Valmont Industries (NYSE:VMI) Q3 2019 Earnings Call

0:02 With me today are Steve Konieski, President and Chief Executive Officer, Mark Jaksic, Executive Vice President and Chief Financial Officer, and Tim Francis, Senior Vice President and Corporate Controller. This morning, Steve will provide a summary of our third quarter results, and Mark will provide additional details on financial performance. A slide presentation will accompany today's discussion. and a link to access the document is located on the homepage of our website at valmont.com. Please download the slide deck to follow along with today's call. A replay will be available for the next seven days and instructions for accessing it are included in the press release which is also located on our website. Please note that this conference call is subject to our disclosure on forward-looking statements which applies to today's discussion and will be read in full at the end of this call. I would now like to turn the call over to our President and Chief Executive Officer, Steve Koniewski.

0:58 Thank you, Renee. Good morning, everyone, and thank you for joining us. I would like to start with slide three, which provides a recap of our third quarter. Net sales of $690.3 million grew 1.7% compared to last year, despite a very challenging market environment in agriculture and unfavorable currency impacts of 1.3%. Sales were led by strong wireless communication and transportation demand in North American markets, revenue from acquisitions, and sustained pricing discipline across the portfolio. Moving to segment highlights, and starting with the engineered support structure segment, third quarter sales of $268.1 million increased 6.6% over last year. When excluding currency translation impacts, sales increased 8.9%.

1:50 Lighting and traffic structure sales were higher this quarter. In North America, continued strong demand from state and local government spending to improve roads and highways drove sales growth. This demand has supported our higher backlogs and a favorable pricing environment. And lead times across the industry remain extended. Globally, sales of wireless communication structures and components grew more than 30% this quarter. and are more than 25% higher on a year-to-date basis. We have benefited from very strong order flow, particularly in North America markets, where sales grew approximately 70% this quarter compared to last year. As expected, robust demand from ongoing investments in 4G and 5G site preparation are driving sales growth, along with revenue from our recent acquisitions of Larson Camouflage and Connected Wireless.

2:47 Thank you. Thank you. Sales of our small cell solutions are more than three times higher than last year, supporting our market expansion strategy to provide integrated technology solutions to our customers. Sales of access systems this quarter decreased due to lower volumes and unfavorable currency translation.

3:37 In the utility support structure segment, sales of $205 million decreased 6.1% compared to last year. Favorable pricing was more than offset by lower volumes from less available market capacity in China and slightly lower production levels in our North American facilities. Rapid increases in demand are being driven by transmission project acceleration across North America to replace aging infrastructure and greater regulatory pressure to replace wood structures with materials that can more effectively withstand heat, like steel and concrete. In the North American transmission market alone, we estimate a 10% increase in the market size this year from project acceleration, evidenced by our receipt of a second purchase order for the large 500 kV project we announced last quarter.

4:32 The sudden increase in demand has led to factory capacity constraints in our North America facilities. Further, our inability during the quarter to access approximately $10 million of capacity from China also impacted our ability to meet the increase in additional demand. As mentioned, we are taking immediate steps to add capacity only to our existing North America facilities, which we expect to utilize towards the end of the first quarter of 2020. Sales in international markets this quarter were lower from smaller project sizes of solar tracker solutions and lower revenues in the offshore wind business. We are very pleased with the progress of our solar tracker business, although some significant projects have recently moved this year into 2020.

5:21 Turning to the coating segment, third quarter sales of $93 million grew 2.8%, led by sales from recent acquisitions and pricing discipline, although lower volumes in external markets decreased sales late in the quarter. We know that our coatings business can be an indicator of overall industrial production trends. So we are monitoring these markets closely for any more changes. Turning to the irrigation segment, global sales of $144.1 million were 2.9% higher compared to last year. In North America, sales of $82.8 million grew 6% despite a very challenging agricultural market and trade environment, as well as lower industrial tubing sales and the usual seasonal market slowdown.

6:12 While macro market conditions are still weighing on farmer sentiment, sales of pivots, aftermarket parts, and technology solutions were higher. Like others, we are awaiting the outcomes of the fall harvest and any related changes to commodity prices that could impact demand. Record sales of our AgSense technology solutions during the quarter grew our total number of connected devices by 6% to over 91,000. Global technology leadership remains a primary focus, and we are strategically investing in research and development, strengthening our global technology sales team, and integrating the voice of the customer. As a reminder, we are investing an additional $4 million in research and development activities in the irrigation segment this year.

