Good day ladies and gentlemen and welcome to the Quarter One 2014 Badger Meter Inc. Earnings Conference Call. My name is Carolyn and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder, the call is being recorded for replay purposes. And now I’d like to turn the call over to Rick Johnson, Senior Vice President of Finance and CFO.

Thank you very much, Carolyn. Good morning everyone and welcome to Badger Meter's first 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. That wasn’t Rich by the way. Certain statements contained in this presentation, as well as other information provided from time-to-time by the Company or its employees, may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements. Please see yesterday's earnings release for a list of words or expressions that identify such statements and the associated risk factors. Let me reiterate some of our guidelines. For competitive reasons, we do not comment on specific individual product line profitability, other than in general terms, nor do we disclose components of cost of sales, for example, copper. More importantly, we continue our practice of not providing specific guidance on future earnings. We believe specific guidance does not serve the long-term interest of our shareholders. Now onto the first quarter results. Yesterday, after the market closed, we released our first quarter 2014 results. Sales were a record $83.5 million as compared to 71.8 million in the first quarter of 2013 and I’ll clarify that record is for our first quarter sales. This represents an increase of 11.7 million or 16.3% over the same period last year. This increase was driven by higher sales of municipal water products and flow instrumentation or industrial products. Let’s look at each of these categories. Municipal water sales increased 10.9 million or 23.3% to $57.7 million in the first quarter of 2014 from 46.8 million in the first quarter of 2013. These sales represented 69.1% of sales for the…

Thank you Rick, and thank all of you for joining us today. Two months ago on our year-end earnings call I noted that the first quarter of 2013 was weaker than normal due to unusual weather impact throughout the quarter. But I indicated that we were optimistic about the first quarter of 2014, since we were seeing sales in orders return to a more normal pattern. As Rick discussed it’s held true through the first quarter resulting in a very solid performance. One particular area of solid growth has been our E-Series Ultrasonic water meters. Not only do we start shipping these meters to our new customer in the Middle East during this quarter, but we also had strong domestic sales, resulting in total sales during the quarter of almost $4 million for this relatively new product. With the recent introduction of additional sizes of these meters in both stainless steel and polymer we believe that we will continue to see strong growth in this product line. In addition to meters, our recent introduction of ORION Cellular radio and the BEACON Advanced Metering Analytics system have been met with a great deal of enthusiasm by our sales force, our distributors and our customers. I’ll remind you that this new system enables us to address hard to read metering locations through a cellular technology. Provides utility with a powerful cloud-based software analytics platform and enables our customers to provide timely consumption data to end-consumers to encourage water conservation efforts. Sales are in the early stages with small numbers being shift for customer evaluation and training purposes. However, the performance in the field is excellent and sales increases are strong. And I’ll go off script for a moment here which makes everybody in the room extremely nervous. And say that I just…

and:

(Operator Instructions) Stand-by for your first question which comes from the line of John Quealy from Canaccord Genuity. Thank you.

Hey, good morning guys. How are you? Canaccord Genuity: Hey, good morning guys. How are you?

Good morning, John.

Hi. And so a couple of questions, so thanks for the updates on several initiatives but on BEACON, can you talk about domestically what you’re seeing about order potential, I know, I think at distributor there is chatter that it’s been out to about a dozen customers doing some testing on this? Canaccord Genuity: Hi. And so a couple of questions, so thanks for the updates on several initiatives but on BEACON, can you talk about domestically what you’re seeing about order potential, I know, I think at distributor there is chatter that it’s been out to about a dozen customers doing some testing on this?

