Q3 2022 Valmont Industries Inc Earnings Call
Greetings and welcome to Valmont Industries, Inc. Third quarter 2022 conference call.
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Please note. This conference is being recorded I will now turn the conference over to your host Renee Campbell Senior Vice President Investor Relations and Treasurer.
MS Campbell you may begin.
Thank you and good morning, welcome to Belmont Industries third quarter 2022 earnings call.
With me today are Steve Kaniewski, President and Chief Executive Officer on.
And they're all blah Blah executive Vice President and Chief Financial Officer, and Tim Francis Senior Vice President and corporate controller.
This morning, Steve will provide a brief summary of our third quarter results commenting on our markets.
Term business strategy.
Avner will review, our financial performance and provide our outlook and indications for 2022 and preliminary indications for 2023 with closing remarks from Steve This will be followed by Q&A.
A live webcast of the presentation will accompany today's call and is available for download from the webcast or on the investors page at Belmont Dotcom.
A replay will be available on our website later this morning.
Please note that this call is subject to our disclosure on forward looking statements, which applies to today's discussion.
Outlined on slide two of the presentation and will be read in full at the end of today's call.
I would now like to turn the call over to our President and Chief Executive Officer, Steve Kaniewski.
You Renee and good morning, everyone and thank you for joining us.
On behalf of the entire by my team I would like to start today's call by offering our thoughts to those impacted by the devastation caused by hurricane last month.
It's impacted several of our facilities in Florida and the Carolinas.
We are saddened by the loss of life and destruction, we have witnessed in which our team members and their families and the people in the affected regions a swift recovery from this historic storm.
This farm services. It's tragic reminder, as to why are we speak a lot about greater hardening and grid resilience.
Utilities and other infrastructure companies have invested and continue to invest in structures that will better withstand that.
Yes.
In the case of.
Recovery efforts were spent along by having a more resilient infrastructure in place, allowing electricity and communication services to being restored very quickly, which is helping the region returned to normalcy faster.
The industry has done a tremendous job of improving the grid, while considering the intensity of recent storms.
However, there are still a significant amount of grid hardening you have to be done.
Areas susceptible to natural disasters.
As an industry leader, we continue to innovate to provide better solutions and we are proud to work with our customers globally to improve the resiliency of the grant.
Turning to slide four and a recap of our third quarter.
Demand remains elevated across all of our end markets despite macroeconomic volatility.
Reflecting the ongoing investments in global infrastructure, and agriculture, and our customers' preferences for our products.
We achieved another quarter of record sales and earnings per share driven by strong demand and the outstanding contributions of the entire by my team as they live out our core values.
Our businesses have focused on technology, driven solutions to help our customers operate more sustainably.
I am very proud of what we were able to accomplish this quarter.
In addition to our team's flexibility and responsiveness to meet customer demand, we remain disciplined in our pricing strategy to ensure we're capturing the full value added by our distinct offerings as well as staying ahead of inflation, specifically wage energy and administration expenses, such as health care.
And in sharp.
It is important to note that our approach to pricing is not to simply adjust for variations in cost.
We'll also lean into the value we offer through our highly engineered solutions superior ship complete on time and unmatched support for our customers.
Moving to third quarter results sales of $1 $1 billion grew 26% year over year, driven by a combination of sustainable pricing and mid single digit volume.
<unk> and the eighth consecutive quarter of double digit year over year sales.
Infrastructure sales of $778 $4 million grew 23% year over year with strong sales across all product lines.
Investments in greater resiliency, and renewable energy sources upgrades to ageing infrastructure and ongoing <unk> build outs continue to drive broad based market strength globally for our products and solutions.
Additionally, funding from the infrastructure investment and jobs Act is being deployed and we expect the inflation reduction act to be appropriated during 2023.
Along with other government spending initiatives across global markets.
We believe these are long term tailwind for our business.
Agriculture sales of $327 $3 million grew 36% year over year the.
The combination of strong global demand for increased food production, along with widespread drought conditions as keeping farmer sentiment favorable encouraging irrigation and technology investments.
As we had expected the impact of our typical third quarter seasonality was less pronounced this year as we successfully delivered backlog from the second quarter.
AG market fundamentals and positive farmer sentiment have also contributed to our robust project pipeline.
Italy, and the Middle East.
