Q3 2019 Earnings Call
Good morning, and welcome to the outlet venture Holdings second quarter 2019 earnings Conference call.
Today's call is being recorded and we've allocated time for prepared remarks actually Wendy.
At this time I would like to turn the conference over to Courtnee Denahan Investor Relations that Aquaventure.
Thank you. Please go ahead.
Thank you operator, good morning, everyone. We released our earnings press release, this morning, and posted a slide presentation to the Investor Relations section of our website at Investor <unk> Aquaventure Dotcom, we will be referencing the slides during this call president on today's call are Tony a bargain Chief Executive Officer, Lee Muller, Chief Financial Officer, and Doug Brown Chairman of the board.
Before we begin let me remind everyone that this call may contain certain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These include remarks about future expectations beliefs intentions goals strategies plans or prospects, including without limitation statements relating the OCC was interesting strategic focus our forecast the full year 2019 financial result.
Our ability to produce positive operating cash flow expectations regarding future business development and acquisition activities.
Expectations regarding performance growth cash flows and margins from recently completed and pending acquisition the impact on operating results of the timing size integration and accounting treatment of acquisitions and other business development activities and I'll have interests ability to successfully integrate and operate the acquired businesses or assets and to achieve the expected financial contribution including EBITDA from them.
Such statements are subject to a variety of risks uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements.
Such risks and other factors are set forth in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 11th 2019, and in our subsequent filings with the Securities and Exchange Commission.
We do not ended undertake any duty to update such forward looking statements.
In addition, during today's call, we will discuss non-GAAP measures and other key metrics, which we believe can be useful in evaluating our performance.
The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.
A reconciliation of the non-GAAP measures to the most comparable GAAP measure can be found in our earnings release.
I would now like to turn the call over to our Chief Executive Officer, Tony of Ark one.
Good morning, and thank you for joining us on today's call.
I'd like to start today's call by commenting on our overall performance during the second quarter of 2019, including both financial and operating highlights.
Well. He will then walk you through our financial results in more detail and I'll return to provide an update on our outlook for 2019, and some closing remarks, and finally Douglas and I will take your questions.
Starting on slide three Aquaventure had another impressive quarter with revenues of $51.4 million, representing a 49.2% year over year increase.
This increase was comprised of 10.3% organic growth and 38.9% inorganic growth, reflecting our continued strong organic performance and the successful integration of our strategic acquisitions in late 2018.
We reported adjusted EBITDA of $18.7 million during the second quarter of 2019, 66.4% increase over the prior year period, and an adjusted EBITDA margin of 36.4%, which reflects a margin expansion of 380 basis points.
Adjusted EBITDA plus principal collected was $20 million for the second quarter, 60.7% year over year increase marking another record quarter for the company.
In addition, we completed our first follow on offering in July issuing over 4.7 million ordinary shares for net proceeds of approximately $75 million.
After deploying over $200 million on acquisitions, and 2018, where once again well positioned to execute our growth strategy.
Moving to slide four after taking the first part of the year to focus on the integration of the December 2018 acquisition of P.H. I Sigh Quench completed two acquisitions Agua man in South, Florida, and Carolina pure water systems, and the Raleigh Durham, North Carolina area.
Both companies are part of our indirect dealer network, which continues to benefit from our ability to provide them with attractive exit opportunities.
In addition, both of these acquisitions added meaningfully to quench his customer base in those markets, which will drive increased lead generation improved service levels and margin expansion as we continue to gain leverage from the platform.
These acquisitions were completed for approximately 8.8 million in aggregate consideration at less than five times adjusted EBITDA.
They added approximately 3100 customers and 4600 rental units to our installed base, which together with organic expansion brings quenches total installed asset base to approximately 150000 company owned units.
Importantly, both acquisitions were integrated into the quench direct rental business immediately upon closing.
That means we ingest the data for all customers and units and on boarded all personnel as of the day after closing.
The seamless integration enables us to immediately capture synergies and to deliver high levels of service to our new customers with minimal delay or disruption.
We believe this to be unique and differentiated in our industry.
In addition on August 1st we completed the final integration activities of our Phs I acquisition.
You may recall that we fully integrated the phs I'd direct rental base and team as of February Onest less than 45 days after the acquisition.
