Covanta Holding Corporation (CVA) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning, everyone, and welcome to the Covanta Holding Corporation’s First Quarter 2021 Financial Results Conference Call and Webcast. An archived webcast will be available two hours after the end of the conference call and can be accessed through the Investor Relations section of the Covanta website at www.covanta.com. The transcript will also be archived on the company's website. At this time, for opening remarks and introductions, I'd like to turn the call over to Dan Mannes, Covanta’s Vice President of Investor Relations. Please go ahead.
Dan Mannes: Thank you, Jason, and good morning, everyone. Welcome to Covanta's first quarter 2021 conference call. Joining me on the call today will be Mike Ranger, our President and CEO; Derek Veenhof, our COO; and Brad Helgeson, our CFO. On today's call, Mike will provide an update on the strategic review, Derek will discuss our operating performance and Brad will provide a more detailed financial update. Afterwards, we will take your questions.
Mike Ranger: Thanks, Dan. Good morning, everyone. Let me start with a strategic review. I noticed on your minds, and it has certainly been a major focus within the company in recent months. When we talked in February, I described the scope of our initial review, which aimed to identify each of the fundamental elements of our business, and assess how we could unlock value. We have now completed that initial review. And I'm even more confident that the underlying value is there. And that is substantial. Our plan is now in motion. While this strategic review has moved at full speed, our operating businesses have performed exceptionally well as you can see from our first quarter results. And this highlights another observation that I have that the business platform is very solid, which allows our strategic work to proceed with full focus and with confidence that our operations will continue to form at performance levels. In the past, we have provided a fair amount of information regarding matters that affect our results on the margins, each reporting period, specifically movements in energy and metals pricing. These factors are important to your understanding of business results, or commodity market driven our strategic review is focused more on the core of our businesses and what we can control to increase our profitability and enhance shareholder value.
Derek Veenhof: Thanks Mike. And good morning, everyone. I'll be referring to our investor presentation and we'll begin my comments on slide 4. We are off to an exceptional start in 2021. Despite the obvious obstacle of navigating an ongoing pandemic our employees performed at the highest level in the first quarter operating efficiently and providing superior service to our customers and our communities. From a waste market perspective we achieve solid growth with same store tip fee increasing by 4% on average across the fleet. Notwithstanding adverse winter weather conditions, residential waste volumes remain robust and our pricing continues to reflect the strength in our core disposal markets, where our position allows us to be very disciplined around re-contracting activity. Our contracting and portfolio mix, which is weighted to residential has helped support prices during the quarter and will pay further dividends throughout the year. As commercial volumes, including profile ways continue to build and normalize, we will have very good opportunities to realize further price growth despite our highly contracted profile. We are operating against the backdrop of limited and declining landfill capacity in our core markets as well as a growing demand for zero landfill options. At a macro level, we do not see these trends changing and we view capacity scarcity as a long term tailwind to our business that will support tip fee growth above inflation across the fleet for some time.
