Badger Meter, Inc. (BMI) Q2 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 Badger Meter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the call over to Mr. Rich Meeusen, Chairman and Chief Executive Officer. Sir, you may begin.

Thank you, Chelsea. I’d like to welcome everybody to our second quarter earnings call today. We were very pleased with results for the quarter both of the top line and bottom line. Rick Johnson, our CFO will be going through the details on those results as well as addressing the non-cash financial impact of our pension plan termination. After Rick has finished, our President Ken Bockhorst will talk about our key strategic initiatives and our outlook for the future. So now let me turn this over to Rick and we can get started.

Thanks, Rich. I also want to thank all of you for joining us. As usual, I’ll begin by stating that will make a number forward-looking statements on our call today. Certain statements contained in this presentation as well as other information provided from time to time by the Company or its employees may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements. Please see yesterday’s earnings release for a list of words or expressions that identify such statements and the associated risk factors. Let me reiterate some of our guidelines, for competitive reasons, we do not comment on specific individual product line profitability other than in general terms, nor do we disclose components of cost of sales, for example brass. More importantly, we continue our practice of not providing specific guidance on future earnings. We believe specific guidance does not serve the long-term interest of our shareholders. Now onto the results, after the market closed yesterday, we released our second quarter and year-to-date 2018 results. We are pleased that our net sales and adjusted net earnings are records for any quarter. While we normally do not use adjusted results, the only adjustment we made for was for a charge surrounding the termination of our pension plan, which I will comment on in a minute. Let’s look at some of the details. Sales for the second quarter of 2018 increased $9.4 million or 9% to $113.6 million compared to $104.2 million in the same period last year. This overall increase was due to higher sales in both municipal water and Flow Instrumentation markets. Municipal water sales represented 77.5% of sales in the second quarter compared to 76.8% in the second quarter last year. These sales increased $7.9 million or 9.9% to $88 million from $80.1 million last year. The increase was due to higher domestic volumes of newer technology meters and related radios as well as increased service revenue. Higher international sales also contributes to the increase particularly in the Middle East. Incremental sales from Carolina Meter and supply which we acquired at the end of last year, as well as from IMS, which we acquired in the second quarter were included in these results. Flow Instrumentation products represented 22.5% of sales for the second quarter as compared to 23.2% during the same period in 2017. These sales increased $1.5 million or 6.2% to $25.6 million from $24 point million in the same period last year. The increase was due to the continued rebound in the oil and gas market and other target markets that we serve. While the gross margin increase in terms of pure dollars, the gross margin as a percent of sales was 36.5% in the second quarter of 2018 compared to 39.4% in the second quarter of 2017. The decline in the percentage was due to higher material costs particularly higher brass expenses and higher healthcare cost. In addition, sales included a greater mix of lower margin water meter sales into international markets. Selling, Engineering and Administration expenses for the second quarter were $1 million or 4.1% higher to $25.2 million from $24.2 million in the second quarter last year. Higher healthcare and sales commission cost as well as higher research and development expenses contributed to the increase, which also included staffing from the recent acquisitions. Offsetting this somewhat were lower overall employee incentives. Other pension and postretirement costs included the initial impacts of our pension termination. As we announced last year, we made the decision to terminate the company’s pension plan. The initial phase of this termination occurred in the second quarter resulting in $8.2 million pretax non-cash charge. On an after-tax basis, this equated to $6.1 million or approximately $0.21 per share. The termination is expected to be completed in the third quarter of this year at which time we anticipate taking another $10.5 million non-cash pretax charge, which will then put the pension plan accounting behind us. Again, remember the non-cash charges were already included as part of equity and are simply coming out of equity being run through the income statement and put back into the equity component of the balance sheet as required by Generally Accepted Accounting Principles. And now let me just go off script for a minute and also mention that when you look at our cash flow for the year-to-date results, you will see a $1.6 million cash payment into the Kenneth [ph] pension plan. I just want to clarify at one time we estimated that the cash payment could be as high as $5 million. Most of the $1.6 million was expensed in prior years and was simply a balance sheet transaction, so as it turned out, the cash impact was fairly minimal. The provision for income taxes as a percentage of earnings before income taxes for the second quarter was 22.2% compared to 35.5% last year. The decrease between years was due primarily to the lower federal tax rate, which declined from 35% last year to 21% this year. The tax rates for both the quarter and year-to-date were lower than anticipated 25% tax rates due to the application of a number of discrete credits in particular one related to the pension payment that I just mentioned. Our best estimate of the incremental tax rate for the balance of 2018 is 25%. As a result of all this, actual earnings were nearly $6.2 million or $0.21 per diluted share. Net earnings on an adjusted basis, which excludes the impact of the $8.2 million pension termination charge were $12.3 million or $0.42 per diluted share compared to $10.6 million or $0.36 per diluted share in the second quarter of 2017. Our balance sheet remains solid. Cash provided by operations for the first six months of 2018 was $25.2 million compared to $37.3 million for the first six months of last year. Last year’s amounts was favorably impacted by a decrease in inventory balances that did not recur this year. With that bit of background, I will now turn the call over to Ken Bockhorst.