7:02 International irrigation revenues of $61.3 million were 1% below last year. Higher project sales in the Middle East region and solid demand from Brazil were more than offset by lower sales in the Asia-Pacific region. Historical drought conditions in Australia and the lowest net farm income levels there since 2014 led to substantially lower volumes. Softness in the New Zealand markets from policy uncertainty and spring flooding muted demand in that region. I would now like to turn the call over to Mark for the financial review.

7:38 Thank you, Steve, and good morning, everyone. My comments on the third quarter of 2019 profitability are based on comparisons to 2018's adjusted results, as outlined in the press release. Turning to slide four, third quarter operating income of $63.9 million, or 9.3% of sales, was 1% above last year. More raw material prices this year drove lower LIFO expense, which is presented separately from segment operating results. reported segment operating income was lower, most notably in the irrigation segment. Coatings and ESS operating income were slightly lower than last year, as well as the profitability of the international portion of the utility segment. Third quarter diluted earnings per share of $1.85, increased 1.6% over 2018, suggested EPS of 182.

8:31 without the 24 cent impact of the non-recurring losses in our access system projects, diluted earnings per share for the quarter would have increased 14.8%. Turning now to segment operating results in slide five, the engineered support structure segment operating income of 21.8 million decreased 4% from 2018. The strong continuing trends in North American lighting and traffic and wireless communication sales contributed to positive segment profitability comparisons The international ESS poll operations on balance reported improved results over 2018, in part due to the restructuring actions we undertook last year. These positive outcomes were offset by poor operating performance in the excess systems product line, in large part due to a non-recurring loss in the third quarter of approximately $7.5 million associated with two projects.

9:28 These projects were in a new product line for us that was launched at the end of 2017, and costs during the project installation phase were substantially higher than we originally anticipated. We have no additional orders in this product line, which we have exited, and we will not incur any fixed capital write-offs from exiting this market. Overall, we are very pleased with the continued pricing discipline across the segment, more favorable product mix from higher volumes and wireless communication, along with the cost savings associated with the capacity reductions in the Asia Pacific region last year. Turning to slide six, the utility support structure segment operating income of $20.4 million was flat with the third quarter of 2018.

10:13 Improvements from pricing actions were muted somewhat by operational inefficiencies as we started producing large 500 kV orders which impacted segment sales as well as profitability. Moreover, less capacity was available from our China operations to help meet this market demand. We also incurred startup expenses in our concrete distribution pole facility in Florida, which is now in operation. Lower profitability in our developing international operations also weighed on operating income. As mentioned last quarter, we continue to see strong market activity for solar tracker solutions, and the profitability of this business improved in Q3 as compared to Q2.

10:58 We expect sales and profit improvement in 2020 as we begin to recognize manufacturing synergies and the planned expansion of this product line into North American markets. In the coating segment on slide seven, operating income of $13.8 million decreased 3.7% compared to 2018. Pricing discipline across the segment and higher internal volumes in North America were more than offset by lower external volumes that mainly had occurred throughout the quarter and one-time integration-related expenses associated with the United Galvanizing acquisition earlier this year. On balance, despite lower volumes, the coatings business continues to perform well, but we are monitoring trends related to U.S.

11:43 industrial production figures and possible effects on demand going forward. Turning to the irrigation segment on slide 8, operating income of $18.2 million, Thank you for joining us. as the market leader to make strategic investments in our advanced technology solutions, including the Prospera Partnership, which we announced earlier this year.

12:28 Turning to cash and the balance sheet highlights on slide nine, as expected, we recognize very strong operating cash flows of $239 million this year, including $125 million in the third quarter. Our heightened focus on working capital optimization continues to be a priority for the management team, including a meaningful decrease in inventories this quarter. We have also been able to make improvements in receivables including negotiated down payments on certain larger contracts which is helping drive expected cash flows for the year to exceed 1.2 times net earnings. A summary of capital deployment is on slide 10. Year-to-date capital spending was $72 million up from $49 million in 2018.

