Badger Meter, Inc. (BMI) Q4 2012 Earnings Report, Transcript and Summary

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

Thank you very much, Lacey. Good morning, everyone, and welcome to Badger Meter's Fourth Quarter Conference Call. I want to thank all of you for joining us. As usual, I will begin by stating that we will make a number of forward-looking statements on our call today. Certain statements contained in this presentation, as well as other information provided from time to time by the company or its employees, may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements. Please see yesterday's earnings release for a list of words or expressions that may identify such statements and the associated risk factors. Let me reiterate some of our guidance. For competitive reasons, we do not comment on specific individual product line profitability other than in general terms, nor do we disclose components of cost of sales, for example, copper. More importantly, we continue our practice of not providing specific guidance on our future earnings. We believe specific guidance does not serve the long-term interest of our shareholders. Now on to the fourth quarter results. Yesterday afternoon after the market closed, we released our fourth quarter 2012 results. Net sales for the 3 months ended December 31, 2012, increased $13.6 million or 22.4% to $74.3 million compared to $60.7 million in the fourth quarter of 2011. The 2011 numbers do not include Racine Federated, which if you recall, we purchased earlier in 2012. Racine Federated sales in the fourth quarter totaled $10.1 million. The balance of the increase was due to higher sales in our municipal water business. Let me comment briefly on each of our sales categories. Municipal water sales increased $5.3 million or 12% from $43.9 million to $49.2 million in the fourth quarter of 2012. These…

Thank you, Rick. As Rick mentioned, the fourth quarter came in about where we expected except for the unusual $0.05 noncash charge for the pension adjustment. Overall, we're very pleased with the year especially with the 11% increase in our core business when you exclude the Racine acquisition and the gas radio sales. After a weak 2011, we saw our markets return to strong growth in 2012 and we expect to continue to see that growth in 2013. Over the past several months, we've released several new products and product upgrades that we believe will help drive that growth. We introduced 2 larger sizes of our E-Series ultrasonic meter for the utility water market, which now gives us a full range of offerings for that meter. We did the same with our industrial oval gear meter completing development of larger sizes to fill out that product line. We also released a new high-resolution electronic encoder that is compatible with all of our mechanical water meters, as well as many of our industrial meters. Our Racine group completed the development of a new Coriolis mass meter that we have recently introduced into the market. And most importantly, we introduced new versions of our 2-way ORION water meter fixed radio network, and the related automatic metering analytics software, which incorporates both improved performance and new features. We believe all of these new products plus more in development will keep Badger Meter positioned as a technology leader in our markets. Recently, we encountered a new market opportunity that many of you may have heard about. As you know, the North American water meter market is served primarily by a handful of companies, all of which have been in the market for decades, some like Badger Meter for over 100 years. Several weeks ago,…

[Operator Instructions] And our first question will come from the line of Richard Eastman with Robert W. Baird. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Hey, Rick, just -- or Rich, just a question. It looks -- the core business stripping out RFI, looks like sequentially maybe it was down a little bit more than historically one would expect. Was there anything that impacted the fourth quarter in the core business that was unusual, either destocking or just kind of a lack of year end spend or -- did that step off the page at you?

When you say down, you must be talking about sequential quarters, right? Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Right, from the third to the fourth. Seasonally, it is down generally.

Right, right. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: But here, it is down more than usual and I just -- is that somewhat of an anomaly or is there a reason for that?

And I know somebody is going to ask this question. We did not have any big orders for Mexico in the fourth quarter of 2012. And so that wasn't in there but actually it wasn't in there for the past couple of years. You've got to go back 3 or 4 years before you see that impact. So, I guess, we call it the normal seasonality and so we're up 15% at municipal water business Q4 over Q4. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Yes. Okay and then, Rick, what was the -- can you just repeat the percentage of revenue in the fourth quarter for the utility and the nonutility water business?

