we have a lot going on.

Speaker Change: Let me discuss our recent product launch we're proud to announce it.

Speaker Change: And a global thirst NEA will provide our high performance 500 bar <unk> fuel system to Chang on auto for a hybrid vehicle that launches in Q2.

Speaker Change: This advanced system can significantly reduce particulate emissions lower fuel consumption and lower the overall vehicle costs.

Brady D. Ericson: This is the first of several 500-bar systems that we'll be launching in the coming years. Also, on the customer front, I'm pleased to share that Thinnia has been receiving numerous customer recognition awards for quality, responsiveness, improvement, and support. For example, Finia was recently recognized by Hyundai as Supplier of the Year 2023. This award was granted in recognition of Finney's agility and adaptability when supporting Hyundai's production plans, more specifically. CUNY was recognized for its ability to quickly increase supply well beyond contracted capacity to meet growing hybrid production demands.

Speaker Change: This is the first of several 500 bar system that we'll be launching in the coming years.

Speaker Change: Also on the customer front I'm pleased to share that Feeney has been receiving numerous customer recognition awards for quality responsiveness improvement and support.

Speaker Change: For example, Affinia was recognized recently by Hyundai as supplier of the year 2023.

Speaker Change: The award was granted in recognition of Finian's, agility and adaptability when supporting Hyundai's production plans more specifically.

Speaker Change: He was recognized for its ability to quickly increase supply well beyond contracted capacity to meet growing production demands.

Brady D. Ericson: Our results this quarter represent another important step towards successfully executing our business strategy as an independent entity. Looking ahead, we will continue on our path of fiscal responsibility and strategic growth. Our goals are clear: to deliver value to our shareholders, to invest in innovation and growth opportunities, and to strengthen our market position. We strongly believe that all the work we've done will help us achieve our ambitious yet achievable goals. Overall, looking at our business and financial results, Q1 performed in line with our expectations, and we're on track with our full year 2024 guidance that we issued last quarter.

Speaker Change: Our results this quarter represent another important step towards successfully executing our business strategy as an independent entity.

Speaker Change: Looking ahead, we will continue on our path of fiscal responsibility and strategic growth.

Speaker Change: Our goals are clear to deliver value to our shareholders to invest in innovation and growth opportunities.

Speaker Change: And to strengthen our market position.

Speaker Change: We strongly believe that all the work we've done will help us achieve our ambitious yet achievable goals.

Speaker Change: Overall looking at our business and financial results Q1 performed in line with our expectation and we're on track with our full year 2024 guidance that we issued last quarter.

Brady D. Ericson: As a result, we believe we will be able to deliver another year of strong financial performance. I'd like to hand it over to Chris, who will walk us through our Q1 results and discuss our outlook for the year.

Speaker Change: As a result, we believe we will be able to deliver another year of strong financial performance.

Speaker Change: With that I'd.

Speaker Change: I'd like to hand, it over to Chris who will walk us through our Q1 results and discuss our outlook for the year Chris.

Chris P. Gropp: Thanks, Brady, and thank you all for joining us this morning. As a reminder, we will discuss our results in Outlook. Please keep in mind that there continue to be TSAs and CMAs with our former parent, which we are rapidly phasing out. In addition, reconciliations of all non-GAAP financial measures that I will discuss can be found in today's press release. Moving to page 9 in the deck, in Q1, we generated $846 million in adjusted total sales, up slightly versus a year ago.

Speaker Change: Chris.

Speaker Change: Okay.

Chris: Thanks Brady.

Chris: Thank you for all for joining us this morning.

Chris: As a reminder, we will discuss our results and outlook. Please keep in mind. There are continued to be TSA isn't cma's with our former parent, which we are rapidly phasing out in.

Speaker Change: In addition, reconciliations of all non-GAAP financial measures that I will discuss can be found in today's press release.

Speaker Change: Moving to page nine in the deck in Q1, we generated $846 million and adjusted total sales up slightly versus a year ago.