13:15 As we've mentioned all year, most of the increase is due to investments in a structures facility in Poland, a concrete utility distribution pool facility in Florida, and expanding the capabilities of our irrigation factory in the United Arab Emirates. Full year capital spending is still expected to be between $90 and $100 million. During the quarter, we returned $25 million of capital to shareholders through share repurchases and dividends, ending the quarter with $327 million of cash. Our effective tax rate for the quarter was 24.8% in line with our expectations. Let me now turn to slide 11 for an update to our 2019 outlook. Based on the third quarter results, which were lower than our expectations, and our outlook on the fourth quarter, we are adjusting our EPS expectations for the year to be between $7.05 and $7.45.

14:14 In the ESS and utility support structure segment, North America market conditions are strong and should drive improved sales and operating income in these segments over Q4 of 2018. However, the operational and capacity matters mentioned earlier have tempered our profitability improvements in this segment as compared to our prior projections. The poor Q3 operating performance in the Access Systems product line including the $0.24 per share project losses incurred will not be recovered in Q4. In addition, we are expecting unfavorable comparisons in the coating segment as the slowdown we experienced in late Q3 is expected to continue into this quarter so far. In the irrigation segment, we are expecting unfavorable comparisons to Q4 2018 mainly as a result to international project sales we had last year that will not repeat this year. With that, I will now turn the call back over to Steve.

15:14 Thank you, Mark. Turning to slide 12, to summarize the balance of the year, the revisions to our 2019 sales and profitability outlook are primarily being driven by four impacts. The significant non-recurring expenses recognized in the third quarter, operational inefficiencies and capacity constraints in our North American infrastructure businesses that are extending into the fourth quarter, and anticipated lower volumes in our coatings business and irrigation segment sales that are below our prior expectations for the year. In ESS, we expect higher margins to be driven by strong demand, particularly in North American markets, plus the benefits of our 2018 operations transformation, as well as stabilized raw material costs.

16:00 Record backlogs of more than $600 million in our utility business have increased lead times in North America now to 52 weeks, based on our current run rate capacity levels. A meaningful amount of backlog has already been released to our manufacturing facilities. As we've said before, projects can shift quarter to quarter. However, we are confident that we can quickly fill any gaps in released work given the robust market demand. While we are pleased with the higher North American irrigation sales in the third quarter, globally, the irrigation business continues to perform below our expectations for this year. As the growing season is coming to an end, We are not yet seeing a meaningful turnaround in demand, but do expect continued growth of technology sales.

16:48 We are monitoring market demand and general industrial production trends in our coatings business and will give additional updates next quarter. As we look ahead to 2020, I'm optimistic on the direction of our business. We expect total revenue growth next year of 5% to 7% from higher volumes in our infrastructure businesses Thank you. Thank you. and as we alleviate capacity constraints, we expect to see further revenue and margin improvements.

17:48 We have recently taken steps to adjust our organizational structure to help meet this additional demand and best serve our customers. To address the current constraint of labor availability, we are expanding our recruitment efforts for skilled labor, increasing in-house training programs and adjusting work schedules to help reduce turnover. As such, and as we train new personnel, we will likely continue to have operational efficiencies over the next one to two quarters for the workforce training efforts. In each of our segments, we are elevating our commitment to lean manufacturing by organizing our business around key value streams, utilizing agile methodology and lean daily management to drive our flow with our product lines and throughout the company.

18:35 As raw material prices have moderated, We remain committed to pricing discipline and leadership in all segments in the markets we serve. We will continue to perform against our stated capital allocation goals while generating good cash flows, and long-term, our company financial targets have not changed. I will now turn the call back over to Renee.

18:59 Thank you, Steve. Donna, at this time, you may open up the call for questions. Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We do ask that you please limit yourself to one question and one brief follow-up question, and then return to the queue for any additional questions. Our first question today is coming from Nathan Jones of Stiefel. Please go ahead.

19:36 Good morning, everyone. Morning, Nathan. I mean, I think the first thing to get to the bottom of here is clearly what happened in utility. I'm looking at your slide six here that has volume down 27.7 million, which is a 13% drop in volume year over year. Clearly, this is not a result of a lack of market demand, but a lack of, I guess, your ability to serve that demand. I mean, you talked about 10 million of unavailable capacity out of China. Can you bridge the rest of the volume drop here specifically for us? What happened with this capacity in China? Where else were there capacity constraints?

20:21 And why wasn't this built into guidance on the second quarter? Why wasn't this known? to be coming down the pot three months ago.

