Badger Meter Inc (BMI) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Badger Meter 2008 first quarter conference call.

My name is Jasmine, and I will be the operator for today.

(OPERATOR INSTRUCTIONS).

I would now like to introduce your host for today's call, Mr.

Richard Meeusen, Chairman, President and CEO, and Mr.

Rick Johnson, Senior Vice President of Finance, Treasurer and CFO.

You may proceed.

Good morning everyone.

This is Rick Johnson.

Thank you very much for attending our first quarter conference call.

I want to thank all of you for joining us.

As usual I will begin by stating that we will make a number of forward-looking statements on our call today.

Certain statements contained in this presentation, as well as other information provided from time to time by the Company or its employees, may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements.

Please see our 2007 Form 10-K for a list of words or expressions that identity such statements and the associated risk factors.

Also, I will give you my quarterly reminder about our guidelines.

For competitive reasons we do not comment on specific individual line profitability, nor do we disclose components of costs of sales, for example, copper.

More importantly, we will continue our practice of not providing specific guidance on future earnings.

We believe guidance does not serve the long-term interest of our shareholders.

Now on to the first quarter results.

Yesterday afternoon after the market closed we released our first quarter 2008 results.

We are pleased to report that sales, earnings from continuing operations, and diluted earnings per share are all first quarter records.

Further, sales and earnings from continuing operations are records for any quarter.

Because of slightly more shares outstanding, diluted earnings per share is tied for the all-time record with last year's third quarter.

Sales were $68.4 million, an increase of nearly 30% from $52.7 million in the first three months of 2007.

The increase was driven by increased sales of our AMR product, notably ORION, as well as increased sales in manual read and commercial meter, due primarily to price increases.

While we had a very strong first quarter, I would also like to remind you that the first quarter of 2007 was unusually weak due to the timing of orders.

This must be considered when making a comparison between years.

Let me talk about the breakdown of sales.

Residential and commercial water meter sales represented 81.2% of total sales for the first quarter, compared with 76.6% last year.

These sales were $55.5 million, an increase of $15.2 million or 37.8% compared with $40.3 million for last year.

As I indicated, the increase was due to volume increases in units utilizing AMR or AMI technology, and higher prices on manual read and commercial meters.

Sales of products with the remarketed Itron technology increased 8% over the first quarter last year.

Sales of our own ORION product increased 51% over the first quarter of 2007.

Industrial products represented 18.8% of total sales for the first quarter of 2008 compared with 23.4% last year.

These sales increased about $600,000 or 4.2% over last year's level.

The overall change was the impact of increased sales in certain productlines, offset by slight declines in others.

Gross margins for the quarter improved to 35.8% compared to 30.9% last year.

Increased sales volumes, higher prices, and better factory utilization all played a role in the margin improvement.

We do, however, continue to be affected by increases in commodity and component costs, and we will be carefully -- we will carefully be monitoring the effects of these increases on our overall cost structure.

While our selling, engineering and administrative costs for the first quarter as a percent of sales are actually slightly less than the first quarter of last year, they are nevertheless up nearly $2.7 million.

We have increased expenses associated with our efforts to get the ORION product established in the natural gas industry.

In addition, there are increased consulting costs related to sales process enhancements, increased research and development costs, and obviously higher incentive costs due to increased revenues.

Interest expense is down between the first two quarters, due primarily to the fact that our debt balances continue to decline.

This will probably be the last time I can make that comment for a while.

As Rich will discuss further, subsequent to the end of this quarter we did announce that we had acquired the technology for our GALAXY brand for nearly $25.7 million.

For the near term we are using our short-term lines of credit to finance this as we determine an appropriate capital structure going forward.

Our debt as a percentage of total capitalization was under 12% at March 31.

And the acquisition, while significant, will likely result in that debt percentage staying under 30% as we move forward.

Our effective tax rate for the quarter is 37.4%, very close to the 37% used in the first quarter last year.

Earnings from continuing operations for the first quarter of 2008 were a record $6 million compared to $2.5 million last year.

On a diluted basis earnings per share from continuing operations were $0.41 for the quarter compared to $0.17 for the same quarter in 2007.

And as I have noted, this ties the record set in the third quarter of last year.

There are no significant changes to our financial position as of the end of the quarter.

In the next quarter you will see the $25.7 million that was spent on the GALAXY intangible assets, as well as the corresponding increased debt.

With that I will now turn the call over to our President and CEO, Rich Meeusen.

I would also like to thank all of you for joining us today.

We are pleased to start 2008 with such a strong quarter.

