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Edited Transcript of BMI earnings conference call or presentation 17-Apr-19 3:00pm GMT

Q1 2019 Badger Meter Inc Earnings Call

Milwaukee Apr 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Badger Meter Inc earnings conference call or presentation Wednesday, April 17, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Karen Bauer

Badger Meter, Inc. - Director of IR & Corporate Strategy

* Kenneth C. Bockhorst

Badger Meter, Inc. - President, CEO & Director

* Robert A. Wrocklage

Badger Meter, Inc. - VP of Finance, CFO & Treasurer

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Conference Call Participants

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* Andrew Edouard Buscaglia

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Jose Garza

Gabelli Funds, LLC - Portfolio Manager

* Nathan Hardie Jones

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Richard Charles Eastman

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Ryan Michael Connors

Boenning and Scattergood, Inc., Research Division - MD & Senior Analyst of Water and Environment

* Tate H. Sullivan

Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the First Quarter 2019 Badger Meter Earnings Conference Call. (Operator Instructions) Please be advised that today's conference call is being recorded.

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

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Karen Bauer, Badger Meter, Inc. - Director of IR & Corporate Strategy [2]

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Thank you. Good morning, and welcome to the Badger Meter First Quarter 2019 Earnings Conference Call. On the call with me today are Ken Bockhorst, President and Chief Executive Officer; and Bob Wrocklage, Chief Financial Officer. The earnings release and the related slide presentation are available on our website.

Quickly, I will cover the safe harbor, reminding you that any forward-looking statements made during this call are subject to various risks and uncertainties, and 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 metrics. Our slides provide a reconciliation of the non-GAAP to GAAP financial metrics used.

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

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [3]

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Thanks, Karen, and thanks to all of you for joining us for our first quarter earnings call today. We had a lot of good activity this quarter, including meaningful wins that I believe demonstrate we're at the forefront of smart water technologies, improving profitability and good internal momentum building around our continuous improvement culture. The unevenness in our top line with flat sales this quarter does not hamper my enthusiasm, given what we continue to hear from the marketplace. In fact, part of the tempered sales activity was due to customers that are choosing to wait for their deliveries until our new technologies are fully launched and available.

We had great profitability improvement in the quarter that Bob will walk you through. He'll cover the details of the quarter and after that, I'll come back and talk about a few key strategic initiatives and our outlook.

With that, let me now turn the call over to Bob.

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Robert A. Wrocklage, Badger Meter, Inc. - VP of Finance, CFO & Treasurer [4]

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Thanks, Ken, and good morning, everyone. As you can see on Slide 4, our overall financial results were positive with strong profitability improvement and robust cash flow. Sales for the first quarter were $104.9 million compared to $105 million in the same period last year.

Unfavorable foreign currency translation was a headwind of about $700,000 and the year-over-year impact from the IMS distributor acquisition was not meaningful to the quarter. In municipal water, our sales grew 1%. We saw higher domestic revenues -- volumes of newer technology meters and related radios as well as increased service revenue.

International municipal sales were down 15% year-over-year, albeit on a very small base. Flow instrumentation sales were down 3% year-over-year largely due to the unfavorable currency translation impact that disproportionately impacts the flow product line.

On an organic basis, we experienced solid general industrial demand, offset by anticipated lower volumes in certain of our deemphasized end markets.

Operating profit as a percent of sales was 13.7%, a 420 basis point improvement over the prior year. Gross margin for the quarter was 38.6%, again, in the upper half of what we would call our normalized range of 36% to 40% and 360 basis points above the prior year. The prior year closure costs related to the Scottsdale, Arizona facility accounted for about 1/3 of the year-over-year improvement.

In addition, we continue to see the favorable impact of positive net pricing as brass input costs remained lower year-over-year. We also experienced favorable product mix with higher-than-average sales growth of Ultrasonic meters, radios and service revenue.

SEA expenses in the first quarter were $26.1 million, a reduction of $600,000 from the comparable period last year. We continue to invest in internal growth activities and experience normal salary and wage inflation, but we also continue to implement effective cost control measures resulting in improved SEA leverage of 60 basis points year-over-year. We would expect to see additional SEA leverage as the year progresses.

The income tax provision in the fourth quarter was 23.5% compared to 22.2% last year, as we have now anniversaried the benefit of U.S. tax reform being reflected in both our tax provision and the effective tax rate.