The municipal water sales were 66.2% of total sales for the quarter at $49.2 million, and industrial was 30.1% of sales, which was, just let me find my eyes here, $22.4 million. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Okay, and then just one last question on RFI. Again, revenue there -- again, maybe that's seasonality, but revenue there looked a little bit light. Is that on track from a growth perspective as you head into '13?

In the fourth quarter, the product lines that formerly associated with RFI were down about 1.5% to 2%. Okay. We don't read anything into that of significance. Some of it was just timing, we didn't get the stuff out the door at year end, but we're optimistic about where that business is going into 2013.

And our next question will come from that line of Chip Moore with Canaccord.

I was hoping you could talk a little bit more about the competitive dynamics with Elster AMCO getting out. What are you hearing, are you seeing an influx of inbounds, of people worried about stranded assets and things like that?

Yes, and, Chip, we have had some of Elster's customers contact us because obviously they know after June 30 they can't get Elster mechanical meters anymore, and they're going to have to replace it with something. So some of those that we've had a strong relationship with have already contacted us and we're working with them to help them through the transition. We also -- we are also putting together strategies on how to approach this because we -- well, everybody pretty much knows who our customers are out there. This is a fairly fixed market as far as the number of utilities and who they are. So it's pretty easy to figure out how to go about this and help these customers transition as they go through this period. Obviously, we have a significant opportunity here but our competitors also view this as a significant opportunity. But I think we're all going to be out there trying to work this opportunity as best as we can.

Fair enough. Yes. And it's safe to assume you'd expect to capture a share in line with your current share?

We fully expect to. And as I said, we've already captured some significant customers that had chosen Elster meters in the past, had liked those meters and now have come to us and said, "Well, we'd like to go with Badger Meters."

Okay. And then maybe could talk a little bit about some RFP potential, particularly in the East Coast, whether it's this year or next for some larger sized municipality?

I mean, there are always the ones out there we don't like to talk about individual opportunities because then we get tied up in that going forward, and you never know what's going to happen with those. A lot of times what sounds like a big opportunity suddenly gets pushed out and pushed out and the delays come about.

I will say we're at the table for all of them.

Yes. Especially with one less player out there. That's going to change the bidding dynamics, too. And could have a favorable impact overall on pricing in the industry.

Yes. Okay, that's helpful. And then just lastly, on the gas side, any updates there? We are hearing of a few things out there, just wondering what you're hearing?

Again, it's the same thing. There are opportunities out there, we don't make specific comments. I use the term hit-or-miss. We hit a big one for a couple of years there with Duke, everybody knows that Duke was a large customer, all right. We'll continue to sell to several small gas utilities but we are looking for that opportunity but again, it's not part of our core strategy, it's just kind of an option, it's because we've got the radios that can work on the gas meters.

And our next question will come from that line of Ryan Connors with Janney Montgomery Scott.

I wanted to -- not to beat this topic to death on Elster, but to the extent you're able to -- are able to comment, I mean, any insight into their rationale for exiting the market and, any comment on that?

Sure. And obviously, we have the be careful with what we say here. But I will say this. Obviously, Elster is a much larger company, so I don't want people to think that Elster North America is the entire company. Elster North America is a subsidiary of a much larger worldwide Elster that is in the electric metering, gas meter and water meter business, so they've got a broad range of products. They were recently sold. Their new owners must have looked at it and decided that the North American water meter operation was not giving them the returns they wanted because it if it was giving them the returns, they obviously wouldn't shut it down. So you can conclude that since they've made the decision to shut it down, it probably wasn't giving the returns they wanted, and they just made that decision. We were a little surprised by it. I think, the whole market was a little surprised by it. But it does represent a good opportunity for all of us.

So you are not aware of any specific contract gone bad or anything like that, that drove -- caused it?

We are aware that Elster was having some production difficulties during the year. For example, they had won the award at Cleveland, I think it was. But we've been shipping meters to Cleveland all year because Elster has been having some difficulties supplying that contract. But that's the only one in particular that we know of. So I think they've had some issues there but beyond that, I really don't know.

