Q3 2021 Astec Industries Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Aztec Industries third quarter 2021 earnings call. At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host Steve Anderson, Sir the floor is yours. Thank you and welcome to the <unk> industries third quarter earnings call. Joining me on today's call are very rough elope, Chief Executive Officer, and Becky Weyenberg Chief Financial Officer.
Just a moment I'll turn the call over to Barry to provide comments and then Becky will summarize our financial results.
Before we begin.
I'll remind you that our discussion. This morning may contain forward looking statements that relate to the future performance of the company.
And these statements are intended to qualify for the safe Harbor liability established by the private Securities Litigation Reform Act.
Any such statements are not guarantees of future performance and.
And are subject to certain risks uncertainties and assumptions factors that can influence. Our results are highlighted in today's financial news release and others that are contained in our filings with the SEC.
As usual, we ask that you familiarize yourself with those factors.
In an effort to provide investors with additional information regarding the company's financial results.
The company refers to various U S. GAAP, which are generally accepted accounting principles and non-GAAP financial measures, which management believes provide useful information to investors.
These non-GAAP financial measures have no standardized meaning prescribed by U S. GAAP and therefore are unlikely to be comparable to the calculation of similar measures for other companies.
Management of the company does not intend these items to be considered in isolation.
Whereas a substitute for the related GAAP measures management of the company uses both GAAP and non-GAAP financial measures to establish internal budgets and targets and to evaluate the company's financial performance against such budgets and targets.
You should also note comments made during today's call we will refer to non-GAAP results and a reconciliation of GAAP to non-GAAP results are included in our news release and the appendix of our slide deck.
All related materials are posted on our website at www Dot Aztec industries Dot com, including our presentation, which is under the Investor relations and presentations tabs and now I will turn the call over to Barry.
Thank you Steve.
Good morning, everyone and thank you for joining us on the call. This morning to discuss <unk> third quarter results.
During my remarks today I will begin by discussing key highlights from the quarter and provide an update on actions, we are taking to drive operational and commercial excellence.
I will also share more detail on what we're seeing in terms of demand and current market dynamics before turning the call over to Becky for details on our financial results.
Then we will highlight progress made on our continued strategic evolution and open the call for Q&A.
Turning to slide four first.
<unk> ability and dedication of our team drove strong third quarter performance with sales up 15, 4% and adjusted EBITDA up 58, 5% compared to the third quarter of 2020.
I'd like to highlight the resilience of our team and their impressive ability to execute in a dynamic environment in a quarter marked by a combination of increased demand and ongoing industry wide headwinds.
We also saw a fourth consecutive quarter of record backlog up 184% year over year.
Testament to the strength of our customer relationships as we continue to provide our customers exceptional value superior service and innovative industry, leading technology solutions.
Second we are realizing benefits from several strategic initiatives to mitigate industry headwinds, including increasing pricing to offset inflation onboarding, new talent to proactively identify and supply chain disruptions.
I'll describe these initiatives in more detail later in my remarks, and the results were seeing thus far.
Third the successful execution of our strategy has positioned our business well for future growth I am confident in our team's ability to execute in all economic scenarios as a more focused organization with a strong balance sheet and ample liquidity.
This confidence is evidenced by our decision to increase our quarterly dividend.
Fourth we are building on the three pillars of our strategic evolution and the actions we have taken to simplify and focus our business as we continue to shift our focus to grow.
We have a multitude of organic growth initiatives underway, which I will provide further detail on later during our call.
Lastly.
We remain focused on driving commercial and operational excellence across our business as we position ourselves for future profitable growth.
I'm excited for organizations future as I look at how far we've come in our strategic evolution and a long runway ahead of us.
We have the right team in place to execute our strategy and drive long term stakeholder value creation.
Turning to slide five.
I'd now like to provide an update on our operations and the actions we have taken to optimize revenue meet elevated customer demand and proactively manage supply chain issues.
We continue to drive operational excellence across the organization through our one AD Tech business model.
We are maintaining flexible operations, including cross site manufacturing and manufacturing capacity sharing.
We are focused on leveraging capacity and bandwidth across our footprint to deliver our customers best in class products and solutions across the rock the road value chain.
