Q3 2021 Mueller Water Products Inc Earnings Call
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Welcome and thank you for standing by today's call is being recorded if you would.
Have any objections you may disconnect at this time all participants are in a listen only mode until the question answer session of today's conference at that time, you May Press Star 1 on your phone to ask a question I would now like to turn the call over to your host we Kincaid you may begin.
Good morning, everyone. Thank you for joining us from Mueller water products third quarter 2021 conference call. We issued our press release reporting results of operations for the quarter ended June 32021 yesterday afternoon.
A copy of the press release is available on our website and Mueller water products Dotcom Scott.
Scott Hall, our president and CEO and Mark <unk>, our CFO will be discussing our third quarter results the eye to our water acquisition and market conditions and our updated outlook for fiscal 2021. This.
This mornings call is being recorded and webcast live on the Internet. We have also posted slides on our website to accompany today's discussion and to address forward looking statements and our non-GAAP disclosure requirements. At this time. Please refer to slide 2 this slide identifies non-GAAP financial measures referenced in our press release.
Well and our slides and on this call and discloses the reasons why we believe that these measures provide useful information to investors reconciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website.
Slide 3 addresses forward looking statements made on this call. This slide includes cautionary information identifying important factors that could cause actual results to differ materially from those included and forward looking statements.
Please review slides 2 and 3 in their entirety.
During this call all references to a specific year or quarter unless specified otherwise refer to our fiscal year, which ends on September 30 and Ah.
A replay of this morning's call will be available for 30 days at 1.8 and 664487651, the archived webcast and corresponding slides will be available for at least 90 days and the Investor Relations section of our website I will now turn the call over to Scott.
Thanks, Whit. Thank you for joining us today, I hope everyone listening to our call continues to stay safe and healthy.
Before we review our financial performance I would like to take a moment to talk about the tragedy, which occurred at our Albertville facility.
For the Mueller family June 15th of this year will always be remember from a senseless tragedy that occurred at our facility located in Albertville, Alabama.
Our hearts are with the victims and their loved ones, the Albertville community and everyone at Mueller during this difficult time.
The response from our team and Albertville and everyone throughout Mueller demonstrates the commitment of our team members have to each other.
We partnered with the National Compassion fund to provide direct financial support to the families of our colleagues that were lost our employees that were injured and employees that were impacted by this event.
This fall and makes it simple for anyone looking to support the families of the deceased and injured employees as they begin on their path to healing we.
We made an initial contribution to the fund and we will cover all administrative fees.
We are grateful for all of the support and encouragement we have received from the community and across the country.
And the tragedies and Albertville, and Aurora test, even the strongest resolve our hearts are broken and it's going to take some time to heal we.
We are bringing to bear all the resources, we can and supported the Albertville community.
Our leadership team was on the ground within hours of the incident and counselors were onsite and the local law enforcement investigation is ongoing and we are continuing our full inactive cooperation.
Our board of directors is committed to the safety and security of our employees and has engaged an independent consultant to review our policies procedures and security protocols to ensure that we have the most appropriate programs in place to protect our employees from workplace violence.
Albertville facility was closed for approximately a week after the shooting to allow time off for employees to spend with their families.
Facility is now fully operational although the tragedy caused shipment delays along with other impacts team members throughout the organization responded with incredible dedication and compassion.
Now turn to our financial performance during the quarter, Please turn to slide 5.
We delivered an exceptionally strong performance and the quarter achieving record consolidated net sales of $310.5 million.
Growing 35, 9% versus last year strong volume growth from the quarter led to a 42, 9% increase and adjusted EBITDA and 100 basis point improvement and adjusted EBITDA margin.
When comparing these results to the third quarter of fiscal 2019, which preceded the pandemic, we generated a 13, 2% increase and net sales.
This level of growth reflects strong end market demand from continued increases and municipal spending and residential construction.
While the strong demand for our products and services exceeded our expectations, we face ongoing challenges in the quarter from rising material and supply chain expenses.