20:31 Yeah, well, Nathan, as we had mentioned earlier, I'll start with the solar tracker and the convert. We had said that the first half would be significantly higher than the second half, and that really proved out, particularly in the third quarter, where we only really shipped about $4 million of project sales. We had anticipated that the fourth quarter would have some additional sales, but actually just Earlier this week, we received word that a project in Chile was moving from the fourth quarter into next year. So that's part of the explanation. You get the $10 million in China, and if you really include the closure of our Hazleton facility last year, that's about, say, $7 to $8 million more revenue.

21:16 North America's profitability actually increased almost $3 million on the $10 million less in So it had the intended effect, and as we started up the large project, what we didn't anticipate were a lot of the operating inefficiencies of having to get that started up. Normally, you would have one potential plant that you would have some issues with, and that would be kind of how we would assume. We had to go to four of our facilities in order to ramp that up. and as such it impacted the hours production in all four of those facilities as we started the ramp up. If you look really on a sequential basis what we're anticipating is at least 20 million more in the fourth quarter over the third quarter getting back more on track and then as we have further capacity additions into next year you will see that continue to grow based on the overall market demand and the backlog we have.

22:19 and maybe you could talk a little bit about why that China capacity was unavailable and then when you think that you'll be at full run rate potential so that you'll be able to serve all of the demand that you've got here because I mean the market looks pretty robust. When will this capacity be here? When will these inefficiencies be driven out of the system? When can you get back to operating at full capacity and full efficiency?

22:45 Sure, on the first part, You know, China is now one of those places that we cannot sell any kind of utility products that are now coming to the US. It's simply off limits based on the political environment, the trade environment that many other companies have discussed as well. So we were optimistic that based on the capacity constraints in the market, it would be logical to assume that someone would want to utilize this to beat the lead times that are out there in the marketplace. That's not panning out. So we are now making adjustments to move production or enhance our production just to get back to par in North America. And that'll be a combination of both Mexico and the US.

23:31 If you take that, you take the operational efficiencies, we'll get better in the fourth quarter. The first quarter is where some of the other capacity additions come on board. So you figure as we go into Q2 next year, by the end of Q2, You really should be on a very fine run rate. And we don't see anything in the market on the utility side that will abate that market demand in the near term. As we said, there was probably $130 million more as compared to the analyst reports because these projects weren't reported to the analyst reports that has now come through. And the more you see with the fires and hurricanes We just see continued strength there, plus the renewables drivers that we've had all along. So we're very optimistic about the utility market over the next couple of years.

24:24 We just have to meet some of this additional capacity.

24:28 Just finally on that China one, is that, you know, if you imported from China, the tariffs on it would make them so expensive that that's just not feasible or you're just not allowed to bring them in?

24:39 No, it can still be cost competitive. It's just that the utilities are reluctant to be tagged with buying something from there. So we can still do it.

24:53 Got it. I'll pass it on. Thank you.

24:55 Thanks. Thank you. Our next question is coming from Chris Moore of CJS Securities. Please go ahead.

25:03 Hey, good morning. Good morning. Just stay on the infrastructure side. kind of ramped for a little bit. So just trying to get a feel for the risk and the scale up. How many skilled people that you need? How available are they? Is this across kind of multiple markets? And where are you in that process?

25:30 Yeah, I mean, that was one of the reasons that during the quarter, as we look at fourth quarter, we're putting more realistic expectations into the ramp up. It's a challenging market. It's a little easier in Mexico to get some of these skilled trades than it is in the U.S. You can imagine welders here in the U.S. are in short supply. But we're also doing some machine additions that are more robotic and more automated in addition to that. So it's just a – we're trying to temper it. The other thing you get when you hire people is you generally have to pull other good people off the floor to train them. and that also contributes to some of the inefficiency you get through that process. So as we looked at guidance and looked at the next couple of quarters, that was one of the things that we wanted to take into account more properly. But the long-term drivers in the market and our ability to meet that are still very strong and we feel confident that we will get back, again, relatively quick, which is why we're saying now end of first quarter to second quarter Next year.

26:39 It doesn't ramp up in a quarter in this business.

26:43 Gotcha. And then you talked about that lead time being 52 weeks. Is any fear of losing orders at this point in time?

