Mueller Water Products Inc
NYSE:MWA
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
13.22
25.97
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Mueller Water Products Inc
You don't have any saved screeners yet
Welcome, and thank you for standing by. Today's call is being recorded. If you have any objections, you may disconnect at this time. [Operator Instructions] I would now like to turn the call over to your host, Whit Kincaid. You may begin.
Good morning, everyone. Thank you for joining us on Mueller Water Products' Third Quarter 2021 Conference Call. We issued our press release reporting results of operations for the quarter ended June 30, 2021, yesterday afternoon. A copy of the press release is available on our website, muellerwaterproducts.com. Scott Hall, our President and CEO; and Martie Zakas, our CFO, will be discussing our third quarter results and the i2O Water acquisition, end market conditions and our updated outlook for fiscal 2021.
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 and to address forward-looking statements and our non-GAAP disclosure requirements.
At this time, please refer to slide 2. This slide identifies non-GAAP financial measures referenced in our press release, on our slides on and 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 3 addresses forward-looking statements made on this call. This slide includes cautionary information identifying important factors that could cause actual results to differ materially from those included in forward-looking statements. Please review Slides 2 and 3 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 30. A replay of this morning's call will be available for 30 days at 1-866-448-7651. The archived webcast and corresponding slides will be available for at least 90 days in the Investor Relations section of our website. I'll now turn the call over to Scott.
Thanks, Whit. Thank you for joining us today. I hope everyone listening to our call continues to stay safe and healthy. Before we review our financial performance, I would like to take a moment to talk about the tragedy which occurred at our Albertville facility. For the Mueller family, June 15 of this year will always be remembered for the senseless tragedy that occurred at our facility located in Albertville, Alabama. Our hearts are with the victims and their loved ones, the Albertville community and everyone at Mueller during this difficult time. The response from our team in Albertville and everyone throughout Mueller demonstrates the commitment our team members have to each other. We partnered with the National Compassion Fund to provide direct financial support to the families of our colleagues that were lost, our employees that were injured and employees that were impacted by this event. This fund makes it simple for anyone looking to support the families of the deceased and injured employees as they begin on their path to healing. We made an initial contribution to the fund and will cover all administrative fees. We are grateful for all of the support and encouragement we have received from the community and across the country.
The tragedies in Albertville and Aurora test even the strongest resolve. Our hearts are broken and it's going to take some time to heal. We are bringing to bear all the resources we can in support of the Albertville community. Our leadership team was on the ground within hours of the instance, and counselors were on site. The local law enforcement investigation is ongoing, and we are continuing our full and active cooperation.
Our Board of Directors is committed to the safety and security of our employees and has engaged an independent consultant to review our policies, procedures and security protocols to ensure that we have the most appropriate programs in place to protect our employees from workplace violence. The Albertville facility was closed for approximately a week after the shooting to allow time off for employees to spend with their families. The facility is now fully operational. Although the tragedy caused shipment delays along with other impacts, team members throughout the organization responded with incredible dedication and compassion.
I'll now turn to our financial performance during the quarter. Please turn to slide 5. We delivered an exceptionally strong performance in the quarter, achieving record consolidated net sales of $310.5 million growing 35.9% versus last year. Strong volume growth in the quarter led to a 42.9% increase in adjusted EBITDA and a 100 basis point improvement in adjusted EBITDA margin. When comparing these results to the third quarter of fiscal 2019, which preceded the pandemic, we generated a 13.2% increase in net sales. This level of growth reflects strong end market demand from continued increases in municipal spending and residential construction. While the strong demand for our products and services exceeded our expectations, we faced ongoing challenges in the quarter from rising material and supply chain expenses.
During our third quarter, we announced our third price increase this year across many of our product lines due to the level of inflation we have experienced. Given the continuing impact of inflation and strong level of orders we are experiencing, we do not expect to see an improved price cost relationship until fiscal 2022. During the quarter, we further strengthened our balance sheet and future cash flow with the opportunistic refinancing of our $450 million senior notes which decreased our annual interest rate by 150 basis points. Martie will touch on the details later in the call.
Given our capital structure, we are well positioned to execute on our strategic growth opportunities with bolt-on acquisitions and capital investments, which strengthen and grow the business while also continuing to return cash to shareholders, primarily through our quarterly dividend.