Yes. And I can give you a couple of data points on this. We’ve only had it out for a few weeks as you know, and obviously to make a sale we’re required to -- there is training involved in it, scheduling of training and everything else. But we have quoted over 60 BEACON systems already in just the last month or so that it’s been out, which we view is a very positive sign. Everything from small systems to very large systems we have quoted. And also we offered a starter kit, because unlike our other systems the beauty of the BEACON system is that you can literally go out and put in one or two units and use them and it doesn’t require you to put the braces upon telephone poles, it doesn’t interfere with any of your other meter reading operations. So we offered starter kits for a fee that included 10 units plus software and a training session, a webinar training session. And we have already received orders for over two dozen of those starter kits. So we are very optimistic about what we are seeing. We feel that it’s getting good market acceptance very early on. And part of that is because it is so easy to look at this. You can imagine, if you order a new drive-by system, putting 10 out there really doesn’t test it. And a new fixed network system you’ve got to put devices up on towers. But this is a very easy system for utilities to get into, and we think we’re going to see a lot of utilities putting in small numbers, testing them for a few months and then following on with major orders. John, did I lose you? I might have lost John.

The next question we have comes from the line of Richard Eastman

Yes good morning. Robert W. Baird & Company: Yes good morning.

Good morning Rick.

Hi Rich I just want a double back for a minute on this E-Series sales in the quarter this 4 million, can you just give us a sense of how much of that is against that $6 million order you had in the second half of the year and maybe just with kind of the mindset of how much traction and what’s realistic to assume for sales of that E-Series meter in the U.S. over the next maybe 12 months. Can it move the needle? Robert W. Baird & Company: Hi Rich I just want a double back for a minute on this E-Series sales in the quarter this 4 million, can you just give us a sense of how much of that is against that $6 million order you had in the second half of the year and maybe just with kind of the mindset of how much traction and what’s realistic to assume for sales of that E-Series meter in the U.S. over the next maybe 12 months. Can it move the needle?

Yes, Rick. And hopefully I won’t talk so much that I’ll lose you like I did John.

I think you just put him to sleep Rich. Robert W. Baird & Company: I think you just put him to sleep Rich.

I don’t know. He may have dozed off on us. But, oh, John entitled back in so he must have lost the line and come back in again so John I apologize for whatever happened there. Rick, in answer to your question, yes, we did about 4 million of E-Series about half of it was that major customer in the Middle East, and about half of it was domestic applications. I think it’s hard for me to say exactly a dollar amount what we are going to sell during the coming year. Obviously we have a budget and expectations. But I think we are going to see a very strong growth trajectory on this. Because a lot of customers have made the small purchases over the past year or so and have had them out there and testing them. And thus far these things are testing very well. They are performing exactly as we had told our customers they would perform. The beauty of the E-Series meter for those of you who aren’t familiar, is that it’s an ultrasonic meter its solid-state meaning it has no moving parts. So it does not wear out and loose its accuracy like a mechanical meter does. And also because there is no moving parts any grid or anything that might get in the water is less likely to damage the meter. So it’s a very well performing meter. And we do think it’s going to have a strong growth trajectory over the next four quarters as we go forward.

And this is Rick, and if I just can add to the extent we sell it domestically, it’s selling to customers who normally would have purchased mechanical meters and are moving to solid state meters.

Yes, I understand. Again, I know from commentary you have made in the past, the ASP purchase price on this is higher. Is the margin better than your typical brass local read meter? Robert W. Baird & Company: Yes, I understand. Again, I know from commentary you have made in the past, the ASP purchase price on this is higher. Is the margin better than your typical brass local read meter?

Yes, I think it’s a little bit better.

Okay, alright so there is no trade-off. Could you just maybe address the gross margin here, again just continues to be may be a little bit disappointing and maybe sluggish relative to some of the variables that go into that number, namely volumes, and I would have thought we would have seen some improved performance, especially sequentially, I mean we did 2.5 million more of sales and our gross margin actually declined a few 50 grand. So what’s your patience level there, your timing there, how should we set a model there going forward here? Robert W. Baird & Company: Okay, alright so there is no trade-off. Could you just maybe address the gross margin here, again just continues to be may be a little bit disappointing and maybe sluggish relative to some of the variables that go into that number, namely volumes, and I would have thought we would have seen some improved performance, especially sequentially, I mean we did 2.5 million more of sales and our gross margin actually declined a few 50 grand. So what’s your patience level there, your timing there, how should we set a model there going forward here?

Rick, I’m going to let Rick Johnson answer that question, but I want to go back to one thing so there is no confusion on your question on E-Series margins.