Okay. And then sticking with the competitive environment, on the other side of the spectrum, not necessarily a new player, but one of the smaller players in the space is sort of seems to be really emphasizing their meter business and talking about some pretty big growth rates off of a low base. And I wonder if you can comment on the impact of that on -- you mentioned positive impact on pricing with the player being removed in Elster but whether there's a -- that creates the opposite dynamic?

Well, in other words, will somebody else step in here and try to grab a lower price segment of the market, is that what you're...

Well, I'm referring to Hersey. I mean, they seem to be -- management there seems to be talking a lot about trying to aggressively grow the meter side of the business and emphasize that with not only with Wall Street, but presumably I'm trying to grow the financials and I think they just talked about doubling revenue, obviously off of a low base. So one of the potential conclusions is that they're using prices as a lever to grow that share. So are you aware of any of that or have any comments there?

We're aware of what's happening out there. We're aware that Hersey won a sizeable contract with one of our other competitors. We're aware that, that contract alone is probably going to give Hersey some capacity issues. They're going to have to scramble a bit to expand capacity. So I'm not sure I would conclude from that, that they are necessarily going to go out there and be overly aggressive in the marketing on pricing if they've already got some capacity issues. But you know, Mueller owns Hersey. Mueller's other business lines have struggled in this economy that we've had over the last 3 years and -- but Hersey is a good story from Mueller and has apparently, has been doing well so they're going to highlight it.

And then one last question about another company and that is -- there's been a leadership change at Itron in the recent, past year. So any comment on what that could mean if anything for your resell relationship there and/or the competitive dynamics?

We have not seen a change in our relationship with Itron. We have a good strong relationship where we are very pleased to be able to resell their products to the customers that prefer an Itron-Badger solution. And we haven't seen -- as a result of some of their leadership change, we have not seen any change in our relationship.

Our next question will come from the line of Glenn Wortman with Sidoti & Company. Glenn Wortman - Sidoti & Company, LLC: Yes, you're up against this very difficult comp in the March quarter in the municipal water business. Can you just comment on order trends here early in the quarter?

You mean the first quarter of 2013? Glenn Wortman - Sidoti & Company, LLC: Yes, yes.

I would say that we're pleased with the way we see the quarter shaping up thus far, but remember it's early in the quarter yet. I mean, you're right, we're halfway through but we've really seen January and about a week of February and there's a lot of time to go yet. So it's hard to really draw any conclusions in our industry at this point. Things can pick up strongly in the last month, things can drop off. Well, thus far though, I'll say that we're pleased with how the orders are coming in. Glenn Wortman - Sidoti & Company, LLC: Okay. And then it sounds like we are returning to maybe a more normalized market here in the municipal business. 2012 your municipal sales were up low-double digits. Are you setting aside any impact from Elster? And in your view, what level of sales growth does say a more normalized market imply for perhaps in the industry in 2013?

I don't think our story's changed on that. When I think we're still talking high-single digits, low double gets, okay? And the only thing that concerns me in 2013 right now is, again, the government, and the effects on muni financing if the government in Washington starts playing games again, with the budgets and deficit talks and all of that because they keep saying that could affect the markets. But I mean, eventually, this will resume and we will have normal buying patterns.

I mean, that's what we saw in 2011, by the time we got in 2012, the angst over our local budgets had died down quite a bit and we saw the return to normal and I think we're seeing that in 2013. So we anticipate -- we're hoping for a good 2013. And probably the significant drivers in 2013 are going to be continued slow growth in the economy, a pickup in housing, which helps all of us, that's a significant impact, some of our new products, and then the impact of Elster's decision to shut down. Glenn Wortman - Sidoti & Company, LLC: Okay, and then finally, I think I've probably asked this quite a lot. But the gross margins -- another impressive quarter there, 38.8% I mean, do you think there's more upside here? I mean, how do you think about gross margins in 2013?

