Badger Meter Inc (BMI) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter one 2010 Badger Meter earnings conference call.

I will be your operator for today.

(Operator Instructions).

I would now like to turn the conference over to your host for today, Mr.

Rick Johnson, Senior Vice President of Finance and Chief Financial Officer.

Please proceed, Mr.

Johnson.

Thank you very much, Jeff.

Good morning, everyone and welcome to Badger Meter's 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 yesterday's earnings release for a list of words or expressions that identify such statements and the associated risk factors.

Let me reiterate some of our guidelines.

For competitive reasons we do not comment on specific individual product line profitability, other than in general terms.

Nor do we disclose components of cost of sales, for example, copper.

More importantly we 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 results.

Yesterday afternoon after the market closed we released our first quarter 2010 results.

If you recall on the last conference call, we had indicated that the uncertainties surrounding the allocation of the stimulus funds by each of the states would likely continue into the first quarter.

This is one of those examples where we hate being right.

As our press release indicated, the slow down continued into January and February, and we had a noticeable uptick in March.

In fact, February was our lowest sales month in the past two years, while the March sales were the second highest.

So we went from famine to feast.

The net result of all of this, is that as a sales in the first quarter totaled $61.8 million, down 5.4% from sales of $65.3 million in the first quarter last year.

Most of the decline can be attributable to lower sales volume of our water application products, particularly water meters sold to utilities, offset somewhat by higher volumes of specialty products.

And in some cases, higher prices on products.

Water application products represented nearly 86% of sales for the first quarter this year, compared with a little over 90% in the same period last year.

These sales declined $6 million, or 10.2% to $52.9 million compared with $58.9 million last year.

As I indicated, much of this was due to lower sales volumes.

We saw our Orion related sales decline 11.1% from the first quarter of last year.

while sales of Itron related products declined nearly 28%.

In the most recent quarter, Orion related sales outsold Itron by a ratio of 3.3 to 1.

Commercial meter sales declined 5%.

Special products represented a little over 14% of sales for the first three months of 2010, compared with just under 10% last year.

These sales increased nearly $2.5 million, or 39.1%, to $8.9 million from $6.4 million last year.

Most of this increase was due to sales of radio technology into the natural gas market, including start of the Duke Energy order.

For the other products there were modest increases off of the significant lows of last year.

The gross margin percentage for the quarter was 37.6%, compared with 40.1% in the first quarter last year.

If you recall, last year's percentage was unusually high, and was due to very low copper cost.

Between the first quarter of last year and the first quarter of this year, the margin percentage declined 2.5%, all of which and more, can be attributable to the cost of copper and other commodities.

Lower volumes also contributed to lower gross profit dollars while product mix, cost containment measures, and higher prices helped soften the impact of the higher copper cost.

Selling, engineering and administrative expenses for the first quarter of 2010 were down slightly from last year.

As you may recall, last year's numbers did include some charges associated with an early retirement program that we had offered to our US employees.

These charges did not recur this year.

Interest expense continues to decline as we pay down debt.

The tax rate for the quarter was 38.1%, as compared to 37% used in the first quarter of last year.

The increase is driven primarily by higher state income taxes.

Results for the quarter, our net income of nearly $5.4 million, compared to last year's first quarter record earnings of nearly $7 million.

On a diluted per share basis earnings from continuing operations were $0.36, as compared to $0.47 last year.

A quick review of the balance sheet indicates that receivables and inventories have increased from lower year end values.

Receivables have increased because of the rather large amount of sales that occurred in the last month of the first quarter.

We continue to believe we have no collection problems with our receivables.

Inventories are up slightly, as we gear up for what is usually our busier time of the year as compared to year-end.

Overall, the balance sheet remains solid and we continue to pay down debt.

On April 1st, the day after the quarter ended, we did purchase Cox Instruments, and it's wholly-owned subsidiary, Flow Dynamics, for a purchase price of $7.5 million.

This was paid using operating funds.

Rich will elaborate more on that purchase.

And with that, I will turn it over to him.

Rich?

Thank you, Rick, and thank, all of you who have join us today.

As Rick discussed, the first quarter of 2010 was somewhat unusual for Badger Meter.

As we entered the quarter, our water metering sales continued to be negatively impacted by the delay in stimulus funding commitments, and our margins continued to be negatively impacted by higher commodity costs, particularly copper.

Although the copper costs have remained high throughout the first quarter, and into the second quarter, the stimulus funding commitments were resolved in mid-February.

And we saw a dramatic turn around in order flow from a very slow February to a very busy March.

Obviously this put a lot of stress on our manufacturing operations.

Fortunately during the downturn of the past six months, while we did institute appropriate cost controls, we did not implement any wide scale layoffs and kept capacity reductions.

And our manufacturing team has been able to react very quickly to the sudden increase in business activity.

While much of this increase is related to stimulus funding, we also believe that a good portion is not funded by stimulus money, but instead is simply a return to normal business levels, as a result of the many utility customers finally releasing orders, that had been held pending an outcome on the stimulus funding.

The obvious question for us and for our market as a whole, is whether this rebound will continue.

We do see continued strength in order flow into the second quarter.

However, we cannot predict whether higher sales levels will extend beyond the completion of projects funded by stimulus money.

It is likely that will many of our utility customers will simply continue to fund metering technology purchases, with internal sources so that their projects are not disrupted.

Beyond our water metering products, we are also pleased to see that many of our specialty product sales increased in the first quarter.

Our gas AMI products contributed over $2 million in sales, driven primarily by the Duke Energy project.

We also saw strong increases in our valves and other industrial flow meters.

Most of these products move with the general cycles of the economy, so we do expect to see continued improvement as the general economic conditions improve.

As Rick mentioned, the high cost of copper continues to be a head wind for us.

We use a significant amount of copper in the brass housings for our water meters.

In the first quarter of 2009, copper prices on the open market averaged around $1.60 per pound.

In the first quarter of this year, they averaged around $3.35 per pound.

Increase in copper costs negatively affected our gross margins, and we expect the headwinds to continue as copper prices remain high.

We have announced a price increase effective June 1 to help offset some of this impact.

A few weeks ago, we announced the acquisition of Cox Flow Measurement of Scottsdale, Arizona.

Cox is a producer of high quality precision turbine meters.

Unlike our current line of turbine meters, the Cox turbine meter is much smaller, and has a dual rotor design for increased precision.

Because of this precision, the Cox turbine meter could be used in applications not currently served by Badger Meter, such as aerospace and defense, which counts for approximately 60% of Cox's sales.

Cox also brings to Badger Meter the ability to design and construct technology leading flow measurement calibration test stands, used for certifying the accuracy of flow measurement products that are used in high-end applications such as oil and fuel custody transfer.

