Archrock, Inc. (NYSE:AROC) Q1 2023 Earnings Call Transcript

Archrock, Inc. (NYSE:AROC) Q1 2023 Earnings Call Transcript May 3, 2023

Operator: Good morning. Welcome to the Archrock First Quarter 2023 Conference Call. Your host for today’s call is Megan Repine, Vice President of Investor Relations at Archrock. I will now turn the call over to Ms. Repine. You may begin.

Megan Repine : Thank you, Michelle. Hello, everyone, and thanks for joining us on today’s call. With me today are Brad Childers, President and Chief Executive Officer of Archrock; and Doug Aron, Chief Financial Officer of Archrock. Yesterday, Archrock released its financial and operating results for the first quarter of 2023. If you have not received a copy, you can find the information on the company’s website at www.archrock.com. During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 based on our current beliefs and expectations as well as assumptions made by and information currently available to Archrock’s management team. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.

Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. In addition, our discussion today will reference certain non-GAAP financial measures, including adjusted EBITDA, gross margin, gross margin percentage, free cash flow, free cash flow after dividend and cash available for dividend. For reconciliations of these non-GAAP financial measures to our GAAP financial results, please see yesterday’s press release and our Form 8-K furnished to the SEC. I will now turn the call over to Brad to discuss Archrock’s first quarter results and to provide an update of our business.

Brad Childers : Thank you, Megan. Good morning, everyone, and thank you for joining our call today. With a strong first quarter in the books, 2023 is shaping up to be the exciting year we anticipated. The benefits of our transformed platform are already coming through in our first quarter results. And we are profitably capturing opportunities created by the continued tightening in compression market fundamentals. In the first quarter, our net income of $16 million was up from $2 million in the first quarter of 2022. We generated adjusted EBITDA of $97 million, reflecting solid underlying business performance and meaningful growth in both revenue and gross margin dollars across our business segments. We grew operating horsepower sequentially, adding nearly 70,000 in the quarter, excluding asset sales.

And we increased our exit utilization to another all-time high for Archrock of 94%. As we met this strong customer demand, we continue to return cash to our shareholders, maintaining our $0.15 per share per quarter dividend. This was complemented by robust dividend coverage of 2x. In addition, we continue the deleveraging process, ending the quarter with a debt-to-EBITDA ratio of 4.1x. First quarter performance is a great example of the step change in the momentum we are experiencing in our business. We believe we are realizing the beneficial returns we’ve targeted in our multiyear franchise transformation. And these benefits could be coming at a better time in the market when demand for compression is strong and infrastructure is in short supply.

We believe this significant inflection in Archrock’s 2023 performance is created by market supply and demand fundamentals that support a robust multiyear outlook for natural gas, for compression and for Archrock. The natural gas production forecast we track all continued to show growth in 2023 volumes, which is consistent with the elevated customer demand we continue to experience. Current WTI prices support healthy economics for oil-directed drilling. Compression infrastructure is required to transport the resulting associated gas volumes, driving strong demand for large midstream horsepower in the Permian and other liquids-rich shell plays, where the majority of our operating fleet is located. As natural gas production in the U.S. continues to grow to record levels, we’re seeing the impacts of underinvestment by the industry in large midstream horsepower over the past few years specifically during and coming out of COVID.

We expect the natural gas compression market to remain very tight for the foreseeable future, even in this current soft gas price environment for two reasons. First, Archrock and other outsourced compression providers, like others in the energy industry generally are exercising a serious level of discipline demanded by the broader market and limiting the amount of growth CapEx being invested. And second, lead times for new equipment now extend beyond a year. Longer term, abundant natural gas supply has led to economically favorable U.S. natural gas pricing. The stability of pricing and abundance of supply have facilitated investment in the long-term, capital-intensive projects such as LNG and petrochem plants that use natural gas as their feedstock.

We believe this drives — we believe the drivers behind this growth extend the attractive fundamentals for our industry well into the future. Now moving to our contract operations segment. The compression market is as tight as we’ve seen in decades, and natural gas production overall does not appear to be slowing down. In addition, our fleet transformation efforts over the past several years are paying off in a big way. As we sold small nonstrategic horsepower, we’ve quickly replaced this with higher-quality EBITDA by investing in large and standardized horsepower in the more stable infrastructure segment of the market, high grading our customer relationships and enhancing leverage to growth plays. Today, you can see this in the all-time high levels of fleet utilization that Archrock is achieving.

