CNX Resources Corp (NYSE:CNX) Q3 2022 Earnings Conference Call October 27, 2022 10:00 AM ET

Company Participants

Tyler Lewis - VP, IR
Nicholas DeIuliis - President, CEO & Director
Alan Shepard - CFO
Chad Griffith - EVP & COO

Conference Call Participants

Zachary Parham - JPMorgan Chase & Co.
Leo Mariani - MKM Partners
Neal Dingmann - Truist Securities
Noel Parks - Tuohy Brothers

Operator

Good morning, and welcome to the CNX Resources Third Quarter 2022 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Tyler Lewis, Vice President of Investor Relations. Please go ahead.

Tyler Lewis

Thank you, and good morning to everybody. Welcome to CNX's third quarter conference call. We have in the room today Nick Deiuliis, our President and CEO; Alan Sheppard, our Chief Financial Officer; and Chad Griffith, our Chief Operating Officer.

Today, we will be discussing our third quarter results. This morning, we posted an updated slide presentation to our website. Also detailed third quarter earnings release data such as quarterly E&P data, financial statements and non-GAAP reconciliations are posted to our website in a document titled 3Q 2022 earnings results and supplemental information of CNX Resources.

As a reminder, any forward-looking statements we make or comments about future expectations are subject to business risks, which we have laid out for you today in our press release as well as in our previous Securities and Exchange Commission filings.

We will begin our call today with prepared remarks by Nick, followed by Alan, and then we will open the call up for Q&A where Chad will participate as well. With that, let me turn the call over to you, Nick.

Nicholas DeIuliis

Thanks, Tyler, and good morning, everybody. Thanks for joining us. Before we kick things over to Alan, who's going to discuss the third quarter financial results in detail, I want to provide a couple of thoughts talking about the macro backdrop and how CNX is continuing to position itself uniquely, not just among energy companies, but I think also when you look across the broader equity markets.

So if you go back 90 days or so ago, during the second quarter call, we talked in depth about the world's growing demand for responsible energy development and how natural gas that's sourced from Appalachia is an essential catalyst fuel in delivering that future. And we laid out our vision with Appalachia being the heart of a sustainable energy revolution, and we talk about the numerous opportunities that CNX is developing to leverage our existing asset base and core competencies to create significant free cash flow opportunities for our ownership beyond what you'll see with the free cash flow from our core gas development activities.

Today, however, I want to pivot back to sort of the foundation of our investment thesis and the actions that we're taking to position CNX for long-term per share value creation in the face of what we see is increasing uncertainty on 3 big fronts. I want to talk about those 3 fronts of uncertainty.

So the first one. During the third quarter, the macro economic backdrop in the United States, it has continued to become more uncertain. You've got inflation that continues to erode purchasing power, right? You've got interest rates that have risen sharply, of course. We see equity valuations all over the board in many instances are declining.

And despite this challenging backdrop and all this chaos, we were able to execute an attractive long-term debt refinancing that further extended our maturities profile and thereby that will unlock additional degrees of freedom as we call it with respect to our capital market activities. That's very important and very powerful.

Our combination of consistent quarterly free cash flow generation and then that extensive available liquidity and our long-term debt maturity runway, those things position us not just strongly but uniquely to take further advantage of any deepening valuation disconnects that might occur in either the equity or the debt markets, frankly. So don't make any mistake about it. When it comes to CNX, we are well positioned to continue to play offense in this type of chaotic environment.

Now, that second area of uncertainty that played really prominently during the third quarter is the continued inability of our elected representatives to achieve consensus on interstate pipeline permitting reform, hard to believe. But without a meaningful acknowledgement of energy realities from D.C., the natural gas industry is going to continue to be unable to unlock the full potential of U.S. shale to serve the obvious energy demand centers here in the United States.

So despite Washington continuing to ignore a rational energy policy for the time being, CNX is 1 of 1 when it comes to companies that have positioned themselves to work in this potentially capacity-constrained world. So Appalachia awaits future pipelines to be built. CNX continues to focus on executing our maintenance and production plan to generate that annuity-like stream of significant free cash flow regardless of where we are in the commodity cycle.

So in addition to our organic base development plan, we're going to leverage our extensive legacy asset base to create new free cash flow growth opportunities through our new technologies efforts and the continued deep, dry Utica development. We'll clinically allocate this incremental free cash flow to create long-term per share value growth like we always do.