This acquisition will enable to us leverage our existing technologies such as our research control valves, to expands the sales of Cox turbine meters, while also giving Badger Meter access to the Cox technologies for sale in our existing market.

Although this is a relatively small acquisition it does represent a larger movement by Badger Meter into the global flow measurement market.

We intend to continue to pursue other flow measurement acquisition opportunities that will both broaden our product offerings and open up new markets for our existing products.

We are also continuing our plans to ship certain functions between our facilities to reduce costs and optimize facility use.

Most significantly, we are in the process of transitioning certain production activities from our Milwaukee facility to our recently expanded Nogales facility, and expect to have that transfer completed early next year.

This will both streamline our operations and reduce our production costs.

30 a.m., here at the Company's headquarters in Milwaukee.

And we would look forward to see any of you who can make the trip here.

Thank you, and we will now take questions.

(Operator Instructions).

Our first question comes from the line of Richard Eastman with Robert W.

Baird.

Please proceed.

Good morning, Rich, Rick.

Good morning.

A quick question on your pricing in the copper costs, in the timing here.

Well obviously, we should probable expect to see gross margin dip down a little bit in the June quarter, given your inventory and the turns there.

At the same time, is the price increase that is scheduled for June, is that kind of an attempt to maybe defend gross margin around this 37% level?

I would say you're right that we should see a little bit of a dip in gross margin, all other thing being equal, because copper prices have continued to escalate.

And, yes, the price increase is designed to make up for this higher cost of copper.

We have said previously that we had built about a $3.00 copper into our pricing.

It's now been over $3.00 for quite awhile.

And we think it justifies a follow on price increase.

I'm not going to say that we are trying to defend and hold at a 37% level.

That's obviously going to depend upon what happens with competition, what happens with product mix and a lot of other things.

But we do think it is appropriate for us to recover at least some of this cost increase.

Also bear in mind, that we may raise prices on June 1st, but that doesn't mean we are going to immediately see an uptick in our average price, because we have a lot of contracts, and it takes times for those to go through.

In fact, we found it interesting that we saw the effect of higher price increases in the first quarter of this year, when we didn't raise prices last year.

So it just tell us you it takes awhile, we are seeing the effects of price increases put into effect a year and a half, two years ago.

What you put in place, again, there was at least a suggestion around the first of the year that you raise prices selectively, was that mainly on the commercial side, meter side?

I would say it was more on bids and quote, and basically to the extent we could get it into the bids and quotes, we took it.

I see.

Okay.

And then just a question on the gas shipments, the Orion gas shipments, now finally may be starting to be of a size that can be meaningful.

Is kind of this $2 million quarterly run rate, is that a good estimate going forward?

Probably not, Rick.

And the reason I say that, is because we talked about Duke being about a $20 million project.

And it's anybody's guess how quickly they take it, but right now our estimate would be over three years.

So that would say the run rate should be maybe a little bit less than $2 million.

What we saw in this quarter, was a large number of orders of the collecting equipment, as opposed to the units that actually go on the gas meters.

So there was some, there was a little bit of front end here on getting some of their infrastructure in place.

Okay, fair enough.

And then also, was there any shipments to Fresno, or is that still time for later this year.

This is Rick.

We've made an internal decision not to comment on specific customers, especially dollar amounts.

I can tell you that Shreveport has begun to ramp up.

There was little bit of that in the first quarter, and there were no orders yet to Fresno.

But we are really going to get out of the habit of commenting on specific once.

We did it with Chicago for the past two and a half years, simply because that was so large and so unique but we made an internal decision to stop talking about the elephants as much.

Did you make an external decision?

So, okay -- well you mentioned Chicago, though, has that wound down to kind of a maintenance level?

I would say it's, I'd say we may probable very well about one more quarter of stuff, and then clearly by the third quarter we are at or near completion.

Got you.

Okay.

I'll get back into the queue.

Thank you.

Okay.

Our next question comes from the line of John Quealy with Canaccord Adams.

Please proceed.

Hey, good morning, guys.

Can you just talk on the cost reduction side, the facility movement, and also a little bit if you could on the SG&A, what are some of things we should be looking for?

I realize you don't give guidance, but if there's any moving pieces that we should be looking at for cost reductions on the operating expense line?

I'd say you are going to see the impact of the facility optimization in the cost of sales, obviously.

We are looking at probably over the course of this year and into the first quarter of next year, shifting about a third of the production out of Milwaukee, down to the border.

And there will obviously be savings associated with that.

The SG&A, as we see sales ramp up, I think we are going to be able to keep SG&A growth below at the rate at which sales are up.

But we probably going to add some SG&A going forward.

And the hard part was analyzing the SG&A between quarters, because quite frankly other than the early retirement last year, there was nothing that jumped out at us in terms of significant differences, maybe a little bit higher bad debt last year.

But other than that, that we are only talking about 150, 100 or 150 grand.

We are really talking a lot of nickels and dimes that make up the difference.

Other than early retirement last year, there's no big differences.

And just a couple more.

Going back to the water side, can you guys comment on the E Series, and the polymer, the new product lines, how were they tracking to your expectations, how should we look at them qualitatively moving forward as a percentage of the business over the next couple of years?

The E Series, you are not going to see large volumes this year.

This is for those who don't know, this is our new ultrasonic meter that we introduced.

It's a solid state meter that would be used in residential water metering.

And when you introduce a new meter like this in water, it takes several years to gain acceptance.

You've got to have it out on beta testing.

The American water works association will not even certify a new meter until it's been in use for five years.

So we are going to have some early adapters.

We've had some cities that said they are very interested in it, they would like to start installing some and see how they perform.

But you are not going to see any large scale sales of that, probably not until into next year sometime.

Okay.

And the polymer meters, those are the plastic meters, Badger Meter has a full-line of those, we are the only Company with a full-line of them.

We are installing them in Chicago, they are performing very well down there.

They have the same warranty and life as any other meter.

Now I'm sounding like a commercial, sorry about that.

But we are seeing about the same mix of plastic and bronze as we have been seeing in the past.

We're we are selling about 15% plastic meters and about 85% bronze meters.

Last question, without getting into names on these large elephant contracts if you will.

At least my impression is, things are moving forward at least on the gas and the water side, whether it's stimulus opening up conversations or not, can you comment on the characterization on bigger opportunities?

Do you think they are going to be lumpy as ever, or perhaps we have an accelerated RFP cycle on the next several quarters?

Can you comment on that?

John, I would expect that you are going to continue to see the lumpiness.

We are obviously talking to more gas companies since we won the Duke contract, there are more companies that are interested in what we are doing there, and in the technology.

We are having those conversations.