Chris P. Gropp: Our aftermarket business benefited from higher pricing and positive FX for an increase of 3.1%, whereas fuel systems were impacted by lower CV revenue in Europe, offset by inflationary price pass-through. Our adjusted diluted earnings per share was $1.08. We earned $97 million in Adjusted Operating Income and $131 million of Adjusted EBITDA, resulting in an Adjusted Operating Margin of 11.5%, which represents a year-over-year increase of 170 basis points, while the Adjusted EBITDA margin of 15.5% represented a year-over-year increase of 160 basis points, of note. When compared to the prior year, the results in both the first and second quarters of 2023 reflect timing differences, making for uneven comparisons between these two periods.

Speaker Change: Our aftermarket business benefited benefited from higher pricing and <unk>.

Speaker Change: Positive FX for an increase of three 1%, whereas fuel systems was impacted by lower CV revenue in Europe.

Speaker Change: Set by inflationary price pass through.

Speaker Change: Our adjusted diluted earnings per share was $1 eight.

Speaker Change: Earned 97 million and adjusted operating income and $131 million of adjusted EBITDA, resulting in an adjusted operating margin of 11, 5%, which represents a year over year increase of 170 basis points, while the adjusted EBITA margin of 15, 5%.

Speaker Change: Represented a year over year increase of 160 basis points.

Speaker Change: Of note when compared to the prior year the results in both the first and second quarters of 2023 reflect timing differences, making for uneven comparisons for these two periods.

Chris P. Gropp: More specifically, the first quarter of 2024 benefited from the pass-through of inflation, whereas in 2023, a portion of pass-through was delayed to the second quarter. Additionally, a supplier settlement of $10 million, of which $7 million is a one-time retroactive recovery. And finally, we had a strong product-sales mix and a favorable currency impact. From a core business performance standpoint, our segments reported strong overall margins.

Speaker Change: More specifically the first quarter of 2024 benefited from the pass through of inflation, whereas in 2023, a portion of pass through was delayed to the second quarter.

Speaker Change: Our supplier settlement of 10 million of which $7 million is a one time retroactive recovery and.

Speaker Change: And finally, we had strong product sales mix and a favorable currency impact.

Speaker Change: From a core business performance standpoint, our segments reported strong overall margins Q.

Chris P. Gropp: Q1 segment adjusted operating margins were healthy at 13.6% as our aftermarket segment expanded to 17.9%, on the back of inflationary price pass-through and positive product sales. Q1 fuel systems margins were strong at 10.8%, similar to Q4, but ahead of the same period of the prior year due to the pass-through of inflationary prices and a supplier settlement for an issue that plagued us during 2023. Note that this is included in our full-year guidance, although the timing was unknown.

Speaker Change: Q1 segment adjusted operating margins were healthy at 13, 6% as our aftermarket segment expanded to 17, 9% on the back of inflationary price pass through and positive.

Speaker Change: <unk> sales mix.

Speaker Change: Q1 fuel systems margins were strong at 10, 8% similar to Q4, but ahead of the same period of the prior year due to the pass through of inflationary prices.

Speaker Change: Supplier settlement for an issue that plagued us during 2023.

Speaker Change: Note that this is included in our full year guidance, although the timing was unknown.

Chris P. Gropp: Corporate costs were $18 million in the quarter, compared with $9 million in the same period of the prior year. The largest driver of this year was the buildup of our stand-alone corporate function as we separated from our former parent company.

Speaker Change: Corporate costs were $18 million in the quarter compared with 9 million in the same period of the prior year.

Speaker Change: The largest driver of this year was the buildup of our Standalone corporate function as we separated from our former parent company.

Chris P. Gropp: We continue to expect approximately $20 million in quarterly corporate costs going forward, in line with projections provided last year at SPIN. Let me now compare our revenue and EBITDA, which you can find on pages 10 and 11 in the presentation. Our adjusted sales performance in the quarter was affected by softness in volume and mix, which was a headwind of $7 million, mainly due to lower CV cells in Europe. By contrast, we saw a favorable sales benefit from the pass-through of insulationary costs of $12 million, and FX was a tailwind this quarter of $6 million.

