Astec Industries, Inc.

Hello and welcome to the Aztec Industries Third Quarter Earnings Call. As a reminder, this conference call is being recorded. It is my pleasure to introduce your host, Steve Anderson, Senior Vice President of Administration and Investor Relations. Mr. Anderson, you may begin.

Thank you and welcome to the Aztec Third Quarter 2022 Earnings Conference Call. Joining me on today's call are Barry Ruffalo, Chief Executive Officer, and Becky Weinberg, Chief Financial Officer. In just a moment, I'll turn the call over to Barry to provide comments, and then Becky will summarize our financial results. Before we begin, I'll remind you that our discussion this morning may contain forward-looking statements that relate to the future performance of the company, and these statements are intended to qualify for the safe harbor liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions. Factors that can influence our results are highlighted in today's financial news release, and others are contained in our filings with the SEC. As usual, we ask that you familiarize yourself with those factors. In an effort to provide investors with additional information regarding the company's results, the company refers to various U.S. GAAP, which are generally accepted accounting principles, and non-GAAP financial measures, which management believes provide useful information to investors. These non-GAAP financial measures have no standardized meaning prescribed by US GAAP and are therefore unlikely to be comparable to the calculation of similar measures for other companies. Management of the company does not intend these items to be considered in isolation or as a substitute for the related GAAP measures. Comments made during today's call will refer to non-GAAP results, and a reconciliation of GAAP to non-GAAP results are included in our news release and the appendix of our slide deck. All related earnings materials are posted on our website at www.aztechindustries.com, including our presentation, which is under the Investor Relations and Presentations tabs.

And now I will turn the call over to Barry. Thank you, Steve. Good morning, everyone, and thank you for joining us this morning.

I will begin with key messages from the quarter followed by a brief overview of business dynamics and then an update on progress made on our continued strategic evolution. Then Becky will share details on our financial results and capital deployment.

I will then provide some concluding thoughts before opening the call up for your questions.