Last week, we completed the final stage of integrating the back office operations of our Phs high wealth and Blue line indirect business.
And the seven seas water segment on August Onest, we completed the major components of our integration activities for the way you see business.
This included the completion of the final steps to bring you see onto our existing ERP system and the integration of certain back office functions.
The completion of these integration steps will enable our team to focus on continuing to grow the business.
We're very pleased with how this business has been performing since the acquisition and its ability to develop a strong pipeline and new business at a healthy pace. The active lease portfolio has grown from 83 plants at the time of the acquisition to 97 plants as of June Thirtyth 2019.
In addition, our strong pipeline of signed but not the leases gives us confidence that we will meet our growth expectations.
Before I turn the call over to Lee I'd like to talk about the announcement were released in early July regarding our customer in curacao.
In early July the CR customer Curacao refinery utilities or crew gave us notice that it is exercising its right to purchase the desalination facilities at the end of the existing water supply agreement, which is currently December 30, Onest 2019.
To provide some background our relationship with crew and the refinery owner R&D K began in 2009.
Like other seven seas water contracts. This agreement has been amended several times, resulting in production expansion and contract extension.
The refineries operated by that's rolling off the Venezuela or head of Esa.
Under a contract that also expires at the end of this year.
In recent years, the refinery has faced significant geopolitical turbulence because of the situation in Venezuela.
And has generally operated at less than full capacity.
It has also been reported in the press that already K is considering proposals from other parties to replace that of Esa as the operator.
Instead of a contract with R&D K is extended to December 30, Onest 2022, our contract will be also extended to the same date.
However, if RT K replaces pit of Esa as the operator of the refinery we will remain open to constructively engaged in with the new operator of the refinery to continue providing our water services.
The contractual buyout right requires payment to be made at the contract expiration date.
If consummated the buyout will be either $3.5 million at the end of this year or if fed of SMS contracts extended $2.5 million.
We intend to continue to deliver our customary high levels of service for the duration of our contract and look forward to continuing our discussions with the customer.
In our experience had been typically able to negotiate contract extensions during the contract term usually in connection with expansions and water production associated with increased demand.
As an example of this we announced earlier this year the expansion of the water supply and extension of our water agreement with lime tree Bay terminals in the U.S. Virgin Islands to 2024.
And last year, you may recall, we successfully negotiated the extension of our relationship with our customer and Saint Maarten until 2025.
Excluding curacao the revenue weighted average remaining contract life for our water supply agreement is currently approximately 11 years.
With that ill now turn it over to Lee to talk about our financial highlights in more detail.
Thanks, Tony.
As Tony mentioned, we are pleased to report another strong quarter with significant year over year revenue and adjusted EBITDA growth in both segments.
On slide five seven seas water reported revenues of $22.9 million during the second quarter of 2019 of 48.7% increase over the prior year.
The increase was primarily driven by our inorganic activities, including the acquisition of the way you see operations and the commencement of our water contract in Angola.
We supplemented this growth with strong organic growth of 4.8% primarily from increased production volumes in the U.S Virgin Islands, and same Martin and higher water rates in the British Virgin Islands compared to the prior year period.
Gross margin of 55.3% reflected an 80 basis point decrease over the prior year, which was primarily driven by the lower average gross margin on the way you see equipment sales, partially offset by an increase in the bulk water gross margin.
Adjusted EBITDA of $11.6 million for the second quarter of 2019 increased 58.3% over Q2, 2018, and adjusted EBITDA margin of 50.8% reflected an increase of 310 basis points over the prior year.
Finally, adjusted EBITDA, plus collected principal increased 51.2% to $12.9 million in the second quarter.
Turning to quench results on slide six quench reported revenues of $28.5 million in the second quarter of 49.6% increase over Q2 2018.
The prior year period included $1.1 million of revenue from Atlas High purity solutions, which was divested in October 2018.
Excluding this revenue in the prior year the year over year growth would have been $10.6 million or 58.9%.
Direct rental in product revenue showed significant year over year increases that were bolstered by inorganic activities in conjunction with strong organic growth.
In addition, the indirect business had another great quarter contribute contributing to quench is 15% year over year total organic growth.
