Good morning. My name is Rob, and I'll be your conference operator today. I would like to welcome everyone to the Tennant Company's 2022 Third Quarter Earnings Conference Call. This call is being recorded. There will be time for Q&A at the end of the call. After the Q&A, please stay on the line for closing remarks from management. Thank you for participating in Tennant Company's 2022 third quarter earnings conference call. Beginning today's meeting is Mr. Lorenzo Bassi, Vice President, Finance for Tennant Company. Mr. Bassi, you may begin.

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

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

Thank you, Dave. Third quarter net income was $15.6 million compared to $21.5 million in the year ago period. Excluding non-operational items, such as amortization and restructuring charges, adjusted EPS for the third quarter was $0.99 per diluted share compared to $1.33 per diluted share in the year ago period. Lower gross profit, higher interest expense due to higher underlying rates, and an increase in income tax expense were the primary drivers of the year-over-year decrease. Gross margins were impacted by inflationary headwinds, the timing and realization of pricing actions as well as lower production volumes. Certain discrete tax items were favorable in the prior year period and were non-recurring in 2022. S&A costs were favorable compared to the prior year and partially offset this decrease. Foreign currency adversely impacted adjusted EPS by $0.14 per diluted share. For the third quarter of 2022, Tennant reported net sales of $262.9 million, a 3.3% decrease compared to the prior year. Comparisons between periods were significantly impacted by foreign currency fluctuations, which drove a 5% decrease in net sales. On a constant currency basis, organic sales increased 1.7%. Tennant groups its sales into three geographies: the Americas, which includes North America and Latin America; EMEA, which includes Europe, the Middle East and Africa; and Asia-Pacific, which includes China, Japan, Australia and other Asian markets. Organic sales in the Americas and EMEA increased 4.6% and 0.6%, respectively, versus the prior year period. The increase in the Americas was primarily due to the impact of higher selling prices as well as volume increases in Latin America. Growth in services, parts and consumables as well as the impact of higher selling prices contributed to the year-over-year growth in EMEA. APAC organic sales declined 14%, primarily due to volume declines in China as local shutdowns related to the COVID-19 pandemic continued to impact demand. We have successfully executed several meaningful price increases during 2022, which have favorably impacted net sales. However, the limited availability of certain parts constrained our ability to meet volume demand. Backlog remains elevated at five times normal level and is approximately $280 million, which is slightly lower than the second quarter backlog. Geopolitical factors have moderated demand patterns, specifically in EMEA and APAC. As Dave discussed, we continue to take actions that will allow us to increase production in the fourth quarter of 2022, which will also position us for a strong start in 2023. Moving to adjusted EBITDA. Adjusted EBITDA for the third quarter was $33.8 million or 12.9% of sales compared to $36 million or 13.2% of sales in 2021. The decrease in adjusted EBITDA was due in part to lower production volume, as well as lower margins, which were impacted by inflationary pressures across all production inputs. These impacts were partially offset by pricing actions and favorable SG&A expenses as we continue to actively manage costs. Foreign currency also unfavorably affected adjusted EBITDA by approximately $4 million as compared to the prior year period. Turning to cash flow and capital deployment. For the first nine months of 2022, net cash used in operating activities was $38.8 million compared to net cash provided by operating activities of $62.9 million in the prior year period. The increase in cash used was primarily driven by an increase in working capital due to incremental investments in inventory to support a ramp in production. Additional increases in working capital were due to higher accounts receivables resulting from higher sales to customers with extended payment terms and increased cash payments for employee compensation and benefits and taxes. We anticipate that working capital needs will moderate in the fourth quarter and when coupled with an incremental improvement in earnings, will drive positive fourth quarter cash flow from operations. The company continues to deploy cash flow towards operational capital needs and to return capital to shareholders in line with its capital allocation priorities. Capital expenditures of $19.4 million were in line with our overall expected CapEx for the full year. Liquidity remained strong with a cash balance of $59.2 million and was $261.9 million of unused borrowing capacity on our revolving credit facility. Our net leverage remains within our guided range and was 1.65 times based on the midpoint of our 2022 adjusted EBITDA guidance range. Turning to guidance. We are making incremental improvements to stabilize our supply chain and increase production levels that will help deliver best-in-class service and enhance the customer experience. Geopolitical factors have moderated demand patterns, but we remain focused on improving profit margins through price increases and continued cost management. Our full year 2022 guidance factors and the impact of foreign currency headwinds, inflation, price realization as well as increasing energy costs. Our guidance is as follows: net sales of $1.08 billion to $1.11 billion, reflecting organic sales growth of 3% to 6%. Full year GAAP earnings in the range of $3.20 to $3.60 per diluted share. Adjusted EPS of $3.70 to $4.10 per diluted share, which excludes certain non-operational items and amortization expense. Adjusted EBITDA of $130 million to $140 million, capital expenditures of $25 million to $30 million and an adjusted effective tax rate of 20% to 25%, which excludes the amortization expense adjustment. With that, we will open up the call to questions. Operator, please go ahead.