Brad Helgeson: Thanks, Derek. I'll begin my review of our financial results on slide 5. Total revenue for the quarter was $498 million, up $30 million from prior year, driven primarily by a 4% increase in waste to energy tip fees, a $10 million increase in market index prices for ferrous and non-ferrous metals, a $5 million increase in energy prices including electricity, capacity, and racks, and $7 million from new wholesale load serving contracts that we won last year. Other contributors to higher revenue included service fee escalation, sales growth in the environmental solutions business and higher realize metals prices relative to the underlying indices due to improved processing. These were partially offset by the greater amount of scheduled plant downtime in the quarter, which impacted waste, energy and metals production by $8 million compared to last year. Now moving on to slide 6. Adjusted EBITDA was $106 million in the quarter of $9 million over Q1, 2020. The $15 million increase in revenue from higher commodity market prices fell directly to the EBITDA line. In addition, we saw strong net organic growth and adjusted EBITDA across most of the business as revenue growth in tip fees, service fees, environmental solutions, and metals processing generated substantial operating leverage. To the negative higher planned maintenance schedule quarter resulted in a $14 million increase in maintenance expense, and a $6 million net impact from related planned outage downtime. As Mike discussed, we are revising our full year 2021 adjusted EBITDA guidance range to $460 million to $480 million, representing a $20 million increase in the midpoint and tightening of the range. Building from strong Q1 results our outlook has improved significantly relative to our original range. Execution of the Q1 and early Q2 outage plan has positioned the fleet for strong production for the balance of the year with increased visibility to plant uptime as much of the year's planned maintenance scope is now behind us. Metal prices and to a lesser extent energy prices have improved further from original guidance. I'll note that our forecast assumes a degree of mean reversion in metals prices over the coming months. So our outlook would continue moving higher to the extent that the current market holds all else being equal. We also expect to begin to realize some benefit from our announced overhead cost plan as we move through the year. Looking out over the next few years there are two key drivers that bridge to our outlook for 2024 that are under our control. As our UK projects come online and we execute on growth opportunities in Dublin, the UK and Ireland business will contribute $80 million to $90 million of new proportional adjusted EBITDA and approximately $50 million of incremental free cash flow. This will begin with the Rookery projects transitioning to full time commercial operations in less than a year, contributing approximately $25 million to adjusted EBITDA in 2022. The second driver for which we have clear visibility and control is our overhead rationalization plan which will target $30 million in run rate cost reductions as we exit 2022 with $15 million to $20 million to be implemented as we exit this year. As Mike described, we've developed a detailed plan to achieve these reductions. The plan is broad based and will address all areas of our overhead spend to varying degrees, with specific opportunities including reorganizing and consolidating certain corporate functions, improving business processes, better leveraging technology, and reducing spend as we've refocused priorities. From a cash perspective, there will be costs to implement the plan over the next two years, including severance and outside expertise. We'll get more specific on these onetime costs as we move forward. But in any event, they will be excluded from adjusted EBITDA. Between the UK and Ireland and the cost plan these two items comprise the substantial majority of the bridge. Beyond that, we will continue to grow our core business organically, most notably through waste prices and expanding sales and environmental solutions. In addition, as cash flow grows, and we de-lever the balance sheet, the cumulative effect of capital allocated to reinvest in growth and/or reduce interest expense will increasingly become a driver as well. Commodities will remain a variable around our underlying growth trajectory. The 2024 outlook assumes energy prices at today's market forward curves and metals prices at approximately 10 year averages which would effectively represent a modest pullback from where we are this year. None of this reflects any potential transactions coming out of the strategic review. If for example, we choose to sell a particular part of the business it would obviously impact this outlook, we would do so in order to advance our overall objective of fully recognizing the component values of the company and growing shareholder value. The key takeaway here is that the baseline outlook for the company as currently constituted is already highly compelling. Now please turn to slide 7. Free cash flow is $19 billion in the quarter essentially flat compared to the first quarter of 2020. However, excluding movements and working capital, where we saw a strong inflow last year, free cash increased by $14 million driven by higher adjusted EBITDA and lower maintenance CapEx. We're also revising our full year 2021 guidance for free cash flow $225 million $255 million, representing a $20 million increases the midpoint and tightening of the range in line with the increase in adjusted EBITDA guidance, as the drivers of both metrics are largely the same. Now please turn to slide 8, where I'll touch on capital allocation. As I discussed last quarter, we remain well positioned to generate free cash flow in excess of our planned growth capital spend in dividends with the excess available to reduce debt. As our outlook for growth investment this year remains unchanged our revised expectation for free cash generation will increase the amount of excess cash available to allocate to debt reduction this year, all else being equal. Now, please turn to slide 9, where I will conclude our prepared remarks with a brief update on the balance sheet. At March 31, net debt was approximately $2.5 billion a $21 million increase from year end 2020. Our total leverage ratio was 6.1 times and the senior credit facility covenant ratio was two times. Available liquidity under our revolving credit facility was $422 million at quarter end. As Mike noted, we expect our leverage ratio to fall below six times this year and below five times by year end 2022 both without any potential further actions in connection with a strategic review that might accelerate this improvement. With that operator, we'd like to move on to Q&A.