Bunches gross margin of 48.8% for the quarter was 140 basis points lower than the prior year quarter, which was primarily due to a decrease in rental gross margin, which is largely attributable to an increase in depreciation and amortization.
This decrease was partially offset by an increase in product sales gross margin with the inclusion of the higher margin indirect phs site equipment sales.
Adjusted EBITDA of $8 million for the second quarter of 2019 was a solid 71.6% increase over the prior year and adjusted EBITDA margin of 28% reflected margin expansion of 360 basis points.
This margin expansion is supported by the further leveraging of our of our platform as we increased customer density and grow revenues without commensurately, increasing our costs.
SGN a cost as a percentage of revenue were 50.5% for the second quarter of 2019, a decrease from 58.7% in the prior year quarter, demonstrating this incremental leverage.
On slide seven I'd like to provide a brief update on select balance sheet and cash flow items.
As of June Thirtyth, 2019, cash and cash equivalents were $41.3 million and our total debt was $318.2 million, resulting in net debt of $276.9 million.
As Tony mentioned earlier, we completed a follow on offering of 4.7 million ordinary shares, including the exercise of the underwriters' option.
The net cash proceeds generated from this offering were approximately $75 million, which would result in a cash balance of approximately $116 million and a net debt of approximately $202 million assuming the inclusion of these gross proceeds to the June thirtyth cash balances.
On a trailing 12 month basis, which only has a partial contribution from our two large acquisitions. This capital raise also had the effect of reducing our net debt leverage ratio from approximately 4.1 times pre offering to approximately three times post offering and this would be even lower on a fully annualized basis.
For the first half of the year, we generated operating cash flow of $6.5 million as compared to $13.8 million in the prior year period.
We have been we have been experiencing higher working capital needs in our quench segment. During the first six months of 2019 as compared to 2018.
This increase was driven by the substantial growth in the business as accounts receivable inventory and sales origination cost scale with higher sales volumes in our direct and indirect businesses.
Additionally, cash usage was impacted by cash interest expense related to the $150 million reflects our corporate credit facility late last year and the prospective adoption of new of the new lease accounting standard, which recategorized certain costs from investing activities to operating activities for new leases entered into in 2019.
Also impacting cash flow in the first half of 2019 for professional fees and other transaction related payments connected to our acquisitions in late 2018.
Capital expenditures of $16.9 million for the six months ended June Thirtyth 2019 increased $9.7 million over the prior year period. This increase was primarily due to supporting the growth of eight you see.
Our high level of growth along with its attendant working capital and capital expenditure needs are expected to generate incremental revenue adjusted EBITDA and operating cash flow for the company.
On slide eight you will see a reminder of the unit economics of an incremental quench unit, which show that each incremental asset deployed requires upfront capital and expenses related to the cost of the unit lead generation sales commissions and installation costs. These incremental investments create meaningful meaningful future value, but the cost of the costs are front loaded. It results in short term negative operating cash flow I will now turn it over to Tony to discuss our outlook and provide closing remarks.
Thankfully given the strong financial performance that we reported for the first half of the year plus the anticipated impacts of the completed acquisitions. We expect to end this year on the upper end of our previously reported outlook for 2019.
As a result, you will see on slide nine that we are now raising the floor of our previously provided guidance and currently are targeting annual revenues between 192 and $197 million.
Adjusted EBITDA between 69 and $72 million.
And adjusted EBITDA, plus between 74 and $77 million.
As a reminder, this outlook excludes the impact of any future acquisitions.
In summary, we're very happy with our strong first half results and believe we have the momentum to drive continued execution for the balance of this year.
To help advise us on continuing this momentum we announced last night that we appointed Tim wall to our board of directors.
Tims decades long career in the subscription driven home security industry will provide us invaluable perspective.
In addition, his prolific M&A experience passionate advocacy for the customer experience and extensive operation sales and supply chain experience will bring fresh insights into our business processes and we're excited to welcome him to our board.
When we went public in 2016, our goal is to double our adjusted EBITDA by thoughtfully investing IPO proceeds internally generated cash and borrowings.
We remain on track to achieve that goal this year, which was largely enabled by the effective deployment of more than $270 million on acquisitions since the IPO.