Severe drought conditions are persisting across many key global markets, putting pressure on crop yields and unexpected stock levels, keeping global commodity prices elevated.
Turning to slide five we have been executing on our three strategic strategic pillars are pursuing operational excellence with ESG focus.
Spanning the markets, we serve and using technology to drive productive productive disruption across all our organizations.
We are seeing the benefits of our strategic approach as we build a more resilient business.
As an example, we have grown our AG tech sales with attractive margins to approximately $83 million year to date.
An increase of 15% over last year.
On track for full year sales to exceed $100 million.
Another example is our focus on high growth opportunities and end markets with favorable and global long term demand trends.
We have done this through targeted investments and organic growth and strategic acquisitions, such as our recent purchase of conceal fab in the telecommunications market.
On slide six is an example of our sustainable solutions and a testament to our strategy and disciplined capital allocation framework.
Over the past four years, we have successfully entered and grown our solar market presence, both in infrastructure and agriculture through acquisition and investment.
The acquisition of convert Italia in 2018 later rebranded as Belmont solar marked our entrance into utility solar markets or.
Over time, we have solidified our strategic focus on distributed generation projects that offer a more attractive margin profile less.
Less raw material risk and faster completion than large scale utility projects.
Our key international markets, Europe , North Africa, and Brazil have more pronounced barriers to entry and favorable legislation that helps drive demand.
At the same time, we have been successfully expanding our presence in the U S and are targeting additional growth as we move forward.
Our competitive advantages of manufacturing capabilities and our global supply chain are enhanced by our deep relationship with developers and utilities.
This year, we expect to nearly double our sales so approximately $120 million and anticipate continued robust growth in 2023.
In 2020 within the Agriculture segment, we acquired a majority stake consult us.
Their services have since been integrated with our World Class Valley dealer network to provide global AG solar solutions.
With the sole risk investment we became the sole global player in this underserved market, which has tremendous growth potential, allowing farmers to enjoy our scale for projects that are typically much smaller than utility or distributed generation.
Also unique our dealer network offers unparalleled service and support in every region of the world.
Positioning us to be the partner of choice for a variety of applications.
We expect continued strong growth in this business.
Since entering the market we are on track to exceed $100 million in AG solar sales by the end of this year.
We are very pleased with the execution and performance of both solar teams as meaningful demand of renewable energy sources is expected to continue.
In summary, we performed well during the third quarter building on our momentum from the first half of the year.
We are on track to deliver our best full year earnings per share in the history of the company.
<unk> for our infrastructure and agricultural products remains robust and our team is demonstrating our core values, while providing outstanding customer service.
Our focus on operational excellence is helping us to navigate external challenges reinforcing our confidence that we're on the right path to deliver even greater value to our customers and to our shareholders in 2023 and beyond.
With that I will now turn the call over to Avnet for the third quarter financial review and updated outlook.
Thank you, Steve and good morning, everyone.
Turning to slide eight third quarter results My comments will focus on the adjusted results as outlined in the press release and in the Reg G disclosure in the presentation appendix.
Operating income of $114 $1 million grew 42% and sales growth of 26% with operating margins, increasing to 10, 4%, reflecting higher volume improved fixed cost leverage and continued execution of our disciplined pricing strategy.
Diluted earnings per share grew 36% to $3.49 attributable.
Attributable to higher operating income, partially offset by a higher tax expense due to a change in the geographic mix of earnings compared to last year.
Turning to slide nine.
Operating income for the infrastructure segment increased to $93 $6 million or 12, 1% of sales driven by favorable pricing and volume growth.
Moving to slide 10.
I agree culture segment operating income increased $47 4 million or 14, 6% of sales.
It's a higher average selling prices and additional volume leverage were partially offset by higher SG&A, including incremental R&D expense for technology investments.
Turning to cash flow on slide 11 year to date free cash flow of $117 million reflects a meaningful sequential improvement driven by diligent working capital management, including a reduction in inventory.
We expect full year operating cash flows to be in line with net earnings in 2022.
Turning to slide 12 for a summary of capital deployment, we continue to maintain a balanced approach to capital allocation.
Investing in our businesses, which enabled us to grow organically and inorganically, while returning cash to shareholders.
Third quarter capital spending was $17 million, and we returned $22 million to shareholders through dividends and share repurchases ending the quarter with approximately $166 million of cash.