Well, I think in 2013, it's going to be -- it'll be more volume-driven because we will have the comps for the most part. We'll have Racine in them year-over-year so we'll have the effect of the higher margins from those sales. And so, a lot's going to depend on obviously metal costs and where that's going to go and a lot's going to depend factory utilization.

And our next question will come from the lineup of Brian Rafn with Morgan Dempsey.

Rich, you talked a little bit about -- you talked about Elster AMCO and you've kept talking about their core North American business being mechanical. I mean, is that kind of a low-end meter? And is there any aptitude to be able to take those Elster customers to a higher technology radio, an RFI or a radio meter?

Yes. Well, and it's a good question, Brian. And let me start by saying that Elster's decision only affects their North America mechanical meters. They also sell electronic meters and they also sell radios. And they did not comment on that at all in their letters and their releases, so I'm assuming they're going to continue to sell those. So it's really the mechanical that ends. We believe there's an opportunity for us to sell our meters with connectivity to whatever radio technology Elster is offering, much like we do sell our meters with connectivity to the Itron products. We also believe that there's an opportunity that as those customers come over to Badger who are not on a radio, we may have a good opportunity to move them up to a radio-based system also.

Okay, okay. Give me a sense, you talked about the new E-Series meter, the ultrasonic, you talked about the oval gear. And they were higher sizes. As you guys look at building out new meter products, niche new models, is that tending to be in the larger end of the meters scale? Or was that just kind of an anomaly here in 2012 that those are both larger-sized?

Yes, that was just timing. Generally, when we develop a new line of meters, we start with the smaller ones and we work up. And, Brian, I couldn't tell you why, the engineers probably have a really good reason as to why it makes sense to do it that way, but I couldn't tell you.

Okay, okay. When you bought Racine Federated, you made a comment, Rich, that you said, "We now have, I think, 12, 16 meters." When you look at the integration of Racine Federated, how is your ability at Badger to drive new product designs at Racine Federated with the types of meters, types that they have. In other words, from maybe what they might have done in a legacy basis in product development and what you can kind of bring to it -- to that?

And you're right, Brian, there is a big opportunity there. For example, when we acquired Racine Federated, we acquired differential pressure meters, we acquired certain types of ultrasonic meters, we acquired the project that they were working on for the Coriolis mass, so we now have that. So they have different types of meters, a vortex meter that we didn't have. All of those are technologies that we did not have. So we now have the opportunity to put Badger's very significant R&D capability behind those product lines and move them forward, moreso than what Racine as a much smaller company had the ability to do. So yes, we are investing in those product lines. We'll continue to invest in them. And we'll continue to bring out new products to the market along those lines.

Yes. Okay. Rich, could you kind of give me a -- maybe a 30,000-foot view if you look at just on a volume basis, what might be the install as a percentage on volume for meters with radios today? Not maybe what's infield install but what you're kind of doing today year by year?

About 55% to 60% of the meters we ship today have radios on them.

Okay. And if you look at the U.S., I think you talked abut 64 million meters or -- what might be the infield install today because you always kind of look at where water is, where gas is, where electric is. Where might the infield be across the U.S.?

According to the estimate that Dr. Howard Scott does in his Scott Report, it's around 30%.

Around 30% okay, okay, okay. If you look at and you talked a little bit about your municipal budgets getting a little better, I'm sure your tax revenues are up, you're seeing a bounce off. I think 315,000 in new home starts. We're back in the 800. Was there any weather -- certainly milder in 2012, did that affect at all by extending maybe installation's seasonality?

Hurricane Sandy had a little bit of an impact on us because at the start of the fourth quarter, at the end of third -- because we are -- we have a little higher market share in the Northeast than we do in the other areas of the country. So that had a little bit of an impact although a lot of those utilities recovered fairly quickly but some of those sales that we would have normally had in the fourth quarter might spill into the first quarter.