Operator: We will now begin the question and answer session. Our first question comes from Noah Kaye from Oppenheimer. Please go ahead.
Noah Kaye: Good morning. Thanks for taking the questions and for all the color on the strategic review, and the very helpful walk on the UK projects. Mike, the 18 waste energy operated sites, once you're operating for the public, it sounds like that's going to go down. But I wonder if we could sort of level set here be helpful to have some color. Can you help us understand what the actual contribution of that line of businesses to the profitability of the company today and then, as you think about some of the actions that could be taken over the next couple of years what can be done to increase that profitability and by how much?
Mike Ranger: Sure. On a baseline basis, if you think about it, there's $110 million of plant level gross profit from the 18 plants in North America. If you took a pro rata share of overhead against that, there's about $50 million of overhead expense and then there's about $35 million to $40 million of plant level CapEx that is recorded. So those are all within $5 million or so of refinement. So you can see that there's probably $40 million of recorded EBITDA and there's probably $15 million of free cash flow on a net basis. So if you just, if you put that through a filter, that's what would come out and what would improve that would be reduce our obligations or responsibility for actual CapEx at facilities. That would be a first line of improvement that we are negotiating for which Derek and his team is on point. The other would be to change base fees for the services that we provide. We have been negatively impacted by low inflation which are the basis for our escalators over time which may not be in line with what our increased costs have been. So it really comes down to we want each individual facilities to be able to stand on its own two feet from a contractual perspective so that each is positively contributing incrementally to the overall value of the company. We have, as you know, expiration dates coming up now over the next five to seven years that affect about 35% of our portfolio to 40%. And we're going to make sure that each plant in our determination about whether or not to let the contract expire, or extend would be based upon that level set of profitability from both and EBITDA fully loaded basis with overhead included plus contribution to free cash flow and if those hurdles aren't met, then expiration would be the logical conclusion. So that's the framework in which we're operating as Derek is negotiating with those public sector clients.
Noah Kaye: That's extremely helpful. Next question, again, appreciate the walk on the growth in the EU portfolio, can you just give us a little bit of color on how you plan to boost the profitability of Dublin because I see that taking a step up in the coming years?
Mike Ranger: So let me just, there's a permitting process is presently going on right now to expand the throughput of that plant. It was designed to handle about 10% to 15% more throughput than what the original permit calls for. And so we're going to try to capture that because it should logically be that for very little increased incremental costs that the throughput which there is demand for in that marketplace could be pushed through with the permit increase without any other meaningful expenses associated with it. So that's in the process of working its way through that the legal requirements to expand that permit 60 million tons a year.
Noah Kaye: That's very helpful. And I guess was the last one. And I think just kind of echoing a little bit what Brad said at the end here, but if you execute to this outlook from the deleveraging perspective, you don't necessarily really need to do anything in terms of asset divestiture so and obviously, this cost reduction program is helping enable that. I just wonder if you kind of benchmark your thinking now to where you were at when you started this review Mike. Do you feel any sort of less urgency now to divest certain assets, just given the improved outlook? And can you talk a little bit about, I would say, the interest levels that you're seeing for some of the assets out there in the market at this point?
Mike Ranger: Yes. That's a pretty clear question. So I'll answer the first part and let Brad address the leverage question. Our view has always been that the hurdle for an asset sale determination had to be based upon that the execution of that would result in an uplift in the overall consolidated value of the remaining company. And so, a near term objective of reducing leverage is one component in that mix because you'd be eliminating certain interest expense and you'd be gaining greater flexibility but in the end, you weren't able to capture the uplift in the contribution from the value of the sale, and the reduction of the cost of the leverage in the overall valuation of that sale relative to the overall company then you wouldn't do it. That's not, that objective isn't worth I mean, the way I think about it is, you don't take the shingles off the house, and burn them in the fireplace to keep the house warm. So that it can't be short sighted, and it can solve a near term problem. And I don't think that the problem of our leverage is acute enough to have to take actions like that. So that's how we've approached this and there's a fair amount of interest in the discrete assets of the company and we need to fashion that against what the value indications are and what the contribution then is to the resultant overall consolidated remaining entity.
