David Grzebinski: Yes, I don’t think you hit them. One of the reasons we actually think Kirby is a great barge company to buy. But no, you’re right, I think with the maintenance cycle that we’ve talked about here on the Inland side, a lot of companies are going to be taking their barges in for their five-year maintenance cycle and look at it and they’ll just say, man, it doesn’t make sense to continue it. So we will see retirements over the next two years, because of this maintenance cycle. So with little building and in a pretty heavy maintenance cycle, you should see some pretty healthy retirements over the next few years, which to your point is going to point to — one is going to help the supply demand situation get even tighter, but it’s going to make people look for equipment.
So, yes, I think there is a situation just, because the replacement cost of equipment that any transaction or buying a consolidating transaction, price expectations could be very, very high. So as you know, we’re pretty disciplined about that. And we certainly not going to chase a consolidating move, particularly when we feel as strong as we do about Kirby’s outlook.
Ben Nolan: Okay. That’s helpful color. I appreciate. Thanks, David.
David Grzebinski: Thanks, Ben.
Operator: Our next question comes from William Baldwin with Crescent Securities. Your line is now open.
David Grzebinski: Hey, good morning, Bill.
William Baldwin: Thank you, very much and good morning, Dave, Raj, (ph). Raj, could you comment a little bit on the cash from operations here in the fourth quarter? Looks like that at least based on what you were talking about at the end of the third quarter that, that didn’t come quite at the level that you had anticipated as you talk about the factors that, number one, am I interpreting that correctly? And secondly, if so, what contributed to a little bit of a shortfall there?
Raj Kumar: Yes, Bill, you are right. Cash, cash from operations in the fourth quarter missed our expectations and that was driven actually by on the D&S side. We had inventory build, and I think between David and I have used the word supply chain quite a (ph) on this call, but it’s a true phenomenon, so we’ve had issues in terms of getting product shipped out. And what’s happened is that’s resulted in a build of working capital in the fourth quarter. My expectation is as we get into the 2023 time-frame, we will shift those products. So whatever does it work in progress right now, we’ll get — we’ll go into finish goods over three and three and three and get shipped out. So yes, we put ourselves out there, we set ourselves a higher expectation. We tried to execute through it, but the supply chain challenges just got the better of us.
David Grzebinski: Yes. Just to put a little color on that, Bill. We probably had $50 million worth of sales at KDS that didn’t materialize that we would have expected in normal supply chain environments to have materialized in the fourth quarter. So if you think about construction in progress or work in progress, those inventories are higher. Our working capital certainly is a lot higher than we like, and the bulk of that is from supply chain issues. But there’s also a phenomenon on receivables, so I think with higher interest rates, we’ve seen customers push out their payables, which are our receivables. And so we’ve seen a little build in working capital. We’ve got to go after that, but it’s something that’s perhaps economy-related and supply chain.
William Baldwin: That’s very helpful. Thank you. Secondly, I was going — on the supply chain issues, you mentioned engines being a very critical product that’s not being delivered. Are there any other important components or parts that you could highlight that are given you a real issue on supply chain on shortages?
David Grzebinski: Yes, there’s an electric component trade. On the e-frac side and kind of the natural gas reset power generation side. For example, things like electric panels, you would think that would be a pretty easy thing. But there’s a lot of pieces and parts related to electrification that, that are jammed up in the supply chain.
William Baldwin: Is there any visibility there, David? As you look out in 2023? I mean, do you have any line of sight on meaningful improvements?
David Grzebinski: Yes, we do. I mean, each component, we put our supply chain team on and they get a path forward. And then something else, Raj calls it whack a mole, it’s kind of like the gained whack a mole
Raj Kumar: Count down on one and
David Grzebinski: You know, some other supply chain piece pops up. But it is component-by-component. We get in a pinch on a component. We work with fire, work with alternative sources, reengineered some things and get it back lined up. But then, frankly, something else pops up. It’s a bit frustrating. But look, we’re managing through it. We still had a pretty good revenue quarter in ADS and it’s just we’re still taking inbound and delivering. It’s just the deliveries are taking longer.
Raj Kumar: Yes, Bill. If I could add, our book-to-bill is about one. So that’s a very healthy order rate that we’re looking at. So it’s not the lack of demand today at this point.
William Baldwin: No, no, it’s got to be very frustrating. And also it seems like I mean, a number of your product lines obviously have applications far beyond the oil and gas business. And so you got opportunities that you could be out there going after that or just right now you’re limited on doing?
David Grzebinski: Yes. No we’re — look, just the electrification, whether it’s a micro grid or whatnot, but it is amazing. When we look at our, for example, our backup power rental fleets, our utilization last year, even with the light Hurricane Storm season, our utilization was probably the best it’s been. It’s just every company needs and wants to have power 24/7. So the electrification of the U.S. and the world for that matter seems to be a real phenomenon. And it’s actually — it’s driving many opportunities from design and new product standpoint for KDS.
William Baldwin: Just one last really clarification, David. If I read correctly in the release, you indicated that in the Inland barge business, you were looking for net — small net increase in net new barges in 2023? And what I hear on the call would not lead me to. To think that’s going to be the case. Did I read that correctly in the release that there would be a net increase?
David Grzebinski: No. Maybe for us, we are — we had some barges on the bank that we brought back, maybe — but it was only a handful. Yes, it was two. Kurt is giving me the — keep signing.
William Baldwin: Okay. So that relates to Kirby and not the industry there is what you’re saying?
