Q4 2022 Mueller Water Products Inc Earnings Call
Yes.
[music].
Okay.
Yes.
Welcome and thank you for standing by your lines have been placed on listen only mode until the question and answer session at that time, if you would like to ask a question you May Press Star. One today's conference is being recorded if you have any objections you may disconnect at this time.
And now I'll turn the call over to Whit Kincaid you may begin.
Good morning, everyone. Thank you for joining us on Mueller water products fourth quarter and fiscal year end 2022 conference call. We issued our press release reporting results of operations for the quarter ended September 32022 yesterday afternoon.
A copy of the press release is available on our website, you will reorder products Dot com.
Scott Hall, our president and CEO and Marty <unk>, our CFO will be discussing our fourth quarter and full year results and our outlook for 2023.
This mornings call is being recorded and webcast live on the Internet. We have also posted slides on our website to accompany todays discussion, which address our forward looking statements and our non-GAAP disclosure requirements.
At this time, please refer to slide two this slide identifies non-GAAP financial measures referenced in our press release on our slides and on this call and discloses. The reasons why we believe that these measures provide useful information to investors.
Conciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website slide three 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 in forward looking.
Statements.
Please review slides two and three 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 the 30th of September .
A replay of this morning's call will be available for 30 days at one 880 345839, the archived webcast and corresponding slides will be available for at least 90 days in the Investor Relations section of our website I will now turn the call over to Scott.
Thanks.
Good morning, Thanks for joining us for our fourth quarter earnings call. We were pleased to deliver our second consecutive year of double digit net sales growth our fourth quarter net sales growth exceeded our expectations driven by continued higher price realization we.
We saw healthy order activity during the quarter and ended the year with record backlog. The sequential increase in orders is a testament to the resiliency of end market demand in the face of an evolving macro environment. Our fourth quarter results were disappointing as lower than expected shipment volumes of service brass products and manufacturing.
Inefficiencies at our brass foundry more than offset by higher net sales.
While improved price realization has helped to offset the current level of inflationary pressures. It has not been enough to offset all of the headwinds.
Although we continued to experience headwinds from the ongoing supply chain disruptions and inflationary pressures our teams maintained their focus on executing our large capital projects. We have a lot more work to do but are confident we will deliver the benefits of our key initiatives, including our large domestic capital investments.
Last month, we announced several corporate governance changes, including the appointment of two New Board members. Our board also announced a process to accelerate the refreshment of our board of directors.
Our board believes in the importance of having best in class corporate governance, including a proactive board refreshment process and the ongoing shareholder engagement.
Both new members bring valuable operating and supply chain management experience to our board we.
We believe <unk> and its stockholders will benefit from the perspectives and insights of our new board members and their support of the company's commitment to enhance shareholder value.
Before turning it over to Marty I want to thank bill coal fueled our senior Vice President of operations, who recently announced his retirement Bill has worked tirelessly to drive process improvement in our operations during the past five years.
Notably he led the development and execution of our safety Excellence and leadership program, which is used to evaluate safety and environmental performance across all areas of our facilities Bill.
Bill has kindly agreed to stay on to support the transition to new leadership.
Paul Mcandrew, just started as viewers new operations leader Paul brings more than 20 years of manufacturing experience and served most recently as vice president of global operations and supply chain for Emerson commercial and residential services.
Now I'll turn the call over to Marty to discuss our financial results.
Thanks, Scott and good morning, everyone I will start with our fourth quarter 2022, consolidated GAAP and non-GAAP financial results. After that I will review our segment performance and discuss our cash flow and liquidity. Our consolidated net sales increased 12, 1% to $331 4 million compared to the prior.
Year with growth in both water flow solutions and water management solutions. The increase was primarily due to higher pricing across most of our product lines, which was partially offset by a decrease in volumes mainly in our service brass products for 2022, our consolidated net sales increased 12, 3% database.
Higher pricing and increased volumes.
Gross profit of $85 $6 million decreased 8% compared with the prior year.
