Tennant Company

Good morning. My name is Rob, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Tenant Company's 2022 Third Quarter Earnings Conference Call. This call is being recorded. There will be time for Q&A at the end of the call. Please press star 1 if you would like to ask a question. After the Q&A, please stay on the line for closing remarks from management. If you have joined our call today via telephone and logged into the conference call presentation on your computer, Please mute your audio on the computer to avoid potential quality issues during the call. Thank you for participating in Tenant Company's 2022 Third Quarter Earnings Conference Call. Beginning today's meeting is Mr. Lorenzo Bassi, Vice President, Finance for Tenant Company. Mr. Bassi, you may begin.

Good morning and welcome to Tenant Company's Third Quarter 2022 Earnings Conference Call. I'm Lorenzo Bassi, Vice President of Finance. Joining me today are Dave Hummel, Tenants President and CEO, and Fay West, our Senior Vice President and CFO. On today's call, we will update you regarding our third quarter performance and revised guidance for 2022. Dave will brief you on our operations and enterprise strategy, and Fay will cover the financials. After their remarks, we will open the call to questions. Please note a slide presentation accompanies this conference call and is available on our investor relations website at investors.tenantco.com. Before we begin, please be advised that our remarks this morning and our answers to questions may contain forward-looking statements regarding the company's expectations of future performance. Such statements are subject to risk and uncertainty, and our actual results may differ materially from those contained in the statement. These risks and uncertainties are described in today's news release and the documents we filed with the Securities and Exchange Commission. We encourage you to review those documents, particularly our safe harbor statement, for a description of the risks and uncertainties that may affect our results. Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude certain items. Our 2022 third quarter earnings release includes the comparable GAAP measures and a reconciliation of these non-GAAP measures to our GAAP results. Our earnings release was issued this morning by a business wire and is also posted on our investor relations website at investors.tenantco.com. I'll now turn the call over to Dave.