And lastly, we remain focused on optimizing revenue within our footprint and I'm glad to note. This is the best third quarter revenue generation in the history of our company.
Now onto slide six I'll review some of the key industry dynamics that are impacting our business and some initiatives as it gets in place to capture opportunities and address the industry headwinds.
We.
To see strong demand for our products across our infrastructure and materials solutions businesses.
Universe stations with customers indicate a positive outlook through the remainder of 2021 and into 2022.
Our record backlog this quarter reflects continued strong demand.
We have a number of initiatives in place to enable us to meet higher demand and it will provide more detail on that shortly.
Despite the latest extension of the Federal Highway Bill customers continue to express optimism for increased U S infrastructure spending and viewed the bill is a long term tailwind for our business.
However, as I've mentioned in previous calls we are not a company that is waiting around for a bill to be passed we see significant near term demand for our products and we have a strategy in place to drive organic and inorganic growth moving forward.
You should also note that our international and part sales continued to grow as well.
Our international Parks teams are doing an outstanding job of driving the business and leveraging the investments that we've made in people processes and tools, which allows them to be easy to do business with a focus on growth, while delivering value to our global customers.
Labor shortages continued to persist across the industry. However, we are seeing steady improvements as a result of hiring strategies with head count up eight 5% year over year.
Regarding inflation, we continue to see higher commodity transportation and logistics costs.
We are however, seeing early signs of steel prices starting to plateau slightly decline the situation remains fluid and we are prepared to adapt prices accordingly to any further increases in input costs.
On slide seven we provide more detail on our initiatives to address labor shortages, we have four key elements highlighted including targeted recruitment engagement and retention practices and sharing the benefits of working at Aztec.
As you can see we have a number of initiatives in place to remain an employer of choice.
We continue to evaluate our programs to retain current employees and enhance our recruiting practices.
Our team is core to who we are here at Aztec and we know the investments we make in our people will pay dividends to organization and stakeholders in the future.
On slide eight we provide more detail on our historic backlog posting record backlog at the end of the third quarter.
In today's environment, we expect backlog to be converted to sales and approximately two to three quarters.
We're acting quickly and diligently to convert our backlog in a timely manner through cross sell manufacturing increased head count and automated processes.
Some customers have begun to schedule orders in advance of their need in order to mitigate any future supply chain disruptions. This combined with strong market demand has resulted in longer lead times, we are constantly working to optimize our operating schedules to deliver and products to our customers at the desired time.
In slide nine we highlight some key ESG accomplishments since our last earnings call, including the announcement of our strategic partnership with carbon here.
Carbon cure enables concrete producers reduce the carbon footprint of concrete and reduce other input costs. This partnership is in line with our strategy to increase environmentally friendly products and services to customers as part of our sustainability commitment.
Carbon curious technology offers a solution to embody carbon at the early stages of concrete production, where the opportunities are greatest I'm excited to be able to offer this product to our customers and further broadened our sustainability focus solutions.
But we're still in the early innings of <unk> journey, I'm excited and proud of the progress that we've made to date.
To recap the third quarter, we saw improved performance with a healthy increase in sales and adjusted EBITDA driven by our team's successful execution of our strategy and continued strong demand for Aztec products and solutions.
Further during the quarter, we started to see greater benefits from initiatives, we put in place to meet strong customer demand combat inflation supply chain tightness in labor constraints.
While we expect some of these industry headwinds may persist into 2022 I'm encouraged by the actions that our team has taken to reduce the impact of our ability to continue to execute our strategy and drive profitable growth.
We remain well positioned to capitalize on the positive customer sentiment that we're seeing well into 2022 and resilient demand for our products as we serve our customers with innovative and differentiated solutions.
With that I will now turn the call over to Becky to discuss our detailed financial results.
Thank you Barry and good morning, everyone.
The site 11 third quarter sales increased 15, 4% to $267 million compared to the prior year quarter.
Equipment sales increased 27.3%.
Parts sales increased six 6% compared to the prior year period.
The sales increase was driven by increased demand across product lines and regions with domestic sales up 11, 4% and international sales up 29, 6% year over here.
Barry mentioned backlog increased an impressive 144% to over $620 million at quarter end, driven by higher materials and infrastructure solutions orders, which were up 300% and 129% respectively.
