Welcome. Thank you for standing by. At this time, all participants are in a listen-only mode. During the Q&A session, if you'd like to ask a question, you may press star one on your phone. Today's call is being recorded. If you have any objections, you may disconnect at this time. I'll now turn the call over to Whit Kincaid. Good morning, everyone. Thank you for joining us on Mueller Water Products' Q1 2023 Conference Call. We issued our press release reporting results of operations for the quarter ended December 31st, 2022 yesterday afternoon. A copy of the press release is available on our website, www.muellerwaterproducts.com. Scott Hall, our President and CEO, and Martie Zakas, our CFO, will be discussing our Q1 results and outlook for 2023. This morning's call is being recorded and webcast live on the Internet. We have also posted slides on our website to accompany today's discussion, which address our forward-looking statements and non-GAAP disclosure requirements. At this time, please refer to slide two. This slide identifies non-GAAP financial measures referenced in our press release, on our slides, and on this call. It discloses the reasons why we believe that these measures provide useful information to investors. Reconciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website. Slide thretwo addresses forward-looking statements made on this call. The slide includes cautionary information identifying important factors that could cause actual results to differ materially from those included in our forward-looking statements. Please review slides two and three in their entirety. During this call, all references to a specific year or quarter, unless specified otherwise, refer to our fiscal year, which ends on September 30th. A replay of this morning's call will be available for 30 days at 1-800-876-4955. The archived webcast and corresponding slides will be available for at least 90 days on the investor relations section of our website. I'll now turn the call over to Scott. Thanks, Whit. Good morning, everyone. Thank you for joining us for our Q1 Earnings 2023 Call. I'm pleased with our solid start to this year. We again generated a double-digit increase in consolidated net sales as we benefited from past pricing actions taken to help offset inflationary pressures. The improved price realization was partially offset by a modest decrease in overall volumes in the quarter. Although our brass production levels did improve sequentially, lower production levels compared with the prior year contributed to the decrease in volumes. We believe the municipal repair and replacement market remained resilient and helped partially offset the slowdown in residential construction activity. As our end markets evolve in this economic environment, we are working closely with our channel partners to manage inventories and order levels. We sequentially improved gross margins in the quarter as higher price realization combined with a lower level of inflation and better manufacturing performance more than offset lower volumes. While the inflationary pressures have eased, they are still elevated compared with the prior year, leading us to implement additional price increases. Our teams remain focused on delivering the benefits from our large capital projects, particularly the ramp-up of our new brass foundry. We are seeing operational improvements at our Kimball facility as our specialty valve products delivered the strongest year-over-year growth in the quarter. We believe we are on track to achieve the operational improvements needed to increase margins in the H2 of this year. While we are pleased with our Q1 results, we also remain vigilant in this environment and are reiterating our annual guidance. After Martie discusses our financial results, I'll provide more color on our Q1 performance, end markets, and outlook for 2023. I'll turn the call over to Martie. Thanks, Scott, good morning, everyone. I will start with our Q1 2023 consolidated GAAP and non-GAAP financial results. After that, I will review our segment performance and discuss our cash flow and liquidity. Our consolidated net sales increased 15.6% to $314.8 million compared to the prior year, with growth in both Water Flow Solutions and Water Management Solutions. The increase was primarily due to higher pricing across most product lines in both segments and volume growth across most products in Water Management Solutions. These benefits were partially offset by a decrease in volumes at Water Flow Solutions. Gross profit of $93.2 million increased 6.4% compared with the prior year. Gross margin of 29.6% decreased 260 basis points compared with the prior year, as benefits from higher pricing were more than offset by increased costs associated with unfavorable manufacturing performance, inflation, and lower volumes. We sequentially improved our gross margin by 380 basis points in the quarter. The unfavorable manufacturing performance, which includes the impact of outsourcing, machine downtime, supply chain disruptions, and labor productivity, was primarily driven by our foundry operations. The negative impact of inflation improved sequentially. We continued to experience higher costs associated with raw and purchased materials, utilities, freight, and labor relative to the prior year. Our total material costs increased around 8% compared with the prior year. Our price realization again improved sequentially, more than covering inflationary pressures for the fourth consecutive quarter.Selling, general, and administrative expenses of $62.9 million in the quarter increased 11.7% compared with the prior year. The increase was primarily driven by personnel costs, third-party services, inflation, and T&E expenses, partially offset by foreign exchange gains. SG&A as a% of net sales decreased to 20% as compared to 20.7% in the prior year quarter. Operating income of $34 million increased 17.6% in the quarter compared with $28.9 million in the prior year. Operating income includes a net benefit of $3.7 million from strategic reorganization and other charges in the quarter. The net benefit primarily consisted of a $4 million pre-tax gain on the sale of the Aurora, Illinois facility. This gain was partially offset by transaction-related expenses. Turning now to our consolidated non-GAAP results. Adjusted operating income of $30.3 million decreased $1 million or 3.2% compared with $31.3 million in the prior year. The benefits from higher pricing were more than offset by increased costs associated with unfavorable manufacturing performance, inflation, additional SG&A expenses, and lower