Now, the third and the last area of uncertainty I want to talk about this morning. It's the pricing volatility in the natural gas markets. And what we experienced during the third quarter is a reminder of just how volatile the commodity markets are as well as how difficult they are to predict.

However, CNX, we're positioned to respond to this uncertainty. How? Through our consistent programmatic hedging strategy and our basin-leading cost structure derived from our midstream ownership. These 2 strategic differentiators, they significantly lower risk. They provide long-term free cash flow visibility throughout all phases of the commodity cycle, whether we're in an up part of the phase or a down part of the phase. And this derisked approach, it creates opportunity for significant long-term per share free cash flow growth even if lower natural gas price scenarios were to materialize or when they materialize.

So the CNX story, it's simple, but it's also special. It's a story about executing our sustainable business model plan over an extended time period to generate sustainable per share value. Most companies in our space will do well when gas prices are high. What makes us unique is our ability to still thrive when prices are low and when things might get tough or chaotic.

Our sustainable business model doesn't rely on gas prices staying high or being able to accurately predict the future, which we all know is impossible. But instead, our model is based on building a business that works in whatever the future holds. So we're over, what, 2.5 years now into executing this plan across many different macro backdrops. We've seen a lot of these different twists and turns over the past 2.5 years. Third quarter, I think, adds another successful quarter to our track record, and that's good to see.

So I'm going to conclude my commentary with just a couple of thoughts on our social impact side of things. And as we've discussed before, our sustainable business model is not only focused on creating value for our owners, but also at the same time, creating tangible and impactful value in the local communities that we basically lived and operated within for the past 150-plus years.

And I want to take the opportunity to highlight the kickoff of the second class of young men and women who are entering the CNX Foundation's Mentorship Academy this fall. Just a reminder, this initiative is focused on exposing students in our underserved urban and rural communities to a whole host of career opportunities that exist, not just within the energy industry. Energy is clearly a part of it but also throughout the region.

These young adults, they're basically the foundation of tomorrow's economy, and we're excited to build upon the success from last year's class, the first inaugural class and continue to provide a unique engagement, I think, and a unique model for others basically in the region to follow.

So just to reiterate, we said this before, we built this to either be copied or to be joined. It's open sourced, and we're happy if others want to join us or if they just want to plagiarize, they're welcome to do so. This fits right into CNX's vision for the region as we wait for the pipes to get built that we talked about out of the basin.

There is no reason to wait to bring demand and manufacturing into our regions, which will help lift communities out of poverty. How? By creating long-term manufacturing jobs, all while lowering global carbon emissions and improving the economy.

Now, additionally, another effort we've engaged in on this front is the HQ at CNX. That's what we're calling it. The HQ was created to provide office space in our headquarters building for nonprofits, for charities, for underserved, underrepresented organizations. To basically help them elevate and thrive their businesses while enabling collaboration with effectively a group of like-minded business or nonprofit individuals.

And we view it as sort of the living embodiment of the CNX Foundation, again, looking for finding that diamond in the rough that might not receive the attention it deserves from the establishment, but that is doing the important hard work on the ground for our communities. That's what we're after, investments we can make that produce returns not only for again, the owners and the company but also for the wider region.

If you think about it, for generations, this region has fed the company with unmatched talent, and the company, in turn, has fed the region with jobs, investments in the communities and the quality of life that's derived from the product we bring to market. That's a pretty virtuous circle, at least from my perspective, and that is part of the fabric of the legacy that lives on today through initiatives like the CNX Foundation and the Mentorship Academy and the HQ at CNX concept.

So the HQ initiative, it's well underway. We've got about a half dozen or so tenants, co-neighbors with us in the building, so to speak, and they range from a local nonprofit career development association to a couple of female-owned enterprises, for profit enterprises, a social media marketing company. Also a deli, a regional nonprofit mentorship organizations joined us recently as well as a local university with their business program. We're really excited and fired up for the opportunities ahead for the HQ CNX to help reinforce our overall tangible impactful and local value-add philosophy.

So again, thanks for allowing me the time this morning. I'm going to turn things over now to Alan and Alan's going to walk us through some of the financial details when it comes to the third quarter of 2022.

Alan Shepard

Thanks, Nick, and good morning to everyone. This quarter represents the 11th consecutive quarter of significant free cash flow generation through the execution of our sustainable business model that is grounded in consistent operational execution and clinical capital allocation to optimize free cash flow per share growth.

