Good morning, ladies and gentlemen, and welcome to the Third Quarter 2018 Badger Meter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] .:

Thanks. Good morning, and welcome to the Badger Meter's third quarter earnings conference call. I'm Karen Bauer, Director of Investor Relations and Corporate Strategy. I joined Badger almost three months ago now. So, this is the first of many quarterly earnings calls with all of you. On the call with me today are Rich Meeusen, Chairman and soon-to-be-retired Chief Executive Officer; Rick Johnson, CFO; and Ken Bockhorst, President and CEO-in-waiting. Quickly I'll cover the Safe Harbor, reminding you that any forward-looking statement made during this call are subject to various risks and uncertainties, the most important of which are outlined in our press release and SEC filings. Finally, please note that on today's call we will refer to certain non-GAAP financial measures. Our earnings press release provides a reconciliation of the non-GAAP to GAAP financial metrics. With that, I'll turn the call over to Rich.

Thanks, Karen, and thanks to all of you for joining us for our third quarter earnings call today. We are very pleased with the results for the quarter, both on the top and bottom line. As noted in the release, sales were a record for any third quarter, and our adjusted EPS of $0.46 was an all-time record at Badger Meter. Rick will walk you through the details of the quarter, and after that, Ken will talk about our key strategic initiatives and our outlook. Before turning the call over to Rick, I first want to talk briefly about the CEO transition announcement we made a few weeks ago. I will be retiring as CEO at the end of the calendar year, staying on as Chairman of the Board for a year. As most of you know, the Board and I conducted an extensive recruiting process culminating in the hiring of Ken, in October of last year. This past year has shown us we made the right choice from an integrity, culture, and business acumen perspective. I have all the confidence that Ken is the right leader to take Badger to the next level in terms of innovation and technology, while preserving the strong 113-year legacy of the business. So while this may be my last official earnings call, rest assured, I will continue to be an interested shareholder and contributor at the board level. With that, let me turn the call over to Rick.

Thanks, Rich. After nearly 18 years of working together and a significant number of quarterly earnings call, I'd like to say I'm going to miss doing these with you. I really like to say that, but I've never lied in this call and I'm certainly not going to start now. So let's get down to business. First, let me remind you 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 specific components of cost of sales, for example, brass. More importantly, we do not provide specific guidance on future earnings as we believe this does not serve the long-term interest of our shareholders. Now, on to the results; I will be commenting on adjusted operating results and EPS. To arrive at the adjusted results, I'm adding back both the final termination charge we took for the exit of our pension plan, as well as the non-cash charge required for divesting of equity and cash compensation associated with Rich's retirement. Both of these are outside of our normal operating results, and therefore, we believe it makes sense to exclude these charges when examining the operating results. The pension charge was $11.7 million pre-tax or $8.7 million and $0.29 per share after-tax. The majority of this was non-cash. This was a bit higher than the estimate I shared with you last quarter as a result of some final adjustments to the actuarial assumptions for the plan. We are pleased to have the pension termination and related charges behind us, and to have completed this significant de-risking of our balance sheet. The executive retirement charge was outlined in the 8-K we filed in September or early October, and amounted to $2.1 million pre-tax or $0.07 per share…