Thank you, Lorenzo, and thank you all for joining the call today. Our third quarter results reflect continued customer preference for Tenant's portfolio of cleaning products and solutions and demonstrate our commitment to maintaining profitability in the current operating environment. Incremental price realization, growth in aftermarket services, parts and consumables, and strong cost discipline contributed to sequential improvement in adjusted EBITDA and adjusted EBITDA margin in the third quarter. Additionally, pricing and cost-out actions covered the impact of inflation on a dollar-for-dollar basis in the quarter. While adjusted EBITDA for the quarter was in line with our expectations, we achieved those results differently than planned, and this has informed our full-year expectations. On our previous calls, we outlined several strategic initiatives as well as targeted investments in inventory in order to stabilize our supply chain, unlock production, and reduce product lead times in the second half. We continue to action against these initiatives, which have provided incremental benefits. but supply challenges persist, most notably for electronic components and subcomponents. As a result, production has not ramped as quickly as we had expected and did not increase sequentially in the third quarter, which adversely impacted sales volumes across all regions. We do believe, however, that because of our continuing efforts, we are better positioned for success going forward. This is critically important as we work to address our global backlog. which has grown steadily since 2021 and is now over $280 million, roughly five times normal levels. Our near-term priority is to reduce our backlog and satisfy the customer orders that we have already secured. We are actively working to reduce lead times and appreciate our customers' patience and flexibility during this period of extended lead times. Based on the minimal number of order cancellations to date, we have confidence that we can convert our backlog to revenue. This backlog represents our customers' strong preference for tenant products and services. It also provides us with a level of insulation from future demand fluctuations. Demand patterns and order timing have been atypical since the beginning of 2021, due in part to the pace of recovery in various end markets and geographies. In the third quarter, we experienced lower order volumes as compared to second quarter for all reasons except Latin America. But when we look at year to date orders in North America, they are up single digit versus the prior year, suggesting the timing could be a driver of the third quarter decrease. We are monitoring demand patterns closely, talking with customers and evaluating the macro factors that can influence demand. These include COVID lockdowns in China, the impact of the Russia-Ukraine conflict, and higher energy prices in MAF. Our people have demonstrated terrific agility and creativity in managing through the current operating conditions. While we certainly are not satisfied with the pace of recovery we're realizing in our business, we believe we are on the right path forward and are pulling the right levers to effect change over time. Taking all of this into account, we are revising our full year guidance. We now anticipate that net sales will be between $1.08 billion and $1.11 billion, and adjusted EBITDA will be between $130 and $140 million. Fay will detail those changes shortly, but first let me highlight the specific actions and proof points that underpin our recovery trajectory. Driving short-term improvement has been top of mind for our entire organization, as we look to increase production as well as offset the impact of macro factors. On a full year basis, the combined impact of foreign currency and the effect of the Russia-Ukraine conflict on sales and energy costs is significant. We estimate that it has impacted adjusted EBITDA by approximately $15 million in 2022. But we are mobilizing resources accordingly and remain focused on what we can control, including, first, stabilizing our supply chain to unlock production, reduce product lead times, and address backlog to improve our customer experience. And second, executing our pricing strategies to offset inflation while maintaining strict cost discipline to preserve profitability. With respect to our first area of focus, our teams are taking every opportunity to find creative solutions to mitigate supply chain disruptions and increase production in the fourth quarter. These actions include working closely with our suppliers to accurately predict the availability of critical parts, increasing supplier purchase commitments and safety stock inventory, supplementing Tier 1 supplier efforts, and directly procuring difficult-to-source Tier 2 subcomponent parts, expanding dual-sourcing supply options and continuing spot-buy activity, evaluating product design alternatives that reduce the reliance on constrained parts, And lastly, optimizing our global manufacturing capacity and product platforms to increase production in EMEA and APAC for sale in the Americas. Regarding our second area of focus, pricing strategies and cost discipline, we have executed significant pricing actions across all geographies for both equipment and services, including parts and consumables. We will continue to monitor market conditions and are targeting published increases to ensure that our pricing actions sufficiently cover realized inflation. At the same time, we are continuing our cost-out efforts and are tightly managing discretionary spending. Importantly, these actions align with our long-term enterprise strategy of winning where we have a competitive advantage, reducing complexity and building scalable processes, and innovating for profitable growth. For example, We are accelerating the leverage of IPC and Gaume mid-tier product platforms by introducing tenant branded versions to grow, share, and compete more effectively in targeted geographies. It's a prime example of winning where we have competitive advantage. The actions we've taken to reduce product skews and eliminate options are examples of reducing complexity, which is helping us gain efficiency by allowing us to focus our recovery efforts on fewer parts and suppliers. Additionally, driving adoption of our market disruptive robotics offering is helping our customers solve for their critical labor shortages and delivers an attractive payback on their investment while allowing us to expand into potentially attractive adjacencies like inventory scanning. As a team, we remain relentlessly focused on providing our customers with the high quality products exceptional service, and superior experience they expect from tenant as we work toward increasing production, continued strict cost management, and executing on our enterprise strategy. With that, I will turn the call over to Faye for a discussion of our financials.