Bottom line, net earnings and EPS were $10.8 million and $0.37 in the first quarter, an increase of 42% over the prior year's $0.26. Our balance sheet is rock solid. Free cash flow in the quarter, which is seasonally a lower-volume quarter, was approximately $15.7 million compared to $3.7 million in the prior year. We are now in a net cash position with a flexible balance sheet that provides ample liquidity to fund our dividend program as well as organic and acquisition growth.

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

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [5]

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Thanks, Bob. So taking a look at Slide 5, I'd like to highlight 2 smart water partnerships we established during this past quarter, and while I will highlight these 2 for brevity, we see similar attractive activity at utilities of all sizes, providing us confidence in the market reception to our technology offerings.

Columbia, South Carolina and Aurora, Colorado are 2 larger cities that after extensive review, including the assistance of outside consultants, have chosen Badger Meter for their smart water solutions. They chose Badger Meter for a variety of reasons, most important of which is our infrastructure-free cellular offering. The market is becoming more knowledgeable about the benefits of cellular, in part from the smart cities enthusiasm, but also because of the demonstrated benefits our customers are realizing. This is translating into commercial inquiries and contract wins.

Our ORION LTE-M Cellular radio offering is 5G compatible and will improve battery life, extend the range, lower cost and increase the number of daily on-demand reads and functionality for utilities. An interesting point to note on these 2 awards is that both cities will continue to use our industry-leading Recordall mechanical meters. At the core of our business is a customer-centric focus and our unique ability to provide a broad array of offerings on the meter and radio fronts. We believe this provides us with a strong competitive advantage. At the end of the day, choice does matter.

Turning to Slide 6, we remain confident that the quote activity and backlog support our growth plans as we look ahead, with the occasional unevenness quarter-to-quarter still anticipated. For example, we will have a short-term gap in international municipal water activity from the sizable shipments in Q2 and Q3 last year in the Middle East region. And the weather-related delays we saw in Q1 do not automatically cluster completely into Q2, as municipalities only have a certain amount of labor to deploy.

Execution on our strategic initiatives continues. For example, we're working to improve our SQDC, or safety, quality, delivery and cost metrics. Our continuous improvement efforts on the shop floor and throughout all our processes, serves to make us more efficient and fuel savings to invest in growth. We are actively evaluating, prioritizing and enhancing our presence in select regional markets outside the U.S. for water utility penetration where market characteristics are attractive.

And finally, we continue to build relationships and have dialogue with potential tuck-in acquisition candidates, which you can think of a bit like purchased R&D in areas such as water quality, for example.

In closing, I want to thank our employees across the globe for their agility and commitment to serving customers each and every day.

And with that, operator, please open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from the line of Andrew Buscaglia from Berenberg.

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Andrew Edouard Buscaglia, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [2]

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Just wanted to talk about the municipal weakness. It grew about 1%, but looking forward some confidence that you guys are -- you guys sound very confident that you're expecting some of these delays in orders to come through. And what gives you that confidence? Do you have -- what conversations that you had that you are -- or what do you have on your backlog that and timing of it rolling off that gives you that confidence to say that?

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [3]

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Yes. Andrew, without getting into the specifics of order rate by month, what I can tell you is the way that the month played out is we had -- I'm sorry, the way the quarter played out is we had pretty strong out-of-the-chute orders throughout the month of January. As the weather really turned more difficult at the end of January through February, we did see a step change and we felt pretty confident with March. So it tracked pretty similar throughout the quarter with the worst parts of the weather and it seemed pretty similar to how last year went. The way we saw this play out last year is, cities only have so much labor that they can deploy to install meters so it doesn't all roar back in Q2, but we definitely feel comfortable based on our experience with how weather has impacted us in the past that some of that's going to roll back through in Q2 and Q3. On top of that, we didn't see any lack of activity in terms of bid quotes, so still feeling good that municipalities are -- water utilities are out there doing bids and looking forward to move ahead with their smart water programs.

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Andrew Edouard Buscaglia, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [4]

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And as it pertains to the Badger Meter specifically, I know you talked about them waiting for newer technology that's coming out. Do you have specifics around exactly what are the timing of that? Are we expecting this in Q2, Q3, where the municipalities will move forward?

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [5]

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Yes. So 2 areas in particular. One is we've been talking about the 3- and 4-inch Ultrasonic commercial meters. We did release that for order in Q1 and we should start to see those shipments roll through toward the latter half of Q2. So that's one of the technologies that we're -- I -- frankly, I would have liked to have seen some of that in Q1, but it didn't come through. And then on the LTE-M side, we do have a couple of, what I would consider, significant orders, but not to the level of significant when you think of Aurora and Columbia, but we do have some known orders that they definitely were waiting for LTE-M. We've got some pilots out there, people putting in the LTE-M radios that once those pass, and we're confident they will, orders will come through. So again, I would caution you, it doesn't just all snap back right through in Q2, but it's certainly enough activity to make me feel good about the near term and into the future.