Gross margin of 25, 8% decreased 340 basis points compared with the prior year as benefits from higher pricing were more than offset by higher costs associated with inflation unfavorable manufacturing performance and lower volumes the unfavorable manufacturing performance, which includes the impact of outsourcing more.
Shame downtime supply chain disruptions and labor challenges was primarily driven by a brass foundry in specialty valve operations.
Inflation increased sequentially as we experienced higher costs associated with raw and purchase materials tariffs utilities freight and labor the supply chain disruptions continue to impact our total material costs, which increased around 14% compared with the prior year How's.
However, our price realization again improved sequentially more than covering inflationary pressures.
Selling general and administrative expenses of $63 6 million in the quarter increased 12, 4% compared with the prior year. The increase was primarily driven by inflation investments in personnel TNT trade show activity and professional fees SG&A as a percent of net sales was 19.
2% as compared to 19, 1% in the prior year quarter.
Operating income of $11 6 million decreased 58, 3% in the quarter compared with $27 8 million in the prior year operating income includes strategic reorganization and other charges of $3 $6 million in the quarter, which primarily relate to transaction expenses and previously announced plant.
Restructurings.
Additionally, we wrote off the goodwill relating to our specialty valve product line, which was a noncash expense of $6 $8 million.
Turning now to our consolidated non-GAAP results adjusted operating income of $22 million decreased 25, 9% compared with $29 7 million in the prior year the.
The benefits from higher pricing were more than offset by higher costs associated with inflation unfavorable manufacturing performance SG&A expenses and lower volumes adjusted EBITDA of $38 $6 million decreased 15, 4% in the quarter, leading to an adjusted EBITDA margin of 11, 6%.
Compared with 15, 4% in the prior year for 2022, adjusted EBITDA of $194 5 million declined $9 1 million or four 5%, yielding an adjusted EBITDA margin of 15, 6%.
Net interest expense for the quarter declined to $3 9 million as compared with $4 4 million in the prior year. The decrease in the quarter, primarily resulted from higher interest income for the full year, our effective tax rate was 22, 3% as compared with 25, 8% in the prior year, primarily due to <unk>.
Benefits from R&D tax credits and lower foreign tax rates for the quarter. We generated adjusted net income per share of <unk> <unk> compared with 12 in the prior year for the full year. Our adjusted net income per share increased three 6% to <unk> 58 per share compared with 56 per share in the prior year.
<unk>.
Moving on to the quarterly segment performance, starting with Waterflood solutions net sales increased eight 8% compared with the prior year, primarily due to higher pricing across most of the segments product lines.
Digit sales growth in iron gate valves, and specialty valves more than offset lower volumes of service brass products, resulting from manufacturing inefficiencies adjust.
Adjusted operating income of $25 million decreased 26, 5% as the benefits from higher pricing were more than offset by higher costs associated with unfavorable manufacturing performance, primarily at our brass foundry in specialty valve operations inflation and lower volumes.
Adjusted EBITDA of $28 million decreased 21, 3% leading to an adjusted EBITDA margin of 15, 6% compared with 21, 6% last year for the full year adjusted EBITDA margin was 21, 7%.
Turning now to water management solutions net sales of $152 million increased 16, 3% as compared with the prior year, primarily due to higher pricing across the segments product lines, hydrant gas and repair and installation products experienced double digit net sales growth compared to the prior year.
By higher pricing and increased volumes adjusted operating income of $13 8 million decreased one 4% in the quarter as benefits from higher pricing and increased volumes were more than offset by higher costs associated with inflation SG&A expenses and unfavorable manufacturing performance.
Adjusted EBITDA of $21 $9 million increased two 8% in the quarter, leading to an adjusted EBITDA margin of 14, 4% compared with 16, 3% last year for the full year adjusted EBITDA margin was 15, 7%.
Moving on to cash flow net cash provided by operating activities for the year ended September 32022 was $53 9 million compared with $159 8 million in the prior year.
The decrease was primarily due to an increase in inventories, primarily driven by higher volumes and the supply chain disruptions as well as inflation.
Average net working capital using the five point method as a percent of net sales increased to 27, 5% compared with 25, 7% in the fourth quarter of last year, primarily due to higher inventories during the year, we invested $54 7 million in capital expenditures compared with $62.