Thank you, Dave. Third quarter net income was $15.6 million compared to $21.5 million in the year-ago period. Including non-operational items, such as amortization and restructuring charges, adjusted EPS for the third quarter was $0.99 per diluted share compared to $1.33 per diluted share in the year-ago period. Lower gross profit, higher interest expense due to higher underlying rates, and an increase in income tax expense were the primary drivers of the year-over-year decrease. Gross margins were impacted by inflationary headwinds, the timing and realization of pricing actions, as well as lower production volumes. Certain discrete tax items were favorable in the prior year period and were non-recurring in 2022. S&A costs were favorable compared to the prior year and partially offset this decrease. Foreign currency adversely impacted adjusted EPS by 14 cents per diluted share. For the third quarter of 2022, Tenant reported net sales of $262.9 million, a 3.3% decrease compared to the prior year. Comparisons between periods were significantly impacted by foreign currency fluctuations which drove a 5% decrease in net sales. On a constant currency basis, organic sales increased 1.7%. Tenant groups its sales into three geographies, the Americas, which includes North America and Latin America, EMEA, which includes Europe, the Middle East, and Africa, and Asia Pacific, which includes China, Japan, Australia, and other Asia markets. Organic sales in the Americas and EMEA increased 4.6% and 0.6% respectively versus the prior year period. The increase in the Americas was primarily due to the impact of higher selling prices as well as volume increases in Latin America. Growth in services, parts, and consumables as well as the impact of higher selling prices contributed to the year-over-year growth in EMEA. APAC organic sales declined 14%, primarily due to volume declines in China as local shutdowns related to the COVID-19 pandemic continued to impact demand. We have successfully executed several meaningful price increases during 2022, which have favorably impacted net sales. However, The limited availability of certain parts constrained our ability to meet volume demand. Backlog remains elevated at five times normal levels and is approximately $280 million, which is slightly lower than the second quarter backlog. Geopolitical factors have moderated demand patterns, specifically in EMEA and APAC. As Dave discussed, we continue to take actions that will allow us to increase production in the fourth quarter of 2022. which will also position us for a strong start in 2023. Moving to adjusted EBITDA, adjusted EBITDA for the third quarter was $33.8 million or 12.9% of sales compared to $36 million or 13.2% of sales in 2021. The decrease in adjusted EBITDA was due in part to lower production volume, as well as lower margins, which were impacted by inflationary pressures across all production inputs. These impacts were partially offset by pricing actions and favorable S&A expenses as we continue to actively manage costs. Foreign currency also unfavorably affected adjusted EBITDA by approximately $4 million as compared to the prior year period. Turning to cash flow and capital deployment. For the first nine months of 2022, net cash used in operating activities was $38.8 million compared to net cash provided by operating activities of $62.9 million in the prior year period. The increase in cash use was primarily driven by an increase in working capital due to incremental investments in inventory to support a rampant production. Additional increases in working capital were due to higher accounts receivables resulting from higher sales to customers with extended payment terms and increased cash payments for employee compensation and benefits and taxes. We anticipate that working capital needs will moderate in the fourth quarter and when coupled with an incremental improvement in earnings will drive positive fourth quarter cash flow from operations. The company continues to deploy cash flow towards operational capital needs and to return capital to shareholders in line with its capital allocation priorities. Capital expenditures of $19.4 million were in line with our overall expected CapEx for the full year. Liquidity remained strong with a cash balance of $59.2 million and with $261.9 million of unused borrowing capacity on our revolving credit facility. Our net leverage remains within our guided range and was 1.65 times based on the midpoint of our 2022 adjusted EBITDA guidance range. Turning to guidance, we are making incremental improvements to stabilize our supply chain and increase production levels that will help deliver best-in-class service and enhance the customer experience. Geopolitical factors have moderated demand patterns, but we remain focused on improving profit margins through price increases and continued cost management. Our full year 2022 guidance factors in the impacts of foreign currency headwinds, inflation, price realization, as well as increasing energy costs. Our guidance is as follows. Net sales of $1.08 billion to $1.11 billion, reflecting organic sales growth of 3% to 6%. Full year gap earnings in the range of $3.20 to $3.60 per diluted share. Adjusted EPS of $3.70 to $4.10 per diluted share. which excludes certain non-operational items and amortization expense, adjusted EBITDA of $130 to $140 million, capital expenditures of $25 to $30 million, and an adjusted effective tax rate of 20% to 25%, which excludes the amortization expense adjustment. With that, we will open up the call to questions. Operator, please go ahead.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. And your first question comes from the line of Chris Moore from CJS Securities. Your line is open.

Hey, good morning, guys. Thanks for taking a couple of questions. So looking for increased volumes in Q4. Maybe you could just talk a little bit about your visibility now into Q4. at this point versus, you know, three months ago, visibility into Q3.

Yeah, good morning, Chris. You know, thinking about our revised guidance and the implied Q4, let me break down how we're thinking about delivering the quarter. We talked in the second quarter about taking a number of actions to ramp our output in Q4, and we executed those actions. We are getting impact, but not the full impact that we expected, particularly on the side of securing more parts. to fuel production. So Q4 implies an increase in output production from our plants. It's on par with plant output from Q1 and Q2, so we think it's reasonable and we have a line of sight to achieving it. In addition to that, our Q4 performance implied in our revised guidance, we need to continue to realize price at the rate that we have been, and we're confident that we can do that And we've been augmenting and will continue to augment our revenue with products from less constrained plants. So we talk about leveraging our mid tier products produced in Italy and China into other geographies and into channels and to customers where some of our other products are more constrained. as well as 100% sourced products, for example, the IMOP product that we sell successfully. We're counting on some IMOP sales to augment our revenue in the fourth quarter. So we've got a line of sight to delivering it. It'll come from different actions than we had anticipated when we last spoke, but we do have a line of sight to delivering the quarter and, therefore, the revised guidance.

