Modine Manufacturing Company

Good morning, ladies and gentlemen, and welcome to the Modine Manufacturing Company's second quarter fiscal 2023 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms.

Kathy Power, Vice President, Treasurer, and Investor Relations.

Good morning, and thank you for joining our conference call to discuss Modine's second quarter fiscal 2023 results. I'm joined on this call by Neil Brinker, our President and Chief Executive Officer, and Nick Luccarelli, our Executive Vice President and Chief Financial Officer. We'll be using slides for today's presentation, which can be accessed either through the webcast link or by accessing the PDF file posted on the investor relations section of our website, modine.com. On slide three is our notice regarding forward-looking statements. This call will contain forward-looking statements as outlined in our earnings release as well as in our company's filings with the Securities and Exchange Commission. With that, I will turn the call over to Neal.

Thank you, Kathy, and good morning, everyone. I'm pleased to announce another strong quarter from both a financial and transformational perspective, with sales up over 20% from the prior year despite a negative FX impact. We have also had significant growth in our adjusted EBITDA and EBITDA margin, making further progress towards our targets. Mick will go through our financial results in more detail, but before that, I would like to provide an update on the progress that our segments are making towards the strategic objectives that we laid out during our investor day last June. You may recall that our transformation had three core work streams, focus the organization, perform and deliver, and accelerate profitable growth. Our segment presidents provided specific goals for each of those activities, and I'm very proud of the progress that our organization is making against each of those. Please turn to slide five. Our climate solutions segment had a great quarter. This slide shows the strategic objectives for the climate solutions segment, and we're making progress towards both our strategic and financial goals. First, the climate solutions team is deep into 80-20, and we are clearly seeing the results. In fact, we are driving 80-20 down to the business unit and plant level. For example, in our heat transfer products business, our 80-20 focus is on pricing for value and executing on new growth opportunities around the heat pump market. There are tremendous incentives in Europe for heat pump adoption, many of which fully offset the premium associated with this technology. We believe that shifting resources to supporting this market will drive growth for years to come. Our leadership team is firmly in place for this segment, and they are building a high-performance culture focused on profitability and growth. Our business segmentation process is complete, and we are refining the data and implementing daily management tools to provide early indicators that will allow us to better manage our inventory and backlog. As part of our transformational plan, we expect climate solutions to drive revenue growth over the next several years. The business has favorable market trends and delivered double-digit growth this past quarter with more to come. We are reallocating resources to these attractive businesses by creating additional capacity within our existing manufacturing footprint. For example, this past quarter, we had approximately 8 million of capex in climate solutions, which is outpacing the segment's typical spend. Additionally, Our commercial teams are focused on building raving fans, including customers, engineering consultants, distributors, and sales reps. There are many factors to winning in these markets, and our products have advantages that are allowing us to gain market share. First, in the data center world, having a global footprint is key to reducing carbon miles, which is very important to many customers. In other areas, we are winning on lead time, such as in our heating and our indoor air quality businesses. where we are ahead of our competition and plan to stay there. In addition, our focus on product line simplification is allowing us to increase our speed to market by reducing complexity and new sale engineering time. Based on the activities and results, you can see that Climate Solutions is rapidly moving through the first two phases of our transformation, which are focus and perform. They have now earned the right to start focusing on the third element, which is accelerating profitable growth. As part of the strategy to accelerate growth, Climate Solutions is providing full solutions to customers and is expanding geographically by bringing existing solutions to new markets. This is especially true in our data center business, where we are not only bringing chillers to the North America market, but we are now also able to provide full system solutions in both North America and Europe. You may have seen our press release last week where we announced that we shipped our first chillers from our new production facility in Rockbridge, Virginia. as part of a sizable order from CoreScale announced in July. This is a very exciting milestone for the team, which includes members from our Airedale operations in the UK and from our neighboring plant in Buena Vista. With chillers on board, we now have a complete data center product line, including computer room air handlers