Yes, thanks, Rick. I’ll start by talking through the growth components of the quarter. In our Q1 call, I talked about the timing of the incoming orders and the build-up of backlog that occurred. In Q2, I am pleased by the fact that we are able to achieve record shipments following incoming orders remained strong, and we were able to maintain a healthy backlog heading into Q3. High single-digit growth in the quarter was achieved in our municipal water business with growth in both domestic and international markets through our E-series ORION Cellular and BEACON lines where we continued to invest in new technologies. We also realize mid-single digit year-over-year growth in our Flow Instrumentation business where we are benefiting from improvement in our sales channels and the higher growth markets that we served. Overall, our markets are improving and we are seeing the benefits from our investments in technology and improved channels to market. Looking at new product development, we continue to progress as expected and as I communicated on the call last quarter, we launched our larger -- larger side E-series commercial meters with D-Flow technology in June and expect increased revenue in the back half of the year as we are no longer excluded from bids for large ultrasonic meters. We also remain on track to complete the integration of the D-Flow technology into our residential meters by year-end thereby reducing our costs in 2019. In short, we will be fully realizing the benefits of last year’s D-Flow acquisition as we increase our product offering while reducing our costs. We also remain on track to incorporate the Cat-M chips into our ORION Cellular offering in Q1 of 2019. Integration of these chips will improve the battery life, extend the range, and increase the number of daily on-demand reads for utilities. We are very excited about this development as we continue to build our smart water metering offering for our customers. I also would like to point out that on June 12 we joined the AT&T Smart City alliance, which further solidifies our leadership position in providing smart water solutions for any utility large or small. We are excited to be part of this exclusive group. AS Scottsdale move costs are now behind us and that combined with our product development and cost reduction projects in the recent moderating of copper prices gives us confidence that our margin profile should be getting back to the levels that we expect to achieve. Overall, we had a very solid quarter and we remain optimistic for the second half of 2018 and into 2019. With that, Rick, Rich and I will be happy to take your questions.

[Operator Instructions]. And our first question will come from Richard Eastman with Baird. Your line is open.

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

It really wasn’t that significant cost of the most part of the incremental revenue, over and above what we already sold to them and probably 80% of what their sales were – I mean it’s less than a million bucks.

Combined, less than a million bucks contribution?

Yes, for the quarter.

Rick, you also….

Rick, can you – one second. Again, just to remind people, when we buy our own distributor, okay we were previously selling to their distributor then the distributor was marking up and selling to the customer. So what you are talking about when we buy it, the only incremental impact is their mark up. That’s why …

And then have no third party sales?

No they were essentially a 100% Badger Meter sales.

Okay, all right. And then could you sprinkle some color on two things. One is the healthcare cost that you flagged in both COGS as well as SMEGA. Could you make the split and give the total number?

No, but I’ll give you some additional color. I mean, within cost of goods sold, it could be 25 to 50 basis points impact and it’s probably one of the biggest drivers in SMEGA in terms of – it’s just one of those things Rick. We’ve been having lower healthcare cost for a couple of years now in part due to some of our wellness program and like, but we are self insured and it’s just we have an aging workforce including one who’s speaking now. Okay, and it just so happens that at certain quarters, we just get with unusual charges. Do we say think that’s a trend? Not necessarily, it’s just one of those things we’ve been going down for a while, and now we got hit with higher cost.

