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spk09: Greetings and welcome to the Valmont Industries Inc. Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. We ask that you please limit yourself to one question and one brief follow-up question and return to the queue. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Renee Campbell, Vice President, Investor Relations and Corporate Communications. Ms. Campbell, you may begin.
spk01: Thank you and good morning. Welcome to Belmont Industries' third quarter 2021 earnings call. With me on today's call are Steve Konieski, President and Chief Executive Officer, Abner Appelbaum, Executive Vice President and Chief Financial Officer, and Tim Francis, Senior Vice President and Corporate Controller. This morning, Steve will provide a brief summary of our third quarter results and comment on our strategy and long-term business outlook. Abner will review our financial performance and provide an outlook for the balance of 2021 with closing remarks from Steve. This will be followed by Q&A. A live webcast of the presentation will accompany today's discussion and is available for download from the webcast or on the investors page at Belmont.com. A replay of today's call will be available for the next seven days. Please also note that this call is subject to our disclosure on forward-looking statements, which applies to today's discussion and is outlined on slide two of the presentation. It will also be read in full at the end of today's call. I would now like to turn the call over to our President and Chief Executive Officer, Steve Konieski.
spk05: Thank you, Renee. Good morning, everyone, and thank you for joining us. Today, I would like to begin by sharing some opening comments and then provide a brief overview of the quarter. Before I do that, I want to take a moment to recognize the contributions of Walter Scott Jr., who served on our board for more than 40 years and passed away late last month. Walter was an incredible individual whose wisdom and leadership were critical to Belmont's success over the years. His loss is felt deeply by those who knew him and the entire Omaha community.
spk04: Walter's counsel, kindness, and mentorship will truly be missed by all of us at Valmont.
spk05: Moving on to the business. Our strong performance this quarter once again demonstrated the solid demand across our businesses and the consistent execution of our growth strategies, even amid a challenging global environment. Like most others, we have faced the impacts of fraud-based inflation, the COVID-19 Delta variant, and labor and supply chain disruption. Government-mandated lockdowns in Australia and workforce quarantines in North America, including Mexico and the Southeast United States, impacted certain utility and coatings facilities. Supply chain disruptions affected timing of some shipments in our irrigation and solar businesses. Despite this, we delivered a strong quarter of growth and profitability. Our commercial and operations teams are managing exceptionally well through these unique dynamics that focus on perseverance. while continuing to prioritize employee safety and serve our customers. I'm extremely proud of our team's execution throughout this year. Now, let me move to a brief overview of our third quarter, summarized on slide four of the presentation. Record third quarter sales of $868.8 million increased more than 18% compared to last year. Sales growth was realized in all segments, led by higher pricing, and strong, broad-based market demand, with particularly substantial sales growth in irrigation. Moving to the segments and starting with utilities, sales of $276.5 million grew slightly compared to last year. A significantly higher pricing and higher volumes were mostly offset by renewable energy projects that did not repeat or that were pushed into future quarters due to customers' supply chain disruption. North American utilities have been increasing their planned investments in transmission and distribution projects, even exceeding recent years of higher capital spending. Further, proposed capacity additions in the renewable energy sector are favorable demand drivers across our utility business. We see strong demand continuing as both utilities and developers have been increasing their forecasts of additional projects over the next several years to comply with mandates to increase renewable energy generation. Moving to engineered support structures, sales of $281.1 million increased 10% year-over-year, led by favorable pricing in all markets, and sales growth of more than 25% in wireless communication products and components. Pricing improvements across all product lines continued this quarter, and international markets are benefiting from higher stimulus and infrastructure investments. especially in Australia. 5G build-outs and significant investments by the major carriers are driving demand in our wireless communications business, providing a good line of sight into 2022. Turning to coatings, sales of $96.7 million, 10% year-over-year, driven by higher pricing, improved general and market demand, and sales from our new Greenfield facility in Pittsburgh. Moving to irrigation, global sales of $240.3 million, with more than 72% year-over-year, with sales growth in all regions and higher sales of technology solutions. In North America, sales grew nearly 55%, as strong market fundamentals and improved net farm income projections continue to positively impact farmer sentiment, generating very strong order flow. International sales doubled year-over-year, led by solid demand from the Middle East and Africa, including the ongoing deliveries of the Egypt project, and another record quarter of sales in Brazil. Last quarter, we