But, again, that's going to be a hit or miss thing and when you hit one, it's going to be big like Duke, or you are not going to have any for awhile.

Same thing on the water.

I don't see any real large cities out there, that are moving aggressively going from manual read to go some kind of automated reading.

We've obviously got the usual players in the hopper, and we and our competitors are all in there talking to them.

But I really don't see anything imminent, and it will probably be very lumpy.

Thanks, guys.

Our next question comes from the line of Eric Stine with Northland Securities.

Please proceed.

Hi, everyone, congrats on the quarter.

Thank you.

Just wondering if we could start with some bookkeeping.

Could you just give us the Chicago revenues in the quarter?

I want to say it was about $2.2 million, something along those lines, and it was within a $100,000 or $200,000 of what it was in last year's first quarter,.

That's good.

Can you update us on the timing of when you see that next contract.

For Chicago.

Yes.

I don't think Chicago has made a decision at this time.

I think at one time we thought they would launch right into Phase 2, and it could carry on, and it would start later in this year.

Chicago, and we've talked about this for a number of quarters now, they just haven't made a decision as to how to proceed.

In fact,, I think we talked, at one time when we initially announced this Phase I we thought it was upwards of 160,000 radios.

We are probably now looking more likely anywhere from 135 to 140,000 when it's done and they sign off that phase I is completed simply because some of their records are not in order and some of the homes weren't there and the like.

So I think it's a matter they haven't decided how they I think it's a matter they haven't decided how they are going to approach the next phase.

So we are at the ready, believe me, and we continue to work with them, but the ball is in their court to make the decision at this time.

I think the economic downturn has had an impact on Chicago like it has most American cities.

So they are looking at what is happened there, and how fast the economy is going to come back Juan is going to happen with their city budget.

Remember that they do have the right under our contract to continue to buy from us at the contract prices for up to ten years.

And they do intend to continued to some work, but not the roll-out that we've been doing over the last few years.

Okay.

That's good color.

Can we just turn to the specialty side, the gas?

The AMI projects, the $2 million in the quarter, it sounds like some of that was a little front end loaded.

But also in the earnings release you talked about it being Duke and some other projects.

Can you just talk about those other projects?

The other gas projects that we've got going on are very small.

Some of them are beta projects where they are just putting in the product to see how they perform.

None of them are anything close to the Duke project, but there are some other once going on.

Okay.

Maybe just switching to OpEx, on a sequential basis it was a pretty big increase.

$14.5 million, is that kind of the level we should think about, give or take for the remainder of the year?

Probably somewhere along those lines.

I mean there's no, the wildcard for us is always healthcare, because we are self insured, and we are running favorable as we did last year.

It's interesting when RIch talked about orders picking up in March, we just noticed that the tail end of the first quarter, that healthcare costs are starting to pick up also.

So a lot of people have been made putting off going to the doctor, and they are starting to feel better too.

So that's a wildcard for us so that's not an unreasonable too, so that's a wildcard for us so that's not an unreasonable assumption at this point.

Okay.

Then last question, and I will jump back into line.

Just the gross margin this quarter, until it sound like you got some price benefit in the first, and should going forward, can you kind of help quantify the impact on margins?

Would we have seen a flat to down potentially without those, on a sequential basis?

Maybe a flat at best.

Obviously volume impacted gross margin dollars.

It doesn't impact the percentage per se.

Copper is an impact, and then the price increase helped offset.

The other thing and we mentioned, it's the mix, okay?

You have specialty products that are slowly starting to come back.

Now, those generally are higher margin items.

Okay?

They run unusually low last year, and I say modest increases, because as low as they were last year up 10% is nothing that special.

But it's nice to see that we are starting to see an uptick in the slope of the line for some of those at least.

Hopefully for the higher margins we are starting to that to come back a little.

I don't expect that to be a rapid increase, though.

Okay.

Thanks a lot, guys.

Our next question comes from the line of Ryan Connors with Janney Montgomery Scott.

Please proceed.

Hi, Rich and Rick.

Good morning.

A couple big picture questions, just wanted to get your update on the issue of AMR versus AMI.

You mentioned in the past that AMI seems to be accelerating a little bit, based on the Scott report, et cetera.

What's your latest outlook there, based on what you are seeing there in terms of RFPs?

And how do you view your competitive position there with GALAXY relative to your obviously very strong position in dry buys with Orion.

I think we are still seeing the same thing we talked about last quarter, which is the pipeline is leaning very much towards networks.

More and more cities are asking for networks.

Clearly the predominant product being sold is still the dry buys, because of all the products that have been started.

But when we see request for bids coming out, there is almost always a network request in there now.

And we are seeing a leaning towards that.

I think the GALAXY product we have is very competitive.

It's a very strong product in the marketplace, and can carry us forward as this shift occurs.

We have invested in it since we bought it, since we made the initial acquisition of it two years ago, we've made a lot investment in it, adding features that the market wants and improving the product.

We also invested in our software, so that that has a lot of the features that the market wants.

So I feel we've got a competitive product out there.

Okay.

And then second question was just in kind of a different way to phrase the earlier discussion around whether there will be an acceleration in some of these big contracts or RFPs.

Just generally speaking, what is your view on the issue of pent up demand, regardless of the timing?

In other words, do you believe we will just return to a quote unquote "normal run rate of demand" as the economy improves?

Or do you think we might actually see a period of unusually strong RFPs with the big and the small contracts, as things really start to gain steam, even if that is a year or more out?

I mean you are right, that is the key question here as to whether we go back to a normal or something stronger.

At the time that the economy took a dive and at the time all this stimulus talk started, prior to that we were seeing pretty steady growth in the market.

And good flow of RFPs, good flow of bids.

This was, things were going very strong.

So we took the 1, 2 punch, not only did with have the slow down of the economy.

But then we had the government stepping in and confusing everything with this stimulus money.

And those really hurt us.

Now that the stimulus money thing is behind us, and the economy seems to be improving, are all of those utilities that two years ago were very much on a track to do something going to step back up to the plate?

I think there are still governments, government entities that are hurting budget wise, and especially in states where the money of the water department, is just the department of the city, and can be used for other purposes, they are going to continue to see some pressure.

But by our estimate, about half the states though, water utility money is not available to the city for other budgetary purposes, it's restricted in some way, and can be used for these programs.

So it's very possible that we are going to see a return to higher, to a higher water level, to use the water reference, a return to a higher watermark on the order that, the orders and the RFPs that we see in the market.

Don't forget as the economy starts returning to normal the focus will come back to conservation.

We haven't talked about it for awhile because of the way business has been, but there's been a tendency to start conserving water.