Fleet utilization exited the first quarter at 94%, another record for our truck. We also delivered approximately 70,000 horsepower growth, excluding noncore active asset sales of 13,000 horsepower. Our team continues to do a great job putting our remaining idle fleet back to work and deploying new build horsepower under multiyear contracts at robust returns. In addition, we’re seeing historically low customer stop activity. And in the few cases where we have equipment return from the field, most of the horsepower has been properly rebooked at higher rates. Spot prices continue to follow utilization higher. We’re making great progress, moving rates up on our installed base and implemented a meaningful price increase late in the first quarter.

Given high levels of horsepower utilization for Archrock and the industry, we expect to maintain pricing prerogative and capture additional increments during 2023. Gross margin dollars for the quarter were up 5% sequentially, and we expect a continuation of this trend over the course of a year or 2 based on a couple of factors. First, we expect make-ready expenses to trend to more normal levels with our more fully utilized fleet. And second, we expect that the price increases we’re implementing this year will catch up with inflation. We believe these factors will translate into meaningful increases to gross margin percentage in the coming quarters. The aftermarket service segment had a solid quarter during what is typically a seasonally slower period.

Revenues and gross margins are expanding nicely to levels not seen since 2019 as customers continue to catch up on deferred maintenance and our pricing power builds. We expect improved levels of activities continue through 2023. Shifting to our capital allocation framework. We’re committed to creating and returning value to our shareholders through a disciplined capital allocation approach. We’re confident in the strengthening outlook for compression in Archrock as well as our ability to grow free cash flow over time. Our current expectation is this — flexibility for consistent and meaningful increases in returns to our shareholders while we also maintain a strong balance sheet position that we’ve worked so hard to achieve. Consistent with this, we resumed dividend growth in January, announcing a 3.4% increase in dividends per share.

And just last week, the Board approved a $50 million buyback authorization, giving us an additional capital allocation tool and the flexibility to opportunistically act on a broader market dislocation. We believe both actions represent meaningful steps toward our goal of delivering a leading return of capital strategy for our shareholders, one that we believe could include additional dividend increases, opportunistic share repurchases or both. As we plan for future shareholder return increases, our immediate focus is on getting our leverage ratio to below 4x, which we expect to achieve this year. And our current near-term target debt-to-EBITDA ratio remains 3.5 to 4x. Our full year CapEx guidance is unchanged, including our expectation for growth CapEx of between $180 million and $200 million.

As planned, this is up from 2022 as we redeploy some of the $314 million in asset sale proceeds generated over the last 3 years into an undersupplied market at returns well in excess of our cost of capital. Over the past several years, we’ve worked hard to build a platform that will profitably support the consistent and more modest growth in demand for natural gas compression forecasted ahead. We’ve modernized our fleets, invested in technology and standardized practices in the field and across the organization. With the solid foundation, we expect to continue to responsibly invest in our fleet. We believe that capital demands on our business are substantially and sustainably lower compared to the 2018 and 2019 time period when we spent to both upgrade our fleet and to place our compression in the field as part of the then huge infrastructure required to support record natural gas production growth in the U.S. As management works with the Board on determining the appropriate level of growth CapEx going forward, growth in free cash flow and shareholder returns are both significant priorities.

In summary, with the investments we’ve made to transform and differentiate our franchise, we believe Archrock has never been in a better position than it is today. Great first quarter performance is the warm-up act for what we believe will be a lucrative and multiyear run for our compression business and our shareholders. To achieve success, we remain focused on demonstrating our improving earnings power through excellent operating execution, continuing to deliver a first-rate customer experience, harnessing the benefits of our upgraded technology platform and high-graded asset base and prioritizing opportunities to help our customers with emissions management. With that, I’d like to turn the call over to Doug for a review of our first quarter and to provide additional color on our outlook for the remainder of 2023.

Doug Aron: Thanks, Brad, and good morning. Net income for the first quarter of 2023 was $16 million. This included a noncash $3 million long-lived asset impairment as well as $1 million restructuring charge. We reported adjusted EBITDA of $97 million for the first quarter of 2023. Underlying business performance was strong in the first quarter as we delivered higher total gross margin dollars on both a sequential and annual basis. Results further benefited from approximately $4 million in first quarter asset gains. Turning to our business segments. Contract operations revenue came in at $188 million in the first quarter, up 6% compared to the fourth quarter of last year. Operating horsepower and pricing both increased sequentially.