It is our plan to continue to strategically deploy capital through acquisitions and to integrate these acquisitions quickly and effectively driving increased operating leverage.
To that end as mentioned earlier, we're very pleased to have completed our first follow on offering and appreciate the strong show of support from our existing and new shareholders.
While we are not able to comment specifically about active acquisition negotiations. We proactively sought this additional capital to ensure that we have the ability to take advantage of our active pipeline of growth opportunities in all segments.
On behalf of our executive team and board of directors, we'd like to thank our dedicated employees across the world and on behalf of all of them. We thank you for your continued interest and support as we remain committed to our mission of delivering solid results for our shareholders and create and clean water solutions for customers around the world with that operator. Please open the line for questions.
Thank you.
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Your first question comes from Rob Brown with Lake Street Capital markets. Please go ahead.
Good morning, Craig Congratulations on nice quarter.
Thank you thanks, Rob.
On your acquisition strategy, maybe just focused on quench how is that market in terms of acquisitions and are you seeing any larger acquisitions or is it tend to be smaller or or.
Just sort of characterize acquisition pipeline that market. Thank you.
Sure.
Yes. It continues to be as it has been where last year, we had alpine and ph OSI, a sort of outliers slightly larger than average.
Dealers available to us.
But the pipeline is very active there is a lot going on.
As you May recall, we made the strategic decision to acquire wealth. This and then pitch OSI and Blue line for the.
Indirect business as we call it the dealer business, which now is.
North of 250 dealers in our network with whom we.
Have great relationships and we're building a stronger one as we go and does that business did particularly well this quarter.
And as part of that we offered to those dealers and exit opportunity at the time when they're interested in that and.
And that is going to be at different times for different people, but so far that's yielded some some nice opportunities for us, including the two deals weve closed so far this year, our goal man, which was part of the Blue line Network and Carolina, pure which was a wealth of steeler and so.
We think both continue to see a steady flow of opportunities to acquire.
But largely skewing to the smaller and mid size.
Okay, Great and then and then you see you talked about growth there what sort of your thoughts on the capex requirement in that business and and how does that growth pipeline sort of shake out over the next 12 months.
Yes, the great news about that is we have great visibility. So this process is 12 18 months looking forward.
And so at the time of the acquisition, we had planned on funding.
The capex that was going to be required to deliver on big portfolio of signed but not yet billing leases at that time and you've seen the numbers grow dramatically and the leases that we call active meaning they have now gone from.
Signed but not billing to actually being billing where weve completed construction.
And you're going to continue to see that grow and we had planned on.
Some additional capex in the second half of this year four plants that we would hope to have come on line in 2020.
It's still a little bit early this is our really eight months or so.
Of owning them nine months now and so we're really pleased with the progress they're making.
And really excited about the potential for them in the future.
Thank you I'll turn it over.
Thank you. Your next question comes from.
Hi, it's tricky from Citi. Please go ahead.
Good morning, guys.
One question.
So just wanted to follow up on the.
Secondary offering.
You just completed so.
Leverage coming down and the expanded balance sheet capacity now.
Can you give us an update on what you're seeing in the M&A pipeline.
Based on your commentary seems like finish clearly.
Steady top candidates going forward, but how are you thinking.
For larger deal over the next.
Six to 12 months.
So glad this is Doug on the view, we just heard from Tony on the the quench.
Train keeps marching forward, mostly with smaller deals ones hopefully once in a while something larger on the seven seas side the.
The pipeline has.
Gotten a lot healthier we haven't been specific about.
Any of the deals.
Yet for obvious reasons in terms of.
Being active in negotiation, but we feel good about the pipeline.
And other alternatives, we still work on on the gone a transaction, we still seem to be making progress on that although African deals seem to be taking longer than even Caribbean deals do.
But.
There are other things outside of Africa, and the Caribbean that were where they were working on that we're pretty focused on at this point so.
We're hopeful that we're going to be able to talk about something more specific in the near future.
Okay.
That's helpful and then just.
On the organic growth clients.
So 15% organic into Q, I think second quarter in a row double digits plus organic growth.
Can you just talk about your visibility sustaining double digit organic growth for the back half of this year and.
Tony I think you mentioned you know, particularly good quarter.