Yes. Robert W. Baird & Company: Yes.

And I said margins are a little bit better. I’m talking about margin percentages. So obviously it’s got a higher selling price, margin dollars are even better. So there is no confusion there.

Okay. Robert W. Baird & Company: Okay.

And I’ll try to give a little color again you go back to -- last year was a difficult quarter for us we know that and so even just looking -- you’re talking sequentially, I am talking Q1-over-Q1. There are some additional warranty charges in there that do impact margin, maybe half of a percent here and there in this quarter-on-quarter. There’s some FX charges in there. We continue to by our radio boards out of Europe. The increased cost, if you remember last year we were still selling about half a brass was standard brass, and the other half was bi-alloy. We are now at 100% bi-alloy. And yes, we did increase the prices to cover for some of that. But they are in terms of cost. Those cost of the bi-alloys is a little bit higher. But Rick it’s a same issue. Clearly volume helped the margin in dollars, okay?

Yes. Robert W. Baird & Company: Yes.

But when we got to the end, and to a certain extent there is some pricing pressure out there that squeezes a little bit. And it’s a particular mix of customers we have. So right now we’re not reading anything in particular in this. Your question as to how to model it going forward, we continue to push to get into that 36%-37% gross margin range. I made the comment in my comments that there was a little bit heavier mix of local read meters in this particular quarter.

Yes. Robert W. Baird & Company: Yes.

And so that impacted it. I mean I’m literally looking at like a dozen items that can impact margin. None of them other than volume pumping it up, none of them really jump out here is a major factor, but it was taken as a combined set we did have that little dancing effect on the margins.

Again if we just -- there are so many variables that go in there. I think we understand the variables but, just with volume going forward it can incremental gross margin, it seems to me it should be 40% or 50% now again I am thinking incremental as in quarter-to-quarter?

Alright well I am confused by the question, Rick, so let me make sure. You are saying, you think the gross margin itself ought to be 40% to 50%, are you saying the gross margin on…?

I am saying the incremental gross margin, so incremental dollar of sales, the gross margin on that should be north of 40%. Robert W. Baird & Company: I am saying the incremental gross margin, so incremental dollar of sales, the gross margin on that should be north of 40%.

And you are right because once you are adding work to a factory that has capacity there is an additional gross margin that you gain. And so you are absolutely right, when we add an extra million dollars of sales into a factory that has excess capacity, we could pick up a margin north of 40% with no problem whatsoever. And we understand that and that’s one of the reasons why we went aggressively after some of Elster’s low margin business because we knew even though that margin was low, we could put it into our factory and our factory is running at about, most of our plants are running at about 70%, 75% capacity, so we could easily put it in there without adding equipment and pick up a higher margin than what Elster had.

Okay. But again… Robert W. Baird & Company: Okay. But again…

But Rick, there are so many other factors…

No I understand, I can double back to you, I am just looking fourth quarter to first quarter and again, you had a decremental on higher sales. I know Rich or Rick you are kind of addressing year-over-year and I understand that but it’s still a bit surprising that from the fourth quarter to the first quarter with 2.5 million more of sales, our gross margin went down by $50,000 so that’s what I was trying to reconcile. But just one other question and I can double back, but can I just ask these due diligence charge in the quarter, can I just ask you approximately some range of revenue in the acquisition that you were looking at, how big was that? Robert W. Baird & Company: No I understand, I can double back to you, I am just looking fourth quarter to first quarter and again, you had a decremental on higher sales. I know Rich or Rick you are kind of addressing year-over-year and I understand that but it’s still a bit surprising that from the fourth quarter to the first quarter with 2.5 million more of sales, our gross margin went down by $50,000 so that’s what I was trying to reconcile. But just one other question and I can double back, but can I just ask these due diligence charge in the quarter, can I just ask you approximately some range of revenue in the acquisition that you were looking at, how big was that?