Brad Helgeson: Yes in terms of, Brad here, in terms of the leverage following on Mike's comment, and we've always said this that we have a view on what is all things considered probably the right level of leverage for us to work towards over time and that's never been a function of any immediate discreet pressure from a Covenant perspective or ratings or any other, near term driver. I think the takeaway and it sounds like you're taking the right message away is the underlying business plan is going to give us some really nice optionality over the next few years. I think we have pretty clear visibility to at least through 2022 getting leverage down below five times that's sort of step one. And then, as we continue to move lower over time, the speed at which we do it will be a function of what the other alternatives are in front of us at the time for allocating capital. But the takeaway is and Mike mentioned in his prepared remarks, our outlook has us generating cumulatively about $800 million of free cash. If you take away the dividend at its current rate, and our planned investments in the UK, that's $400 million to $500 million of excess cash that we can either deploy to accelerate deleveraging, or potentially deploy in another way to generate a higher return on capital, all of which would be along that long term path towards four times.
Noah Kaye: Great, thank you so much.
Operator: The next question comes from Michael Hoffman from Stifel. Please go ahead.
Michael Hoffman: Thank you for taking my question. Two points I want to sort of get at the long term view are you've shared some insights on incremental EBITDA contributions. So I'd like to come back to that but if I take the 600 million and the 250 can you give us some high level basic assumptions that are there like are you, is it the existing business and anything you do around improvements or is it chunk? What are the pieces, because let me give you some math on done quickly. In midpoint your guidance for 70 this year if I pulled out 20 million for metals upsides because they normalized so called one 450 I get a 105 between cost savings and UK, Ireland. That puts me in a force call it a 545 and then I just need organic growth off the domestic portfolio to make up the difference that portfolio to make up the difference. But that's a path. And you do the similar thing to cash. So what's in your assumptions?
Brad Helgeson: Yes. Michael, it's Brad. Let me kind of walk through the same bridge and maybe adjust the numbers a little bit and kind of get to it a different way. So your midpoint of guidance for this year is on EBITDA is 470, we talked about UK and Dublin, obviously, primarily UK projects, moving into operations that's 80 to 90, and then 30 million from the cost plan. And then, what that then leaves us with just to get to 600 and certainly our plan and our expectation, all else being equal would be that we would exceed 600 is 15 million of organic growth. What's implied in this is at least for metals prices a bit of a headwind from a mean reversion to the 10 year average on metals prices. So that's another the you said 20. By my math, it's 10 million to 15 million of EBITDA. So that would then imply an organic growth piece just to get to 600 of about 25 million, 25 million -30 million which is a 2% CAGR. So in my mind, that's kind of the high level of the bridge components. Then the bridge for free cash, essentially works the same way with the added CAGR that as we deliver the balance sheet we're going to reduce our interest expense.
Michael Hoffman: And underlying all that is it's the existing portfolio as that is currently here. So you haven't walked away from any of the teams or sold anything. It's everything you own today is all part of that assumption?
Brad Helgeson: Generally. So to put a finer point on that, and without getting into specifics, because it's not appropriate at this point for us to do so. There is an implicit assumption in there that we will be exiting certain of our operations over this timeframe. But as you can probably tell because I didn't noted in the bridge we don't expect that to frankly have a material impact on EBITDA and cash flow particularly when you factor in additional overhead reductions that would come in connection with that. But it certainly doesn't assume anything materially from a transaction standpoint from the strategic review whether it be a sale or an acquisition.
Michael Hoffman: Terrific. So my second question and I have to ask it since you crack the door open if we have 40 million of EBITDA from the 18 service fee, would you share with the EBITDA breakdown is for the 21 own electricity and metals to get to the 470?
