Badger Meter Inc (BMI) 2019 Q2 法說會逐字稿

Ladies and gentlemen, welcome to the Second Quarter 2019 Badger Meter Earnings Conference Call.

(Operator Instructions)

As a reminder, today's conference is being recorded July 18, 2019, at 11 a.m.

Eastern time.

It is now my pleasure to turn the conference over to Karen Bauer, Director of Investor Relations and Corporate Strategy.

Please go ahead, Ms. Bauer.

Good morning, and welcome to the Badger Meter second quarter 2019 earnings call.

On the call with me today are Ken Bockhorst, President and Chief Executive Officer; and Bob Wrocklage, Chief Financial Officer.

The earnings release and related slide presentation are available on our website.

Quickly, I will cover the safe harbor, reminding you that any forward-looking statements made during this call are subject to various risks and uncertainties, the most important of which are outlined in our press release and SEC filings.

Finally, please note that on today's call, we'll refer to certain non-GAAP financial metrics.

Our slides provide a reconciliation of the non-GAAP to GAAP financial metrics used.

With that, I'll turn the call over to Ken.

Thanks, Karen, and thanks for joining our second quarter earnings call today.

So while our sales performance this quarter reflected the impact of innovation delays, similar to what we've encountered historically, I am pleased with our results on a number of fronts and remain encouraged by the funnel of opportunities as we look forward.

For example, we generated solid gross profit margin improvement again this quarter, the fourth consecutive quarter with year-over-year gains.

Our SEA spend was well managed, and we were able to reduce overall working capital and generate strong free cash flow in the quarter.

Bob will walk you through the details of the quarter, and after that, I'll come back and talk about a few key strategic initiatives and our outlook.

Thanks, Ken, and good morning, everyone.

As you can see on Slide 4, our overall financial results were mixed with lower sales, but modestly improved operating margins and robust cash flow.

Sales for the second quarter were $103.5 million compared to $113.6 million in the same period last year.

The municipal water sales declined 9.6%.

Excluding the large Middle East order in the prior year, sales were down approximately 7%.

The lower volumes are reflective of deferred orders for newer technology products, including the ORION LTE-M radio endpoints.

In addition, our large diameter, 3- and 4-inch E-Series commercial meters, which we originally expected to be shippable early this year, continued advanced testing and will not be available until later in the year.

Sales mix remained positive with increased sales of ultrasonic meters and meters with radios as well as increased BEACON service revenue year-over-year.

Flow instrumentation sales were down 6.6% year-over-year, with lower volumes experienced across an array of industrial end markets.

Operating profit as a percent of sales was 14.5%, a 10 basis point improvement over the prior year results despite the lower volumes.

Gross margin for the quarter was 38.9%, again, in the upper half of, what we would call, our historic normalized range of 36% to 40% and 240 basis points above the prior year.

In order of magnitude, favorable product mix was the primary driver with a higher proportion of ultrasonic meters, meters with radios and BEACON service revenue as well as favorable regional mix.

In addition, we experienced favorable net pricing as brass input cost remained lower year-over-year.

The first half copper benefit is anticipated to level out as we get to the back half of the year as current copper pricing is at parity with second half 2018 input costs.

SEA expenses in the second quarter were $25.2 million, consistent with the comparable period last year as higher internal growth investments, incentive compensation and inflation were offset by effective cost control measures.

As you may recall, during the prior year second quarter, we recorded an $8.2 million pretax or $0.21 per share after-tax pension settlement charge.

The income tax provision in the second quarter of 2019 was 23.8%, essentially in line with the prior year's 23.6% adjusted tax rate after exclusion of the pension settlement charge.

In summary, the lower sales and modest improvement in operating margins generated EPS of $0.39 in the second quarter of 2019, a decline of 7% from the prior year's adjusted EPS of $0.42, excluding the pension settlement charge.

I was particularly pleased this quarter with the progress of our primary working capital management, which equated to 26.9% of trailing 12-month sales at quarter end, down from 29.6% in the same period last year and 28.3% at the end of the first quarter.

This was a meaningful contributor to the strong free cash flow for the quarter of $20.8 million, an increase of 28% over the prior year.

We built additional net cash on the balance sheet, which coupled with our net leverage comfort zone of 2x at the midpoint, provides us with significant liquidity to fund our dividend program as well as organic and acquisition growth.

With that, I'll turn the call back over to Ken.

Yes.

Thanks, Bob.