Key messages for the quarter shown on slide four starts with market demand that has remained robust across our segments even as general macroeconomic indicators are beginning to soften. Customer sentiment remains positive and overall order rates for our products are steady. Sales in the third quarter grew 18% compared with last year with strong double-digit growth in both segments and was the highest third quarter sales we have ever achieved. While output increased, higher order rates resulted in backlog growing once again. providing solid visibility as we enter the final quarter of 2022 and move into 2023. In addition to growing our sales and backlog, we are continually focused on improving our business and operations. This culture helps us navigate macroeconomic challenges such as the supply chain and labor constraints that have persisted over the last several quarters. Despite these challenges, our team has done a commendable job and we are combating these factors on a daily basis. We are engaging with supply chain partners, including both customers and suppliers, to work through demand and supply issues and to better position us to meet customer needs, and we were successful in increasing headcount by roughly 9% from the same quarter last year. We will continue our diligent focus on supply chain and labor availability on an ongoing basis. As shown in our third bullet, we maintain a strong balance sheet which enables us to invest in growth, implement our strategic transformation, and return cash to our shareholders. Just last week, we announced an 8.3% increase in our quarterly dividend to 13 cents per share. In the third quarter, we were purchased $6.1 million, or approximately 160,000 of our own shares. Becky will comment on this more in a few minutes, but we believe this disciplined and balanced approach to capital employment serves our shareholders by creating sustainable value. Three years ago, we began a journey to strategically transform our organization by implementing new business strategies and a new operating structure. A key component to this is implementing a global technology platform to leverage automation and drive process efficiency. We remain committed to this journey and believe that based on the progress made thus far, we are well on our way to achieving the targeted benefits of this endeavor. There is still much work to do, but I am confident that we are on the right path to realizing a greater future for AdSec in the days ahead. In parallel, we are executing our simplified focus and growth strategy to drive profitable growth and to fundamentally improve our business and earnings profile. Again, we are not yet where we aspire to be, but I am pleased with the progress our team is making. Before moving forward, I would like to recognize the significant milestone we celebrated in August, as shown on slide five. It was 50 years ago that Dr. Brock, an inventor and entrepreneur, founded Aztec Industries. From those humble beginnings, Aztec has grown into a global billion-dollar manufacturer of equipment for road building and construction-related products that connect the world. In that spirit, we continue the mission of delivering innovative products that are truly revolutionizing the Rock the Road value chain. Fifty years is a tremendous milestone achieved by few companies. I was humbled to be joined by other Aztec executive team members as we rang the NASDAQ opening bell to celebrate our anniversary. Turning to slide six, I would like to review current business dynamics and how ASTEC is responding. Industry demand for our equipment remains high as activities such as asphalt road building, aggregate processing, and concrete production is needed to support the ongoing investment in infrastructure across the markets we serve. This has led to increasing levels of backlog, and we are responding by expanding capacity and throughput in our operations. We will leverage these investments and improve profitability as we grow. additionally funds from the federal highway bill are beginning to be deployed which should provide long-term tailwinds for future growth i have briefly addressed our own labor challenges but also want to note labor shortages are impacting our suppliers as well many of the components we use in our equipment are produced and tight labor conditions are creating bottlenecks in the manufacturing processes for these components as noted We have action plans in place to address these challenges and expect to see progress in both labor and supply constraints over the coming quarters. We expect our margins and revenue will improve as the supply chain normalizes. Inflation has been another ongoing challenge for the last 18 months. However, we have made progress in offsetting inflation with favorable volume, price, and mix, and will continue to pursue our disciplined pricing strategy to ensure we are fully capturing the value we're delivering to our customers. Turning to slide seven, We have achieved record backlog for the eighth consecutive quarter as a result of strong order activity to meet robust demand. As we grow our workforce, we place and empower the right talent to ensure we are driving improvement with targeted hiring in areas such as manufacturing engineers for project management. We are strategically investing in equipment and technology to expand and automate our manufacturing operations and are leveraging the capabilities across all of our sites to facilitate demand. The One Aztec business model shown on slide 8 aligns us around a unifying framework centered around customers and markets. Our core values clearly articulate our objectives to achieve operational excellence. This approach positions us to capitalize on opportunities and address industry headwinds. Included in the model is our commitment to sustainability. We were proud to evidence the commitment last week by announcing our support for the National Asphalt Paving Association's The Road Forward program. This program is an industry-wide initiative to engage, educate, and empower the U.S. asphalt community to pursue the production of zero-carbon emission asphalt pavements by 2050. When aligned with our one-aspect business model, the three strategic pillars of our strategy, simplify, focus, grow, shown on slide 9, support our primary goals of optimizing our manufacturing footprint and centralizing our business into common platforms and operating models to reduce complexity and cost. improve productivity, and embed continuous improvement in our processes.

With that, I will now turn the call over to Becky to discuss our detailed financial results.