Thanks, Rick. I want to first express my deep appreciation and respect for how Rich has handled this transition and what he's built during his tenure as CEO of Badger Meter. I'm proud and honored to take on the role, and understand the deep heritage as only the sixth CEO in our 113-year history. In many of our discussions I've had with investors over the past year a couple key themes have emerged which I want to address. First, I understand and appreciate the complexity surrounding leadership transitions. I've witnessed in my career both the good and the bad, and I have taken those lessons learned. And with the support of the Board and Rich, believe we've set ourselves up in the best way possible for success. Second, I'm acutely aware of the strategic importance of preserving and nurturing the legacy of the enterprise. At the same time, I believe we have opportunities to expand our technology offerings, improve our operations, and continue to globalize the organization. My goal is not to pivot 180 degrees, but to diligently and smartly build off a strong foundation. So just a few comments as I look out for the rest of the year and the start of 2019. First, I continue to feel good about our order rates and backlog which remains strong. As Rick mentioned, sequentially Q4 is expected to be lower than Q3 due to normal seasonality. Both our domestic and international markets are seeing good penetration of our E-Series, ORION Cellular, and BEACON lines, and we continue to invest in new technologies. For example, we will be incorporating our CAT-M chips into our ORION Cellular offering in the first quarter of 2019. Integration of these chips will improve battery life, extend range, lower our costs, and increase the number of on-demand reads for utilities. We launched a larger sized E-Series commercial meters with D-Flow Technology, and we are steadily building a bid base and backlog there. We remain on schedule to complete the integration of D-Flow Technology into our residential meters in the first quarter next year, also thereby reducing costs in 2019. I remain excited about our participation in the AT&T Smart City Alliance. We recently took part in a Smart City event in Dallas, and gained further insights into the tremendous opportunities in smart water solutions for utilities. We are experiencing the benefits of this alliance both in terms of the dialogue and quoting activity we're seeing with key municipal decision makers, as well on the technology side in terms of keeping abreast of the Internet of Things and future generation cellular connectivity. In summary, we had another very solid quarter, and we remain optimistic for the remainder of '18 and into '19. With that, we're happy to take your questions.

[Operator Instructions] Your first question today comes from the line of Richard Eastman of Baird. Your line is open.

Yes, good morning.

Good morning, Rich.

Hey, good morning. Good morning Ken, Rick, Rich, Karen. Hey, just a quick question around the pricing. Can you give us a sense of how much price capture you did get in the quarter when you look at the top line growth of 10.6%, and any thought as to what the gross price capture is there, not net, but gross?

Of the 10% increase, probably 4% maybe ballpark is roughly pricing.

So four points consolidated is pricing, okay.

Yes, I mean because we're up about 10. A lot of it is pricing.

Okay.

Now when I say -- it doesn't mean increased prices, it's also pricing, where we're getting better prices for the material. The big driver was the volume.

Wait. Okay, so better prices for the material. So basically you're saying 4% includes kind of mixed shift, so…

No…

No.

Yes.

Okay. All right, so more higher priced products sold year-over-year plus your list price increases -- captured in there?

Correct. And it's…

Okay, that's fair.

- higher priced products, correct.

Yes. And therefore, so that's all captured in the gross margin when you speak to the benefit of mix within the residential meter, so you'll get the higher price point products, and then also the price capture on a net basis helps you there as well, that kind of feeds right to that commentary?

Yes.

Okay, fair enough.

Rick, this is Rich. Maybe to help out a little bit, when we did our price increases on the utility side earlier this year, and copper prices were going up, so we're trying to catch some of that copper. Our list price increases ran 100 to 150 basis points in that range, okay.

Okay.

So when you're talking about purely what did we raise price of our products, that was about 100 to 150 basis points.

Okay, much better.

Does that help?

Yes, it does. And then mix would be beneficial there as well. Okay, I understand that on top.

Correct.

Okay. And then two other quick questions, one is on the Middle East side. We spoke again about, I presume, double-digit growth in Middle East sales. Is that coming out of backlog or has there been some more wins there, or maybe what's the trajectory of Middle East sales look like kind of going forward.

Yes, in the historical use of the word lumpy for Rich and Rick, so if you remember the Middle East orders that we took in Q1, we shipped a large portion of that in Q2, and the remainder of it in Q3. That order is now complete. We expect further orders from the Middle East for our products, but there's no larger order in there now rolling forward.

Okay, fair enough. And then just two other quick questions, one around the balance sheet, accounts receivables kind of were up $5 million quarter-to-quarter, kind of plus 20% year-to-date. What's being captured in there, is that the Middle East order?

Well, the Middle East has longer sales terms than a standard order, so that's in there. But it's just -- otherwise it's just normal business, it's timing of orders.