Moving to slide 13.
The strong cash generation this quarter allowed us to reduce total borrowings by approximately $60 million.
Strengthening our balance sheet.
Total debt to adjusted EBITDA of one and a half times remains within our desired range of one and a half to join a half time.
I would now like to review our updated 22 outlook that's shown on slide 14.
We are increasing our expected sales growth due to strong third quarter results. We now expect full year 2022, and net sales to grow up 22% to approximately $4 $3 billion, which includes an unfavorable foreign currency impact of approximately 2%.
We're also tightening the range of expected adjusted earnings per share of $13 65 and $14.
We are confident in our outlook for the balance of the year based on the execution of our operations, our robust backlog and strong project pipeline.
A minder that project timing and many of our businesses can be hard to predict and that changes in our geographic mix of earnings may have a more pronounced impact on our effective tax rate.
Turning to slide 15.
In addition to updating our 2020 outlook, we are providing preliminary indicative guidance for 2023.
Building on Steve's earlier comments regarding global demand trends and maintaining our pricing discipline, we expect 'twenty to 'twenty three year over year sales growth of 6% to 9% and EPS growth of 11% to 15%.
This assumes steady market demand stabilized raw material cost inflation in line with global Central Bank expectation and continued growth in the R&D investments.
Other assumptions are providing are provided on the slide.
We continue to leverage our scale and global footprint to improve margins and mitigating supply chain challenges.
<unk> cash generation is enabling us to support our capital allocation framework.
Joining us on the path to achieve our long term financial targets and drive sustainable shareholder value with that I will now turn the call back over to Steve.
Thank you avner looks.
Looking at the fundamental market drivers for our segments on slide 16.
<unk> that have supported us over the last several quarters appear set to continue providing future growth opportunities.
We are delivering great results due to robust demand drivers and our ability to increase output to meet this demand.
While these end market drivers remain strong we acknowledge the growing economic uncertainty is creating headwinds for certain sectors of the economy.
Demand for our products is less sensitive to general economic factors.
Our backlogs solidifies our confidence in our revenue projections.
We are investing in capabilities technologies, and strategic capacity improvements to better enable us to deliver on our long term goals.
Turning to slide 17 in summary, we have demonstrated an ability to grow sales through innovation execution, and bringing unique solutions to solve the complex needs of our customers.
We are doing this by advancing operational excellence across our global footprint supported by a strong and flexible financial Foundation.
Enabling us to invest in our employees and technology.
Our disciplined approach to capital allocation has served us well and we remain committed to making strategic investments to facilitate the achievement of our long term goals that we believe will result in greater value creation for our shareholders.
I will now turn the call back over to Rene.
Thank you Steve at this time, the operator will open up the call for questions.
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Okay.
Thank you. Our first question is from Chris Moore with CJS Securities. Please proceed with your question.
Hey, good morning, guys. Thanks for taking a couple of questions.
When you think about visibility for 2020 three.
Which sub segments or are likely least impacted by you know further rise in interest rates or a modest recession.
Hey, Chris This is Steve.
We've been looking at obviously across all of our end markets and the macros really across all of them are in.
Very good shape, but to your point about interest rates.
Not that susceptible at this point to any kind of interest rate increases.
The utility.
Capex model was just announced about a month, maybe month and a half ago thats in the 6% to 8% growth range.
You heard the two telecom.
<unk> of AT&T and Verizon in the last week reaffirmed our capex into next year.
We know agriculture is really independent of.
Kind of all of the general recession commentary that's out there and that's moving forward.
Lighting and traffic or transportation.
The inflation reduction act and the infrastructure and job back. So there is really strong drivers across all the markets and even coatings with the general.
Assertion talk tends to follow GDP. The fact is that it supports a lot of our own business and as such with the markets being up.
We should see growth there too so really not that susceptible at this time to kind of the general slowdown that's out there.
Got it that's very helpful and just as my follow up just you talked about telecom Capex being reaffirmed telco sales were very strong at $92 8 million in Q3 is that right.
I know, there's obviously big growth coming there, but is that a sustainable level or is it likely to be you know kind of lumpy up and down over the over the next year or so.
You know historically telecom was extremely lumpy it would be up it would be down to the up and down but that was when.
I would say carrier investments at other priorities. If you think of a T T. The past putting money towards satellite and taking it from telecom you know the <unk>.