highlighted our acquisition of Prospera Technologies. Integration is going well, and we are making substantial progress building on our new strategy to grow recurring revenue services. We are on track to meet the financial targets that we shared last quarter and look forward to sharing progress towards these goals in the future. In irrigation, we have a unique market advantage due to our global footprint and highly differentiated AI solutions, both critical components of our growth strategy. Over the past year, we have been increasing opportunities for local manufacturing in the markets we serve, especially in light of the challenging supply chain environment, labor availability, and higher freight costs. For example, we recently localized some of our electronics assembly in our Dubai facility and are increasing the total capacity in our Brazil factory by 50%, positioning us for long-term international market growth while we continue enhancing service to our dealers and customers. We are also very pleased that our irrigation backlog at the end of the third quarter was $388 million, up 26% year over year. Turning to slide five, as we've said before, ESG is embedded into the core of our company's purpose, and there are many ways our products and services can serve resources and improve life. One recent example of this is using solar solutions to transform the Sudan desert into a prosperous and sustainable region for agricultural production. Sudan is the third largest country on the African continent. Agriculture is quickly becoming its primary economic driver, accounting for 40% of the nation's GDP and employing close to 80% of the local workforce. But our conditions and a lack of direct access to electricity in the region are hindering its expansion. To help overcome these challenges, our Vermont solar team recently installed a PV plant to bring power to center pivots. Sunlight is captured and transformed immediately into electricity, eliminating the need for a battery or secondary energy source. We're proud to have initiated this project, Powering Pivots by Solar Energy, 100% independent from the grid. Our innovative solutions are leading the way for precision agriculture in Sudan, opening doors to other solutions that will enhance productivity, empower local communities to solve food security issues, and help build a more sustainable world. With that, I will now turn the call over to Abner for our third quarter financial review at 2021 Outlook. Thank you, Steve, and good morning, everyone.
spk03: Turning to slide seven and third quarter results, my comments will focus on the adjusted results as outlined in the press release and in the reg G disclosure in the presentation appendix. Operating income of $80.4 million or 9.3% of sales, grew 20% year-over-year, driven by higher volumes in irrigation and favorable pricing, notably in engineered support structures. Diluted earnings per share of $2.57 grew 30% compared to last year, primarily driven by higher operating income and a more favorable tax rate of 23.5%, which was realized through the execution of certain tax planning strategies. Turning to the segment, on slide 8, in utility support structures, operating income of $24.6 million, or 8.9% of sales, decreased 170 basis points compared to last year. Raw material costs continued to increase during the quarter, impacting our ability to fully recover costs through our pricing mechanism, leading to lower than expected margins. The impact of workforce quarantine in a few North American facilities led to operational inefficiencies, which we do not expect to repeat. Moving to slide nine. In engineered support structures, operating income increased to $34.4 million, or 12.2% of sales, a third quarter record. The benefits of proactive pricing action have more than offset the impact of continued rapid cost inflation. Better fixed cost leverage, including SG&A, also contributed to positive results. Turning to slide 10. In the coating segment, operating income of $12.5 million, or 12.9% of sales, decreased 270 basis points year over year. Profitability was impacted by a lag in pricing to recover higher inflation costs, including raw material and labor and startup costs at the Pittsburgh facility. Moving to slide 11, in the irrigation segment, operating income of $32 million, more than doubled compared to last year, and operating margin of 13.3% of sales improved 270 basis points year-over-year. Significantly higher value and favorable pricing were partially offset by higher SG&A expenses from the recent Prespera acquisition. We're also extremely pleased with the profitability of our industrial tubing business and international margin improvement led by consistent and proactive pricing action taken by our global team. Turning to cash flow on slide 12. Year-to-date, we have delivered operating cash flows of $62 million with the use of cash this quarter of $8.4 million that reflects higher working capital level to support strong sales growth. As we stated in prior quarters, rapid raw material inflation creates short-term impact on cash flow. For the balance of the year, we expect inventory levels to remain elevated to help mitigate supply chain disruption and strategically secure raw material availability to support strong sales growth. Accounts receivable will also increase in line with sales growth. As our historical results have shown, we will see improvements in working capital as inflation subsides. Turning to slide 13 for a summary of capital deployments. Year-to-date capital spending of $81 million includes $33 million for strategic growth investment and $55 million of capital was returned to shareholders through dividends and share repurchases, ending the quarter with