Badger Meter Inc (BMI) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 Badger Meter Earnings Conference Call.

(Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to turn the call over to Mr. Rich Meeusen, Chairman and Chief Executive Officer.

Sir, you may begin.

Thank you, Chelsea, and I'd like to welcome everybody to our second quarter earnings call today.

We are very pleased with the results for the quarter both on the top line and the bottom line.

Rick Johnson, our CFO, will be going to the details on those results as well as addressing the noncash financial impact of our pension plan termination.

After Rick is finished, our President, Ken Bockhorst, will talk about our key strategic initiatives and our outlook for the future.

So now let me turn this over to Rick, and we can get started.

Thanks, Rich.

I also 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, brass.

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

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

Now on to the results.

After the market closed yesterday, we released our second quarter and year-to-date 2018 results.

We are pleased that our net sales and adjusted net earnings are records for any quarter.

While we normally do not use adjusted results, the only adjustment we made for -- was for a charge surrounding the termination of our pension plan, which I will comment on in a minute.

Let's look at some of the details.

Sales for the second quarter of 2018 increased $9.4 million or 9% to $113.6 million compared to $104.2 million in the same period last year.

This overall increase was due to higher sales in both municipal water and flow instrumentation markets.

Municipal water sales represented 77.5% of sales in the second quarter compared to 76.8% in the second quarter last year.

These sales increased $7.9 million or 9.9%, to $88 million from $80.1 million last year.

The increase was due to higher domestic volumes of newer technology meters and related radios as well as increased service revenue.

Higher international sales also contributed to the increase, particularly in the Middle East.

Incremental sales from Carolina Meter & Supply, which we acquired at the end of last year, as well as from IMS, which we acquired in the second quarter, were included in these results.

Flow instrumentation products represented 22.5% of sales for the second quarter as compared to 23.2% during the same period in 2017.

These sales increased $1.5 million or 6.2% to $25.6 million from $24 million in the same period last year.

The increase was due to the continued rebound in the oil and gas market and other target markets that we serve.

While the gross margin increased in terms of pure dollars, the gross margin as a percent of sales was 36.5% in the second quarter of 2018 compared to 39.4% in the second quarter of 2017.

The decline in the percentage was due to higher material costs, particularly higher brass expenses, and higher health care costs.

In addition, sales included a greater mix of lower-margin water meter sales into international markets.

Selling, engineering and administration expenses for the second quarter were $1 million or 4.1% higher to $25.2 million from $24.2 million in the second quarter last year.

Higher health care and sales commission costs as well as higher research and development expenses contributed to the increase, which also included staffing from the recent acquisitions.

Offsetting this somewhat were lower overall employee incentives.

Other pension and postretirement costs included the initial impacts of our pension termination.

As we announced last year, we made the decision to terminate the company's pension plan.

The initial phase of this termination occurred in the second quarter, resulting in an $8.2 million pretax noncash charge.

On an after-tax basis, this equated to $6.1 million or approximately $0.21 per share.

The termination is expected to be completed in the third quarter of this year, at which time we anticipate taking another $10.5 million noncash pretax charge, which will then put the pension plan accounting behind us.

Again, remember, the noncash charges were already included as part of equity and are simply coming out of equity being run through the income statement and put back into the equity component of the balance sheet as required by Generally Accepted Accounting Principles.

And now let me just go off script for a minute and also mention that when you look at our cash flow for the year-to-date results, you will see a $1.6 million cash payment into the pension plan.

I just want to clarify, at one time, we estimated that the cash payment could be as high as $5 million.

Most of the $1.6 million was expensed in prior years and was simply a balance sheet transaction.

So as it turned out, the cash impact was fairly minimal.

The provision for income taxes as a percentage of earnings before income taxes for the second quarter was 22.2% compared to 35.5% last year.

The decrease between years was due primarily to the lower federal tax rate, which declined from 35% last year to 21% this year.

The tax rates for both the quarter and year-to-date were lower than the anticipated 25% tax rates due to the application of a number of discrete credits, in particular, one related to the pension payment that I just mentioned.

Our best estimate of the incremental tax rate for the balance of 2018 is 25%.

As a result of all this, actual earnings were nearly $6.2 million or $0.21 per diluted share.

Net earnings on an adjusted basis, which excludes the impact of the $8.2 million pension termination charge, were $12.3 million or $0.42 per diluted share compared to $10.6 million or $0.36 per diluted share in the second quarter of 2017.