In the third quarter, we generated $135 million of free cash flow, including the effect of working capital changes. Slide 4 in our presentation highlights the strength of our balance sheet. During the quarter, we issued $500 million of senior unsecured notes due in 2031. These proceeds were used to refinance $350 million of our 2027 notes as well as pay down $134 million of our CNX revolver. This opportunistic transaction removed future interest rate risk and resulted in a stronger balance sheet with our weighted average debt maturity now extending to 6.8 years.

Following the transaction, we now have approximately $500 million in prepayable debt that the company can opportunistically pay down over the next several years. As Nick mentioned a moment ago, as a result of this transaction, we are now even more uniquely positioned to take advantage of any deepening valuation disconnects that might occur in either the equity or debt markets.

On the capital allocation side, as highlighted on Slide 5, we continue to take advantage of current equity market conditions by repurchasing 8.4 million shares in the quarter and another 3.2 million shares after the close of the quarter through October 21. Said differently, we bought back another 4% of our total shares outstanding. And over the last 8 quarters, we have repurchased approximately 20% of the outstanding shares of the company.

We continue to see this as a remarkable low-risk capital allocation opportunity moving forward. And although we have not given an explicit capital allocation framework, if you extrapolate these levels of buybacks moving forward, you can see that we will continue to dramatically reduce our denominator and thereby meaningfully grow our free cash flow per share.

On the operations side, as expected, production was modestly up in the quarter compared to the second quarter. Based on the midpoint of the updated guidance range on Slide 6, this implies fourth quarter production volumes that are roughly flat when compared to the third quarter. Also in the quarter, we had 2 onetime charges related to operations that I want to touch on.

The first charge was for cleanup and repair expenses related to the historic flooding in Buchanan County, Virginia this summer. This event destroyed an estimated 100 to 150 homes and left thousands without power. We are incredibly proud of our Virginia team and how hard they worked during this challenging time to restore normal operations and most importantly, to assist their community in need.

The second charge during the period is related to a CPA Utica wellbore that we chose to plug and abandon. Issues experienced during drilling operations resulted in a determination that the best course of action from both an operational and economic perspective was to plug and abandon the wellbore. This decision prevented delaying other wells in the schedule and reflects our commitment to long-term focused decision-making. This well was originally part of the 2023 development plan and was scheduled to turn in line in 2024. Instead, we will now access those reserves a few years out.

Let's now shift to our updated 2022 outlook on Slide 6. We have narrowed our 2022 production guidance range from 580 to 590 Bcf, where a 5 Bcfe decrease based on the midpoint of the new guidance range when compared to the previous guidance of 575 to 605 Bcfe. The driver of this change is due to the expected timing of a few wells being turned in line a bit later in the year.

As we've previously highlighted, due to the magnitude of production from our new well pads, modest changes in the timing of online within a quarter or a year will result in shifts in expected production levels between periods. Correspondingly, we are also narrowing our expected EBITDA range for the year to $1.325 billion to $1.375 billion compared to the previous guidance range of $1.3 billion to $1.45 billion.

This slight decline in midpoint is due in part to the modest expected production change we just noted. With respect to capital guidance for the remainder of the year, we are nearing the 2022 capital range to $560 million to $580 million, which keeps the midpoint of $570 million unchanged from the previous guidance range.

One final note on 2022 guidance. The improved pricing environment and positive working capital changes are largely offsetting the reduction to production volumes and EBITDA. And as such, we are leaving our free cash flow guidance for 2022 at approximately $700 million. Additionally, given our now lower share count, approximately $700 million of free cash flow is expected to result in a free cash flow per share of $3.88. Again, that is a number that's not at the end of the year share count projection, but rather it is based on our current share count.

Before we move on to Slide 7, we want to provide some visibility on what to expect from the company in 2023 given the elevated uncertainty in the world that Nick discussed. From an operational perspective, we expect to continue our maintenance of production program and utilize roughly 1.5 rigs and 1 frac crew to maintain flat production levels plus or minus.

Extrapolating a full year of the elevated input costs that have been experienced during 2022 and considering the potential for additional inflationary pressures in 2023, we are expecting the 2023 capital to range between $575 million and $675 million. This wide range reflects the significant uncertainties that exist with respect to inflation and supply chain risk prevalent in the world today.

In other words, if high inflation persists into 2023 and supply chains tighten further, capital will trend towards the higher end of the range. Conversely, capital will trend towards the low end of the range if inflation flattens and supply chains ease. Consistent with 2022, our 2023 capital focus will remain on operationally derisking our long-term free cash flow annuity by investing and retaining the best crews, securing critical materials and prioritizing investments that lower overall execution risk.