$7 million in the prior year.
Free cash flow for the year was negative <unk> eight.
$8 million compared.
Compared with $97 1 million in the prior year, primarily due to the decrease in cash provided by operating activities, partially offset by lower capital expenditures.
Additionally, during the quarter, we repurchased $10 million in common stock, bringing our full year total to $35 million as of September 30, we had $100 million remaining under our share repurchase authorization.
At September 32022, we had total debt of $446 9 million in cash and cash equivalents of $146 $5 million.
At the end of the fourth quarter, our net debt leverage ratio was one five times, we did not have any borrowings under our ABL agreement at year end, nor did we borrow any announced under our ABL during the year. As a reminder, we currently have no debt maturities before June 2029, with $307 $2 million of total liquidity at.
The end of the year, we continue to have ample liquidity and capacity to support our strategic priorities, including acquisitions Scott.
Got back to you.
Thanks Marty.
Much on fourth quarter performance and markets and our full year 2023 outlook.
After that we'll open the call up for questions.
Similar to last quarter manufacturing challenges were the primary reason for our disappointing gross margin and adjusted EBITDA conversion compared with the expectations provided on our last earnings call.
Adjusted EBITDAR, Jeff was around $10 million, primarily due to our gross margin gap of around 400 basis points, partially offset by lower SG&A.
The primary driver of the gap versus our expectations was the manufacturing performance at our brass foundry.
<unk> challenges did not improve as we anticipated for August and September .
Due to the downtime at our brass foundry, our milk production was more than 20% lower forecast.
The foundry production was down about 35% sequentially and more than 50% below the prior year.
While machine Uptime has had periods of improvements we have been unable to get foundry production up to 2021 levels.
Lower foundry production impacted our service for our shipments in the quarter and led to a significant amount of under absorbed labor and overhead costs. Additionally, as this foundry suppliers brass parts to our other facilities, we incurred higher outsourcing costs to meet our needs for breath purchase parts.
While we expect the challenges to continue into 2023, we believe we can get the foundry production back to 2021 levels in the second half of the year.
The new brass foundry startup and progression to full run rates are critical for us as it is the best long term solution for the manufacturing inefficiencies.
We are on track to begin the initial startup phase later this quarter and.
In the new year, we expect the production per approval process to begin.
We will prioritize developing tools for the highest volume Grasberg one.
With new foundry will have more than two production lines to provide capacity for maintenance and contingency planning. We also will have significantly more capacity of the new foundry.
The manufacturing inefficiencies have added pressure to other plants since the foundry has historically made some of the brass parts used in iron gate valves and hydrants. This.
This needed outsourcing has unfavorably impacted our product costs compared with the prior year with record backlog for service for US our gate valves and hydrants, we anticipate material outsourcing to continue until the new foundry is able to take over the production for these parts. We took additional price actions during the quarter due.
These higher costs and ongoing inflationary pressures.
I will now briefly review our end markets and updated outlook for 2043.
As mentioned earlier, we saw healthy order activity again during the quarter. We believe this was primarily due to strong municipal repair and replacement activity offsetting slower new residential construction.
We expect municipal repair and replacement activity to remain healthy in 2023 as utilities trying to proactively address the aging water infrastructure, while they also deal with unplanned maintenance issues like water main breaks as a reminder, we estimate that approximately two thirds of our.
Net sales are related to repair and replacement activities of utilities, which provides resiliency for our business.
We believe the initial phase of the new funding from the infrastructure Bill could flow into projects later in 2043, while improvements in the ongoing supply chain and labor availability challenges could improve the timing of projects, we don't expect to see meaningful benefit until 2024.
For the new residential construction end market, specifically lot and land development activity. We continue to anticipate that the higher interest rates will lead to lower levels of Walton land development activity as the housing market adjust to lower demand.
As a result, we expect to see a slowdown in residential construction activity in 2023.
However, we do expect new residential construction activity to normalize at a level above pre pandemic levels due to relatively low inventories demographics and population shifts move.
Moving on to our updated outlook for 2020 through the.