And your first question comes from Chris Moore from CJS Securities. Your line is open.

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

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

Got it. That's helpful. Are there any wild cards in Q4? I mean are you assuming an improved electronic components flow or kind of anything that still is a little bit outside of your control at this stage?

Well, I'll preface my remarks by saying 2022 has been a year of wild cards. If you think about the combined effect of FX and Russia-Ukraine impacts on energy and the EBITDA headwind that's created for us, anything could happen in Q4. But as we think about it, and particularly it is relevant as we think about the parts shortages on electronics. We've got line of sight to deliver the quarter. We've taken actions to secure an inventory of some Tier 2 components. We are reflecting the continued volatility and unpredictability in supply chain in our guidance. And so at this point, we have line of sight, and the guidance really reflects a balanced view of both our risks and opportunities. And so we're confident we can deliver on the revised guidance.

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

We typically do not provide guidance on gross margin. However, considering the number you mentioned, I believe it is unrealistic to expect we'll reach that level in Q4. More broadly, when we discuss margin expansion, it's primarily a matter of pricing versus inflation and our ability to manage it. We have been implementing price increases at rates we think will cover long-term inflation. We are achieving strong price realization, which is partly due to operating in an inflationary environment and highlights the strength of the Tennant brand and our sales organization in effectively driving and realizing prices. We have also continued to implement off-cycle price increases in 2022, and these are being felt. Our pricing impact is influenced by backlog as prices roll through it. Consequently, inflation in 2022 has been stronger than we initially expected. We are responding with aggressive pricing actions to counter it. In Q3, we managed to offset inflation and are close to covering it on a full-year basis with our current outlook. We need to observe how Q4 unfolds and evaluate the pricing versus inflation situation to make necessary decisions moving forward. I hope this provides more insight into the margin outlook for Q4.

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

Got it. That's very helpful. I will leave it there. I appreciate it, guys.

Thanks, Chris.

Thank you.

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

Good morning, everyone. I'd like to understand two aspects: supply chain constraints and current demand. Can you share your expectations regarding any potential easing of supply chain issues, or do you anticipate these challenges continuing into 2023? Additionally, could you provide an overview of the demand situation across your three regions?

Yes, I'm happy to answer that. Thanks for the question, Steve. To address the supply chain issue, we don't expect substantial improvements in supply chain conditions throughout 2023. We do not have visibility or commitments from suppliers to indicate otherwise. The actions we've implemented are effective, and we've experienced some successes. However, the main challenge remains that we require 100% of parts to ship a complete unit. While we've seen some progress with individual components, particularly Tier 2 electronics, it hasn't been enough or consistent across all necessary components for a significant production ramp-up. Given the current market situation, we don't foresee any notable improvements in supply chain conditions in Q4 or into 2023. We are closely monitoring the situation and will capitalize on any market improvements as well as actions we've taken to secure inventory, enhance supplier planning, establish alternative suppliers for constrained components, and localize our supply chain. This positions us well to benefit from any market recovery. Regarding demand, it's closely tied to our backlog, which we've already discussed. We've noticed a moderation in demand after experiencing seven quarters of growth. In Q3 specifically, demand has significantly softened across the board. The dynamics vary by region, and since we operate geographically, let me break it down by area. In the Asia-Pacific region, we've seen increases in demand in Australia, Southeast Asia, and India, but demand in China continues to decline due to government-imposed COVID lockdowns, creating uncertainty. This situation restricts our ability to operate, as sales interactions with customers are limited, and distributors are lowering their stock in response to unclear demand forecasts. Customers in China are adopting a wait-and-see approach in light of the current COVID policies. In Europe, demand has continued to weaken since Q1, likely a result of the onset of the Russia-Ukraine war. This softening is widespread across various countries and sectors. EMEA customers express concerns about security and inflation, particularly regarding surging energy prices, which directly affect their operations as well as indirectly, impacting other product costs like resin prices. Additionally, rising interest rates contribute to a general sense of economic uncertainty, leading customers to delay or cancel major projects. In the Americas, Latin America is performing well with increasing orders, attributed to several strategic investments, including adopting a direct model in Mexico and launching new products. Our Latin American management deserves praise for navigating a volatile environment successfully. Conversely, North America is experiencing a new trend of demand moderation in Q3 after strong order patterns prior. This slowdown is evident across various vertical markets, although some customers have placed orders ahead of time in anticipation of extended lead times. While demand declined in Q3, it's worth noting that order levels in North America for the first nine months of 2022 are slightly up compared to the same period in 2021, suggesting some timing issues with orders. Despite the moderation, customers remain cautious, evaluating their demand in relation to the broader economic landscape and inflation, particularly interest rates, as they plan their capital investments. We are closely observing this situation to determine whether the decline in demand is merely a timing issue or indicative of a more significant trend in North America.