Despite these inflation challenges and other macro uncertainties, CNX's sustainable business model uniquely positions the company to generate significant free cash flow year after year in any commodity environment. For example, even if NYMEX prices were to return to below $3 per MMBtu and in-basin differentials were to widen after this winter, the company would still generate an average of $500 million of annual free cash flow. And obviously, there would be significantly higher average long-term free cash flow at the current strip.

Most importantly, however, we will continue to focus on clinically allocating that free cash flow to grow our long-term per share value. Slide 7 is a slide we showed last quarter, but it's important to show again. This slide illustrates the core tenet of the CNX investment thesis and the incredible and unique opportunity for rapid low-risk free cash flow per share growth that results from our sustainable business model.

This graph includes what we've already achieved and what we expect to achieve moving forward. Looking back, we have already more than doubled our free cash flow per share since 2020. Assuming a constant enterprise value and that 80% of the future free cash flow is allocated to share repurchases and the remaining 20% to balance sheet management, total shares outstanding would reduce by an additional 54% while still achieving significant deleveraging.

In other words, free cash flow per share doubles by 2026 to over $8 per share. Our leverage ratio declines to roughly 1x and the implied share price, again, assuming a constant enterprise value would appreciate to almost $45 per share due to this rapid share count reduction. This potential share count reduction only accelerates if stock price appreciation does not keep pace with the decline in outstanding shares. When you compare this projection to the 2020 free cash flow per share, you can see 2026 free cash flow per share is over 5x higher.

Slide 8 is another illustration highlighting our capital allocation strategy in action. But for this slide, we compare ourselves to companies outside of our industry who have run successful capital allocation strategies for an extended period of time. These 4 companies include some of the most consistent share repurchases within the S&P 1500. Over a 20-year period, all 4 of these companies have repurchased a significant amount of shares outstanding and meaningfully grew their free cash flow per share.

This resulted in tremendous share price appreciation and outperformance in their respective industries and across the broader equity markets. The graph on the slide highlights the first 6 years of their respective share repurchase journeys. Even though all 4 companies bought back a significant amount of shares outstanding, if you compare our results to what they achieved over the first 6 years, you can see that CNX is trending significantly above their levels of share repurchases.

If the company keeps trading well below its intrinsic value, we will continue to prioritize share repurchases. And like we've already discussed, this will result in significant free cash flow per share growth into the future.

To conclude, the company is an exciting position moving forward. We have built a uniquely sustainable business model that generates a significant amount of free cash flow in any commodity environment, and our focus will remain on steady execution and taking advantage of future market disconnects to grow our free cash flow per share. In other words, we will continue to operate with an owner mindset. With that, I will turn it back over to Tyler for Q&A.

Tyler Lewis

Thanks, Alan. Operator, if you can please open the line up for questions at this time, please.

Question-and-Answer Session

Operator

[Operator Instructions]. The first question comes from Zach Parham with JPMorgan.

Zachary Parham

I guess first, in the prepared remarks, you talked about flat production in 2023. And that compares to some prior commentary where you talked about low single-digit growth over the longer term. Just trying to reconcile those 2, like how should we be thinking about 2023? Is that truly flat? Or should there be a little growth?

Alan Shepard

Yes. I think with the commentary we had the plus or minus, as we talked about in the commentary, it's difficult given the magnitude of the wells when they come online to give you exactly what that number is. Plus or minus about a week or two here or there on any one of these well pads is going to move that plus or minus 1% next year. So the way we think about it internally is it's generally flat.

Zachary Parham

And then I guess just one follow-up on the Central PA Utica. Can you talk a little bit about the decision to plug and abandon that well? And does that change your view of future development of the Utica in that area?

Chad Griffith

Yes, Zach. So this is Chad. I'll take a shot at that. I think with the 2-part answer. On the first one, I'll talk a little bit about the timing. And there's a couple of factors there that are important to understand on timing. These rigs, they're not contracted and source to sit on a single well. We source them to drill a series of wells as part of a drilling program. So any delays associated with a single well can delay all those wells behind it. And that's going to be considered when deciding how long to work through any unusual downhole condition.

And secondly, we already had a handful of Marcellus wells on this pad, and we plan to get those wells online early next year. So we'll let those Marcellus wells produce for a few years before we come back to this pad to access those same Utica reserves at that point in time.