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Operator [6]

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And your next question comes from the line of Ryan Connors from Boenning and Scattergood.

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Ryan Michael Connors, Boenning and Scattergood, Inc., Research Division - MD & Senior Analyst of Water and Environment [7]

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Ken, I wondered if you could kind of -- if you could sort of weight those 2 things that you cite, weather and these deferrals, and which was more important in terms of the top line, the lack of growth. And if you can provide us any kind of weighting among those 2, which you thought was the bigger of the 2 headwinds?

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [8]

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Well, it's not a cop-out answer, but they're kind of in equal form, based on the ones that -- again, I'm not going to get into the specifics of which, but we do know of some specific weather delays and some specific holdbacks on the new orders. So I'd say they are about 50-50.

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Ryan Michael Connors, Boenning and Scattergood, Inc., Research Division - MD & Senior Analyst of Water and Environment [9]

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Okay. And then as it relates to the deferrals, logically one would assume that if it's a deferral that there's going to actually be a period of disproportionate strength later on. And when those come through, the regular course of business will also come through in those future quarters, whenever that exactly might be. So is that the right way to think about it, that these are deferrals that are going to create some really strong results and volumes later in the year? Or do we just kind of return to normal?

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [10]

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Well, I think particularly with the weather, we return to normal, because that isn't a roar back, again, back to the labor part. So that's going to -- as cities deploy people out to install the meters, that kind of spreads over the year and it doesn't roar back in any particular time frame. On the new orders, we'll see those ramp, and yes, I'm sure that we'll pick up some of that upside. We still feel good over our what we feel for the year, but I don't see that being a big stack bar on top.

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Ryan Michael Connors, Boenning and Scattergood, Inc., Research Division - MD & Senior Analyst of Water and Environment [11]

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Got it. Okay. Wanted to chat about the cost side a minute. Bob, you mentioned SEA expenses, that you're holding that line -- despite the wage inflation environment, you're holding that line because you've got other levers you can pull. How sustainable is that and how should we think about that line item going forward? I mean if -- presumably, those levers run out and eventually there is some upward pressure there. So any kind of guidance or -- not guidance, but outlook you can give us there would be helpful.

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Robert A. Wrocklage, Badger Meter, Inc. - VP of Finance, CFO & Treasurer [12]

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Yes. So I think we're clearly taking a continuous improvement focus as we think through our SEA spend. The things we remain committed to and that will not vary is our commitment to product development and investing in innovation, and so that'll consistently be there. I think if you understand our longer-term dynamics and how we think of our market growth over time, a big portion of that is average sale price as people move up the technology curve. So that's in effect a benefit to sales that doesn't necessarily have a commensurate investment in SEA. And so I think over the long term, we will continue to see SEA margin improvements. So I think there's definitely an element of cost control, and you're right, you can only get so far on that runway. That's something that's clearly in the short term, but long term, it's more of the ASP dynamic. Also, on the short-term front, if you'll recall, we've talked in the past about duplicative executive costs in the past in 2018 and that benefiting us in 2019, and that's certainly a part of the play here as we move into Q2 through Q4.

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Ryan Michael Connors, Boenning and Scattergood, Inc., Research Division - MD & Senior Analyst of Water and Environment [13]

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Got it, got it. And then one last one if I could, more of a strategic question. But we've seen a lot of activity in terms of the market evolving, lot of M&A by the bigger players on AMR and AMI and the underlying technology, but then also some kind of movement on leak detection and sort of home water management, I guess, by these companies like Moen and Resideo. I mean, how do you look at your M&A priorities and cadence going forward? What's your -- what areas are you strategically looking to fill as that -- as those different markets evolve?

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [14]

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Yes, sure. The interesting thing about that, Ryan, is, with our relationship with AT&T, we have a really strong link to understanding what's going on, on cellular and on the AMI side. So as people move there, I think we have a pretty good idea of what's happening on that side. And if you think about this home piece, don't forget we have the relationship with PHYN where they're using our technology and we're on that piece as well. Where I'm really looking at is, these potential technology-type tuck-in M&A, something that I've been interested in and I have talked about a few times is water quality. I think putting water quality together with water quantity and what we do with metering is a pretty strong situation. Then there's pipeline monitoring for predictive maintenance is an area of interest. We've still got some geographical opportunities out there. So just looking at more of these technology plays, small tuck-ins, not looking at huge acquisitions and other meter manufacturers, those types of things.