Higher orders retrofit by continued pent up customer demand after COVID-19 uncertainty in 2020.
In addition to our strong commercial excellence initiatives, our commercial teams continue to build momentum and work with our customers to create value added services products and solutions.
Third quarter, adjusted EBITDA increased 58, 5%.
$16.8 million compared to the prior year period.
Adjusted EBITDA margin grew 170 basis points to six 3% compared to the prior year period different by pricing volume and manufacturing efficiencies, which were partially offset by inflation and centralization efforts.
Adjusted SG&A expenses increased six 9% on a dollar basis, primarily due to the increase in personnel costs, which includes commissions and more normalized travel expenses.
Adjusted earnings per share increased 163, 2% in the quarter to 50 cents compared to 19, France in the third quarter of 2020.
Third quarter adjusted EPS.
$2.1 million or nine cents.
Transformation restructuring and other costs, including $2.4 million of costs associated with our ongoing simplify focus and quite a transformation program.
Our adjusted effective tax rate for the quarter was negative 23, 9% driven by the timing of tax credits, which resulted in an 18 fence positive impact to earnings per share.
The tax benefit was driven by a valuation allowance release in Brazil, net R&D credits driven by increased investments in engineering and stock compensation benefits.
Our expectation for the full year adjusted tax rate in 2021 it's in the 12% to 15% range. However, the situation remains fluid.
On slide 12.
We highlight the key drivers of our year over year, adjusted EBITDA margin expansion of 170 basis points.
Adjusted EBITDA margin expansion was primarily driven by pricing volume and manufacturing efficiencies, partially offset by inflation and higher SG&A.
We have implemented multiple price adjustments throughout the year to help offset the increasing impact of inflation.
And we are prepared to implement further price increases as they become necessary.
Moving onto slide 13.
Our infrastructure solutions sales increased by 16.7% to $176.3 million in the quarter, primarily driven by strong international and domestic sales, which grew 45, 2% and 11, 6% respectively.
Compared to the prior year period.
Adjusted gross profit increased 24, 7% to $39 $9 million and adjusted gross margin increased 140 basis points to 22, 6% driven by improved volumes pricing and mix.
Infrastructure solutions backlog at the end of the quarter increased 129, 4% to $341.4 million as we continued to see strong and increasing demand for highway and road building construction products across the country.
Turning to slide 14.
Our material solutions sales increased 13% to $97 million compared to the same period, a year ago, driven by increased demand across product lines and regions with international sales up 16, 7% and domestic sales up 11% versus.
The third quarter of 2020.
Segment gross profit increased eight 7% to $22.4 million and gross margin decreased by 100 basis points to 24, 7% driven by inflation.
Material solutions backlog at the end of the corner increased 300.4%.
$279 $1 million, driven by continued dealer restocking and strong market activity.
And on Slide 15, I won't go over the details, but here we highlight the year to date results and provide some color for your reference.
Turning to slide 16.
We continue to maintain a strong balance sheet with minimal debt and had cash possession I vote for $164 million.
Overall, we have available liquidity of $393 million, including nearly $165 million of cash on hand, with only 900000 and total debt as of September 30 F. 2021.
While our leverage today is virtually zero as a reminder, on a long term basis, we will strive to operate between one and a half to two and a half times debt to EBITDA.
However, in the future there could be times start with will be leveraged over at this range, but our goal would be to return to the one and a half to two and a half times range.
As Barry highlighted earlier during our call we remain focused on maintaining a strong and flexible balance sheet with ample liquidity and believe that this will enable us to withstand a variety of economic situations.
Slide 17, as a reminder, on our capital deployment framework.
Why do we consider the various avenues of capital deployment, we do so in a context of our long term strategic objectives and related revenue earnings and cash flows in order to maximize shareholder value.
Regarding acquisitions.
Pipeline remains strong and our strategic approach remains consistent.
As a reminder, we remained focused on acquisitions that align with our strategic filters and financial criteria to support our growth pillar.
Importantly, we remain committed to delivering returns to shareholders primarily through funding our dividend.
I shall now beginning next quarter, our dividend will increase from 11 cents per share to 12 cents per share.