Is that a year-to-date true-up or is that strictly in the quarter?

It’s strictly in the quarter.

Okay, okay. In…

Rick, it could just be timing of when people have stuffed on to. So I’m reading this into…

Okay, and then also just from a COG standpoint, maybe we could just talk a minute or two about just the influence from some of these issues. I mean one is, apparently we didn’t get as much price so the price wasn’t sticky as we thought from the beginning of the year, so I’m reading that into it. We know brass costs were up, again there’s a healthcare issue there. And then I found it curious that the mix popped in there, that international meters actually hurt your gross margins. And I was in the assumption that most of the meters that go to the Middle East are actually more profitable. So maybe you could just kind of shift to this a little bit and if you could put any kind of basis points degradation on those issues. We had a first quarter gross margin here that was impacted a 100 basis points by closure costs alone which to me exclusive of that would have put us at 36%. I’m just surprised that we didn’t see more of a step up in the gross margin for those issues, sorry.

Okay, Rick so let me take a couple of the seven or eight things you rolled into that. So let’s start with price. So in Q1, we had told you that we thought we have achieved about 100 basis points. And as we rolled into Q2, we probably thought that would get up to about 200, but if you remember we had a lot of project delays in Q1 and we are very pleased that they did come through in Q2, but they didn’t show up on April 1, right. So a lot of those came in May, June and those are going to be projects we are going to continue to ship throughout this year and maybe even into next year. So we still feel pretty good about getting up to that 200 or so basis points that we told you we would get. As we look at our backlog in the second half of the year, compared to what it was in the first half, I’m very pleased that heading into Q3 our backlog is the same size as it was heading into Q2, which was healthy. But also if we look at the margins and there the margin profile is better, so I definitely feel comfortable that we are going to start to see the price more in Q3 and Q4, it just didn't happen as early perhaps as we thought it might.

Okay. Okay.

Okay. And then on the international side, so this order is really a significant opportunity for us, that's part of a three-year program, right? So we took the first year as a strategic inroad to winning in the market. They like our product. They like our offering in general. But this will become more profitable for us in years two and three as we continue our D-Flow technology integration. So, we're going to be able to bring some of the savings to bear in years two and three that we really couldn't get done in time for this year. So your comment is correct in general for international, but just not this particular order.

Okay, okay.

And I don't remember the other six points.

I mean, and Rick, we're not just quantifying it. But, Rick, there's thing in there like there is some foreign exchange in there that's negative. There are things like mix between certain product lines. There's the impact on plant utilization of selling maybe more brass and -- all those things but we're just trying to call out the ones that we believe are significant.

And as far as copper goes, that was another one you brought up, so I'll jump in there. So last year in the quarter copper was on around 255, 260. This quarter it was around 310. And now it's dropped back to 270, so its kind of whipsawing all over the place. It takes a little bit of a lag time to come through, so we'll still see some of the higher copper cost into Q3. But then it'll get better toward the end of Q3 and into Q4 as long as copper…

As long as copper stays down…

Stays moderated, so – yes, so it's certainly positive for us in the short term, yes.

How just the mechanical meters or the brass meters, how did they perform in the quarter? Were they up or down?

They were up.

Okay, okay. All right.

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

Okay. Okay. All right. That's great for me. I'll get back in the queue, but I'll give somebody else a shot. Thank you very much.

Okay. Sure.

Thank you. Our next question comes from Brian Rafn with Morgan Dempsey Capital. Your line is open.

Good morning, guys.

Good morning, Brian.

Good morning, Brian.

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

Yes. So in the first quarter if you recall we talked about we had some timing with the orders where we had a pretty good order rate coming out of the month of March which built backlog coming into April. So we did ship a large portion of that. At the same time, though, like I was saying, what I feel really optimistic about going forward is that we had that backlog build up at the end of Q1, but we -- while we aid into and ship the lot of that in Q2, we haven't depleted our backlog, it still just as healthy going into Q3 as it was in Q2.

Okay. And then can you talk a little bit about the AT&T, the Smart City alliance, how that helps kind of leverage business biding service. Can you give me a sense of what that means to you guys?