In your indirect dealer network. This quarter can you talk about.
What what changed there or what drove that outperformance.
Yes, great and their related.
So that we think is going to continue for a bit here for sure. The business overall is growing quite rapidly.
Across the marketplace. This.
This technology, replacing five gallon jugs and enabling.
Users across the U.S. from Canada to turn great water.
And a much more efficient way is very much taking hold and so we're seeing that trend in our direct business, but we're also seeing it through the many dealers.
That we have brought into the fold and continue to sign new dealers and so that is one factor and generally the market. We think is continuing to expand secondly, we have.
If you go back to September 2017, when we bought wealth this week.
We have invested in growing and developing the product line.
Introducing some new alternatives to the dealers and that network and we're now introducing that to the page assigned and the Blue line dealers as well and those products are enabling those feelers to grow their business and that has been a key driver.
Of the success so far this year and we would expect that to continue.
Having said that as you know I'm glad that part of the business and client is not contractually re occurring and we have these dealers under contract. So when they do buy something they have to buy it from us but.
Unlike the rental business that is contractually recurring and the business at seven seas, and how you see where there are leased contracts or.
Water provision contract.
It is inherently less predictable and so I would continue to guide towards the upper single digits for quench for the back half of this year.
The the rental business grew a very healthy close to 7% organically, we're looking forward to seeing that continue.
Always talked about mid to high single digits on on the current trend till side and the indirect business again right now is significantly outperforming but I would I would say the reasonable go forward is a high single digits blended number.
Okay. That's that's really helpful.
Color Thanks, Tony.
Okay.
Thank you. The next question comes from Deane Dray.
With RBC capital markets. Please go ahead.
Thank you good morning, everyone.
Good morning.
Hey, maybe we can stay with this upside organic and quench and Tony that you gave some.
Good color there another way for us to look at this if we were to unpack that 15% organic do you didn't give us a sense directionally, how many are new customers or increased penetration of existing customers and maybe also pricing.
On the thanks, staying on the rental side the organic growth is a mix. We continue to what we call new logos were bringing in a record number of new customers brand new customers.
Churn or the loss of customers is down.
To a historic low of approximately 7.5% so that means we're retaining existing customers longer and when you retain existing customers longer and you increase the density of our coverage and markets service levels go up.
And that means that you have more opportunity to add on to those customer sourcing add ons to existing customers grow dramatically.
As we have improved the product line mix across sequential as well, we're seeing average rents go up because we're selling a lot of upgrades people who've been water cooler customers for a long time are now, adding a nice machine or perhaps replacing a water cooler with an ice machine that does hot and cold.
Water at the same time, so all the trends there are quite strong in terms of new additions as well as retail retention and then add on on the indirect side I'd say.
All our top dealers are growing very nicely. They are seeing the positive trends in the marketplace and investing in new sales capacity, they're taking on these new product lines that were bringing to market. So that's that's very strong as well, but we've also been adding dealers.
And we have good coverage and the dealer network across the country, but there are some white space for us and so our sales team on the indirect side has been focused on finding.
Creating training and helping onboard new dealers as well.
So the adding of new dealers on the indirect side.
Goes towards organic revenue growth is that correct.
It would yes, it would okay thats correct and the growth of an existing dealer would be organic as well.
All right. That's that's real helpful. And then I also like having to ask about upside surprise in margins and on seven seas.
Margins.
Significantly above last year is there what's sustainable on the margin front in the seven seas is there any one timers that that came into the quarter that that would have skewed it to the upside.
No no no definitely not really we had really strong performance in some of our island locations, particularly USPI in MBI.
And so.
The increased water usage and it led to.
Increase revenues and profitability.
Got it and just last one for me Lee while we have you.
Anything on the working capital items cash taxes that were more temporary that would reverse in the second half.
Cash taxes.
Stay pretty much the same at around you know say to around $2 million.
Year to year.
And that's pretty much steady state based on our mix of locations.
In taxable jurisdictions.
Got it that's real helpful. Thank you.
Okay.
Thank you. The next question comes from Jeff Van Sinderen with B Riley and co.
Yes go ahead.
Hi, good morning, everyone.
On acquisitions are you seeing any change in what sellers inspect in terms of multiples paid for their businesses or is it pretty much status quo.