During our third quarter, we announced our third price increase this year across many of our product lines due to the level of inflation, we have experienced given.
Given the continuing impact of inflation and strong level of orders. We are experiencing we do not expect to see and improved price cost relationship until fiscal 2022.
During the quarter, we further strengthened our balance sheet and future cash flow with the opportunistic refinancing of our $450 million senior notes, which decreased our annual interest rate by 150 basis points Marty will touch on the details later in the call.
Given our capital structure, we are well positioned to execute on our strategic growth opportunities with bolt on acquisitions and capital investments, which strengthen and grow the business. While also continuing to return cash to shareholders, primarily through our quarterly dividend.
Our acquisition of <unk> water during the quarter is a great example of a bolt on acquisition that expands our water network monitoring capabilities and will accelerate our product offerings and I will discuss the strategic rationale for pressure management solutions and <unk> later in the call.
Our teams continue to execute well despite the ongoing operational challenges from the pandemic inflation and global supply chain disruptions.
I am confident that we are taking the right steps to operate effectively in this new environment and that our pricing strategies can deliver improved margins as inflation stabilizes.
We are increasing our annual guidance for both consolidated net sales and adjusted EBITDA growth for 2021 for the third consecutive quarter and believe we are well positioned for further financial performance success and fiscal 2022.
With that I'll turn the call over to Marty to review, our third quarter results.
Thanks, Scott and good morning, everyone I Hope you and your families and associates remain safe and healthy I'll start with our third quarter 2021, consolidated GAAP and non-GAAP financial results, then review our segment performance and finish with a discussion of our cash flow liquidity and debt refinancing during.
During the third quarter of this year, we generated consolidated net sales of $310.5 million, which increased $82 million or <unk> 35, 9% the increase and net sales was driven by increased volume at both infrastructure and technologies and higher pricing.
And as profit this quarter was $105.4 million.
Yielding a gross margin of 33, 9% our gross margin increased 80 basis points versus the prior year. This increase was driven by benefits from increased volumes and higher pricing, which were partially offset by higher costs associated with inflation and our total material costs increased 13% year over year.
Here in the quarter, primarily driven by higher raw materials, which increased double digits sequentially, while net price realization improved sequentially. Our price cost relationship was negative again this quarter given rapidly rising inflation, particularly from raw materials.
Selling general and administrative expenses of $58.8 million for the quarter increased $11.7 million versus the prior year <unk>.
The increase was primarily due to higher personnel related costs higher investment expenses and product development and and.
And no benefit from temporary expense reductions and the prior year quarter in response to the global pandemic SG.
SG&A as a percent of net sales was 18, 9% and the third quarter compared to 26% and the prior year.
Operating income of $42.7 million increased and the third quarter compared to $20 million and the prior year operating income. This quarter includes $3.9 million and strategic reorganization and other charges. These charges primarily relate to the Albertville tragedy previously announced facility consolidation and acquisition.
Transaction costs.
Turning now to our consolidated non-GAAP results, we generated $46.6 million of adjusted operating income compared to $28.6 million and the prior year increased volumes and higher pricing were partially offset by higher costs associated with inflation and higher SG&A expenses.
We reported adjusted EBITDA of $62.6 million as compared with $43.8 million and and prior year quarter with and adjusted EBITDA margin of 22% and the last 12 months adjusted EBITDA was $215.6 million or 21% of net sales.
For the quarter, our adjusted net income per share was <unk> 18, as compared with 11 and the prior year.
The effective tax rate this quarter was 28% as compared with 23, 3% last year.
Turning now to segment performance starting with infrastructure.
Infrastructure net sales of $287.3 million increased $77.9 million or 37, 2% as compared with the prior year, primarily due to increased shipment volumes and higher pricing and.
Adjusted operating income of $64.2 million increased $20.6 million or <unk> 47, 2% as compared with the prior year.
The increase is primarily due to increased volumes and higher pricing, partially offset by higher costs associated with inflation, primarily for raw materials and higher SG&A expenses.