This is being done to reward our shareholders and as evidence of our confidence in the one S Tech business model.
With that I'll now turn it back over to Barry for his closing comments.
Thanks Becky.
Continuing with slide 18, we highlight some key organic growth opportunities, we see across our businesses. As a reminder, we expect to drive approximately 5% year over year organic growth over the long term.
First.
Organic growth opportunities will continue in our international business and third quarter results demonstrate the traction that we're gaining on that front with international sales up 30% year over year.
Secondly opportunities to drive growth will continue in our parts and services businesses.
During the third quarter parts sales grew 6% year over year, reflecting the momentum that we're gaining in this business.
New product development continues to gain momentum.
A few examples include our new SB 3000 material transfer vehicle and highly portable Ventura asphalt plant shown on the next slide which I will speak to more in a moment.
We will continue to drive organic growth through new product launches and fostering a culture of innovation here at Aztec to provide our customers with the best solutions in the industry to meet their needs.
We also continued to pursue organic growth opportunities related to dealer expansion cross selling of strategic accounts.
Our success continues in each of these areas I'm confident our related strategic initiatives will drive future profitable growth across our businesses.
Yeah.
We are reinvesting in the business to drive innovation and technology enhancements to support organic growth opportunities that provide customers with industry, leading technology solutions that provide value and support for rock the road initiatives.
We are well positioned to capitalize on global growth opportunities in 2022, as we continue to reinvigorate innovation leverage technology to unlock internal synergies, while also enhancing the customer experience.
Slide 19 shows our shuttle buggy 3000, which has been reinvented based on customer input to prove safety serviceability usability and performance.
You may recall, we invented the shuttle buggy material transfer vehicle 1989, and it quickly became the benchmark in the paving industry.
Our new ultra portable intra asphalt plant maximizes performance capabilities, primarily for international markets.
As you can see some of the plants keep features show it can be transported to the single load is a continuous process that can produce 140 tons of mixed per hour. It is very easy to maintain.
I'll conclude on slide 20, with our key investment highlights.
Our performance during the third quarter is a reflection of the commitment and tenacity of Aztec team as we continue to work diligently inefficiently to deliver results against the backdrop of continued global headwinds.
I am proud of the team's ability to execute our strategy during the quarter and we are seeing benefits from the strategic initiatives that we have in place.
We are still in early innings of our business evolution and our team remains laser focused on positioning our organization for future growth, we continue to innovate and to work with our customers to create value added services products and solutions that leveraged strong and long lasting relationships.
Lastly, as a reminder, we remain committed to our 2023 targets of 10% to 12% EBIT margin and greater than 14% return on invested capital as highlighted at our December 2020 Investor day.
I am optimistic for the future of AD Tech as we continue to execute our strategy I am confident that the progress. We have made to date will result in a stronger and more agile organization.
Our strategic initiatives and focus on commercial and operational excellence will drive continuous improvement future profitable growth and long term shareholder value.
With that operator, we're now ready to open the call for any questions.
Yes.
Thank you ladies and gentlemen, the floor is open for questions. If you have any questions or comments. Please press star one on your phone at this time.
To withdraw from the queue you May press Star Q, we do ask that while posing your question you. Please pick up your handset if listening on speaker phone to provide optimal sound quality.
Please hold a moment, while we poll for questions.
And our first question today is coming from Mig debris at Baird. Your line is live you may begin.
Thank you and good morning, everyone.
Good morning.
Yes.
Very very good order intake is a as you already highlighted and record backlog.
I guess I'm I'm curious your perspective on your ability to convert this backlog to revenue you know you talked about.
The backlog is gonna be converted over the next two to three quarters, but maybe you can be a little more specific in terms of are you able to increase production sequentially in the fourth quarter relative to the third given all the comments that you've provided.
On our supply chain and labor challenges.
And maybe let's start with that.
Okay, Hey, this is Barry thanks for the question and participating in the call.
We feel as though we've built traction throughout the course of 2021, both in our ability to to to hire labor to support our demand as.
As you May have noted in the call we've increased our head count roughly just under 9%.
It's not as much as we would've liked but you know we feel like we have the right pieces in place to continue to build that that will support you know our ability to convert backlog into orders.