Yes. So that is something that I'm really excited about. And what it does for us is one, it gives us -- everybody talks about smart cities and how they're going to participate in smart cities. And being involved in this AT&T alliance really gives us instant credibility and in the fact that we have a product offering and a service that that people wants. So, to give you a flavor of who is in this alliance? It's us and 10 other companies. I'll just name a couple of it; Cisco, GE, Hitachi, IBM. So it's Badger Meter and a list of basically 10 Fortune 50 companies that that we entered into this alliance. So it gives us a tremendous amount of credibility. Two, it gives us an ability to do some joint marketing with AT&T, so obviously they've a very large marketing arm and can really help get our name out there. And a third thing that's really important for us is it gives us access to the Mayor's office and it gives us the ability to get in and have higher-level conversations with cities, even before they're thinking about going out to bid, right. So it's really I think a big deal for us and something that is really going to help us, keep our leadership position in smart water metering.

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

Well, it's extremely important because on the commercial side we're seeing people start to transition to ultrasonic and anything that included a bid of 3-inch and 4-inch we couldn't participate in. So we were actually starting to get locked out of some of the larger bids. We – now that we've launched three and 4-inch we are able to participate and we do expect that to be really important for us.

And then, Ken, just a follow on to that, how, say, going in the 2018, how would you distinguish the commercial sized market versus the residential? I mean, how viable has been, how – what's been kind of tone of business?

So, tone of business is relatively the same. I mean its – we're feeling generally upbeat right now, but our markets and commercials one that we feel is going to be a relatively healthy.

Yes. I mean, they don't – this is Rick. Residential and commercial don't always track with each other, but more often it's simply a matter of the timing of orders than anything else, because when the city is replacing its meters or replacing both the residential and the commercial ones generally.

Got you. All right. I'll get back in line. Thanks guys.

Thank you. Our next question comes from Nathan Jones with Stifel. Your line is open.

Hi, Nathan.

Good morning, guys.

Good morning.

I'm glad, my line was on mute when you're answering questions otherwise you hear me laughing down the phone all the phone all the time. You guys have over the last two or three quarter commented on relatively lackluster domestic municipal markets. Certainly the tone in the press release change pretty significantly this quarter. Can you talk about any color you can give us on what's driving that inflection? Is it related to the few specific projects that you're seeing just a more positive overall market? Or anything you can give us there?

Yes, Nathan. So, we're just starting to see a general more positive overall market. So I was talking with our sales leader and the regional leaders and they're just taking about the general bid market is strong. So it isn't just large bids. And then there is relatively large number of large bids that are going through as well. So it isn't being driven by a say, just winning a few outlier bids or doing outliers ones, its feeling pretty strong all the way across.

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

Yes. I do you feel like compared to where we were two and three quarters ago that the general activity is up and it's certainly feels more sustainable.

Okay. I'm going to ask the gross margin question in a little – with a little blunter instrument. You had about 300 basis points down year-over-year on the gross margin line. Is it possible for you to just pass out what the buckets for that in terms of inflation, offset by price, offset by productivity, offset by mix et cetera?

Well, I think we've given as much colors as we can give, but I would point out that last year was probably a little bit higher than anticipated. So it mean part of it is -- we always revert back to that 37%, 38%gross margin. Can we take that higher overtime as mix continues to change with more and more electronic, possibly, but there's always the competitive pressure that tamp it down. Every time we've gotten over 40 it's been tamp back down. So given the fact that I think we've talked about all the big ones, I mean there was copper, there was healthcare, there was some FX and they're going against it. We did get some pricing coming back. We've got the mix issue. Beyond that we don't give specific color by numbers.

Okay. Fair enough. One on SG&A. Your SG&A as a percentage of sales was the lowest that's been in several years. So clearly taking some actions there. Are there opportunities for you to drive the absolute dollars lower? Is there opportunity for you to gain some leverage on the SG&A line? Are you maybe approaching levels where you need to reinvest in sales or G&A or something like that? How you think about that's going forward?

This is Rick. I'll take a stab and then I'll give it to Ken or Rich, okay. But the reality when you grow the topline 5%, we're not going to grow the SMEGA by corresponding amounts. Over long-term we intend grow sales at a higher percentage than the SG&A will grow. In part because some of that SG&A is fixed, you will have some variability as you go forward, okay. If we get a particular quarter where sales go down, you might see that percentage come up, because for the most part we're locked in, having said that, we're always looking at controlling cost. And then somebody just wrote, don't forget we have succession cost that will increase over the short term but that's a different story. But it is true.