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Operator [15]

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(Operator Instructions) Your next question comes from the line of Nathan Jones from Stifel.

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Nathan Hardie Jones, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [16]

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Just want to follow up a little bit on some of the expectations going forward here and the impact of weather and deferred orders and stuff. You talked about bad weather in 1Q '19, and we clearly had bad weather in 1Q '18, and you said those labor constraints are not coming back. So maybe the seasonality there or the catch-up there is probably equivalent to what it was last year. Maybe there's a little more deferrals in the first quarter for people waiting for these new products. Should we anticipate a better-than-average kind of rebound from 1Q to 2Q? I mean, it was up 8% sequentially last year. Is that a number that we should expect to be better this year, all else equal? Just any color you can give us on how we should think about that?

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [17]

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Well, I would tell you to think about it similarly to last year, because, again, it's hard to know -- the weather thing I was only here last -- I wasn't here in '18 to see firsthand how that plays out, but again, I feel like that's a Q2 weather-type catch-up, so I think that will be the same as it was last year and probably the same as it was the year before. We will get some of this technology pull through. But again, I think it will be somewhat incremental, but I would not -- I guess I would think about it pretty similar to last year on how we saw Q2.

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Robert A. Wrocklage, Badger Meter, Inc. - VP of Finance, CFO & Treasurer [18]

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I think the other -- Nathan, just the other piece on that just from a sequential comparison, and you heard in Ken's remarks just the reference to the somewhat lumpy Middle East order that we started shipping in Q2 of last year, that's an order that we don't have a backfill for currently. So that's a differential year-over-year that would offset those other items we just discussed.

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Nathan Hardie Jones, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [19]

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Got it. Is there any quantification you can give us on what that was in 2Q and 3Q in Middle East last year?

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Robert A. Wrocklage, Badger Meter, Inc. - VP of Finance, CFO & Treasurer [20]

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$2 million to $3 million.

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Nathan Hardie Jones, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [21]

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Okay. Then I just wanted to talk a little bit about these project wins in Columbia and Aurora, and nice picture of my city there. Are your win rates on these kinds of projects higher or lower than, say, what your current market share is? And then can you maybe talk a little bit about what customers are telling you when you win? Like why they are picking Badger? And what customers are telling you when you lose, why they are not picking Badger?

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [22]

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Yes. So Nathan, over the past year, one of the things that I think our sales and marketing team has done a really nice job is really refining the selling process around smart city technologies and bringing in the AT&T strategic city alliance, having a better engagement with the consultants. It has really helped us to be able to sell this better. So I think in essence, what we're doing is really doing a better job of doing a team selling approach and quantifying the benefits for cities and why they should be choosing us and cellular. Second piece on why we're winning, there's a lot of talk in the industry about new entrants in Ultrasonic technology, but at the end of the day, we are extremely excited about Ultrasonic technology. As you know, we are the leaders on it, but that's why I thought it was important to point out to you here that they still chose our best-in-class mechanical meters.

So choice really matters. That's helpful for us, for sure, against not just new entrants, but also against our competitors that we've competed with for 100 years. We've got the broadest array of meter, we've got the cellular technology that gives them the infrastructure-free startup, keeps them in line with technology for the next 20 years. So overall, I think just the benefits are becoming more known, we're telling the story better and we have better partners. In terms of why we lose, I'm not going to get into the entire funnel, but these are the 2 really big ones that we've been working on right now and we won them both. So we're feeling really good about that. There is other large ones in the funnel. I can't predict we'll win them all, but we're feeling pretty good about our situation right now. So when we lose, I'll tell you.

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Nathan Hardie Jones, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [23]

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Fair enough. One last one on the gross margin level. You had -- last 6 months of last year, copper was sitting in that $260 to $280 range. Using that as a proxy for brass cost, are you guys now running that lower $260 to $280 kind of copper cost in terms of your brass costs through the P&L now? Have you realized -- are you realizing the benefit in the P&L of that lower copper cost?