We said all along that one of our biggest constraint is really labor and so we feel good about that we also see that set aside the supply chain disruptions that we're dealing with the examples of started machine to get it down the line parts don't show up as they were you know promise from the <unk>.
A player have to pull them as you know those types of things set that aside we're seeing that some of the efficiencies that we're getting relative to the throughput has improved our sites.
But obviously you know a big component of that is the disruptions that we have in supply chain and having to read.
A replay on our production and so on and so forth. So you know.
Without a great extent of continued supply chain or worsening supply chain situation. We feel good that yes, we will continue to be able to convert more of that backlog.
<unk> sales as we move forward in time, certainly in Q4 and in 2000 2022, setting aside any of the logistics and supply chain issues, we're having.
And let me give you some color in regards to how we're doing that big Yeah. So you know one of the things that I feel really.
I'm proud about is that as we've gone to the one asset business model.
No we look at the capacity that we have across all of our sites and today. We have many sites that you know we're not traditionally a concrete plant manufacturing site that are building components for concrete plants are.
We're now leveraging our supply chain more effectively to ensure that we can get components into support you know the the needs of our customers and the time that they require it now obviously our supply chain is dealing with some of the same issues. We are around labor, but generally we found that that outsourcing.
Certain components has generally helped us getting more products through the facilities.
Obviously, you know the operational excellence initiatives, we have in place are allowing us to use value stream mapping and other types of lean tools to take you know the inherent waste out of our build processes and so we've seen some throughput and capacity improvements from those types of exercises as well.
And in addition to that we're also looking at how do we expand capacity through investments.
Our brick and mortar potentially and also we believe that with the right type of M&A strategy. We can also see our capacity improvements there as well and you know I feel good about our M&A funnel and know that you know the targets that we have in that funnel would would allow us to do that.
Okay.
I guess my and my other question has to do with.
You know the strong orders that you have are great, but I'm kind of curious as to your ability to properly price these orders and properly price.
Your backlog given the.
Various cost drags in an inflation that you were experiencing can you can you comment on that at all.
Yeah, absolutely thanks for the additional question.
What are our customers are smart.
You know, they're dealing with the inflation elements within their own businesses and so you know that along with the value that our organization has demonstrated to that customer base has allowed us to pass on price increases pretty effectively and you know the way we see that.
Meg is that we will see the cost price.
You know ratio continue to improve as we go through Q4 and into 2022.
But we also know that are you know we may not be through the woods, yet and so we continue to look at you know what our costs are.
No one of those input costs, what do we need to do from pricing and I'm really proud of the team to have worked with customers. So effectively as they have in.
In 2021 in order to find a way to to.
Pass on as much of a price as possible now youll see in our chart on EBITDA waterfall that we also feel good that we all have seen benefit from our operational excellence and some of our acquisitions that have helped us as a company offset any gap that we might have from a cost price perspective, but we're very active we.
Feel good about being able to pass it on.
You know certainly where we're much more effective of passing on pricing on backlog that does not have a customer's name on it if it does have a customer's name on it were much more sensitive to the commitment that we've made that a dealer potentially made and you know trying to hold that price, but things that are inventory builds.
Or backlog without customers names, we've been pretty successful at passing on pricing through that part of our backlog.
Yeah, I mean to this very point I'm I'm looking at the fact that your infrastructure orders were 300 million and now as far as my model goes I've, yet to see a quarter where order intake.
Then quite this strong leaving.
Leaving the wood pellet plant.
Story aside from back in the day, but anyway.
My understanding is that a lot of these orders actually do have a customer name associated with it which is why I'm sort of wondering given given the strength of this order intake are you able to properly price. These when you think about the pace of delivery in the Clos that youre going to have going forward.
Sorry to be stress at this point I just want to make sure that we're clear on it.
No that's it.
No problem.
On the infrastructure side, that's where we're going to have.
Those orders are going to be typically a lot of them are going to be asphalt plant related sales.
That's a that's a situation where our customers are planning out in advance based on their own capital expense, our strategies and plans and so in that case, we have been able to work with them.
We are a premium product with premium service and premium value and so we've been able to find a way to work with them to pass that price I'm quite effectively.
Will do moving forward.
