Badger Meter, Inc. (BMI) Q2 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Badger Meter Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Rick Johnson, Senior Vice President of Finance and Chief Financial Officer. Sir, you may begin.

Thank you very much, Kylee. Good morning everyone and welcome to Badger Meter’s second quarter conference call. I want to thank all of you for joining us today. 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 risk 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. 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 results. Yesterday after the market closed we released our second quarter 2017 results. Our sales net income and earnings per share were all records for any quarter, not just the second quarter. While you may argue that the sales record is by a very small amount, remember that the prior all time record for sales was last year's second quarter. So on a top comparison, we had a very strong quarter. Let's look at some of the details. Sales were up three-tenths of a percent to $104.2 million compared to $103.8 million last year in the second quarter. The split between municipal water sales and flow instrumentation sales is roughly the same as it was last year with municipal water contributing about 77% of sales and flow instrumentation about 23%. Municipal water sales increased just $100,000 to $80.1 million from $80 million last year. This included approximately $650,000 of revenues from D-Flow, the Swedish company we acquired on May 1. The relatively small change between years was the net impact of slightly lower meter volumes and slightly higher radio volumes. We also believe there are number of customers who want the latest technology and as a result delayed orders pending our release of the ORION cellular LTE endpoint, which did not begin shipping until June. Flow instrumentation sales increased 1.3% to $24.1 million from $23.8 million last year. We continue to see improvement in the domestic oil and gas markets as well as other domestic industrial markets. In fact, domestic flow instrumentation sales were up over 5% quarter-over-quarter. However, we saw lower international sales due to economic conditions. Gross margin as a percent of sales was 39.4%, up from 37.9% in the second quarter last year. The improvement was due to pricing discipline, favorable foreign exchange on purchase products and product mix, all offset somewhat by higher brass cost. Selling, engineering and administration expenses were virtually the same as they were in the second quarter of last year. A reduction in staffing cost and favorable healthcare expenses helped to offset increased amortization expense related to the D-Flow acquisition, as well as normal inflationary pressures. The provision for income taxes as a percentage of earnings before taxes for the second quarter of 2017 was 35.5%, compared to 36% in the first quarter of 2017. At this time this is our best estimate for the year as a whole, although much will depend upon the relationship between foreign and domestic earnings for all of 2017. As a result of these factors, net earnings for the three months ending June 30, 2017 were $10.6 billion or $0.36 per diluted share compared to $9.4 million or $0.32 per diluted share in the same period last year. Our cash flow remains strong. For the six month ended June 30, 2017, we generated $37.3 million of cash from operations compared to $27.7 million for the first six months of 2016. Our acquisition of D-Flow did have an impact on our short-term debt balance which has increased since year-end. However, debt as a percentage of total capitalization is still low at 14%. With that bit of background, I will now turn the call over to Rich Meeusen, Badger Meter's Chairman, President and CEO, will have some additional comments. Rich?

Thank you, Rick, and thank all of you for joining us today. This was another strong quarter of earnings for Badger Meter. Not only did we have record earnings this quarter with a 12.9% increase over last year's second quarter. But this followed a record first quarter where we saw earnings increase 9.5% over the first quarter of last year. So we are very pleased with the 2017 results thus far. And although sales were an all time record, they were relatively flat compared to the very strong sales in last year's second quarter. As Rick noted, we believe this was due in part to customer delays associated with our introduction of the LTE endpoint in June. In fact, we were also starting to run low on the old inventory which also contributed to the flat sales. The LTE is now fully released and shipments are continuing. We are also aware of numerous large city projects that still are in the bid process. With these types of projects on the horizon and the continuous strength of our water meters, radios and software, we are confident of our future municipal sales growth. We have also started to see the long awaited rebound in flow instrumentation, particularly in our oil and gas business. We had very strong margins this quarter which reflected continued cost controls and the pricing discipline that we are to achieve. As Rick mentioned, we have seen the benefits of cost reductions that were made last year in the flow instrumentation area. Further, in the municipal water markets, we are maintaining our strong pricing structure by not participating in low margin opportunities and we are seeing benefits from our distribution consolidation strategy. Finally, let me add a few comments about our recent of D-Flow in Sweden. This company is already providing us with engineering and R&D expertise in the key ultrasonic technology that drives our E-series ultrasonic metering products. We have already had several exchanges between the D-Flow engineers in Sweden and the E-series engineers in our Milwaukee facility. We have also established a technology roadmap that will allow us to integrate the D-Flow technology into future versions of our E-series meters for our larger commercial metering customers as well as our residential customers. This technology will not only improve the performance and functionality of the meters but will also enable us to reduce production cost. So with those very brief comments, we would love to take your questions.