Adjusted EBITDA of $77.2 million increased $21.4 million or 38, 4% leading to an adjusted EBITDA margin of 26, 9% and a conversion margin of 27, and 5% and the quarter.
Moving on to technologies.
Performance technologies improved this quarter as net sales of $23.2 million increased $4.1 million or 21, 5% primarily due to increased volume the adjusted.
Operating loss of $2.7 million improved $900000 and the quarter as higher volumes and favorable manufacturing performance more than offset higher SG&A expenses and higher costs associated with inflation technologies.
Technologies, adjusted EBITDA increased by $700000 with a loss of $600000 as compared with a loss of $1.3 million and the prior year quarter.
Moving on to cash flow net cash provided by operating activities for the 9 month period improved $45.5 million.
To $123.3 million, primarily driven by higher net income and the $22 million Walter energy tax payment last year.
We invested $46.1 million and capital expenditures during the 9 month period, compared with $51.2 million and the prior year period free cash flow for the 9 months period improved $56 million to $77.2 million compared with free cash flow of $26.6 million and the prior year period.
During the quarter, we redeemed our 5.5% senior notes due 2026 and privately issued $450 million of 4% senior notes due 2029.
The benefits from this opportunistic debt refinancing include significant annual interest savings and investment grade like covenants and extended debt maturity. We were pleased to see Moody's upgrade Mueller water products corporate and notes rating to be a 1 during the quarter as part of this refinancing we incurred a debt extinguishment charge of <unk> 16.
$7 million, which included a call premium of $12.4 million and a write off of $4.3 million and deferred financing costs importantly, we expect to realize annualized net interest expense savings of $6.9 million.
At June 32021, we had total debt outstanding of $446.6 million and total cash of $228.6 million.
We did not have any borrowings under our ABL agreement at quarter and at the end of the third quarter, our net debt leverage ratio improved to 1 time from 1.5 times at the end of the prior year quarter.
We currently have no debt maturities before June 2029, or 4% notes have no financial maintenance covenants and our ABL agreement is not subject to any financial covenants unless we exceed the minimum availability thresholds based on June 32021 data, we had approximately $145.1 million of excess.
<unk> under the ABL agreement, which brings our total liquidity to $373.7 million.
We continue to focus on maintaining a strong flexible balance sheet with ample liquidity and capacity, which support our capital allocation priorities.
Back to you.
Thanks Marty.
For opening the call up for questions I will discuss pricing and inflation and markets are large capital projects and the <unk> acquisition and our updated annual guidance as.
As Marty mentioned raw material inflation accelerated during the third quarter impacting our gross margins. We continue to take actions to improve price realization with additional price increases and close management of our supply chain.
During the third quarter, we announced our third price increase this year across many of our product lines. We were pleased to see the benefits from our previous pricing actions lead to a sequential improvement and net price realization in the quarter. However, due to the magnitude of the inflationary increases, especially raw materials the lag between.
We and pricing actions and realization and the level of orders, but price cost impact was more challenging this quarter compared with the second quarter.
The sharp recovery and demand coupled with supply constraints have led to record backlogs for our products and extended the normal lag between the timing of inflation and realization of our pricing actions.
As a result of these market conditions, we do not expect to see and improved price cost relationship until fiscal 2022.
However, as we have seen in the past when we look over the full cycle of the inflationary price movements, we expect to more than cover the inflationary expenses.
Moving onto our end markets, we saw improvement and our end markets during the quarter as municipal spending continues to recover from the pandemic and residential construction and benefits from strong demand for single family homes.
The third quarter was very strong with June starts at a $1.6 million seasonally adjusted annual rate.
Due to a number of factors, including supply constraints and building cost inflation, we expect the growth and housing starts to moderate over the coming quarters as we lap the surge and starts we experienced and our fiscal fourth quarter last year.
We believe that the supply challenges that have helped push out new lot development and construction into 2020 to support our normalized level of housing starts.