Speaker Change: We continue to expect approximately $20 million in quarterly corporate costs going forward in line with the projections provided last year at spin.

Speaker Change: Let me now bridge, our revenue and EBITDA, which you can find on pages 10, and 11 in the presentation.

Speaker Change: Our adjusted sales performance in the quarter was affected by softness in volume and mix, which was a headwind of $7 million.

Speaker Change: Due to lower <unk> sales in Europe.

Speaker Change: Contrast, we saw a favorable sales benefit from inflationary cost pass through of $12 million and FX was a tailwind this quarter of $6 million.

Chris P. Gropp: Inflationary pressures have mainly receded, with only small pockets of residual increases remaining. Negotiation of customer price recovery was finalized in Q2 of 2023 versus lump sum, with results in program and segment profitability moving in line with expectation on a more consistent basis after this period. Turning to page 11.

Speaker Change: Inflationary pressures have mainly receded with only small pockets of residual increase increases remaining.

Speaker Change: Negotiation of customer price recovery was finalized in Q2 of 2023 versus a lump sum.

Speaker Change: And results in program and segment profitability moving in line with expert expectation on a more consistent basis. After this period.

Speaker Change: Turning to page 11 the.

Chris P. Gropp: The quarter saw a favorable pricing pass-through of $12 million, in addition to supplier savings of $19 million. Employee and other production costs were an offset of $17 million. Of the $19 million in supplier savings, $10 million relates to settlement of the 2023 supplier issue previously noted. The $10 million settlement breaks down further into $7 million of retroactive, non-run rate funding and $3 million of reduced part costs to be more in line with market costs.

Speaker Change: The quarter saw favorable pricing pass through of $12 million in it.

Speaker Change: Addition to supplier savings of $19 million.

Speaker Change: Employee and other production costs were an offset of $17 million.

Speaker Change: Of the $19 million in supplier savings 10 million relates to settlement of the 2023 supplier issue previously noted.

Speaker Change: The $10 million settlement breaks down further into 7 million of retroactive non run rate funding and $3 million of reduced part cost to be more in line with market cost.

Chris P. Gropp: Corporate costs were up $9 million, in line with expectations and partially offset by $3 million in reduced R&D and other SG&A costs. Q1 cash from operations was $31 million. During the quarter, we generated free cash flow of $13 million as we continue to be disciplined in management of our working capital and drive optimization of resources and processes on a daily basis. Capital spend was slightly higher in the quarter on a run rate basis but still projected to come in for the full year at guidance of 4% of revenue. Next, turning to our liquidity, we ended the quarter with $325 million in cash and $424 million of committed revolver availability. As a result, our net leverage is less than one times EBITDA.

Speaker Change: Corporate costs were up 9 million in line with expectations, and partially offset by $3 million in reduced R&D and other SG&A cost.

Speaker Change: Q1 cash from operations were $31 million during the quarter, we generated free cash flow of $13 million as we kidney.

Speaker Change: To be disciplined and management of our working capital and drive optimization of resources and processes on a daily basis.

Speaker Change: Capital spend was slightly higher in the quarter on a run rate basis, but still projected to come in for the full year guidance of 4% of revenue.

Chris P. Gropp: Next turning to our liquidity, we ended the quarter with $325 million in cash $424 million of committed revolver availability, our net leverage is less than one times EBITDA.

Chris P. Gropp: We are committed to a strong financial foundation and having ample liquidity to run our business and execute our strategy. To that end, subsequent to quarter end, we issued 525 million principal amount of 6.75% senior secured notes due 2029 with interest to be paid semiannually. Due to strong investor demand, we upsized the offering from the original $425 million plan. The notes bear interest at an annual rate of 6.75%. And we used the net proceeds to repay the outstanding borrowings under our Term Loan B facility and the $75 million we had drawn down on our revolving credit facility. As a consequence, we have no outstanding draws, and the entire $500 million revolver is available to us.