volumes. Adjusted EBITDA of $44.2 million decreased 6.9% in the quarter, leading to an adjusted EBITDA margin of 14% compared with 17.4% in the prior year. As a reminder, adjusted EBITDA was also impacted by a year-over-year increase in pension expense of $1.9 million in the quarter. Net interest expense for the quarter declined to $3.7 million as compared with $4.3 million in the prior year. The decrease in the quarter primarily resulted from higher interest income. For the quarter, we generated adjusted net income per share of $0.13, which was flat compared with the prior year. Moving on to the quarterly segment performance, starting with Water Flow Solutions. Net sales increased 6.9% compared with the prior year, primarily due to higher pricing across most of the segment's product lines. We experienced lower volumes primarily for our Iron Gate Valve and service brass products, which were partially offset by higher volumes for specialty valve products. Adjusted operating income of $24.2 million decreased 22.7% in the quarter. Benefits from higher pricing were more than offset by increased costs associated with unfavorable manufacturing performance, primarily at our foundry operations, lower volumes, and inflation. Adjusted EBITDA of $31.9 million decreased 17.6%, leading to an adjusted EBITDA margin of 19.3% compared with 25% last year. Turning to Water Management Solutions. Net sales of $149.2 million increased 27.1% as compared to the prior year. This increase was primarily due to higher pricing across most of the segment's product lines and increased volumes, mainly in hydrant and water application products. Adjusted operating income of $19.6 million increased 70.4% in the quarter. Benefits from higher pricing and volumes more than offset increased costs associated with unfavorable manufacturing performance, primarily at our foundry operations, inflation, and additional SG&A expenses. Adjusted EBITDA of $26.6 million increased 38.5% in the quarter, leading to an adjusted EBITDA margin of 17.8% compared with 16.4% last year. Moving on to cash flow. Net cash used in operating activities for the quarter ended December 31st, 2022 was $6.5 million compared with $19.8 million of net cash provided by operating activities in the prior year. The decrease was primarily due to an increase in inventory. Average net working capital using the five-point method as a percent of net sales increased to 28.2% compared with 25.4% in the Q1 of last year, primarily due to higher inventory levels. During the quarter, we invested $9.9 million in capital expenditures compared with $11 million in the prior year. Free cash flow for the quarter was negative $16.4 million, compared with positive $8.8 million in the prior year, primarily due to the decrease in cash provided by operating activities, partially offset by lower capital expenditures. We did not repurchase any common stock, and as of December 31st, we had $100 million remaining under our share repurchase authorization. At December 31st, 2022, we had total debt of $447 million and cash and cash equivalents of $125.6 million. At the end of the Q1, our net debt leverage ratio was 1.7x. We did not have any borrowings under our ABL agreement at quarter end, nor did we borrow any amounts under our ABL during the quarter. As a reminder, we currently have no debt maturities before June 2029. At December 31st, 2022, we had $288 million of total liquidity, giving us ample capacity to support our strategic priorities, including acquisitions. Scott, back to you. Thanks, Martie. I'll now comment on our Q1 performance, end markets, and full year 2023 outlook. After that, we'll open the call up for questions. As mentioned earlier, we are pleased with our solid start to the year. While we sequentially improved gross margins in the quarter, our margins were below the prior year. We continue to be pleased with our price realization, which more than offset inflationary pressures for the fourth consecutive quarter. As expected, unfavourable manufacturing performance, primarily at our foundries, partially offset the benefits from higher pricing in the Q1. Unfavourable manufacturing performance was impacted by lower production, primarily at our Chattanooga and Decatur foundries, leading to under absorption of labour and overhead. Our Chattanooga foundry, which is focused on gate valve production, delivered lower volumes due to fewer production days relative to the prior year, primarily driven by increased planned maintenance over the Christmas period. Brass melt production at our Decatur foundry increased sequentially. It was more than 30% below the prior year. Our teams made progress on the operational challenges at the foundry with improved machine uptimes, contributing to the sequential increase in melt production. The ramp-up of our new brass foundry is well underway. We have two lines working through the production parts approval process, prioritizing our highest volume parts, including parts used in our hydrants and gate valves. We are working through the new casting and machining processes and expect to begin shipping the initial parts using the new alloy later this quarter. I am pleased to share that Mueller product utilizing components manufactured at the new foundry will continue to be certified under NSF 61 for drinking water system components through Underwriters Laboratories. This certification is crucial to ship products containing parts with the new alloy to customers. With elevated backlogs, our teams remain focused on improving production levels to reduce lead times and satisfy orders, especially for our hydrants and brass products. We continue to experience higher costs year-over-year, primarily related to outsourcing materials, machining, and maintenance. We expect these headwinds to carry on into the Q2 as well as the H2 of the year. Increasing brass production levels from both foundries will ultimately allow us to bring some production back in-house and lower costs. As backlog levels normalize and our new brass foundry begins shipping product, we anticipate decreasing the use of outsourcing. Additionally, we are working to add shifts at our Albertville foundry to increase internal production for key hydrant parts. I've already mentioned the sale of assets associated with the closure of our Aurora facility. We are pleased that we now have completed the divestment of all the locations from which operations have transitioned to the new Kimball, Tennessee facility. Our specialty in large valve CapEx investments are continuing to ramp up this year, and we expect the margin benefits to follow