Our balance sheet remains solid.

Cash provided by operations for the first 6 months of 2018 was $25.2 million compared to $37.3 million for the first 6 months of last year.

Last year's amounts was favorably impacted by a decrease in inventory balances that did not recur this year.

With that bit of background, I will now turn the call over to Ken Bockhorst.

Yes, thanks, Rick.

I'll start by talking through the growth components of the quarter.

In our Q1 call, I talked about the timing of the incoming orders and the buildup of backlog that occurred.

In Q2, I'm pleased by the fact that we were able to achieve record shipments, following incoming orders remained strong, and we were able to maintain a healthy backlog heading into Q3.

High single-digit growth in the quarter was achieved in our municipal water business, with growth in both domestic and international markets through our E-Series, ORION Cellular and BEACON lines, where we continued to invest in new technologies.

We also realized mid-single-digit year-over-year growth in our flow instrumentation business where we are benefiting from improvement in our sales channels and the higher growth markets that we serve.

Overall, our markets are improving, and we are seeing the benefits from our investments in technology and improved channels to market.

Looking at new product development.

We continue to progress as expected.

And as I communicated on the call last quarter, we launched our larger-sized E-Series commercial meters, with D-Flow Technology in June and expect increased revenue in the back half of the year as we are no longer excluded from bids for large Ultrasonic meters.

We also remain on track to complete the integration of the D-Flow Technology into our residential meters by year-end, thereby reducing our costs in 2019.

In short, we will be fully realizing the benefits of last year's D-Flow acquisition as we increase our product offering while reducing our costs.

We also remain on track to incorporate the Cat-M chips into our ORION Cellular offering in Q1 2019.

Integration of these chips will improve the battery life, extend the range and increase the number of daily on-demand reach for utilities.

We're very excited about this development as we continue to build our smart water metering offering for our customers.

I also would like to point out that on June 12, we joined the AT&T Smart City Alliance, which further solidifies our leadership position in providing smart water solutions for any utility, large or small.

We're excited to be part of this exclusive group.

Our Scottsdale move costs are now behind us.

That, combined with our product development and cost reduction projects and the recent moderating of copper prices, gives us confidence that our margin profiles should be getting back to the levels that we expect to achieve.

Overall, we had a very solid quarter, and we remain optimistic for the second half of 2018 and into 2019.

With that, Rick, Rich and I will be happy to take your questions.

(Operator Instructions) And our first question will come from Richard Eastman with Baird.

Rick, could you kind of just provide the revenue contribution from both Carolina and IMS in the quarter?

It really wasn't that significant because for the most part, it's the incremental revenue over and above what we already sold to them, and probably 80% of what their sales were, were us.

So I mean, it's less than $1 million.

Combined?

Less than $1 million contribution?

Yes.

For the quarter.

Okay, okay.

Rick, could you...

But you also...

Rick, can you stop for a second.

Again, just to remind people, when we buy our own distributor, okay, we were previously selling to that distributor, then the distributor was marking up and selling to the customer.

So what you're talking about, when we buy it, the only incremental impact is their markup.

That's why it may seem small to you.

Okay...

I understand that.

Yes, but they also -- and they had no third-party sales?

No.

They were essentially 100% Badger Meter sales.

Okay.

All right.

And then, could you sprinkle some color on 2 things?

One is the health care costs that you flagged in both COGS as well as SMEGA, could you make the split and give the total number of dollars?

No.

But I'll give you some additional color.

I mean, within cost of goods sold, it could be 25 to 50 basis points impact.

And it's probably one of the biggest drivers in SMEGA in terms of -- it's just one of those things, Rick, we've been having lower health care costs for a couple years now, in part due to some of our wellness programs and the like.

But we are self-insured, and it's just we have an aging workforce, including one who's speaking now, okay?

And it just so happens that at certain quarters, we just get unusual charges.

Do we say -- think it's a trend?

Not necessarily.

It's just one of those things we've been going down for a while, and now we got hit with higher cost.

Is that a year-to-date true-up?

Or is that strictly in the quarter?

That's strictly in the quarter.

Okay, okay.

Rick, it could just be timing of when people have stuff done, too.

So I mean, again, I'm not reading anything into it.

Okay, okay.

And then also, just from a COGS standpoint, maybe we can just talk a minute or 2 about just the influence from some of these issues.