and fan walls to support both co-location and data center operations. So to wrap up on the climate solutions discussion, This segment is executing on its strategic objectives and has earned the right to grow. We are actively building our acquisition pipeline, identifying actionable targets in several areas. We are looking at everything from small bolt-ons to opportunities that would move the needle across multiple groups. I'm very proud of this team. Not only are they demonstrating our purpose of engineering a cleaner and healthier world, but are ahead of schedule for both revenue and earnings growth. Please turn to slide six. As I mentioned last quarter, In performance technologies, we are focusing on the phased rollout of 80-20. Whereas climate solutions is far along in the journey, the PT business is just getting started. To be clear, this was a planned, phased approach. Implementing 80-20 requires a lot of organizational change, and each segment required our undivided attention and focus. We elected to start with climate solutions given the clear, sizable, and immediate growth opportunities while preparing performance technologies for the journey. This slide shows the strategic objectives for PT segment that were introduced in June. As I mentioned, we are early in our journey, so we are mostly working on the focus of the organization activities. As a reminder, our strategic transformation includes sizable margin improvements in performance technologies. We are focused on improving margins over revenue growth and are anticipating a significant change in business mix over the next several years. This means exiting unprofitable legacy businesses, while rapidly growing the very attractive EV business. We have completed the market segmentation for PT and have those senior leaders in place. With that being behind us, we have begun training the workforce across the organization in a similar manner to what we did for the CS segment last year. This has included numerous in-person events with our leaders that are helping the local teams understand how 8020 can help reduce complexity and reallocate resources. Meanwhile, Our team continues to onboard new, experienced leaders in key roles who are helping to fundamentally change the culture within the segment. This is a large, complex business with considerable legacy challenges that we are actively addressing. For example, we have long-term contracts in this business that allow us to pass along material cost increases, but do not allow price increases for other rising costs, such as utilities, fabrication, and labor. Our team is taking unprecedented actions by successfully negotiating improved commercial terms outside of our standard contractual metals pass-throughs. This is having a positive impact on our margins, but it's not enough, as we continue to deal with rising costs. This requires a renewed focus on materials, productivity, and plant performance. There is still a tremendous opportunity for improvement in the business, and our PT team is rising to the challenge. All this work is laying the foundation and driving towards our goal of simplifying and segmenting the business so that we can focus on our most important priorities. We're also beginning to start some of the activities under the perform and deliver category as well. The first of these is product simplification and exit strategies, which include de-emphasizing non-profitable or end-of-life business. In other words, deciding what we stop doing. In our air-cooled business, we are pursuing last-time buys on certain products in order to simplify our product portfolio And in our liquid-cooled business, we are improving our quotation process to improve commercial terms and reduce capital requirements. And finally, I want to give an update on our advanced solutions business, which includes our EV systems and components business. We continue to allocate resources to this business as the team focuses on new product development and commercial excellence to capture value in their key markets. We recently announced an initial order from Shift for their BlueArc all-electric delivery vehicle. We're providing an integrated system for battery thermal management, power electronics cooling, and passenger comfort. We now have 18 production orders with bus, specialty vehicle, and commercial vehicle customers, representing peak revenue of over $90 million. This is only scratching the surface of our potential in the EV space, and we plan to become a much larger player here as we execute our strategy. To summarize our efforts, we're moving at breakneck speed, just as you would expect from a startup. Our teams are exploring new market opportunities and working on the next generation of products, all while using their thermal expertise to develop prototypes that we expect will lead to additional production orders. The limiting factor in this business isn't necessarily the rate of EVs option, but rather the ability to produce. We have seen some delays in orders and start of production, mainly due to supply chain challenges. Despite this, orders remain strong, and I'm confident that EV can become a substantial high margin business for us in the future. I'm proud of how this organization is approaching its challenges head on and will continue to report on the progress. Now, I would like to turn the call over to Mick, who will review our results for the quarter and provide segment financial updates.