General consensus now is that even in a recession nobody's got turned their policies.
They may cut cable they may cut satellite.
We think it'll be a smoother rollout plus with the mandates for coverage that are out there kind of.
The impetus to move forward.
Not to say that quarter to quarter, we won't see some.
Absent flows, but we don't anticipate any kind of massive pullback.
Yeah.
Got it I appreciate it I'll leave it there.
Thanks, Chris.
Thank you. Our next question comes from Brent Thielman with D. A Davidson. Please proceed with your question.
Hey, Thank you congrats on a strong quarter.
Steve I guess, my first Steve or Abner I guess my first question would just be with steel prices kind of Recalibrating, where do you expect to be able to hold on to price and where do you think youre going to see some.
You know Quaker push back from customers I guess, especially just considering.
The demand environment.
Across all your product lines is pretty strong.
Yeah, Hey, this is Bob I'll start off.
So overall.
You know a couple of things here first of all yes, we are seeing some moderation of reduction in.
In steel and most of the HRC, but if you really look at the other part right. We do have we do use a lot of it played in that actually stayed very much elevated.
On top of that right. We are seeing broad based inflation across the board in many areas, Steve mentioned them earlier in the call that you add on the energy.
Labor etcetera. So we are seeing broad based base inflation and we are maintaining our price discipline, we continue to raise pricing where appropriate.
And really have not needed to reduce pricing evidenced by our strong demand. There was strong backlog. So at this point I can tell you that we are holding our pricing discipline on our pricing approach.
Don't see any.
Indications that we need to lower pricing, yeah, and I would add Brian that you know.
In utility as you know there's already mechanisms to give back.
You know any kind of reductions or increases in raw materials and so that's been accounted for in our.
Projections as we look forward. So that's probably the biggest area that would be susceptible to it.
Again market fundamentals, what they are a supply and demand we're looking at the value that we bring in that kind of environment and making sure that just because some headline cost moves there's other costs that have not or have continued to elevate and.
We'll keep a close tab on our factory outlets and hit rates and things like that.
Yeah. Okay. I appreciate that and then my follow up would just be I'm, Steve you touched on it in your opening remarks, but maybe just your thoughts on the timing.
The positive implications of the inflation reduction act on on your various businesses and also weather.
Any of the infrastructure Bill is beginning to have any influence on the business today.
Yeah, So I'll start with the infrastructure Bill that was the <unk>.
Earlier approved a bill that came through we said it would take at least until the end of 2022 to start really seeing anything we are.
We're quoting jobs now some of the appropriations have gotten through the states.
Work on the highway.
And lighting areas.
So that now is really starting to factor into some of the demand profile, we see into next year with the inflation reduction Act.
There's a lot of good favorable then there, particularly around energy, so whether it's solar or the transmission sector.
Real nice benefits for us we will see some of it to start in early 2023 in terms of the solar markets, because youre kind of <unk>.
<unk> is a project financials for the developers pretty quickly.
But really for us.
To get through appropriations and things like that it'll be later in 'twenty three kind of event.
But it provides good tailwind.
As we look at like 2024 at that point.
Yes, perfect. Okay. Thanks, guys.
Thank you. Our next question is from Nathan Jones with Stifel. Please proceed with your question.
Good morning, everyone.
Good morning Nathan.
We have started to say a lot of company start to see inventory corrections from.
In the channel from that distribute days I don't imagine that that is a much of an impact for you and that you don't have much inventory.
Sitting out there that might need to be clear, but can you just talk about any places where that might exist oh doesn't exist and what kind of impact that might have for you.
Yeah, Nathan the only place where we really have any inventory in the channel is in agriculture, with our dealer network and they have actually a very low inventory levels as we've gone through the summer months.
So there is no, let's say overhang or correction there if.
If you take utility is direct customer.
If you look at telecom Theres, a little bit of inventory, particularly with our site pro one components area, but not no overhang, we're trying to meet demand there.
The lighting and transportation typically goes through our rep organizations.
And they don't carry inventory, so I would say.
There's not much of an inventory correction so to speak in the industries we serve.
That's what I figured.
I want to talk a little bit more about pricing and that.
And the sustainability and strategic value pricing that you guys have looked at.
Historically.