As Rick mentioned, continued market acceptance of our ORION automatic meter reading technology, improved margins, and the startup of the Chicago contract, all contributed to a record quarter.

But I want to remind you again, however, that our business can be somewhat volatile on a quarter to quarter basis, but we believe that our focus on long-term results can generate good growth in both sales and earnings from year to year.

This was the first full quarter of daily installations of plastic meters and ORION radios as part of the large Chicago contract.

To refresh your memory, this project involves providing and installing ORION radios and plastic meters on a total of 162,000 new and existing water meters in the city.

During this quarter we recorded $2.2 million of sales to Chicago.

Given the fact that this is a $40 million project over a 36 month schedule, we would expect to average $3.3 million per quarter.

However, our schedule does call for slower installations in the first and fourth quarters of each year, with higher installations in the second and third quarters.

This is due primarily to anticipated first quarter weather impacts and fourth quarter holiday schedules.

We still expect to be able to complete the entire project within the three-year timeframe.

During our last conference call in February I made two statements about the first quarter, one of which turned out to be wrong and one was right.

First, I said that I didn't think the winter weather in Chicago would have a negative impact on our project.

Obviously I was not anticipating one of the toughest winters in the history of the Midwest, which did have some impact on the schedules.

However, I also said that we were not seeing any major first quarter impact on our business from the slowdown in the economy.

And in that statement I was right.

So I am one for two.

That is good for baseball, not so hot for CEOs, and that is why I don't normally give guidance.

With that mea culpa behind me, I would like to discuss the GALAXY acquisition now.

Over the past 20 years Badger has resold technologies of other companies, like the Itron technology, with a lot of success.

However, we have found that we're more successful when we sell our own proprietary technologies.

The outstanding success of ORION is a perfect example.

When we own the technology we control all the marketing and R&D, which enables us to better target the product for our markets, and to make the improvements we feel are necessary to meet the customer needs.

Badger Meter has sold the GALAXY 6 network meter reading technology for several years under a license with Miltel Communications Limited, an Israeli company.

This license would have expired in 2013.

We knew we had significant opportunities for this technology, but our distributors and customers were justifiably concerned about the contract expiration.

We also had plans to continue to improve the GALAXY product with our own R&D efforts, including integrating the reading systems of GALAXY and ORION into one software package called READCENTER.

For all these reasons we determined that purchasing all the rights to the technology was the appropriate next step for Badger Meter.

The immediate impact of this acquisition will be a reduction in unit costs and a related margin improvement for the GALAXY units, as we will now be purchasing the components directly from Miltel suppliers.

Given that cost savings, and the incremental sales of the GALAXY productline, we expect that this acquisition will have no dilutive effect in 2008 and will be accretive in subsequent years.

I should also remind you that fixed base systems have historically had a very slow acceptance rate among utilities.

According to the most recent Scott Report, the fixed base systems represent only 7% of all metering technologies in water on a cumulative basis through 2006, as compared to 13% for electric residential and 32% for electric commercial customers.

However, we are now seeing a greater number of increase in formal RFPs for fixed base AMI systems among our water customers.

This makes the acquisition of the GALAXY technology even more important.

Also, we have recently introduced the GALAXY Pit unit, which uses the same superior sealing technology that we currently use on our ORION product.

We continue to believe that GALAXY is the most competitive AMI product in the water industry, and we are now at a point where acceptance of fixed network technology in our industry is increasing.

We are frequently asked about the impact of copper prices on our business.

Copper prices continue to increase, which negatively affects our water meter margins.

However, it is important to remember that Badger Meter is the only U.S.

water meter company with a complete line of plastic meters.

We are also the only company that offers the Lo-Profile residential water meter, which exceeds American Waterworks Association standards, and has the same accuracy and long life as our standard meter, but does all of this in a smaller body that uses one-third less metal.

As a result, Badger has a competitive price advantage in the marketplace, and that advantage actually increases as copper prices rise.

On the last few calls we have updated you on the progress of construction of our new facility in Nogales, Mexico.

This 120,000 square foot facility will enable us to meet the growth requirements of our business and to shift certain manufacturing functions into Mexico to achieve significant cost reductions.

While we have had a few delays in the construction, we expect this facility to be operational in the fourth quarter.

Let me conclude by repeating that we're very pleased with the record-setting quarter, and we remain optimistic about our long-term opportunities.

At this time we will take any questions you may have.

(OPERATOR INSTRUCTIONS).

Richard Eastman.