Our view on the municipal and market is more favorable than last quarter, primarily due to a pickup in the repair and replacement portion of the market.
While the project portion of business is slowly improving.
<unk> seeing some delays attributable to the pandemic, causing uncertainty around funding and travel.
We remain hopeful that and infrastructure bill, including water investments will be passed and a certain utilities could benefit depending on their projects and financial status.
It will take time for the federal dollars to reach the municipalities. It should increase the overall pace of infrastructure work, especially for large projects.
Also importantly, it can help shine the light on the need for the repair and replacement of aging infrastructure.
Moving onto our large capital projects.
Despite the challenging operating environment, we remain focused on driving operational excellence and executing our large capital projects. We continue to make progress on the construction of our new brass foundry indicator, Illinois due.
Due to the pandemic impact on inflation and the supply chain, we anticipate the cost to complete the project will be higher than projected.
As a reminder, at the outset of the pandemic, we deferred some of the capital expenditures associated with the foundry capital projects as we assess the impact on the global economy.
We still expect that this project will be completed by the end of fiscal 2023 and will ramp up during fiscal 2024, we expect capital spending to remain elevated and fiscal 2022 and will decrease to less than 4% of consolidated net sales after 2023.
In summary, due to the ongoing inflationary pressures and supply chain challenges, we expect that the 3 large capital projects will account for approximately $140 million of total spending.
We continue to expect these projects to drive approximately $30 million of.
From a annualized incremental gross profit after all are complete and at full run rate.
These projects will help accelerate product development drive additional operational efficiencies reduce duplicative expenses increase revenue and Adas and advancing our sustainability initiatives.
We were pleased to complete the acquisition of <unk>, this quarter, which enhances and expands our technology product offerings or pressure management solutions.
<unk> offers pressure data loggers advanced pressure valve controllers and network analytics to reduce water loss by providing solutions that enable clients to monitor analyze and control water networks to reduce leakage and reduce energy consumption and improved supply.
Today, <unk> delivers pressure management solutions to more than 100 water companies and over 45 countries largely in Europe and Asia.
We are excited about bringing their products solutions and deep technology expertise into our portfolio and introducing them to the north American market.
Data is a critical component to detecting pressure transient which are rapid burst that can cause catastrophic pipe failures.
This information work Synergistically with our <unk> acoustic leak technology and will allow us to provide a more complete pipe network leak detection solution to customers.
Additionally, <unk> pressure valve controllers work with our singer pressure control valves, we expect to offer products and solutions to North American customers this quarter.
We closed the acquisition in mid June and their results are part of our technologies segment.
We see the clear need for more digitally enabled products and services to allow municipalities to manage their operations remotely as they prepare for accelerating challenges with the expected retirements due to an aging workforce.
Digital water spending is expected to grow at a high single digit annual growth rate with network and asset management solutions growing and the double digits.
Our vision is for our centric software platform to allow utilities to monitor control and optimize their water distribution networks with.
And with centric customers can identify and prioritize leaks.
<unk> and control network pressures assess water quality view metering data remotely flush water lines and utilize data analytics to manage their network assets remotely.
The acquisition of <unk> further enhances our centric software platform and positions Mueller as the leader and network monitoring and solutions with the ability to accelerate our software offerings and provide products that support the resiliency and sustainability needs of our customers as.
As we expand the number of digitally enabled infrastructure products and our portfolio. Our <unk> platform is well positioned to become an essential tool for water utilities to manage their distribution networks.
Now moving on to our updated expectations for 2021 as.
And as mentioned earlier consolidated net sales growth and the third quarter exceeded our expectations and reached a record level due.
Due to the high level of demand coming out of the pandemic and supply constraints. We believe that distributors have not been able to increase inventories to pre pandemic levels.
This dynamic has resulted and all time high backlog for infrastructure related products with orders continuing strong through July.
Due to another strong quarter. This year, we are again, increasing our 2021 annual guidance for the third consecutive time.