Pricing and margins has been correlated to supply and demand and when that's tight you'd been able to generate better margins and when it's not margins have fallen.
So it is cyclical and your business you don't tend to correlate with the business cycle, we might be already in some of those cycles can.
Can you talk about you know any way, where you think there's a difference obviously supply and demand is tight now and say you guys have a lot of pricing power.
Do you think you can maintain that pricing even in the environment, which may be a few years down the track with that.
Our balance sheet is noticed favorable here.
Yeah, Nathan I would say that.
We had to develop a true pricing muscle.
So we're looking at it much more regularly we have analysts that analyze it.
Good day every week.
It's not a trade that we had in the past.
So now thats kind of embedded within the sales organizations.
I'll say also what gives us confidence to hold it as a real push on operational excellence and building our supply chain team. So that we see what's coming at us.
A lot more visibility than we would have in the past.
There is a materials council of senior executives.
Belmont that get together on a regular basis to look at.
Everything from hot rolled to plate.
Zinc copper you name it we look at it and we look at what our positions are and what we should do.
And so that's how we believe we will be able to maintain a lot better pricing discipline.
As we go out and I'll say lastly.
From a capital allocation perspective part of our problem in the past there's overcapacity.
And I think we're being much more diligent.
In our.
Capacity additions to really make sure that we're not getting too far ahead of our skis so to speak.
I think that in the markets, we serve which are fairly niche. He can help keep things a lot more moderated.
But maybe in the past with some of the ups and downs.
Thanks for that I, just had one more I want to talk a little bit more about that at all the business and the history of it I mean getting up to $100 million out of that is a pretty significant chunk of the agriculture business. Now can you talk about you know where that's been historically I don't think you've owned that business very long kind of what the growth rates have been.
And what do you think the potential growth rate.
You use might be.
Yeah, when we bought it and.
Maybe November 2020.
And it only had a couple of million dollars all Brazil base.
And as we went through 2020 one.
We really started to put together a team around it we looked at where go to market would really be effective.
How we can do many projects on scale.
And so 2021 was kind of a year to build.
And it's really paid off sometimes it's better to be lucky, particularly in Brazil, where they change legislation to give retail net metering.
And so that's caused the quote unquote, many gold rush around solar there.
And I think what we saw was a market driver for us was.
You know agriculture, specifically it needed to be good stewards of the environment and many other operations as far flung as they are it could go to solar with a good cost profile we have.
The ability to to buy at scale to produce at scale. So when we go against the local electrical contractor, we can obviously beat them.
And so that's why it's accelerated as quickly as it has.
We would expect kind of a at least a 15% to 20% growth rate.
You know in line kind of with the solar market.
And it's pretty underserved at this point.
This is the advantage of having our dealer network that can do the exact same thing today. They run power Barak things. So they have the equipment they have to know how and they can help them through and then with our customer.
Custom monitoring software our customers can see what's what's there and how much it's producing so we feel very good about the growth trajectory.
Both the AG solar piece and the distributed energy piece.
Great. Thanks, very much for taking my questions.
Thank you. Our next question is from Brian Drab with William Blair. Please proceed with your question.
Hi, Thanks first just on that last question axle or 15% to 20% longer term, but.
I'm just wondering if you grew this thing from zero to a $100 million.
Basically like a year and a half with.
15% growth in 2023 B.
Disappointing for the very low end of what you were expecting when Cook is it could this business potentially double again in <unk> and 'twenty three.
It.
It definitely has the potential to do that Brian .
You know, we're just looking at market CAGR as we look out of course, we allocate capital looking further out so.
But yes, it gets off the ground it gets rolling you'll.
You'll see it's just the law of small numbers, we can double it pretty quickly.
Right now it's building scale and so that would be the only caution there is to build our sales teams or engineering teams build up the supply chain in Brazil, it's strong but.
But in other parts of the globe, we're still in the process of building that we've delivered some projects in Bulgaria.
The middle East those will take time to build.
A further team there, but it's it's got great fundamentals.
We have a good go to market strategy.
Great. Yeah. The reason I think it's an important question of course is just that if you're.
To add another 100 million I mean that accounts for a couple of points of your.
Organic revenue growth for next year potentially from this from this business that is kind of popped up out of nowhere in the last year, but myself I'll just ask one more question for now.
You gave us guidance for for revenue growth for next year I'm wondering if you could potentially.