We became aware this week of a small order in the southwest, where they never metered at all, but because they are want to start controlling water, so they are starting to look at how meter it.

So that will be pushed back into the front burner hopefully, and we will start seeing some results because of that.

There are still 13 million homes we estimate in the United States that are buying water from the municipal water department, and paying a flat rate, they have no meter.

And that includes major portions of New York, Chicago, Fresno, large cities, but also a lot of small cities that have water problems, and are going to need to meter to address those problems.

So we could see a return to that focus.

And then, of course, there is the economics of going to some sort of technology, either dry buy or a network where you can reduce your operating costs, and there's a positive pay back on that.

So a lot of forward-looking cities are going to go back to looking at that.

Then but you've always maintained that housing is really not the driver that some people had I guess thought it was early on in the cycle.

I mean as the housing cycle has matured, is that still your view that that's really not something people should be focused on?

Well, I'm always reluctant to admit when I'm wrong but I'm going to at least say that back when we were talking about housing I was saying, well, looking in a really good year for housing, we put in 2 million houses and in a really terrible year we put in about 1.3 or 1.4 million, so it really doesn't have a big impact.

I did not anticipate, and I'm not sure who did anticipate that the housing market would crash all the way down to the levels that we saw in the last couple of years.

It took a real dive.

What I call the bad year, now I think people would have dreamed about having, because we had 1.3 or 1.4 million houses, most people say it would be wonderful compared to what we've been seeing.

I never anticipated the drop that we saw.

And when you get down to drops, to a level of that size, it does have an impact on the whole market and on the business.

Okay.

Then final question, just kind of the flip side of your discussion on the E series and new products and services.

We've actually heard that one of the smaller players who traditionally was focused on, solely on impeller meters, has now introduced a positive displacement meter in the first quarter.

And actually made some modest inroads, a few million dollars.

Can you tell us whether your folks have told you that they are running into that new competitor on the PB side?

And if so, how serious you view that as a competitive, potential competitive threat?

Sure, and I don't mind naming them, you're probably referring to Master Meter.

We are kind of in A oligopoly.

There is only a handful of companies, and we are pretty old company because of THE high barriers to entry in the market.

Master meter is a relatively smaller player in the US market.

They have primarily focused on velocity meters.

And there's a small piece of the U.S.

market that is interested in velocity meters and they've done very well in those.

As I understand, yes, they are introducing a positive displacement meter.

They may make some inroads with that.

We don't see them as a major threat.

When -to us the big players in this market are Badger Sensus, Neptune and Elster.

Master Meter has made some advances, but we don't view it as a major threat.

Okay, thanks for your time this morning, guys.

No problem.

Our next question comes from the line of Steve Sanders with Stephens Incorporated, please proceed.

This is (inaudible) for Steve.

First if we can start with Chicago, the 2.2 that you did in this quarter, that leaves you around $2 million left on that contract, is that right, last quarter you said around 32?

Ballpark, that's correct.

A lot depends on.

there are certain cities that, they have about I think right now about 10,000 what we call nonresponsive, where they were unable to get into the house.

And a lot is going to depend on how many times the city sends us back to try to get in there, before we say we can't get in there.

But 32 million is still out estimate but maybe there's about 2 million to go, which coincides with maybe one quarter left, and then we clean up in the third quarter.

And then on the, to touch on the two awards from last quarter with Fresno and Shreveport, the Fresno, they still have to do I guess the pilot installation, right, before that runs before they go ahead and approve the full deployment?

Is that correct?

Or has that already been done.

Correct, that's my understanding.

We have installed and the units are running, and they are working through that pilot phase.

Did they give you an indication of kind of how long that phase will last and then following.

It's my understanding that we should see a ramp up to normal shipments in Fresno, some time in the third quarter.

Okay.

And then on the Shreveport piece, that's just C&I, at least for 10, correct?

That is my understanding, also.

Initially we are doing C&I in Shreveport, the larger meters.

They have chosen to start on those.

And then, on your commentary on the uptick in orders, in March, it's kind of continued into Q2, could you give us a sense of how volumes ex price, copper, et cetera, compare this year versus last year?

Well, volumes in the first quarter were down.

We really only talk about months to indicate, because we were saying about that mid-February allocation date, as being kind of the trigger point.

And we talked about the monthly stuff just more or less to give you the indication that, yes it's started.

My guess based on what we are seeing is Q2 volume should be higher than last year.

Yes, Steve, I think what you are poking around is, what's in our backlog, what are we seeing for Q2.

It's a hard thing for us to comment on, because backlog is not a good indicator for our business.

It can jump around.

Some cities can give us an entire years order at once.

Some cities will simply place an order every month, so we have always said backlog is not a good indicator.

I'm a little leary to say, here's what's in our backlog, whose how much we have seen in the volume increase.

All I'm really willing to say is, that we saw a marked increase in volume in March, and we are seeing it continue into the second quarter.

Okay.

And then the price increase, that you saw the benefit this quarter, that is ex the recent price increases, that you announced, that would you expect to trickle?

And this is I guess more on a project basis, just on your bidding that was accepted?

The price increase that we are planning is for June 1st, and we won't see a lot of impact of that until probably the second half of the year.

Okay.

And have competitors followed, or I guess announced similar increases that you know of to date?

This press release increase we announced was very recent.

I think Thursday we announced it, Thursday of last week, so we do not yet know what our competitors are going to do.

If you find out we would be happy to here.

I will be sure and let you know.

Okay.

Quick housekeeping for Rick, what was operating cash flow and CapEx for the quarter?

Somebody's pointing here -- cash flow, cash provided by operations was about $5.2 million.

Capex was 1.7 million.

Okay.

Perfect.

Thanks, guys.

Okay.

Our next question comes from the line of Carter Shoop with Deutsche Bank.

Please proceed.

Hi, guys, this is (inaudible) for Carter.

On the stimulus, I believe you said that allocation of stimulus funds is run by each state.

I was wondering, off the percentage that you expect to be distributed between February and September of this year, how much has been received roughly and how much is still to go of that stimulus allocation?

Right, we don't have a way of tracking that.

Certain cities have started the project on the promise that the money is coming.

Other cities have actually received cash, and are moving ahead with the project.

But we don't really have a way of tracking exactly how much stimulus money has been released at this point.

I'm sure at some point the government will put out some numbers, and kind of list the programs.

But at this point, it's really hard for us to know that.

The intent of the bill was to try and have 70% of the money spent by September.

That was the intent.

Whether that actually happens we don't know.

I think more important, is that it takes some of the uncertainty.

As Rich mentioned, customers that were waiting to see whether they got any money, whether they did or didn't, were then able to place orders because at least they've gotten past the hurdle of the uncertainty.

And that kind of leads into my second question.