Our expectations for consolidated net sales growth for the year is now 14% to 16% versus previous guidance of 8% to 10% growth.
Our expectations for adjusted EBITDA growth for the year is now between 13, and 15% as compared to our previous guidance of 9% to 12% growth.
Our updated expectations include anticipated and market growth and ongoing challenges with the relationship between pricing and inflation.
We also continue to expect to increase cash balances in the fourth quarter.
Finally, we remain focused on keeping our employees safe protecting our communities delivering exceptional products and support to our customers and increasing cash flow.
We have made progress on our key strategies this year to accelerate product development drive operational execution execute our large capital projects and deliver technology enabled products.
We will continue to execute our strategic priorities to become a world class water technologies company, bringing solutions to critical water infrastructure.
With our ongoing focus on sustainability, we plan to minimize our water and energy footprints and deliver smart products that are more efficient for our customers and safer for the environment.
With healthy and market tailwind from the aging infrastructure and accelerating technology adoption, we believe that we have strong and momentum going into 2022.
And with that operator, please open this call for questions.
Thank you we will now begin our question and answer session. If you would like to ask a question over the phone line. Please press star 1 from your phone and meet your line and speak your name clearly 1 from debt. Your name is required to introduce your question. If you would like to withdraw your question Press Star 2.
Our first question comes from Deane Dray from RBC capital markets. Your line is open.
Thank you and good morning, everyone.
Good morning theme for today and we.
Hey, good morning can we start with price cost you gave a lot of good color there.
And industry wide phenomenon.
Can you quantify how you came out price cost you said you were negative cannot be quantified and then some color on that third price increase.
A lot depends on when was it rolled out and how much in the quarter was at realized because I know that really will dictate.
When and fiscal 'twenty, 2 you would start to at least reach parity. So if you could if we could start there that'd be helpful.
Sure. So so price right now.
The most recent price increase was effective.
First week of August and.
And so as you predicted will have.
We will have so much backlog and for all of that rolling through that it will be into fiscal 'twenty, 2 and potentially the calendar 'twenty true before we start flushing that through our P&L.
And the majority of that.
And steel so the 2 big drivers.
Face and that Marty referred to and FERC cargos around raw materials, and it's really the scrap market for steel.
Average scrap and then copper component of the brass ingot and really driven the.
And the brass and placement.
Both of them culpable.
And with different degrees of course.
But what we've elected to do it's tied to lock in our graph.
For our fourth quarter, So that's fair.
Pretty much.
Fixed I think we still have some exposure on what could happen with the.
And the scrap steel market and expert quantification equate.
Sequentially.
Cost us a few million Bucks.
When you think about how negative we were and our Q2.
And the thing I'd like to make sure that you understand those in the past vs have actually been positive our guidance, yes, we have a little short term game, but when the commodities markets settle down as long as it's a.
A gentle settling.
We would expect that all of the price we get through these inflationary periods to retain.
And to the future as we.
We set a new base line. If you will so I think that there is some.
The lag is going to be a little bit longer, it's probably going to be and through our fourth quarter and for first quarter of next year.
And it's going to cost us a few million bucks kind of thing.
And the differential.
But I think all and all were.
Going to be.
You are better off through the cycle, because we have been able to get the sequential price increases quarter after quarter after quarter.
That's real helpful and yes, we fully expect you to be able to hold onto those price points. Once that's gone through and it's gone through distribution.
We don't see a scenario, where you would have to give it up.
And so a couple of follow up related questions, you mentioned supply chain constraints and again, we've seen it everywhere, but if you could give some specifics as to what youre seeing I mean are you.
Youre not able to get some products is this pushing out project.
And then related.
And has there been any benefit this quarter, especially and infrastructure on pull in.
So are some of your customers who are seeing the exact same dynamics.
And with raw material input cost trying to get ahead of your price increases by pooling give.
Giving you earlier orders that would suggest it's been pulled in from.
Fiscal <unk>. Thank you.
Yes.
The global environment is especially challenging.