Potentially give a little more granularity in terms of what your expectation is for volume.
Reising.
Is there any contribution from acquisitions in there what's the expectation for FX in that expectation.
Yes sure.
I'll take that one.
We will provide additional data of course as we go into next quarter and finished our budget process et cetera, but at a very high level. We should continue to expect a mid single digit growth in the volume.
Pricing, we're not going to see anything nearly like we had this year it gets more to a normalized historical basis.
On the currency on the FX right now, we're seeing about a negative 1% impact.
And that's kind of how we roll up pretty much the six to nine and at this point, we're not baking in any any new acquisitions into those numbers.
Pricing positive just to be clear, you're assuming price maybe it was.
Pricing okay. Thank you very much.
Yeah.
Thank you. Our next question is from Ryan Connors with Northcoast. Please proceed with your question.
Hey, Thanks for taking my question.
Covered a lot. So I don't really have anything new but wanted to just clarify a couple of things from from earlier. So you talked a little bit about Steve, but when you talked about price cost a few questions back and basically that you know for the orders that are already in the door. That's that's already baked in the cake Theres really no benefit or.
Or or detriment when raw materials move but is that really the case across the backlog I mean can you dive into that a little further on the backlog is everything in their.
Pure escalation deflator, and and and you're not you're not exposed to any risk or is there any component of that where we're the things can move around.
No. There is there are definitely areas that things can move around.
On hot rolled as an example, we can take positions zinc, we can take positions on fuel and energy we can take positions on plate. We can the markets are too thin.
They didn't have too much variation with them.
And it's one of the reasons why you still see plate over $500 a ton.
When hot rolled is around $700 a ton. So it's you know it's double.
There it has to be good inventory management.
It has to be the right timing to bring in our raw materials and so earlier in this year in the first and second quarter, we were still being pinched a little.
Because of the stubbornly high.
Plate number.
You know where the averages were starting to drop because of hot rolled in so we saw some of that now there's been a lot of stabilization.
And that raw material and again, we've gotten much better at you know not worrying about literally supply when we first had to buy it it was hard to even get into the marketplace. So we kind of overdid it a little bit.
That will help us as we go into particularly the first half of next year, but the backlog the further it gets out.
There's always a potential concern.
But.
Where we're at right now as compared to where we would've been a year ago.
Just a tremendously better place.
When we look at that 2 billion of backlog and kind of knowing what kind of margins. We can get out of it how we can perform with the tight labor markets. All the supply chain disruptions that have occurred etcetera.
Okay.
That's very helpful. Thanks, and then the other one I had was.
You know on the issue of pricing in irrigation in particular, I mean, it does not have a bidding market for you like it is in telecom and and and transmission. So you know there's a bit more of a strategy and a game theory about how the different players are going to position around price I know some of the some early indicators coming out of the tractor type.
Guys about about what pricing looks like for next year. I mean is it your intent to sort of be a price leader on the way.
Now you said and you know what.
Let's just talk about your strategy I mean, because there's a lot of uncertainty for the farmer I mean, what are what is your sort of.
<unk> to pricing in such an uncertain environment as we head into the next big selling season there.
Yeah.
Always been a price leader.
And we're looking at our input costs and service levels and things you have to do to maintain that which are very different than they were let's say during the last peak in 2014.
And 13, you could outsource a lot of production pretty easily there was available supply chain.
This is a much different environment. So we will maintain very you know value based pricing for all of that effort.
And to make sure we can hold that.
So I think we went out just a couple of weeks ago with a 3% price increase between now and kind of at the end of the year just looking at all the factors that are out there ultimately in this environment with net farm income projections, where they are with crop prices where they are.
You know if you talked to anyone during harvest.
Say, they got $280 to 300 bushels of corn under irrigation and maybe 75 or 80 under dry land. So the value proposition is very strong for them.
And you get a crop you need water to get a crop.
And.
Over time, we want to put more in so we're starting to bundle.
The insights product from prosperity.
With the pivots and so we've launched that over the course of this quarter. So we will put more and more things with the pivot to bring the value part of that up and maintain price.
Got it okay. Thanks for your time this morning.
Thanks Ryan.
Thank you. Our next question comes from Brian Wright with Roth Capital Partners. Please proceed with your question.
Thanks, Good morning.
Hum how do you think about the potential impact of Hurricanes.