On the order trends that you are seeing, I don't need exact numbers, but rough breakdown percentage, or rough commentary, on how much of those products are being driven by actual money received?

And how much of that people just figuring out that they are not going to get it, and so they are going to proceed with their project.

Again, a hard one for us to go.

We do know that when somebody gets stimulus money and places an order, it comes with Made in America requirements.

Because the municipalities have to follow the Made in America stipulation.

We do have to track orders that are, have the Made in America requirement.

The problem is you could have a $5 million order that includes $100,000 of stimulus money.

And the whole $5 million has to be made in America.

So for me to say, here's how much came in, with at least partially funded by stimulus, that would be distorted, too.

It's a hard thing to get our hands around.

And I don't want to give out a number that's going to lead to the wrong conclusions based on that.

Fair enough.

Last question on stimulus, are you guys talking to any utilities or cities that are doing gas projects that are funded by the stimulus, which would be obviously the DOE, the stimulus grant money?

Actually that's an interesting question because we became aware of somebody who had gas and electric.

And because the Department of Energy allocated funds for electric, they thought that if they were to buy something for gas that it would have to follow the Buy American, and we are suggesting that perhaps it doesn't.

But it's just a few of them here and there, that we hear anecdotal stories about.

But the reality is, there wasn't a lot of money allocated for gas.

Obviously the Department of Energy had money allocated for electric.

And they went directly to the electric utilities, and then there was money allocated by the EPA to each of the 50 states for water.

But we didn't hear a lot about anything associated directly with natural gas.

Okay.

Thanks.

And then a question on the acquisition, you said that you had paid $7.5 million for Cox.

Could you provide a little bit more commentary on what kind of acquisitions you would be looking forward going forward?

Would they be more to expand your geographic reach, or to look into product areas that would be complimentary to what you have right now on the flow side or the (inaudible) side?

As we are looking at acquisitions we are very interested in the global flow measurement market.

This is a $5 billion market.

It includes a lot of different technologies for different ways to measure flow.

Many of which Badger Meter has, many of which Badger Meter doesn't have.

And so we are looking at getting into some of those things.

Unlike water metering, when you get into global flow measurement, the standards aren't different between countries.

In the water metering world, positive placement is important in North America, velocity meters are very important in other parts of the world.

But when it comes to global flow measurement, if there's that works on a refinery in the United States, it's going to work on a refinery anywhere in the world.

So we don't care if the meter is made in India or Indiana, as long as it's a meter that can be sold around the world in that application.

So the answer to your question is both, we are interested in expanding our product offering, and our applications like Cox does, getting into new industries.

We are also interested in expanding outside of North America more.

Now, Cox doesn't do that.

Cox is primarily a North American company.

But we do think we can take their products around the world and they've been somewhat resource constrained in the past.

We now feel that we have the resources to do that and the channels to do it.

So those are the types of acquisitions we are going to be looking for.

They may not all be in North America.

They may be anywhere in the world.

We are much more interested in the flow technologies, and going after this $5 billion flow measurement market.

Okay.

And then last question, could you update us, I think previously had you said you were in conversations with utilities that present 1 million point plus or $500 K point plus, how are those negotiations going?

I know you had said the sales cycles for those are much longer, can you provide an update on that either on the Orion gas or GALAXY side?

I think the comment we made was more or less on the natural gas side, in terms selling radios to the natural gas market where we use Duke as an example, where there you are talking -- first, I'm not aware of many 1 million point water utilities out there.

It was more than just selling radios in there.

And what we said were the opportunities are larger, but they are few and far between.

We got, we are very pleased that we have the Duke Energy order but it's a tough business because someone already has that market already, and we are doing a lot of missionary work to try to get into that market.

Got it.

Thank you.

Next question come from the line of Glen Wortman with Sidoti & Company.

Please proceed.

Good morning everyone.

Good morning, Glen.

Can you just talk a little bit more about the specific market opportunity for Cox instruments, domestically and abroad?

The Cox meter is this high precision meter.

It's used in aerospace, primarily in large commercial aircraft for measuring the flow of fuel between tanks.

And that's a nice market for them.

It's also used in a lot of other various industrial applications.

We do think that it's a meter that we can pair up with our valves, because it's a small precision flow meter, and we make small precision valves.

So we think there's an opportunity to pair those up.

We think there may be opportunities for this meter in petrochemical, in food processing, and other areas that we can get it out to, by making some R&D investments in the product.

And also by making some channel investments.

But the other side of consolidated basis that I want to you to look at is Cox really had two businesses.

They also had flow dynamics, and flow dynamics was basically the design and the construction of high quality flow test benches, that were used in research facilities and university labs, and things of that sort.

They have an expertise in this, that to us is very valuable as the company that's interested in expanding into the global flow measurement market, having that expertise is very valuable.

Okay.

And then secondly, just on AMR versus AMI, are the margin profiles much different from what another there or similar.

They are very similar.

All right.

Thank you very much.

Okay.

No problem.

Our next question comes from the line of Michael Cox with Piper Jaffray.

Please proceed.

Yes, hi, guys, this is actually Alex Potter for Mike.

Just had a quick question here with regard to the competitive landscape.

Aside from the comments you just made on Master Meter, are you seeing any other changes to the competitive landscape, either specifically with regard to Itron and traditional meters, or elsewhere in AMR?

We are not seeing much with regard to Itron.

All of the company's have introduced solid state water meters like our ultrasonic meter, with the intention that it's going to take several years.

But as the market moves, if the market moves towards solid state metering we want to have meters.

We saw one come out of Master Meters.

We saw one come out of Sensus and Elster.

We did not see one come out of Neptune at this point.

But everybody at the last American Water Association last year, everyone had those products and was introducing them and talking about them.

We've seen that, but again, that's the sort of thing that takes year to gain acceptance.

Other than that I wouldn't say we are seeing anything major on the competitive landscape.

Okay.

Fair enough.

And then have you gotten comfortable with talking about what the magnitude of this price increase is, or is that, am I correct in assuming that you guys are --

We would rather not talk about that.

We never disclosed the size of price increases in the past, and we'd rather not do that.

Okay.

And then I guess I can appreciate the fact that it's perhaps a little bit tricky to identify when you are, and are not getting an order that's specifically coming from stimulus.

But I guess if you could just focus on this uptick in orders that you've had, that are either directly or indirectly a result of stimulus, in March, and then here going forward into April, would you say it's pretty well spread out between AMR, AMI, and just kind of traditional meter replacements?

I would say it's fairly spread out.

A little over half of meters we ship have radios associated with them.

About half don't, and I think we are seeing that same thing with the stimulus.