I think my my last question if I may has to do with this bridge on slide 12 that you've mentioned.
Now you you call out here inflation of 705 basis points in terms of it being a drag.
Looking at last quarter very similar number was 697 basis points last quarter. So.
So sequentially seems like you know things are tough, but they haven't gotten materially worse and I'm I'm sort of curious first is my understanding of this correct and then second as you as you think about say the next couple of quarters do you expect these drags from inflation.
And to escalate from this call at 700 basis points run rate because I'm presuming as we move into the second quarter of next year and beyond just base effect.
Well, we'll have this drive B, you know quite a bit lower than what we're experiencing currently.
Thank you for that.
Good question May agenda, generally I would answer this way it all started off if he has anything that you certainly can.
I think your your assessment is correct, we've seen any <unk> of the inflationary pressures as as we did you can see from quarter to quarter. If you choose to do three.
We see that also released from a cue for perspective.
And I think that's what gives us the confidence on that price cost ratio. There, we'll see that we should be able to continue to call. Some of that back as we go through forward in time.
Obviously.
What happens when inflation is we get 2022, I think that we don't have that crystal ball, but I think ultimately we're in a much better place now in regards to having to to manage it then we were at the beginning of this year because cause you know make that as inflationary pressures Blake like steel did.
Over the last many months, it's hard for an organization and quite honestly, it's hard for us to stay ahead of it but when Steele moves at a slower pace upward down we're in a much better position to be able to manage that change and mitigate an offset with appropriate levers and so I don't see the <unk>.
Same type of trajectory. If there is inflation that we've had over the last 12 months. So therefore, I think we will be will be much better position to be able to manage that move forward.
Alright, well you see the comments good luck.
Thank you.
Thank you. Our next question today is coming from Steve Arizona.
Identity. Your line is nice you may begin.
Good morning, very morning packing uhm.
I do want to follow up series of previous questions to ask.
He knows we've gone through this earnings season, we're sharing from companies, saying that to supply chain issues are actually.
Getting worse, certainly not getting better and let the duration could be the longer or maybe that's just lack of disability you've been going through it a couple of quarters given your sense I'm turning back log into wrapping. It do you think it isn't getting worse or do you think you're finding more work arounds.
Yeah, I would say, yes, and yes, Steve will good morning.
We want to experience I've never seen a quarter like Q3 then.
You've experienced you're in the industry and certainly dissect a relative to those types of disruptions and struggles around supply chain and logistics and labor.
But I am proud of the fact that our organization has found ways to minimize that impact as best as possible.
I do agree that there is a likelihood that could get worse as a matter of fact, we see lead times continue to slip out on major components.
You know and the the supply the supplies performance, even unmiter components of.
A little erratic and so.
I don't necessarily think it's going to get better.
Best we can hope for is that has plateaued in regards to the amount of severity that it's causing into the business, but we're prepared for it to get worse and I think so when we're working on the supply chain today and of course, we're working on the the firefighting that we have on a daily basis, but we're also in the background with our procurement team.
Working on a strategy.
And the supply chains.
Allow us to get out of.
Potential aluminum situations and I think one thing that the backlog does give us is great visibility. So we know when we're going to be running production and that gives us the ability to look out.
In the future to say, where do we think we have constraints or.
Concerns and then put a plan in place to be able to mitigate that and I think.
We've talked a lot about recently this ERP transformation and ultimately you can imagine Steve that as we go forward and start to get some of our sites on the Oracle platform and the more sites, we get on the better the better visibility and we even have been and so today, we are working across many erp's and so I know that's.
Not necessarily going to happen completely in 2022, but we're excited about the investment, we're making and the teams were putting the resources behind it.
In order to put that system in place. So we can be a lot more effective in regards to how do we playing and have visibility to future production.
No matter, if I could touch on labor. It sounds like you have made some real made up some ground here I think that gets at headcount was up 8.5% do you feel like you're you're caught up on Labour now in terms of if supply chain issues recede.
You have the workforce in place to meet.
Growing production and also are you expecting any how should we think about the impact of wage inflation or have you avoided that.
Yeah, So I would say that today, we have not caught up.
Generally across the company relative to our labor needs.