Okay. And last question, just very recently, obviously the two hurricanes, one Florence, I think that was September Carolinas event, and then Michael here more recently, Florida, Carolinas; any impact maybe on what we should expect around fourth quarter seasonality, for instance, might that delay enough business just to make a noticeable impact on the seasonality in the fourth quarter on the municipal side?

So, it did not affect us much at all in the third quarter. We certainly were watching it very closely for a while. UPS wasn't shipping to some of the zip codes we had orders to. But we did get a majority of that out, maybe some flipped into the fourth quarter but not enough for us to be concerned about. Don't really know anything about the latest storm here, but being October I guess I'm not concerned for the quarter, so should be relatively fine.

Okay. Okay, perfect. Thank you.

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

Good morning everyone.

Good morning.

And congrats on making retirement there, Rich.

Thank you.

Start with a question on SG&A, it does look like that stepped up a little bit from 2Q to 3Q. Is there something discrete driving that increase in SG&A? And how should we be thinking about the SG&A number going forward?

Well, I mean, first of all, obviously the $2.1 million charge in there for the executive transition. You pull that out of there, as I said, sequentially we're down as a percent of total revenue. And there is just certain unique things that are timings of the incentives and like, but there's nothing of substance in there. Healthcare was up a little bit in the third quarter, and we've been running favorable earlier in the year. So it's simply sometimes just the timing of items.

Okay. A question for Ken, one of the things Rich mentioned in his prepared remarks was that you're the man to drive innovation and technology going forward in the company. Can you talk about the things the company is going to be focused on in those areas going forward, and where you see the most bang for your buck?

Well, not to shortchange Rich's eye on innovation and technology in the future, I think he's going to figure out how to use his phone in Florida, but. So the market is really, really evolving. And as we've talked before about -- yes, that's not here, so…

Yes, that's not on our end. That's someone else who needs to mute their phone.

Yes, not sure who's being welcomed in, but anyway. So we've been evolving into these meters, then selling meters with radios, and then the software packages. And we're going to continue to see it evolve in terms of what more information can we bring to a customer though added sensors, whether that's pressure, heat, water quality sensing. So what we're going to be focusing on is we already have a large customer base that we can sell to that is becoming more and more inquisitive with data, so how can we continue to focus on technology to bring them more of what they're looking for?

Okay. And then I'd just like to ask one about the Smart City Alliance. Can you maybe talk about what insights you gained, what opportunities you expect that to open up. And has there been any tangible, as in sales benefit from this year or is that something that you'll think will manifest in the future?

Yes, so the first thing I want to be clear about is I am really excited about this alliance, but I'm confident that we could win with or without an AT&T alliance. But let me tell where it's really strong for us. So, on the last call, I talked about just credibility in the cellular market for our products. Obviously being in alliance with AT&T and 10 other Fortune 50 companies certainly gives us a credibility there. Joint marketing and joint sales, so without telling you the city, there's a large city that's going through a smart watering bid right now, a very large bid, and it's been a really nice collaborative effort where we've been on the lead. Our solution architects got in first, we brought in AT&T representatives to talk about the future of cellular and why that's such a great option for them. And hearing that from AT&T probably carries a little more credibility than it does from us, so that's been very helpful. And in many cases they've been able to get us relationships with CIOs and mayors in large cities, and it's just been a really, really good collaborative effort. It would be very difficult for me to tell you we're going to grow X% because of it. But I can tell you that our sales pitch or what we're doing just comes with a lot more credibility with them with us.

Thanks very much for the time, and congrats again, Rich.

Thank you.

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

Great, thanks for taking my question, and yes, congratulations on the smooth transition. I can't help but think maybe you guys should go give a lesson to General Electric about how to manage a CEO transition, but that's a discussion for another time. I want to talk a second about backlog…

Yes…

You mentioned it several times in the press release and in the prepared comments. I know in the past, Rick, you've said you don't like to get too deep on the backlog. But you have kind of mentioned it a few times here. So is there anything you can -- any way you can give us a little more flavor or color or quantification around those comments on backlog even if it's just what types of projects, and any deeper dive on your backlog comments would be helpful.