The record backlog at the end of 2042 across our short cycle products and the expected realization from higher pricing position us to deliver net sales growth in 2023, we currently anticipate that our consolidated net sales will increase between six and 8% we do.
Did see a slowdown in order activity at October . However, this isn't surprising given the timing of our most recent price increases in August and the evolving macro environment.
As a result of our sales growth forecast and improved operations execution, we expect adjusted EBITDA will increase between 10% and 14% as compared with the prior year.
Note that this outlook includes a headwind from higher pension expense, primarily due to the stock market performance.
We estimate the expense will be approximately $3 $8 million or a swing of negative $7 $7 million versus the prior year.
Our adjusted operating income, which excludes the impact of pension expense is expected to increase more than 20% compared with the prior year.
As a result of improved cash flow from operations, we anticipate free cash flow to increase as compared with 2022. This forecast includes higher capital expenditures for both carryover spending and the completion of the new brass foundry. In addition to other capital investments taken.
Taking this increase into account, we expect free cash flow as a percentage of adjusted net income to be between 40% and 60%. These.
These expectations assume the challenges associated with higher inflation labor availability and supply chain disruptions will continue in 2023 with our broad portfolio of water infrastructure products and solutions, we are well positioned to help water utilities address challenges from aging infrastructure climate.
Change in workforce demographics.
Our top priorities for 2023 include executing operational improvements delivery benefits from our large domestic capital investments accelerating development and commercialization of new products and generating ongoing price realization.
Our strategies are focused on capitalizing on the key trends in water, which include the increased demand for water infrastructure products that qualify for the federal domestic production requirements.
Key trends are also driving the growing need for technology enabled products and solutions to help customers address challenges with the aging water infrastructure with our strong balance sheet liquidity and cash flow. We will continue to reinvest in our business, while returning cash to shareholders through our quarterly dividend and share repo.
<unk>, we recently announced another increase to our quarterly dividend.
During this past year, we repurchased $35 million of common stock with $100 million remaining in our share repurchase authorization, we will continue to balance our cash allocation to support our key strategies to grow the business.
That concludes my comments operator, please open this call for questions.
We will now begin the question and answer session. If you would like to ask a question. Please UN mute your phone.
<unk>, one and record your name clearly to withdraw your question you May Press Star two again press Star one to ask a question and one moment for the first question.
It looks like our first question comes from Brian Lee with Goldman Sachs. Your line is open you may ask your question.
Hi, everyone. This is miguel on for Brian Thanks for taking the question.
I appreciate all the.
Guidance around 2023, maybe if I could just start there.
On the adjusted EBITDA guidance for 2023.
Like it's implying a fairly steep ramp in adjusted EBITDA margin coming off of that.
A more challenging fourth quarter, how should we think about the cadence on margins through the year.
Should we sort of be thinking about the fourth quarter is.
The bottom of adjusted EBITDA margins and things picking up from there.
Yes so.
As you think about.
What what the math would indicate you are absolutely correct in that it's been.
The ramp in the second half.
That would be higher in the second half than in the first half.
The implied conversion margins in the 20% to 35% range with about 47% at the midpoint.
There is some noise in here that youre seeing that we have.
Due to the operational issues.
But some of the outsourcing to be transitory. So as the year progresses, we will do less outsourcing and ignore the brass in house with the new foundry.
As the year progresses, we will avoid everybody will recall that we have.
<unk> signed agreements with our unions and our foundry players that will allow us to start.
<unk> shifts.
On a regular basis.
As they get staffed as that comes up we would expect the outsourcing premiums to disappear.
Over the second half of the year.
The other the other thing that kind of mutes the improvement of EBITDA as a result of a $6 eight.
Percentage.
From pension.
Exposure change, both seven $1 billion, something like that year over year.
That goes from a benefit in our baseline year 40 to an expense of <unk> 43.
So I believe the turning point columns in the middle of 'twenty three as we get more of these challenges associated with the outsource associated with the restrictive language I'll be getting staff for weekend work.
And associated with the.
The equipment uptime as our.
Brats facility has fewer and fewer pounds going through it.