Speaker Change: We are committed to a strong financial foundation, and having ample liquidity to run our business and execute our strategy.

Speaker Change: To that end subsequent to quarter end, we issued 525 million principal principal amount of 675% senior secured notes.

Speaker Change: <unk> 2029 with interest to be paid semi annually.

Speaker Change: Due to strong investor demand, we upsized the offering from the original 425 million planned.

Chris P. Gropp: The notes bear interest at an annual rate of 675% and we use the net proceeds to repay the outstanding borrowings under our term loan B facility and the 75 million, we had drawn down on our revolving credit facility.

Speaker Change: As a consequence, we have no outstanding draws in the entire $500 million of our revolver is available to us additional.

Chris P. Gropp: Additional funds were used to pay fees and expenses in connection with the offering and for general corporate purposes. This issuance helped us meet one of our many financial goals for the year and provides a stronger, more cost-effective capital structure while improving our liquidity. Moving next to our 2024 guidance. As Brady and I both mentioned, our first quarter results are trending in line with our full year guidance. As a result, we are reaffirming the guidance we presented on the last earnings call.

Chris P. Gropp: Additional funds were used to pay fees and expenses in connection with the offering and for general corporate purposes.

Chris P. Gropp: This issuance helped us meet one of our many financial goals for the year and provides a stronger more cost effective capital structure, while improving our liquidity.

Chris P. Gropp: Moving next to our 2024 guidance as Brady and I both mentioned.

Chris P. Gropp: Our first quarter results are trending in line with our full year guidance.

Chris P. Gropp: As a result, we are reaffirming the guidance we presented on the last earnings call.

Chris P. Gropp: Overall, we expect strong earnings and cash generation in 2024 as we continue to drive operational efficiencies, exit agreements with our former parent, and grow our aftermarket sales. In closing, I want to reiterate Brady's message regarding our focus on financial discipline and generating strong shareholder returns. And with that, we'll now move to the Q&A portion of our call.

Chris P. Gropp: Overall, we expect strong earnings and cash generation in 2024, as we continued to drive operational efficiencies.

Chris P. Gropp: Exit agreements with our former parent and grow our aftermarket sales.

Chris P. Gropp: In closing I want to reiterate brady's message regarding our focus on financial discipline and generating strong shareholder returns.

Chris P. Gropp: And with that we'll now too right.

Speaker Change: Move to the Q&A portion of our call poly.

Operator: Thank you Chris, and as mentioned, we are now open to questions. To ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. And your first question comes from the line of Jake Scholl from BNP Paribas-Exsang. Your line is open.

Speaker Change: Thank you, Chris and as mentioned we are now open for questions to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.

Thomas Jacob Scholl: And your first question comes from the line of Jake <unk> from BNP Paribas Exane. Your line is open.

Thomas Jacob Scholl: Hey guys, congrats on the great job.

Thomas Jacob Scholl: Hey, guys congrats on a great quarter.

Brady D. Ericson: Thank you very much. Just to provide a little bit of color on how we should think about seasonality for the rest of the year. So, into the second quarter, we have to roll off some of the one-time items, but are there any other factors we should keep in mind?

Thomas Jacob Scholl: Could you just provide a little bit.

Speaker Change: Just probably a little bit of color on the.

Brady D. Ericson: How we should think about seasonality for the rest of the year so into the second quarter, we have the roll off of some of the onetime items, but are there any other factors we should keep in mind.

Brady D. Ericson: Okay.

Brady D. Ericson: No, I think it'll be kind of consistent with last year. And I know, you know, a lot of people want to get into specific quarters, but things are always going to move around just a little bit depending on what holidays are and when the end of the quarter ends. In general, Q1 and Q4 from a revenue standpoint tend to be a little bit lighter. Obviously, we have some shutdowns in Europe in the summertime, as well as in the US. But Q2 tends to be a good, strong quarter in Q3. So again, it'd probably be a similar kind of cadence with last year from an overall revenue once you take out the noise from any customer recoveries.