I want to spend just a few minutes on the innovation pause.

This is something that we've encountered before to varying degrees.

For example, back in the second quarter of 2017, we were nearing launch of the LTE cellular radio, which was an advancement from the 3G radio that preceded it.

Customers treated the upgrade like you potentially would when you need a new cellphone.

You likely wouldn't have bought a new iPhone last summer knowing that the iPhoneXS will be out in the fall.

And that contemplates, say, a 2- or 3-year investment cycle versus the 15 to 20 years that our utility customers are contemplating.

To further the example, moving from 3G to LTE was meaningful, but the move today from LTE to LTE-M is much more significant.

The added features and benefits from utilizing the low-power wide-area network are understood and valued by our customers, so the incentive to wait while also pilot testing the solution prior to a broader system-wide deployment is greater.

Turning to our commercial meters.

While I'm disappointed in the delay of the 3- and 4-inch E-Series meters with D-Flow Technology, we are being prudent and advancing the testing and launch process meticulously.

Qualities are hallmark of our products and solutions, and it's not a coincidence that it comes before delivery in the SQDC, or safety, quality, delivery and cost metrics that we manage by.

Looking ahead, the meaningful wins we announced earlier this year, which were slated to begin shipping in spring and summer, are now expected to begin toward the end of the third and into the fourth quarters.

As we remind investors, contract wins do not necessarily determine order rates and shipment timing and our customer-centric mindset puts their requirements as top priority.

These examples reinforce why Badger Meter remains long-term focused and does not attempt to provide quarterly guidance.

Finally, turning to Slide 6. As we move into the back half of the year, we remain encouraged by the quote activity, opportunity funnel and backlog to support our growth plans.

In addition, I remained positive on municipal spending trends and our competitive share and positioning.

Q3 will again have a Middle East difficult comparison and the innovation pause will be more of a dial than an on-off switch.

Execution on our strategic initiatives continues.

We've made several organizational structure changes in functional areas to better leverage resources and best practices across regions and product lines.

We are revamping our product development phase gate and project management process.

We're deploying working capital management actions that increase turns while also improve our environmental footprint, and we continue to garner ideas for in dialogue with potential acquisition candidates.

In closing, I want to thank our employees across the globe for their customer-focused efforts and commitment.

With that, operator, please open the line for questions.

(Operator Instructions) Your first question comes from the line of Chip Moore with Canaccord Genuity.

Maybe you can expand on your -- can you hear me all right?

Yes.

Yes.

We got you.

Great.

Great.

So maybe you can expand on your comment on the innovation pause being more of a dial than an on-off switch.

If we take into account the E-Series delays in addition to the pause we're seeing on LTE-M, how best we can think about that at least in the back half of the year on year-over-year comps?

Yes.

So Chip, in the back half of the year, we do expect to return back to growth mode.

But what I don't want to do is imply that it's a stacking, right, where what moved out of Q1, Q2 is just going to naturally land on top of Q3 or Q4.

So we're very confident, we have specific targets of customers that are piloting these that we're very confident they are going to move forward with.

I just would caution you that it's not a stack borrowing Q3 and Q4.

Understood.

That makes sense, Ken.

And we didn't talk a lot on the industrial side, but you called out some weakness there that was sort of broad-based, we can expand on whether you're deemphasizing some markets or things have worsened a little bit like we've seen sort of in the broader macro and your outlook on the industrial side?

Yes.

So on the industrial side, there is a little bit of the law of small numbers, right?

So remember, that's a relatively small part of our business, so it's easy to have those numbers move one way or another pretty quickly.

That's also part of our business that has more of our international exposure.

So just in general, we're seeing a little bit more noise market-wise there.

But I still feel confident about our ability to work our channel and still feel relatively good about our prospects there going forward, even with some of the global noise.

But to your point on end markets, Chip, yes, we clearly continue to execute the strategy of focusing on the 4 key verticals that we've talked about.

And that remains the focus.

Got it.

And maybe one last one from me.

International, I guess, particularly, Middle East, you still have some tough comps.

But how do you think about the multiyear potential there and the traction in those type of markets?

Yes.

So we feel good about the long-term Middle East opportunities.

So we never expected that it would just be a continual same year quarter-over-quarter growth.

They're going through a 3- to 5-year deployment in the GCC smart meters.

So we had a good win last year, that was primarily second quarter, third quarter.

We're still optimistic about the future, but I can't, say, predict when that next order comes.