Our acquisition of i2O Water during the quarter is a great example of a bolt-on acquisition that expands our water network monitoring capabilities and will accelerate our product offerings. I will discuss the strategic rationale for pressure management solutions and i2O later in the call.
Our teams continue to execute well despite the ongoing operational challenges from the pandemic inflation and global supply chain disruptions. I am confident that we are taking the right steps to operate effectively in this new environment and that our pricing strategies can deliver improved margins as inflation stabilizes. We are increasing our annual guidance for both consolidated net sales and adjusted EBITDA growth for 2021 for the third consecutive quarter and believe we are well positioned for further financial performance success in fiscal 2022.
With that, I'll turn the call over to Martie to review our third quarter results.
Thanks, Scott, and good morning, everyone. I hope you and your families and associates remain safe and healthy. I will start with our third quarter 2021 consolidated GAAP and non-GAAP financial results, then review our segment performance and finish with a discussion of our cash flow, liquidity and debt refinancing.
During the third quarter of this year, we generated consolidated net sales of $310.5 million, which increased $82 million or 35.9%. The increase in net sales was driven by increased volumes at both Infrastructure and Technologies and higher pricing. Gross profit this quarter was $105.4 million, yielding a gross margin of 33.9%. Our gross margin increased 80 basis points versus the prior year. This increase was driven by benefits from increased volumes and higher pricing, which were partially offset by higher costs associated with inflation. Our total material costs increased 13% year-over-year in the quarter, primarily driven by higher raw materials, which increased double digits sequentially.
While net price realization improved sequentially, our price/cost relationship was negative again this quarter, given rapidly rising inflation, particularly for raw materials. Selling, general and administrative expenses of $58.8 million for the quarter increased $11.7 million versus the prior year. The increase was primarily due to higher personnel-related costs, higher investment expenses and product development and IT, and no benefit from temporary expense reductions in the prior-year quarter in response to the global pandemic. SG&A as a percent of net sales was 18.9% in the third quarter compared to 20.6% in the prior year. Operating income of $42.7 million increased in the quarter third compared to $20 million in the prior year. Operating income this quarter includes $3.9 million of strategic reorganization and other charges. These charges primarily relate to the Albertville tragedy, previously announced facility consolidation and acquisition transaction costs.
Turning now to our consolidated non-GAAP results. We generated $46.6 million of adjusted operating income compared to $28.6 million in the prior year. Increased volumes and higher pricing were partially offset by higher costs associated with inflation and higher SG&A expenses. We reported adjusted EBITDA of $62.6 million as compared with $43.8 million in the prior-year quarter, with an adjusted EBITDA margin of 20.2%. For the last 12 months, adjusted EBITDA was $215.6 million or 20.1% of net sales. For the quarter, our adjusted net income per share was $0.18 as compared with $0.11 in the prior year. The effective tax rate this quarter was 28% as compared with 23.3% last year.
Turning now to segment performance, starting with Infrastructure. Infrastructure net sales of $287.3 million increased $77.9 million or 37.2% as compared with the prior year, primarily due to increased shipment volumes and higher pricing. Adjusted operating income of $64.2 million increased $20.6 million or 47.2% as compared with the prior year. The increase is primarily due to increased volumes and higher pricing partially offset by higher costs associated with inflation, primarily for raw materials and higher SG&A expenses. Adjusted EBITDA of $77.2 million increased $21.4 million or 38.4% leading to an adjusted EBITDA margin of 26.9% and a conversion margin of 27.5% in the quarter.
Moving on to Technologies. The performance of Technologies improved this quarter as net sales of $23.2 million increased $4.1 million or 21.5% primarily due to increased volumes. The adjusted operating loss of $2.7 million improved $900,000 in the quarter as higher volumes and favorable manufacturing performance more than offset higher SG&A expenses and higher costs associated with inflation. Technologies adjusted EBITDA increased by $700,000 with a loss of $600,000 as compared with a loss of $1.3 million in the prior-year quarter.
Moving on to cash flow. Net cash provided by operating activities for the 9-month period improved $45.5 million to $123.3 million, primarily driven by higher net income and the $22 million Walter Energy tax payment last year. We invested $46.1 million in capital expenditures during the 9-month period compared with $51.2 million in the prior-year period. Free cash flow for the 9-month period improved $50.6 million to $77.2 million compared with free cash flow of $26.6 million in the prior-year period.