Compared to the fourth quarter of 2022, we grew our gross margin by nearly $5.5 million or 5%, resulting in gross margin percentage of 58%. This was consistent with fourth quarter levels. Gross margin percentage would have increased by 100 basis points sequentially but for $2 million in sales tax expense on the usage of our compression equipment that in prior years was captured in selling, general and administrative expense and is now being included in contract operations expense. In our aftermarket services segment, we reported first quarter 2023 revenue of $42 million, up slightly compared to the fourth quarter despite typical seasonality. Revenue was up 25% on a year-over-year basis due to both higher parts and service activity. First quarter AMS gross margin of 19% was favorable to annual guidance and was up from 17% in the fourth quarter of 2022.

Growth capital expenditures in the first quarter totaled $59 million as we continue to invest in new equipment to meet strong customer demand. Maintenance CapEx for the first quarter was $23 million, largely consistent with $25 million during the fourth quarter. We exited the quarter with total debt of $1.5 billion and variable rate debt continue to represent 16% of our long-term debt. In addition, we maintained strong available liquidity of $496 million. We continue the deleveraging process in the first quarter, reducing our leverage to 4.1x, down from 4.4x in the fourth quarter of 2022. As Brad mentioned earlier, as we execute our plan and our earnings inflect sharply higher this year, we expect to achieve a leverage ratio below 4x by year-end 2023.

We recently declared an increased first quarter dividend of $0.15 per share or $0.60 on an annualized basis. Our latest dividend represents a compelling yield of 6% based on yesterday’s closing price, especially given the protection provided by our industry-leading dividend coverage. Cash available for dividend for the first quarter of 2023 totaled $46 million, leading to an impressive quarterly dividend coverage of 2.0x. Turning to our 2023 guidance. We continue to expect the momentum in our adjusted EBITDA to build throughout the year. Taking into account solid first quarter performance, the tightening compression market and rate increased progress, we are currently trending toward the high end of our previously announced 2023 annual adjusted EBITDA guidance range of $400 million to $430 million.

This compares to $363 million in 2022. And after normalizing for the 2022 net gains on asset sales totaling $40 million, adjusted EBITDA is projected to increase more than 30% year-over-year. Turning to capital. On a full year basis, we continue to expect total 2023 CapEx to be approximately $270 million to $295 million. Of that, we are holding the line on growth CapEx of between $180 million and $200 million to support investment in new build horsepower and repackage CapEx to meet continued customer demand. In summary, we have tremendous confidence in the compression market fundamentals and the execution we’re seeing and in our financial outlook, both near and long term. In coming quarters, we look forward to build upon what we believe is a compelling value proposition for Archrock through enhanced earnings power and growing return of capital to shareholders.

With that, Michelle, I think we’d like to open the line for questions.

Q&A Session

Operator: Your first question is from the line of TJ Schultz with RBC.

TJ Schultz : My first question is on the buyback. Clearly, some volatility in the market at a time for you all when business fundamentals are clearly trending stronger. Do you anticipate the ability to be opportunistic on the buyback this year even while you’re spending a bit more on CapEx and debt leverages just above that 4x target? Or do you need to hit some of the balance sheet goals first?

Doug Aron: Yes. Look, TJ, thank you. I appreciate you not necessarily calling it out, but we’re shocked by this morning’s performance or reaction as you are. And notwithstanding that, look, when the Board made that announcement and gave us that authorization last week, yes, it’s very much with the view that we have not just line of sight, but high confidence that we will achieve that leverage target at year-end, even inclusive of that authorization. And so I do think it’s — to assume that we will be opportunistic with that authorization. But this morning’s price by any measure to me, reflects an opportunity. And frankly, if you compare it to where we were at the beginning of this quarter when we announced Q4 earnings, we’re now 25-or-so percent below that price, and the outlook has improved and maybe improved meaningfully since then. So I hope I’ve answered your question, but yes, we absolutely intend to use that authorization opportunistically beginning this year.

TJ Schultz : Yes. No, that’s helpful. And then you reported another gain on sales this quarter. You’ve done quite a bit of transformation of the fleet the last year or 2. Is there much left for you all to sell at this point? Or should we consider the shift fairly complete to this mix of larger horsepower compression?