I will also say that of the uptick that we saw, just trying to give you a little more color, of the uptick that we saw, I would say maybe a little over half had those stimulus dollars associated with them.

But a good portion of the uptick was just orders that didn't have the stimulus requirement on them.

Okay.

And when you say that they had some stimulus contribution, it doesn't necessarily mean that half of the uptick is directly attributable to the stimulus, it just means that half of that had that.

You may get a $1 million order because the city received $100,000 of stimulus money.

Right.

So only 100,000 -- however, when the city places the order, they put the Made in America requirement on the entire $1 million.

So that really is 10% made in America, 90% not.

So you see that clause, and that's what the indicator that you are getting some stimulus.

And that's what I'm seeing a little over half of the uptick that we saw, we can attribute to having some portion of stimulus money associated with it.

Okay.

Okay.

That does it for me.

Thanks very much.

Our next question comes from the line of Richard Eastman with Robert W.

Baird.

Please proceed.

Sorry, back for just a couple quick ones.

Rich, the Cox acquisition, was that, that was profitable, correct, was the EBIT around your average?

That's going to be an accretive acquisition.

It's not a turn around situation.

Cox is a very profitable company.

And so we do expect it it will be accretive to the bottom line for us.

Does the tax rate stay given that it was kind of driven by state taxes does it tax rate stay up around 38%.

Every time we do it it's our estimate what have we think it's going to be on an annual basis.

And a lot, Rick, depends on as we get deeper into the year, and we find out what we are selling to different states, that we thought we may make tweaks to it, but a lot of states are raising taxes.

My guess right now is that it's going to be up there.

I understand.

Then just lastly, when I look at the specialty products business, and the revenue derived in the first quarter out of that category.

If I pulled the gas Duke stuff out of that category, if I pulled the gas duke stuff out, we are at about $6.9 million in revenue, up some from the fourth quarter, but how do you think of the progression there as the year unfolds?

I mean are you comfortable and maybe somewhat confident that that business recovers with the economy, and the absolute level of revenue outside of the gas business with Orion continues to improve.

If you take out that gas business which could be lumpy, which depends on what it does and the other one we hit, and you just look at the other specialty products, you are talking about our valve business, automotive fluids, impeller or other industrial flow businesses, that's very much linked to the economy, Rick.

And we would anticipate that as the economy improves, we should see improvement in all of those.

Understood.

Okay.

Thank you.

Our next question comes from the line of Mark Rogers with Gagnon Securities.

Please proceed.

First question, when you say you outsold Itron 3.3 to 1, is that on volume, or on total sales as a dollar amount?

That's on total revenues.

All right.

I had a question on your GALAXY gas AMI offering, could you just go over why you went with the 400 megahertz channel versus 900 that some of your competitors use.

e have to clear a few things up.

The gases offering that we have is the Orion product.

That is in the 900 megahertz.

And the reason that 900 Meg hertz works very well for a dry by versus a GALAXY which is in the 400 Megahertz, I don't have the exact megahertz, I'm not an engineer.

First off, it is an unlicensed frequency, so it's easier to get up and running.

So it doesn't broadcast as far, but you are just trying to get to a car out in the street.

Whereas the 400 is going to broadcast further, you are trying to get to devices on telephone poles, that all makes sense.

In our gas world we are short hopping, we are jumping from the gas meter in the house, over to some other device usually on the electric meter, or on the electric meter.

And what duke is basically doing is building the Orion receiver into the electric meter or into the other device.

And we are trying to go at most, to go maybe a few hundred feet to get over there.

And that's why the 900 megahertz works very well with that.

Duke is leveraging it's existing AMI or building out it's AMI network for electric, and using that for the gas as well.

Exactly.

There are a lot of electric AMI solutions on the market, market solutions, that an electric company can choose from to read their electric meter.

And they all require the power of the electric meter and they work very well in electric meters, some work through power line carriers, and that sort of thing.

But they all have the problem, that if they want to read that gas and water meter, it might be on the other side of the building, it might be in the case of a water meter and a pit in front of the house, and how do they get those two readings combined with the electric reading?

The Orion short hop radio is the perfect solution for them to get those other readings for them.

Because gas and water have no power, it has to be battery powered, and Orion is a very good product for that.

Okay.

So the, all right, so then just so I can make sure I'm understanding the GALAXY is focused on water.

The GALAXY is the water product, yes.

That's operating in that 400 megahertz bands.

Yes.

Great.

Thank you.

It looks like we have a follow-up question from the line of Alex Potter with Piper Jaffray.

Please proceed, okay.

It appears Mr.

Potter has dropped off the line.

So our next question comes from the line of Brian Rafn with Morgan Dempsey Capital.

Please proceed.

Good morning, guys.

Can you give a sense, you talked about stimulus money for municipalities, I'm assuming that for meters, for water measurement conservation, how much of that, or how much stimulus money would be with municipalities, looking for water mains or heavy larger utilities size valves.

That's outside of our business, but we know that there was $2 billion allocated by the government for the stimulus pole ramp.

It went to the states.

From the states, they were allowed to choose the programs.

Some of it was allocated to green programs.

And the government said that water metering was definitely green.

So if you, if a city did not have water meters, and wanted to install them they could use the money for that.

The issue of AMR was a separate issue.

Sometimes it allowed it as a green project, sometime it is did not.

But a portion of the money went to mains and other sewage treatment and purification and other things, but we are not really wired into that to comment intelligently on that.

Rick talked a little bit about kind of the what the (inaudible) of the economy from the specifically from the southwest relative to conservation.

How much does a seasonal weather pattern, have relative to certainly it impacts water shortages.

If you get a real hot, dry, blistering summer, be it in the southeast, Atlanta, a couple of years ago, had some record, record temperatures.

How much does that impact the water metering demand?

Well, what happens is this.

When we have a drought in an area of the country, attention turns towards conservation, and there's more discussion about water metering, and everybody gets excited and sometimes you will actually see them do something.

And then it will rain, and people will forget that there was a drought, and the attention will go away.

So when Atlanta was going through its significant draught issues, there was a huge focus on conservation.

Then it rained, and thing seemed a little bit better and there was less of an attention.

So this is sort of waxes and wanes.

It's not like we have two weeks of drought, let's go out and buy 500 water meters.

That doesn't happen.

Water meter installation programs have to be much more in advanced.

It takes a much longer cycle, and there's not as much knee jerk reaction to droughts.

Over the long term, as our nation faces more droughts, and there's an estimate that 36 states will be in significant drought conditions over the next several years, according to the EPA, as that happens, more and more states are putting pressure on cities that are unmetered to meter, because they know that that's the first step to be taken conservation is actually charging people for what they use, and then they use less.

So that is what we are seeing.