On the backlog for next quarter or maybe that's too early but just how to think about how that could build the backlog over the coming quarters maybe.
So Brian it's a good question. So what we typically see when there's a large natural disaster in the utility space is we have to.
Redo kind of where the backlog is going to ship.
So you will have to create openings in the fourth quarter.
For some of the emergency kind of pull orders that would come in from.
The different utilities.
And so we have to then push.
Some of the existing orders out into the first part of next year.
So that's kind of the immediate.
We saw that Youll see it really doesn't change the volume so to speak.
It just changes the kind of mix of products that may be coming through the factories. So it's a lot.
A turmoil.
Then it settles down utility at all look and then they really take a real assessment as to what is going to be replaced with what kind of structure and youll see follow up orders there.
The longer term effect is that they all now see what was done in South Florida.
In grid hardening and how quickly they got back up as compared to Treeness ice storm.
And it just reinforces with the PUC with the government leadership.
Utility leadership that they have to harden the grid and so it just becomes a good strong long term demand driver.
So there could be little spikes in demand, but there's there's never like a.
Typically a massive spike they had some inventory on the ground, we had inventory that they take.
But.
It'll just be a strong year as we look at 'twenty three because of that.
Great.
So also.
Wanted to follow up on one more thing.
With a total debt to adjusted EBITDA kind of at the low end of the range here and I.
Just kind of how to think about that going forward in terms of M&A, especially kind of given your success in.
The AG solar and not to put kind of any areas of specific interest, but just how are you think about that kind of given where your capital position is and M&A activity.
Hi, This is Barbara I'll take that question. So first of all we're really pleased with the fact that we may be able to have been able to generate cash over the last quarter and really strengthened our balance sheet.
And we have a lot of dry powder, now, which we're really good space.
Our capital allocation strategy has not changed right. So we have a lot of opportunities internally to invest in.
In our portfolio and capital and automation.
Et cetera.
And we do have actually a very strong pipeline of acquisition, but we are looking at the areas, where we can really add continue to add growth like you said that some of these markets that are that are really strong like we've done the conceal SAB last quarter.
Steve talked about that the the.
The solar.
Area. So we are we are targeting areas, where we could really drive growth synergies and ultimately you got strong auto I see so we're going to put that balance sheet to use and then of course after that we do return cash to shareholders through opportunistic share buybacks, which we continue and in dividends.
Yeah.
Great. Thank you so much.
Okay.
Thank you. Our next question is from Jon Braatz with Kansas City Capital. Please proceed with your question.
Morning, everyone.
Steve on on Valmont solar.
You mentioned that are in your commentary that you're focusing on distributed distributed.
Energy.
Is there is there are diminishing interest on your part in utility scale projects.
No.
In fact, you know we spent the last couple of years really building up our team to handle the utility scale, particularly on a U S basis.
But we just want to be very disciplined.
About the kinds of projects that we take.
When the raw material inflation in the current around steel and then modules were restricted.
There were jobs out there that from a volume perspective look very attractive but from an operating income perspective would have been a disaster for us so.
There is enough market growth out there.
We'll be able to take utility scale.
But we'll do it based on kind of the right value for us and for whoever the developer of utility happens to be.
So we do have some orders in the U S. But in terms of the large scale bids.
You will see us from time to time.
Take those as we believe we can make money and lock in a risk around those waters okay. Okay.
Okay, and then secondly.
What is the maybe the prospects for additional large scale irrigation projects in and Africa, and the Middle East.
I know you've had some here recently, but going forward.
How does how does that Oh, the prospects look for the for additional business there.
Yeah, there are still a number of large projects out there.
Whether that is in North Africa, or the middle East.
So they are upscale to the likes of Egypt that we had earlier.
So theres a number of those and then there is.
A real strong pipeline when you talk about the range of $10 million to $40 million.
Kind of projects.
Exist and again its food driven by the same factors food security.
Knowing more food locally are less susceptible.
Bolt to currency fluctuations.
All of Covid and the after effects of kind of reaffirmed country's desires.
To create.
More stability in their markets that way.
So it's it's a good driver for us.
And good driver for the whole pivot industry frankly.
Okay. Thank you.
Yeah.
Thank you we have reached the end of our question and answer session I would now like to turn the call over to Renee Campbell for any closing remarks.
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