Richard or Rick, could you perhaps just give us a general sense of what price contributed year-over-year on a net basis to the total sales.

Can you just give us a sense of that?

The sense I can give you is that on the manual read and commercial meters it is more significant than it is in the AMR products, obviously because the AMR also includes the radio.

I would say that we had a fairly substantial increase in the commercial meters driven primarily by price.

Volumes are up slightly in both the manual reads and the commercial meters, so a lot of the increase we are seeing is price.

When you look at the quarter, I guess I noticed that Chicago was maybe on track or a little bit behind due to weather, but when I look at the Chicago piece of business, was there anything in the quarter from a shipping standpoint, in other words hardware versus service, revenue recognition that maybe allowed you to capture more margin than you would on a normalized basis there?

Again, was shipments perhaps skewed towards hardware, like the service piece?

This is Rich.

The mix was pretty much the same mix that the whole project is between installation and hardware.

The revenue recognition delay that happens because the meters -- we don't recognize the revenue until the meters are installed and inspected and accepted by the city.

That delay obviously pushed the fourth quarter activity into the first quarter, but pushed an equal amount of first quarter into the second.

So really for the quarter you do have a good look at what a quarter would be.

As I said, it is a $2.2 million quarter.

I think on a normal basis, had we not had the weather, we might have been up around $2.6 million, $2.5 million, $2.6 million, something like that.

So weather had a little impact, but there wasn't anything unusual in there.

Just a last question, Rich, kind of a bigger picture.

When we look at the first quarter, typically a first quarter seasonally is going to be 23 to maybe 25% of your sales for the full year.

When you look back at the quarter, was there anything in the quarter from a shipment standpoint that would maybe suggest seasonally it was a bit stronger than historic?

This is Rick.

I'm going to try answering that.

There is nothing that suggests -- there was a strong -- it was a very strong quarter.

But if you go back to 2006, the first quarter was our strongest quarter of the year.

We're not telegraphing anything here at all.

We're just -- you know, Rich's comment, we can't predict quarter to quarter.

We manage for the long term, and we're confident of that outlook.

Beyond that we really can't say much.

Steve Sanders.

Good quarter.

Just a question on GALAXY.

Do you expect the margin profile there to be essentially in line with what you see from ORION?

Yes, we do.

The AMR technology -- obviously when you get into the network technologies the costs are a little higher to the customer, because of all the fixed base equipment that they have to install versus just a laptop on the front seat of a car.

So the cost is higher, but margin as a percent is comparable to the drive-by.

In terms of the interest in GALAXY, are you seeing significantly larger deal sizes, or all over the map, how would you characterize that?

We're saying everything from the 5,000 unit order up to the tens of thousands, getting close to 100,000, in those ranges.

We haven't seen a city of Chicago adopt a GALAXY or something like that, but those medium-size utilities, which to a great degree are the sweet spot of our business, that is where we are seeing a lot of activity.

Then on the plastic meters, I think you talked -- maybe this was a prior call -- about those meters representing 15% or so of your meter shipments on the residential side versus less than 10% I think in the prior year.

Excluding the impact of Chicago, are you still seeing that mix shift significantly towards the plastic meters?

I think even without Chicago we are seeing a little pick up, because we did have some large plastic meter sales last year to Mexico which were not -- which we haven't seen yet this year.

Those tend to be lumpy orders.

You will have a city place a large order once in awhile.

But generally we are seeing just good, steady, slow growth and acceptance in the plastic meters.

Then sort of a big picture question, Rich.

Should we think about your water meter marketshare as being a natural limit on your AMR/AMI share over the long-haul, or how are you thinking about that?

We're certainly not thinking of it as a limit.

In other words, we're not only trying to sell to historically Badger customers, we're aggressively out there calling on the competitive customers.

We feel with ORION and GALAXY we have a compelling argument for them to look at making a change.

In fact, we have the ability to put ORION and GALAXY on competitor meters.

The reason why that is significant -- we use a universal product to do that.

The reason why that is significant is when we go into a city and say, we would like you to consider adapting ORION or GALAXY, they say, well, I've already got this installed base of competitive meters.

Sometimes it is even a mixed base.

Some of them have Badger and other products.

Being able to install our technology on other people's meters, let's us get our foot in the door of an utility, and then hopefully eventually capture the meter business too, and have the whole package.

So it is fair to say you are having some significant success with ORION that would -- in terms of retrofit that would lead you to believe that you can continue to go.

Correct.

I think we are taking competitive accounts out there with this technology.

A couple of quick questions and then I will hop off.