But there isn't a quick reaction.

Let me throw something else out when you talk about weather patterns.

One other thing that does impact our business in the first quarter, is that Badger Meter does sell a lot into the Northeast part of the United States.

And when there are heavy snow storms, heavier than usual that can impact meter change outs, and slow down our business a little bit.

And as you know in the first quarter there was, there were some pretty heavy weather conditions in the Northeast.

Might have been a little impact, not a major one but a little bit.

Earlier in this decade when we were doing Houston tropical storms down there would sometimes slow sales.

Houston announced they wanted to do their city, in 2001, they said we will do it over two years.

It took them five.

We always have the order.

That's what we manage for the long-term.

That's why we tends not to give guidance, because we always have that customer, it's just a function of their pace of getting some of this stuff installed.

Okay.

You guys without speaking specifically about the magnitude of the price change, is that something that is leveraged specifically to copper or as in the past you guys have talked kind of an all in cost hike.

No, I think we are looking at all our costs.

We point out copper because obviously it's there.

Everybody can see it.

But if you take a meter apart, there's plastic parts inside.

Oil hasn't gone down.

The cost of resins are higher and the like, and there's other commodity costs that are affected.

So, it's meant to cover all of our costs.

Let me look on the backside of this thing, copper at one time was I think about $0.54 a pounds.

If you saw a radical decline in copper, albeit probably with certainly lower economic conditions, what, is there some flow through, some discounting going back in negotiations or bid quotes?

No, when we did our price increases in the past, we chose not to do them as a surcharge, which would then fluctuate with future costs.

We've just done general increases, and we continue to do that.

Obviously if copper would go back to $0.50 a pounds, which would make a very happy person.

But if it ever would go back to $0.50 a pound there would be competitive pricing on pressure.

But it would hold many of that margin.

Yes, Brian, just a further follow up on that, if it's at $0.54 and a customer walks in and says he, I want to place my order for the next two years based on that $0.54 a pound, because we always get asked this, we say fine, give us firm delivery dates so we exactly how to hedge it.

Well, municipalities can't do that.

When people say why, the reason you can't hedge specifically for a customer, is because they can't give us firm deliver dates.

Got you, got you.

On the Cox Instruments.

you guys talked about the high precision measurements on the aviation side.

How much of that end market is commercial, and how much of it is military?

I don't have that in front of me.

I know 60% is aerospace which would include the military, but I don't have the breakdown, I'm sorry.

Okay.

Relative to what we are seeing on border security with Arizona, anything more on Nogales relative to the drug wars.

We've been down there, Rick and I were just down there a couple of weeks ago.

The biggest danger we had is we made the mistake of drinking something we shouldn't have.

Frankly there are major issues over in Juarez, that city is having some big issues.

Nogales seems to be under control.

They increased police and military presence, and things seem to be under control.

We had long conversations with our employees down there.

The employees are still going to their soccer games and basketball games and weddings, and kids are going to school and life in Nogales is moving forward.

There are areas in the city that you don't go into at night, just as there are areas of Detroit and Washington DC you wouldn't go into at night.

But generally, I think things are under control and we feel pretty good about what we are seeing down there.

So Rick won't be packing a shotgun next time he goes down.

No, but he may bring a few bottles of water with him.

Housekeeping, any sense this year, wage and salary pressures on the domestic side in the US?

No.

We are not seeing anything there.

CapEx budget for this year?

We don't disclose the Capex budget but I think we've made the comment that now with our major plant building behind us and the like, Capex, if you look out three to five-year periods, and you look back you'll see Capex should not exceed depreciation and amortization.

One year might be a little bit higher, but the next year will be lower.

Anything on the tax rate, Rick?

Other than what we just commented on.

We are estimating 38.1% for the year right now.

It's our annual estimate.

We will tweak it as we go through the year, and as we get closer, a lot depends on the circumstances, as we get near year-end.

With the Chicago contract using the plastic polymer, have you seen more bid quote activity using, because I think you mentioned kind of an 85% brass bronze versus 15% plastic, are you seeing any more plastic resin in your RFPs?

No, we haven't.

We thought we might with Chicago making that large commitment, but our mix has stayed pretty consistent with 85% plastic, 15% bronze.

Having said that, as cities that have never metered to begin with, that's a very viable for them.

As we have talked in the past, when you replace a plastic meter with a bronze meter, the problem is not with the utility.

Our customers accept the fact that they are almost exactly the same.

The problem is with their customers calling in and saying it doesn't look like that heavy brass meter I had in the past.

If you've never been metered before, putting in the plastic meter is very much of an alternative and it's probably something that cities have never metered, will consider as we move forward.

There was a similar reaction when the country went from metal bumpers on cars to plastic bumpers on cars, that these weren't as good, and it took people awhile.

They just is have to get over that.

On the GALAXY side what is kind of the minimum size relative to the insulate, how small a GALAXY system can you install.

We put in GALAXY systems that are just a few hundred units.

Okay.

For a small city.

It's very economical even at that rate.

On the M&A side, anything, kind of give me a sense as to what dollar wise, you would be willing to digest, relative to maybe a top line sales revenue number?

We've been looking at acquisitions where they would have sales anywhere from $5 million to $50 million, that's kind of our sweet spot.

Obviously, if something large came along, we would have to think about it but we feel that we can absorb acquisitions of that size pretty easily.

Okay.

Okay.

On the Cox instrument side, is there any potential to bundle or package any current product lines that you have with what Cox offers?

Yes, we think there's opportunities to marry up the precision meter with some of our valves, and some of our other products.

And we are going to be looking at that.

It's still a fairly new acquisition, but we are going to be looking at it as we go forward.

All right.

Guys.

Thanks so much.

Thanks, Ryan.

Our next question comes from the line of Scott Graham with Ladenburg Thalmann.

Please proceed.

Good afternoon now here at least in the east, I have a couple of questions about first about SG&A which for me in my model was I guess a little bit higher than what I was expecting.

And then also a question more broadly.

The last couple of quarters SG&A has been coming down on a year-over-year basis.

And this quarter it came down, but I guess when you consider that a portion of SG&A is variable, it seems that the fixed part of SG&A actually went up year-over-year.

And I was wondering why that was, and why SG&A maybe in general was just not a lower number in this quarter.

I think what we've seen is, we've had the are to make some investment in some areas of the Company, planning for the future growth.

In particular, as we move more into networks there's a greater demands in feel support so we've had to make some investments there.

And we also made strategic investments in engineering and market areas where we can get future growth on that.

We plan for the long-term.

We don't try to manage SG&A on a quarterly basis.

We are instead looking at , what do we need to have in place to be growing and successful, over the next three years, five years, that's what really

A more broad question, I think, and maybe two if I may.