Mike Ranger: Well, it's everything other than, what the $20 million in EBITDA is from an environmental solutions and then the contribution from Dublin presently otherwise it's everything else comes directly from those 21 plants.
Brad Helgeson: Yes. Net of the remaining overhead.
Michael Hoffman: Okay. Alright.
Brad Helgeson: I mean, just to put a pin on it that's $400 million of generation of net EBITDA from that portfolio.
Michael Hoffman: From the 21 just that's the way to think about it. And it's the right way sometimes people try to disaggregate electricity and metals, but they all they're all interrelated because the plants have to be operating period. So you got to generate a waste fee, you get electricity from it to produce metals, it's all integrated. And that's 400 million on 21?
Mike Ranger: That's right. Correct.
Michael Hoffman: All right. Terrific. Thank you for a lot of clarity. The transparency helps. So appreciate that you gave it.
Operator: The next question comes from Mario Cortellacci from Jefferies. Please go ahead.
Mario Cortellacci: Hi, thanks for the time. I just want to touch on the negotiation process that you guys have underway and just, I guess I wanted to understand how those conversations are going and I think is there any potential or how much potential is there for some of those contract negotiations to be expedited? I feel like, obviously, you already have a few in mind for some that you're already going to close and the ones that you still have hope for you have to wait for those contracts to come up for expiration or be closer. Can you go to them today and how much leverage do you have over them to be able to get what you want in a good timeline?
Derek Veenhof: Hi, Mario this is Derek. I'll attempt to answer your question as best as I can. So in terms of where are we in the negotiation we are in negotiation with several of these clients today. We have been in dialogue with all of them obviously through this strategic review process and keeping them abreast as appropriate. So we are in dialogue. We feel pretty good about the clients we are in dialogue with at this point in time in terms of their understanding of where we need to go as a company and why we need to change these service agreements. So I think generally speaking there can be a pretty good outcome for both our clients or our clients and Covanta. There are wins within that negotiation. And then, on the other side there are going to be some that may not be successful and as already pointed out by Brad and Mike that the contribution around some of those contracts hasn't been great and we're just going to exit at that point in time. So be it in terms of leverage we don't really look at it that way. I suppose it's appropriate. But these clients have been with us a long time. We respect that and this has always been about trying to formulate win wins and move the business forward. So productive conversations each side has its own degree of leverage. Each side uses that as we go about. So I expect over the next few years we're going to have a very clear picture of what remains in terms of our client business.
Mike Ranger: And just to follow up on that one thing one question you did ask that Derek didn't address, but as part of the overall thought process is one of the levers is in exchange for extending the contract into a timeframe where this doesn't have to be front of mind constantly for the client is to address ones that are not at their expiration yet, but you can find a longer dated relationship that works for both sides. So Derek has already started down that path. There's the near term and the midterm at this juncture and then some longer term ones that he's also looking at but it's clearly to come up with a more sustainable relationship with the clients for a longest period of time possible.
Mario Cortellacci: Great, thank you. And then just one follow up and I think you've already talked about this in the past. And I think you've kind of made it clear that you're not really interested in collections and doing deals and I know you have a strategic review going on. And that's not really in the cards right now. But maybe you can help us understand why buying collection businesses even longer term just doesn't make sense for Covanta or in the coming years as you de-lever could there be a philosophy change and maybe you go and do deals like that?
Derek Veenhof: Mario, you're back to Derek again. So historically we've not been in that space. And with the distribution of our assets and their locations we've never really had a fundamental problem of sourcing waste into the plants. And I suppose if we did have a problem that would be a route that we could re revisit and look at and see if it was a creative to our model. That hasn't been the case today. We are focused on the intermediate hubs, transfer stations, and the security of long term deals with large municipalities as provided us plenty of coverage. The second aspect to that is there are other people in the collections business and that's quite obvious. And they're quite skilled at what they do. We respect that. We view ourselves as an independent player in the marketplace for disposal and it would be very difficult for us to catch up to their levels of sophistication on collection. Let's put your money where you're really good at.