Just a little more color on the Nogales delay.

And then, Rick, if you can give us some guidance on the interest rate on the debt and amortization related to the acquisition, that would be helpful.

I'll get back in queue.

Thanks.

Color on the Nogales delay, it is probably two to three months behind right now.

Just various issues, construction issues, and we're looking through those.

On the debt right now we're financing it with short-term debt and actually we're floating paper.

The interest rate on that short-term is 3%.

I indicated in my comments we are taking a look at what should our ultimate capital structure be.

But I'm not in a big rush because I like where I am in that world now.

Let me also say that the few months of delay that we are seeing on the Nogales project is not impacting our production capability at all.

We're still able to be all the demand we have.

And we're going to be in there by the end of year, and that is going to be fine from our point of view.

Ryan Connors.

Congratulations on a great quarter.

And a nice TV appearance today, Rich.

You looked good.

Thanks Ryan.

For those of you who don't know what Ryan is referring to, Rich did appear this morning on CNBC, Squawk on the Street.

They contacted us and asked us to appear on there.

So that was kind of a nice opportunity.

Yes, great stuff.

I wonder if you could just comment on the macro situation a little bit and how that is impacting your outlook.

Obviously, the housing market is extremely weak.

There are some fears out there that these macro issues will at some point impact municipal spending and presumably water infrastructure spending, at least a little bit.

Obviously, that does not appear to be having any impact whatsoever on you guys.

So I wonder if you can just talk to that a little bit and whether those concerns that are out there on the macro issues are completely unfounded as regards to Badger, or whether at some point there is some impact there on your business?

We have not seen the impact.

I know the economy is slowing down, housing starts are off.

Our water utility customers are continuing to place the orders, continuing to move the projects along.

People are still paying their water bills, so the money is still flowing.

We are not seeing that impact.

That having been said, I am not going to say we're totally immune to any slowdown in the economy.

I think I said last quarter that if our economy goes into a full-blown recession for awhile, and I know there were people arguing as to are we in a recession or aren't we.

But if it becomes very significant, historically we have seen some utilities saying, you know, there's a lot of unemployment in our city.

There are a lot of employers laying off.

This is not the time for us to launch a new project.

We have seen that in the past decades.

We have seen it yet this year.

But I just want to keep reminding you that if it gets bad we could see some of that pushback.

At this point we don't see it.

Secondarily, just on the SG&A increase, Rick, you mentioned that some of the components there are variable, but other things you mentioned like R&D and moving ORION towards the natural gas market and so forth, those seem to be more of a fixed nature.

On balance is it fair to say that SG&A will continue to run at a higher -- somewhat higher absolute level, or anyway you can give us a little more color or characterize your outlook there would be helpful.

That is a good question.

Without disclosing specifics, I think some of the increase in the first quarter, and I would say $0.5 million to $0.75 million were probably some onetime charges that we incurred.

But there is variability that will -- as increased sales come, we're going to have increased incentives and increased costs.

And so a lot of those costs are variable.

Beyond that there is really not much more I can tell you.

You did mention R&D.

I think we will continue at levels of R&D similar to what we spent in the past.

Great.

That's all very helpful guys.

Thanks much.

[Richard Purdy].

Nice quarter.

Just a quick question, most of my questions have already been answered.

When you guys go out for these bids on these projects, what is primarily discussed?

Is it price?

Do you guys compare -- mention what you guys have done in the past?

Can you just give me a little bit of color on that?

I will take the first stab.

First of all, they don't let Rich and me go on sales calls too often.

There is a good reason for that.

But I think when you are talking an AMR/AMI product it is more than just price.

It is primarily features.

It is the adaptability.

It is the ease-of-use.

All of those play a role.

We believe that we are superior in all of those.

If you're talking, for instance, the commodity prices of a manual read meter, yes, then it is more on price, that is the driver.

But right now it is the features.

It is what it can do for you.

It is the ease of installation.

How fast can you convert?

What about the backroom operations, is it easy to use once they get the data?

All of those play a huge role in making the decision.

And on that I think we have the upper hand.

Let me add something else.

First off, we have got way too many Richs and Ricks around here.

This is Rich Meeusen again.

Let me add something else.

The success of ORION, we believe one of the major reasons for the success of ORION has been its ease-of-use.

There are 53,000 water utilities in the United States.

They tend to be smaller size utilities, and they don't have large IS departments.

And they want something that is very easy to use.

And that is what has really been the hallmark of ORION.

We're doing the same thing with GALAXY.