I mean, one is, apparently, we didn't get as much price, or the price wasn't as sticky as we thought from the beginning of the year.

So I'm reading that into it.

We know brass costs were up.

Again, there's a health care issue there.

And then I found it curious that the mix popped in there that international meters actually hurt your gross margin.

And I would have -- I was under the assumption that most of the meters that go to the Middle East are actually more profitable.

So maybe you could just kind of sift through this a little bit, and if you could put any kind of basis points degradation on those issues.

Because we had -- again, we had a first quarter gross margin here that was impacted 100 basis points by closure costs alone, which to me, exclusive of that, would have put us at 36%.

I'm just surprised that we didn't see more of a step-up in the gross margin for those issues, sorry.

Okay, Rick, so let me take a couple of the 7 or 8 things you rolled into that comment or question.

No, [a short] question.

Yes, yes.

So let's start with price.

So in Q1, we had told you that we thought we had achieved about 100 basis points.

And as we rolled into Q2, we probably thought that we'd get up to about 200.

But if you remember, we had a lot of project delays in Q1, and we're very pleased that they did come through in Q2.

But they didn't show up on April 1, right?

So a lot of those came in May, June, and those are going to be projects we're going to continue to ship throughout this year and maybe even into next year.

So we still feel pretty good about getting up to that 200-or-so basis points that we told you we would get.

As we look at our backlog in the second half of the year compared to what it was in the first half, I'm very pleased that heading into Q3, our backlog is the same size as it was heading into Q2, which was healthy.

But also, if we look at the margins in there, the margin profile is better.

So I definitely feel comfortable that we're going to start to see the price more in Q3 and 4. It just didn't happen as early, perhaps, as we thought it might.

Okay, okay.

Okay.

And then on the international side.

So this order is really a significant opportunity for us, that's part of a 3-year program, right?

So we took the first year as a strategic inroad to winning in the market.

They like our product, they like our offering in general.

But this will become more profitable for us in years 2 and 3 as we continue our D-Flow Technology integration.

So we're going to be able to bring some of the savings to bear in years 2 and 3 that we really couldn't get done in time for this year.

So your comment is correct in general for international, but just not this particular order.

Okay, okay.

And I don't remember the other 6 points.

Well, I mean, and Rick, we're just -- we're not quantifying it.

But, Rick, there's things in there like, there is some foreign exchange in there that's negative.

There are things like mix between certain product lines.

There's the impact on plant utilization of selling maybe more brass and plant -- all of those things, but we're trying to call out the ones that we believe are significant.

Yes.

And as far as copper goes, that was another one you brought up, so I'll jump in there.

So last year in the quarter, copper was, I don't know, around $2.55, $2.60.

This quarter, it was around $3.10.

So -- and now it's dropped back to $2.70, so it's kind of whipsawing all over the place.

It takes a little bit of a lag time to come through, so we'll still see some of that higher copper costs into Q3.

But then it'll get better toward the end of Q3 and into Q4 as long as copper...

Yes, as long as copper stays down.

Stays moderated.

So yes, so it's certainly positive for us in the short term, yes.

How did just the mechanical meters, the brass meters, how did they perform in the quarter?

Were they up or down?

They were up.

Okay, okay.

So all right.

Rick, they were probably up about low-single digits, but they were up.

Our next question comes from Brian Rafn with Morgan Dempsey Capital.

Was there any pent-up demand or backlog catch-up that flow through from the first quarter to the second quarter?

Yes.

Yes.

So in the first quarter, if you'll recall, we talked about, we had some timing with the orders where we had a pretty good order rate coming out of the month of March, which built backlog coming into April.

So we did ship a large portion of that.

At the same time, though, like I was saying, what I feel really optimistic about going forward is that we had that backlog buildup at the end of Q1, but while we aid into and shipped a lot of that in Q2, we haven't depleted our backlog.

It's still just as healthy going into Q3 as it was Q2.

Okay.

And then you talked a little bit about the AT&T, the Smart City Alliance, how that helps you kind of leverage business, bidding, service, can you give me a sense of what that means to you guys?

Yes.

So that is something that I'm really excited about.

And what it does for us is, one, it gives us -- everybody talks about smart cities and how they're going to participate in smart cities.

And being involved in this AT&T Alliance really gives us instant credibility and the fact that we have a product offering and a service that people want.

So to give you a flavor of who's in this alliance, it's us and 10 other companies.

I'll just name a couple of them.

It's Cisco, GE, Hitachi, IBM.