So, I mean, you said, you think over time, you should leverage SG&A to a lower percentage of sales?

This is Rich. We have spoken for years about our overall model being to shot for high single-digit topline growth, which we think we can achieve in our industry when you look at the long-term. And if we could hold SG&A to a lower 5% level, and this time it was 3.9, okay. If we're going to hold it to below 5% we can leverage 5% growth. We can leverage the SG&A and get continually lower level. So it went up 3.9%. What was in there? Well there was some inflation in there. There was some healthcare in there.

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

Right.

So I mean, when we look – again, rings of detail, okay, we pick the high ones to talk about, but for the most part its healthcare and it's some of the staffing. So I don't see if 3.9% growth in SG&A has being out of line and when you grow the topline 9%, SG&A grows 3.9%, yes, it's going to drop as a percent of sales.

Yes. Now I think it demonstrates good cost control. So thanks for the color.

Thank you.

Thank you. Our next question comes from Richard Verdi with Atwater Thornton. Your line is open.

Hi. Good morning, guys. Thanks for taking my call and nice quarter. I just wanted to follow up on my question from last quarter pertaining to Corix, to learn what kind of Canadian penetration Badger saw this quarter as a result of that agreement?

Yes. So in general in Canada we are doing very well on a year-over-year basis. Keep in mind, that starting from a lower market share or lower point than the U.S., but this year and year-over-year basis we are very happy, we're more than double digit growing in Canada, so we're pleased with our growth year-over-year.

Okay, super. And then can you just give us an updated sense of what you think that market opportunity is there in Canada for Badger, broad level and will that take a couple decades to reach, or what do you think?

Well, so let me take that little differently. So as I'm thinking about, I've been here now about eight months and thinking about the world and are opportunities whether they be Middle East, China, India, Western Europe, Canada, Latin America, we're putting that all together and really thinking about where we're headed and Canada is an important market to us and its one that will continue to grow, but I'm not putting a number on it, I can't – I don't know.

I understand. Fair enough. And just two more quick questions, can you give us a sense of what replacement cycle sales versus new home sales look like and where you see that trending over the next couple of years?

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

At least.

Yes, at least – sometimes it's even more, sometimes it get up to the 90%. And then, the other 20% is either metering cities that aren't metered and there aren't a lot of those, but there are some. Or more commonly where the cities are seeing new houses going up and they're adding those. So if we're adding right now about 1.2 million houses a year in the United States and about 75% of them are metered versus having wells, you're talking about 800,000 meters that that are going out in a market that is maybe 6 million meters. So that's kind of how you can look at it.

Okay, okay. Perfect. And then just the last question. Would you say for the Mid Atlantic region, would you say that's the most fertile landscape for Badger right now or is that somewhat equal to the rest of the U.S.?

No. I wouldn't say it's more fertile or less fertile than any other region of the United States. We are seeing some -- over the last 10 years we saw lot of Western cities doing major meter conversions to automation. Now we're starting to see more of the cities east of the Mississippi. That's probably the only trend I can say we've seen is that there are a lot of cities east of the Mississippi that are now starting to look at going to some sort of automation that haven't done it before.

Okay. Okay. Fair enough. Thank you guys. Again, good quarter. Appreciate the time.

Thank you.

Thank you. [Operator Instructions]. And our next question comes from Richard Eastman with Baird. Your line is open.

Thank you. I told I'll be back.

So, welcome back.

Ken, could I just get my arms around your commentary a little bit about second quarter orders kind of refilled the backlog here as we had a good second quarter revenue as well. But in some respects, one would expect that a seasonally? In other words, your Q3 revenue was kind of flattish with Q2. Sometimes it's down a little bit. But my thought is, is there a message in there or any read-through that suggests the business is stronger than it normally would be seasonally? And that's the indicator with orders or are you just kind of comfortable?

Yes. So the thing that I'm excited about more so than just size of the backlog is A, that it did maintained at a healthy point. But that if that we see in increased margin in the future compared to the past.

