Badger Meter, Inc. (BMI) Q3 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Badger Meter Earnings Conference Call. My name is Erica, and I'll be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Rick Johnson, Senior Vice President of Finance and CFO. Please proceed.

Thank you very much, Erica. Good morning, everyone, and welcome to Badger Meter's Third 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 identifies 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 specific guidance does not serve the long-term interest of our shareholders. Now on to the third quarter results. Yesterday afternoon after the market closed, we released our third quarter 2012 results. Net sales for the 3 months ended September 30, 2012, increased $17.4 million or 25% to $87.1 million compared to $69.7 million in the third quarter of last year. The increase was due in part to the inclusion of Racine Federated's results in the third quarter. Just to refresh your memory, we acquired Racine Federated on January 31 of this year. Racine Federated sales in this year's third quarter were $11.8 million. In addition, we saw increases in our municipal water business. Let's review third quarter sales for each of our product groups. Municipal water sales increased $5.7 million or 10.8% from $53.0 million in the third quarter of 2011 to $58.7 million in the third quarter of 2012. These sales represented 67.4% of sales for this quarter. The increase was due to higher sales of residential meters sold with technology, as well as higher commercial meter sales. Sales of meters in related technology increased 11.1% on higher volumes. Manually read residential meter sales decreased slightly due to lower volumes sold. Commercial meter sales increased 10.8% in this period over the same period last year due to higher volumes of products sold. Sales of our industrial products represented 23.5% of sales for the third quarter. These sales increased $10.2 million or 98.1% to $20.5 million from $10.4 million last year. As we have discussed, most of Racine Federated sales are included in this group. Their sales in this product grouping were $9.2 million for the quarter. Remainder of the increase was due to higher sales in most of the remaining industrial product lines. Specialty application products represented 9.1% of sales for the most recent quarter. These sales increased $1.6 million in the third quarter or 25.4% to $7.9 million from $6.3 million during the same period in 2011. Included in this product grouping was $2.6 million of sales from Racine Federated. The increase from these sales was more than offset by a sales reduction of radios sold into the natural gas market. As we've been explaining all year, last year's sales included significant amounts of radios sold to one particular natural gas customer that are not recurring this year. We also saw slightly lower sales of valves. Gross margin as a percent of sales was 39.4% in the third quarter compared to 32.7% from the third quarter of last year. The net increase was due in part to the addition of the Racine Federated product line, whose products have higher margins and lower costs for our municipal water meter castings. Higher volumes through our facilities and a favorable exchange rate also contributed to the higher margin percentage. Selling, engineering and administration, or as we refer to them, our SMEGA expenses, for the quarter increased $5.4 million or 36.7% over the same period last year. The increase was primarily due to the acquisition of Racine Federated and the amortization of the intangibles acquired with that acquisition, which were not included in the results last year. In addition, we took $1 million charge to write down our investment in an emerging technology company. The original investment in this company was $1.5 million. While we still believe the technology is viable, we felt it prudent to reduce the carrying value of the investment. Interest expense for the quarter was higher than last year. Obviously, we borrowed funds to pay for our acquisition and to finance the stock repurchase program that occurred earlier in the year. Also, last year's interest expense included a onetime credit due to the reversal of some tax items. The provision for income taxes as a percent of earnings before income taxes for the third quarter was 35.9% compared to 40.8% last year. As I mentioned, last year's tax amount did include benefits that totaled nearly $1.5 million. These were for recognition of previously unrecognized tax benefits for certain deductions taken on prior year tax returns. Last year's provision for taxes without those adjustments would've been 33.1%. As a result of all of this, net earnings for the third quarter 2012 were $8.9 million or $0.62 per diluted share compared to $6.9 million or $0.46 per diluted share for the same period last year. You should also note that the per share amounts are affected by the impact of our stock repurchase program. Without the stock repurchase program, net earnings per share would've been approximately $0.035 less than reported in our news release. There have been no significant changes in our balance sheet since our last conference call. Our debt to total capitalization ratio at September 30 was just under 30%, and we continue to generate cash. With that, I'll now turn the call over to Rich Meeusen, Badger Meter's Chairman, President and CEO, for his comments. Rich?