[Operator Instructions] Our first question comes from the line of Richard Eastman with Robert W. Baird. Your line is open.

Rich, would you like to take a cut maybe a dollar amount of revenue that you think may have been deferred out of the majority of the second quarter due to the LTE product?

That’s a hard one and I really can't give you a dollar amount because obviously it's anecdotal as to when customers are placing orders. I don’t know that, to give you some added color, our VP of Manufacturing was very excited last week because he used an interesting word, he said the LTE production line is going gang buster. So a gang buster is a -- that must be a technical term used by manufacturing people. And if you can equate that into dollars, you can get a fell. But I really can't give you a dollar amount, Rick. I would love to but I can't.

And the transition internally and through customers, basically the 3G cellular product would just evolve into the LTE product. I mean with that the 3G be just discounted --reason to buy that or?

No. The 3G has been discontinued. It's a lot like the cell phones you buy. So if a customer has their system, let's say 25% built out, okay, they can do the other 75% with the LTE and it works exactly the same. They really don’t see the difference. The only difference will be that some time down the road, if the 3G networks start to go away, they LTE product will last longer, will be there longer. So this does not mean we are going to end up with 3G customers continuing to buy the old product and LTE customers buying the new one. Also let me just comment on this delay so everybody really understands what we are saying. Generally, if you have the iPhone 6 and you are going to buy a new iPhone and you hear that the iPhone 7 is going to be released in a couple of months, you are going to wait. And that’s really what happened. We usually don’t like to announce that we have got a product coming out that’s going to replace another product simply because this is what happens. You end up with this dip in orders while people put a delay in. The reason...

This is not our delay. We got it out on time...

It was out on time...

Customers delay ordering until they could get the 4G product.

Right. It was the customers delaying orders. And as I said, we usually don’t like to pre-announce because this happens. However, we did have some competitors who were saying, well, we are going to be coming out with an LTE someday so you don’t want to commit to the Badger system because we are going to have an LTE. That kind of forced us to tell our customers that we had an LTE coming in June and it did cause a little bit of the delay in orders. We expected this. So I was pretty pleased that a, that our sales didn’t go down. We had record sales. And I was even more pleased that we were able to get a very strong bottom line for the quarter.

No. I understand. And then could I just ask you, when I look at the municipal water business, maybe the three buckets, I mean we are looking at kind of no growth year-over-year and you just explained part of the reason. But was the -- can I just ask you, was the domestic business up? How did Middle East do? And then the commercial meter side. Those three buckets within municipal, up, down or flat?

Are you asking for the quarter or for the first six months?

No, the second quarter, year-over-year, that would comp to the flat revenue in municipal. So second quarter over second quarter. I am just curious on those three buckets, if they are up, down or flat?

Yes. The...

International was down.

Our international was down.

Our Latin America was up but it's peanuts. I mean we are talking of $100,000. And really domestic was down a fraction.

Less than a percent.

Three-tenths of a percent or something like that.

Yes. Okay.

Yes. Domestic was pretty flat and the international, we kind of separate Latin America from international. Latin America being mostly Mexico sales. So Mexico was up a little bit and international was down a little bit.

Okay. And then the commercial business must have up just a tick or something?

Yes.

Okay. I got it. And then just last thing, Rick, could you just repeat what you said about revenue for D-Flow that was included in the second quarter? I just missed that.

Yes. It was $650,000. We acquired them on May 1, so it's really the May and June sales of D-Flow were about $650,000.

As you recall, D-Flow does about $2.5 million a year in sales. So it's about where we would expected it to be.

And Rich, could you just explain -- I mean this is kind of a vertical integration play here with D-Flow on the chip side for the E-meters. What is your -- can you give us a sense of what your board purchases are currently from your German vendor?

That’s a tough one and I am getting a lot of shaking heads, so they don’t want to disclose it. For competitive reasons, they don’t want our competitors to know exactly what our board [indiscernible] is.