For everybody on the call are.
Problems for the year can be best described as public promote source primarily from.
<unk> performance.
Foundry the current foundry that that has had its challenges.
So.
<unk>, but many unexpected.
The main message here is always with us, but most of those manufacturing performance issues associated with the outsourcing of associated with the.
The loss absorption for lack of a better word.
In the downstream processes because of material shortages from the brass foundry is that they will.
It would be mostly transitory.
As we bring the new foundry up.
And as Kimball gets to run it right I think if you heard marty's comments.
It really was.
Primarily bras.
A little bit of specialty.
I am pleased to report that Aurora has closed Hamilton as close sorry is close.
Ed.
Western facility of Oregon's close so the progress is being made.
It's slower.
Okay, Great I appreciate all the additional color there.
Second question.
Switching gears.
The infrastructure Bill I think last year was not included in the guidance you called it out in terms of may be seeing.
Some of that starting to flow through maybe in the latter part of this year.
Are you seeing for 2023 in terms of funds becoming available.
And.
How much of that is expected to translate into some of the growth you're embedding into the 2023 revenue growth guidance.
Yes, I think that the.
The overall <unk> Iga as we remain excited I think that the.
It's going to take time for the fall does that flow through to new projects.
A lot of money and tasks.
Or are starting to get processed through EPA the state agency.
We saw the timing lag back in 2000 volume with.
Sorry, var array, which caused project approval delays as utilities figured out the requirements for the stimulus dollars.
The first phase of annual appropriations appear to have gone through for many states, primarily the largest like California, who has started to approve projects.
But we really don't anticipate meeting meaningful benefit to later this year and believe that the benefits for next year will be limited due to ongoing supply chain constraints and labor availability challenges.
That the utilities will face.
Beyond that time period, we will benefit from the infrastructure Bill spreading.
I do think that with the residential slowdown in residential construction could help.
<unk> labor more available for some of those infrastructure construction projects, but the headline is starting to feel benefit in the second half of 'twenty, three and accelerate through the $48 $40 period.
<unk>.
As the Bill appropriations funding profile would indicate.
Okay, Great that's helpful I'll pass it on.
Thank you.
Thank you. Our next question comes from Deane Dray with RBC capital markets. Your line is open you may ask your question.
Thank you good morning, everyone.
Good morning.
I would like to start with the plans for the new plant ramp because this comes with its own set of operational challenges you've got duplicate labor going on you've got higher working capital needs.
That will come into play.
I'd like to know a little bit more color, what's baked into your guidance, especially regarding contingencies ramping new class like a foundry like this.
Just raises prospects for more things not going exactly right or in the timing that you expect it to be so just what's baked into your guidance for these comments contingencies as well as the higher working capital impact on cash flow.
So I think the easiest one of the deal with first is the working capital as everybody can see in our balance sheet. We've added about $98 million of inventory year over year. So I think a lot of that is behind us about.
Think of a third of it is being inflationary derivative the balance of it.
Driven by the about Av.
Actual units on it.
Those units on it adds has been inflated as a result of.
How much third party inventory material in trends and things like that associated with the outsource and so I think that there is little.
There is a little more paid associated with the working capital to come.
From an inventory perspective, but I think most of it is already in the baseline.
With regard to the second question without giving specific.
For competitive reasons.
On the call I think that there is.
Probably about 20% contingency from what we believe the machine should demonstrate that.
Ads.
What we have in the forecast.
If you listened closely to marty's comments, where she basically said.
Foundry was 20% below our expectations.
35% below sequentially.
And 50% year over year.
In Q4.
When you realize that that's probably at the lower end. So there is some risk if we can't get the pounds.
Anticipated through so our hot commissioning gives actually next week, so, we'll we'll be melting metal and pouring it into.
And reforms that will start the <unk> process.
The key is getting the first around 200 parts through that process. We did those first two harder part through that process.
The absorption that you were talking about what basically built away.
Instead of running production and the new foundry that really won't be absorbing any of the labor it wont be absorbing any of the overhead.
It will.
All of a sudden start to earn its way and then we'll start to get operational.