Brad Childers: Yes. You should consider that, that transactional activity is mostly complete. We do have a few smaller asset packages that we could transact in. I think getting those over the line will be a lower probability at this stage. But we feel really good about the work we’ve done to improve both the size and the location of our fleet as well as the stability of our overall presence in the midstream space in the market. So overall, yes, we’re close to done. There may be a couple more, but they’re going to be smaller in size.

TJ Schultz : Okay. Makes sense. And then just last one for me. If you can give us the mix of month-to-month contracts you have right now? And is there any trend that you would want to term some of this up in this market where it’s still pretty tight?

Brad Childers: Sure. So overall, we have about 60% of our contracts that are either on long-term contracts or under alliance – long-term alliance relationships with our customers and about 40% that we can either term up or continue to move pricing on. And we’re continuing to do so. Because the market is reflecting both stabilization and inflation and pretty robust pricing with equipment being tight, we’re finding our customers very receptive to both the pricing moves we’ve made as well as the request to increase the tenor of some of our contracts.

Operator: Your next question is from the line of Jim Rollyson with Raymond James.

Jim Rollyson : Quite an interesting deck — in your commentary and your stock price this morning. But a 94% utilization, obviously, you mentioned a record for the company. Given the fleet transition here that you’ve made over the last 3 years and the tight market, I know we’ve probably asked this question in the past, but just how far up from here do you think that can go? Or is it — are we getting closer to peaking out and just now it’s adding the new equipment that helps drive revenues outside of the pricing side?

Brad Childers: When we hit 100%, we know we can’t go any further. Short of hitting that, we ended the quarter at 94%, but candidly, we’ve continued to increase since then. So as we close the month of April, it was already higher than that. So we haven’t reached our peak. There is going to be a natural limit, and it’s something short of 100%. But without calling it, it does feel like whether it’s 96% or plus or minus, that’s probably just as good as we think we can get given we’ll always have contracted horsepower that’s coming off, moving through the shops and going back to work.

Jim Rollyson : Yes, that’s a helpful bogey. It makes sense. And then on the cost inflation side, obviously, your revenue per horsepower per month went up nicely this quarter and obviously, with the price hikes you mentioned late in the first quarter, that’s set to rise again as we move through the rest of this year. But your costs also went up again on that same metric, and you mentioned makeready and that should normalize. Just trying to think about how to model costs as we go through the rest of this year or maybe better more specifically is how to think about margin percentage as we go through the back half of this year as inflation may be gets tamed a bit and makeready costs subside and your price hikes take effect?

Brad Childers: Yes. So we fully expect, and we’ve given guidance that our gross margin percentage will increase throughout the year as those three factors you just cited take hold. So first, on price increases. What you noted and you’ve probably seen in our metrics is that our revenue per horsepower number has gone up for 6 quarters in a row sequentially. And we expect that, that rate — that, that increase and the rate of the increase in the — throughout 2023 will likely be yet bigger and larger. Second, we do expect inflation has run its course, and we have a much more predictable and manageable rate — level of increases coming from our key vendors. And then finally, as utilization gets higher, we’re not going to have as much horsepower that we can make ready.

Our make-ready expense runs directly through our OpEx for the most part, with some of it hitting CapEx. And as the activity reduces, we expect that cost that hits our OpEx to reduce as well. So for those reasons, we’re pretty bullish on both delivering at the high end of our guidance, as Doug said in his part of our prepared remarks today and very ambitious about how robust this type market supports our compression business going forward.

Jim Rollyson : Yes, you can certainly hear that. And then last one for me. Just on aftermarket services, Doug mentioned the margin performance in the quarter that was above 19.4% above the guidance for the year of 17% to 18.5%. Just trying to understand the sustainability the drivers there and obviously, that is one of several factors that aid in you guiding towards the higher end of the range, but just trying to understand what’s going on there.

Brad Childers: The AMS business can be historically and notoriously challenging to forecast. We find there’s more volatility in those jobs. And so looking at our guidance for the year, still gives our best indication of what we expect to get from the AMS business. But we were very pleasantly pleased and surprised even with the performance that the team delivered this quarter. And I know they’re working to deliver that level of performance again hopefully for Q2 and Q3 when it’s more probable because seasonally, those are usually our busiest quarters. But I still think, sticking to our guidance on a higher end of the range is the best indication of what we expect to do in AMS this year.