Wealth and the two acquisitions that we did this year as I mentioned they were at about five times and Thats about middle of the range for US we've gone as low as four four and a half and as high as six and a half or seven.
First strategic deals these were both really good.
Dealers high quality product.
But.
Given the relationship in our knowledge of the business, we're able to.
Acquire them for a fair five times EBITDA.
Okay, and then any notable.
Change expected in operating metrics that we should be aware of the quench.
And then any other trends shifts and what customers are gravitating toward in terms of your product lines. I think you mentioned, adding I think coal.
And then any impact.
On.
Well I guess on the seven seas side can you remind us of any other contracts like cars. So that are coming up for decision that near term and how you're thinking about the probability of renewals or evolution of those contracts.
On a carnival.
So on the on contract renewals the Tony mentioned in his.
Presentation that we extended.
Lime tree.
2024 in Saint Martin to 2025.
Those are the next two.
That would come up for renewal after career, so and to be quite honest, we believe that both of those are going to continue.
To get extended again before the end of their contracts. The expectation is that the volume Prairie refinery will continue to operate for some time into the future.
And.
But theres the the new operator, they're comfortable committing for a five year contract, but we don't believe that that refineries going to discontinue operations in five years. So we would expect that to get continue to get renewed curse that was in a unique situation because of the Venezuelan situation.
We would normally expect to be negotiating an extension in the water supply agreement.
For that refinery, but because of Petrobras and the uncertainty about pit of Esa.
Everything kind of up in the air in that situation. We expect that that refinery will continue to operate we expect that that will give us an opportunity to enter into a new contract, whether we were able to get that or not is.
Risk factor, whether it be a refinery continues to operate.
Is that a risk factor.
But the rest of our contracts are very long lived as Tony mentioned, you know an average.
Of 11 years.
For a on a revenue basis for the rest of where the rest of our contracts and thats, including the Saint Martin and the line three contracts that are relatively short compared to the other contracts.
Thanks, Doug and then on operating metrics and trends Jaffe.
The the business sequentially still very focused on churn and customer satisfaction.
And ultimately net growth right. So that that is this this growth number that we put up every year is very important to us to continue to get leverage on the platform and we're seeing that come through.
And EBITDA growth in excess of revenue growth. So if you continue to focus on that you know that we are getting great leverage off of investments made in the past to have scalable ita.
And human capital platform, and then as far as trends I've talked about ice frequently in the past we're seeing.
Increased interest and sparkling that is growing very significantly our seltzer water.
There was an article in the times about the summer of sparkling.
It's a hot topic, we've got a coke and Pepsi and other people.
Trying to figure out how to move from sugary drinks to healthier drinks and but still carbonated and that's becoming a larger part of our upgrade and add on business and more frequently and now we're hearing about the interest in flavored sparkling.
Two.
Being able to replace the cans or bottles of lacroix, another flavored sparkling beverages out there people are.
Now starting to look for us to supply units that also inject some flavor. So those are all the trends all very positive and this.
These categories tend to be very sticky they.
Are also less price sensitive generally than your first basic point of view Swatter color, that's replacing a five gallon jug.
This is now much more interesting too.
Principles and professionals in offices, and so we're seeing a lot of demand and growth in that area.
Okay, Thanks, and best of luck in Q3.
Thank you.
Thank you. The next question comes from Joseph from JMP Securities.
Please go ahead.
Oh good morning, everyone.
I think this question is going to be for free we with the deal.
Now complete.
Can you maybe give us a sense looking at the other parts of the balance sheet, how how much dry powder. You think you have for additional acquisitions at this point.
Well if you look at the the money just raise.
And our ability to use some other cash that we had on the on the balance sheet.
As well as our ability to continue leveraging our EBITDA.
The number could be sizable it could be about $200 million.
And then and that could generate substantial EBITDA off of that investment.
Now that we have the equity deal behind us, we're going to turn our attention to other parts of the capital structure in terms of optimization will monitor market conditions and market opportunities and.
You know and we feel very good about our existing dry powder and our ability to continue making further investments and generate incremental EBITDA.
Thanks, and on that 200 million that would just again just hypothetically that would take you back to about four times is my math roughly correct.