The only time when weather was of significance was I believe the first quarter of 2011 because the snow was so bad, I mean, it was it was snowing a foot of snow in Oklahoma or whatever. And that was clearly stated as a reason. The normal snowfall that we get every year generally is not a reason.

Yes. okay, okay. And then one question, Rick. Rick, what was the -- you talked about the Treasury repurchase. Do you have the share count as to what you bought back?

888,000 shares.

188,000. Okay. And then you got a CapEx number budget-wise for next year, 2013?

Brian, that's 888,000 shares.

Oh 888,000 got you, got you.

And our CapEx, we've historically said that our projected CapEx going forward would be around our depreciation and amortization. So we don't see that changing anything significant.

And our next question is a follow-up question from that line of Richard Eastman with Robert W. Baird. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Yes, just 2 more things. Rich, just on the ORION SE kind of software, AMA software upgrades. Could you just give a little bit of color around what those upgrades are intended to bring to market? And maybe why a real quick upgrade on the software here with the introduction of the product just about a year ago.

Sure. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: It's just, what did we solve there?

Yes. I mean, the upgrades on the radio, the hardware itself, run a pretty wide gamut from handheld devices to make installation easier to repeaters that if you have hard to read. Every time you do one of these systems in the city, there's somebody living on the very outskirts of the city and it's hard to get a reading out of them or somebody in a metal building or something where you're having trouble getting the signal. So repeaters, directional antennas, things of that sort are being developed and released to help us get better coverage in the city. So that's kind of the hardware side of it. On the software side, it's more analytical tools. It's more ability for the utility to analyze their customer usage patterns and to identify leaks and identify issues. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Okay. And has the uptake on that product, at least from kind of a pilot standpoint, has it continued to be high or...

I would say we've gone from a handful of customers testing it to a significantly larger number. And we have quite a few good-sized cities that have deployed this system. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Okay. And just a question on gross profit margin. If I kind of play around here with the math a little bit and make an assumption on RFI and what it's contribution was, it looks like maybe core gross margin was close to 37%. And so I'm questioning whether as we move into '13, other things equal, like metals prices for instance and maybe even mix, but is there 100 basis points or 200 basis points of opportunity in that core gross margin on volume alone? I mean, would you have any feel for that, Rick?

Right, and I would say that if we saw a good jump in our volume, like a double-digit jump, maybe even a 15%, 20% jump, you could see 100 or 200 basis points being added up. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Okay, so your utilization just on the meters alone is low enough that you could get 100 to 200 bps there. And there's no...

Rick, that's why we're excited about the market dynamics and the opportunity with Elster's decision, everything else to add some volume to our system. And we help those Elster customers transition to hopefully our products. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: And although I understand the situation -- the opportunity on the volume side there. And just kind of thinking about metals prices are pretty stable year, if your copper's pretty stable. My guess is we do not see a price increase here early in the year, given the jump all in that volume. Is that fair?

That's correct.

I would agree. There's no price increases that we are contemplating right now.

[Operator Instructions] And our next question will come from the line of John Quealy with Canaccord Genuity.

Just a couple of quick questions. Guys, can you frame, I know you talked about housing potentially benefiting in '13, but can you add that to where we are with no lead migration in the next couple of years in terms of maybe an underlying or sustainable demand? Or how you think, excluding the Elster news and some competitive dynamics, just the underlying trends in the endpoints, can you talk a little bit about -- do you think it's above growth from the last couple of years or less or what?

Well, there's 2 different topics in there, one is housing and the other is no lead. No lead doesn't necessarily drive a change out of meters. As the lead rules change, they don't require utilities to go out and rip out all the old meters and put in new ones or to change all of that at a faster pace, what they've historically changed out. The lead requirements generally talking about going forward, that's future purchases. And Badger Meter, we have all of our products meet the new LED requirements. We don't have an issue. Our competitors, as much as some of them would love to convince you, that they have some kind of competitive advantage, every company in the marketplace has a meter that can meet the LED requirements. So I don't see that as a dynamic that's going to impact us one way or the other. Housing starts on the other hand can have a significant impact. If housing starts return to normal, whatever normal is and that's a lot of discussion right now, there was a time when we were doing 1.5 million new housing starts, or even 2 million a year and now we're down -- we dropped all the way down to that 0.5 million and we're up to 800,000. As we return to a higher level, if Badger even continues to capture our 30% market share, that can have a significant impact on our potential sales.