Jim Rollyson : Makes perfect sense. Well, good luck using your buyback program, hopefully soon.

Operator: Your next question comes from the line of Steve Ferazani from Sidoti.

Steve Ferazani : I appreciate all the detail on the call. Obviously, reported a very strong quarter. I guess the concern out there would be future demand given commodity prices but you maintained your growth CapEx. Can you comment on the stickiness of the bookings on that future equipment and pricing related to that?

Brad Childers: Yes. 90% of the CapEx we have budgeted for 2023 is firmly committed and under contract, and the remaining 10% is with well-known opportunities and customers. And so we expect it to stay fully. That spend was really predicated not on the current commodity pricing, especially the soft natural gas price, but rather on the fact that there has been so much underinvestment in infrastructure in the midstream over the last couple of years that our customer — the entire customer base in the industry cannot get enough horsepower to meet their current production targets. Finally, with the amount of gas that’s going to have to come online to meet demand in 2024 and 2025, a lot of that infrastructure has to be put in place to facilitate that production.

So we feel very good about the level of CapEx that we have, about the commitments we have from customers. There’s always a chance that some of that slows down and pushes out into the right. And that would not necessarily be a bad thing because that would enhance free cash flow opportunities for us in 2024 and beyond. But we feel really good that this is a very sticky level of spend and sticky projects for us.

Steve Ferazani : Great. Any change in lead times at this point? Have you seen any slowdown? Or are you still a year plus in terms of lead times for new equipment?

Brad Childers: Correct. We are still a year plus as the OEMs are ticking up with their supply chain issues. That has not abated at all. We have not seen an availability of either equipment or candidly, floor space in the shops for the equipment fabricators.

Steve Ferazani : Are you thinking, and I know this is sort of long term that there’s going to be any shift in terms of outsourced versus owned compression given these very long lead times and likely higher maintenance and part replacement costs that we’re seeing in your margins? What is your take on outsourced versus owned over the next 2, 3 or longer term?

Brad Childers: As we’ve discussed in the past, that market split of about 70% of the compression being owned and about 30% being outsourced across all basins in the U.S. appears to be fundamentally driven by the confidence of our — of the owners of equipment in our E&P and our midstream customers to be able to maintain the deployment of that unit — that equipment over an economic time frame that makes sense for them. And outsourcing to the outsourced providers like Archrock and our competitors that portion of the market where they — both for their own capital allocation reasons, presence in a play reasons, that is we have staff there and they may not, expertise reasons, one outsourced, they do that for those reasons. And we haven’t seen a major move overall in that 70-30 split.

But the exception to that is in some of the growth plays right now, including the Permian, we probably are seeing something that’s either 60-40 or maybe even at the times 50-50. Whether that holds or not, and whether that translates into the broader market or not, it’s tough to tell. And the driver of that appears to be the rapidity with which the infrastructure build-out has to proceed in that play. They require and really are leaning on the expertise that Archrock and some of the other outsourced providers can bring to their business as well as their own capital allocation and free cash flow ambitions. So I think overall, that 70-30 may hold, but in the current growth play, it’s probably already tending towards more outsourced, which is a nice advantage for Archrock today.

Operator: Your next question is from the line of Selman Akyol with Stifel.

Selman Akyol : So I guess, just kind of going back to the split on thinking about contract tenor and 60% and 40% of that 60%, I guess, you say is that like 3-year plus, 4-year plus? And then given the strong environment, do you really want to stay at 40% in the month? Or would you want to reduce that and see the opportunity over the balance of 2023 to do that?

Brad Childers: We actually like the strategy we have right now in looking at the way we structure our contracts. With several of our largest customers, the way the contracts are structured, these are master agreements that are long-term contracts. So usually, with a 5-year structure in place. And then we place operations on locations under those longer-term contracts where that pricing is prenegotiated on that long-term basis. So for those contracts, we already have the benefit of good pricing grids with our best locations and with solid customers. Then there are customers in horsepower that’s not under that where we are working on individual locations and putting the equipment on that location for our service. And in those, we seek longer-term contracts of a 3-year tenor plus, especially for large horsepower — shorter for small horsepower.