Thank you, Rick, and thank all of you for joining us today. My comments will be brief, I'll let the numbers speak for themselves. But we are very pleased with the strong quarter, particularly as we saw solid performance across all of our product groups. Also, the Racine Federated integration continues to outpace our original expectations, and we have seen strong growth in the RFI product sales over last year. We have achieved almost all of our anticipated synergies and expect to complete the remaining integration steps by the end of the year. While we saw strength in our municipal water markets this quarter we still believe there are lingering concerns about the overall state of the economy and municipal spending in general. We're very sensitive to the uncertainty situation that our municipal customers face in their budgeting and revenue projections. This makes it more difficult for us to make any comments on the near-term outlook for that market. On the other hand, we still believe that the municipal water market has strong fundamentals, which will continue to benefit Badger Meter in the future. Regarding our industrial and specialty markets, we continue to benefit from the slow but relatively steady growth of the global economy. We all know that this economic recovery is still fragile, particularly in some foreign markets. However, we are well positioned with a broad product line in good markets. As such, we're cautiously optimistic about our ability to continue to see strong growth in the coming year. Our high level of cash generation, along with our solid balance sheet, gives us the financial ability to continue to pursue new product development and strategic acquisitions. We were able to increase our dividend by 6.25% during the third quarter, which represents our 20th consecutive year of dividend increases. Overall, we had a good quarter and we're continuing to have a strong year. So with that, I'd welcome your questions.

[Operator Instructions] Our first question comes from the line of Ryan Connors.

I wanted to just revisit this issue, the municipal end market. I know, Rick, you said that there's only so much you can tell us there, but it is such an important market for you that I wonder if you can just give us any additional color you can on the tone you're getting from your customers, specifically that leave you to maintain what I'm hearing as a fairly cautious tone on your part, even though your numbers, here at least, suggesting that a rebound there is gaining some traction. So any kind of additional light you can shed on that for us would be very much appreciated.

Yes, Ryan, and I would say we share your concern over the mixed message here, because the order entry, the numbers we're seeing, all imply some level of strength but when we talk to our customers, there's still a lot of caution in them. A lot of our customers are saying they're still worried about what's going to happen with the fiscal cliff and overall budgets, federal budgets, state budgets, local budgets. So I think there's just a lot of concern out there, and we felt that it was appropriate to share with the markets that we are hearing concern from our customers, even though the numbers don't necessarily reflect that. Obviously, this morning as I was driving in, I heard the announcement about the housing starts, and the housing starts went over $800,000 on an annualized basis last month, 800,000 units, I'm sorry. If it's $800,000 we're in trouble. 800,000 units, that's strong. I mean that's showing some strength. And when people build new houses, water meters go with those. That's an area of our business that used to be very strong. When the housing market crashed, we saw that the decline there and now we're seeing that come back. So we're seeing a lot of positive things on the horizon. We're just sharing with you that our customers still have a level of concern and we're trying to be sensitive to that.

Okay. That's very helpful. And then just sort of relatedly, can you talk a little bit about the constitution of the mix and the order flow and the project activity you're seeing? In other words, is there -- is it larger, water authorities, is it the smaller water authorities? Is one of the markets stronger or weaker than the other? And then in terms of AMR upgrades of technology, have you detected any re-acceleration in that type of activity?

We are both looking. I wouldn't say it was one area or the other. We've got some large accounts that are still moving forward. As you know, we're still wrapping up the Fresno operation, which is a big opportunity. There are other ones that we are just starting up, like Columbus and Cleveland and some of those. We continue to sell meters into Chicago. So some of the large accounts are still moving forward. But I wouldn't say there's a big elephant out there that's going to do a huge number of meters over the next 2 years. On the other hand, we're also seeing the strength across the broader market and the medium and smaller utilities. So I can't really say it's one area or another. It's pretty much broad-based.

Okay. And then just, I guess, kind of a housekeeping item is that you mentioned this issue of the $1.5 million investment write-down. That was in the SG&A line them, is that correct?

That's correct.

But it was the $1 million.

$1 million. Originally $1.5 million.

The investment was $1.5 million. We took $1 million off. There's still $0.5 million on our books because we still believe there is viability to this.

Okay. But that seems, I mean, you didn't really call it out specifically but that seems like kind of a onetime nonoperating item that we should be...

It certainly is.

It certainly is. And noncash.

And it's a noncash.

It's a noncash one.