And our teams are no different than the ones you referenced.
And again, while it's even from our own plant and <unk>.
Supply and Lloyds.
Low availability at the.
Offloaded ports all of those things have extended and all of them are expressed I think if I could philosophically go back debt.
90 to 140 days ago.
Did anticipate demand increases I think the world I don't think any of us anticipated the strength with which the demand and the supply chain wasn't ready for it and so what we've done is in effect, we've taken the material supply and.
And we've range whatever Buffalo was and the system.
And literally during the third quarter, we were managing.
Material inflows line there from a day to day point of view as opposed to rate.
3 or 4 days.
We were ready.
And so those volumes of problems I think or would it be.
Fixing once the new level of demand and.
And the capacity for that demand is established and the supply chain and that's whether it's on raw materials component and imports even paint supply forgiveness take all of those things just work.
Ready for the for the shock that demand, we saw him and our fiscal Q3 and I think that in general.
And industry, we're seeing a fairly substantial piece to Q3 a year ago.
So it's not just us I think on the other points around supply chain that we really haven't touched on it.
Other thing. This has caused the unintended consequence is that we have been running over time at extremely high levels through the heat and Istanbul and.
And our Q3 and I think that's it.
The labor.
Aspect of it is something that we will have to manage through Q4 as well as we try to get people.
And brought into our factories trained and productive.
As a result of these record levels of production and.
So I think that there is.
Pete from the supply chain as we continue to staff up.
And yet we're all a little bit cautious opdivo as far as what does that first 90 days productivity looked like at these new private heavy production levels, because we know and the long run we cannot continue to run at the overtime levels. We're currently running at.
And what about the poll and thought.
Yes, I think that everybody.
If you had orders that had fixed price that works.
Yes, everybody is trying to get those expedited and say you told me this debt.
And yet it's shipped and even if I had releases and the future. There is some of that but I would say the water industry in particular, there's very very little low.
And to fully and so if you think of a short cycle businesses and yoga.
Our hydro business, the valve business and very little.
And kind of on scheduled shipment basis, and so whatever has happened has been debatable.
Excellent.
Not a question, but a comment these are extraordinarily tough conditions. I think you guys are communicating well youre executing well. So I appreciate all the color here and also our thoughts and prayers go out to folks and Albert's fell and once again you guys respond so admirably as an organization. So thank you.
Thank you again.
Thank you and as a reminder, if you would like to ask a question over the phone lines. Please press star 1 from your following our next question comes from Bryan Blair from Oppenheimer. Your line is open.
Good morning, everyone very solid quarter and good morning, Brian.
And Brian.
The incremental price and curious you know it was.
Not a surprise at all given the backdrop.
Just curious how much price is now assumed and the revised 14% to 16%.
21 sales guidance and as we look into the early part of 'twenty 2.
Should we think about price realization and given the aggregate increases from this year.
Martin.
Yes.
Going ahead and looking at the price just sort of as a reminder.
Generally our third price increase across.
Our our fiscal 'twenty, 1 so far I think sort of a couple of things we did see net price realization and our third quarter and our expectations are that we will continue to see the net price realization and moving into our fourth quarter as well.
Got referenced in the prepared remarks debt. We are also are seeing record backlog across some of our shorter cycle businesses.
And as we're seeing strong orders continuing to come in so I think from a from a net price realization I would say, we expect that to continue to improve and obviously.
That is the intent behind that is to preserve margin with respect to the higher inflationary costs that we're experiencing.
So the only thing I'd add Brian as you think about modeling it.
Think about our full year price whatever you whatever you have it at.
At least almost half of it is going to come and the final 120 days of the year.
Combination.
Timing of increases, what's where are they stacked up and the backlog as its heavily backloaded.
For the final 120 days of the year or 2 to realize more than half of our price for the year with that said.
We do still see these inflationary pressures if that helps.
And that's I appreciate the color and then.
And <unk>.
And it's extremely strategic and theirs.