Yes, and we talked a lot about this and figured we’d get a lot of questions on the size of the acquisition, on whether it was domestic or foreign and whether it was in our industrial, our water meter area. And we decided that we would tell you it’s bigger than a bread box but we are not going to play 20 questions. And because we really don’t want to narrow it down. I would say it was a significant acquisition that we were chasing because obviously the due diligence dollars in my opinion became significant but that’s all we are really saying.

And we have actually signed a confidentiality agreement, so we are not going to say anything more.

Well there was a piece of business that transacted in Mexico, it was quite small and I am going to just kind of presume that’s not what you’re looking at? Robert W. Baird & Company: Well there was a piece of business that transacted in Mexico, it was quite small and I am going to just kind of presume that’s not what you’re looking at?

This was a significant opportunity.

Okay, okay. Thank you. Robert W. Baird & Company: Okay, okay. Thank you.

Okay.

Thank you. Next we have John Quealy from Canaccord Genuity back in the call.

John, you must have doze off on us.

Yes, you are the one call I don’t doze off on. There is always the risk that you say something, so I don’t doze off, anyway sorry about that. So, my follow-up on that question on BEACON was, is this not cannibalizing the existing drive by platform at all, just help us frame it because it seems like a good solution and it seems like it’s getting decent traction at least initially. Canaccord Genuity: Yes, you are the one call I don’t doze off on. There is always the risk that you say something, so I don’t doze off, anyway sorry about that. So, my follow-up on that question on BEACON was, is this not cannibalizing the existing drive by platform at all, just help us frame it because it seems like a good solution and it seems like it’s getting decent traction at least initially.

John, what I would say is obviously it is going to cannibalize some drive by in fixed network, but I view this is a really positive thing. The most recent estimate by IMS is that in the U.S. or in North America about 43% of the meters now have radios on them, so we still have a long way to go. And one of the major issues in getting utilities, those other 60% utilities to switch from manual meter reading where somebody walks door-to-door to some sort of automation, is the fact that we have been offering, we and all of our competitors have been offering drive-by or fixed networks as alternatives. And both of those have limitations. The problem with most of the fixed networks is that you always -- city boundaries are not a perfect circle. If they were life would be so much easier for us. You always have houses out in those hard to read areas and so you are talking about a lot of infrastructure to get coverage and even the best fixed network system, you are still going to have some meters that won’t report. It’s very difficult. We have all struggled with this, but with the cellular system pretty much every house that is on a municipal water system has cellular service. Obviously there are houses in the Northwoods of Wisconsin that don’t have cellular services but they also aren’t on a municipal water system. So, we feel that this is a solution that is really going to help. And then the second thing that this does, I don’t want you to overlook the value of the conservation tool here. A lot of the water utilities are now going through what the electric utilities went through in the 80s which is, they are being pressured to find ways to help their customers conserve. And with a tool like this when your cell phone can tell you exactly how much water you are using, can warn you that there is a likely leak, that’s a very powerful tool. So, I think, I am hoping that what BEACON really does is rather than cannibalize a lot of our existing sales. It’s going to move a lot of those 60% of the utilities off the dime, where they have been sitting back and waiting for a very compelling reason to go to automation and this I believe is the reason.

Okay. And then just two more questions, first, so we talked about this concept of an Elster drag as you I guess make hold, get overhead absorption on your side and keep those customer’s prices under previous agreements with Elster when generally does the bulk of that run off, so it’s no longer a drag if you will? Canaccord Genuity: Okay. And then just two more questions, first, so we talked about this concept of an Elster drag as you I guess make hold, get overhead absorption on your side and keep those customer’s prices under previous agreements with Elster when generally does the bulk of that run off, so it’s no longer a drag if you will?

I think we’re going to, well, there’s several factors here. One is those contracts that we took over since June 30th of last year. Mostly run through '14, a few of them might run into early '15, I am looking at Kim Stoll our VP of Sales here to see if she will nod at that statement. There are a few that go into early '15 but most of them runoff through '14. Now when they run off we will go in and work very aggressively to try and get some price release. Will we successfully get prices on all of those contracts back up to what our averages are, probably not, we may achieve it on some I don’t think we’ll achieve it on all. So those Elster customers who got very used to paying a sub market price for their meters. They are going to be hard to convince and it’s going to take time to convince them overtime to move back. We’ll have our first shot at it when their contract ends, we’ll go after it.