accordingly. During the Q1, our specialty valve products delivered the strongest year-over-year growth of all of our product lines, which resulted in a sequential and year-over-year improvement in gross margin. I will now briefly review our end markets. As mentioned earlier, we believe the municipal repair and replacement market remains resilient, helping partially offset the slowdown in residential construction activity. For the municipal repair and replacement market, we remain excited about the benefits of the infrastructure bill starting to take effect later this year. The first wave of distributions have taken place with additional guidelines from the EPA regarding the Build America, Buy America domestic sourcing requirements. This further supports the strategic rationale for all three of our large capital projects. As domestic sourcing requirements for iron and steel products increase, we believe we will be well-positioned with our increased domestic capacity for our larger valve and service brass products. Looking at the new residential construction market, total housing starts were down 15.6% year-over-year during our Q1, with around a 1.4 million seasonally adjusted annual rate in December. We expect construction activity to pick up in the spring relative to our Q1, which is the typical seasonality of our core products. For fiscal 2023, we continue to forecast that total housing starts will be in the 1.3 million to 1.4 million range. While we expect higher interest rates and economic uncertainty to continue to impact residential construction, we believe lot inventories remain relatively low. Moving on to our outlook for 2023. As expected, we experienced a slowdown in order activity during the Q1. While our total backlog decreased sequentially, we continue to have an elevated backlog, especially for shorter cycle products like service brass and hydrants. With product lead times and project timelines improving, we anticipate our backlog levels could normalize over the coming quarters, depending on end market activity. We expect to get a clearer sense of sell-through channel inventory plans and order levels as we move into the upcoming spring construction season. As mentioned earlier, we are reiterating our guidance for 2023, which we provided with our fiscal 2022 Q4 earnings. We anticipate that our consolidated net sales will increase between 6% and 8%. Our backlog at the end of the Q1 and the expected realization from higher pricing position us to deliver net sales growth again in 2023. We expect our adjusted EBITDA will increase between 10% and 14%. As compared with the prior year, primarily driven by benefits from higher price realization and operational improvements in the H2 of the year. In closing, our teams continue to focus on maintaining our strong customer relationships while executing our top priorities for the year, which include achieving operational improvements, delivering benefits from our large domestic capital investments, accelerating development and commercialization of new products, and generating ongoing price realization. We are on track with the ramp-up of our new brass foundry, which will have significantly more capacity to deliver the best long-term manufacturing solutions and advance our sustainability initiatives with a new lead-free brass alloy. We are in a transformational period for Mueller with our large capital projects in various stages of ramping up. We believe the benefits from these projects and ongoing operational improvements will greatly enhance our position in the market. These investments are especially important as water utilities increase needed repair and replacement projects supported by the Federal Infrastructure Bill and the requirements for domestically manufactured products. Our broad portfolio of products and solutions enable us to help water utilities address growing challenges from the aging infrastructure, climate change, and workforce demographics. While uncertainty from the external environment has increased, we are a much more resilient organization supported by a strong balance sheet. This gives us liquidity and capacity to continue to reinvest in our business while returning cash to shareholders, primarily through our quarterly dividend. We are confident that our growth strategies, capital investments, and operational initiatives will deliver both further net sales growth and a return to pre-pandemic margins in 2025. That concludes my comments. Operator, please open this call for questions. The phone lines are now open for questions. If you would like to ask a question over the phone, please press star one and record your name. If you'd like to withdraw your question, press star two. One moment for the first question. The first question in the queue is from Deane Dray with RBC Capital Markets. Your line is now open. Thank you. Good morning, everyone. Good morning. Hey, maybe we can start, Scott, with your perspective on the demand dynamics in the quarter, you know, with respect to some of the order slowdowns. We're hearing lots of commentary across the industrials about destocking, and we can see what's going on in the resi side. In particular, you had a- There's a pipe manufacturer yesterday that was seeing some of the same dynamics, and their outlook was a lot more dire than what you're talking about today. Just kind of frame for us the order slowdowns. Is this destocking? I know there's gonna be offset from the muni break and fix, but just very specifically on the resi side. Thanks. Yeah. I think that the dynamic is, you know, much as you described. As if you recall my comments in previous quarters, there is a big piece of this theme that is DRP-driven or distribution resource planning driven. It's this notion that as the lead times collapse, that you'll kind of get hit with this double whammy. One, the sell-through may have slowed as housing goes from that 1.5, 1.6 down to the 1.3, 1.4 range, but lead times are coming down as well. The amount of material that's needed in the channel continues to decline, and so you know what's necessary and what's not. I think the end market evolution, you know, work closely with the channel partners to look at sell-through and to manage inventory and order levels will be key. I think that everybody's kind of looking at this spring construction season and saying, you know, "Is it going to be even further down, or will there be enough resiliency?" I think that there is a tendency to be overly bearish once you start to see the negatives, but I would also point to the January jobs report, which would indicate that, you know, employment levels and potentially income levels could be rising for the average American, which I think would be kind of the counterpoint to the housing starts. Will these people enter the housing market? I think that remains to be seen. What's most important to us in the last six months is watching the balance sheets of the municipalities and how flush they are with cash still two years later. I believe that that is the counterpoint, along with the emergence of more interest in the drinking water stream from governments that is going to kind of offset the kind of demand profile reduction that we'll see from the housing market. We remain, let's call it, cautiously optimistic. That's all really helpful. We've heard that whole dynamic about the slowing the pace of orders as lead times normalize. That's getting to be pretty familiar for us as well. All right. Follow-up question from Martie. Can you talk about the impact of your inventories on free cash flow? 