Leverage so for that to work for us, we really have that kind of.
Duplicate costs through the first quarter in our in our guidance.
So if that gives you enough color without getting into specific numbers.
It does help especially kind of framing.
Your contingencies and I also appreciate the competitive dynamics, you are not going to give exact poundage and so forth.
The map here is helpful Alright so.
Second question shifting gears can you Scott set expectations for the potential scale of change coming now that there is an activist.
You have new board members coming in.
That.
You've got this and maybe give some context what is capital allocation and operating committee is that you are co chair of how is this all going to work and just.
Is there an expectation that there's some big change coming in the portfolio.
Is there a big Bath restructuring coming.
We saw some impairment here is that was that already in the works prior to the Actavis deriving a lot baked into there, but if you could take us through that please.
Well I think that there is a couple of couple of things here.
Here that we have.
The context of your question so number one I think that the.
Made messages that.
The settlement came we have a number of discussions I think they were collaborative mostly with within core to understand their views and to share ours as to why.
Hi.
As heavily as we have invested their view as to whether it was growing fast enough or not I won't get into the specifics, but what I can share is that the board.
Was pleased to have reached an agreement and it accelerates our glory.
The ongoing board refreshment process, Brian Nicholas very valuable operating and supply chain management experience to our already diverse board.
I think our stockholders will benefit.
But as to a foreshadowing of major.
Restructurings and portfolio rebalancing and things of that nature.
At this time I don't see.
<unk>.
Any of that I think the goodwill issue that you referenced is just a byproduct of the.
The changing macro environment, but I'll, let Marty handle where we where we ended up on goodwill.
Goodwill, but the message of the core agree with I think.
Is that.
We're in this vulnerable period of having.
Made the investments we are basically almost fully investments, we probably have <unk> of investments left with the three majors.
They are ramping up I think the progress and the large casting foundry the progress in Kimball.
But where we expect certainly they are dilutive.
Duplicate period time.
But as we start to get on the other side of this I expect this outsourcing.
<unk>, which we did not anticipate.
The flexibility, we get with the new labor contracts as I said earlier in the call. Most of these will be called.
Transitory and so I think both <unk> and our other shareholders.
We will stand to benefit from that I'd say that their interest is in making sure we execute on that.
The goodwill yes, let me go ahead, Dana just talk specifically about the goodwill impairment. We took this quarter. It was a noncash expense of $6 $8 million.
It relates back primarily to an acquisition we had in 2014 with lined valve company.
So this is part of our specialty valve product line.
On an annual basis, we test our reporting units for any potential impairment and largely as an increase that we have with respect to the discount rates that we needed to use that was the primary reason as to why we determined that we needed to write off this goodwill of $6 8 million.
In the quarter.
That's all very helpful. Thank you.
Thank you.
Thank you. Our next question comes from Joe Giordano with Cowen You May ask your question. Your line is open.
Hey, guys good morning.
Good morning.
Can you just comment on what price contribution was in the quarter and how much is carrying over in that 6% to 8% revenue growth guidance.
Yes, I think that the.
The price was.
Well above our expectations in the quarter.
So more than cover the inflation and the dilution effect.
Everybody that we're still in we're keeping track of the inflationary cycle.
Began late 2017 early 2018 and were still dilutive. So we still have some more price to get.
In total, but in Q4 total material cost inflation, which included the purchase parts remained elevated.
Increasing.
Kind of mid teens.
<unk> price realization more than cover that for the third quarter, but were still down.
<unk>.
Currently expect price.
Yes.
And inflation to continue into 2023.
As for the second part of your question.
Regarding what's.
What's the implied volume implied volume from.
The guidance would indicate that we will have.
Slightly less units year over year in this environment as the headwinds associated with the resi market.
Offset by the tailwind associated with Iga.
The beauty of the break fixed market are going to leave us down slightly maybe flat yes.
But being very clear when we look at the short cycle backlog and the series of price increases that we took we go into 2023.
Knowing that we will experience higher price realization as we continue to work through the backlog that we have with the series of price increases that were taken.
Perfect and then can you just level set us on all the capital projects.