So it's Badger Meter and a list of basically 10 Fortune 50 companies that we've entered into this alliance with.

So it gives us a tremendous amount of credibility.

Two, it gives us an ability to do some joint marketing with AT&T.

So obviously, they have a very large marketing arm and can really help get our name out there.

And the third thing that's really important for us is it gives us access to the mayor's office, and it gives us the ability to get in and have higher-level conversations with cities, even before they're thinking about going out to bid, right?

So it's really, I think, a big deal for us and something that is really going to help us keep our leadership position in smart water metering.

Got you.

You guys also talked a little bit about, I think, the launch of E-Series in the commercial-sized meters, how important is that?

Well, it's extremely important because on the commercial side, we're seeing people start to transition to Ultrasonic.

And anything that included the bid of 3-inch and 4-inch, we couldn't participate in.

So we were actually starting to get locked out of some of the larger bids.

We -- now that we've launched the 3- and 4-inch, we are able to participate, and we do expect that to be really important for us.

And then, Ken, just to follow on to that, how, say, going into 2018, how would you distinguish the commercial-sized market versus of the residential?

I mean, how viable has it been, how -- what's been kind of the tone of business?

So the tone of business is relatively the same.

I mean, it's -- we're feeling generally upbeat right now about our markets, and commercial is one that we feel is going to be relatively healthy.

Yes, I mean, they don't -- and this is Rick.

Residential and commercial don't always track with each other.

But more often, it's simply a matter of timing of orders than anything else because when a city is replacing its meters, they're replacing both the residential and the commercial ones, generally.

Our next question comes from Nathan Jones with Stifel.

You guys have, over the last 2 or 3 quarters, commented on relatively lackluster domestic municipal markets.

Certainly, the tone in the press release changed pretty significantly this quarter.

Can you talk about any color you can give us on what's driving that inflection?

Is it related to a few specific projects?

Are you seeing just a more positive overall market, or anything you can give us there?

Yes, Nathan, so we're just starting to see a general more positive overall market.

So I was talking with our sales leader and the regional leaders, and they're just talking about the general bid market is strong, so it isn't just large bids.

And there is a relatively large number of large bids that are going through as well.

So it isn't being driven by us, say, just winning a few outlier bids or doing outlier ones.

It's feeling pretty strong all the way across.

So I mean, that implies that this is -- you think this is a more sustainable inflection up rather than just a blip or something like that?

Yes.

I do feel like, compared to where we were 2 and 3 quarters ago, that the general activity is up, and it certainly feels more sustainable.

Okay.

I'm going to ask the gross margin question in a little -- with a little blunter instrument.

You had about 300 basis points down year-over-year on the gross margin line.

Is it possible for you to just parse out what the buckets for that are in terms of inflation, offset by price, offset by productivity, offset by mix, et cetera?

Well, I think we've given as much color as we can give.

But I will point out that last year, it was probably a little higher than anticipated.

So I mean, part of it is we always revert back to that 37%, 38% gross margin.

Can we take that higher over time as mix continues to change with more and more electronics?

Possibly.

But there's always the competitive pressures that tamp it down.

Every time we've gotten to 40%, it's been tamped back down.

So given the fact that -- I think we've talked about the big ones, I mean, there was copper, there was health care, there was some FX and they're going against it, we did get some pricing coming back.

We've got the mix issue.

Beyond that, we don't give specific color by numbers.

Okay, fair enough.

One on SG&A, your SG&A as a percentage of sales was the lowest it's been in several years.

So clearly, taking some actions there.

Are there opportunities for you to drive the absolute dollars lower?

Is there opportunity for you to gain some leverage on the SG&A line?

Are you maybe approaching levels where you need to reinvest in sales or G&A or something like that?

How do you think about that going forward.

Well, this is Rick.

I'll take a stab, and then I'll give it to Ken or Rich, okay?

But the reality, when you grow the top line 5%, we're not going to grow the SMEGA by corresponding amounts.

Long term, we intend to grow sales at a higher percentage than the SG&A will grow.

In part because some of that SG&A is fixed, you will have some variability as you go forward, okay?

If we get a particular quarter where sales go down, you might see that percentage come up because for the most part, we're locked in.

Having said that, we're always looking at controlling costs.

And then somebody just wrote, don't forget we have succession costs that will increase over the short term, but that's a different story.

But it is true.