'Cause that was really well below your typical free cash flow use. Is that inventory, is it still buffer inventory? Is this a supply chain issue? You know, Scott just talked about how there's, you know, less inventory in the channel. There's destocking going on, but you're taking on more inventory. Just walk us through that, please. Yeah. I'll say certainly looking at the, you know, the negative free cash flow that we had in the quarter, as you point out, was driven by the higher inventory levels. As we work through our 2023, and certainly consistent with the guidance that we have reiterated with respect to full year free cash flow being, you know, in the 40% to 60% of our adjusted net income. You know, that improvement through the year, we expect to be largely driven by working capital improvements, and that's gonna come from inventory churn. I'm gonna say, you know, as our production teams are focused on improving the lead times, as Scott just talked through, lowering the backlog levels, particularly with the short cycle products that we've had and with the outsourcing. I think we've had more of that philosophy of we're gonna bring in the inventory and the needed parts just in case rather than just in time, all the supply chain disruptions. I think we are going to look to sort of transition to that as we begin to see some improvements in the supply chain. We're gonna look to shift that focus and certainly look to bring down these inventory levels through the year, which will help with that. You know, there will be some as the new brass foundry is coming up, we will have some elevated inventory levels associated with that. Scott referenced in and around, you know, destocking activity and what we could see from distributors through the balance of the year. I would say, you know, certainly if the destocking is greater than what our estimates are, that could impact our overall inventory levels and our free cash flow guidance. Martie, that's real helpful. I probably should have prefaced it with that throughout the industrial reporting season, most of the companies have under-delivered on free cash flow, I think versus expectations. You're in good company here. We're all anxious to see that working capital come down, but I think what we're all learning is it's going to take longer throughout the year to see it. It's not just a one quarter flush. Appreciate the reference about the timeframe for you. Just last question for me, Scott, it's been a while since we had an opportunity about a potential guidance boost. You know, we saw nice results, Q1 out of the year. It's still early, I get that. When you're not boosting after a you know, a quarter like this, does that imply a lower outlook? Are you a bit more cautious? Just help us frame the idea of reaffirming guidance and not boosting it here. Yeah. I think that the, that there was some definite difference in, you know, how the Q1 came out, external estimates to internal. You know, I think that our timing may have differed from the market's timing. When we, when we talk about on our last earnings call, where we provided the initial guidance for 2023, we talked about how the timing of the ramp-up of the new brass foundry was important to our improved margins in the H2 of the year. If you just were to take that improvement and say, you know, where was your starting point for the year from earnings versus where the externals were? I can't really speak to that. What I can say is that the start to the year was solid with the sequential improvement in margins. I'm mindful that we're still early in the year, additionally, we're still in the ramp-up period of the new brass foundry, improving those, improving those PPAP processes. I would also say there remains a, you know, fairly high level of uncertainty in the external environment. Residential construction has slowed. Product lead times and project timelines are improving. I expect that the backlog levels could normalize over the coming quarters, depending on end market activity. I expect to get a clearer sense of the sell-through in the channel and the channel inventory plans as we move into the spring construction season. I think that will be a critical time, Deane, as we look at what happens with the sell-through in the channel inventories. I think that will set the pace for the balance of the year. I think, you know, we elected when we looked here, certainly a little better Q1 than anticipated, but we elected to kinda keep our powder dry as we look at the rest of the year. I think there's a couple of ways this can go. You know, I would speak to everybody and say, you know, the most important elements for our guidance to be met is to hit our throughput numbers at our own facilities and not hit throughput by using other people's materials or outsourced materials. Those are gonna be the keys for execution. I think it's just too soon to say, where we are on that path. That's really helpful. Thank you. Thank you. Next question is from Brian Blair with Oppenheimer. Your line is open. Thank you. Good morning, everyone. Good morning, Brian. A solid start to the year. Good to see that price continues to outpace inflation. Being four quarters into that catch-up process, are you now at a point where, you know, price cost is, you know, margin accretive, year-over-year, or is that still pending? Year on year, I guess you could argue that it is accretive. As you know, Brian, we don't measure it that way. We go back to the trough. We know that the entire inflationary cycle is multiple years old. When we, you know, when we said in our prepared comments at the end there that, you know, we