Yes, a little bit higher than that about 43 tons, yes, and without going into too much detail you view kind of anticipated My next question what.
Are you getting big enough now that within the next 12 18 months, we might start to see other alternatives on.
Non equity part of the balance sheet become come more viable can you give us a little color there.
Yes so.
We always tried to we always thought about 300 million as as a bogey in terms of being sizable enough to go into it.
To be eligible to.
You know try other parts of the capital markets and we've hit that we've exceeded that we've eclipsed it and so we are.
At the size right now where we can access.
Deeper parts of the.
The capital markets and so stay tuned on that and we're looking to optimize and extends our maturities.
Okay. Thank you very much I appreciate it.
Thank you. Your next question comes from.
With Raymond James Please go ahead.
Thanks for taking the question.
We talked a lot about curacao as as a risk factor, but I wanted to.
And a shift to lighten tree, where I believe you will have an expansion at the end of this year.
And then just wanted to get an update on that kind of the timing of the uplift in in volumes from that facility add how large that uplift is going to be.
So we are increasing the size of the plant from 600000 gallons a day to 1.6 million gallons a day so.
We're tripling the capacity of the plant the actual production volumes will probably be.
Up a bit less than that we're anticipating going from.
What was about 400000 gallons a day.
Two 1.4 million gallons a day.
But the actual volume we're going to see there will be a function of the production level of the refinery.
And.
Well, we really won't have a better view on the volume until that refinery is operating which I believe is intended to incur.
Around the end of the year.
Okay, well, we're anticipating that our desal plant will be ready to operate in Q3 by the end of Q4 was going to Q3 beginning of Q4.
Okay and do you have in addition to cure a so is there an additional contract.
Maybe in the Bahamas 1 million gallons that are that expires at the end of the year.
That that's technically a contract that expired.
Ill.
Three or four months ago.
It's small it's for the sandals resort in the Zuma we have.
Been talking with them about an expansion of that contract.
We we frankly were expecting that might be slight that expansion might be signed by this call. It actually hasn't happened just because we are dealing with the Caribbean and things do take a little bit longer.
But our expectation is that that's going to be renewed.
Okay, So you're still.
Producing even though it's technically I admired already.
Yeah, we're still operating under the terms of the old contract. It's just gone month to month, while we.
Dot the I's and cross the Ts, Okay clear enough appreciate it guys.
Thanks Pavel.
Thank you. The next question comes from Chip Moore with Canaccord. Please go ahead.
Good morning, guys.
Hey, Judy.
Good to see the increase in active lead you see.
I assume that's primarily still in the Texas market.
Maybe you could just remind us on historical conversion rates.
Let's talk a little bit about geographic expansion efforts.
Yes, the primary business the primary business for them continues to be the Texas market. They have the strongest concentration in Houston, but they have also.
It's very active leases in.
And Dallas Fort worth and Austin.
They have activities outside of.
Texas.
Primarily those who have historically been equipment sales as opposed to leases.
They have some leases that they have been pursuing outside the business. They also have this.
Business, where the.
Yes, the bypass business, where they bring in a temporary waste treatment facility. While a primary facility is taken off line to be serviced and repaired.
Leave they got their first contract for bypassing California recently, so they have.
Certain got business outside of Texas, we're actively working with the management team.
On developing the lease business outside of Texas, Texas, but the Texas market has been so strong.
That it's certainly kept them very busy as you can see from the increase I think Tony mentioned the increase in active leases from 83 to 97.
And we have about a significant pipeline of what we refer to as.
Signed but not billed leases, which are basically plants that are under construction and so we're really happy with the growth and the forecast growth that we get from that.
But we do have an active effort and they do have an active effort to expand the business out outside of the Texas.
Fantastic Thanks, a lot.
Thank you.
No further questions at this time I would like to turn the floor back over to Mr. Tony.
Glenn for closing comments.
Thank you thanks to everyone for your interest and all the great questions and.
To our employees are.
Shareholders old and new.
Grateful for your ongoing support we find ourselves in a dynamic dynamic time with Philly.
Significant growth.
Behind us and significant growth ahead of US we're very excited about the future here and look forward to sharing more with you about that next quarter.
Until then we will see you later thank you.
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