Got it. That's helpful. Are there any – any wild cards in in in q4 i mean are you assuming an improved electronic components flow or um you know kind of anything that that still is a little bit outside of your control at this stage well you know i'll i'll uh i'll preface my remarks by saying 2022 has been a year of wild cards you know if you think about the the combined effect of of fx and russia ukraine

impacts on energy and the EBITDA headwinds that that's created for us. You know, anything could happen in Q4, but as we think about it, and particularly relevant as we think about the parts shortages on electronics, you know, we've got line of sight to deliver the quarter. We've taken actions to secure an inventory of some Tier 2 components. We are reflecting the continued volatility and unpredictability in supply chain in our guidance, and so At this point, we have line of sight, and the guidance really reflects a balanced view of both our risks and opportunities. And so we're confident we can deliver on the revised guidance.

Got it. That's helpful. So obviously, you talked about continuing to work price. You're scrambling on the supply side a little bit. Gross margins were 38.3% in Q3, down 180 basis points. I'm just trying to get a reasonable estimate for Q4. Let me put it a different way. What would it take to get to approach 40% in Q4? Is that too aggressive or is that something that could be achievable?

Yeah, we don't guide on gross margin typically, but since you offered a number, I'll comment. I think that's unrealistic to think that we'll achieve that rate in Q4. But let me comment more broadly on how we're thinking about pricing, because really when you think about margin expansion, it's largely the pricing versus inflation story and our ability to offset it. We've continued to publish increases at rates we believe will cover inflation over the long haul, our realized inflation. We are getting strong price realization. I think that's partially due to operating in an inflationary environment, but also speaks to the strength of the tenant brand and the strength of the tenant selling organization in driving price and realizing price as it's published. We've continued to publish off-cycle price increases in 2022, and those are reading through. Our pricing impact is affected and delayed by backlog as the price rolls through our backlog. And so the inflation in 2022 has come through more strongly than we had originally forecasted. We are pricing in response and taking aggressive pricing action to offset it. We actually offset inflation in Q3. We covered it. And we will come very close to covering it on a full year basis with what we see today. And so we really need to see how Q4 shakes out and look at that price versus inflation equation and take appropriate action into the future. So hopefully that gives you a little more color around the margin story for Q4.

Maybe building on what Dave just said on Q3 particularly, right, on the gross margin. So we have seen an expansion of roughly 40 basis points in our margin sequentially on Q3 over Q2. And, you know, as a proof point of the continuous realization of pricing, 90 BPS coming from pricing and then partly offset by inflation net of cost out and some mix in there as well. But so, you know, kind of the proof point is the expansion between Q3 and Q4 of margin by 40 BPS.

Got it. It's very helpful. I will leave it there. I appreciate it, guys. Thanks, Chris. Thank you.

Your next question comes from the line of Steve Ferrazani from Sidoti. Your line is open.

Morning, everyone. I wanted to get a sense of, I mean, I guess there are two pieces here, which is supply chain constraints and demand now. And if you can sort of give a sense of, are you expecting any further easing on supply chain, or does this run well into 2023? And if you can sort of walk through the demand picture from your three different regions.