And I guess perhaps just to quantify that I think on the last call and consistent with what we experienced in the quarter, the hurdle rate or the amount to overcome for the second quarter was just north of $2 million.

And for the third quarter, looking forward, that hurdle is roughly $3 million.

Your next question comes from the line of Ryan Connors with Boenning and Scattergood.

So yes, I want to focus a little more on the cost side.

I wonder if you can give us a little more granularity around the margin drivers in the quarter, very strong gross margin performance, especially in light of the softer top line.

So maybe Bob, if you can just give us more of the puts and takes about that as it relates to raw materials and mix and sort of what the relative importance was there.

Yes.

So again, we try not to and have not historically commented on individual components, but I'll try to give you color to sort of frame out the magnitude.

So primary, again, of the drivers, the largest driver in the quarter of the 240 basis point expansion in gross margin is mix.

And so the -- I would break that into really 2 elements: the first is product mix.

So where we -- while we were down overall, where we did see growth was in higher-margin profile products like ultrasonic meters, meters with radios and then certainly, BEACON software-as-a-service.

So those tend to be above line average, so you see some margin accretion from that.

The second piece of mix is really regional mix.

So while we had to overcome a tough comp with $2 million of Middle East sales a year ago, as everyone knows, those were below line average sales.

And so that didn't recur.

So that's kind of the mix story.

Within the cost bucket or price cost bucket, certainly, we've got an element of our business albeit small that is linked to list pricing.

On the water utility side, about 25% of our business is through external distribution, which has a closer tie to list pricing.

And again, we've done a price increase on January 1 in that line of business.

And then on the flow instrumentation side, we've done a price increase in October of last year.

So you see small amounts of price that's naturally coming through as a result of those.

But really it's on -- at the cost side, not necessarily the price equation but the price side copper, PAM.

Again, if you just look at copper as a proxy for our input kind of in the $2.80 range now versus a year ago, being $3.10, $3.15, so that's the cost on it.

But the other important piece is, while we did see order deferrals related to the launch of LTE-M, we did launched the LTE-M.

And so that radio, as we've talked about historically, has a lower cost position.

And so while the volume is -- wasn't as high as we would have liked, we did reap a cost benefit from that improved cost position.

So when you add all those together, that's really what's driving kind of the different components of our gross margin improvement year-over-year.

That's great detail.

Very helpful there.

My other side, just as you go down the income statement, the SG&A line as well, very strong cost control basically flat year-over-year, it seems.

So is that just a function of the lower sales and the selling aspect of SG&A?

Or -- and then hence, we would expect that to flex back up as we get a sequential improvement in the top line?

Or is some of that savings on SG&A going to be -- we're going to keep some of that?

Yes.

So again, I think the phenomenon you're seeing there, I would say there's nothing that's a real outlier, per say, in terms of being extremely variable or tied to cost reduction other than the things you'd naturally expect.

The piece that's influencing that is, again, the executive and overlap cost.

If you recall, we've talked about in the past having multiple executives in positions a year ago and then that going away in this year.

And so that piece will certainly continue.

But yes, very pleased with the cost management exercises and the cost management initiatives in the quarter, and we would expect that to continue in the second half.

Okay.

And then one last one for me.

Just on this issue of technology and the rollouts and the pilots, I mean, obviously, the pilot projects moving ahead successfully is a great sign.

Can you just educate us a little bit on that decision process by the customer, when and how those turn into full-blown rollouts?

And how we know about that to gauge it?

And I mean will you be putting out -- announcing wins of a certain size?

How can we kind of just gauge that intra-quarter, that progress from pilot into hopefully full-blown rollouts in some of those cases?

Sure, yes.

Yes, let me give it a shot.

It's pretty difficult, Ryan, as you can imagine.

So as you saw earlier in the year, we did announce a couple of larger city wins and we'll continue to do that, but I wouldn't call that a habit.

It's significant one-off type decisions and whether or not we announce it.

But we have pilots going on in many cities of all sizes, right?

So it would be very difficult to be able to give you quarterly type updates on how that's going.

But how the decision is being made, right, is cities are looking at going from the traditional meter to the meter plus the radio, plus the software as a package.

And a lot of implications in that, we see now legal gets more involved in some of the discussions in the upfront rollouts, people are looking to integrate billing systems.

And it's just -- it's a bit of a more complicated transaction for the customer perhaps than it was because of all the aspects they have to pull together.