I appreciate that thoughtful answer. Can I ask one more question regarding the cash flow for the first three quarters? Do you believe you can achieve break-even cash flow this year, or are you anticipating a negative cash flow at this time?

I'm satisfied with the investments we've made in the business. If I had the chance to do it again, I would. The cash flow situation reflects the investments we've made in inventory, which were necessary to address supply chain issues, boost plant output, and manage our backlog. We currently have inventory valued at $199 million, having added $11 million in the third quarter. Understanding these investments is challenging without considering our $280 million backlog, of which $200 million is current. This context clarifies our approach, and we feel confident about our inventory investments, which have positively influenced our cash flow this year. We expect to be cash flow positive in the fourth quarter, although we won't break even for the entire year due to our prior investments. We believe the inventory will be crucial as we proceed through Q4 and work to reduce the backlog heading into 2023.

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

Absolutely, if we consider our $280 million backlog, with $200 million of it being current, it is frustrating to think about the potential year we could have if we could secure the necessary parts to increase production. We believe that as we manage to ease some of the supply chain constraints, we will quickly be able to translate that into higher production outputs, and our cash flow situation will improve rapidly.

Fair enough. Thanks, Dave. Thanks, Fay.

Thanks, Steve.

Your next question comes from the line of Tim Moore from EF Hutton. Your line is open.

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

It is reducing our gross margin and increasing our inventory because we have a practice we call built but not shipped. When we have the chance to use an assembly slot to build a nearly complete unit, mainly waiting for circuit boards, we choose to build those units rather than halt production. We build ahead until the circuit boards arrive, then finish the assembly, test, and ship the units. While this approach is less productive, we believe, based on our analysis, that it allows us to maintain assembly line productivity and ultimately produce more products compared to a more traditional operation. We are applying the built but not shipped strategy as needed throughout our operations.

That makes sense. It also seems like there's potential for margin expansion whenever things stabilize with the supply chain. I hope we won’t need to revisit this next year when conditions hopefully align. My next question is about the upcoming 10-Q, which will provide a breakdown of equipment versus parts and services. Are you seeing that parts and services revenue is performing better than equipment in the September quarter?

Yes. So the Q actually is out or will be out today, we should be posting here today. And when we look at equipment and parts and consumables, it's roughly in line with last year. There is sequential growth, certainly in North America and in EMEA, but that's slightly offset by foreign currency headwinds. So when you're looking at comparability about this is impacted by foreign currency.

Okay. Great. I saw that you just posted about a half an hour ago, but what can you tell us about the interest in the robotics segment? Has interest in the AMRs remained strong? I know you mentioned having record sales year-to-date, so any additional insights on the robotics would be appreciated.

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

Great. It's encouraging to hear that. I was really impressed when I learned about the inventory scanner a few months ago, and I know many colleagues and friends who find manual inventory work and EV attachment quite burdensome. Can you provide us with a preview of the innovation pipeline for the next year? I know you mentioned the IMOP for the current quarter, but are there any noteworthy launches or adjacent areas you believe can be emphasized and significantly grow next year as you look ahead at the pipeline and launch schedule?

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

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

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

Well, thanks, Dave and Fay for the color and that concludes my questions.

Thank you.

Thanks, Tim.

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

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

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

Got it. Appreciate it.

I understand this might seem like a brief response, but we are committed to fulfilling customer orders by maximizing our production capabilities. The backlog can be both a positive and a challenging situation; it's difficult to have so many customers eager for our product while we are unable to meet their needs. If we could guarantee all the necessary components for production, Fay and I would likely step in and assemble the products ourselves.

Fair enough. I appreciate it guys.

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

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