Yeah, I'd be happy to. Thanks for the question, Steve. I'll answer the supply chain question first. We don't anticipate significant easing in supply chain into 2023. We just don't see it, have line of sight to it, have no commitments from supplier that would give us or performance that would give us a reason to believe. So The actions that we've taken and are taking are having impact. We have pockets of success. The challenge on supply chain is you need 100% of the parts in order to ship a completed unit. And so while we've had some pockets of success on individual components, specifically Tier 2 electronics, it's not been a sufficient amount or across the broad range of components we need to support a material ramp in production. Just environmentally from the market, we don't expect meaningful increase or improvement in supply chain in Q4 or out into 2023. We're monitoring it closely and we'll obviously take advantage of any improvement that we're able to realize, either from the broader market or from the many actions we've executed to secure inventory, better plan with our suppliers, set up duplicate suppliers for some constrained components, and localize our supply chain to better serve our our local production plant. So we're poised to benefit as the market improves. From a demand perspective, let me give a bit of color around what we're seeing in demand. And really, it's hard to talk about demand without also talking about backlog. But I think we covered backlog sufficiently in the release and maybe in the prior questions. You know, we've seen moderating demand after really seven quarters of increased demand. And we've been, you know, what we're seeing now, if you just isolate it to Q3, is demand that has softened across the board and in a meaningful way. It's really a very different story in terms of the by geography, and you know that we operate our business on a geographic basis. So, let me give you some color by geography. In Asia Pacific, we've seen demand increases in Australia, Southeast Asia, and India. Really, it's a story of the decrease in China, and that decrease in demand in China continues a trend we've seen in China from prior quarters. It's being driven by the government mandated COVID lockdowns and the related uncertainty that creates in the market. You know, the COVID lockdowns restrict our access to operate. We can't or are not allowed to go out and make sales calls and or demonstrations. Customers are unwilling to see us. And the uncertainty drives our distributors to lower their inventories because they are uncertain what their demand picture will look like. The customers in China that we talked to are really have adopted a wait and see approach, and distributors as well are waiting to see if there's any adjustment to the national COVID policy that's implemented currently. In Europe, we've seen a continued softening of demand really since Q1, and it relates, we believe, to the beginning of the Russia-Ukraine war, which was late February. It's very broad-based across the countries and geographies we serve, as well as our products and channels. And when we talk to customers in EMEA, you know, what they tell us is there's a broad-based concern for security and outlook for security in the region, concerns about inflation, notably around energy prices that have risen dramatically, which has – and energy prices have both a direct effect in operating their businesses and running their fleets and also an indirect effect as petroleum is a key component in other products. In our business, it affects resin prices, for example. And the third factor customers note is an uncertain economic outlook as referenced by rising interest rates. And so the combined effect of those on our customers is they are also pulling in the reins and adopting a wait and see approach, deferring, canceling, or delaying major projects. Moving to the Americas, Latin America is really having a solid year with orders increasing very well. And really, we made a number of strategic investments. In Latin America, we moved to a direct model in Mexico. We've launched some really exciting new products. We've adapted our business model to more effectively compete. And really kudos to our Latin American management team for managing in a very volatile environment and delivering on the kind of year that we're having in Latin America. In North America, the moderating of demand in Q3 is a new phenomenon. We'd had strong order patterns up until Q3. As we look at the details, it's really broad-based across the vertical market customers we serve, across products, channels, et cetera. We do know and we have examples of some customers buying ahead on the tenant product where they had line of sight to needing the product and realizing that we had extended lead times. And although our order demand was down in North America in Q3, when you step back and look at the first nine months of 2022 order demand in North America versus the first nine months of 2021, it's up modestly. And so we think there is some component of order timing to this. But talking to customers, our customers are looking at the economy and they're a little uncertain as to how this economy is going to shake out. They're looking at their own demand. and looking at inflation, specifically interest rates, to decide how they want to move forward with their capital investments. So although demand moderated a bit in North America, we're monitoring it closely to see if it's largely due to order timing or if it's really the beginning of a trend in demand softening in that geography.

I appreciate that thoughtful answer. If I can get one more in, given the first three quarters on the cash flow, Do you think you can be break-even cash flow this year, or are you expecting negative this year at this point?

Yeah, listen, I'm pleased with the investments we've made in the business. When somebody asked me the other day if I would do it over again, I absolutely would. Largely, the cash flow picture is a result of the investments we made in inventory, and the inventory investments were to drive parts into the system to recover from supply chain challenges we've had increase planned output and service our backlog and so um we have inventory on hand you know it's one of the reasons we chose to quantify our backlog as well because um our inventory we've grown it to 199 million we added 11 million in third quarter and without the context of a 280 million dollar backlog it's hard to understand why we would make those investments now knowing that we've got the 280 200 million of it current It provides an approach. So we're comfortable with the investments we've made from an inventory perspective. And that's what's driven the cash flow picture year to date. We're anticipating that we'll be cash flow positive in fourth quarter, but not for the year, given the investments we've made to date. But again, I think the inventory doesn't spoil. We're going to need it here as we move through Q4 and as we seek to reduce that backlog heading into 2023.

Fair to say your cash flow perspective is driven by your supply chain perspective. If supply chain was getting a lot easier, that would convert a lot faster.

Absolutely. And if supply chain, you know, it's painful to look at a $280 million backlog, $200 million of which is current, and think about the kind of year we could be delivering if we were able to secure the parts to increase production. So absolutely, as we're able to loosen up and unlock some of the supply chain constraints, Our belief is we'll be able to quickly convert that into increased production output and our cash flow picture reverses very quickly.

Fair enough. Thanks, Dave. Thanks, Faye. Thanks, Steve.