We could hire more people today, we would part of an issue that we're dealing with is is is the attraction part of it. But then also the retention part of it and I think the slide that we put in the deck today was to demonstrate to you guys in our in our shareholders. What are we doing in order to try and mitigate and get ahead of this and.
I'm pleased with the team's efforts to continue to find ways to improve that situation.
But the reality is we are still short and I think when I when I look at the backlog.
Rather have that backlog smaller and have those products into our customers hands and so labor is going to be something that's going to determine our ability to do that effectively.
But I also would say some of our labor issues our site by site specific so in some some plants were much better in regards to being able to Poland labor than we are and others, but the strategy and the.
The tools were using a really tools were using across the company. So I guess long answer to basically say, we're still constrained by labor and we're doing everything we can to try and attract and retain folks.
From a labour inflation perspective, yes, we're going to see a little bit of that hit us in queue for.
Because we've had to do some things to adjust.
Lately so.
Workforce in regards to.
Compensation and we've had to do that on employees that we have within the company today and and to attract employees moving forward.
So we will see that hit us a little bit in queue for and and be more of a mainstay as we get into 2022.
Great. Thanks, I appreciate the time.
Thanks, Steve.
Thank you. Our next question is coming from Stanley Elliot at Stifel. Your line is my view may begin.
Hey, good morning, everyone. Thank you all for taking the question.
Quick question kind of started golf on the carbon care, our state B O Ts.
Adopting these sorts of technologies and add.
<unk> for various specs of ready mix.
And any sort of the projects, where it's it's still kind of more of a an earlier phase.
Hey, Morgan Stanley. Thanks for the question, where we're really Super excited about the relationship that we have with carbon here today and quite honestly, we see it is just the.
A budding step into what I really could develop into moving forward across many more of our products and solutions and we have to the market everything from crushing and screaming into asphalt to where we're at today now with with concrete and so to answer your question specifically.
Today, our carbon here.
Partnered process really is more on the ready-mix side Stanley and not necessarily from a transportation perspective.
We.
As you probably know and heard from others Stanley <unk>.
<unk> specifications or departments transportation.
It can be a tough process and can take time, we feel confident that we're going to get there with a partnership that we have with with a carbon to your team.
But today most of the carbon cure solutions that we are partnering on a really around types of concrete installations other than roadways, and other D. O T work, which is plentiful.
And of course, that's a big part of our concrete plant customer base as well, but we liked the carbon for your relationship because obviously, we've made a commitment and you look at our <unk> business model of the sustainability is going to be one of our key initiatives as we move forward in time daily as I two years ago and it started with this company I could meet.
With customers and no one would talk about sustainability today, if I talk to 10 customers eight of them are bringing up the topic on their own and asking what we can do to provide sustainable solutions and I think this is one huge step that we've put in place with this relationship to really add value to our customers in regards to their own initiatives around.
Driving sustainability and we will continue to find more ways with our product development through partnerships in acquisitions to do more of this moving forward in time.
Great that that's very helpful. I was just curious if if.
With D O Ts and you'll have had adopted kind of the recycled asphalt piece fairly broadly. If this was kind of next in line and so.
So we will see.
Question for you on the international business, certainly nice pick up here.
Attractive new product coming out.
And then also you kind of overlay that with a margin piece with with kind of given the headwinds across the supply chain.
Are we to think that several quarters ago, when you had more opportunistic sale internationally.
We should think of the international margin being kind of above or at least kind of and target with with what you're looking at from a longer term perspective.
Hi, Tammy this is Becky good morning.
And our international sales, we have some some nice pick up in some leather seats that we planted in the Q1 half paint the way for that certainly we are seeing growth areas. We anticipated and we are seeing the margins come in and asked me what is expected so they're like give me a little bit behind.
That sick, because we're still producing many of the products here and then we've got the transportation challenges, but the cost inflation, that's going on but what we produced in Venice regions fourth of expansion and certainly at that level that we are expecting.
Yeah, and I think as we think about where we continue to invest Becky.
<unk> said, all longstanding we know to to really grow a substantial profitable international business, we have to be closer to the customer.
And today.
I really am proud that the work that we're doing and all the international sites as you might remember, we're producing in Belo Horizonte, Brazil, Johannesburg, South Africa and.