So that dynamic gives us already the right level of pricing flexibility to manage our exposure on a revenue per horsepower basis really well. And we like the way that dynamic plays out. Finally, we find that our horsepower stays on location for as long as it is operationally required. So locking in longer-term contracts does not actually lock in a contracted location longer for our services because it’s too expensive to move horsepower from a location for just any reason, including pricing or short-term pricing reasons. What we find is that our business is incredibly sticky, especially with large horsepower because of the expense of relocation and candidly, because of the high quality of services that our employees ensure we deliver for our customers.

So for those reasons, our strategy remains longer-term contracts with pricing prenegotiated and escalators with our largest customers to take the bulk of our horsepower and then extending terms on a negotiated basis with other customers that are not under those master agreements.

Selman Akyol : Got it. And then as I think about just sort of basins, I presume most of everything new is being directed towards the Permian, but first, I want to check on that. And then number two, are you seeing weaknesses in other basins, in particular, I’m thinking about South Texas, but are you just hearing anything sort of given lower natural gas prices and other basins outside the Permian?

Brad Childers: To your first point, it is true, 80% of the equipment that we’re putting into the field today is going to the Permian. But we also see some decent growth, and we’ve experienced nice growth in the Rockies as well as in South Texas and the Eagle Ford as well as the Marcellus. We have seen some weakness, and you’re seeing it in some rig counts, too, but we have seen some weakness develop at some of the markets like Haynesville. But for the Haynesville, that’s like 2% of our fleet, so not impactful for us. And we have yet to see customers willing to partner with the equipment even in this weak natural gas price environment. Because the equipment is so scarce, I think they feel letting it go and nothing able to get it back. So we’re seeing a lot of stickiness, a lot of resilience in the business today, even in this low gas price environment and even in those dry gas plays. That could change, but right now, it’s been very stable.

Operator: His line did disappear. His line is back open.

Selman Akyol : Sorry about that, if that was my fault. So just given how tight everything is and the long lead times on new equipment, have your customers raised any discussions about 2024 as like we can’t get equipment this year. So what about next year? Are you already having any of those preliminary conversations?

Brad Childers: We absolutely are. We still see a fairly robust order development for 2024. In fact, some of the 2023 CapEx we’re spending is to meet 2024 demand. So it hasn’t really let up for new equipment pressure from the marketplace.

Selman Akyol : Got it. And then the last one for me. You all mentioned you put through a price increase at the end of the first quarter. You see more of those going forward? Or is there a way you can quantify that for us?

Brad Childers: I discussed earlier that one thing you can note in our revenue from horsepower trends is that it is up sequentially for 6 quarters in a row, and we expect the increase that we’re implementing in 2023 to continue that trend and maybe the largest among those increases. But no, for competitive reasons, we’re not really going to quantify overall the pricing other than the direction is really good. And you can see what we expect to do to gross margin in the guidance that we’ve given for the year with the very optimistic statement that we can share that we already are trending toward the higher end of the guidance range that we gave. So we’re still very bullish on both what we can accomplish with price increases and the stickiness of those increases.

Doug Aron: Selman, the only thing I’ll add to that is for anybody that — if this morning’s price reflects folks looking at Q1 and annualizing that and not having paid attention to the very clear guidance we’ve given, right? To your point, that price increase, the large price increase Brad referenced did occur late in the quarter. So we got at best, call that 1/3 of the quarter that now will be reflected for the rest of the year. And although stop activity is really small, when a unit tops and was a unit that had been previously contracted, in every instance, we’re seeing that pricing significantly higher as you would have expected, if you think about that trajectory of a unit that might have been set 2 or 3 years ago and is now stopping, today’s price is going to reflect higher and again, gives us that confidence to now revise towards the upper end of our previous guidance range.

So beyond that, as Brad said, don’t want to talk more competitively than that, but I do want to make sure it’s clear.

Selman Akyol : Very helpful. And I do appreciate all the color Cheers.

Operator: And there are no more questions. Now I’d like to turn the call back over to Mr. Childers for final remarks.

Brad Childers: Well, thank you, everyone, for participating in our call today. We believe we are on track for a great 2023, and I’m excited about the value our franchise can deliver today and in the future. I look forward to updating you on our progress next quarter. Thank you.

Operator: And this does conclude today’s conference call. You may now disconnect.