During the quarter, we redeemed our 5.5% senior notes due 2026 and privately issued $450 million of 4% senior notes due 2029. The benefits from this opportunistic debt refinancing includes significant annual interest savings, investment-grade-like covenants and extended debt maturity. We were pleased to see Moody's upgrade Mueller Water Products' corporate and notes rating to Ba1 during the quarter. As part of this refinancing, we incurred a debt extinguishment charge of $16.7 million which included a call premium of $12.4 million and a write-off of $4.3 million of deferred financing costs. Importantly, we expect to realize annualized net interest expense savings of $6.9 million.
At June 30, 2021, we had total debt outstanding of $446.6 million and total cash $228.6 million. We did not have any borrowings under our ABL agreement at quarter end.
At the end of the third quarter, our net debt leverage ratio improved to 1x from 1.5x at the end of the prior year quarter. We currently have no debt maturities before June 2029. Our 4% notes have no financial maintenance covenants, and our ABL agreement is not subject to any financial covenants unless we exceed the minimum availability thresholds. Based on June 30, 2021 data, we had approximately $145.1 million of excess availability under the ABL agreement, which brings our total liquidity to $373.7 million. We continue to focus on maintaining a strong, flexible balance sheet with ample liquidity and capacity which support our capital allocation priorities.
Scott, back to you.
Thanks, Martie. Before opening the call up for questions, I will discuss pricing and inflation, end markets, our large capital projects and the i2O acquisition and our updated annual guidance.
As Martie mentioned, raw material inflation accelerated during the third quarter, impacting our gross margins. We continue to take actions to improve price realization with additional price increases and close management of our supply chain. During the third quarter, we announced our third price increase this year across many of our product lines. We were pleased to see the benefits from our previous pricing actions lead to a sequential improvement in net price realization in the quarter. However, due to the magnitude of the inflationary increases, especially raw materials, the lag between pricing actions and realization and the level of orders, the price/cost impact was more challenging this quarter compared with the second quarter. The sharp recovery in demand, coupled with supply constraints have led to record backlogs for our products, and extended the normal lag between the timing of inflation and realization of our pricing actions.
As a result of these market conditions, we do not expect to see an improved price cost relationship until fiscal 2022. However, as we have seen in the past, when we look over the full cycle of the inflationary price movements, we expect to more than cover the inflationary expenses.
Moving on to our end markets. We saw improvement in our end markets during the quarter as municipal spending continues to recover from the pandemic and residential construction benefits from strong demand for single-family homes.
The third quarter was very strong with June starts at a $1.6 million seasonally adjusted annual rate. Due to a number of factors, including supply constraints and building cost inflation, we expect the growth in housing starts to moderate over the coming quarters as we lap the surge in starts we experienced in our fiscal fourth quarter last year. We believe that the supply challenges that have helped push out new lot development and construction into 2022, support a normalized level of housing starts.
Our view on the municipal end market is more favorable than last quarter, primarily due to a pickup in the repair and replacement portion of the market. While the project portion of business is slowly improving, we are still seeing some delays attributable to the pandemic, causing uncertainty around funding and travel. We remain hopeful that an infrastructure bill, including water investments, will be passed as certain utilities could benefit depending on their projects and financial status. While it will take time for the federal dollars to reach the municipalities, it should increase the overall pace of infrastructure work especially for large projects. Also importantly, it can help shine the light on the need for the repair and replacement of aging infrastructure.
Moving on to our large capital projects. Despite the challenging operating environment, we remain focused on driving operational excellence and executing our large capital projects. We continue to make progress on the construction of our new brass foundry in Decatur, Illinois. Due to the pandemic impact on inflation in the supply chain, we anticipate the cost to complete the project will be higher than projected. As a reminder, at the outset of the pandemic, we deferred some of the capital expenditures associated with the foundry capital project as we assess the impact on the global economy. We still expect that this project will be completed by the end of fiscal 2023 and will ramp up during fiscal 2024. We expect capital spending to remain elevated in fiscal 2022 and will decrease to less than 4% of consolidated net sales after 2023.