expect to be back to pre-pandemic margins in 2025, we are looking at the rate of accretion. We're still not accretive to inflation over the entire cycle going back to 2020. We expect that we will be back to break even on the dilution effect of 2020 sometime this year. If the price that's trapped in the backlog and the throughput assumptions we have in there, we'll kind of get back the price piece sometime in 2023. We believe that we'll be at pre-pandemic margins in 2025. The price piece of it is, you know, one part of it, but the actual throughput and getting rid of the outsource and getting rid of the other things won't have us back to pre-pandemic margins until 2025. I hope that answers it. You know, we'll be accretive year-on-year, but we still got a ways to go to get back to when the inflationary cycle began in 2020 and the headwinds associated with the outsource and the other product inefficiencies or manufacturing inefficiencies. We won't have those out of our system until we can close that second foundry, until we can hit all of our production targets internally, and we anticipate everything to be back to pre-pandemic margins by 2025. Yeah. Appreciate all the color there. I guess to simplify that progression, it would be you getting back to, you know, recovering margin via price cost this year, stamping out inefficiencies into next year, and then allowing for the, you know, the read-through of the projects once you are, you know, past completion and, you know, at that full run rate, you know, driving the, I think it's $30 million or so in benefits that you had called out. That would be 2024 into 2025. Is that kind of the step forward? Yeah. If you were to look at us at the high level of like, you know, 2019 or, you know, 19% to 20%, call it 20% in the EBIT margin, and now we're, you know, in the 14%-15% range, you know, we'll get that 500 to 600 basis points in 2025. It's a combination of a lot of things. The biggest two things, though, as I've been saying repeatedly, is the brass foundry, the elimination of outsource and getting throughput levels back to at our own foundries. Those are the two big movers. It really is, and that's what we will end up with. You know, as long as the end markets hang together, we'll be fine. I think the other thing I'd point out for everybody here is I think the end markets are conducive to us to continue the growth, but we're probably gonna have to look to the IIJA timing, you know, to carry us through what will likely be a temporary housing slump. Yeah, that's actually perfect, segue there, Scott. Any other, you know, color you can offer on, you know, IIJA impact date, I assume minimal. More importantly, your confidence in there being a tangible impact looking to the, you know, the latter part of 2023 into 2024 or 2025. Just looking at SRF, you know, funding data and specifically the, you know, the awarded funding, and it's somewhat underwhelming right now. Seems to be a lot of administrative issues at hand and, you know, a lot of work that remains just to, you know, coordinate the project funding before moving forward with a lot of this. Just curious your perspective on that, and then again, you know, level of, you know, confidence or incremental confidence in this being a real catalyst going forward? Well, I think it'll be a real catalyst going forward. I think you're seeing whenever we have some of these government programs, you're seeing the sausage-making process. You know, there's gonna be all these new rule sets. Like, give you an example, like a fastener. Does a fastener have to be American-made? Is it part of the American iron and steel, or can we use imported fasteners? Well, how many fasteners are there being manufactured in the U.S. that meet the stainless steel? You know, all these things. You know, the EPA is working through all those rule sets to say what the exemptions are, what they're not, what materials have to constitute the bulk of the cost, what the labor content. All those kind of sausage-making has been going on for the last nine months. You saw some funds released to California, some of the bigger states. As you said, it was a small piece of the $100-ish billion that we expected to see. I would say that, you know, the money is gonna be sent. I believe it will be a catalyst for 2024 and 2025 and beyond. Any project that got approved, let's say today even, let's say it, you know, the dam broke today, none of those installs are gonna happen in 2023 or even the early part of 2024. By the time those jobs are engineered, those bills of material are cut, the water system is in a position where the install could happen and the labor is available, you know, these are multi-month projects. Not to mention the size of the backlog in the specialty valve business or the large gate valve business. I do think, yes, I'm very, very bullish as a result of the funding, and we can see the need for where these dollars need to be spent in both the storm water, waste water, and drinking water investment opportunities. Yes, we think it's actually going to have a meaningful impact on the size of the served market for products that Mueller makes. No, I don't see it happening in the next three quarters. All makes sense to me. Thanks again. Thank you. Next question is from Michael Halloran with Baird. Your line is now open. Morning, everybody. It's Pez on for Mike. Morning. Morning. Another question on backlog. How are you thinking about backlog duration at this point versus normal? Obviously, a lot of puts and takes. The backlog levels are elevated. We talked about the numerous puts and takes on the manufacturing and outsourcing side, also on the flip side, we talked about an opportunity to normalize backlog levels this year. Secondarily, based on the answers to Deane's question, I suspect I know the answer here, but I'll ask anyway. How much, if any, backlog normalization is assumed in the current guidance? Well, let me, let me hit the first how I think about it. I probably think about it a little differently than the, than the analysts on the call because I'm keenly interested in knowing where our sector competitors are in their lead times. You know, I think we're advantaged in our lead time at gate valves right now. The Chad here at the plant has done a great job of ploughing through the backlog there. I believe we're disadvantaged in hydrants right now. I think our lead times are too long compared to our competitors. When I think about our specialty valve business, I think we're near par, but we should with the investment, and we can get the throughput, we should be advantaged. You