And again, if you would like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from the line of Tim Moore from EF Hutton. Your line is open.

Thanks. And I was impressed by your EBITDA margin improvement despite the component shortages and China shutdowns and foreign currency drags on the top line. It was nice to see the SG&A leverage in the quarter. I have about four questions. First off, I was just wondering, we're seeing a lot of industrial companies be in the same boat with the transitory deceleration in their volumes in the September quarter. And on the supply chain components front, I was wondering if you could kind of elaborate on are you doing assemblies and then having to revisit the production because you're getting to, let's say, 80% to 90% assembled. You're missing one or two components and have to go back to finish the product. So I'm just wondering if that's also eating away at the gross margin.

It is eating away at gross margin. This also increases our inventory because we term the phrase built but not shipped. And you can think about it this way. When we have the opportunity with an assembly slot to build a 99.9% complete unit, and primarily those units are waiting on circuit boards, rather than give up the production slot and stall the line or shut the line down, we will build ahead units that are missing typically circuit boards. And so we'll build ahead the complete unit. We'll set it aside when the circuit boards arrive, we bring the unit back out, assemble it with the circuit board, test it, and ship it. It's obviously a less productive way to run the plant, but we've convinced ourselves based on the analysis we've done that not only does it preserve the leverage we get on the productivity we get on keeping the assembly lines running, but also over time we're able to put more product out than we would otherwise be able to running the plants in a more normal fashion so we're utilizing the built not shift methodology as needed across across our operation and that makes sense it also seems like that's kind of a coiled spring of maybe some margin expansion whenever things if they ever do normalize for component shortages and you won't have to go revisit and do one more final step sometime next year whenever things hopefully

come back in line with supply chain. My next question is, I know the 10Q is not out yet for a breakdown of equipment versus parts and services. Are you seeing the parts and services revenue line items hold up better than equipment in the September quarter?

Yeah, so the Q actually is out, or it will be out today. We should be posting here today. And when we look at equipment and parts and consumables, it's roughly in line with last year.

There is sequential growth, certainly in North America and in the Mayo, but that's slightly offset by foreign currency headwinds. So when you're looking at it, comparability is impacted by foreign currency.

Okay, good. Yeah, I think you just posted when I checked a half an hour ago. What about on the robotics topic? Has the level of interest in the AMRs, have they held up? I know you had record sales, you know, year to date when you mentioned that. Just kind of if you can give us any color on the robotics.

Yeah, I'd be happy to. Interest and demand for our robotics platforms continues to be very robust. The platforms we have allow us to engage customers across virtually every vertical market we serve. And the pipeline of interest is still there. Now, robotics have not been immune to the supply chain challenges we've seen either. So there's about 10 million with a backlog on AMR sitting in that total backlog number. But we're really pleased with progress on AMR. I know Sam's Club was public with their completion of a 600-unit rollout of a scanning tower, inventory scanning tower, mounted to our AMR equipment in that environment. And we think that's That's a proof point of not only the demand for robotics cleaning equipment to solve our customers' most pressing labor shortages, but also an example of a potentially attractive adjacency for us to explore in the future. So we're really proud of the team's agility to be able to capture that order, deploy the inventory scanning towers, and get Sam's Club up and running. Remains to be seen whether Sam's Club can realize the return on the investment in terms of um the improvement their operational improvements that they're targeting and and we're partnering with them to make sure that we can deliver the uptime on the equipment to keep the to keep the scanning data flowing uh the way they need to but yeah globally we're very pleased with with our robotics offering it continues to to be one of our most exciting growth vectors as as a company We've invested significantly to have the portfolio we have now. And I firmly believe that we are the leader in the industry in robotics cleaning equipment. So we're excited. We're continuing to double down on the space.

Great. That's good to hear. Yeah, I was very impressed learning a lot about that inventory scanner a few months ago and have a bunch of colleagues and friends that know how much of a drag it is to do that manual inventory work and easy attachment. What about, can you kind of give us more of a sneak peek, Dave or Faye, on the innovation pipeline if you look at over the next year? I know you mentioned the IMOP in the current quarter, but are there any interesting launches or any adjacencies that you feel like you can hammer home more and grow significantly next year as you look out to the pipeline and launch schedule?