When we compare GALAXY to every other network product on the market, it is ease-of-use.

So when we get into these situations, very often it isn't price driven.

The utility wants to run a pilot.

They want to try some and see how easy it is to use.

When they start seeing that, they realize what a good product we've got.

The other aspect of our product is the pit application.

The pit application is a very brutal application.

For those of you who don't know, the meters are down in pits under cast-iron lids.

About 60% of them in the United States are.

Putting the electronics in those pits that are filled with water is very, very difficult.

And our competitors have had trouble with that.

Badger has the best pit sealant -- sealing process in the world.

And it has been very successful in ORION.

We are using the same process on GALAXY.

So those are the types of things that a lot of customers are now starting to focus more on.

The ease-of-use in that pit application.

Another question.

A few months ago on an Itron call they had mentioned that a lot of their contact wins they have had there are delaying on the decision on whether or not to go with AMR/AMI.

Can you talk a little bit about what is going on with -- what you guys are experiencing there?

Itron has become very electric-focused, appropriately given the mix of their business and given the opportunities that are out there.

As I understand it, they are seeing delays by the electric companies.

We are not seeing those same delays on the water side.

We are seeing utilities recognizing the value proposition.

It is a little simpler on the electric side, because what they are really looking for is a reading, maybe some leak information, some temper information.

But they are not looking for time of day billing or load management or any of those things that you see on the electric side that complicate matters.

In our simpler world it is an easier decision for the utilities to make.

We're not seeing that slowdown.

Thank you.

Just one last question, housekeeping.

For taxes, sorry if I missed this already, but what should we be thinking going forward here?

The way I answer that question is the estimate we use for a quarter generally on a year-to-date basis is our estimate for the full year.

Yes, it will change as we go out throughout the year, depending upon what states we sell into and the like, but it always our best estimate of where we think we are going to be at year end.

Excellent.

Thanks again, and great quarter.

Nick Phillips.

A quick question on new customer growth trends.

Last quarter you noted that you gained about 400 new customers last year.

I think you said it was about one per day or something.

I was wondering if you could talk about these trends this year?

Right.

We're still seeing roughly that pace, if not a little bit better.

We have well over 1,000 ORION customers, and we're still picking them up at roughly that pace.

Patrick Forkin.

Congratulations on a great quarter.

A couple of questions on the GALAXY technology acquisition.

You guys had mentioned that previously some customers or potential customers were concerned that you guys did not own the technology.

Do you think you were actually precluded from some contact wins because of -- for that reason?

No, I don't think it was so much that as it was the willingness of our distributors to really get behind the product and push it with that concern, and the willingness of customers to test it, to put it in as a beta site or to put in a pilot.

Now that we own it we think we are going to get over that hurdle very, very quickly.

People are going to realize that we have a long-term commitment to this product and they are going to want to get behind it.

Then you mentioned a penetration rate for fixed water, fixed networks in the U.S., but I missed that.

What was that?

We estimate, and it can only be an estimate now because we're into replacement cycles and that kind of muddies the waters, but we estimate that about 25% of the meters in the U.S.

have radios on them.

We think the estimate for gas is more like 30, 35%, and electric might be even 35 or 40%.

So we really think water has the biggest potential out there.

Very good.

Any changes on the competitive front on the fixed network side since last quarter?

No, not really.

The same players are out there with their fixed networks.

And we are all competing with them.

I think one of the big advantages Badger now has is that we have customers that are really interested in looking at a hybrid system, where they want all of the benefits of ORION, but they might want a fixed network in their industrial parks, their heavy users, or in their hard to read areas like gated communities, airports, Air Force bases.

So we are starting to see more interest in customers saying, I am an ORION customer, but can I put GALAXY in certain areas?

That is why we've got this READCENTER software that lets us read both at the same time.

That is our change, and we think we are going to be very successful with it.

But as far as our competitors, we are not seeing a lot of change out there.

Can you migrate from ORION to GALAXY without any change in the module?

You can.

The problem is ORION is designed to transmit a few thousand feet, whereas GALAXY is designed to transmit up to a mile or even more, depending upon the circumstances.

So if you wanted to migrate, you're going to need more fixed units to do that migration.

Okay, very good.

Thank you.

(OPERATOR INSTRUCTIONS).

[Tim Coro].

A question on capital spending.

In the K you say that you believe the capacity exists to increase production levels with minimal additional capital expenditures after the completion of the Mexico facility.

So should we assume that CapEx in '08 declined by about $6 million from '07?

Off the top of my head, that does not sound -- that sounds fair.