Thanks, Neil, and good morning, everyone. Please turn to slide seven to review the segment results. Climate Solutions had another exceptional quarter with solid revenue growth and excellent earnings improvement. Revenue was up 18% over the prior year. and up 25% on a constant currency basis. Data center sales were up 81%, or 14 million, on strong demand from both hyperscale and colocation markets. HVAC and R sales were up 11%, or 9 million, with seasonal sales in heating and growth in school products Sales of heat transfer products increased nearly 16 million or 13% from the prior year. There was broad strength across the North American markets and we benefited from European heat pump growth. We estimate that the underlying volume excluding pricing was up 18% from the prior year. Adjusted EBITDA increased 93% with a 15% margin. which is up 580 basis points from the prior year. The earnings and margin improvements were primarily driven by higher sales volume and commercial pricing initiatives. SG&A was higher than the prior year, mainly due to wage inflation and higher sales commissions, but declined 50 basis points as a percentage of sales. As Neil discussed, Climate Solutions is progressing well on the 80-20 journey. Over the last two quarters, the average year-over-year margin improvement has exceeded 500 basis points. Please turn to slide 8. Performance Technologies also had a good quarter, with sales up 22% or $59 million. Revenue was up 29% on a constant currency basis, benefiting from growth in all product groups, commercial pricing, and metals pass-throughs. We estimate that the underlying volume excluding pricing was up 22%. Within the segment, advanced solution sales were up 21% or 6 million with growth in our electric vehicle product sales. Liquid cool product sales increased 23% or 22 million due to a strong rebound in the automotive market. Lastly, Air-cooled product sales increased 24%, or $33 million, primarily due to strong demand in the off-highway and commercial vehicle markets. Adjusted EBITDA increased 88%, resulting in a 7.4% margin and a 260 basis point improvement from the prior year. As anticipated, the impact of material cost increases on earnings was lower this quarter, We are expecting to see positive net materials in the second half of the year based on current metals projections. As Neil mentioned, the performance technology segment is relatively early in the 80-20 journey. As we work further to segment the business, we expect margin improvements to accelerate towards our targets. Now let's review the total company results. Please turn to slide 9. First quarter sales were up 21% or 100 million, driven by strong gains in both climate solutions and performance technologies. Revenue was up 28%, excluding a negative FX impact of 36 million. In the quarter, the main revenue driver was higher volume of approximately 100 million, resulting in a volume growth rate of 21%. The balance of revenue growth was comprised of material recovery, and commercial pricing partially offset by negative foreign exchange. During the quarter, materials increased $15 million from the prior year. We were able to more than offset this increase through our various pricing mechanisms. SG&A increased $7 million from the prior year, yet declined 70 basis points as a percentage of sales, primarily due to higher employee compensation-related expenses and sales commissions. I'm pleased to report that adjusted EBITDA increased 73% or 22 million. This represents a 260 basis point improvement and the third consecutive quarter of year over year margin improvement. Adjusted earnings per share of 48 cents was 33 cents above the prior year. Before moving on, I'd like to point out that we had a few very small earnings adjustments in Q2 totaling 900,000. This was comprised of $600,000 for restructuring expenses and $300,000 for environmental costs. Now moving to the cash flow metrics, please turn to slide 10. We generated $29 million of positive free cash flow in the second quarter, which was a nice improvement from our first quarter. This puts our year-to-date free cash flow at $33 million. The year-to-date cash flow includes 10 million of cash payments primarily for restructuring activities, including the European headcount reductions announced last year. Earnings growth and improved working capital have been the key to our cash flow generation during the first half of the year. We expect positive free cash flow in the second half of the year, including approximately 9 million of anticipated cash restructuring payments, mostly tied to our European restructuring activities. I'd like to highlight that Modine's Board of Directors recently renewed our two-year $50 million share repurchase authorization. During the quarter, we repurchased 100,000 shares and plan to repurchase a similar level per quarter over the balance of the year. As a reminder, our program is currently focused on offsetting the dilutive impact of our share-based incentive compensation program. Net debt of $301 million was $32 million lower than the prior fiscal year end. Our cash balance was $70 million as of September 30th. And we finished the quarter with a leverage ratio of 1.7, which is within our targeted range and improved from the prior quarter. Now let's turn to slide 11 for our fiscal 23 outlook. We're holding our outlook for fiscal 23 revenue growth at 6 to 12%, despite ongoing foreign exchange headwinds. We are currently forecasting more than a 100 million negative impact on sales due to the stronger US dollar. After a stronger than expected first half, we now anticipate that adjusted EBITDA will be in a range of 190 million to 200 million. This represents an increase of 20% to 26% versus the prior year. This is also an improvement from our previous range of $180 to $195 million. We expect Q3 EBITDA will remain strong and be in a similar range to Q2, then improving sequentially in Q4. As we just reviewed, Q2 was extremely strong. In Q3, we enter the favorable heating season. but also need to factor in the traditional holiday shutdowns. And in Q4, we anticipate a further ramp up in volume, combined with additional pricing adjustments with the new calendar year. We remain quite positive regarding our full year outlook, but we also realize there's a lot of global economic uncertainty. We're balancing the positive signals from strong orders and backlogs against the risks associated with a potential recession in Europe or the U.S. We'll continue to evaluate and adjust each quarter. To wrap up, we're very pleased with the second quarter results as our business leaders are executing on planned improvements. We're on track with our transformation targets presented in June. Climate Solutions is somewhat ahead of the pace. We're very encouraged by the revenue and margin outlook for this segment. In addition, performance technologies has begun the 80-20 journey. As demonstrated by climate solutions, we believe that performance technologies can generate similar levels of improvement as 80-20 matures. Combined, the two segments will continue to drive top-line growth and additional margin improvements in the future. With that, Neil and I will be happy to take your questions.