Thank you, Barry, and good morning, everyone. As shown on slide 11, sales were $315.2 million, up 18.1%, with strong growth in both equipment and parts, which increased 20% and 11% respectively. By region, there was a 23.6% increase in domestic sales, while international sales remained constant. As Barry mentioned, overall order rates were strong, and we achieved our eighth consecutive quarter of record backlog, increasing 56.2%. Backlog increased in both segments, with material solutions growing 31.2%, and infrastructure solutions surging 75.8%. Border activity remains robust across geographies, with international backlog up 39.7% and domestic backlog up 59.8%. We continue to win orders as our commercial teams are connecting with customers to match their needs with our solutions. Adjusted EBITDA increased 1.2% to $16.6 million while adjusted EBITDA margin decreased 80 basis points to 5.3%. The decline was primarily from the impact of higher manufacturing costs due to inefficiencies in the supply chain and an increase in adjusted SG&A expenses, which were up 2.8%, as we are investing in headcount, consulting fees, travel costs, and incremental costs from acquired business. Adjusted SG&A expenses declined as a percentage of sales to 17.8% from 19.8% in the same period last year, in line with our strategy to lever investments for future growth. We expect adjusted EBITDA margins to improve as we overcome supply chain challenges and realize benefits from our transformation. Adjusted earnings per share was 28 cents, driven by inflationary pressures in material and labor. This excludes costs driven by our transformation program, which will optimize our company for long-term value creation. Last year in the third quarter, we had a negative tax rate of 26.1% after recording a $2.1 million benefit for a valuation allowance release in Brazil and net R&D credits. Our adjusted net effective tax rate for this quarter was 28.4%, primarily due to the relative weighting of jurisdictional income. As previously communicated, the full year range of 22 to 24% still holds. Moving on to slide 12, infrastructure solution sales increased 15.7% to $201.9 million in the quarter, primarily due to favorable net volume pricing and mix, especially in equipment and parts sales. Domestic sales were up 16%, while international sales increased 14.4%. By product, equipment sales were up 20%, and part sales grew 15.1%. Segment gross profit increased slightly to $41.1 million, and gross margin decreased 210 basis points to 20.4%. primarily due to the impact of inflation, supply chain, and logistics challenges. Adjusted EBITDA margins were also lower, falling 180 basis points due to higher SG&A expenses. Turning to slide 13, our material solution sales increased 21% to $111.8 million, driven by favorable volume pricing and mix. Equipment sales grew 31.8%, and parts were up 4.3%. Domestic sales were up 40.4%, while international sales declined 12.7%. Segment gross profit increased 6.2% to $24.1 million, and gross margin decreased 300 basis points to 21.6%, due primarily to cost inflation and manufacturing inefficiencies this quarter. Adjusted EBITDA margins for this segment were essentially flat. On slide 14, we highlight the key drivers of our year-over-year adjusted EBITDA bridge. In dollars, EBITDA improved 1.2% to $16.6 million, but fell 80 basis points as a percent of sales to 5.3%. The positive contribution from volume pricing and mix more than offset the impact from inflation. However, negative manufacturing efficiencies due to supply chain disruptions and higher SG&A expenses offset most of that benefit. Looking ahead, we continue to expect further benefit from price realization and the implementation of our transformation strategy. Turning to slide 15. Our cash position was lower as we are investing in growth, including an increase in working capital. Our balance sheet remains solid, and we expect our cash position to improve as we manage working capital and progressively resolve supply chain disruptions. Our liquidity and negligible debt enable us to withstand a variety of economic headwinds. As a reminder, over time, our target range for net debt to EBITDA is between 1.5 to 2.5 times. Slide 16. This slide shows our disciplined capital deployment framework. We follow a targeted capital deployment approach within the context of our long-term strategic objectives to maximize shareholder value. This includes identifying internal investments that meet our 14% return on invested capital hurdle and a strategic approach to acquisitions that align with growth objectives and financial criteria. As Barry noted, we are committed to providing a tangible return to shareholders. This quarter, we repurchased $6.1 million in shares, and last week we announced an 8.3% increase in our quarterly dividend. Before turning the call over to Barry, I would like to briefly update you on our Oracle Transformation Project, summarized on slide 17. The transformation supports the one Aztec operating model by providing us the tools to operate more efficiently and effectively. Beginning in May of 2023, we will be implementing ERP solutions across all of our global sites. As previously disclosed, the process will take approximately 24 months and will conclude in 2025. We have dedicated teams and precisely designed workflows to complete this phased implementation and I am confident in our team's ability to execute. This project and suite of systems are key enablers of delivering our long-term financial targets, shown on slide 18. The company-wide Oracle Solutions platform will greatly improve efficiencies, positioning us to achieve our long-term goals. I'm excited about this initiative and look forward to bringing you further updates on our progress. With that, I will now turn it back over to Barry for his closing comments.

Thank you, Becky.