Brad Helgeson: And just adding on to that it's Brad, I mean, there are two reasons for stepping back, there are two reasons why we would consider vertically integrating. One would be to address an issue and around waste supply and that's an issue we don't have and I've never seen the need, given our other infrastructure and our contractual profile and market position. We've never seen the need to go down that road in order to address an issue on waste supply. The other reason would be is there an opportunity to leverage our disposal assets in certain markets to grow the company in that direction. As Derek said that is a very competitive market with competitors who already do a very good job. That would be an entirely new business for us. And then also, it's been a matter of capital allocation. Certainly we've had other priorities including most notably building the business in the UK and Ireland and the environmental solutions business as well. We've had other priorities for our capital beyond getting into what is a competitive business.
Mike Ranger: And just one last piece on that is, when you think about this question was asked by another analyst is when you think about the value of the company owned plants and their locations to have a mix of and the plants are always full, they're always managed for profitability on the margins in terms of finding the highest value waste available beyond the long term contractual ones. Being agnostic in a market like that is got to be helpful because then municipalities vertically integrated waste companies view you as a partner, and a resource as opposed to a competitor. And I think we do benefit from that.
Mario Cortellacci: Thank you so much.
Operator: The next question comes from Brian Lee from Goldman Sachs. Please go ahead.
Brian Lee: Hi guys, good morning. Thanks for taking the questions. So I think you kind of answered this, but just to be specific on the asset sales and shutting down of select assets and some of the renegotiations; are these actions we should see more clarity around moving through the next several quarters in 2021? I know it sounds like it's going to be a multiyear effort. But just how are you thinking about the timeline? Are we going to see some updates around that? And then, if you kind of force rank the priority and timing potential of each set of these actions I suppose it's going to be assets specific, but just in general, what's easier to get done? Is it the contract renegotiations? Is it just waiting for certain contracts to expire and then moving away from those assets? How should we be thinking about that?
Brad Helgeson: Yes Brian, it's Brad. So I would divide potential changes to the portfolio into two categories. The one category is where we're working through underperforming operations and the next steps for those will be specific to the situation. Some of those are assets that we own, where we would shut it down. Some of them are operating contracts where upon expiration potentially we no longer operate that asset for the client. As far as timeline I would say that's going to play out over a number of years as opposed to quarters. I probably wouldn't put it in terms of quarters. It's a focus area. We're having conversations today for contracts that have explorations over the next several years. So there is a long lead time there. But I wouldn't expect, you shouldn't expect a flurry of announcements in that area in the coming quarters. I draw a distinction between those and other transactions that might potentially come out of the strategic review. That I would characterize as transactions to better realize value of discrete assets. Those are our potential transactions that we're focused on right now. And we would anticipate having more announcements in that area over the balance of the year.
Brian Lee: Fair enough, that's helpful. And then, I don't know if you've covered this, I might have missed it. But I think you mentioned $15 million to $20 million of savings here on some of the cost actions through this year and then getting to the full $30 million in 2023. It sounds like the $30 million is going to flow dollar for dollar through to EBITDA. Are there any offsets in the near to medium term on the sort of $15 million to $20 million? Are we going to see that also just flow through to the EBITDA line? And then specific to the kind of modeling I suppose it sounds like it's a lot of different items but were specifically should we be expecting to see those cost savings materialize when we think about the modeling of it?