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Robert A. Wrocklage, Badger Meter, Inc. - VP of Finance, CFO & Treasurer [24]

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We are. And so I think if we -- if you think about our commentary in the past, we've always said it takes a little bit for that pricing to work its way through our supply chain, through our inventory. Typically, a quarter lag, if you will. So there is a benefit in the quarter, as we talked about, to lower cost price -- copper price, I should say, brass price on a year-to-year basis. Sequentially, obviously, we saw an uptick in the quarter in terms of copper pricing and how that plays out versus last year. I think you can basically schedule out if you look at copper pricing as a proxy for our input costs, which is really brass ingot.

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Operator [25]

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And your next question comes from line of Richard Eastman from Baird.

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Richard Charles Eastman, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [26]

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Quickly, Bob, just to follow-up on the last question. Can you just give us a sense of what price contributed to the top line in the quarter, just across Badger's product lines on a consolidated basis? And then also if there was a -- any sense of what from a basis point standpoint it contributed to your gross margin?

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Robert A. Wrocklage, Badger Meter, Inc. - VP of Finance, CFO & Treasurer [27]

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That's a deep topic, Rick, and I think in some cases, we may have fumbled that question in the past. And the reason I say that is because when we think about pricing in our model, there is effectively 2 elements. There is an element tied to list price increases, and consistent with what we've talked about in the past, on the water utility side or the municipal water side of the business, we've typically done an increase there when needed, kind of the January 1 time frame. We talked about last quarter having done about a 2% list price increase on the water utility side effective January 1, 2019. That certainly flows through and is effective to the distribution side of our business. And as you know, with the distributor roll up we've done in recent years, that portion of our business is shrinking in size in terms of external distribution. So while there is an impact certainly, it's not as sizable as one might expect.

Flipping that same concept of list pricing increases over to the Flow Instrumentation side of the business, we did an increase in October 1 of 2018, so certainly there's some benefit to the quarter from that, but that's really the smaller element of price. The other element of price for us is average sale price, as we've talked about just a short while ago. That's clearly the bigger impact, as folks move up the technology curve and our mix of sales shifts from, say, mechanical meters to E-Series or Ultrasonic and likewise as the concentration of the radio portion of our sales increases, particularly to proprietary radios versus maybe, say, affiliate partnerships that we've used in the past. So it's somewhat of a challenging question. It's difficult to quantify. Certainly, there's a benefit. I would attribute it effectively of the 360 basis point increase in margin, I would say that's about 1/3 of the increased benefit. Long answer to a short question, sorry, Rick.

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Richard Charles Eastman, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [28]

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But 1/3 of the 360 benefit is mix or combined price and mix, you're saying?

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Robert A. Wrocklage, Badger Meter, Inc. - VP of Finance, CFO & Treasurer [29]

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Mix price cost can all lump together.

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Richard Charles Eastman, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [30]

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Yes. Okay. So 1/3, roughly 1/3, okay. All right. Fair enough. And then I just wanted to ask you, Ken, with the Colorado -- the Aurora, Colorado project and then also the Columbia, South Carolina project, the wins there earlier this year, did it -- how do you view those? Do you view those as incremental to your 2019 plan? Or do you view those as being captured in your 2019 plan as you entered the year? Just curious how we should think about that from a modeling standpoint?

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [31]

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Yes. So Rick, I would say captured. So the last couple of years when I've been talking about my optimism and how we're doing with selling the cellular solution in the smart cities, I was pretty confident when I was putting that out there that we were going to win these 2.

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Richard Charles Eastman, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [32]

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Fair enough. Yes. And then industrial flow, speak to us a little bit about -- I presume industrial flow kind of missed revenue plan for the first quarter and that could be weather and some of these other issues. But I am curious when you look into this year and through this year, there is some discretionary, it looks like we're downsizing some products or end-market emphasis. And I'm curious -- just your thoughts on that, how does industrial flow look for the full year? I mean, do we run out flat with the efforts to reduce our exposure in some areas? How should we think about that product line for the -- or that product segment for the whole year at this point?

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [33]

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Yes, Rick. So how we generally feel about it with just the moving parts of going faster in the forward target markets, going a little slower in the nontarget markets. Some of the work can be somewhat project related. We still feel very good about kind of a mid-single digits throughout the year. Some quarters are going to be flat or a little lower, some quarters are going to be really high. Q4, we were up 9%, right? So it can kind of be up and down, because it's a small part of our business, frankly. It's a part of the business that we enjoy, but the numbers -- the percentages can move pretty quickly.

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Richard Charles Eastman, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [34]

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Okay. All right. So growth nonetheless, okay. And then maybe just last question. You had referenced the commercial piece of the utility business. How did that fare in the quarter then? I can probably try to weight this out, but my guess is it was down double digits.