Our next question comes from the line of Richard Eastman.

Rick, could you just mention again, what did ORION sales do in the quarter?

I thought that question would come up because I thought someone might miss it. We've given that some thought, Rick, over the years. I mentioned we don't disclose -- we don't talk about individual specific line profitability, yet we've always given the split between ORION and Itron. And when we sat here and we thought about it, we realized that we started doing that way back when, when we wanted to demonstrate to you guys that ORION was really a viable product, right. I mean this is 10 years ago. And somehow we just kept continuing to do it for the past 10 years. And really, what happens is every time it's a swing between Itron and ORION, everybody gets enamored with what's going on and "Oh, is Itron coming back, ORION coming back?" And since we had such a good quarter, we just decided we're going to stop talking about those individual product lines and really focus on sales of products with technology, because we really think that's the key. And also over the past couple of years, the key concerns in municipal water have become financing and how we're going to pay for infrastructure, and we think those are becoming more important issues. So we're just, at this point, electing to stop disclosing that information going forward.

Actually, what's maybe more helpful, at least the way we do the math, is not the -- whether we're outselling Itron or not outselling Itron, but the growth rate, ORION has a pretty direct correlation to gross margin. And I presume that it was up pretty strong double digit this quarter?

The problem with -- and this is Rich, the problem with trying to disclose this is that what we've been disclosing in the past is not necessarily sales of Itron radios and ORION radios. We've been selling -- we're disclosing sales of any product that's related to Itron or any product that's related to ORION. So in some cases, a city will say to us you sell us the meters, we're going to buy radios from Itron and connect them. Other cities will say, well we want to buy the radios and the meters from you, Badger. Some people will say sell us just ORION radios and we'll go on retrofit. Others say sell us just meters that can connect to ORION and we'll buy the ORION later when we decide to go to automation. So this tends to be a real mix, and it's all over the board. And so we really don't want to get into any more talking about these specifics, because now we have GALAXY out there. So we'd have to talk about whether or not GALAXY is up or down. We have the ORION classic and the ORION SE, which is the new ORION, and we have to get into that, and it's a level of granularity that we don't think is really meaningful. We will say that, yes, we saw stronger margins on our -- we saw stronger margins, margin increase on our technology sales, and that was good for us. The other problem we have with this whole split is sometimes we'll sell to a distributor and we have no idea if he's hooking that meter up to an ORION or an Itron. So that also causes confusion.

So when 50% of your sales...

So when half our sales go through distribution, that's a problem. So that's why we decided it's not really meaningful data anymore, we're not going to give the increase quarter-to-quarter for ORION, for Itron, for GALAXY, for ORION SE. We don't want to get into that level of granularity.

So we have residential meters sold with technology up 11%, we have local read or manual read meters down slightly and we have commercial meters up 11%?

Right.

So logic would tell you that, that resulted in a much stronger margin, because we make a much stronger margin, we sell meters with technology than when we sell just local read meters.

And if I look at RFI's gross margin, per the 8-K filing back in whenever that was, February, their gross margin was low 50s. Is that gross margin, is that still -- was that about right in the quarter?

Yes.

Yes.

So it's implied your core gross margin on your other products was quite strong?

Yes.

And then just a last question. Rich, when you think about the second quarter, that was a big swing and a miss. And if you look at the third quarter, and that 6-month period incorporates half of the municipalities who think of June as the end of their fiscal year, how do you feel about the quarterly weighting of your sales between these 2 quarters? Are you maybe, say, for 9 months, are you guys near budget?

No, this is Rick, I mean we're under plan where we thought we'd be 9 months of this year. I mean, the market is not as good as we anticipated it to be. And I think part of the reason, Rich can add on, but part of the reason of this mixed message is we sat in the first quarter when we said we think it's a return to normal buying pattern. And then in the second quarter, we sat and scratched our heads a little bit. Now we have a great third quarter, and the market -- we have trouble reading this market also right now.

And Rick, I'm not sure I would describe the second quarter as a swing and a miss, because, I mean...

$0.02.