Yes, Ryan. So this is Ken. So in terms of the backlog as Rich - or yes, Rick mentioned, Q4 sequentially will be lower than Q3, it is every year from a seasonality point of view. So if we look at the backlog compared to last year heading into Q4, it is up in revenue on a year-over-year basis which makes us feel good and it's pretty broad-based. And we do see the impact of pricing flowing through in that backlog. So that's where the optimism comes from is I think with the relevant comparisons it makes us feel good about where we're headed here for the short-term. We don't carry a huge amount of backlog. It's not like we know for the next six, nine, or 12 months, but for the next period we feel solid about it.

Okay.

Ryan, this is Rich. I'd like to also remind you that Badge Meter takes a very conservative approach to backlog. We may win a contract where the customer says I intend to buy 50,000 meters and radios over the next year we generally will not book anything until we receive the actual purchase orders. So we're very conservative about that. And so when you compare us to some other companies there can be differences in policy.

Got it, okay. And then I wanted just a second about the flow instrumentation. Obviously, you mentioned the little bit of softness there and the fact that comps do play a role in that, but it's a little surprising to see the softness there given that that's -- that industrial space more broadly does seem to be kind of a tailwind for many different companies right now. So any additional comments on the flow side and what exactly the weakness is stemming from there?

And this is Rick. I'm not sure I'd call it weakness as much as if you look at the third quarter of last year it was up like 16% over the third quarter of '16, so we had some unusually strong, in fact, almost huge orders that went out in the third quarter of last year that just didn't repeat this year, so some of this is simply a matter of timing. And I think if we look back in terms of -- we don't talk about flow instrumentation standalone per say, but that was probably one of the biggest record quarter we ever had last year. So I agree with you, it was a tough comp; we didn't have some of those one-offs, but in the markets we're emphasizing, the ones that -- the core markets we are seeing increases. And then we're seeing some sales fall off in some of the markets we're deemphasizing. So we're not particularly concerned about it. We continue to monitor it.

Got it.

I guess, yes, for me, I don't expect this to be a trend, all right. So the four target markets that we're after are very large markets. They are growing, and I'm highly confident this will be a blip rather than a trend.

Got it, okay. And then my last one, just a bit of a bigger picture question around all this innovation happening on various fronts and different aspects of the product line from flow measurement with the ultrasonic all the way up to the AMI stuff, and I guess my question is Badger Meter is a well established part of a nice oligopoly here domestically. And obviously these technological evolutions are an opportunity. But is there also an element where there's a risk to the competitive structure of the market domestically where more competition comes in. I'm thinking specifically, as an example, ultrasonic. You've now got new players that are able to come in that maybe didn't do positive displacement as much; they are now coming into your market. So can you just comment on kind of the impact of innovation on the market structure, maybe specifically on ultrasonic, but then more broadly as well?

Yes, so on the ultrasonic side first. So you're right, there are people that are coming in. But the thing to remember about the U.S. market is that, in particular, there's nearly 50,000 water utilities that we've been selling to for 113 years. We know all of them, we have a strong relationship. So one, it's very difficult to come in and just start taking over while the market is accepting the ultrasonic technology. It still hasn't become a less risk-averse market, right. So it still takes some time, and we're strongly entrenched, so that's one. Two, I feel really good about our ultrasonic position, right. So since we acquired D-Flow and were integrated into our products to get a great cost position, to get into a larger product line. As they come in, it isn't like we're burying our head in the sand of mechanical meters; we're making a strong transition at the same time. So we'll be able to continue to fight as they come in, into the future. So, understand your point, but I feel good about your position. On the AMI side, yes, I mean that continues to evolve. But I feel like, again, we're out on the front end of it. Having a relationship with someone like AT&T and understanding the future of cellular, and whether it's LTM chips and NTIOB, I think we've got a pretty good handle on where that's going. Obviously, it's going to continue to evolve fast. We need to stay in front of it. But right now I feel pretty good about where we're at.

Ryan, this is Rich. I'd like to add something else about the ultrasonics. You have to remember that we have been selling ultrasonics for, and I'm going to pause and look at our VP of Sales, how many years?