And in Omaha, Northern Ireland and.
Other sites.
Partner and the people and supply chain in order to to build nonproprietary components locally which helps at.
Kind of margin profile and and deliver ability perspective, so we're doing things in a very disciplined way and I think as we move forward in time. We also believe that we can use our capital to continue to build those capabilities. Both organically, but also we believe as you look at our filters around M&A.
Global growth in our ability to have the right specifications and the right global footprint is a targeted approach in regards to how invest capital to mergers and acquisitions.
And that's actually kind of a nice segue to last piece you sounded.
Sounds like the M&A market seems pretty for at least the pipeline does do you have more of a bias towards.
The material side or the infrastructure side and then also your you for spending more your time domestically or internationally on those assets.
Yeah, first and foremost I might just saw your attention Stanley to that you know we feel.
Good about changing our dividend going from 11 to $12.12, we haven't changed our dividend for quite a while and hopefully that gives you the sense that we feel good about our cash generation on a long term basis and dividends are something we plan on pain and it's a big part of our capital allocation strategy along with <unk>.
<unk> back into our business, primarily and M&A I feel good about our funnel I would tell you that it's it's.
It's really mixed.
What I like about our team and our approach Stanley is we're not sitting here waiting for the phone to call for someone or a bank to tell us that there is an opportunity to look at a company. We know where we have gaps we know where we want to invested capital to grow this business and it is it really is across both reporting segments and it really is a global and.
We believe that we can we can accelerate our investments in technology.
To continue to build our technology platforms through M&A. We also believe we can grow globally terminated. So we're we're looking at those as well, but as I've always said, we'd like to do business in our own backyard. So the domestic pieces also attractive.
When when when those targets are ready to interact and and potentially do transaction, but we are very focused and targeted in regards to where we want to drive the M&A a strategy.
Perfect. Thanks, so much for the time and best of luck.
Thank you standing.
Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press star one on your phone at this time.
Our next question in the queue is coming from Larry D. Maria William Blair Your.
Your line is line you may begin.
Good morning, everybody.
Come back to the backlog sounds like.
Price cost.
She doesn't turn positive until two Q or maybe three two next year. So is that the right way to think about things and then related to that.
Can you.
Would you expect margin expansion and positive price cost in 2022 and plan on that from from where you stand now thank you.
Larry.
Good morning, and thanks for the question.
I wouldn't say, we're waiting until Q2 for that to happen, we're going to see a continuing to improve we've seen it improve actually from Q2 Q3, we expect to see more traction in queue for and we will see more Q1. So I think as we move forward through quarter to quarter will continue to see that.
Continue to improve.
Some product lines today, we were there.
And others were not but generally I think that as we get into.
Q1 will start to see it actually.
Become neutralized.
Certainly we expected because when you if you remember this Larry as we priced and took pricing actions throughout the course of 2021, we also had a big backlog there.
For those orders to work their way through which is really what we're working we're waiting for.
We should start to see that flow through in Q4, and Q1 and 2000 Q2 of 2022, we should be in a pretty healthy position relative to margin accretion.
I would say.
As we go through 2022 without additional inflationary type pressures.
We should be in a pretty good place to see some margin improvement.
But you and I, both don't have that crystal ball to be able to determine if we're going to if we're going to see.
That increase.
Increase or decrease but as I talked about earlier to one of the questions I certainly don't see it increasing significantly in such a spiked way as we have in the past, which allow us to be able to manage it more effectively throughout the course of 2022.
Okay. That's really good color. Thanks, Mary and then you referenced a price increases can.
Can you maybe break out for all of US call the timing and the cumulative effect. So we can kind of see the carryover and what to think about for the.
The impact on top line given the price increases this year would that mean for next year. So I mean cumulatively we have.
20% I don't know can you help us understand that.
Yes.
It really it really does again Larry to depend on the product line in our competitive position our ability to deliver.
Our ability to pass on the premium because of the value that we add in so.
It's I think when we when we talk about it with you guys I think the chart that we have really shows you know.
A summary level of our ability and we're position today and so generally you can see.
That column that shows the pricing volume and mix.
We are obviously used in other parts of our.
Tool.