That’s why I put the question to you, Rich.

And that’s why I sit next to him.

Thank you. Our next question comes from the line of John Quealy with Canaccord Genuity. Your line is open.

So back to the cellular and I think previous questioner has tried to size it. Can you about the size of market or currently the 900 versus the cellular. What's the opportunity you see there? I imagine the delay, to your point, might have been smaller but clients are excited about it. But remind us again the overall installed base, where do you think this could go?

Well, first off, if you assume -- and I am just going to talk about the United States for a moment and ignore Canada and Mexico. But in the United States if you assume that there are about 80 million water meters as an installed base, residential water meters. And maybe another 7 or 8 million commercial water meters. So you are closing in on 90 million water meters in North America. We also believe that based on the IHS survey, that the market is about 55% or 60% converted to some sort of technology. So the first thing you have is a fairly good hunk, say, 30 million meters that are available to convert from a manual read to some sort of technology and we think cellular is compelling to take a good piece of that. The second piece is, all the people out there who have been using technology, but now it's time to upgrade. They have either been using drive by radios or they have been using some sort of fixed network system and they are tired of maintaining all that infrastructure and they would like to have a system that doesn’t require them to have the infrastructure. There too the cellular becomes very compelling. The other real benefit of cellular is that you can convert it on a spotty basis. And what I mean by that is if you have a fixed network system in your city and you are going to go to some other fixed network system, you generally have to do it by neighborhood. You put up a tower and you start converting that neighborhood. With cellular you can convert one meter on the north side of town, one meter on the south side of town without having to put up towers and it's much easier to make those conversions. So I am giving you a little background on these numbers. But cellular will cannibalize some of our drive by and fixed network market. There is no question about that. Cellular we think will take a good piece of these cities that have not yet converted. That are looking to a new technology and they are going to want the latest technology and we think we have got a good shot at that. And the finally, I think we are going to take market share. I think the fact is, Badger has cellular, of our four large competitors one has -- we have had cellular for several years -- one has just announced they are introducing cellular. So they are several years behind us. And the other three really don’t have anything. So I think we are in pretty good shape to take some market share from that. That’s about the best I can give you.

And rich, we have this little [indiscernible] in a market that moves at glacial speed. The fact that we introduced this several years ago, it's probably already about 20% of our radio, cellular radios.

Correct.

About 20% of the total and we see that growing in the future.

And so the glide path towards cost in the past, it was sort of the monthly cost on the SLA from the carrier. That’s obviously some of the benefits of having ubiquitous cellular networks at this stage. You are seeing the glide path, cost per versus an [indiscernible] getting really comparable if not the same. Is that fair?

Well, the cost of the technology is similar to networks and to drive-bys. And obviously there is some ancillary cost on each one of those types of technology. With drive-by you need a laptop in the car as you drive by. With network you need towers, with cellular you are paying a monthly fee for the read.

Okay. And then lastly on the ultrasonic side. Talk about the potential there. I think it sounds like you are moving upstream in diameter size but, again, back to the total market. Sensus is out there with their iPERL for a while, doing things on the [flow-less] [ph] side. Talk about share, talk about initiatives, Rich, about how we should measure you guys on that product cycle too. Thank you, guys.

Yes. Badger and Sensus were the two that introduced solid state metering about, five years ago -- eight years ago, how time flies. Okay. About eight years ago Badger and Sensus introduced cellular. Sensus chose magnetic and they have come out with the iPERL and it apparently has done well for them. We chose to go in ultrasonic path. I personally tend to think that as we look to the future, we made the better choice. That’s validated by a couple of things. One is that Neptune has now come out with ultrasonic. So Neptune looked at the technology and chose not to go magnetic. They chose to use a similar technology to Badger's which tells me that maybe we made the right decision. The other thing is, as I look at the future, magnetic technology, a lot of the cost is in copper coils that make up the magnetic resonance material. Whereas with ultrasonic a lot of the cost is in circuitry. And if I think about what's more likely to decrease in cost in the future, magnetic coils, copper wires or electronic circuitry, well, history has shown us anything that’s had electronic circuitry tends to get cheaper. So I think we have a better opportunity to cost reduce the ultrasonic. The other point you made very quickly there was a very good one that you picked up on. We have not historically taken our ultrasonic to the commercial sizes. Up to the 2 and 3 inch sizes. We were there focusing a little more on mag. With the acquisition of D-Flow, we believe we can now take our ultrasonic into that commercial size. So one of the projects that we have launched is the development of ultrasonic meters for the commercial market in the 2 and 3 inch series. And our VP of Sales and Marketing has not had a heart attack so apparently she is not too upset that I announced that. But we are working on that project and we think that’s going to give us a very competitive product for the market on the ultrasonic. So that’s kind of how we view the ultrasonic. D-Flow is definitely a real advantage for us. We were buying a lot of our circuitry and our transducers from a third party. Now with D-Flow we will be making those ourselves and that’s going to give us some cost savings and we will also have advantage to all of the latest technology.