26:52 The competitive landscape is pretty similar. So we don't anticipate that. Obviously, we would like to work that down. And so as we said in our prepared comments, this is our current run rate at 52 weeks. So as we bring on capacity through better productivity and, again, within our existing facilities, we're hoping to bend that curve down a little bit. But the industry has been here before, if you go back to the 2013 timeframe, and actually I think even peaked out around 70 weeks. So it just takes a lot better planning on everybody's part to meet the demand.

27:30 Gotcha. I'll jump back in line. Thanks, guys. Thanks, Chris. Thank you. Our next question is coming from Brent Seaman of DA Davidson. Please go ahead.

27:41 Thanks. Good morning.

27:43 Hey, good morning, Brent.

27:46 Hey, Steve. I'm maybe wondering on irrigation, I guess, any early views on how the project business might shape up for 2020?

27:53 You know, the projects that we've had, particularly on the international side, you know, we had all this year, and we really thought A couple of them were going to break loose. They would have enough capital to pay us and to move forward. Those projects are still there and still being worked. Any time you get currency volatility with the U.S. dollar, it does tend to throw the project timing off. And so we've seen that occur, particularly late in the second quarter and the third quarter. We right now are not going to say that there's going to be any significant projects That break loose any specific quarter next year, but we do think that, of course, something will.

28:39 The long-term drivers are still there in the places that we've talked about previously in Africa, the Middle East, and Central Asia. There's still real plans to move forward. It's just a timing issue, which we've always dealt with in this business.

28:59 Okay. And then maybe back on utility, I'm curious sort of how these capacity constraints, I presume others might be seeing as well, you know, are playing out in terms of the bid environment and pricing dynamics. And, you know, is this sort of shifting pricing back in favor of manufacturers like yourself such that, you know, we can expect some better margins here ahead?

29:27 Absolutely. And as I mentioned, our North America, even though we were down approximately $10 million, we were better $3 million on the OP side. And that is coming from a better pricing environment. And as you would expect, bid margins, now we have alliance work that's fixed, but the bid margins would definitely be going up as you look into next year, simply due to the normal supply-demand parameters of the market. So we think it's a favorable environment as we look into 2020.

30:02 Okay, thank you.

30:04 Thanks. Once again, ladies and gentlemen, that is star one to register a question at this time. Our next question is coming from Brian Drapp of William Blair. Please go ahead.

30:14 Hi, good morning. I think most of the big topics have been touched on. I'm just wondering if you could comment on within irrigation, the piece of the business that is not the traditional pivot, whether it's the connected technology and the torrent engineering business that you stated last year at the analyst day that could eventually be a $100 million revenue business. How is that going, and what's the growth in those areas?

30:46 Yeah, what we've seen on the, I'll call it just technology side, and I'll separate that from the water management side, On the technology side, as we mentioned here, we had a record month in our AgSense business. That business is obviously very margin accretive. It's a strong value play for the grower, very low cancellation rates. We expect that to continue to grow. It's one of our primary efforts is to continue to build a connected marketplace. That will become then the highway for other technologies and other offerings that we have to continue to do that. So we've said 20% per year is our target on that part of the business. On the water management side, we have made strides. Torrent has turned into a very good acquisition.

31:37 They had a great quarter. And what it really does is as you get into more of the water efficiency and Delivery on a Farm, we're able to meet that with the scheduling, the design of the pumps to be the most efficient and the most efficient use of both power and water. And so they have had a real good business there and particularly on project business internationally, you have to bring both solutions. So I would say that on our goal towards the 100 million, we're starting down the path, but we still have a lot of work to do to obviously get it to that level. But again, that's margin accretive as compared to some of the other traditional parts of the business.

32:21 Okay, thanks. And I guess just one more for now. You mentioned the 5% to 7% expectation for the top line in 2020. Can you give just a level of confidence around that? It feels early. And are you through the budgeting process for each of the businesses, or is that – More a reflection of just, you know, this is what this business should be able to do because we're hearing from other companies that, you know, they're seeing a tough environment persisting into 2020, and that's a pretty healthy growth rate, five to seven.

32:57 So what that assumes, Brian, is that, again, irrigation, say flat, where we're seeing the biggest parts of the increase in demand, utility. and having a 52-week backlog, we already know we have backlog. So that's giving us the confidence along with where we're putting our capacity additions to meet that. And remember, there's higher pricing in that backlog as you've gone on for a while here. The other part of it, you saw the telecom growth is very substantial year over year, plus 20% for the entire ESS group. We don't expect that to change. We expect that to continue as we go in. And it actually was a part of our early outlook for this year that we'd start to see it accelerate throughout the year.