I know that you talked a little bit about your AMI product, but a lot of the contracts that we are seeing announced here, US and also in Europe are in fact, AMI.

And I think we all know that AMI in water is nothing like AMI in electricity, not even close on a two-way.

But it does seem to be an increase single important factor here.

And I think it's something that you guys have modeled in your business and in part after.

What's the plan here for you guys talking your AMI efforts, maybe to the next level, because there does seem to be some acceleration in the market for that product.

First off I will say that we are always investing and developing our next version that's Orion for the drive by, and GALAXY for the network.

So we have on our technology road map, new versions of both of those products that will add features as we go forward.

And obviously, I don't want to disclose those features, because competitors are listening.

But we always have those on the road map.

I think you're right as AMI moves forward, utilities are going to be looking for more features, more things they can do for leak detection and things of that sort.

And we are working on all those.

Okay.

Good answer.

And the final question, I know you guys have been really trying to harvest this 12, 13 million structure that are not metered.

Could you talk a little bit about what specifically you are doing to harvest that right now?

Yes, I mean, we are calling on these cities, and very aggressively trying to convince them that metering can address their water problems.

especially the cities that are in drought areas.

There are cities in the central valley of California that don't have meters and ought to.

So we are focusing on those, and calling on them.

I think it's a very compelling argument.

For a lot of them, it's budget concerns, and not wanting to raise the price of water to what it should be to cover that cost, because they are afraid of the impact it might be on the economic development in their area and making them less competitive.

But generally, I think it's just a matter of time before all of those cities have to move to some sort of metering.

Well, California, it's.

California has a law that requires it by 2025.

And so we are seeing more of that.

Would you say that maybe those efforts right now may be blunted a fair amount by the fact, that if these structures are in cities.

Let's say that there's an accumulation of these structures in some cities.

And these cities therefore, since they don't have water metering among some of these larger structures, let's say.

If they didn't necessarily go after any stimulus monies, and then now have to kind of rely on their own internal budgets, does this push that whole objective out or.

No, I don't think the stimulus money was necessarily a driving force for getting cities to meter that hadn't metered.

It would have been nice, but the fact of the matter is I think the stimulus programs came so fast, that for a city to completely put together a plan for (inaudible) their city, in order to go after stimulus money would have been a little bit difficult.

I think it's more the basic drivers of the need to conserve, the lack of water, the fact that we are drawing down all our aquafiers in this country, that's going to drive these cities to have to do something, and metering makes a lot of sense.

Generally, in the United States most large commercial structures, commercial industrial structures are metered.

So even in the cities where they aren't metering residential, they have (inaudible) on the large commercial industrial user.

Okay, so your guys are out there may be trying to convince cities that, hey, water enterprise funds maybe should be directed towards metering some structures that are not structures, so they might have received stimulus, but maybe are just fighting for some of those meters.

Yes.

Our next question comes from Gary Lenoff with Ironworks.

Please proceed

Thanks, three questions, first, Rick, can you tell us what the, what revenues by segment were for water aps and specialty products for Q of last year?

While he digs for that, why don't you ask us your second question?

Can you tell us what revenue growth was year-over-year for each of the three months in the first quarter?

We don't want to get into disclosing individual months, and normally we don't even talk about the individual months, but in this case, historically our, the months within a quarter have been fairly homogenous.

In this quarter, it was so dramatically different, to go from one of our worst months to one of our best months overnight, basically, like it was throwing a switch, that was so significant, we felt we had to bring it up in the conference call but we really don't want to get into disclosing revenue by month.

Rick, do you have those numbers?

The specialty products this year, the water specialties, water application products were $52.9 million, compared to $58.9 million last year.

And specialty products were $8.9 million, compared to $6.4 million.

That's for the first quarter, right?

Correct.

I was asking if you had it for the second quarter of last year.

No, we don't have that here.

It would probably be in the 10-Q or no?

No.

We weren't breaking it up that way.

Because you've redone the segment.

We don't have it.

We will have it in three months.

Last question, you guys have been pretty adamant in saying that economic conditions don't have the impact that a lot folks believe that they might on spending on meters by municipalities, water (inaudible), et cetera, can you may be talk a little bit about Chicago?

We know that the city, the county, the state for that matter, are in pretty dire straits.

And your expectation that the follow on contract might be more seamless than it looks like it's going to be, is that, are you still pretty comfortable that that's not because of the fiscal condition of the city and Cook county.

Well, let's back up.

First off, what we said is that the follow on opportunity, Chicago, is looking less seamless, I thought you said it was looking more seamless.

I meant to say you thought it would be more seamless than it's turned out to be.

Correct.

And I think it is because of the budgetary conditions down in Chicago.

Illinois is one of those states where the water departments of the cities, are simply the department and the city can take the money out of the water department,and use it for other purposes without a lot of difficulty.

You compare that to Wisconsin where the water departments are enterprise funds, and the city cannot just at that are enterprise funds and the city cannot just at that point, the money tap the money without permission from the public service commission at the time state level.

So that's very different.

And therefore in Wisconsin no matter how bad the economic conditions are in the city, the water utility still has access to its own money.

But in Chicago, it's different.

And I think the city issues in Chicago are having an impact, because they don't want to move ahead with the next phase of a major project, given all of the other demands for funds in Chicago.

And with respect to California, it's a combination of both.

It's a combination -- in some states there are independent boards that make the decisions on rates and moving monies.

In some cases, it's the state.

In some cases, it's the county.

It's all over the place.

Chicago sold their parking meters.

Have you ever considering offered to buy their water meters and administering them on their behalf?

That's a joke.

The problem with the water meter is that, first off, a lot of cities, cities have talked about privatizing their water departments and there is usually is a lot community backlash to that.

More and more they are entered into O& M contracts, a company like (inaudible) come and in manage their system.

We are seeing that.

It's being done very successfully in Indianapolis, for example.

Some of them have been not so successful like when Atlanta tried it.

It's not a business we are interested in getting into.

But that is one of the reasons that the possible reason we are seeing a little delay in Chicago is the idea was floated about to sell the Chicago water utility.

And obviously when you get news like that pretty much everybody freezes what they are doing until they figure out what it means to them.

Thanks, guys.

Okay.

I'd now like to turn it over to Rich Meeusen for closing remarks.

I'd like to thank everybody for joining us.

Obviously it was a down quarter, but we were pleased with what our results were, given the situation with the stimulus.

And we are very optimistic with what we are seeing, now that those order are flowing again.

And I look forward to talking to you again next quarter.

Thank you.

Ladies and gentlemen, that will conclude today's presentation.

Thank you so much for your participation.

You may now disconnect.

Have a wonderful day.