As a compelling tie in with Endologix singer and your overall digital portfolio.
Just to level set.
And what should we assume and in terms of financial contribution to start with.
Well, it's relatively small.
Bolt on acquisitions I think the most important point of view from us from a strategic point of view and to get that breakfast transducer and the pressure controller.
Out there and in the portfolio and and I'll, let Marty speak to the financials, but from the product development point of view and the strategic point of view.
And especially on the control and it's probably shorten our time line for our long term plan around pressure management.
Anywhere from 44 to 36 months, so it's going to put us in the game.
And the fight for pressure control pressure zones.
And having a full dynamic range.
Singer debt.
I believe we'll be the only ones and the North American.
Space that will actually have.
Software actuated died.
Dynamic pressure control valve available here and the next let's call. It 90 to 140 days so.
It really shortened our volume to market, while it adds for the business.
Standalone pressure transducer.
Not a large business market if you want to talk about from yes, yes.
Exactly we had more strategic interest and B.
And the business model of the business.
Yes, so just to expand on that Brian when we look overall at IQ low annual sales for this for less than $5 million.
There will be some additional costs as we look to accelerate their product development and integrated and introduce it to North America as as Scott addressed.
But overall from a valuation perspective, when we looked at the return on this versus our cost of capital over time, we think it will be a nice.
Value enhancing and as that accelerates the development that we would have had as well with this acquisition, which will be part of technologies and and certainly over time, we think it will be accretive to technologies margins.
Makes sense kind of M&A as a proxy for R&D and then okay.
1 more if I can Scott if you don't mind offering some more color would be great to hear.
More of your take on the infrastructure Bill.
Helpful and infrastructure, Bill and how much of a catalyst that incremental funding could be for the space overall and more specifically as we look out the next few years.
Well, obviously, it's a huge.
Jude.
Topic for us.
We are active.
And in Washington, and to our voices are heard and I know there are other water companies that we've joined arms with that are trying to get their voices heard too. So I think it's.
Critically important for us and our country and start looking at effort for the water supply and.
And I do believe it's long overdue to spend money.
Just on water infrastructure.
Much of the crumbling infrastructure.
With that said I think that the current.
<unk> of the bill that are floating around.
Our excellent for companies like ours, because I think what they do and I think this is an important distinction of a lot of times when you think about <unk> and some other.
Bills that have come around and all we've done is really change that.
Haven't changed the fundamental economics.
<unk>.
What to build and wanting to build it so.
And if we were to go to Phoenix, Arizona, and Theres, a pipe break whether there is federal money, there or not that demand is going to happen why because.
The money exists the infrastructure exists it will be maintained their population is growing.
All of the pieces and replace it with the Bill Cup and plate.
As water both those areas.
There is a declining taxpayers.
Or a declining tax range and so revenues are falling populations are falling.
And there is billions of dollars and this infrastructure bill that will be made available to those water utilities that otherwise wouldnt have the means.
And to go back and fix their infrastructure to go back and remove their lead lines to go back and improve their pumping infrastructure. So.
Think that we're actually as an industry, we're going to see a very large earth of this infrastructure spending actually be incremental demand through the market and not a timing play I think that we should see a lot of dollars flow into communities.
And then are challenged by population decline and tax rate base decline and so.
And I think it's going to be critically important.
And I think as you know we believe that the most critical need is actually in the infrastructure, so kind of right in our traditional infrastructure products.
And the power Alley, and so I think that.
As far as nothing but good news for where people and the pipe business people and develop business people and the hydro business and we're very very excited about at the same time lead volume and this focus on the let's call them. The poor communities. There is also a realization that the digitization of the water space.
This needs to be encouraged.
And we never get back to this place again and the future.
For that is much much less I think it's somewhere in that $10 billion range, but the but it's there nonetheless and encourage the water utilities too right.
Technology available and make funds available for them to try things to maintain and.
And to operate there.
Their networks more efficiently.
All very helpful color. Thanks for taking my questions.
So from thanks, Brad.