Eight.

About, since 2009, okay, so we've been selling ultrasonics in North America since 2009. We were not only the first ones to come in the market with the ultrasonics; we are the only ones, okay? Now we are seeing the me too products come along nine years later, but after nine years, ultrasonic sales are this year running about 30% of our metering revenue, okay, which is for this industry a reasonably fast acceptance rate. So, it is doing well, and increasing and growing well for us. For other companies, we don't have reference accounts. They haven't been the market for a long time. They can't say, "Look, we've had these products out here for 10 years and they are performing well." It's a lot tougher for them. So, I just want to echo Ken's comment that he feels very good about position in ultrasonics and I agree. We are in a very strong position. Obviously in our industry, it isn't just about technology, it's also about brand and channels, and we have that strong brand and the strong channels to go to market with.

Got it, that's very helpful. Thanks for your time this morning guys.

Thank you.

Thanks.

Your next question comes from the line of Harry (sic) Doza of WAM. Your line is open.

Hi, good morning everyone. I have a couple of questions. First on your point about missed price increases, 100-250 basis points, the first question is how often do you put through these increases? Is it like an annual event or was this sort of anomaly this year that you instituted this list price increase?

No, it was not an anomaly. Generally, we adjust prices on the first of every year in municipal water. This year, and I think we talked about this previous in the call because of some of the increases we are seeing on the flow instrumentation side, we made some price increases on October 1, but generally speaking, it's January 1 of every year.

Okay. So, this year the increase went into effect earlier this month, not earlier this year.

No, no, no, that was just for flow instrumentation.

Okay.

So for flow instrumentation, we announced that the price increase was going in on October 1, so that has started. We are current under review of our pricing by products and by different types of technologies within the utility sector.

And -- go ahead; sorry, go ahead.

The utility sector is where we increase on January 1 every year. So when I was talking about that 100-250 basis points, the bulk of that was related to the utility increase last January 1, and we will look at another utility increase possible on January -- on the coming January 1.

Got it. That's very clear and helpful, and one follow-up I would have is when you institute the list price increases and let's speak to municipal water utility industry, what is that accounting for? Is that accounting for higher cost? Is that accounting for you to keep your margins whole? What is your ultimate goal when you have this "List price" increases?

Well, yes, to everything you said. I mean it's obviously to capture any kind of cost increases. It's to adjust prices to market to be competitive. Everything combined. I mean obviously we set prices so they were able to continue to sell it and make a reasonable return.

And Harry, again this is Rich, just so there isn't any confusion, I am sure you are saying the same word as I am. I was saying "List price," L-I-S-T. We have our list prices out there, and those are what we adjust and then certain customers get discounts off those list prices. When we did the one last January, there was a greater emphasis on meters that were made out of brass, because we had the copper increase and we were trying to capture that, and perhaps less emphasis on polymer meters or stainless steel meters or other things. So we take a lot of things into account. We're obviously trying to maintain our margins and offset any increased cost.

I know your primary cost is not steel, which has bore the brunt of lot of the tariffs in domestic steel increases. In terms of your input, what areas have you seen the highest input cost in your municipal water business?

Yes. So, we've got a global supply manager that is all over this, right. So what we are seeing is no different than you are probably hearing on other calls. Some increase in electronic, some increase in steel. For the most part, we have some impact. It's not a significant amount. It's primarily -- that was one of the reasons we got out with the flow instrumentation increase earlier. So, it's -- we've got some, but it's -- we can overcome it with price.

And Ken, you had mentioned earlier in the year -- when I say you, I mean, the company, that there were some supply chain issues related to the supply of chips that has been affecting the overall industry, is that issue relating to chips resolved or is that still a bottleneck in the industry?

Well, it's not just chips, but there's capacitors and other significant electronic components, but again it isn't something that we're anticipating any huge increases or product stock outs. We've got a good plan around -- we know what those products are and our supply chain group is out on the front of it.

And Hasan this is Rich again.

Yes?