There's a lot happening over the last several quarters, but youre starting up the brass foundry you said in like a week youre, starting commissioning there youre going to spend $70 million to $80 million in.
In fiscal 'twenty three.
Where are we at the end of that what's still what if any still needs to happen.
All your major project is going to be done by then just just so we kind of maybe like an updated timeline on everything and where we stand.
Yes, so I think the key.
Later foundry is nearing completion, that's the last of the three major capital projects ballpark ish or $150 million.
Multiyear spend that was associated remind everybody large casting foundry in Chattanooga.
Facility consolidation play to move Woodlands, Suri <unk> Aurora.
And some Mexico maquiladora into the cable facility.
Last but not least the cadence so.
Especially in the large valve investments. The first two are the process of ramping up now.
With the vast majority of the Capex investment completed.
We're completing the transition of the Aurora facility manufacturing and Kimball.
Aurora is closed and nobody's there as of September .
We remain confident that we will ramp up.
In 2023 with the margin benefits following accordingly.
<unk>.
Kind of.
Second half of the year run rate for for Kimball.
The brass foundry, which will allow for the new lead free brass, which will be an advancement in sustainability for customers and end users.
We will be allow us to be completely lead free by 2030, <unk> hundred percent lead free manufacturing processes by 2030.
I think it's.
It's the one with some execution risk today around it as some of the <unk> referred to power all we got the lifestyle.
Results of cold commissioning that has moved.
<unk> bold punching patterns doing things like that.
I think.
The answer your question specifically all three projects are accounting for about 85% of the spending is through so if you were to say there is $22 $43 billion of the 85%.
15% to $22 $5 million of the 150.
As in the new capital budget that you'd see what kind of we see as the maintenance budget.
The guidance and subtracted that and I think if you look at every year.
Since 2018, and subtract the large capex projects, we've been kind of in that.
Rage of three.
3% to 4% range of sales.
Since then with these <unk>.
Next question you had was a result, I believe we're done certainly I'm not in a position to say what the board has approved anything of scale and scope into the three large capital projects that we can see.
Four years ago, we set off on this path.
But with that said of course, Theres always things around last fall.
Innovations theres always things around.
Energy efficiency cordless oven things of that nature of the court when they come in but I think that.
Yes.
This next year should be mostly the add of the capex associated with the large capital.
That's great color and then if I could just sneak in one just.
Strategically we didn't mentioned it once today metering being somewhat prioritize internally.
So I would not say that metering is internally prioritize.
I think that.
We still have significant investments in product development in that space.
We continue to have.
A lot of focus.
Market with it I think if anybody was Westpac recently.
Our booths that are made uptake was around said trucks around metering around leak detection around the introduction of the pressure solutions that integrate it.
Our actual equipment.
With the pressure control valves from cigarettes. So.
I think that we have the most.
Impella economic solution for pressure results in partial management.
Although a integrated remote controlled basis, using our user interface. So.
<unk> deep prioritize but.
Certainly become less of a discussion with investors.
As the doors, we have had.
With these manufacturing problems. These last two quarters has become.
A bigger focus.
When we start getting back to execution like clockwork or will it would expect that we will spend a lot of time discussing the progress made with.
<unk>.
Field trials that we've done.
Yeah.
Our calls we have.
Pressure management going on up in Canada, right now with the city of Halifax, We have a couple of other trials going from a pressure zone management.
There's a couple more pending but we think we will we will start to get traction.
That particular solution.
Thanks, guys.
Thank you.
Thank you. Our next question comes from Bryan Blair with Oppenheimer. Your line is open you may ask your question.
Thanks, Good morning, everyone.
Good morning.
Yes.
Circling back to topline trends and outlook.
Your growth rates in muni repair and replace in resi new construction in fiscal 'twenty two.
Order trends diverge between those exposures.
In October and what's contemplated in your fiscal 'twenty three outlook.
So in fiscal 'twenty three is easier the answer either what we see is in the break fix world the double digit growth right there at the double digit number.
MRO spending.
Kind of in the.
Mid <unk>.
Single digits, those two are going to be offset by what we anticipate.