Well, we were off $0.02 and there were some unusual factors in there. But it's only a miss versus what you guys thought we would do, not necessarily what we thought we would do. So what you perceive as a swing and a miss might not be for us. We saw strength in the first quarter. The second quarter was not as strong as we wanted. I wouldn't call it a huge miss, but it wasn't quite as strong as we had hoped. The third quarter was very strong. We were pleased with what we saw in the third quarter. I honestly think housing starts are starting to play into this, and I think there's just some return to normalcy and back to our normal growth patterns. I think a lot of these utilities are going back to saying, "Hey, we want to continue our programs and we're not going to sit around and wait forever." You're right, there are about half the utilities that have a June 30 year end. Sometimes that comes into play. Some of them sit in the second quarter and say, "We have money leftover and we want to spend it before the budget year result." Others say, "Well, we're out of money and so we can't start buying meters until July 1." And then it falls into the third quarter. So that can play either way on us and has historically with a lot of customers.

Our next question comes from the line of Zach Larkin.

First off, Rick, I wondered if you can maybe talk through the organic growth in the muni market? If I'm backing out, assuming my math is right, I'm getting about 6.7%, somewhere in that range, for what the organic growth is x Racine. Is that in the ballpark?

Probably in the ballpark.

Okay. And then also I wondered if you could talk about what you're seeing in the pricing environment, if the market's looking to turn up, are you seeing any more competition on pricing on the competitive landscape?

I think in pricing, we're not seeing any big increases or decreases. I mean prices year-over-year are probably relatively flat, it's probably getting tighter, it's getting more competitive. But we put a price increase in effect on January 1 of '11, if you recall, because at that time copper was north of $4 a pound already. For the most part, we're still holding that. Copper's still in that $3.60, $3.70 range of late. And so far, so the third quarter is more about volume than it was about price.

Okay. And then one final, if I may. I think last quarter you guys mentioned that there was a decent sized opportunity that the customer had held off on the decision. Just wondered if you had any update on that or if you're seeing any lengthening of the sales cycle, just given the cautious commentary you put around the muni markets?

Well, I'm not sure what specific you're referring to because we both just looked at each other with a question mark on our face. But in general, I do recall the comment we made where the sales cycles have historically been getting longer, I mean, when there's more uncertainty in the market, the sales cycles just expand because municipal people just sit back and wait for some of the uncertainty to decrease.

Our next question comes from the line of Glenn Wortman.

Can you just give us your best guess on what percentage of your residential water meter sales today are going into new homes? And also, going back to before the housing boom crashed and where was that number typically?

Glenn, and I wish I had that answer, but when half my sales are through distribution, that's hard to know. And also, when a city calls us and says send us 100 meters, they never report back this many were used for replacement and this many were used for new housing. So the best answer I can give you on that is when we were -- when this nation was looking at about a 1.5 million housing starts a year and I mean before the crash it was up to 2 million at one point, and when we count housing starts for our purposes, there are 3 housing start numbers out there. So you have to be careful. One of them is all housing units, which includes dorm rooms and jail cells and things like that, which don't have a water service. The other one is single-family homes. But we look at all privately owned housing starts. And so that number got up, because that's probably the best reflection of the number of housing units that have a water service coming into them. Now it's even a 4-family, they'll have 4 meters on. So it's a pretty good indication. Back when that was up to 1.5 million, 2 million, you could figure that we had about 30% of the market. And so you could do the math and say, well, Badger was probably selling maybe 0.5 million meters into that sort of thing. Then when housing starts dropped to 0.5 million, that 1 million drop probably cost us 300,000 meters. And when we go back and look at the period from 2008 -- 2007 to 2010, we did decrease about 300,000 units. So now, every time housing starts jumped by another 100,000 housing starts, you can figure that's going to add about 30,000 units to our business. And that's what we're seeing. So at 800,000 compared to the 500,000 low, we're up 300,000, we're pumping out about 100,000 more meters. Does that help?

Absolutely. And then just one other question, just trying to get a sense of where the gross margin can shake out going forward, on the last call -- based on historical averages, was this quarter unusually weighted towards automated meters versus manually read, maybe any help just directionally.

Glenn, we've seen a fairly steady decline in our business for manually read meters. From year-to-year, it's been either flat or dropping pretty steadily. And we've seen a fairly steady increase in automated. As the market shifts over to that, and I -- at this point, a little more than half of what we ship have radios on them. So I don't see that -- I don't see that trend changing, I think we're going to continue to see that. And as that happens, it does help our margins.