Well let me enhance, we’ve already had conservations with most of those customers and prepared them for the fact that we cannot sell at those prices going forward. And for the most part, well not exactly receptive I think most of those customers understand that because, they understand Elster is no longer around sorry.

But the other hand, can you go in and convince a customer that on their renewal they should have a 20% price increase probably not. On the other hand could you get a 10% price increase, yes, you could probably do that. So it may take a couple of rounds for us to get those up to where we want, I don’t want you to think John that those customers are going to jump on renewal.

Yes, no and so this leads to my last question. So copper took a pretty good digger here at the end, the recent past, and whatever you got 45, 60 day inventory turns and things like that, which Rick I think mentioned a little bit of price pressure in and around there. So all else equal, we should still see some ability to grow the gross margin if you are getting some good news on copper, maybe you give a little bit on price. But I can’t imagine that you’re going to be much more negatively impacted on price, or is that not a fair assumption? Canaccord Genuity: Yes, no and so this leads to my last question. So copper took a pretty good digger here at the end, the recent past, and whatever you got 45, 60 day inventory turns and things like that, which Rick I think mentioned a little bit of price pressure in and around there. So all else equal, we should still see some ability to grow the gross margin if you are getting some good news on copper, maybe you give a little bit on price. But I can’t imagine that you’re going to be much more negatively impacted on price, or is that not a fair assumption?

No I think it’s a very fair assumption. First of it takes about 60 days or 90 days they are telling me 90 days for a copper price increase, decrease to move through our system, because it’s first seem at the smelter, then it’s seen at the foundry and then it has to move through our inventory and out to the customer. So it’s about 90 days. So you’re right copper did take a drop and if it stays down, we’re going to see some benefit of that coming through. The other thing that’s happening is that when you compare to a year ago and I know we keep talking a year ago, you guys like to compare it sequential quarters, but a year ago the benefit of lower copper was offset by the fact that there was a mix of cheaper copper, the 81 brass which we no longer have now. As we move through this year that year-over-year comparison goes away, because by about the middle last year, there was no more of the 81 brass and it was all bi-alloy. So you’re absolutely right there we are anticipating some margin tailwinds from the fact that copper has recently dropped.

And I cynic I mean the price increase has come within 90 days, decreases are like gasoline prices, when oil goes up, it just takes a little bit longer. And so we have really pressuring the foundry to give us those decreases.

Yes. Rich tends to believe the worst in everybody.

That’s correct.

He assumes that when prices go up they merely pass them up on to us and we have to squeeze to get and to some extent.

A hint of truth.

To some degree, he may be right.

Alright guys. Thank you. Canaccord Genuity: Alright guys. Thank you.

You bet.

Thank you. The next question we have comes from the line of Ryan Connors from Janney Montgomery Scott. Please go ahead.

Great. Thank you. I have a few questions guys. I guess first off, just more of a housekeeping kind question, then a couple of bigger picture items. First off just you discussed the gross margin in pretty good detail there, but just can you kind of give us an outlook for the SG&A line and I know there has been a number of moving parts there with the R&D rolling off, but maybe variable comp padding up and there is charge. So what’s kind of the outlook for the trajectory we should look for there in the moving pieces? Janney Montgomery Scott: Great. Thank you. I have a few questions guys. I guess first off, just more of a housekeeping kind question, then a couple of bigger picture items. First off just you discussed the gross margin in pretty good detail there, but just can you kind of give us an outlook for the SG&A line and I know there has been a number of moving parts there with the R&D rolling off, but maybe variable comp padding up and there is charge. So what’s kind of the outlook for the trajectory we should look for there in the moving pieces?