So going a little deeper into specifically what happened here, while we were drilling the vertical section of this Utica well, we had a formation above the Utica, begin to break apart on us and start to become unstable. It's something that does happen from time to time while drilling. It can often be solved through various mitigation strategies and many of which we attempted here. Unfortunately, in this case, it continued to cause delays until we made the decision to P&A the well and continue on with the drilling program elsewhere.

We didn't lose these reserves, and we'll access those on -- we plan to access those on our next trip back to this pad. And based on the root cause analysis here, we have an engineering solution, which we will incorporate into our future Utica wells and prevent this moving forward. And so I like to think is this actually derisks our Utica program moving forward. We still believe very strongly in the reservoir. And each of these sort of incremental steps just makes it that much easier to drill the next well.

Operator

The next question comes from Leo Mariano with MKM.

Leo Mariani

I guess wanted to follow up a little bit on the production here. I guess maybe just kind of looking at some of those well trends. It seems like you guys had 16 wells in Southwest Pennsylvania in the second quarter. It looks like you brought 5 on in the third quarter. I guess I would have thought that maybe it would have led to a little bit more protection in 3Q. I was just curious if you guys are seeing anything like midstream downtime or any kind of production interruptions. I know a number of the other gas companies kind of talked about that with third quarter earnings.

Alan Shepard

So like we talked about in part, it's all related to the timing of the wells coming online. We don't struggle with kind of the midstream issues given we are the midstream operator. So that's certainly not the issue. It's just these pads come on at a couple of hundred thousand a day. So if you're behind by a week, you can be plus or minus a beat off your initial projections. So it's nothing more than that.

Leo Mariani

And then just wanted to jump a little bit more into kind of the comments around 2023. You all did say a fairly wide range of capital out there. If I recall correctly, I think on the last call, you guys did kind of say there was some uncertainty around equipment access, and you kind of decided to maybe pull a couple of wells into '22 from '23.

So just curious in terms of what you guys have done to kind of procure services and equipment for 2023. Do you feel like you've got the equipment kind of locked in? Maybe it's just variability on price next year? Are there some services that you're still trying to contract for next year?

Alan Shepard

Yes. So like we talked about in Q2, the focus of the capital increase this year was to solve for exactly what you're talking about. We do have our rigs under contract for next year, and we started those earlier in the back half of this year to make sure that we have plenty of lead time between our drilling and completion. What we're talking about with the wider capital range is kind of if there continues to be pressure on the OCTG market, we see steel products still at elevated levels and then just general economic inflation, it doesn't take more than another 5% or 10% to kind of see the types of movements that we widen out that range. So we'll have more color on that in January and release the full guidance, but we just wanted to give folks an indication there where next year was headed.

Leo Mariani

And then just on the stock buyback here. You guys basically said, look, we're still going to have a lot of free cash flow if gas is under $3 and dips widen. I guess I'm just curious, I mean, do you see a scenario for gas in 2023? Or obviously, sometimes some of the cost structure is fixed, where cash flows get crimped a little bit in '23 and maybe you don't have quite as much free cash flow. I know that certainly over the cycle, that $500 million average maybe feels pretty good. But is there a scenario where that could be a little bit lower in '23?

Alan Shepard

Yes. I mean, ultimately, it's going to depend on pricing on the open volumes, and we'll provide color on that in '23. I think we think about $500 million as kind of the floor, just given where our hedge book sits and our ability to kind of manage our costs and what we already have locked in.

Nicholas DeIuliis

You should be able Leo, to get a rough and decent estimate of that with just some basic modeling based on our hedge book by difference with production giving you the open volumes and what the sensitivity for us would be when you look at different gas price decks. And of course, it's going to be much muted compared to your typical E&P just because of the programmatic hedging we've employed.

Operator

The next question comes from Neal Dingmann with Truist.

Neal Dingmann

I guess just two quick ones. Could you maybe just walk through the hedging strategy, obviously, given the much better balance sheet and the backwardization strip? And then secondly, maybe just talk about that one rig, how you think of the 1 rig plan, can you continue to get the efficiencies you'd like?

Alan Shepard

Yes. So maybe first on the hedging side. So the way we want to think about hedging is kind of twofold. One, from a prices we're seeing out there on the strip now, we're very comfortable continuing to take those hedges in the outer years. Those imply incredible IRRs at the well level. So we're happy to lock those in and continue with our program.