Brad Helgeson: Yes Brian, its Brad. So $15 million to $20 million, and then ultimately, the $30 million, the right way to think about that is that it will flow directly to the adjusted EBITDA line. We would as necessary in the period we would adjust for any one time costs to implement. I mentioned this in the prepared remarks. Two, that come to mind would be potential severance costs and to the extent that we are engaging with third party expertise to hope to help execute certain aspects of the plan. So those are things that would be cash in the period. And so therefore, would be reflected in our free cash flow because we don't adjust free cash flow. But we would adjust them for adjusted EBITDA. So just to make sure there's total clarity, the $15 million to $20 million as we exit this year on a run rate basis another way to say that is we would expect a $15 million to $20 million reduction to overhead and I'll get back to what exactly that means in a second in 2022 and the $30 million of run rate as we exit 2022 would be seen on a full year calendar basis in 2023. So you've heard us talk about overhead. The addressable just to put a little more detail on this, the addressable overhead that we're focused on that primarily supports the North American business is approximately $190 million. Last year, we reported $120 million of SG&A. So the balance of that overhead actually flows through the operating expense line. And the way just for financial statement presentation purposes the way we allocate that is based on the nature of the function. So for example, Derek's team flows through cost of operations. My team flows through SG&A. It's kind of a simple way to think about it. So in terms of the income statement you'll see the impact in those two lines as the plan is implemented.
Brian Lee: Alright, thanks a lot. Appreciate the color. Passing on.
Operator: The next question comes from Scott Levine from Bloomberg. Please go ahead.
Scott Levine: Hi, good morning, guys. Can you hear me?
Mike Ranger: Yes, we can hear you.
Scott Levine: Great. I'm not sure if you mentioned this. I don't know if, this is a question for Brad, I know you guys have talked in the past about four times kind of being a target range for leverage. And I'm guessing that's under review as part of this broader strategic review. But I was just wondering if you can comment on your thoughts on what you see is a comfortable or a target leverage range for the company? And if so, elaborate maybe a little bit more on when you reach that is the philosophy at this point maybe more growth oriented or capital returns oriented? And are we getting ahead of ourselves there given the fact that I think you're saying you expect to be below five times by the end of next year. Just trying to get a sense of whether growth and capital returns maybe reenter the picture in a more meaningful way in 2023 or whether it takes four times leverage to kind of get to that level?
Brad Helgeson: Hi Scott, it's Brad. Long time, no speak. So nothing has come out of the strategic review that has changed our view on four times plus or minus as an appropriate level of leverage for the business. That doesn't mean that we're not comfortable if the opportunity warranted to run the business at a higher level, and it doesn't mean that once we get four times we won't continue to de-lever. But I think in terms of a Northstar for where we're going to be heading over time, four times is still the number. Yes I think what we might do and how we might prioritize capital return versus investing whether it be in the existing business or inorganic growth, I think it is a little too early to start to handicap those. We will see what the opportunity set is in front of us, where we are as a company and make those decisions as appropriate at the time. I think compared to where we've been in the past, because four times is not a new number we've talked about four times for a long period of time now. I think the real difference now is we see a clear path over a relatively short timeframe. So between now and 2024 to where the business with the UK projects coming online primarily will begin to generate cash at a level that makes that a very real option and reality for us as opposed to something that's a little further out over the horizon which is really how we, more how we've talked about it in the past.
Scott Levine: Got you. Thank you. One quick follow up I guess maybe you want to know his questions at the outset. I guess I'd asked you if you have any options I know at the beginning of the strategic review the mantra is always everything is on the table. If any options been taken off the table as you guys you progress through this review or maybe any changes in philosophy regarding the business since you initiated this process I think last October.
Mike Ranger: Scott the answer's no. nothing's been eliminated at this point. And we're in the phase of having more facts in front of us to evaluate whereas before in our discussion at the end of October was more instinctual. And yet we've gotten lots of confirmation on some of our original thoughts and some other eye opening alternatives. So in that regard we're going to work through that. Once again everything that you do is a lost opportunity. But it also is a big game if you do it the right way. So that's how we're looking at it. Everything's got to be measured against what the current expectations are in this current valuation of the company is and if we can enhance that and change that trajectory then those alternatives are still available to us and we will act on them accordingly at the right time, and as Brad mentioned, just to underscore that category was the second that he talked about and we would see actions taking place through the remainder of this calendar year.
Scott Levine: Got it. Understood. Thanks guys.
Operator: This concludes the question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