approximately $170 million of cash. Moving now to slide 14, our balance sheet remains strong. Based on our recently amended revolving credit facility, our net debt to adjusted EBITDA of 1.85 times remains within our desired range of 1.5 to 2.5 times. Let me now turn to slide 15 for an update to our 2021 output, including a few key metrics and assumptions. We are increasing our earnings expectation for fiscal 2021 by narrowing the EPS guidance range to $10.60 to $11.10. This reflects strong market demand and our solid execution this year and our confidence in our ability to continue this performance. Other metrics and assumptions, including tax rate and currency impact, are summarized on the slide and in the press release. Turning to our segment outlook on slide 16, in utility support structures, we expect operating margins to improve sequentially as pricing becomes more aligned with steel cost inflation. Moving to engineered support structures, We expect continued stable market condition in North American transportation market, and order rates are beginning to improve. Demand for wireless communication products and components remains very strong, and we are on track to grow sales 15 to 20% in line with expected market growth. Moving to coding, we remain focused on pricing action and providing value to our customers. Moving to irrigation. We now expect sales to grow 50% to 53% this year based on strength in global underlying ag fundamentals and a strong global backlog. Looking ahead to 2022, strong market demand across our businesses, the strength and flexibility of our global team and our continued pricing strategies give us confidence in achieving sales growth of 7% to 12% and earnings per share growth of 13% to 15% in line with the three- to five-year growth targets that we have communicated at our investor day in May. With that, I will now turn the call back over to Steve.
spk04: Thank you, Abner.
spk05: Turning to slide 17, the long-term drivers of our businesses remain solid, as evidenced by our record global backlog of more than $1.5 billion, up 35% from year-end 2020. These demand drivers are in place to sustain this momentum into 2022, and our business portfolio is well positioned for growth. We also continue to take pricing actions across our businesses where needed. Like others, we are closely monitoring inflation, supply chain disruptions, and COVID. We are ready to take additional appropriate actions to address these issues across all our businesses as needed. Meanwhile, our focus on following state and local regulations to keep our employees and customers safe is not wavering. Turning to slide 18, in summary, I'm very pleased with our strong third quarter results and our team's ability to navigate through challenging market dynamics. We've demonstrated our ability to grow sales through innovation and execution while being flexible and responding quickly to meet customer needs. We've improved operating margins by executing on our pricing strategies and advancing operational excellence across our footprint. And we have invested in our employees and technology to drive new products and services and build upon the strength of our operations. Throughout 2021, we have been disciplined in allocating capital to high growth strategic investments while also returning capital to shareholders through dividends and share repurchases. Looking ahead to 2022, we are confident in our plan to deliver the outlook that we have communicated and remain focused on execution, and our ESG principles to build upon our success while creating additional stakeholder value and improving our return on invested capital. I will now turn the call back over to Renee.
spk01: Thank you, Steve. At this time, the operator will open up the call for questions.
spk09: Thank you. At this time, we will be conducting a question and answer session. If you'd 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'd 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. Our first question comes from the line of Brian Drab with William Blair. Please proceed with your question.
spk12: Hi, good morning. Thanks for taking my question. Could you just begin by quickly repeating that 2022 guide? I'm not sure I got all of it.
spk05: Yeah, Brian, this is Steve. The 2022 guide was that we reaffirmed our sales growth of 7% to 12% and the EPS of 13% to 15%. So that was what we communicated on investor day. And so we now feel pretty confident about how we look in 2022. Got it.
spk12: Okay, yeah, that's what I had written down. And implying some operating margin, expansion in 2022. Obviously, they're giving the EPS growth is greater. Is that right? That's correct. And Steve, can you talk about what the assumption for steel prices is going forward? And do you have enough lower price steel in stocks such that this last leg up in steel prices won't weigh on margins materially?
spk05: Well, if you look at the EFS business, I think we've accounted for even the current inflation fairly well. There is still some inflation that we will see in the fourth quarter. In utility, we will still continue to see some inflation in the fourth quarter, albeit we will see margin improvement of about 150 basis points on a sequential basis. But it would take us right now with utility, we went to about the second quarter, to really be through with it if Steel just kind of stays where it is. In third quarter, we still saw about 23% overall steel inflation, which was actually consistent with first and second quarter. So now that it is plateauing, again, all things being equal, as you look out, if it doesn't continue, we'll have a little bit more drag in fourth quarter, first quarter a little bit less, and then by second quarter, we should be holding.