33:48 That's what we're seeing. And so as we look into 2020, that will continue. Highway spending. And it's not just us. There's other guys out there in road aggregates and other markets that are also showing very strong demand in DOT work and road and bridge construction. and so we feel good along those lines as well. And so that five to seven has a relatively good level of confidence. This was after going through what we call a preliminary budgeting process and just looking at market demands and utilizing the sources out there that back up that demand profile. So as we particularly clear up some of our inefficiency issues, that obviously helps too to really accelerate the revenue side.

34:36 And then the other part of it was, I'm sorry, on the utility side was the solar business. We do expect to continue to grow pretty substantially north of 15%. Got it.

34:49 Okay, thanks for going through that. Appreciate it. Thank you. Our next question is coming from John Bratz of Kansas City Capital. Please go ahead.

35:00 Morning, Steve. Morning, John. Sort of in aggregate, could you give us a summary of how the acquisitions have performed, the ones that you've acquired over the last 18 months, relative to your expectations? And are the acquisitions, were there any issues, I guess, this quarter with the acquisitions in terms of meeting demand and so on?

35:28 Yeah, I'll start, Mark, and always jump in. I ran through this last quarter. I would say on balance, there's not a big change in the way we view the acquisitions from last quarter to this quarter. Convert Italia had a little bit more of a push where we would have expected closer to $70 million, $75 million. We think some of that, well, we know that a portion of that now is moving into next year. But on balance, that one is just a matter of gaining operational synergies, cost synergies. and we're still working that piece of it. The acquisition in India, the plant we did earlier, that plant is servicing both India and the Middle East and it has a local galvanizing component as well. It's doing relatively well for really almost like a green field. So we expected a longer ramp for that particular one.

36:23 As I mentioned earlier, Connected and Larson Camouflage are doing very well. Both in terms of sales and profitability. The one that was a little bit slower off the gate is Wal-Mart. It's our road sign business. And there was a couple of markets in the southeast that really had gone a little bit, I won't say cold, but just there was a pause in tenders. We already have backlog next year that was equal to our expectations for this year. So we think that that will continue to really accelerate as we look into next year. We talked about Torrent, and that's doing very well. And the coatings acquisition, CSP in New Zealand, doing very well. United Galvanizing, we noted some integration charges in the quarter. That was one of the largest galvanizers in the U.S., and any time you do that, there can be some related issues.

37:21 So we had some inefficiencies as we really integrated. But as we look into fourth quarter, it seems to be doing a little better.

37:29 Yeah, the other part of that, John, on coatings is with the United acquisition, we've been able to take assets we had in the Brenham facility where we were doing our own galvanizing that's being redeployed to western Pennsylvania, which is a market where we think there's great opportunity, and that's going to come online early next year. I think at some point in time. But the United facility has a lot more capability than we had in Brenham. All in all, that's going to be a positive impact for us.

37:58 Okay, good. One last question. As you look forward over the next 12 months, how do you see steel prices at this time? It seems like they've been coming down. Are you seeing any further deflationary pressures?

38:13 You know, steel has hot rolled dropped very quickly. The plate market has been slower to a beat, but has also come back down. We don't see anything right now based on, if you look at overall industrial production, obviously car manufacturing is down. There's nothing that we see that would be an impetus to drive it up to any kind of significance. Will the mills try to get some price increases out there? More than likely, that will be A response to some sliding prices. But we don't see anything that would be substantial up or much more down. I mean, you're kind of at a level of supply-demand right now.

38:55 Okay. Okay. All right. Thank you.

38:58 Yep. Thank you. Our next question is coming from Brett Thielman of DA Davidson. Please go ahead.

39:06 Okay. Great. Thanks. Steve or Mark, any comments on the offshore wind business, maybe how much of a drag that was this quarter? Are we getting to a point where that's kind of negligible?

39:17 Yeah, Brent, I'll take that one. This is Mark. Last year, as you know, we took the impairment charge on the Goodwill, so accepting that. It was not as much year over year as much of a drag because I think last year during the third and fourth quarters when we really started to see that business weaken a bit, But, you know, really what the, you know, the larger issue on the international side of the business was solar, which is a combination of lower volumes, which Steve talked about, and we are putting some SG&A in that business for market development in North America to grow that and to be able to develop that. So, at least on a quarterly basis, it was a bit of a drag, but again, as Steve mentioned, the long-term outlook for that, we still feel quite good about.