If you have a question at this time, please press star then the number one on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press star one. Our first question comes from the line of Matt Somerville with DA Davidson.

Your line is open.

Thanks. A couple questions. Maybe let's start with the data center business. On the slide, It looks like you've raised your outlook, I think, from plus 40 to 50 to plus 50 to 60. Obviously, you're up 80 here in the quarter, so a very strong start to the year. I want to speak a little bit more towards something referenced in the press release you put out the other day talking about the initial North American shipments. In reference to the $100 million target, it was basically communicated there for the North American data center business, to my recollection, last year. that would have been pretty minimal in terms of revenue contributions. So what kind of line of sight do you have in that business, kind of multi-year outlook? What's the backlog look like, incoming orders? Could you put some finer points around what you're seeing in the data center side things?

Hey, Matt, great to hear from you. This is Neil. Sure, absolutely. We're seeing the growth through our geographic expansion. So if we think about it, last year we didn't have a product set or a product line, particularly chillers, that could serve the North America market. And with our press release that came out that was specific to Rockbridge, that was the chiller expansion where we expect to see the capacity that we put in generate revenues similar to what you just described. So this would be incremental in addition to the traditional data center revenues that Modena has produced in the past.

If you think about pivoting over to one of your other high-growth areas, EV battery thermal management systems, you mentioned cumulatively you have 18 platform wins. Roll forward 12 months from now, what could that number look like? And out of the 18, when you aggregate the 18, what's the file value associated with that, if you will, annual revenue book associated with that?

Yeah, no, that's a really good question. Thanks, Matt. It's Neil again. You know, we're engaged on 101 different systems to date. If we go back to, we'll go back, say, a year plus ago, that was almost in the single-digit range. We're on prototypes of 56, which is up two from June. And then we have the award wins of 18, which is two more than when we spoke last in June. We go back, you know, a year and a half ago, those numbers, again, were single digits. With the 18 awarded wins, that's roughly $90 million that we see in terms of the run rate. The good news here on this bit where the EV team has been focused on is when we talked about the 16 wins that we had last year, or this year, we talk about specialty vehicles and buses. These two incremental wins are on the last mile delivery vehicle OEM fleets. So we're also looking at not only EV and specialty vehicle, but we've made a pivot with some of our battery thermal management, passenger thermal management, electronics cooling packages that can serve in the last mile as well as we see that as an opportunity. At the same time, you saw a press release in regards to shift as we spoke about those wins.

Sure. And then maybe one more. When you think about kind of where you're at with 80-20, In the performance side of the business, if you had to handicap it today, how much revenue do you think we could be looking at? Or if you can frame it up in terms of product line simplification, however you want to term it, how much do you think gets moved out the door, if you will, over the next year or two? How much revenue do you need to deliberately exit? And in doing so, Just that action alone, how much would that improve profitability once you complete that iteration of 80-20?

Thank you. No, great question, Matt. We're thinking about it the same way. As we mentioned, we're really in the early stages of 80-20 and climate solutions, and we've just structured the team in a way to stand up market verticals around our air, liquid, and EV business in order to get to those answers. They're working through the quads in terms of how they look at the products and customers. They're looking at profitability. And we've just set this up with a new general manager that we just hired as well to come up with these types of conclusions. So right now there's a hypothesis. We have some assumptions. We need to vet those assumptions and the hypothesis to determine exactly what those numbers look like. You're thinking about it the same way we're thinking about it. And just like we did in climate solutions, we'll work through the meticulous calculations so that we can come up with the right and proper range.

Got it. Thanks, Neil.

Again, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your next question is from Steve Farazani with Siddhoti. Your line is open.