I think the other thing you're seeing in the market and housing is the fact that even if it's not single-family housing being built necessarily, whether it's apartment buildings, the trend in a lot of municipalities is to individually meter all of those apartments, which is 20 years ago they'd put one master meter in the basement, now for a 4 family, they will have 4 meters.

Yes, that's fair. Speaking of master meter in another context. So I don't know if you talked about this earlier, Landis+Gyr kind of hooking up with those guys, I thought master was more geographically segmented to maybe Southwest in this country. Can you talk about the entrance of Landis sort of trying to do some comp side in water?

Well, let's back up something. Rick used the term master meter not referring to the company Master Meter.

A master meter...

He said they would put a master meter in the basement of an apartment building, which would read all of the units, so he meant a generic large meter. But you then...

Which could be a Badger Meter. Just trying to clarify that.

Which could be a Badger Meter but you brought up Master Meter and Landis, and I got to tell you I'm not sure what you're referring to, John. We have not seen any strong drive by Master Meter in the market and we haven't seen Landis coming in at all in the water meter side of our business. So you caught me by surprise with that one, I'll do some research but I don't know of anything that's happening out there, we certainly haven't seen it.

Okay. All right. And then just a couple of quick follow-ups. I thought, I could be wrong with that Mueller deal. Was that a composite deal, do you know?

Composite deal, I'm not sure what you mean.

So when Hersey won that larger deal, was it the materials, was the composite meter?

Oh. Was it a -- was that polymer meters, that Hersey one? No, I don't believe so. I think they were brass meters, but I don't know for sure.

And how's your mix right now in terms of RFPs, in terms of the composites in the brass, in the east area? Still sort of trending right they were last year?

Trending like -- it's consistent, it's consistent.

85.

Okay. And then lastly, just update us where we are with the Diehl relationship. I know that's been sort of deemphasized especially with the move towards AMA and fixed, but if you could just bring us up to speed here.

We continue to buy our ORION CE endpoints and we now have 2 versions of ORION, the ORION CE and the ORION SE. The SE is the new one, which we do not buy the radio boards from Diehl but the ORION CE, Diehl still makes those radio boards. So we still have a good relationship with Diehl. They're our A supplier, they are making the radio boards for us. We don't do R&D development, new radio development they're not working on the latest versions of ORION. But we still have a good supplier type of relationship with them.

And our next question is a follow-up question from the line of Brian Rafn with Morgan Dempsey.

Yes, question on the -- you guys were talking about because there has been some demand in the residential side, in apartment/duplex construction, condos. Do you get a situation where you have a master meter like Rick was saying in the basement that read all of the units and then you go for a kind of a legacy swap out. Can you then see that master meter going to -- broken out and segregated into individual meters or is that master meter generally on the legacy base as the old read all the units?

The rule of thumb is that's -- we're really talking new construction going forward okay, because nobody goes and retrofits a 4-unit apartment that has one meter in the basement. I won't say master meter anymore. But then it's just one meter, they don't go and retrofit and put 4 separate meters in. Sometimes just simply because of the construction. They may have a need for submetering routines and we're really not much into submetering because it just generally doesn't pay for landlord to do that.

Okay, all right. And then as you guys have talked certainly about the buoyancy of the municipal markets coming back a little more to norm. What is your sense, for some of the larger utility, water mains, most of the stuff we look at as kind of the obsolescence to swap out to 6% a year on some of the smaller meters. What do you guys see as municipal revenues, tax revenues as the economy perks up? What are you seeing in some of the larger utility stuff?