know, we're domestic, and you know, we're not as dependent on that China supply chain as some of the competitors in the specialty valve market. I wanna see improvement there. I want that backlog reduced in terms of days of production, because I think it's an opportunity to take share. You know, I know you're asking me, and I'm kind of evading the financial answer to your question but, you know, that is how I think about the backlog, and I wanna be honest with you about that. I don't think about it in the context of how much price is trapped there, although there's a considerable amount or what an optimal number is. What I do think normalization looks like, though, is that what we call the short cycle business, the smaller gate valves, let's call them, you know, four, six, eights, and, you know, the five and 1/4 Super Centurion or, well, couple of the wet barrel size hydrants. Those have to get inside two weeks because that has to be the rapid turn for the channel. You know, those are probably the most competitive markets for the channel, and therefore they need to turn that inventory rapidly. They don't wanna be sitting on months of gate valves or sitting on months of hydrants. With our channel partners, you know, we have to get that supply chain balanced out, which continues to be out of balance today. Ideally, we would see that continue to shrink and get back inside of a 30-day backlog by the end of the year for the short cycle business. The project business, you know, I expect that those lead times will continue to grow. That as IJA money puts more of these bigger projects out there, that we and our competitors will start having more and more, A, engineered valves, and B, longer and longer lead times on those engineered valves. If anybody remembers back when we did the large casting foundry, we put in a, you know, a 20-foot by 20-foot bed for a 3D printer for tools, so we could make large tools for Build America, Buy America products. We expect that our cycle time to engineer will be better than the competition, but that our throughput times will be on par. You know, we hope to be advantaged there. I know that's a long-winded answer to say expect backlogs to continue to fall. It's more important, I think, in the market for us to be competitive, or advantaged even than to worry too much about where we are in context of days. No, absolutely. That's incredibly helpful, Scott, and a much better answer than it was questioned. Thank you. I'll switch gears a little bit. The balance sheet's in good shape. You called out ample capacity to pursue the strategic priorities. Could you maybe just provide a little color on what the M&A landscape looks like? Is there anything out there that has you excited right now? I mean, there's always properties that we're constantly evaluating our pipeline and I would say our pipeline is fulsome right now. I think that the opportunities that you see where the investment dollars are going probably over the next six to eight years offers some adjacencies for the Mueller line. You know, valves or bolt-ons that perhaps we don't offer today that we think will gain money. I would say that, you know, if you look at the conversation in the country around what water retention looks like, especially on the West Coast, you see the water crisis, you know, around Lake Mead and around these declining aquifers. I think there's going to be massive amounts of investment needed to move water from where we have plentiful water to the areas where we seem to be moving and getting population concentrations. All of those things, I think, drive and feed our acquisition pipeline. We continue to be, you know, fairly bullish on our ability to get some of that done. Nothing is in the next quarter, that's for sure. Excellent. Thank you for all the color. I'll pass it on. Thank you. The next question in the queue is from Brian Lee with Goldman Sachs. Your line is open. Hey everyone, this is Miguel on for Brian. We just had one question. I wanted to touch on the channel inventory dynamic again. Could you go into more detail possibly on the dynamic that you're seeing? Is there a way that you've been able to estimate how much is out there for the key products that you're monitoring, maybe in terms of number of weeks or months, and to what level the channel is trying to get down to? Thanks. Yeah, it's a hard question to answer because I think if you were to ask the channel, they would say a lot of the inventory is committed inventory. You know, if you look at what's happened with price. You take your baseline going in and you add, you know, I'm making this up, don't take this, but, you know, 30% to 40% of the increase in inventory that you've seen in the channel is just price-driven. Units are constant and the balance is the increase as a result of the inflationary pressures that we've seen price increases taken in the water space. You say that's 30% to 40% inflation. The balance of, you know, let's call it ballpark a 100% increase is units. That 60% or 65% of increase that's, you know, in units, there's a huge portion of that that is committed, but waiting on pipe or waiting on labor or waiting on. When the distributor took the order for that contract or for that municipality, it was earmarked. There's a fairly high backlog now measured in weeks of what's just logistics backlog. The speculative inventory would be the balance, right? You know, let's call it 15%, 20% of channel inventories are on the speculative basis. I would expect that that's the piece that would get targeted quickly. You know, I think that that's the at-risk. The other parts, you know, for the channel to add value, they have to serve those contractors and those municipality jobs. You know? Those are almost always delivered a job site. You know, they're not, they're not going from the distributor's warehouse to some municipality work center and then being loaded on a truck again. A lot of that inventory and a lot of that backlog for the distributor is when we have the crew there, we want you to deliver this, this and this simultaneously for install here and here. That piece of it, I think has left, because it's been, you know, the lead times between pipe, valves and other fittings have become so disparate between one another that we end up with a much larger inventory needed to support the logistics piece. I think that as that shrinks, then you'll start to see that inventory shrink as well. you know, if you use the 30% price, you know, kinda let's call it 30% logistics, 30% speculative. As you see the lead times crash, you'll be able to use one. As you see the