Thank you. Our next question comes from the line of Ryan Connors with Boenning & Scattergood. Your line is open.

So, question, I just want to focus more on the margin line, there has been a lot of focus on the top line issues but it seems to us that maybe the margin here is really the surprise. And you mentioned both in the press release and in your prepared remarks, the forward integration, the dealer rollup has been a contributor to that which suggests that that must be a pretty powerful impact given that it's a relatively small part of the business right now. Can you give us anymore color there, Rich, any metrics that we can put on that contribution from that element or anything qualitative?

Well, generally when we buy a dealer, okay, for their sales we will put maybe another 100 basis points on the margin -- I am sorry, I have said this wrong. We can put a good 500 to 1000 basis points on the margin. We can get like another 5 on their sales, 5% to 10%. In other words, and I am just using some rough numbers here, if we were selling to a distributor at a 30% margin and they were reselling at an additional 10% for them, okay, we are capturing that 10%. So that’s good. Now, of course, we have additional expenses down in the sales and marketing side when we pick up that distributor. So you have to factor that in. So, yes, we are gaining on the margin side from them but on the other hand it's also driving increased sales and marketing expenses for us as we do that. We always knew that would happen. But it does drop profit to the bottom line. So thus far, all of the distributorship acquisitions we have done have been very -- and there have been two major ones. Two of our largest, others are in the pipeline. But they have been very successful at driving up margins and putting additional profits on the bottom line. So we have been very happen with that. I can't really quantify how much of the margin increase is exactly due to the distributors. We do know that, when we talk about the flow instrumentation cost cuts we made last year, we cut about 1.2 million out of the structure there. So that’s about $300,000 that is in the margin but it's harder on the other ones.

This is Rick. Let me give you another little take on this, and this is just, this is my personal editorial comment. But we have replaced some of sales management with people who came out of the distribution side of the business and there is a little bit different mindset then if you came out of the manufacturing side where it was more of a cost plus so much to get to a certain gross margin. What we see on the -- if you have been in distribution, what we see is let's get the most amount we can and lo and behold sometimes that’s a higher margin than we would have gotten in the past. And I think we are seeing now that one's really difficult to quality but I think just the nature of some of the changes we have made in sales leadership in this company, I think we are seeing some of those impacts also.

I also think we should point out that we mentioned pricing discipline in here and at the beginning of the year, we knew we were going to have a headwind from the brass cost. Brass last year averaged about $2.20 a pound, this year thus far it's been $2.55 to $2.60, sometimes even more. So we knew we were going to have that headwind and we did at the annual sales meeting earlier in the year, challenged the sales force and said, look, we have got to offset that. And that means we have got to be pretty firm with our pricing in order to be able to offset that. I think they have done a very good job of that and I have to congratulate them because they have gone out and they have put in some pricing discipline. Yes, it means we did not chase some low priced business. The lower end of the market is not something that Badger plays in real well. We don’t have the cheapest products. We don’t try to have the cheapest products. We try to have the best technology and the best quality. So that pricing discipline has also benefitted us. And I think we are going to see these levels going forward for a while depending upon what [indiscernible] does.

The other element of the margin side that I thought was interesting that was not mentioned was mix. You mentioned price, you mentioned cost controls, dealer rollup, but there was no specific mention of mix which I know for years has been kind of part of the margin story that as you shift away from manual towards some of the newer technologies. How should we read the absence of mix from that discussion?