So part of what happened in Q2 here is that when customers are going through that, right, they don't buy the radio.

But at the same time, they don't buy the meter, they don't do the BEACON engagement.

And that's where we kind of get into this what we're calling this innovation pause.

So we've had no issues that we've heard from customers in terms of any quality problems, concerns.

Bob and I were on a customer tour during the quarter.

We were out at the ACE show.

We recently participated in the National Conference of Mayors, and we're getting a tremendous amount of feedback that's very positive on our product offering and services.

So that's where some of our optimism -- a large part of our optimism is coming from, frankly.

And why we feel like we're going to be returning to growth and doing really well with the rollout.

Long answer, not sure I answered your question.

But I think it's kind of a multivariable situation.

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

Just a quick maybe stat, if you would, but the utility business, what percentage of revenue was the utility business in the quarter?

I'm pegging at about 77% of total revs.

Is that a...

Yes.

I don't have it in front of me, but that's reasonable and pretty consistent with where it normally is, yes.

Okay.

And then the muni, the commercial piece of the muni or utility business, how did the commercial piece do here?

We didn't get...

Yes.

So commercial, so if you take the line average of what we were down, residential was down slightly more than line average and commercial was actually down slightly less.

So what I think about that, Rick, is that even though I'm disappointed that we didn't get to shipping 3- and 4-inch ultrasonics in second quarter like I was expecting, we're still selling a lot of mechanical commercial meters.

So we are down slightly, but it -- I think it shows again the product breadth and quality of being able to offer mechanical and ultrasonic is really the winning play for us.

So it was down slightly, but certainly not out of line.

Okay.

And do you consider the market to have been down, I mean the commercial market?

I mean just given non-res construction and the commercial construction marketplace.

Is that -- does that surprise you at all?

Or...

Well, so that's a tricky question.

I think, I don't -- I wouldn't comment, I guess, on whether or not I think it's down.

I think it's just okay.

Okay, okay.

All right.

And then just to circle back for a second, the projects that we won earlier in the year, the 2 that were a little higher profile and then the one that we won here that we stumbled into in the second quarter, Elizabeth City.

I'm just curious the delays on those projects, is that -- was that at all weather-related?

Or is this just the process of munis getting funding and starting the projects.

I mean what actually do you think kind of caused the delays there?

Yes.

So I think you're specifically talking for us about Aurora and Columbia.

And part of it is just that, it's a pretty complex, as I was mentioning a little bit before, right, so they're doing pretty significant pilot testing on a large number of units, making sure that their system works correctly, making sure that they have their billing integrations there, there's a build-up of meters and radios that goes in the front of that.

And what we're going to see is one of those projects will begin to see some installation and some revenue during Q3 and then the other will begin during Q4.

So it's just the natural state of, again, a more complex integration than when people used to buy meters and just put them in the ground.

Yes, okay.

All right.

And then was it referenced earlier to your calls that I think the reference was that only 25% of your utility business goes through distribution.

And I'm curious, that must be independent distribution so you're kind of pulling from that number, the distributors that have been purchased by Badger, is that how to reconcile that number?

That's correct.

Yes.

Correct.

Yes.

Yes.

Okay.

Okay.

And then maybe my last question.

Just around the seasonality -- in your third quarter, typically, sequentially from the second to the third, your sales, you kind of hit a little bit of a summer lull.

And they're typically down kind of low single digit sequentially.

And what I'm listening to, I know we've got -- the Mid East comp is slightly tougher in the third quarter and some of these delays, you talked about some of the projects starting up maybe later in the third, if not fourth.

So is -- should we just be thinking about the same seasonal softness off of this lower revenue second quarter play out into the third?

I mean is that how -- is that kind of how the tone of the market is when you take out some of this noise around delays and project-driven revenue?

It feels, yes, we kind of -- we're light in the second quarter revenue, but seasonally here into the third quarter, it's probably very seasonal pattern?

Yes.

So there's a multitude of factors and it starts to break down by regionally, right?

So if you talk about the 2 projects that we're referencing, it's in areas that when they're starting, the weather isn't necessarily bad, right?

So they can work there.

You go out to the East Coast and you have a lot of budgets that the fiscal year starts in July, so they tend to pick up in Q3.

And so again, multivariable problem.

But yes, I think this year, just because of some of the deferments, we're going to have a little bit of a different profile than we would have had in the past.

But the general thinking that you're applying to it I think holds true.

But we see direct line of sight to some smaller midsize-type opportunities that we think we'll return to growth with.