spk12: Right. Okay. And then just maybe if I could ask one more, given we're talking a little bit about 2022, what in the utility outlook, like what are some of the indicators that you're seeing from customers and other market reports that give you confidence in growth and utility in 2022? And what kind of growth are you expecting in that segment, if I can ask? I know you're not maybe guiding for the segments, but thanks.
spk05: Just overall that the market continues to remain robust. The renewable energy mandates for generation from renewables is a positive driver in the marketplace. Grid hardening has continued to be a positive momentum for us there. Some of the issues that you see in the solar generation area, particularly module availability, which kind of delayed some of the projects in 21, We'll get better in 2022, albeit maybe not to where everybody wants it to be, but definitely better. And we actually have strong backlog in both the generation side and our traditional transmission and distribution side as we look into 2022. So everything we're hearing, both from customers and from the order flow coming in, suggests that the market will remain stable. There's not been any kind of issues where customers are canceling orders because of the inflation. Again, I'll just bring it back up. We're such a small part of an overall project cost, 10% to maybe 15%, that even if our product inflates, there's other factors that really make or break when our project moves forward.
spk04: Right. Okay. Thanks for the details. Appreciate it. All right.
spk09: Thank you. Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question.
spk14: Good morning, everyone. Morning, Nathan. Wanted to start off, obviously a lot of growth here. There's a lot of inflation, so a fair amount of that growth is coming from price. I think you've communicated pretty well that there's a lot of growth coming from volume here as well. Is there any color you can give us on price versus volume in the growth? Love it by segment if you could do that. And are there any places where you're starting to see capacity constraints within your own manufacturing footprint where we might need to make some investments here going forward?
spk04: Sure.
spk03: Hey, Nathan. So if we look at pricing volume, if I start off with – if I look at utility as an example – We're definitely seeing a lot coming through pricing. Steve mentioned that a little earlier, right, with the steel inflation and the pricing mechanism where we do see pricing going in utility. On the volume side, you know, we mentioned that on the global generation where we did have some project timing, so you did have some reduction there offset by increased volume on the other part of the utility businesses. If you look at ESS, again, with our pricing actions and strategies around there, we're seeing significantly coming through pricing. You're seeing a lot of volume coming through the telecom business in a magnitude of 25% or so, offset with some of the decline that you're seeing in the lighting and traffic that we expressed earlier in the year, and we expected that as well. Yeah, moving to coatings, we're seeing also there, we're seeing a lot of pricing coming through there. And some volume that we mentioned through our new facility as an example. And then finally in irrigation, I think irrigation is a pretty good mix there, coming through both volume and pricing. I mean, we've been planning throughout the year, we've taken a lot of pricing actions in all the businesses. and volume. And overall, we've seen that the order flow has been very good across all the businesses, evident by our strong backlog and the strong sales we had in the quarter.
spk05: And from the capacity side, Nathan, I think we're in good shape in irrigation. If you recall, going back to the last big peak in 2013, we were producing a lot more just in the U.S. facilities. We've increased a lot of the international facilities to be much more self-sufficient, so it's not coming out of here. And North American order volume flow is still stronger back then than it is now. So we have to watch on people and supply chain, but from a brick-and-mortar perspective, we're in good shape. Coating is obviously in good shape. ESS, we're in good shape to meet the growth. And then utility, you know, we're really pushing the operational excellence, automation, some of the AI welding that we're doing. We always look at our footprint and look at what we have to do from a timing perspective to add capacity. We want to be very cognizant of the capacity to pricing in the market. And if we need to do something from a brick and mortar perspective, we obviously have the ability to do so. Nothing imminent at this point.
spk04: Okay.
spk14: A question on irrigation. Our channel checks are indicating very strong demand and extended lead times domestically. Do you feel like this could drive an early start to the selling season this year for customers to try and order ahead of these longer lead times, maybe better than typical seasonality as we get into 4Q and 1Q next year?
spk05: It has, Nathan. We saw order flow even over the past month is very robust, even though there's a lot in the fields harvesting. I think between supply chain constraints that they're hearing about in the news, it doesn't take... All the farm journals are predicting long lead times, so I think people are trying to get ahead of that, and anticipated price increases. People really are trying to make sure that they are in good position for the plant season next year. As I mentioned, we have seen good order flows straight through in the October timeframe, which we typically wouldn't see until more late November. So I think that assumption is correct.