In summary, due to the ongoing inflationary pressures and supply chain challenges, we expect that the 3 large capital projects will account for approximately $140 million of total spending. We continue to expect these projects to drive approximately $30 million of annualized incremental gross profit after all are complete and at full run rate.
These projects will help accelerate product development, drive additional operational efficiencies, reduce duplicative expenses, increased revenue and aid us in advancing our sustainability initiatives. We were pleased to complete the acquisition of i2O this quarter, which enhances and expands our technology product offerings for pressure management solutions. i2O offers pressure data loggers, advanced pressure valve controllers and network analytics to reduce water loss by providing solutions that enable clients to monitor, analyze and control water networks to reduce leakage, reduce energy consumption and improve supply.
Today, i2O delivers pressure management solutions to more than 100 water companies in over 45 countries, largely in Europe and Asia. We are excited about bringing their product solutions and deep technology expertise into our portfolio, and introducing them to the North American market. Pressure data is a critical component to detecting pressure transients, which are rapid burst that can cause catastrophic pipe failures. This information works synergistically with our Echologics acoustic leak technology and will allow us to provide a more complete pipe network leak detection solution to customers.
Additionally, i2O's pressure valve controllers work with our singer pressure control valves. We expect to offer products and solutions to North American customers in this quarter. We closed the acquisition in mid-June, and their results are part of our Technology segment.
We see the clear need for more digitally enabled products and services to allow municipalities to manage their operations remotely as they prepare for accelerating challenges with the expected retirements due to an aging workforce. Digital water spending is expected to grow at high single-digit annual growth rate with network and asset management solutions growing in the double digits.
Our vision is for our Sentryx software platform to allow utilities to monitor, control and optimize their water distribution networks. With Sentryx, customers can identify and prioritize leaks, measure and control network pressures assess water quality, view metering data, remotely flush water lines and utilize data analytics to manage their network assets remotely. The acquisition of i2O further enhances our Sentryx software platform and positions Mueller as the leader in network monitoring and solutions with the ability to accelerate our software offerings and provide products that support the resiliency and sustainability needs of our customers. As we expand the number of digitally enabled infrastructure products in our portfolio, our Sentryx platform is well positioned to become an essential tool for water utilities to manage their distribution networks.
Now moving on to our updated expectations for 2021. As mentioned earlier, consolidated net sales growth in the third quarter exceeded our expectations and reached a record level. Due to the high level of demand coming out of the pandemic and supply constraints, we believe that distributors have not been able to increase inventories to pre-pandemic levels. This dynamic has resulted in all-time high backlog for infrastructure-related products, with orders continuing strong through July.
Due to another strong quarter this year, we are again increasing our 2021 annual guidance for the third consecutive time. Our expectations for consolidated net sales growth for the year is now 14% to 16% versus previous guidance of 8% to 10% growth.
Our expectations for adjusted EBITDA growth for the year is now between 13% and 15% as compared to our previous guidance of 9% to 12% growth. Our updated expectations include anticipated end market growth and ongoing challenges with the relationship between pricing and inflation. We also continue to expect to increase cash balances in the fourth quarter.
Finally, we remain focused on keeping our employees safe, protecting our communities, delivering exceptional products and support to our customers and increasing cash flow. We have made progress on our key strategies this year to accelerate product development, drive operational execution, execute our large capital projects and deliver technology-enabled products. We will continue to execute our strategic priorities to become a world-class water technologies company, bringing solutions to critical water infrastructure. With our ongoing focus on sustainability, plan we to minimize our water and energy footprints and deliver smart products that are more efficient for our customers and safer for the environment.
With healthy end market tailwinds and from the aging infrastructure and accelerating technology adoption, we believe that we have strong momentum going into 2022.
And with that, operator, please open this call for questions.
[Operator Instructions] Our first question comes from Deane Dray from RBC Capital Markets.
Can we start with price cost? You gave a lot of good color there. It's an industry-wide phenomenon. Can you quantify how you came out, price, cost? You said you were negative. Can that be quantified? And then some color on that third price increase. A lot depends on when was it rolled out? And how much in the quarter was that realized? Because I know that really will dictate when in fiscal '22, you would start to, at least, reach parity? So if you could -- if we could start there, that would be helpful.