Turning to slide 18, I would like to conclude my comments with a review of our key investment highlights. For 50 years, AdTech has been connecting the world with heavy equipment to build essential infrastructure and have established leadership positions in our industries that are aligned with positive long-term secular growth trends. Over that time, our reputation for innovative, high-quality products and superior customer service have become recognized across our industry. We have leveraged our global installed base to establish a recurring aftermarket parts business that greatly improves the stability and quality of our earnings profile. This contributes to our strong balance sheet and generates cash to fund growth opportunities, support balanced capital employment, and enables us to weather economic challenges. Finally, our strategic evolution built on the three pillars of simplify, focus, and grow is gaining traction and will enable the achievement of our long-term vision and goals.

With that, operator, we are now ready to open the call for any questions.

Thank you. If you would like to ask a question, press star then the number one on your telephone keypad. If you would like to withdraw your question, simply press star one once again. And we will pause for just a moment to compile the Q&A roster. And we will take our first question from Mig Dobre with Baird. Your line is open.

Thank you for taking the question. Good morning, everyone.

Good morning, Mig.

Good morning. My first question is on your comments on ERP implementation. I'm sort of curious if you can give us a sense in terms of what this will entail. As far as incremental P&L investment, how you intend to treat that, do you intend to adjust it out or kind of let it flow through? And is there also maybe like a CapEx component that we need to be aware of?

Sure, I'll take that one, Meg. Because we're going cloud, there's very little that's capitalized on the grand scheme of things. It's a very small portion that gets put on the balance sheet. And so we continue to be adjusted out to the extent that a site has not yet gone live. So when we retire their old system, they'll get the cost of the new system. And so our ad back will come down dramatically over the next two years. In 2023, as we mentioned, we'll go live with the whole suite at different points. So there'll be elements of the HCM, the CX, as well as ERP that go live next year. And then in 24 and 25, it'll be all ERP rollout. So we'll see that progress. And also we'll see the costs come down as we go. 2023 will be the heaviest split.

Okay. But you're not in a position right now to kind of give us a sense in terms of the sort of cost that you guys are dealing with here? Because, yeah, even though we adjusted out, I'm presuming that this is going to be all cash.

It is all cash. That's correct. We have stated that previously. It's in that $150 million range for the total program. And keeping in mind the program also includes, the transformation of one of our facilities, which has a capital expense. If you're talking strictly ERP, it's almost all expense. But the second very program that's in there is largely capital and very little expense.

Understood. Okay. Then maybe we can talk a little bit about your reported inflation figures. You know, we've been in a relatively narrow range for the past three quarters in this kind of call it 30, 30 plus million dollar range. And I'm kind of curious as to how you're thinking about this figure on a go forward basis, considering that some of the input costs like raw materials maybe are starting to move a little bit lower. So, yeah, maybe you can comment on a fourth quarter and maybe kind of what the setup into 2023 is.

Yeah, this is Barry.

I'll take that question to start with, and Becky can add on if she has anything else to contribute. So we're pleased that, as we've said all along, we've had pricing that's been catching up to inflation. Earlier in the year, we had pricing that basically offset inflation. In Q3, what we've experienced is pricing that actually outpaced inflation for really the first time as a company. As we've also said prior, you know, when we look forward, as we said earlier, through the rest of this year and in 2023, we still have pricing in our backlog as of right now, Meg, that we haven't realized, that we'll continue to realize through Q4 and into 2023. From an inflationary perspective, how we see that is we've started to see it actually slow down in regards to the increase. In some cases, it's actually stabilized. You know, and so on a year-over-year basis, you know, we're projecting that we should start to see inflation change less as we go through further quarters and move forward. We know there's inflation actually in our inventory today that we haven't completely realized. But, you know, we also know, as I said earlier, we've got pricing that we haven't realized as well. So we think we've got pricing right now that will offset that. Plus, you know, we continue to look at our position, you know, relative to inflation in the market. And, you know, our teams continue to look at, you know, if we have to take more pricing actions moving forward through the rest of this year and in 2023, you know, we'll continue to work with our customers and dealers to do that as well. So I think we're in a good place at this point in time, Meg, in regards to how we handle it moving forward. We've got better visibility. We've got more control and more ability with our pricing. And, you know, we feel like, as I said.

We appreciate your patience. Please stand by while we reconnect our speakers. And we do have our speakers reconnected. Thank you for your patience.