Short answer, yes. We are very bullish on our new product innovation and the pipeline and what we're going to bring to market to help solve our customers' toughest challenges. We don't typically like to pre-release our new products on our earnings call, but I'll give you just kind of an indication of where we're heading as far as innovation vectors that I think will give you a sense. I've already mentioned how bullish we are on robotics and also the data associated with robotics as we As we pull data off of these machines and the environments that we're operating in, we think there's a data adjacency to explore as well. We're hearing a demand from our customers for electrification of products as they seek to eliminate internal combustion engines and pursue their own sustainability goals. And so we are equally aligned and we expect to be moving in that direction. We've been leveraging our acquired brands, I'll say, more of our mid-tier brands, legacy IPC platforms and legacy Galmate platforms into other geographies. And those are really interesting to us because they allow us to penetrate new segments within the market, more price competitive segments, compete on a different price point and also a different durability, reliability level and the performance that the customer expects. It also allows us to maintain the premium on our tenant branded products. as that occupies a higher price point and delivers a more robust range of performance attributes to those customers that need it in their application and are willing to pay for it. And then, you know, we mentioned IMOP. I would broaden the conversation to say we've continued to see an opportunity in cleaning of small space environments. You know, Tennis Legacy has really been around larger store formats and larger floors where we are the best available option to keep those floor sizes clean. We noticed there's an opportunity of small spaces within larger buildings, but also small standalone spaces. And so that's what brought us to leverage the IMOP product as well as launch our own CS5 product, which is a small, portable, compact cleaning machine, mechanized cleaning machine, that can replace mop and bucket in some applications and provide a better finished product in terms of the cleanliness of the floors. So that small space environment is someplace else you can expect to see us continuing to innovate to help our customers solve problems.

That's terrific, Collar, and seems very promising. My last question is with nearly $60 million cash on the books and a lot of untapped Borrowing capacity. I know that the management team is very busy. There's constraints in the whole operational chain. You're improving your efficiencies. But have you started seeing some attractive acquisition opportunities come up or asking multiples coming down to be more reasonable over the past few months as the stock market's cooled off since April?

Yeah. Listen, we're not going to comment specifically on M&A activity, but broadly I'll give you a sense of how we're thinking about it. There's no shortage of challenges to manage in the short term. And the way we think about it is we have to, because of the environment, manage the urgent in the short term, but also focus on the important for the long term. And inorganic growth can be a powerful component of our capital allocation priorities going forward. We've already demonstrated that with a number of acquisitions we made in the past. So we continue to be very open and opportunistic. Obviously, as you noted, we've got the powder to move if we want to. We are continuing to canvas. the spaces we find most attractive for opportunities, and we feel like we're well poised both financially and strategically to move if we decide to. It's a very interesting environment, as you mentioned, from a valuation perspective, given what's happened in the broader stock market. Valuations are moving all over the place. Borrowing rates have increased dramatically. So it's certainly a volatile environment, and it's prudent for us to keep tabs on potentially interesting opportunities and, again, be opportunistic. But we think we're well positioned to move if we decide to, and it certainly is a key component, and we highlight where it fits in our capital allocation priorities moving forward.

Well, thanks, Dave and Faye, for the color, and that concludes my questions. Thank you. Thanks, Tim.

And we have a follow-up question from the line of Chris Moore from CJS Securities. Your line is open.

Hey, thanks for taking the follow-up. Just curious, of the $280 million in backlog, roughly how much of that do you have 100% of the parts for today?

Zero. If we had the parts to fill any unit or backlog, it would be out the door. Got it.

I appreciate it.

I know that sounds like a very short answer, but that's the reality. No, no, that's the reality. We will pull out... We would pull out all the stops, meaning production. We would get it done and fill that customer order because that backlog, you know, a backlog is a positive and negative, and it's painful to have that many customers that want our product and we're unable to deliver it to them. So if we could secure 100% of the components to build a product, Faye and I would probably go down and assemble it ourselves.

Fair enough. I appreciate it, guys. Thank you.

Thank you. And since there are no further questions at this time, I would like to turn the call over to management for some closing remarks.

Thank you. I want to personally thank every tenant employee globally for their hard work, collaboration, and customer commitment as we're working together to create a cleaner, safer, healthier world. Lastly, I wanted to note that we will be presenting at the following conferences. The Baird Global Industrial Conference on November 8th. and the NYSE Industrials Virtual Investor Access Day on November the 16th. This concludes our earnings call. Thank you for your time and have a great day.

This concludes today's conference call. You may now disconnect.