I think you misunderstood me when I said list price and you said lift, but then I got even with you by calling you Harry instead of Hasan, and I apologize for that. The only other point I'd like to make is that come January 1, I'm not so concerned of what the price of water meters are I'm more concerned about the price of margaritas. So consider that in your model.

Okay. One question on inventories, I noticed that the first three quarters, your inventory levels have been flat at the $85 million level and one would have expected with a higher sales your inventory drawdown to be a little bit faster, but any reason why your inventories have been flat so far this year?

No, I mean, nothing in particular. It's just normal operating condition and nothing that's standing out…

And I also like to think we're getting better on some of our forecasts and we're hoping that we don't have to grow inventories. Now you remember we still offer a variety of choices which is why we carry some of these higher inventory levels, but no, I agree with Ken, there's nothing that comes out and says, hey, there's a reason for this.

Okay. Thank you very much for your time this morning, really appreciate all the color, thank you.

Thanks.

Your next question comes from the line of Andrew Buscaglia of Berenberg Capital Markets. Your line is open.

Hey guys, thanks for taking my question.

Sure.

I was wondering if you could talk about -- a little more about the utilities sales. You had a nice quarter. You've seen those accelerate to mid teens, so what's driving this I mean, I know, versus last year, it's a little easier comp but is this more company specific related to your sales efforts or is it generally a good market that you're seeing out there?

Well, so two things. You gave me the opportunity to say we're doing a great job, so I'll say that, because you asked if it was or sales efforts first, so, it is two things. We are seeing on a broad basis more quotes, so more quoting activity just more things going on in the market. At a base level, we're also seeing more quote activity for the larger bids where people are transitioning from the just buying meters to moving up into adding radios and software packages to it. So seeing some of the larger bids and -- so I think activity just feels more robust. I saw someone had mentioned that we had five lackluster quarters in a row, but I'd point out last quarter was almost 10% also. So we've got two quarters of runway. And then from a sales point of view, I guess, it's probably a good opportunity to recap. Over the last few years, we've been buying our distribution which was a strategy to bring ourselves closer to the customers and help bring them up the technology curves. We've created a new group of solution architects which are people that are really adept at selling the higher level of technologies. We've improved our channels and our partners again with the at the AT&T alliance. So there's a lot of things going on there that I think are not just market driven, but I think our team is doing a really good job.

Okay, got it. And yes, if you can comment on M&A with these tuck-ins was going to be another source of inorganic growth over the next probably couple of years, any update on the pipeline there of what you're seeing or anything -- any conversations you're having you'd like to disclose?

Well, so just in general, I know you're new to us, so this might be an older story for some of the others, but we really started looking at what our opportunities are from a technology point of view from adding on the geographic side and we really built out a pretty robust funnel of opportunities over the past six to nine months, 12 months and we're now in the phase of you know, we're talking to people and getting deeper in with companies. I would not in any way imply that a deal is imminent, but I would tell you that we do have a pretty good robust funnel of opportunities where we could add to our technologies or perhaps increase our geographical reach.

Okay, got it. Maybe just one more if I could, I know Rich, congrats on the next steps you're taking.

Thank you.

Would you like to comment, you know, into next year, how involved do you expect to be with the business? I know you're staying on as Chairman, but sounds like you're going to have some margaritas come January 1, so I'm curious if you could talk about the day-to-day involvement or how you expect…

Yes, well, first of all, let me make it clear, I will be a non-executive chairman, okay?

Yes.

So I will be a board member, I will be running the board meetings as chairman of the Board, but also under my contract for four years and obviously I would probably do this for the rest of my life contract or no contract, but for four years, I will be available to Ken for consulting. So Ken can call me at any time if he has questions or issues. In fact, I'm already planning to travel at the end of January over to the -- to our annual sales meeting and address our sales team. So I will be having some involvement there. Obviously, like other board members and maybe a little more so, I'll be involved with Ken on strategy and discussing our strategic initiatives. So you know, clearly I'll be here as much s Ken wants me, but I will not have an office here and I will not be day-to-day onsite.