But as a percent of revenue then the manual reads, just simply because of the price, the manual reads are a much smaller piece of total revenue than they were in the...

Obviously, if over 50%, say 55% or 60% of the units have radios on them, it's a much higher percentage of the revenues.

North of 80%.

So just assuming copper stays where it is, I mean, do you think you can maintain a gross margin in the, say, in the high 30s kind of looking out over on a full year basis?

That would be our goal. We would like to try to stay in that high 30s. Now obviously, copper could affect us and other things could affect us. But that's where we'd like to stay if we can. It's pretty it -- it's a very volume-sensitive business. So a big drop in volume as we saw in the second half of last year can really significantly negatively impact us. And a big jump in volume like we saw this quarter can really favorably impact the margins.

Your comment about assuming copper remains stable. If copper were to remain stable and everybody had their belief that it was finally stable, I think we'd see a little bit more pricing pressure also coming from the competitors. So far I don't think we've -- somebody asked before about pricing pressure, part of the problem is prices have been maintained there because copper in most of our minds, and I say us being us and our competitors, copper still is fairly volatile. And there's a lot of forecast out there that says it's going to go higher next year. So everybody's a little wary of it at this point.

Our next question comes from the line of Hassan Dossal [ph].

Just one housekeeping question, what was the total sales that were seen during the third quarter?

It was $11.8 million, of which $9.2 million of it was in the industrial group and $2.6 million of it was in specialty.

Our next question comes from the line of Chip Moore.

Back to margins real quick. More near-term, you look to Q4, presumably you've got lower absorption just given the seasonality there, the mix is lumpy, but some nice tailwinds with Racine and the copper prices given the lag. How do you think those trends could play out in Q4?

Well, I think you just named them. And since we don't give forecast, I'm not going to sit here and give numbers. But you just named them. Obviously, lower volume in Q4 always has a negative impact on us. We also have significantly fewer working days in Q4. People forget that, that between the November holidays and December holidays, it's the quarter with the shortest number of working days. So that impacts us as far as what we can get out the door and what our customers can order and install in a quarter like that. So all of that could have a negative impact on margin. On the other hand, copper is still reasonably cheaper than it has been in the last couple of years. So that $3.60, $3.70 is good. If it goes up that could hurt us, if it goes down it would help us. So you really named the major items. It's going to be volume, it's going to be copper and I don't see any big change in the industrial side of our margins. Those are going to be pretty steady.

That's fair. And then, looking also at Q4, I know in the past your sort of had a year end guessing game with some Mexican orders. Do you have any visibility there? I know it's usually more towards the end of the year but...

We are absolutely facing that game again. Mexico, the Mexican municipalities have an annual tendency to be left with money at the end of the year and in a rush to spend it. But they're always -- because of the way their budgets work out and the rules work out, we're always in a situation where we won't receive a purchase order until the second week of December, and then we have to ship everything by December 31. And it's what we call the Mexican fire drill. I mean, we really have to run around and try to get all that product out the door. We are aware of a few opportunities in Mexico that could create another fourth quarter fire drill for us.

And what we do is we make a conscious decision to build the product so far, and if it comes in, if the order comes in, fine, we can get it out the door. If it doesn't, the inventory doesn't go to waste, we'll use it for other orders starting in, in 2013. But I'll also say that we've had this issue, for all the years we've had it, it's a 50-50 proposition at best, in any given year.

Some years it comes in, some years it doesn't.

Okay. That's helpful. Just a few, sort of, housekeeping questions. I know you don't like to talk about specific projects but for Cleveland, is that now fully ramping? Where do we stand there?

We're looking here. Hold on. Cleveland has begun, it began probably near the end of the second quarter. So there are some sales in there, it will continue in the next year and beyond that. We really won't disclose much more than that.

Okay. That's fair. And then for municipal water, can you give us the Q4 contribution last year? Do you have that?

No. We are talking Q3. No, I don't have that split yet, no. Because last year we didn't have Racine in there last year in the fourth quarter, so we'd have to actually go back and have to do the quasi pro formas and I just don't have that ready yet.

Yes.

[Operator Instructions] We have a question from the line of Bob Chernow.

It seems to me that Badger has been trending to other areas of measurement in the meter area. Can you give us an idea about where you think your percentage of business might be over the next several years? And if this trend will continue?