Sure. So price right now, the most recent price increase was effective the first week of August. And so as you predicted, we'll have so much backlog in front of that rolling through that it will be into fiscal '22 and potentially even calendar '22 before we start flushing that through our P&L. And the majority of that is in steel. So the 2 big drivers for inflation that Martie referred to in her comments around raw materials, it's really the scrap market for steel, the ferrous scrap and then the copper component of the brass ingot has really driven the brass inflation. I would -- both of them culpable, to different degrees, of course. But what we've elected to do is kind of lock in our brass tonnage for our fourth quarter. So that's pretty much fixed. I think we still have some exposure on what could happen with the scrap steel market.
As for quantification, sequentially it cost us a few million bucks when you think about how negative we were in our Q2. The thing I'd like to make sure that you understand though is in the past, these have actually been positive events. Yes, we have a little short-term gain. But when the commodities markets settle down, as long as it's a gentle settling, we would expect that all the price we get through these inflationary periods to retain into the future as we want to set a new baseline, if you will.
So I think that there is some -- the lag is going to be a little bit longer. It's probably going to be in -- through our fourth quarter into our first quarter of next year. it's going to cost us a few million bucks kind of thing, differential. But I think all in all, we're going to be better off through the cycle because we have been able to get the sequential price increases quarter after quarter after quarter.
That's really helpful. And yes, we fully expect you to be able to hold on to those prices. Once it's gone through and it's gone through distribution, we don't see a scenario where you would have to give it up. All right. So a couple of follow-up related questions. You mentioned supply chain constraints. And again, we've seen it everywhere. But if you could give some specifics as to what you're seeing? I mean, are you not able to get some products? Is this pushing out project timing? And then related, has there been any benefit this quarter, especially in infrastructure on pull-in? So are some of your customers who are seeing the exact same dynamics with raw material input costs, trying to get ahead of your price increases by pulling, give you earlier orders that would suggest it's been pulled in from fiscal 4Q?
Yes. So I think the global environment is especially challenging. Our teams are no different than the ones you referenced. I know trying to get product even from our own plant in Jingmen supply lines, time to unload availability at the offloading ports, all of those things have extended and all of them are stressed. I think if I could, philosophically go back at 90, 120 days ago, we did anticipate demand increases. I think the world did. I don't think any of us anticipated the strength with which the demand has increased and the supply chain wasn't ready for it.
And so what we've done is that in fact we've taken the material supply and we've drained whatever buffer was in the system. And literally, during the third quarter, we were managing material inflows kind of from a day-to-day point of view as opposed to a 3, 4 days on hand, we were running [indiscernible]. And so those kinds of problems, I think are going to be self-fixing once the new level of demand and the capacity for that demand is established in the supply chain. And that's whether it's on raw materials, component inputs, even paint supply, forget the stake. All of those things just weren't ready for the shock, the demand we saw in our fiscal Q3. And I think that, in general, in industry, we're seeing fairly substantial peaks to Q3 a year ago. So it's not just us.
I think on the other points around supply chain that we really haven't touched on is the other thing that has caused the unintended consequence is that we have been running over time at extremely high levels through the heat of the summer and in our Q3. And I think it's the labor aspect of it is something that we will have to manage through Q4 as well as we try to get people brought into our factories trained and productive as a result of these record levels of production. And so I think that there is a [ piece from ] the supply chain as we continue to staff up that we're all a little bit cautious of being as far as what does that first 90 days productivity look like at these new kind of heavy production levels? Because we know in the long run, we cannot continue to run at the overtime levels we're currently running at.
And what about the pull-in thought?
Yes. I think that everybody has -- if you had orders that had fixed price that weren't -- yes, everybody is trying to get those expedited and say, well, you owe me this, get it shipped. And even if I had releases in the future, there is some of that. But I would say the water industry, in particular, there's very, very little [ low ] pull-in. So if you think of a short-cycle businesses, the hydrid business, the valve business, there is very little kind of on scheduled shipment basis. And so whatever pull-in has happened has been de minimis.
Excellent. Just not a question, but a comment. These are extraordinarily tough conditions. I think you guys are communicating well, you're executing well. So I appreciate all the color here. And also our thoughts and prayers go out to folks in Albert still. And once again, you guys respond so admirably as an organization. So thank you.
[Operator Instructions] our next question comes from Bryan Blair from Oppenheimer.