And as a reminder, if you would like to ask a question over the phone line. Please press star 1 from your phone. Our next question comes from Joe Giordano from Cowen and company. Your line is open.
Hey, good morning, Scott and Marty Thanks for taking my questions. This is Robert James and then for Joe.
I think and no the answer to this but I just wanted to check in on the component shortage that we're seeing elsewhere and the market and the impact that you all might have.
A competitor this morning impacted pretty heavily I realize this is like a smaller impact versus raw material for you all but just wondering what youre seeing there.
Any impact and expected timing of relief.
Well.
And I'd hate to say Theres no impact because there is certainly an echo sure Dx as chipsets around cellular.
Some of the components.
No.
So far we've been able to manage the supply chain very closely and we have not impacted scheduled shipments.
And if you are talking about meters in particular.
And we.
Certainly lowered our buffers.
But I think fourth quarter should be volume, but.
Our forecast assumes what youre absolutely right.
There is a lot of products from in particular, you know how these things work Robert the automotive industry as well.
Really crushed ru.
All of the chipset manufacturers too.
Anything they were making before to do automotive chipsets and that pressure gets pushed down and down to down and so it has been.
It's been an interesting 90 days, but so far no real impact for us.
Okay. That's good to hear and thank you for that and then I just.
Wondering if you could kind of update us on like market share dynamics and some of the actions you've taken more recently.
And how you are.
Intending to continue to improve your share overtime and.
And thats more like on the infrastructure side.
Yes, I think that where we have differentiation we have.
More specification position, we are the number 1 player in.
Hydrants, we are the number 1 player.
Distributions day falls.
Waterflood wells 24 inch and below.
I think we may have some slight market share movement.
And what I don't see.
Massive shifts without.
Real product differentiation without real.
Change to the.
You talked of ownership economics.
Utilities and.
I think that the.
Things like Smart hydrant.
Things like valves with electronics and rather than them.
We'll start to fragment the market a little bit and if we want to make sure that when that market fragmentation happens that we have the leading share of the higher tech products.
And we're going to do that by continuing to bring technology to traditional infrastructure products.
As we have done with the smart hardware and as we've done with insert valves that are port ready for water sampling.
Those things.
Things.
We'll get a stronger specification condition, whereas for getting into hand, Inc. About all we're going to we're going to take this over or that over and do that based on the old technology I think all of that and the long run it leads to monetization and so we have to we have to work hard.
On driving.
And those specification differentiation.
Tweet us and the <unk>.
And our competitors and overtime.
That will work.
That's great. Thank you.
Okay, operator, there are no more questions.
That concludes our Q&A session I would now like to turn the call back over to Scott.
Okay, well, thanks, everybody for joining us today I think.
I'm very pleased with the strong performance and the third quarter.
Our team I think we overcame a lot of external challenges to deliver the record net sales and increase adjusted EBITDA margin.
We increased our adjusted EBITDA margin of about 50 basis points through the first 3 quarters of this year and we've increased our cash versus the end of 2020, even after we pay for the acquisition and paying for the debt extinguishment associated with the.
Opportunistic debt loads and so I think we continue to take action as needed to improve price realization and more than cover inflation.
With price over the entire cycle. So we will be able to pocket the majority of our <unk>.
Manufacturing improvements that we're also driving through this period.
And I'm confident we are well positioned to stryker leadership role and the water industry and <unk>.
<unk> from your enhanced retention water is receiving especially as it relates to things like infrastructure.
Legislation.
I think we have a strong flexible balance sheet cash generation and supporting our strategy, we are well positioned to benefit all of our stakeholders by becoming the world class water technologies from me.
And.
Thank you.
Your continued interest at us only bodes well for the future. We are all very very happy with Q3 and remain bullish for 'twenty, 2 and beyond and so I. Thank you for your time today and then.
Thank you for your interest and your water products and with that operator, we'll close the call.
Thank you for your participation in today's conference you may disconnect at this time.
Okay.
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And.
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