Yes.

Okay.

And just maybe my last question.

Sorry, I'm taking a lot of your time here.

But my last question just is around, in this E-meter market, going back to last fall when we saw the American Water Works Association kind of put out some E-meters specs, if you will.

But is there any -- have you noticed any change around the number of bidders on some of these projects?

Or it -- from the Elizabeth City contract that you -- that we bumped into, it looked like there's no degradation in pricing by endpoint.

But just any competitive noise in the E-meter market that was triggered maybe by AWA kind of just supporting some regs there?

Yes.

So a little bit about that.

So first off, let me just say that we have a very robust competitive review process.

So we know who the other players are in the rest of the world that might think about trying to come here.

So this isn't new news to us that people would try to come here, so that's one.

And then two, we are at ACE, so anyone who was at ACE saw all the booths of all the little guys that say they're going to come over here also, right?

So we know who the competitors are.

We know who's on all bids that are there.

Frankly, we still feel very strong whether the AWA guidelines support ultrasonic or not, 85% of our revenue is still mechanical, 15% of -- I'm sorry, 85% of our units are still mechanical, 15% of our ultrasonics are still -- 15% of the units are ultrasonic.

Coming in with a partial line against really strong competitors who've been here 100 years trying to sell the 50,000 municipalities, that's a long pot, right?

So we're aware of them.

We know who they are, we know how to fight against them.

I would say, thus far, they're not making much of an impact, but they're trying in hard.

Your next question comes from the line of Nathan Jones from Stifel.

Just a couple of clarifications here.

You talked about growth in the third quarter, growth in the back half.

Are you talking specifically about domestic municipal?

Or is that inclusive of the headwinds that you've gotten from the Middle East?

Is that inclusive of the flow instrumentation business as well?

Yes.

So great question.

Yes.

Thanks for asking for the clarity on that.

I'm speaking that the majority of the optimism is around domestic utility, right?

So the choppiness on the Middle East order, I just don't have the visibility.

So talking about the returning to growth there and still feeling like, yes, on the flow instrumentation business we'll be able to get back into a growth mode in the second half.

Okay.

So we shouldn't necessarily expect that total municipal water business to be -- to show positive growth in the third quarter with that headwind from the Middle East?

Yes.

I mean just frankly, we don't have the order yet from the Middle East, so the ability to turn it and do something meaningful in that market this year would be difficult.

Then maybe just a bit more of a clarification on flow instrumentation.

I mean you're selling into a bunch of marketers there that have been very vague, their macro data is not being, I wouldn't say that constructive here over the last few months, couple of quarters.

What gives you the confidence that you can return to growth there aside from an easier comparison?

Yes.

So when we look at the channel opportunities we have, there are still huge markets and we're still very small, right?

So I think that we can still find some pockets of opportunity in there.

Our team's working really hard at building out the channels in the 4 target markets that we talk about, being oil and gas, chem, petrochem, wastewater and HVAC.

So yes, you're right.

I mean the markets and the data don't look great in that space.

But we're feeling good about the activities that we're taking to return to some growth there.

Okay.

Then maybe just a couple of follow-up questions on the shift to LTE-M.

Can you remind us when that hit the market?

Yes.

So we efficiently launched it in March and began shipping in April.

Would you -- why didn't we see some of this kind of innovation pause then in the first quarter of '19 or fourth quarter of '18?

If folks knew that those kinds of meters are going to be coming out and hitting the market toward the end of the first quarter of this year, I would have expect to see more of an impact on the business a little earlier than just the second quarter.

Well, we did talked about that briefly on the last call, and we did have, I mean, frankly, I'm not going to name names, but we have a really good customer that's been with us a long time, that's going to convert that intended to go in Q1, but still didn't in Q2 because they're piloting.

So there is some of that in the Q4 and Q1, but...

And I think if you go back and read the first quarter transcript, that was a theme in our first quarter results specifically.

So it isn't necessarily some of it's just hitting now, it's something we've had line of sight to, quite frankly, for the last 5 to 6 months and has been talked about.

Okay.

That's helpful.

Then maybe you could comment or what gives you the confidence that this kind of pause is going to end or has ended and we actually get back to growth in the third quarter?

Well, so the 2 projects that we spoke about previously that start to take off in Q3 and Q4, some specific cities that we've been working with that we know that we're very close at getting over the initial phase and into the order state.