No, actually I did say product mix in explaining gross margin. And part of that is, is a little higher emphasis on the flow instrumentation, we saw a little bit of rebound there. Obviously, the 80:20 split is about the same but I think we are getting slightly higher margins in the flow instrumentation and just the product mix within municipal water, the trend towards technology is going to help us. So when I say on product mix, it's a catchall for a lot of those things.

Thank you. [Operator Instructions] Our next question comes from the line of Jose Garza with Gabelli. Your line is open.

I just wanted to ask you about the SG&A and how kind of we should think about that. It's been pretty flat here. How do we think about that going forward, especially with kind of the addition of D-Flow now.

Well, D-Flow -- that’s an interesting -- D-Flow may add, I am going to guess $200,000 a quarter, maybe a million a year. Something on that order. Plus some amortization which off the top of my head I don’t want to quantify here because we are still in the process of sorting out the structure of the deal. We still haven't finalized that yet. But in terms of cash probably no more than million a year, not even that high probably.

Okay. And then anything on the R&D side?

This will be interesting, go ahead. [indiscernible]

I can't hear you too well, Rich. Perhaps if you could...

That’s because my microphone was off, I apologize. Let me start over here. I was about to disagree with Rick...

First of all he was going to disagree with me and then he is now acknowledging that I might be right.

So just to walk through the numbers. D-Flow had about $2.5 million of sales a year and we are continuing to see that. They do about half a million on the bottom line. So that’s about $2 million of expenses. About half of that is in the cost of sales and about half of that is in all of their engineering and staffing cost. So there is probably about $1 million at most in the SG&A, and that’s what Rick said so I have to admit he was right. But then of course when we acquired them, we had the right things up and we also have patent amortization and acquisition amortization.

That’s what I am saying. The intangible, the final allocation between intangibles and goodwill is not finalized but that will be a non-cash expense going forward.

Okay. And then I guess just color on kind of the R&D, if you kind of expect that to pick up there with that acquisition.

Yes. I think you are going to see more R&D expense because the bulk of D-Flow's SG&A is engineering. Okay. And we are adding that to our engineering expertise. It's something we certainly needed. It was something that we had in the plans to try and hire but finding D-Flow gave us this ready source of engineering expertise that we didn’t have to go out and try to recruit. So we considered ourselves very lucky for that. The other benefit we have is basically we acquired these engineers and their salaries are paid for by D-Flow's business. So that’s a real plus too. But you will see higher engineering cost, the bulk of that million dollars in expenses in SG&A that Rick talked about, that’s in the engineering area.

Okay. And then I guess just going back to the discussion of the distributor acquisition, I don’t know if you want to just take a step looking back and just kind of talk to us about just the growth in those, maybe kind of the outside sales, I guess, relative to the internal volumes.

Let me start and then you can add a comment.

Then I could tell you you are wrong.

I am used to that. You know we have only purchased two so far and if you just compare the original territory for those compared to what we have now, you could say, well, it's been successful in that sense. But the reality is, we had a lot of unassigned territory that we basically bolted on to those two, now company owned, distributors. And we go to market now under one name called National Meter. And that’s our distribution arm. So I mean the sales are much bigger than the original footprint of just the two we purchased. So when Rich says we have additional things in the pipeline, eventually we now are to the point where we are becoming comfortable with the underlying systems. We know how it's going to work, we can just, anytime we add in a distributor in the future, we will be able to bolt them on and I think to go in that sense.

And that distribution model is achieving exactly what we are after. If you recall, we talked about the strategy for acquiring distributions. Distribution was not so much purely a financial strategy. It was a strategy driven by our customers' needs. As we move to these more complex systems, cellular and E-series and BEACON, we need more boots on the ground, we need to closer to our customers. And we wanted to assure our customers that they would have some consistency from field service. By buying the distributors and rolling them up we are able to get that consistency and with those distributors we are able to get incredible resources that we can deploy out in the field where we need them. So there has been a real benefit to us and to our customers as we have done that.

Okay. That’s very helpful. And then just anything kind of abnormal in terms of weather in the second quarter, either positive or negative.

No, if anything on the weather front, I would say that I was a little nervous coming into the second quarter because as you remember, the first quarter, we had some mild weather in the first quarter. It was not a harsh winter in the north and the northeast. So I was a little worried, did our customer start installing earlier which would mean that maybe the second quarter which started to peter out, we haven't seen that. And really the second quarter weather, there was nothing unusual in there that -- you know you have always got some regional flooding and stuff but nothing that had a big impact on us.