Yeah, thank you. Yeah, good morning. Again, this is Barry. Meg, I'm not sure where I got cut off here in answering your question.

Yeah, well, last thing I heard, you were kind of talking about pricing and what do you have in a backlog and kind of how that's flowing through into 23. And you mentioned that inflation is in certain portions of your business is kind of peaking.

Yeah, so that's right. So we have seen some stabilization, at least the increase in inflation has slowed versus what we've experienced over the course of the year. We've got pricing and backlog, as you commented on, that we haven't realized yet. So as we move forward into 2000 and through the rest of 2022 into 2023, We'll continue to look at pricing to take actions there appropriately in order to make sure that we're positioned appropriately in the marketplace to really deliver the value and get the value that we're providing to our customers. But I think generally, Meg, where we sit today is because now we've kind of turned that corner on pricing out, slightly outpacing inflation, that we're in a good place now where we can maintain that position and make the appropriate changes as we move forward into 2023.

Okay. So with that in mind, if we look, for instance, at, I guess, either segment, really, segment gross margins, what's the proper framework for gross margins into 2023? Is it reasonable for us to expect a sort of return to the kind of levels that we have seen maybe in 2020 when these price-cost dynamics were not nearly as onerous as what we've been experiencing here over the past, call it 12 months or so, or is that premature in your view to set expectations that way?

Yeah, good question. So as we look forward through the rest of this year and in 2023, we believe that gross margin will be governed really by the supply chain. So if you look at our 2022 Q3 results, it really was the manufacturing efficiencies really from the supply chain type issues that have had an impact on our gross margins. As stated already, our pricing inflation is a good mix today. So as we move forward into 23, and as we see supply chain issues improve, and I would say generally, MIG, you know, we've seen, you know, supply chain issues actually improve throughout the course of 2022. And if they continue to do so, then we'll be able to claw back that margin. Keep in mind, our teams are extremely active and engaging with suppliers and alternative suppliers, new designs, doing things within our manufacturing facilities to try and offset any impact from supply chain issues. But that would be our biggest determinant at this point in time is supply chain. And as I said, we've seen it get better, but there's certain things right now that we're still working through that has had an impact in Q3. And, you know, as our action items become get some more traction, we should start to see some of that improve into next year.

Understood. Final question for me. In material solutions, maybe you can give us a little bit of context surrounding pretty strong water intake that you've had here. I know that this segment does quite a bit of its business through dealers. So I'm kind of curious as to what's been driving the strength here relative to dealer stocking or really if there's any other color either by equipment category or geography that you can sort of provide here. Thank you.

Yeah, I think as we talked about before, Meg, you know, this time of year is typically an ordering period, and we do do some dealer convention and some dealer engagement around this time of year as well. And so, you know, for us, we've kind of signaled, I think, that, you know, we would expect that we'd have potential growth in our order flow as we hit this time of year. You know, just maybe a little bit more color, Meg, we've spent some time with what we call our executive customers. So these are customers that are owners of businesses or founders, you know, high-level executives within our customers' businesses. And, you know, through that process, you know, we've surveyed them to understand, you know, how they see the market and where they see the market going. And two data points that really came out of that is, you know, as they look at 2023 infrastructure market versus 2022, you know, 24% of those customers expected to be just as good in 23 as it was in 22, and 51% of the customers actually expected to be 10% or more better than it was in 2022. Another question we've asked is, you know, from a capital budgeting perspective and commitment perspective, how do they see 23 versus 22? And 56% of them see that they'll spend equally as much in 23 as they did in 22. And 34% of them expect that they'll spend more, you know, in 23 than it did in 22. So I think that's just some good data and color around the market dynamics that our customers you know, are seeing. And of course, those are primarily North American customers. So hopefully that gives you some more color and, you know, supports why you hear us have confidence in market demand.

And as a reminder, it is star one if you would like to ask a question. And we will take our next question from Steve Verzani with Sidoti. Your line is open.