So I mean, you say you would think, over time, you should leverage SG&A to a lower percentage of sales (inaudible) assuming sales are up?

Well, I think that...

Yes, this is Rich.

We have spoken for years about our overall model being to shoot for high single-digit top line growth, which we think we can achieve in our industry when you look at the long term, and that we can hold SG&A to below a 5% level, and this time, it was 3.9%, okay?

If we're going hold it to below 5%, we can leverage at 5% growth, we can leverage the SG&A and get continually lower levels.

So it went up 3.9%.

What was in there?

Well, there was some inflation in there, there were some health care in there.

Yes.

And in fact, last year, there was probably $0.5 million credit for something to do with one of our acquisitions.

So I mean, when we look -- again, rings of details, we pick the high ones to talk about.

But for the most part, it's health care and then some of the staffing.

So I don't see a 3.9% growth in SG&A as being out of line.

And when you grow the top line 9%, SG&A grows 3.9%, yes, it's going to drop as a percent of sales.

Our next question comes from Richard Verdi with Atwater Thornton.

I just wanted to follow up on my question from last quarter, pertaining to Corix, to learn what kind of Canadian penetration Badger saw this quarter as a result of that agreement.

Yes.

So in general in Canada, we are doing very well on a year-over-year basis, keep in mind that starting from a lower market share or a lower point than the U.S. But this year, on a year-over-year basis, we are very happy.

We're more than double-digit growing in Canada, so we're pleased with our growth year-over-year.

Okay.

Super.

And then can you just give us an updated sense on what you think that market opportunity is there in Canada for Badger, broad level?

And would that take a couple of decades to reach, or what do you think?

Well, so let me take that a little differently.

So as I'm thinking about, I've been here now about 8 months, I'm thinking about the world and our opportunities, whether they be Middle East, China, India, Western Europe, Canada, Latin America, we're putting that all together and really thinking about where we're headed.

And Canada is an important market to us, and it's one that we'll continue to grow.

But putting a number on it, I can't.

I don't know.

I understand, I understand.

Fair enough.

And then just 2 more quick questions.

Can you give us a sense of what replacement cycle sales versus new home sales look like and where do see that trending over the next couple of years?

Generally, what happens in the -- this is Rich, but generally, what happens in the United States, at least, is that we are selling about 80% of the meter volume, the units are going out as just replacement cycle.

At least.

Yes, at least.

Sometimes, it's even more.

Sometimes it get up to 90%.

And then the other 20% is either metering cities that aren't metered, and there aren't a lot of those, but there are some, or more commonly, where the cities are seeing new houses going up and they're adding those.

So if we're adding right now at about 1.2 million houses a year in the United States and about 75% of them are metered versus having wells, you're talking about 800,000 meters that are going out in a market that is maybe 6 million meters.

So that's kind of how you can look at it.

Okay.

Okay, perfect.

And then just the last question would you say, for the Mid-Atlantic region, would you say that the most fertile landscape for Badger right now?

Or is that somewhat equal to the rest of U.S.?

No.

I wouldn't say it's more fertile or less fertile than any other region of the United States.

Where we are seeing some -- over the last 10 years, we saw a lot of Western cities doing major meter conversions through automation.

Now we're starting to see more of the cities, east of the Mississippi.

That's probably the only trend I can say we've seen, is that there are a lot of cities east of the Mississippi that are now starting to look at going to some sort of automation that haven't done it before.

(Operator Instructions) And our next question comes from Richard Eastman with Baird.

I told you I'll be back.

Ken, could I just get my arms around your commentary a little bit about second quarter orders, kind of refill the backlog here as we had a good second quarter revenue as well.

But I -- in some respects, one would expect that seasonally.

In other words, your Q3 revenue was kind of flattish with Q2.

Sometimes, it's down a little bit.

But my thought is, is there a message in there or any read-through that suggests the business is stronger than it normally would be seasonally, and that's the indicator with orders?

Or are you just kind of comfortable?

Yes.

So the thing that I'm excited about, more so than just the size of the backlog is, a, that it did maintain at a healthy point, but that it's -- that we can see an increased margin in the future compared to the past.

Yes.

So the margin is healthier and the backlog that's there.

But there's not really above seasonal type of read-through in your comment.

No, no.

That's fair.

Yes, that's fair.

Yes.

Okay, okay.

And then also, again, just to dig into the utility and muni business a little bit.

Again, at face value, revenue growth was, call it, 10%, 9.9%.