Thank you. And we have a follow up from the line of Richard Eastman with Robert W. Baird. Your line is open.

So you have finished crunching the numbers and you have come back with another question.

Yes. I want to give you the number, Rich.

You calculated it for us.

Yes. I am thinking it must have been $4 million. But then your revenue would have better matched our estimates. Just a couple of these, was there uptick in the AWK sales in the quarter?

Yes, there were and in fact I have got them.

I mean just, $2 million or $3 million, if you can just kind of arrange it out a little bit or?

Let me put it this way, we are on track, I believe, to do about $8 million this year. So, yes, we did see an uptick in the second quarter although, certainly over the first quarter but we see that through our whole business. But also we are on track to do about $8 million this year and I think that’s pretty good. The issue with American Water has been, as you know, that it has taken us time to get all of their billing systems integrated in American Water, the various subsidiaries of American Water, some of them use different billing systems and all of that takes time. We are now getting there. There is a lot of interest in the cellular and I think we are going to continue to see some good business growth on that one.

Okay. And then just two other things. One is, I noticed just from your commentary, if you piece things together, your international sales again sounded weak, whether it be in the flow side or on the municipal side, the water side. And you know it's curious because, again, when you look at your geographic mix for all of '16, your North American business across the board was pretty decent, was up, and all the rest of world geographies were down meaningfully. I am just kind of curious, what's maybe your take on that? I mean we have two very different sides of the business obviously on the meter side and then also on the industrial flow side. But what's your take on that? When do you think we can start to see a rebound in rest of the world sales?

Well, the big issues in rest of the world is the Middle East for us. That’s where we have some really big opportunities. You know we did a big project with Qatar, but that project came to an end. I would probably say that project came to end fortunately because there are some political issues that are restricting shipments into there. But we are done with that. And we have hoped by now to see some movement out of Dubai. We have been working with the water utility in Dubai for several years now. We have meters in there. They have been tested. They have been validated. And we are really waiting for some of the big orders from Dubai and hoping to see some. They haven't come yet. I can't say when they will. That’s the nature of the Middle East. We also have opportunities in other countries in the Middle East that also are very interested in the E Series meter. And so I think we are still optimistic about what could happen there but right now we are just not seeing it, Rick.

Yes. And we notice that Itron won a UAE contract of some size. Is there the potential for you to be a meter vendor there?

There is. Although, remember winning a contract does not necessarily mean shipments, okay. And so I have been amazed at how many people have announced that they have won contracts in the Middle East and how few people have actually shipped product to the Middle East. So I think the follow up question has to be, exactly how much are you guys shipping. We haven't seen it yet. But, obviously, yes there is an opportunity just like in the United States to put Itron radios on E series meters. However, I will remind you that in Europe Itron has a water meter called the Actaris meter and they do sell it so they would probably prefer to use that on those contracts.

Okay. And just last question, I promise. Just in terms of the M&A pipeline. Are there a couple of other distributor prospects that are front of pipeline or anything else that -- just handicap maybe second half ability to do something?

We have a couple more in the pipeline. Some of these are slow because we are not taking an aggressive position. We would like to find our distributors -- we would like to acquire our distributors when they are comfortable selling to us. Sometimes that falls down into age, family issues, things of that sort. So we don’t push really hard but we do have a couple of more that are in the pipeline. Whether or not we will be able to close one this year, I am optimistic. I would like to see us close one this year. But it might fall into next year.

Thank you. And I am showing no further questions at this time. I would like to turn the call back to Mr. Meeusen for closing remarks.

Well, I want to thank everybody for joining us today. Obviously, we don’t want to lose sight of the fact that we had a record quarter again. This is two record quarters in a row. Sales were impacted by that delay associated with the LTE. That is now, as my VP, Manufacturing says, going gang busters. So we are pretty confident about that. And we were very pleased with the bottom line. I think we have had some good pricing discipline. We are showing good margins. We have had good cost control and we are continuing to deliver some real value for our shareholders. So we are very pleased with that. We are optimistic about the rest of the year. And, again, I just want to thank everybody for joining us. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.