Morning, Barry. Morning, Becky. Wanted to ask about what you're, and you covered this a little bit, in terms of what you're seeing for component shortages. Sort of been a mixed bag for this earnings season. Just trying to get your sense, is it getting easier to get necessary components from your suppliers? And also, I mean, there seems to be a bifurcation in terms of smaller companies still struggling more in terms of how they are prioritized by suppliers. If you can get a little bit of take on that.

Yeah, good morning, Steve. Thanks for the question. So, you know, the items that we have issues with today are, you know, I think have been pretty consistent. Electrical type components, displays for equipment, you know, hydraulic type components, you know, pumps and so on and so forth. some cooling equipment type radiators and oil coolers and those types of things. So that's kind of generally the types of issues that we're dealing with. You know, when I think about this, I think about there's really two parts of our business. There's, you know, there's the part where the plant side of it where we're, you know, very vertically integrated and have that direct model where I would say generally, you know, the supply chain issues have, you know, really slowed down significantly. There's the other part of our business where it's more procured type products, and that's where we see some of the issues with hydraulics and electrical components and some of the cooling equipment packages. But I would say generally, Steve, we've seen some improvement in the supply chain, and I credit our teams really for all our hard work and actions they've taken to really drive, whether that's alternative suppliers, new designs, so on and so forth. They're just things we do differently in our facilities to be able to manage through this more effectively. So there's been a reduction in the severity of the supply chain issues, but there are still some things right now, as I alluded to, that we continue to work through. And honestly, they're not going to get fixed overnight, but generally, you know, we've seen some improvement.

That's helpful. Thanks. When we think about, you talked a little bit about backlog and what your customers are expecting. You mentioned in your prepared remarks starting to see some of that federal highway spending flow. When we think about the significant growth in that infrastructure solutions backlog, is that part of that starting to see your customers starting to expect projects beginning next year?

Hey, Steve Anderson. Yeah, what's

hearing from our customers that they're starting to see some funds flow. We're seeing that in the places as well. So, uh, you know, as we said before, we expected most of the flow and the new projects to come online in 2023 and 2024. So that's consistent with, uh, what the expectations were and our customers are confirming that. So, uh, yeah, we're, we're pleased that is a good long-term tailwind for the business, as you know, going out through, uh, 2025 and in 2026. So, uh,

I'm glad to see those funds beginning to flow. Yeah, I'm just maybe add some more color to that. You know, as we talk to our customers today, Steve, you know, the majority of our customers have a backlog that really is out, you know, nine months and longer. So they have a good backlog of work today. And as those projects, you know, really start to flow through, you know, they have confidence then giving us confidence that, you know, our order rates will continue to stay strong as You know, really our implied order rate is showing in Q3. And I think what also is good about our customer set is, you know, they're not just sitting there relying on residential or non-residential, or they have the ability to really kind of flow their business towards areas where there's opportunities. And not only just from a revenue perspective, but also from a margin perspective. And as you know, Steve, they've had really record years, year over year over year, from 20 to 21 and now into 22. So they've done well. Now, when I talk to customers, you know, yes, they're experiencing some inflationary type impact, but they've also got great pricing capability that they've been able to take advantage of and will continue to take advantage of, you know, as we move forward in time.

Great. Last one for me, just in terms of I didn't hear if you updated your CapEx expectations for this year and if you're starting to plan next year and how, whether or not you've incorporated any kind of,

factory automation efforts into into capex yes i can take that one steve we have lowered our expectation for this year we have 40 to 50 million as the range and we've dropped that to 35 to 45 and it's really timing on when we're receiving the the goods that are on order and when they'll go into actually usage so we've um pushed some things out into 2023 we expect 20 23 to be in that range of 30 to 40 as well. Some of it, the carryover projects, but then the continued automation programs that we have going on.

Yeah, just to maybe add a little more color to that, you know, all of our CapEx really that we put into the business over the last 18 months has really been a browned automation you know as we've talked about steve we have a high dependency upon labor we're very vertically integrated in most of our sites and so as we invest that capital it's really around automation uh the things that we're doing around capacity are really in low cost produced countries so we're making sure that you know the capital that goes in will always have a good return regardless of the cycle that we're actually into the business so i'm pretty uh pretty pleased with the uh the momentum we've built around identifying projects that will really return long-term shareholder value through cycles, you know, for Aztec moving forward.