Yes. So the margin is healthier and the backlog that's there. But there's not really above seasonal type of read-through in your comment?

No.

Okay. That's fair.

That's fair.

Okay. And then also – again just to dig into the utility and muni business a little bit. Again at face value, revenue growth was call it 10%, 9.9%, acquisitions at a point so maybe we're at 8.9% growth. I assume currency wouldn't have mattered much here. So can I just ask against, let's call it a 9% growth rate in muni utility without the acquisition contribution? Was that – how did domestic line up against the 9% versus international? In other words, did domestic business grow six, international 12 or I'm just curious how big an impact international had in this order-hood?

Yes. So two-thirds of the growth was domestic, right. So around seven-ish percent, 6.7 and then…

Okay.

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

Yes. Now I understand. But international kind of did bounce back as we had expected to?

That's correct, yes.

Yes. And then just – and maybe this one, maybe this is for Rich. But one thing that's somewhat noticeable is that from a competitive standpoint everybody is kind of been racing some sort of solid-state or e-meter to market, and I think your Itron was probably the latest here. Now I don't think their meters actually available to late this year. But now you can – Itron is there, Neptune is there, Sensus is there. I know they had different technology. Mueller is there. And 'm just curious that has been your best selling meter product. And I'm kind of just maybe asking the question A, how does the playing field look at this point with the competitive product? And then B, you do have kind of a reseller agreement on the brass meter side with Itron? And is this – their introduction of an e-meter, is that going to impact that number materially going forward?

It’s a good question, but we got to consider few things here. So we introduced the E-Series meter and I'm looking around here for how long ago.

Eight or nine years.

Eight or nine years ago, okay. And the E-Series meter this quarter is 30% of our meter sales, okay.

Okay

So, when you consider that that it took us eight or nine years to get that up to 30%. Competitors that are just coming out with the solid-state now I don't think its going to take them eight or nine years to get it up to a third of their sales, but it because we've already paved the way for them. We've done the missionary work. But it's going to take them a while. Those meters -- it's a very different meter than what the customers have expected and water meter managers tend to be very conservative. If they been buying a mechanical meter for a long time from one of our competitors, it's going to take a little bit to convince them that they should try a new meter that is not on the field, that no major city has adopted and they've got to win them over. And as you saw when we introduce these products, a lot of customers said, give us 10, we'll try them for a while and talk to us in a couple of years. And that's what happens. So our first to market is a huge advantage here on the solid-state. And it has been and I think its going to continue to be a huge advantage. So that's a very significant thing. On the side with Itron, yes, Itron is now introducing their own solid-state meter. We have every year sold less and less meters through Itron. Our Itron sales are down to a very small now, we are primarily ORION which is our own products, so I don’t see that having a big impact on us. As far as our resale through Itron, now obviously it’s another competitor in the market. Itron has never had a meter, they are here now, they are going to try and sell meters and we’ll see how they do.

I think one additional point is as everybody introduces their versions of electronic meters, for the most part they have all been Ultrasonic. Now if you go back to several years ago, it was Sensus selling electromagnetic and us selling Ultrasonic. Everybody wondered which is the better technology. They are both very good technologies, but in terms of where we are going to have the cost savings we think we’ll get an Ultrasonic versus electromagnetic. So I think the fact the all these competitors are coming in with Ultrasonic validates that as kind of the fact of these standard now going forward also.

Yes, and it doesn’t seem just kind of looking at these different websites, it doesn’t seem that the majority of the other participants in e-series have a three or four inch commercial E-Series meter?

I think you’re right. Generally when you develop a new meter, okay you go for the high volume and the high volume is the residential. So you start there, and then you work your way to larger sizes. I think they will have them, they’ll eventually develop them, but we all know meter development is just double all the dimensions to say, I’ve now gone from a one inch to a two inch meter. It takes a lot more than that and it takes time. And so it’s going to take them time to catch up and have a full range like we have.

Got you. Okay, great. Thanks again, appreciate it.

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

Yes, I want to thank everybody for joining us today. Again we were pleased with the quarter. We felt it was a good, solid quarter and given a lot of the projects and the things we’ve got going forward, we are pretty optimistic about what’s going to happen in the future. We will look to talking to you again in the future. Thank you.

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