Speaker Change: No I think it'll be kind of consistent with last year and I know.

Brady D. Ericson: A lot of people want to get into specific quarters.

Brady D. Ericson: Things are going to move around a little bit depending on when the holidays are and when the end of the quarter ends.

Brady D. Ericson: In General Q1, and Q4 from a revenue standpoint, and if you're a little bit lighter.

Brady D. Ericson: Obviously, we have some shutdowns in Europe and.

Brady D. Ericson: The summer time as well as in the U S.

Brady D. Ericson: But Q2 tends to be a good strong quarter in Q3.

Brady D. Ericson: So again, its probably similar kind of cadence with it with last year from an overall revenue.

Brady D. Ericson: Once you take out the noise from any customer recoveries.

Brady D. Ericson: All right, guys, thank you. Now that you guys have cleared up some of the more restrictive covenants you had in the initial Term 1B after the spin, how should we think about any shifts in your capital allocation priorities? Well, I think so.

Speaker Change: Got it thank you and then.

Brady D. Ericson: Now that you guys have cleared up some of the more restrictive covenants you had and initial term lumpy after the spin.

Speaker Change: How should we think about any shift in your capital allocation priorities.

Speaker Change: Well I think.

Brady D. Ericson: Well, I think the capital allocation priorities kind of remain the same, but obviously, we don't have those restrictions. The TLB restrictions had a lot of limitations on both dividends and buybacks, as well as some punitive cash sweeps if we got anywhere over one time. And so I think it'll free us up a little bit and allow us to, you know, utilize more of the cash that we have on hand because we do continue to have probably more cash on hand than we need. Uh, so we'll look to deploy more of that as well. And with us paying down the revolver, uh, you know, our liquidity is now over 800 million. And again, that's probably excessive.

Speaker Change: I think the capital allocation priorities remain the same but obviously, we don't have the restrictions.

Brady D. Ericson: The <unk> restrictions had a lot of limitations on on both dividends and buybacks.

Brady D. Ericson: As well as some punitive cash sweeps.

Brady D. Ericson: If we got any anywhere over one time.

Brady D. Ericson: And so I think it will free us up a little bit.

Brady D. Ericson: Allow us to.

Brady D. Ericson: Utilize more of the cash that we have on hand, because we do continue to have.

Brady D. Ericson: More cash on hand than we need.

Brady D. Ericson: So we will look to deploy more of that as well and with us paying down the.

Brady D. Ericson: The revolver.

Brady D. Ericson: Our liquidity is now over $800 million and again, that's probably assessments.

Speaker Change: Okay very helpful. Thank you.

Speaker Change: Thanks James.

Operator: A reminder, if you would like to join the queue and ask a question, or if you have a follow-up, please press star 1 on your telephone keypad now to raise your hand and join the queue. And we'll pause for any final questions. There are no final questions at this time. I'll close the Q&A session and hand back over to Brady Ericson for closing remarks.

Speaker Change: A reminder, if you would like to join the queue and ask a question or if you have a follow up please press star one on your telephone keypad now to raise your hand and joined the queue.

Operator: I will pause for any final questions.

Brady D. Ericson: There are no final questions at this time I'll close our Q&A session and hand back over to Brad Erickson for closing remarks.

Brady D. Ericson: Great. Thanks, everybody. We look forward to building on the achievements of the past quarter and moving forward with a clear line of sight on our long-term goals. Thanks for joining us this morning. Have a nice day.

Brady D. Ericson: Great. Thanks, everybody, we look forward to building on the achievements of the past quarter moving forward with a clear line of sight on our long term goals.

Brady D. Ericson: For joining us this morning have a nice day.

Operator: This concludes today's conference call. Enjoy the rest of your day. You may now disconnect. Please wait; the conference will begin shortly.

Brady D. Ericson: This concludes today's conference call and enjoy the rest of your day you may now disconnect.

Operator: Please wait the conference will begin shortly.

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