Great.

Thanks, Barry. Thanks, Becky. Thanks, Steve.

We will take our next question from Larry Demaria with William Blair. Your line is open.

Morning, Larry. Hey, guys. A few things. First of all, if I followed the last question correctly, That was about infrastructure bill, not the highway bill. And so just to confirm, the customers are starting to see some projects come, but what is your kind of timeframe on expectation for meaningful numbers to come out to the market? Not necessarily you guys, but meaningful projects and cash hitting the market.

Yeah, hey, Larry, this is Barry. So just to kind of reiterate what Steve had mentioned, yes, our customers are starting to see some of the funds... through from that law that's been passed. I would also tell you that in certain states, Larry, as you probably know, there were certain funds that were allocated for COVID relief application. And because that's actually slowed down, now states have the ability to actually go to the government, the federal government, and put forth projects which now are also being funded by some COVID relief money as well. So it's not just the IIJA types funding, but it's also other types of funding that they're able to get through. So we've started to see that flow through. We've always said, you know, it's really typically around 18 months from the time the law or the policies pass before you start to see good traction. But we're pleased that some of that funding is flowing through today.

Got it. That's very helpful. Thank you. And then secondly, I'm curious a little bit about pricing and specifically, maybe you can delineate and break down that price-volume mix for us that you saw in the quarter. But kind of more importantly, think about the carryover pricing into next year from the progressive price hikes through this year when they hit. So if you could tackle that, the pricing questions and having a carryover to next year.

Yeah. So, you know, as we looked at the pricing volume index, versus inflation. As I already said in the call, we've seen pricing actually outpace inflation. So we've identified inflation to be $20 billion on the year-over-year impact for the company. Pricing is greater than that. We've had a nice impact from volume, so we're getting more products out the door and leveraging that as well. And actually, Quite honestly, Larry, we've seen a little bit of a negative from the mix. So pricing being up, volume being a good contributor, and mix being a little bit of a drag on us for the year-over-year quarter comparison. You know, we believe and we know that there's pricing in our backlog that we haven't realized yet. We've said that pretty much all year long that, you know, we're getting caught up. And this is the first time in 2022 where we're about to turn the corner on being able to have pricing to more than offset inflation. So we expect that we'll have pricing that will flow through really each quarter as we move through the rest of the year and into 2023. And we'll continue to look at opportunities or needs to increase pricing as well as we go through that same timeframe.

Okay. I guess, thank you for that. Well, I'm looking at two Q and three Qs, similar level of top line sales, not too far differently. And I know this, I guess, is probably obviously supply chain constrained. So with gradually improving supply chain, can we more or less take this 315 to 20 number as your capacity for the next three, four quarters, add a little bit of price and add a little bit of gradual capacity increases to get to the top line? In other words, take out some of the typical seasonality and kind of look at the run rates right now and assume slightly better as we go forward?

Yeah, without getting into a level of detail or providing guidance, we haven't started to do yet. You know, we do make prepared remarks that, you know, as the supply chain improves, we will experience revenue and margin growth. And I guess I'll just leave it at that.

Okay. Thank you.

Good luck. Thanks.

And ladies and gentlemen, there are no further questions at this time. I would like to turn the call back to Steve Anderson for any additional or closing remarks.

Thank you, Abby, and we do apologize for the technical difficulty earlier, but appreciate you staying on the call. So, appreciate your participation on our conference, and thank you for your interest in our company. As today's news release indicates, the conference call has been recorded, so a replay will be available from November 16th. An archived webcast will be available for 90 days. The transcript will be available under the investor relations section of the Aztec Industries website within the next seven days. All of that information is contained in the news release distributed earlier this morning. This will conclude our call, but I'm happy to connect with any of you that have additional questions.

Thank you all. Have a good day.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines and have a wonderful day.