Okay. Thanks, Rich.

Your next question comes from the line of Richard Eastman of Baird. Your line is open.

Hi, I just wanted to circle back to a couple of things, one is, when we were speaking to the utility revenue growth rate, you referenced that service revenue grew meaningfully. It was -- is that an area to flag? You haven't referenced that in the past and I'm a little bit curious, I mean, what is -- (a) what is the service revenue, what might the base be and then what drives the growth there?

Well, most of it is the BEACON revenue, okay?

Okay.

And right now on an annual -- probably, this year we'll run it at about a $10 million rate, and that's up substantially from last year and hopefully next year it's going to be even higher, because we're seeing more and more sales of the cellular radio along with the BEACON service. And so, we are starting to call out, because now it is gaining some traction and then it's getting to be a bigger number.

Okay. Okay, fair enough. And then also we're talking a little bit about maybe towing a project business was referenced and we had -- could I ask if this Smart City project that you're involved with AT&T, is that particular project, Ken, that you referenced is that in the Continental U.S., that city?

Yes…

Okay, because -- no, well, the reason I ask is you know, your name has come up -- we've been kind of tracking this massive project in Puerto Rico, this water project in Puerto Rico and Badger's name has been in that -- involved there and I know it's a territory, it's not a state, but -- and I'm curious as part of that bid there's a fairly substantial financing component that they expect the contractors or the general to bring to that project and I'm curious if that -- is that somewhat of a new trend and in fact is that something that Badger would actually would be interested in doing as financing their involvement in a project, certainly, that size?

Yes, so, no, we're not going to…

Okay. Good.

-- get into the financing, but what you are starting to see, Rick, is there are capital funds that are starting to set up to fund smart cities for the cities that would like to do smart city rollouts but can't afford it.

Okay. Okay. So those…

-- but not us, but not us.

Not us…

Yes, to be clear.

We would sell -- right.

Yes. Is that like when you say capital funds, is that like government-driven or like federal or municipal or is it…

Private…

So it's private equity or private funds?

It's private funds and then there's a lot more talk going on around these public/private partnerships, but yes, so that is evolving, which also does give me more confidence in the smart cities being less about just talk and really becoming more of a reality.

I see. Okay, fair enough, and then just last question really quickly, you know, two initiatives that you mentioned earlier, one around this Cat-M chips into the ORION Cellular, there's a cost out opportunity there certainly and then also the other comment around ultrasonic D-Flow Technology into the residential meters in '19 is the combination of those two things, I mean, well, we see you know a double-digit basis point reduction in your COGS, I mean, is that going to be measurable and noticeable for us looking in from the outside?

Internal -- well, from the outside, no; internally, we'll see it. Okay, but we haven't yet…

Well, I hope so. I am more interested in me. The world revolves around us, right?

Right, I know that -- yes, I understand. The fact that we have talked about it implies that it's got substance, okay, and that it's important, okay. So, one of the questions we got to ask is, Are we are going to reduce pricing to keep the margin and then try and gain market share, or how are we going to -- or just make the higher margins? I mean that's still the market has got to decide that. We are going to be watching that. That's going into the consideration even in terms of when we are talking about what price increases we put in place on January 1, because that to a certain extent is going to help offset some of that. So I mean it is something we are watching very carefully, but the fact we have been talking about it now for probably a year, okay, we do believe it's going to have an impact on the cost of good sold. We just -- we haven't disclosed it, and we probably don't intend to at this time.

Yes, fair enough, okay, all right. And Rich, any good luck, you still -- it would be good to see around here hanging around Badger as well as well as Milwaukee so -- but good luck.

Well, at least Milwaukee.

Thanks, Rich.

Yes, you bet, yes.

And there are no further questions in queue. I would like to turn the call back over to Ms. Bauer.

Well, thank you everybody for joining our call today. For your planning purposes, our year-end call is tentatively scheduled for February 5. I'll be around all day to take any follow-up questions you may have. Thank you. Have a great day.

Thank you for joining us today. This does conclude today's conference call. You may now disconnect.