spk14: So it sounds like, you know, the old base price increases are not having a negative impact on demand in the irrigation market yet either.
spk05: No, I think, you know, if you look at particularly our products, if we say you typically get a three-year payback in a regular market at $1. in a high commodity price environment, what we're pushing through is not going to cause any kind of market degradation. So far, everything is moving through. We recently announced another price increase, and that is moving through as well. So that'll be our sixth price increase. But these are necessary to make sure we can have labor and supply chain
spk04: issues that are out there, I continue to address them. So, you know, it's going well. Great. Thanks for taking my question.
spk10: Thank you.
spk09: Our next question comes from the line of John Bratz with Kansas City Capital. Please proceed with your question.
spk13: Good morning, Steve Abner. Returning to the international irrigation piece of the business, on the international side, Outside of Brazil, is the market as robust and as strong as it has been? Are you seeing any change in demand in those markets outside of Brazil?
spk05: Every market right now is experiencing growth, John. In particular, I would say Eastern Europe, Central Asia. Even the Australia market has rebounded quite nicely. And Africa, obviously, we call that out, you know, pretty frequently. Africa continues to see more and more growth. So really, as you look around, Brazil just happens to be exceptional with the growth that we've seen there. But the other markets are performing very well.
spk13: Okay, okay. And then secondly... And on the Sudan project, the solar project, did you do the entire EPC piece of the project, or did you just provide solar tracker? What was the extent of your work on that project?
spk05: So we worked with the local customer. They did some of the work, as they have some engineering and design capabilities. And then we did a good portion of the work as well. So I would say it was kind of a combined EPC type of project because it was kind of the first of its kind in that sense. So we did more than we would traditionally do, but not as much as a true EPC.
spk13: Okay. Is that something where your capabilities, those capabilities can be applied elsewhere and we see more of? more of that in the future?
spk05: Absolutely. It's something that we, you know, showcased at the Husker Harvest Days here in Nebraska last month, and that's something that we'll be expanding outside of that footprint. Right now, what it really is allowing us to do is to create new TAM in places that did not have grid power. And so that was... kind of the proof of concept is can we put this out where there's no power, no gensets, and really make a sustainable farm that can operate on its own. And so we've done it there. We're doing things like it in Brazil as well, and particularly as hydropower becomes more constrained. So we think this will be a significant market advantage for us as we move forward.
spk13: Okay, okay. One last question here domestically. solar tracker projects on utility size projects. Have you been awarded any contracts?
spk05: Yeah, we have some utility scale. I'll say that for our poor utilities, they're not maybe 100 megawatts or 200 megawatts, but they're sizable enough, and we're still continuing on the developer market. for the distributed generation quite well. And our backlog over the quarter did increase pretty nicely as compared to the second quarter.
spk10: Okay. Thank you, Steve. Thank you.
spk09: Our next question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.
spk07: Good morning. Yeah, maybe just ask the price volume question a little bit differently. Okay. Guidance is 17% to 18% sales growth in fiscal 21. What's the rough breakdown between pricing and volume there?
spk05: Chris, just to get a detail, you're meaning for the whole year, how much of that growth?
spk07: Yeah, right. I'm just trying to get a picture for the year just in terms of – I assume most of it is on the pricing side. I'm just trying to get a sense – what's volume-driven irrigation is the big driver there, but kind of overall trying to understand better.
spk04: Tim, maybe you want to come in?
spk08: Yeah, this is Tim Francis. I would tell you through the first three quarters of the year, we're at a split. You know, you've got the 1% for currency, and then you're split probably more 60-40 volume versus price. And I would tell you that's probably going to be closer to 50-50 for Q4.
spk04: So that's probably going to average you back down to 55-45.
spk07: 55 volume.
spk04: Correct.
spk07: Okay. Gotcha. And other than irrigation, is there any one segment that's really, you know, kind of driving the volume growth?
spk05: Well, on a year-over-year basis, coding is seeing improvement because they had such COVID issues in the first half of last year. ESS had COVID restrictions in the first half of the year, so our first half was that way. The telecom growth, the majority of that is volume. And then in utility, there is some volume, but mostly price.