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [35]

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No. Actually, the commercial business did fine in the quarter, it's just we expect to get more out of the Ultrasonic commercial meters. I mean, the benefit in -- for Ultrasonic and commercial is really strong. So once we launch that, we feel better about that than perhaps the mechanical commercial meters.

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Operator [36]

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And your next question comes from the line of Tate Sullivan from Maxim Group.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [37]

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And on your last comment there on the commercial target market within the muni side for the 3-inch to 4-inch Ultrasonic, can you give examples of what customers are those? Are those water treatment plants? Or what kind of customers can those be?

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [38]

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Well, yes. I mean, that could be one example. It could be anyone in the industrial space that's using these large meters. So it's a pretty broad-based customer grouping.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [39]

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But all for water, correct?

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [40]

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Yes, correct.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [41]

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Okay. And then, on the -- thank you for the comments on the potential tuck-in acquisitions. But do you currently or have you historically had internal R&D efforts on the water quality side or opportunity?

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [42]

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I -- no -- right-- that's a tough question. So I'm going to speak of it from my 18 months of experience. We've had a lot of funneling activity around it on the M&A side. I would just characterize it as more of our activity has been there than internal development.

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Tate H. Sullivan, Maxim Group LLC, Research Division - Senior VP & Senior Industrials Analyst [43]

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Understood. Okay. And then on the international. Just looking at International, Middle East had good growth in the last 3 years, but with no backfill, but are you still optimistic on that market? Or you're not guiding to be more U.S. focused going forward than historically, are you? Or any context?

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [44]

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No. We still feel as optimistic about the Middle East as we did before. The issue with the Middle East can be as you get into Ramadan and the Eid holidays. The timing of when the orders come through becomes really critical to when you can actually recognize -- realize the revenue. So last year, the orders came early. This year, we would expect the orders to come later.

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Robert A. Wrocklage, Badger Meter, Inc. - VP of Finance, CFO & Treasurer [45]

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Yes. So it's more timing than anything.

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Operator [46]

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And your next question comes from the line of Jose Garza from Gabelli Asset Management.

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Jose Garza, Gabelli Funds, LLC - Portfolio Manager [47]

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Just want to get your thoughts, Ken, on -- just on these 2 big wins, the Columbia and Aurora. Just -- once again, just kind of talk to us about how long those kind of were in the pipeline for, and just to get a sense of what it takes for these kind of 3-, 4-year long projects.

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [48]

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So when we first make contact and get started on it, probably anywhere between 7 to 9, 8 to 10 months from the time we start talking to the time we get the award. Then it takes a few months before it rolls off. So I guess, from start to by the time you finally start rolling it out, it's probably a year. But every city can be different. That's just the recent 2 examples. And then -- go ahead.

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Jose Garza, Gabelli Funds, LLC - Portfolio Manager [49]

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Okay. If you -- go ahead.

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [50]

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No, no. You first.

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Jose Garza, Gabelli Funds, LLC - Portfolio Manager [51]

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And I guess, is that changing in any way or shortening maybe with some of these, I guess, strategic partners that you have now?

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [52]

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No. It's not shortening. We are still driving it, right? So the strategic partners are great partners, but they're in it with us, right? So the municipality still comes through us first. It's the same process it was before, we just have, I would say, an enhanced selling process now.

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Jose Garza, Gabelli Funds, LLC - Portfolio Manager [53]

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Okay. Excellent. And then just give -- just set us in terms of your expectations for the E-Series. And what's going on there as you're getting some of these larger diameters?

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Kenneth C. Bockhorst, Badger Meter, Inc. - President, CEO & Director [54]

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Yes. So that's where, again, we're going to start to see some added growth on commercial Ultrasonic meters. We're going to continue, we've just released the 3- and 4-inch for sale in Q1. We'll start shipping in Q2. We're going to continue to expand that line so we can continue to capture more revenue on the 5 and 6 and 7 and 8 over the next few years. So this is just the first launch of the first couple of sizes.

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Operator [55]

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And there are no further questions at this time. I will turn the call back over to Ms. Bauer for some closing remarks.

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Karen Bauer, Badger Meter, Inc. - Director of IR & Corporate Strategy [56]

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Well, thanks, everyone, for joining our call today. For your planning purposes, our second quarter 2019 call is tentatively scheduled for Thursday, July 18. I'll be around all day to take any follow-up questions you may have. Have a great day.

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Operator [57]

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And this concludes today's conference call. You may now disconnect.