Once we get the Mexican plant done, I would expect on a going forward basis CapEx not to exceed depreciation expense.

John Quealy.

This is actually Chip Moore on behalf of John.

Congratulations, great quarter guys.

Can you touch on how the Lo-Pro is going.

Maybe give us a ballpark of the contribution there?

Cystic.

As we had said last quarter we have just started it up.

We sold -- right now it is only in the 5,000 units or so per quarter.

So it is contributing a small amount right now.

But from the fourth quarter -- in the fourth quarter we did about 3,000 units.

We did 5,000 in the first quarter.

So it is starting to ramp up.

A lot of the utilities want to run a pilot on it before they make a commitment.

So we've got an awful lot of multi-run pilot tests.

And it is performing very well.

That's helpful.

Getting back to Chicago, what should we be thinking about any potential follow-ons outside of 162,000?

Actually, I'm very excited about that.

You have to remember that 162,000 is about one-third of the buildings in Chicago.

Two-thirds of the buildings do not have meters.

Now we don't have a contact to meter that other two-third.

Our $40 million contract is to just go out to the one-third that is already metered, put radios on them, and change out about half of those meters, which are the older ones.

But that leaves two-thirds of that city available to meter -- to be metered.

Right now the Chicago project is going well.

The city is very happy with what we're doing.

They are there happy with the performance of the product.

We have no reason to believe that when this three-year project is done, there isn't going to be more opportunity for us down the road.

And what about the potential for any other sizable water projects, anything on timing of announcements or possible locations?

You mean as far as other large cities beside Chicago?

Right, exactly.

We have nothing at this time to talk about.

And if I could throw one last one in.

Would you ever start to look for another contact manufacturer for GALAXY if volumes start to ramp up there?

You mean as opposed to where it is being manufactured now?

Right.

Yes.

And in fact, we are.

Because right now most of the suppliers to Miltel were located in the Middle East.

As part of our deal with Miltel we told them that we are going to start looking for some companies, either in the U.S.

or Mexico, or even in China, to provide some of the components for us.

Remember that we're just buying the radio board from Miltel.

We do all the packaging and sealing and the [incana] work and everything else over here.

It is a matter of where we buy that radio board.

We believe there are places we can buy that would lower the cost, and we are currently investigating that.

Richard Eastman.

Just to follow-up on that kind of particular question.

When we walk up -- do the math here on this acquisition, and we say it is neutral to earnings this year, we've got the expense item on the $27.5 million.

We have some amortization obviously from the purchase accounting.

We have six -- I think the number you disclosed at one point was we had about six pilots in the field for GALAXY.

Do we have any of those six pilots that we have been given the thumbs up to move to full employment?

In other words, when you say that acquisition is neutral, do we have a revenue number in there internally that makes it neutral?

Yes, first off, so that we're not confused, maybe the six pilot number is old.

We are in installation on all those projects, and some of them done.

We have projects that are done.

We are up to about a dozen GALAXY projects that are either in the process or done.

And we have others in the pipeline that are coming.

We are no longer in the pilot phase on GALAXY.

We probably wouldn't have made the acquisition if we were still in the pilot phase.

We feel pretty confident about what we're seeing coming down the road.

You're right, there is some costs associated with this.

Between the interest cost and amortization costs, you might be talking about $0.09 a share, $0.08 or $0.09 a share, something like that per year.

And so it part year this year.

But do we feel that between the cost savings and the orders that we have visibility on right now, we're going to be breakeven on that this year, and we will have some good contribution next year.

Then just one question on the commercial meters within the utility business, of course the commercial meters -- did you say that business was up?

Did you give a number there?

Can you just give us a sense of how much it was up, and was that all price or was there some volume gains?

There were some modest volume gains, but the majority of it was price increases.

Some of that price is also the mix between the products.

So you may have more expensive products and less expensive products that are affecting it also.

Clearly the metal costs, because the commercial meters are the heaviest product we sell, that is where a lot of the cost increases are.

Just to clarify, you said the utility business was up 37, 38%.

So how much was the commercial piece up?

Commercial was up about 44%.

Thank you.

Again, though, over a weak first quarter last year.

I recall.

Thank you.

At this time we have no questions.

I would like to turn it back to Mr.

Rich Meeusen.

I want to thank everybody for joining us today.

We are obviously very pleased with the results we were able to turn in for this quarter.

It was a very good quarter and we appreciate everybody's support.

So thank you.

Thank you for attending today's conference.

This concludes your presentation.

You may now disconnect.

Good day.