Morning, everyone. Appreciate all the color on the call. Impressive margin improvement in PT, despite you're at the early stages of 80-20. Can you give a sense of how much more of a contribution that can be this year? I know you're in the early stages, and just how sustainable those margins are in PT, knowing that you're seeing slowdowns from the European economies higher energy costs and also likely that light vehicle production, at least in Europe, probably doesn't grow quite so substantially given some of these headwinds. Hey, Steve, great question.

This is Neil. I'll start with some of the high-level details of what we're working on in performance technologies, and then I'll let Mick respond. You know, it's a really good question because you're right. There are some headwinds. We see some of that, but at the same time, we see opportunities within the business. First and foremost is around complexity reduction. As a team looks at its product line simplification and how we can do and be more efficient with the products and then the plants that we work in. We also see an opportunity within plant productivity and materials. That's going to be a major focus for the performance technologies team. The team is really excited about 80-20. The team has a lot of energy around this because they saw the impact in climate solutions, and they're ready to adopt it and embrace it. And then there's a lot of great commercial excellence programs that are working on in performance technologies that I suspect will start to see some impact in the coming quarters. Commercial excellence around pricing, surcharge, minimum order quantities, non-recurring engineering. They're really smart, this team, in terms of how they're thinking about commercializing existing products and future products. Nick?

Yeah, Steve, I'd just add, you know, we laid out at our analyst today that the objective here by the end of fiscal 24 over that two-year period was to get this business to cross the double-digit margin standpoint. And so We've seen good improvement from Q1 to Q2, and then we would expect based on all the activities Neil laid out, and the next thing about that is a lot of 80-20 is, you know, our control versus the economic environment out there. So to your question, I think we continue to anticipate further margin improvements in Q3 and then a further lift in Q4. on our track to getting this business to get into a double-digit range.

That's helpful. Beyond data centers, a couple of the areas you highlighted, and I want to see if you can quantify them a bit and also ask about the tailwinds. Obviously, you've benefited from the older school retrofits, trying to get a sense of how much longer that tailwind could be. And then if you can quantify in dollar terms what you're seeing from the European heat pump market.

Yeah, good question. So relative to the CARES Act or the ESSER Act in North America and the funding that's in place for schools, we know that there's at a minimum three years' worth of funding that will be deployed across the 125,000 K-12s that are in the United States. It's a matter of the ability to install and at the rate that they can install during the off seasons, which is the summer seasons, when the schools are not in operation. I suspect, Steve, that that's going to go beyond three years because the installations will not be able to keep up with the pace of demand, especially as schools and school boards and teachers unions and PTOs really think hard about infrastructure spend and how to improve the indoor air quality within the schools and classrooms. So I think that's a tailwind that's in place for several years. In terms of the heat pump market in Europe, we just recently broke ground on an expansion in Serbia. We're preparing and we're ramping for that. We're deploying some more CapEx and more machinery and equipment so that we can keep up with that demand, and we expect to see that demand over the next two to three years.

Great. So I guess that leads right into my next question, which is, CapEx priorities, given that Virginia is now open, it sounds like now Serbia is something on the heat pump. How are you thinking about CapEx priorities moving forward? And if I can group that in with your leverage ratio now looks like you're going to be below what your old targets were and how you're prioritizing capital allocation as leverage is clearly, you know, at a very strong rate level and getting better.

Yeah, thanks, Steve. We're really happy with the leverage ratio, as you pointed out, for others. We've talked for several years about trying to keep the company through a cycle between 1.5 to 1.5 times, depending on acquisition pipelines, the economic environment, and getting to 1.7 this quarter is really happy with that. Going forward, we continue to expect that to decline. And part of that is it's good to go into any kind of economic uncertainty with that strong balance sheet. But equally so, we talked about really ramping up our acquisition pipeline. So we're trying to ensure we have the balance sheet ready for any kind of economic event. And certainly more important, I think, is strategically to support the acquisition funnel in our growth verticals. And then you're right then just on the short run, even in the quarter out of 12 million to CapEx, we spent at least 8 million in the quarter on our climate solution side. So as Neil laid out, priorities to continue to expand data center production to ensure we have adequate capacity for the rapid order book intake. And then the other probably CapEx, you know, or PP and E1 is Serbia, as Neil mentioned, to support then growth off the European heat pump market.

Great. Thanks, everyone. Appreciate the call. Your next question is from the line of Matt Somerville with DA Davidson. Your line is open.