40:01 And just to follow on Mark's comments, we do believe that From a break-even perspective, we should be in there next year. It'll probably be closer to the second quarter based on the way the backlog lays out, but you should see a reversal there. Again, we've had seven players in Europe that have gone out of business, and as we mentioned earlier, demand is picking up. We are seeing that in more tenders that are going out, plus We are working very diligently to get some real straight utility orders in there on some round poles, and there's a couple of large orders that we're bidding on currently. So we feel better about the business. We knew this would be a tough year, and it proved out that way.

40:49 Okay. And then a follow-up should be great here for cash flow. As you think about next year, ramp up of business, how – How might we think about that and your working capital needs and kind of where that may land?

41:08 Yeah, Brent, this is Mark. We can give you a better indication on that when we get a little bit closer into next year, but certainly we benefited from some of the project payment, prepayments we got, which helped. The one thing we are trying to do with utility customers as we renegotiate contracts is to have that That type of a cash flow characteristic to it, but that's a matter of negotiation, and we'll have to see how that plays out. But even accepting that, there are some things we're doing around supply chain to be able to get some little bit better terms from our suppliers as well as some things we're working on the receivable side to provide some tailwind on that, even with – Even maybe with less advanced project payments going in the next year.

41:57 But we do expect the cash flows to be good. But there's still some color and work to be done on that for sure. Okay. Thank you. Thank you. Our next question is coming from Nathan Jones of Stiefel. Please go ahead.

42:13 Hey guys, you disclosed there the USS backlog, I think over 600 million. Could you talk a little bit about the ESS backlog, if that's still growing, where it's at?

42:26 Yeah, I think what we said on that particular one, I think we said North America was the last time we talked about it, and it was over 200 million. And that backlog has grown a little bit more, not at the same rate. Obviously, we're Shipping some of that is evidenced by the increase in the revenue side of it there, but it's still very healthy, and we are still dealing with extended lead times, not just us, but also competitors in the space as well.

42:59 And then on the ASS margins, if you take out that charge, margins were really good at getting close to 11%. Given the high levels of demand here, declining input prices, and your talk about maintaining price discipline, do you see those margins being able to continue to expand from that core 11% level as we go into next year? How should we be thinking about that?

43:27 Yeah, that's the plan. And particularly as telecom sales grow, they tend to be more margin accretive to ESS as a whole. and we had strategically exited some businesses that were at least in the first half of the year still a little bit of a drag on us, some in Europe and some in Australia that won't then be there as we look into next year. So we are pushing very hard on the margin front and we had been asked can we get this to a 10% business and as evidence other than our issue with the access systems orders we would have been there and so we're going to continue that push and now it will be Cost Management, Factory Performance, in addition to the pricing that has to be there. But we remain bullish on ESS.

44:15 We did a lot of work to get this business to where it needs to be.

44:20 Okay. Thanks very much.

44:22 Thanks. Thank you. We have reached the end of the question and answer session, and I will turn the call back over to Renee Campbell for closing comments.

44:33 Thank you everyone for joining us today. As mentioned, today's call will be available for playback on our website or by phone for the next seven days. We look forward to speaking with you again next quarter. Included in this discussion are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions that management has made in light of experience in the industries in which Valmont operates. as well as management's perceptions of historical trends, current conditions, expected future developments, and other factors believed to be appropriate under the circumstances. As you listen to and consider these comments, you should understand that these statements are not guarantees of performance or results.

45:21 They involve risks, uncertainties, some of which are beyond Valmont's control and assumptions. Although management believes that these forward-looking statements are based on reasonable assumptions, You should be aware that many factors could affect Valmont's actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. These factors include, among other things, risk factors described from time to time in Valmont's reports to the Securities and Exchange Commission, as well as future economic and market circumstances, industry conditions, company performance, and financial results. Operating Efficiencies, Availability and Price of Raw Material, Availability and Market Acceptance of New Products, Product Pricing, Domestic and International Competitive Environments, and Actions and Policy Changes of Domestic and Foreign Governments. The company cautions that any forward-looking statement included in this discussion is made as of the date of this discussion and the company does not undertake to update any forward-looking statement.

46:27 This concludes today's teleconference You may disconnect your lines at this time Thank you for your participation