Yes, Bob, it's a good question, because you're absolutely right. There has been this trend. And Badger had to answer a question years ago. Are we going to try to be a utility metering company or a flow measurement company. Some of our competitors offer electric gas and water metering and we said, no, we're going to focus more on flow measurement. Our philosophy on that was first we did not want to get into the electric smart grid area, which has become a very brutal market of late. And secondly, because we fundamentally believe that as the world's population grows, our resources are becoming scarcer and measuring those resources is probably a primary way to control them and to use them on a sustainable basis. So we do believe there's going to be a long-term trend towards wanting accurate metering technologies of all types, whether you're talking about water, milk, beer, chemicals, oil, anything. So that is the area that we're focusing on, the acquisition Racine brought us there quite a ways. At this point, we're about 35% non-municipal water, about 65% municipal water and 35% non. And it will move back and forth from quarter-to-quarter. Long term, we do believe that the municipal water business should grow faster than the industrial business on an organic basis, because industrial will always grow probably a little bit better than the economy, whereas the municipal has this driving force of the shift from manual read to automation. And so, we expect that we can see pretty strong growth in utility and reasonable growth in the industrial side. So that means that, that mix, if we don't do any acquisitions, over time, that 65% that's municipal water would increase. Now we also feel that the industrial side is the one that offers the most acquisition opportunities for us. And that's certainly the area we're going to continue to pursue acquisitions like Racine, and that can drive even stronger growth. So we believe that we could stay 2/3 water, utility water metering, and 1/3 other metering. As we find those acquisitions going forward. That make sense to you?

A lot.

We have a follow up which comes from the line of Richard Eastman.

Rich, could you just talk for a minute or 2 to RFI? Does that, in the past, has that shown any seasonality? Is there a fourth calendar quarter seasonally down in revenue? And then also, how was that business running year-over-year in growth, understanding you didn't have it last year, but just out of curiosity, what do their kind of pro forma numbers look like in terms of year-over-year growth?

This is Rick, I'll answer the year-over-year. Year-over-year, they're doing about 8%, 9% better than they were last year at this time.

And then as far as your seasonality, there is a little bit of seasonality. Historically, October has been a slightly stronger month for them. Now some of that may be just a number of production days, October is normally a pretty strong month.

But they've also, historically, shut down between Christmas and New Year's.

So their Q4, calendar Q4 is typically down some from their Q3?

Right, because they also shut down -- that's where I was going to go, in October they're a little bit stronger, but then they shut down between Christmas and New Year's. Badger doesn't. So one of the reasons October is a little bit stronger is because they're building up for that shutdown. So it is a little bit, but it's nothing like the seasonality that Badger has.

Okay. And then just the muni water meter base, the distribution base there, we've seen some other companies talk to fears about fiscal cliff and the election and kind of managing their cash flow. Do you have any sense if your muni water distributors might be in the mood to maybe destock a bit at the end of the -- or into the calendar year?

No, I don't think so. For several reasons, one is that one of their competitive advantages is the fact that they carry stock and that they're able to respond to the smaller utilities that say, hey, I need 5 meters and I need them now. Those utilities don't place larger blanket orders for a year. So one of the reasons we use distribution for half our sales is to handle those 40-some thousand small utilities that just need that access. So our distributors have found that any attempt to really have a significant impact on their inventory by bringing it down just hurts their business. That's what they tell me. So I don't think you're going to see any kind of destocking. And then it's a question of what do they look out and see in the first quarter. And I think all the ones we talk to, that they're pretty optimistic about the coming year.

We have no further questions at this time. I will now turn the call over to Rich Meeusen for any closing remarks.

Well, I want to thank all of you for joining us today. Obviously, we were very pleased with this quarter. It was a strong quarter, and it does support some of the statements we've been making in the past about where we saw the business going. Over the long term, we're very confident in the fundamentals. We still think we're in the right markets, the right industries with the right products. And that's going to continue to drive growth for us. 78% of our business is still water, because a lot of our industrial products are used in the irrigation, in firetrucks, in a lot of industrial water applications. And water scarcity is going to continue to drive a demand for our products, as well as the scarcity of all of the other products. So we feel good about where we're going, and we look forward to talking to you again in the future. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. Everyone may now disconnect, and have a great day.