Acquisitions added a point, so maybe we're at 8.9% growth.

I assume currency wouldn't have mattered much here.

So can I just ask against, let's call it, a 9% growth rate in muni utility without the acquisition contribution.

Was that -- how did domestic line up against the 9% versus international?

In other words, did domestic business grow 6%, international, 12%?

Or I'm just curious how big an impact the international had in this order-hood.

Yes, so 2/3 of the growth as domestic, all right?

So around 7-ish percent, 6.7%.

And then -- yes.

So it wasn't driven -- if your question is, was it driven by a one-time large Middle East order, that's not the case.

Yes.

No, I understand.

But international kind of did bounce back as we had expected it to.

That's correct, yes.

And then just -- and maybe this one -- maybe this is for Rich.

But one thing that's somewhat noticeable is that from a competitive standpoint, everybody's kind of been raising some sort of solid-state or e-meter to market.

And I think Itron was probably the latest here.

I don't think there are meters actually available until late this year.

But now you can -- Itron is there, Neptune is there, Sensus is there.

I know they had different technology.

Mueller is there.

I'm just curious, that has been your bestselling meter product, and I'm kind of -- just maybe asking the question, a, how does the playing field look at this point with the competitive product?

And then, b, you do have a kind of a reseller agreement on the brass meter side with Itron?

And is this -- their introduction of an e-meter, is that going to impact that number materially going forward?

It's a good question, but we've got to consider a few things here.

So we introduced the E-Series meter and I'm looking around here for how long ago.

8 or 9 years ago.

8 or 9 years ago, okay?

And the E-Series meter this quarter is 30% of our meter sales, okay?

So when you consider that, that it took us 8 or 9 years to get that up to 30%, competitors that are just coming out with a solid-state now, I don't think is going to take the meters 9 years to get up to 1/3 of their sales but -- because we've already paved the way for them, we've done the missionary work.

But it's going to take them a while.

Those meters, it's a very different meter than what the customers have expected.

And water meter managers tend to be very conservative.

If they've been buying a mechanical meter for a long time from one of our competitors, it's going to take a little bit to convince them that they should try a new meter that is not out in the field, that no major city has adopted and they've got to win them over.

And as you saw when we introduced these products, a lot of customers said give us 10, we'll try them for a while, and talk to us in a couple of years.

And that's what happens.

So our first to market is a huge advantage here on the solid-state, and it has been, and I think it's going to continue to be a huge advantage.

So that's a very significant thing.

On the side with Itron, yes, Itron is now introducing their own solid-state meter.

We have, every year, sold less and less meters through Itron.

Our Itron sales are down to a very small amount now.

We are primarily ORION, which is our own product.

So I don't see that having a big impact on us as far as our resale through Itron.

Now, obviously, it's another competitor in the market.

Itron has never had a meter.

They are here now.

They're going to try and sell meters, and we'll see how they do.

I think one additional point is as everybody introduces their versions of electronic meters, for the most part, they've all been Ultrasonic.

And if you go back to several years ago, it was Sensus selling electromagnetic and us selling Ultrasonic.

Everybody wondered which is the better technology.

They're both very good technologies, but in terms of where we're going to have the cost savings, we think we'll get it on Ultrasonic versus electromagnetic.

So I think the fact that all these competitors are coming in with Ultrasonic validates that it's kind of de facto the standard now going forward also.

Yes.

And it doesn't seem, just kind of looking at these different websites, it doesn't seem that the majority of the other participants in E-Series have a 3- or 4-inch commercial E-Series meter.

I think you're right.

Generally, when you develop a new meter, okay, you go for the high volume.

And the high volume is a residential.

So you start there.

And then you work your way up to larger sizes.

I think they will have them.

They'll eventually develop them.

But we all know meter development is, you don't just level all the dimensions and say, I've now gone from a 1-inch to a 2-inch meter.

It takes a lot more than that, and it takes time.

And so it's going to take them time to catch up and have a full range like we have.

Thank you.

And I'm showing no further questions at this time.

I would now like to turn the call back to Mr. Rich Meeusen for closing remarks.

Yes, I want to thank everybody for joining us today.

Again, we were pleased with the quarter.

We felt it was a good solid quarter.

And given a lot of the projects and things we've got going forward, we're pretty optimistic about what's going to happen in the future.

We will look to talking to you again in the future.

Thank you.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program.

You may all disconnect.

Everyone, have a great day.