spk07: Got it. Very helpful. And just on the solar market, you know, during Investor Day, we were talking about second half catch up. It sounds like there was, you know, supply chain issues. Are you seeing any improvement in pricing that you're hoping for? And, you know, is it reasonable to kind of expect that the market will be a little bit more rational?
spk05: Good question. Yes, we are seeing better pricing. I think the market as a whole has had to digest that steel has changed the game. Obviously, module costs will be different than they were in the past. So we had said that the idea that you had a cost minus every year, we think that that paradigm is pretty much broke at this point in a good way for us. Our backlog that we're adding now is that pricing that we wanted. and if there was pricing that was not advantageous, then we were willing to lose those orders. So our growth, at least for us, is at margins that we believe are appropriate for where the business is right now.
spk04: Got it. I appreciate it. I'll leave it there. Thanks, Chris.
spk09: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Brandt Nealman with DA Davidson. Please proceed with your question.
spk04: Thank you. Good morning. Good morning, Brandt.
spk02: I guess first question on the utility business sort of looking into the future for margins or potential for margins. When you look at the mixed backlog in that segment today, is there anything
spk05: advantageous to that beyond the pricing the cost discussion i'm thinking more about factory efficiencies you can gain on the larger orders things like that that they can represent a real tailwind for margins next year for that segment uh brent now i think it's it's basically a traditional mix of what we've seen over the last few years we still have obviously the large order in the southeast which is advantageous to us and i think that goes through part of 2023 at this point. So that plays nicely for us. But the mix of large polls or large orders versus small polls and many more of them, you know, I think that is about where we see it. That said, we have been pushing pricing, not just for pure inflation recovery, but also because of the market robustness. So as contracts come up, We're looking at that and trying to move up price, change terms and conditions, do things that are more advantageous. I think on the factory efficiency side, we probably have a lot more in there because we've had the fits and starts of COVID and quarantines. We've had also the labor availability issue. that has played in and so something that we're working on very hard there. So I would say those would be more the additional to the inflation recovery. But the inflation recovery will be significant. You know, we see that in the backlog and we can see the average selling prices moving up. So there's no fundamental issues in utility at this point.
spk02: And Steve, can you talk about the inroads you're making in the D, within the T&D, the distribution side within that segment?
spk05: Yeah, I think it's early on from the new products that we're bringing to market. So we have some things that we'll be introducing over the next year. The other things that I think will play into the improved margin and growth performance is around our services. And we're doing a lot more in the way of inspection services, Drone services, we highlighted some of that at the investor day. We're seeing some nice orders now coming to the backlog. And it goes without saying that those are at very nice margins as compared to the historical products business. And so I think all of those things combined really touch the D because you now start to look at the entire grid. And so the fiberglass market has continue to expand quite nicely, which not just cross arms but even fiberglass poles. And we have some real lightweight concrete solutions that we think will really make us much more competitive against wood.
spk02: So, more to come on that. Very good. One more on ESS. This seems to be the first quarter that I can recall. I guess, a better outlook or improved outlook for transportation-related volume. What do you see now, and what does that mean, I guess, for the overall segment that, you know, despite that, it's been doing quite well, given that's been working against you?
spk05: Yeah, you know, we had anticipated the first two quarters with volume being down, kind of played out that well or played out that way. And then we saw, and what we've been seeing is, you know, much better order flow and order inquiries. And that's not just in the U.S., that's in the international markets as well. And so that is why we think we'll see continued volume expansion in ESS, particularly as we look into 2022. You know, a lot of, we always say this, the federal government, you know, supplies about 25% of the money in the U.S. towards highway. It gets about 90% of the headlines. But the other 75% of spend is done by states. And I think particularly states coming out of COVID are seeing improved tax receipts plus the stimulus money that they had. Most states' balance sheets are in very good shape. And they want to spend on infrastructure to create jobs locally and to show their constituents progress. So that's what we have more confidence in as we go forward. It's just infrastructure is a good thing to do, and really it was, you know, for the last 18 months or 20 months of COVID, most people couldn't get done everything they wanted to, so there's a little bit of catch-up effect, plus the fact that I think financials are much better.
spk04: Very good. Thank you.
spk10: Thank you.
spk09: Ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Renee Campbell for closing remarks.
spk01: Thank you 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.
spk00: 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. 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 questions 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 statements. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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