prices increase, that will be an upward pressure. As I said in my prepared comments, we increased prices last quarter again. Then as you see the other part go, it too will drive down channel inventories. I think you have to look at all three elements and, then, you know, make the timing piece what you can, what you can of that mix of their inventory, what's driven it. Okay, great. That's, that's very helpful. Thanks. I'll pass it on. The next question is from Joe Giordano with Cowen. Your line is now open. Hey, guys. Hey, Joe. Can you talk about price realization in the quarter and what's embedded for the full year? I assume that how much of the full year expectations like baked based on actions you've already taken? I assume it's probably a little bit harder to like incrementally do this given inflation is like moderating sequentially, right? Yeah, look, I think the sequential increases in price realization in Q1 was something we were very pleased with. We're benefiting from the multiple price actions taken over the past year with price realization in the mid-teens, you know, for Q1. I think that improved price realization, you know, as I said earlier, more than overcame the inflation and it was not dilutive, but it's necessary in order to get us back to that kinda pre-2020 dilution that we've seen from inflation. I think in the Q1, total material cost inflation, keep me right here, Martie, but it included purchase price remains, you know, elevated and was somewhere around 8% year-over-year versus approximately 14% a year ago. While negative impact of inflation improved sequentially, you know, we continue to experience higher costs associated with raw and purchased materials. To answer your question, I'm not trying to, you know. There's a lot of pieces moving there to say whether it be dilutive. It really depends on, you know, how quickly we can ship the backlog, how much of the price that's trapped in the backlog. You know, obviously, shipping sooner is better as evidenced by our Q1 having kind of that mid-teens price in it. You know, it's hard to say. I can tell you what's in our guidance is that we get back to kind of flat level with 2020 in terms of price to inflation, so it's no longer dilutive this year, but that will not offset all of the inefficiencies and costs associated with outsourcing and the other problems that we talked about. We won't be back to pre-pandemic margins contributed by price and then the efficiencies until 2025. Within that, like, full year revenue growth guide, is it fair to say that the price contribution is higher than the overall growth guide? like it contemplates. Oh, yeah. Perhaps you missed it. Yeah, no. Last, you know, when we did the guidance, we were explicit that the actual unit volume we expect to be slightly down in all of our growth, all of the 6% to 8% growth that we talk about is being driven from price. Yeah, that's what I see. Okay. with respect to the ramp-up of Decatur and things like that, like, what do you need to see to kinda know that you're on the right track? Like, how far into the year or, like, what kind of, you know, trigger points along the way kinda give you comfort that, "Okay, like, this is progressing how we need to see, like, this is gonna work"? Yeah, I mean, we meet every week on, you know, how many parts are PPAP, where is that on our PPAP schedule? Of those parts that are PPAP, what's the machining trials going like? You know, if you look at our 4K process, you start out kind of with a dimensional answer and, you know, gate two, you get into, you know, whether it's form, fit, function, porosity, all of those things, you know, machining. Your gate three is a gamma run at some significant volumes, gate four is machining at significant volumes and looking at, you know, tooling wear, things like that. You know, we know where we need to be to get those top 170-ish parts that I talked about in our last quarterly call through by the end of March. In my prepared comments, I said we're on track for that. You know, there's 1,000 things that can go right and wrong in these next 90 days. At the end of the day, our exit rate at 2023 of pounds produced has to, you know, approach somewhere between 50,000 and 70,000 pounds a day. You know, we get into that 60 range at the new foundry, and we can afford to then shut the existing foundry and satisfy all of our customer demands and all our internal demands. I don't know how to really answer your question other than to say, you know, one thing's gone right, another thing will go wrong. At the end of the day, you would react and adapt, react and adapt, react and adapt to ensure that you get to the, you know, the capital project targets in throughput. That's what we're focused on. Yes, there's a huge part of our margin improvement that comes from avoiding the outsource premiums we're paying because of our inability to produce brass. That's job one in this project execution. Can you maybe speak to, like, what the cost differential is between these outsourced products that you have to bring into what, you know, at scale, the cost would be internally? No, absolutely not. No. And it's not because I wouldn't. It's that, obviously, we have multiple partners, and I don't want people trying to infer you're paying this premium here and that premium there. They obviously know what we're paying. No, I'm not gonna get into the spreads of premiums. I'm sorry. Fair. Last for me, you mentioned your expectation for housing starts for the year. Can you kind of maybe compare that to what you think lot development will look like this year? Yeah, as I said in my comments, look, we still believe that, lot inventories and even options on lots, you know, I know a lot of the builders are talking about in their prepared comments now what their, what their option portfolio looks like. It's still, I think, you know, if you, if you think about a 1.4 million housing start year, and then you try and back into that, which we try to do, but, you know, it's more art than science, unfortunately, because people don't publish the numbers. We still think lot inventories are relatively low and that there's not a huge, backlog of developed lots for the builders to sell, you know, either spec or, custom order or homes into. I guess the way I would describe it is after living through the 2007 overhang as a business, I wasn't here, but certainly lots of people were, and how long it took to work off that overhang, this one looks like it'll be measured in days or even weeks, but it's not gonna be measured in years. You know, the inventory is, I think, at a much lower level