From an overall balance sheet strategy, I think we've talked about before, one of the things the hedge book does allow us to do is to invest significant amounts of free cash flow back into shareholder returns. And currently, that's taking the form of share buybacks. So we're about 20% so far and that hedge book is the big reason why we're able to do that, why we were able to be the first ones in the basin to start doing that.

Nicholas DeIuliis

I think on your question about one rig and whether you can run that efficiently. I think that definitely for sure. Because like we've talked about several times in the past, having the 1 rig, 1 frac crew consistent program, it allows us to secure the right partners, the right service partners on a long-term basis and develop very healthy relationships. They know we'll be there through all parts of the cycle, both up and down and so they're willing to work with us and really commit to us on a long-term basis. So we get the right service partners put in place.

And then our employee base knows that they can count on a consistent level of activity that we have a consistent activity set, so we can attract very well-qualified and highly talented individuals to fill that employee base. And so now we've got the right service providers in place and the right employees in place. Then you give those guys the right targets, the right metrics to solve for on a long-term basis.

And they go plan ahead. They figure out where the capacity constraints may be, where the risks may be. They solve them well in advance. They put mitigations in place, just like a lot like we've talked about on multiple calls in the past, derisking the plan, looking forward, having a plan and then just going and executing that plan. So I think having this very consistent 1 rig, 1 frac crew plan makes us operate at a very high level of efficiency.

Operator

The next question comes from -- let me just verify here. Just one moment. It will be Noel Parks at this one moment Mr. Parks, please go ahead with your question.

Noel Parks

Good morning. You're just talking a bit about the -- your service providers, and it sounds like things are good on the labor availability side. Could you just talk a little bit about your thoughts or assumptions heading into next year as far as labor inflation, both on the contract side and also your own internally?

Alan Shepard

Yes. I think on the labor inflation side, that's subject to kind of more of the macro environment. I mean you could potentially paint a scenario where if the company slip -- or the country slips into recession, some of those pressures ease. And conversely, if we avoid that, you can continue to see pressure on those fronts.

So again, this just goes back to kind of the wider guidance we provided on this call, and then we'll have some more color as we move forward. I think we'll know a lot more a quarter from now about where things are headed.

Nicholas DeIuliis

And then on the employee side or the internal company employee side, we feel very good about that. We've already been not just industry-leading, but regionally leading on sort of all-in compensation average per employee when you look at things on a median basis. We're very proud of that. And I think we're in great shape.

And I think things like attrition rates, and sort of recruiting success rates sort of back that up in a big way. So we stay very close to that. I think that's in a great spot.

The biggest concern we've got is not so much labor inflation or service inflation outside the company as much as it is what Chad touched upon earlier, which is the quality of the available labor set or the quality of the available service skill set. And that's where we spent most of our time. So it's not just the easy a question of will the individuals and the service provider be available. It's more a question of can we get the best of the individuals and the best of the service providers available. And that, again, that lends itself to one of the advantages of the activity set that we've situated ourselves with.

Noel Parks

Great. I just wanted to turn to financial consideration. As you model out the next few years in your economics on the drill bit side and the production side, can you just talk a little bit about what you're using as far as cost of capital assumptions going forward? The interest rate environment we've been in higher than, of course, we've seen in a long time.

Alan Shepard

Yes. So certainly, your observation on the interest rate is right, kind of driven our views as well on some of the balance sheet stuff you saw us do during the quarter. From a cost of capital perspective, when you model this out, we're very consistent with the peers. I think we're somewhere in the mid-teens, mid low teens, so call it, 13%, 14%, 15%, somewhere around there on the equity side.

From our perspective, we tend to look at our stock in terms of an intrinsic value analysis when we're determining share repurchases, kind of just various discount rates.

Nicholas DeIuliis

When we do sort of the math of what our equity is worth when it comes to capital allocation, the last thing we want to do is issue additional shares at this valuation. And the first thing we want to do is reduce our share count at basically bargain basement prices.

So there's the weighted average cost of capital assessment for just coming up with the overall NAV of the company or risk-adjusted return screenings. But then there's also the view of from an equity perspective, like what do we want to do with capital allocation and clearly, the last 2.5 years have sort of reflected that in a big way.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Tyler Lewis for any closing remarks.

Tyler Lewis

Great. Thank you, and thank you to everybody for joining us this morning. Please feel free to reach out if you might have any additional questions. Otherwise, we will look forward to speaking with you again next quarter. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.