Yeah, thanks. It's a couple of follow-ups. Nick, can you talk about how we should be thinking about the cost savings realization associated with the European restructuring? I know you're targeting about $20 million. How should we think about that fiscal 23 versus what lands in fiscal 24? And can you remind what the cash cost of that program is?

Yeah.

So we estimated that we'd get approximately half of the savings this year. Matt, and a little bit more heavily weighted in the second half than the front. And then the other, say, half or $10 million next year, so we'll get the full amount. We had originally estimated that the cost would be about $20 to $25 million. And we're still finalizing the program, but I'm happy to say we're running clearly at the low end of that. and an opportunity they might be able to do slightly better than what we had thought.

And then how should we be thinking about total CapEx for this year and if you have a preliminary view on next? And then similarly, how we should be thinking about free cash conversion this year and next, bearing in mind the CapEx aspect of things as well as the cash cost with this program?

Yeah, from a cap-back standpoint, we're still looking in the $60 to $70 million range for the year. We haven't spent in the first half at that rate, but we have some heavier spending on the areas we just talked about in the second half. It's about $60 to $70 million this year, Matt. From a conversion, probably the easiest way we think about it, especially externally, is This year, looking at free cash flow to a sales margin or a conversion, about 2.5% to 3%, and then improving further next year. When we laid out our transformation strategy, we wanted to be within the 24-month window, 3% to 5% of sales, and then from three years on, obviously push above that range.

So I hope that addresses your question. Yeah.

And then M&A, I guess you guys must feel good about the climate business to start talking about M&A. I would have been under the impression maybe coming out of last quarter that we were maybe still at least six, if not 12 months off before we'd start to have or before you start to have the discussion with us like you're having today. Maybe talk about, Neil, what gets you comfortable to start thinking about M&A now as it pertains to that business. You mentioned you're looking at opportunities in a couple of areas, maybe a couple of technology areas. Maybe speak to that in a little more detail, and then I'd be curious as to how you're feeling about the maturity of the funnel and what kind of the high end of deal size you might be willing to look at for that business.

Yeah, all good questions, Matt. And you're right. We are thinking about it in terms of climate solutions. You know, we have each one of the market verticals inside of climate solutions that are segmented internally a little bit differently in terms of hyper growth or growth, or we want to maintain existing size and EBITDA dollars. So there's specific markets inside of climate solutions that we're more aggressive with in terms of how we're thinking about filling the funnel with M&A activity. And when we focus on those areas, or the ones we often talk about, we look at not only how to gain share in that space, but also adjacencies and technologies or channel that would complement what we do today. One or two degrees adjacent space is how we think about that orbit. We have worked pretty hard to build out a business development team. So, you know, we've put some new individuals. Actually, a press release came out this past quarter in terms of Paul Florida, who we just brought in to drive business development and generate and create this funnel with the support of our GMs. So I feel much more comfortable than, say, a year ago, where we have GMs that are in the spaces that have been identified for inorganic growth and that they're building out targets and they're cultivating relationships based on their status in terms of, where we want them to spend time on M&A activity. And then we also are now creating at the corporate office a business development engine to where we can execute on the process once you get through cultivation and you get into, say, the stages of diligence. So we're a lot further along than we were because our GMs are now in place for over a year and they can set the strategies, they know their markets. We're building out the support and infrastructure at the corporate level. And, you know, we've accelerated the earnings improvement in climate solutions that allows us to really focus on this and spend more time talking about it. As you know, you can never time these things, Matt. But to have the funnel and the net as wide as it is versus what we had last year, I feel much more comfortable where we're at today.

Yeah, Matt, I'd just add, you know, that's a size difference. You know, question, just to add in what Neil said, super hard to answer based on all those factors that I view it as, you know, our role and my role to sort of position the company. So the opportunities may come in smaller pieces, which we can't necessarily control. On the other hand, and, you know, we saw this years ago with Levada, we have the new bank facilities. We've got plenty of flexibility in our covenants. So, you know, I think the governor on side is our current bank agreements and covenant ratios there, but it gives us a lot of flexibility to do larger transactions. But ultimately, it all comes down to, you know, all the details based on this specific opportunity.

Got it. Thanks, Neil. Thanks, Nick. You got it.

I am showing no further questions at this time. I would now like to turn the conference back to Kathy Powers.

Thank you, and thanks to everyone on the call for joining us this morning. A replay will be available through our website in about two hours. We hope you all have a great day. Thanks.

Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.