than it was in 2007, by a factor of, you know, two or three. Great. Thanks, Scott. Thank you. Just a reminder, if you would like to ask a question over the phone, please press star 1 and record your name. The next question is from Walter Liptak with Seaport Research. Your line is open. Hey, good morning, guys. Hey [crosstalk]. Good morning. Morning. Wanted to go back to Deane's question about the forecasting, and you said you had the internal forecast versus, you know, the sell side forecast, and that they were wrong. The question is, you know, I thought that the first half was gonna be weaker, then the second half was gonna be stronger. I guess the question is so that this is helpful to everybody, is, you know, how are we doing on the Q2? Seasonally, you typically have a pickup going into this, that spring selling season. Are you expecting that? You know, are we gonna see sort of a sequentially flat quarter? You know, what are you thinking about? Okay, well, it's hard to get it. You know, gross margin expectations around Q2 is kinda how I. I don't wanna get into giving quarterly guidance, but I will say this in general. Look, I think our annual guidance implies year-over-year improvement in adjusted EBITDA margins of around, I don't know, 70 basis points at the midpoint. I think it was driven by improvements in gross margins, which are approximately 190 basis points, with headwinds I think from the pension expense and higher total SG&A. You know that, let's call it 70 improvement. I think the inflation pressures and manufacturing performance headwinds will have to continue in Q2. We certainly are going to be dependent on the outsource. I think we're going to be dependent on third-party maintenance services in Decatur for all, certainly all of the quarter. I think the timing issue with our capitalized variance and the inventory write-up associated with the, you know, the inflation that took place believes that, you know, says that gross margins ought to be kind of flattish in Q2 with Q1. That you won't start to see the step-up of improvement that will generate the leverage on the volume growth until you're actually able to start impacting those two things. Does that help your model, Walt? Yeah, that does. On that revenue piece for the quarter, the Q2, I think what you're saying is that you gotta, you know, if you get that regular seasonal uptick, you gotta wait and see 'cause you don't know how the channel inventory is gonna be. Is that fair? Yeah. I think we have a big enough backlog that we should be able to hit our sales number. I'm not as concerned about that. It's, I'm more concerned about the margin flow-through and getting the throughput up sequentially. You know, as I said in my comments, we had fewer days in gate valves in our Q1 because we took down the Chattanooga facility for an extended period of time versus the previous year, so that we could do some auto pour relinings and some other maintenance that needed to be done. We had fewer days in Q1. We expect that, you know, we'll be able to get gate valve volumes back up in Q2. We expect improvement in throughput in Albertville for hydrants in Q2. We expect the continued improvement in throughput from Kimball. They've been quarter on quarter on quarter improving since we've opened them, so pleased with that. I think that's really where you think about that implied improvement in adjusted EBITDA. We're only gonna get clawing back some of the inefficiency we had in manufacturing in Q2. We still got the bulk of the heavy lifting to do in the second half, which will only come when we remove the outsource and we start producing meaningful pounds at the new foundry. Okay. All right, great. Thanks for that color. You know, I guess another one for me is, you know, last quarter, I think, one of the big takeaways was that activists that you guys are working with, you didn't comment on them at all. You know, are you still thinking about it the same way? You know, has anything changed? Yeah. I mean, we're still thinking about it the same way. I think that the committee is off and running with the two new board members. You know, I don't want anybody to be misled or anything. We don't speak to the activists. I mean, they got independents that weren't associated with the company. Part of our agreement with them was that we would have new board members, and I think that the integration is it's gone well. You know, we're not in contact with Ancora any more than we are with any other shareholder. Certainly we don't comment about, you know, our discussions with shareholders. I think the committee, though, is, you know, we've had our inaugural meetings and we've had our discussions about capital allocations, about, you know, operational improvements. I think we have, you know, alignment in what the priorities for the business are. Those priorities are, as I've been talked about them from the large CapEx projects. I feel good about it. Okay. Okay, thank you very much. Thank you. Well, I think we're at the top of the hour, operator. you know, I just wanna thank everybody for, you know, staying with us and sitting through the call and joining us this morning. Look, final things, though. I wanna remain focused on our customers while delivering on the benefits from our capital investments. We will continue to outsource, not to preserve us, but to preserve our customers and keep our place with them because I think share is terribly important in these times of uncertainty. I'd like to thank our teams for their continued dedication, especially as they deal with the ongoing uncertainty in the external market. I think the transformation that Mueller is going through and the water industry is going through at this time, is gonna be a remarkable and exciting time to be, to be at Mueller and to be invested in Mueller. You know, I think we are well positioned to continue to grow net sales and get those margins back to pre-pandemic margins in 2025. I expect this improvement to be driven by, you know, the ability to get priced more than the inflation cycle. Our increased volumes, primarily from growth in muni repair and replacement, improved manufacturing performance, and the realization of the benefits from the large capital projects. You know, I don't wanna be pollyannish and rosy that it's, you know, nothing but blue skies from here because there's certainly a lot of work left to be done. I wanna thank you for your interest, and I wanna thank you for your continued support here at Mueller. With that, operator, we'll end the call. This concludes today's call. Thank you for your participation.