Rajiv construction Martin I think Marty is the actual numbers, but my recollection is it goes from that one six ish number back.
$1 5 million.
<unk> could be as low as four so thats going to have a negative impact on that MRO spend they probably offset.
Which is why the implied guidance is for units to remain.
Down slightly to flat.
And that we will have our lift come from.
Pricing.
Power.
That's in the backlog and so that's how you should think about.
<unk>.
The market.
Go forward in the current segment.
It's really hard to.
Differentiate what is.
Associated with.
New construction versus what is associated with MRO.
The distribution channel itself.
Extremely healthy, but it has also become extremely choppy.
The Choppiness as a result of it.
If pipe is the long pole in the pit, which I believe it still is.
That hybrid is at hand that can be said forever our own purposes that were originally earmarked for new subdivision construction that visibility that flexibility in the channel is happening more and more as well.
Our chief Channel partners try to manage their inventory investment.
They're opportunistic bottle.
So.
It's becoming more difficult, Brian to say, which is which was showing up.
But the break fix continues to be a very healthy part of our business worse.
Okay. That's all fair I appreciate the detail.
To help us level set a little bit more on.
What took place in fiscal 'twenty, three and then thinking about the progression.
You are.
'twenty three 'twenty four profitability that.
That should be there.
Can you give us a dollar impact.
Production downtime.
Outsourcing.
Winds et cetera.
For the full year it sounds like it's around $10 million for <unk>.
Just trying to gauge what took place here and if it is in fact transitory.
What should roll off during 'twenty three provide further tailwind into 'twenty four and then you have the.
<unk> benefit.
Getting to run rate on your major projects going into the out years, Yes, I think I think that the dollar amounts.
Obviously.
I would prefer everybody to think of it this way Brian .
Here, we are at <unk> 44.
I have not lost sight of the fact that.
Before our investors have I said that our EBITDA margins.
Could expand 50 basis points, a year from about a 95% EBITDA margin level.
Until we got as high as even 'twenty four 'twenty five.
Doug.
Forget forward I think I have always been fairly straight with you guys.
I know it seems far away right now.
But there is I think a path back over the next couple of years.
Towards the kind of baseline that we set.
$19, 540% EBITDA margins.
Some of it is going to come from performance. Some of it is going to come from price management, certainly a big piece of it this year is going to come from.
Things I said four years ago I still firmly believe are within our grasp and I believe they are within our grasp.
And I believe that the path just as they did four years ago was to get the manufacturing house in order.
So that we could build a culture.
Productivity and start implementing some of these lean tools and start implementing some of these six sigma concepts and so I definitely.
Believe that still within the realm of possibility I think some of these these temporary setback certainly you know.
Previous quarter auto poor going down since those going down some of the problems we've had.
What are the things I'm most proud of for the team was the fact that yes, we did really have difficulty in the quarter meeting production because of what happened.
What we were still able to satisfy customer demand.
EBITDA did pick up more outsourcing the door. They made sure we didnt lose customers or insurer, we didn't lose share.
They exceeded the selling number and it wasn't just because.
<unk>.
They had something else they could ship to make up the number.
Met our commitments and so I think that.
Growing I think the way you should think about the outsource though is that.
45% of the year of the fourth quarter.
The color again thanks.
Thank you and as a reminder, if you'd like to ask a question Press Star. One. Our next question comes from Brent Thielman with D. A Davidson you May ask your question. Your line is open.
<unk> inventory rebalancing rebalancing into year end.
Distributed customers just given some of the growing caution around the housing market.
Whatever the long long pole of the hedges as far as the long lead times and stuff is accumulating while they wait for now it's still good for a contractor to receive.
Perversely.
The channel inventory too so I think additionally, depending on our distribution partners expectation for slowing customer demand towards the housing market you were talking about.
But certainly some of the backlog we have.
Dependent are.
Those lead times.
What will be timing differences.
To grow the business, so I'd like to thank everybody for spending time with us This morning.
Look forward to talking to you all again next quarter.
Thank you operator.
Thank you and this does conclude today's conference. We thank you for your participation at this time you may disconnect your lines.