Very solid quarter. The incremental price increase was not a surprise at all given the backdrop. Just curious how much price is now assumed in the revised 14% to 16% fiscal '21 sales guidance? And as we look to the early part of '22, how should we think about price realization given the aggregate increases from this year?
Martie?
Yes. So going ahead and looking at the price, just sort of a reminder, generally, our third price increase across our fiscal '21 so far. I think sort of a couple of things. We did see net price realization in our third quarter, and our expectations are that we will continue to see the net price realization moving into our fourth quarter as well. Scott referenced in the prepared remarks that we also are seeing record backlog across some of our shorter-cycle businesses as we're seeing strong orders continuing to come in. So I think from a net price realization, I would say we expect that to continue to improve. And obviously, that is the intent behind that is to preserve margin with respect to the higher inflationary costs that we're experiencing.
So the only thing I'd add, Bryan, is as you think about modeling, if you think about our full-year price, whatever you have it at, at least, almost half of it is going to come in the final 120 days of the year. The combination of timing of increases plus where they stacked up in the backlog as is heavily back-loaded for the final 120 days of the year to realize more than half of our price for the year. With that said, we do still see these inflationary pressures, if that helps.
That does. And then i2O sounds extremely strategic. There's a compelling tie-in with Echologics, Singer and your overall digital portfolio. Just to level set, what should we assume in terms of financial contribution to start with?
Well, it's relatively small bolt-on acquisitions. I think the most important point of view from us from a strategic point of view is to get that price of transducer and the pressure controller out there in the portfolio. And I'll let Martie speak to the financials, but from the product development point of view and a strategic point of view, it especially on the controller plant, it's probably shortened our time line for the long-term plan around pressure management anywhere from 44 to 36 months. so it's going to put us in the game in the fight for pressure control pressure zones and having a full dynamic range on Singer that I believe will be the only ones in the North American space that will actually have software actuated dynamic pressure control valve available here in the next, let's call it, 90 to 120 days. So I think it really shortened our time to market. As for the business, our stand-alone pressure transducer, s not a large business. Martie, if you want to talk for financials.
Yes, just exactly.
We definitely had more strategic interest than the business model of the business.
Yes. So just to expand on that, Bryan, when we look overall at i2O, annual sales for this are less than $5 million. There will be some additional costs as we look to accelerate their product development and integrate it and introduce it to North America as Scott addressed. But overall, from a valuation perspective, when we looked at the return on this versus our cost of capital over time, we think it will be a nice value-enhancing, and as I said, accelerates the development that we would have had as well with this acquisition, which will be part of technologies. And certainly, over time, we think it will be accretive to technologies margins.
Makes sense. Kind of M&A as a proxy for R&D in that regard.
Yes.
And 1 more, if I can. Scott, if you don't mind offering some more color, it would be great to hear more of your take on the infrastructure bill or [ hopeful ] infrastructure bill? And how much of a catalyst that incremental funding could be for the space overall and Mueller specifically as we look out the next few years?
Well, obviously, it's a huge topic for us, and we are active trying in Washington to have our voices heard, and I know there are other water companies that we've joined arms with that are trying to get their voices heard too. So I think it's critically important for us and our country to start looking after drinking water supply. And I do believe it's long overdue to spend money not just on water infrastructure, but much of the company infrastructure [indiscernible].
With that said, I think the current drafts of the bill that are floating around are excellent for companies like ours. Because I think what they do is -- I think this is an important distinction, a lot of times when you think about ARRA and some other bills that have come around, all they've done has really changed the timing. They haven't changed the fundamental economics of what to build and when to build it.
So if we were to go to Phoenix, Arizona and there's a pipe break, whether there's federal money there or not, that demand is going to happen. Why? Because the money exists, the infrastructure exists. It will be maintained. Their population is growing. There's -- all of the pieces are in place. Just what the bill contemplate is what about those areas where there is a declining tax base or a declining tax rate. And so revenues are falling, populations are falling, and there is billions of dollars in this infrastructure bill that will be made available to those water utilities that otherwise wouldn't have the means to go back and fix their infrastructure, to go back and remove their lead lines, to go back and improve their pumping infrastructure.