And the thing to remember is while the percentage, I understand that the tone of the questions from the percentage of the down year-over-year.

But when you look at the funnel in the way that we're seeing these, a couple of these are sizes that just a couple of cities can close that gap, right?

And we have some of those types of opportunities in the funnel.

Fair enough.

Do you think that there will still be an impact from these kinds of deferred purchases that are going on in the third quarter, but you've got enough in the funnel to get over the hump and still get to growth?

Or do you think that this kind of drag that you're seeing from these deferred orders will -- is actually out of the picture here?

Yes.

So this is, yes, very similar to the point I made in the opening comments of, we have enough in the funnel that we feel pretty good, but there might be some that's still away.

So this is the more of a dial and not a stack bar or an on-off switch, right?

So some are going to come in, but we feel really good about the funnel and the opportunity to get that growth.

So it should build up from here then I guess is kind of what you're saying?

Yes.

Your next question comes from the line of Andrew Buscaglia with Berenberg.

So yes, not to beat a dead horse here but on that -- on the order push outs.

So I'm just trying to understand that you mentioned things won't stack in the back half.

So it sounds like you have some expectations for Q3 and Q4 what the flow through?

But I'm trying to understand there, why wouldn't there be some sort of incremental, I guess, bump.

Yes.

So again, back to the total amount that are in the funnel, we fully expect that, that some of those, based on the feedback from the sales team and directly, that those are going to start to flip through.

What -- this business can tend to be uneven by nature and customers make decisions sometimes that maybe it doesn't happen as quick as we'd like.

So what I don't want you to take away from this call is that everything that we're saying that was deferred from quarters 1 and 2 is just going to add on top to whatever we expected from Q3.

I think the other challenge is, Andrew, is, obviously, we've got line of sight to a relatively short cycle backlog, we know these 2 key projects that we've been talking about and how those layer in.

What we're talking about on the rest of the business, right, is 15, 20, 25 opportunities that which -- the question is they're trying to get us to predict to a month, and that's just very difficult to do, which just only reinforces our ongoing concept of, it's a choppy business.

And unfortunately, that really gets -- makes it difficult to make these predictions quarter-to-quarter.

So I think we think about longer periods of time.

And if we make that longer period of time the second half, I think that's where the confidence from our commentary comes from.

But it is difficult to sort of earmark or pigeonhole that into a specific quarter.

So we want to make sure we're not losing sight of that, but also trying to provide enough clarity without giving guidance.

We don't give guidance.

Yes, yes.

Okay, makes sense.

Okay.

And you're starting to build from cash here and you had a really strong quarter for free cash flow conversions.

Curious if you can give us an update on what you -- what your use of cash will be over the next 6 months?

Do you think -- does anything change in light of sort of kind of disappointing Q2?

Or is M&A still a priority for you guys?

Yes.

So our cash priorities remain the same.

So we're going to continue to invest in internal R&D to maintain our innovation lead in the industry.

We are going to continue to fund and increase dividends at the rate of earnings increase, and M&A is a strategically important pillar for us.

So those are the 3 priorities for us.

Those don't change just because we've turned into a net cash position.

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

All right.

Ken, sorry about...

He's back.

That's okay.

Just one more thought, just around the -- what is the kind of the health of the acquisition funnel that you have, either a number of opportunities or just steps forward on anything in particular?

What does that look like here year-to-date?

Yes.

So the health of the funnel, Rick, is solid.

And we are talking to companies that are in the strategic laneways that we've talked about previously.

I think the thing that I would just tell you is that we are -- sorry, the lights are flickering.

And so if the power goes out, it's not that we try to avoid you, Rick.

I'm about 5 miles from you, my lights are fine.

Yes.

Okay.

So the funnel is active, the funnel feels pretty good, but we are just being very strategic and methodical in making sure that the cash that we deploy are things that are going to fit into our strategic laneways that we know we can sell through the channels that we have or lead to that global expansion.

So the funnel feels good.

And -- but as I've said on previous quarters, I don't want you to walk away thinking something is imminent.

Okay, okay.

But there's opportunities there and some things are moving forward, fair enough?

Correct.

Yes, yes.

There are no further questions at this time.

I turn the call back over to Ms. Bauer.

Well, thanks, everyone, for joining our call today.

For your planning purposes, our third quarter 2019 call is tentatively scheduled for Thursday, October 17.

I'll be around all day to take up any follow-up questions you may have.

Have a great day.

This concludes today's conference call.

You may now disconnect.