Well, I think there's a lot of concern in the U.S. about our aging infrastructure. But most of that concern is about the pipes, both sewer and water pipes. And the amount of the water lost to leakage and the amount of pollution caused by leakage under the sewer pipes. That is a big concern. Most utilities have stayed up on the large meters. You find very few utilities that allow their large meters that get so old that they start to lose accuracy or shut off because those are the cash registers. They need to know, especially when they're using those large meters to sell water to other municipalities. They need to know exactly what's going on. So we have not seen a deterioration in the infrastructure along the large utilities -- along the large meters. Like they have along the pipes and the laterals.

Okay, okay. And then, Rich, you talked in the past about market opportunities and there was a subsegment and as you see kind of the reflation in housing start starts, we bounced off 315,000 in January and February. And I think 2009, we're back to 840,000. There was like 13 million unit, I don't know if these were like rural or suburban that have private wells and it was a potential to be metering. How many of these other kind of niche segments might you get some call and demand for meters when the municipalities are just flat and things are tough. Obviously, those kind of niche areas aren't going to go anywhere, but as you get kind of a resurrection in reflation, how many of these little niche areas might start coming to life?

Yes. There are 2 major pieces of unmetered housing in the United States. And one of them is there's an estimate of about 20% of the houses in the United States are on private wells and therefore they don't have a meter. And so that's one piece of it, about 20 million homes. There's also about 13 million homes that are on a municipal water system but don't have a meter because they're paying a flat rate. So each of them represents a significant opportunity. There are 13 million homes, we have seen and are continuing to see more and more cities say, "We've got a meter, we either have to start charging people for what they use so that they will be -- they'll be better stewards of their water." And that represents an opportunity, cities like Chicago, the central valley of California, places like that but are not fully metered need to start metering and are indeed doing that. On the 20 million that are private wells, generally what you see there is when the city runs the sewer system, out to those private homes, they will also tend to put them on the city water. And that represents an opportunity because then they install meters. And that slowly happens over time. New subdivisions go up, everybody's on a well, 10 years, 20 years later, sewage comes out there, city water comes out there and they start hooking them up. But then there's also a push in some of areas in the United States where water is very scarce to start metering private wells. I know they're doing it on farms out West, where they are requiring the farmers to put on meters to measure their irrigation water and actually pay something for the water they take out of the ground. All of those represent opportunities but they are all represent far-reaching opportunities. These are -- we're talking the next several decades as water becomes more and more scarce.

Your next question is a follow-up question from the line of Glenn Wortman with Sidoti & Company. Glenn Wortman - Sidoti & Company, LLC: Just back to the impact on housing starts. In one of your investor presentations, you said that every 100,000 new homes built represents a $2 million sales opportunity for Badger. Can you just walk us through the math here?

Sure. If you got 2 million homes at 30%.

100,000 homes.

I'm sorry, you've got 100,000 homes at 30%, you've got 30,000 meters that you're selling, okay. If you assume that those 30,000 meters are sold with radios, or a mix of radios and non-radios, like we have now, about 50-50, you're about $70 per unit, $70 per unit on 300,000 homes comes out to be $2.1 million. $2.1 million.

$2.1 million.

Rick is working it out on a calculator while I'm doing it in my head. So that's where we get it. Does that make sense to Glen?

And at this time, we have no further questions in queue. I would like to turn the conference back to Rich Meeusen, Chairman, President and CEO, for closing remarks.

Thank you. And I want to thank everybody for joining us today. We were pleased with the quarter. It came in about where we expected but overall, we were very pleased with the year. We're optimistic about what we're going to see going forward in 2013 between the new products, the opportunity that Elster's decision represents for us is significant and we think all of that could come together to give us a good opportunity in 2013. So with that, I'll thank you.

Thank you for your participation in today's conference. This concludes your presentation. You may all disconnect. Good day, everyone.