So I think that we're actually, as an industry, going to see a very large part of this infrastructure spending actually be incremental demand to the market and not a timing play. I think that we should see a lot of dollars go into communities that are challenged by population decline and a tax rate base decline. And so I think it's going to be critically important. And I think, as you know, we believe that the most critical need is actually in the infrastructure. So kind of right in our traditional infrastructure product power alley. And so I think this bill is nothing but good news for people in the pipe business, people in the valve business, people in the hydro business, and we're very, very excited about it.
At the same time, lead lines, and this focus on the, let's call them, the core communities. There's also a realization that the digitization of the water space needs to be encouraged so that we never get back to this place again in the future. Now the earmark for that is much, much less. I think it's somewhere in that $10 billion range. But the -- but it's there nonetheless, to encourage the water utilities to make technology available, make funds available for them to try things to maintain and operate their networks more visibly.
[Operator Instructions] Our next comes from Joe Giordano from Cowen and Company.
Scott and Martie. This is Robert Jamieson in for Joe. I think I know the answer to this, but I just want to check in on the component shortage that we're seeing elsewhere in the market and the impact that you all might have, had a competitor this morning impacted pretty heavily. I realize this is like a smaller impact versus raw material for you all, but just wondering what you're seeing there, any impact in expected timing of relief?
Well, I hate to say there's no impact that there is certainly on EchoShore-DX is chipsets around cellular, some of the components on nodes. So far, we've been able to manage the supply chain very closely, and we've not impacted scheduled shipments. And if you're talking about meters, in particular, we certainly lowered our buffers. But I think the fourth quarter should be fine, but that's what our forecast assumes.
But you're absolutely right that there is a lot of pressure, in particular, you know how these things work, Robert. The automotive industry is really pressuring all of the chipset manufacturers to convert anything they're making before to automotive chipsets and that pressure gets pushed down and down and down. And so it's been an interesting 90 days. But so far, no real impact for us.
That's good to hear. And then I just wondered if you could kind of update us on like market share dynamics and some of the actions you've taken more recently? And how you are intending to continue to improve your share over time? And that's more like on the Infrastructure side?
Yes. I think that where we have differentiation, where we have more specification position, we are the #1 player in the hydrants. We are the #1 player in distribution gate valves, buttery valves, 24-inch and below. I think we may have some slight market share movements. But I don't see massive shifts without real product differentiation, without real change to the use cost of ownership economics for utilities. And I think that the things like smart hydrant, things like valves with electronics embedded in them, will start to fragment the market a little bit.
And we want to make sure that when that market fragmentation happens that we have the leading share of the higher tech product, and we're going to do that by continuing to bring technology to traditional infrastructure products as we have done with the small hydrants, as we've done with [indiscernible] valves that are ready for water sampling, those kinds of things will get us a stronger specification position.
But as for getting into hand-to-hand combat, all we're going to -- we're going to take this over or that over, and do that based on the old technology. I think all that does in the long run it leads to modernization. And so we have to work hard on driving specification differentiation between us and our competitors. And over time, that will work.
That concludes our Q&A session. I would now like to turn the call back over to Scott.
Okay. Well, thanks, everybody, for joining us today. I think I'm very pleased with the strong performance of the third quarter of our team. I think we've overcome a lot of external challenges to deliver the record net sales and increase adjusted EBITDA margins. We increased our adjusted EBITDA margin by 50 basis points through the first 3 quarters of this year, and we've increased our cash versus the end of 2020 even after we paid for the acquisition and paying for the debt extinguishment associated with the opportunistic debt refinancing.
So I think we continue to take action as needed to improve price realization to more than cover inflation with price over the entire cycle. So we will be able to pocket the majority of our manufacturing improvements that we're also driving through this period. I'm confident we're well positioned to strengthen our leadership role in the water industry and benefit from the enhanced attention water is receiving, especially as it relates to things like infrastructure legislation.
I think we have a strong flexible balance sheet, cash generation supporting our strategy. We're well positioned to benefit all of our stakeholders by becoming a world-class water technologies company. And I think that your continued interest in us only bodes well for the future. We are all very, very happy with Q3 and remain bullish for '22 and beyond. So I thank you for your time today. And I thank you for your interest in Mueller Water Products.
And with that, operator, we'll close the call.
Thank you for your participation in today's conference. You may disconnect at this time.