Yes Ryan, what I’ll tell is that, our engineering costs which are a major part of our sales, what Rich calls SMIGA, sales, marketing, engineering, G&A. Our engineering costs have historically run less than 5% of our sales they have been ending working to 4.5% to 4.8%. Last year we consciously allowed them to go over 5%. It was what I -- you domestically refer it to as the surge we did that in order to get BEACON to-market we felt we had a very compelling product that would generate great shareholder value. So we put a surge into engineering, we spent the additional money and we got that product to-market very quickly. As I have told my engineering guys, when the surge is over it’s time to bring the troops home. And so in 2014 we believe that our engineering expenditures should drop below the 5% level. And we should be able to gain from that. We should have some pickup there. Our other SG&A cost, I think you’re going to see them maybe a little bit higher with inflation. Also the fact that we didn’t pay any bonuses last year, because at Badger Meter, if earnings don’t go up we don’t pay bonuses, so that this year if earnings are higher, we will be factoring some bonuses. You’ll see that impact. But beyond that, and absent unusual one-time events like the $1.7 million on the acquisition, absent that, you should not see much of a rise in SG&A.

And I think that the only thing is as we always are watching there are non-cash charges and it is pension accounting and you saw that last year I think in the second and third quarters, and simply from the fact that we froze the pension plan a couple of years ago we are more likely to have some of those charges later in the year depending upon the pay-outs from the plan. It’s some kind of alluded thing, but it’s always a non-cash charge. In fact the balance sheet is properly stated. This is the thing we always talk about. We just pull it out of equity, run it through the income statement and back in, and so likely you might see those later on in year.

Okay, that’s great. So the bigger picture, so first up, just a follow on the BEACON and the ORION SE discussion. Now you have mentioned several times, Rich, about conservation being a key selling point in the ability to help drive a conservation program that seems to be a recurring theme in the customer testimonials that we’ve listened to, you mentioned Greg, reporting that back from the Middle East in real time. So to what extent does that make that somewhat a niche solution, that’s more applicable to the Middle East and to parts of the Southwest in the United States and so forth and kind of limit the addressable market there, because it seems like that is a big talking point for that product? Janney Montgomery Scott: Okay, that’s great. So the bigger picture, so first up, just a follow on the BEACON and the ORION SE discussion. Now you have mentioned several times, Rich, about conservation being a key selling point in the ability to help drive a conservation program that seems to be a recurring theme in the customer testimonials that we’ve listened to, you mentioned Greg, reporting that back from the Middle East in real time. So to what extent does that make that somewhat a niche solution, that’s more applicable to the Middle East and to parts of the Southwest in the United States and so forth and kind of limit the addressable market there, because it seems like that is a big talking point for that product?

And Ryan, I think to some extent, and I know you’re very familiar with water industry as I am. I think to some extent you might be underestimating the significance of the new focus that we are seeing on water conservation, not only around the world but all across United States. In Milwaukee where we are today, is in the world’s largest water basin. We have over 20% of the world’s freshwater right outside our backdoor here in the form of the Great Lakes. And yet even here people are saying we need to conserve. Because there is also a water energy nexus, even if you have plenty of water, you’re using a lot of energy to move and clean that water. And so I am finding people in all communities, people located on rivers and lakes are focused on water conservation. And to the extent that BEACON can help their communities achieve water conservation goals, I think we are going to see that happening all across United States and all around the world. So I don’t view it as a niche play. But then I would also remind you that BEACON itself is more than just about water conservation. To us, that was an additional feature we were able to provide. Once that information is up in the cloud and through a cellular system, getting it back down to iPads and iPhones was a very easy thing, and that’s a nice thing to provide. But really a BEACON offers so many tools for the utility, to analyze their water usage and to identify where potential leaks are and to deal with load management, all of those wonderful things that they’ll be able to do with BEACON. It goes far beyond just conservation. It also goes to allowing the utility to focus on what they do best which is managing their utility. And that’s really a key factor also. So I don’t want you to think conservation is the only selling point. I think it’s a selling point that we are hearing a lot of interest in. Maybe we have been underestimated how interested people would be based on Greg’s comments from the Middle East. But there is a lot more there than meets the eye.

Okay. And then one more just kind of revisiting a topic, that was a hot topic last year, I haven’t been hearing as much about it. But just the state of the municipal customer base and the municipal end-market in general, I mean you are posting some pretty strong numbers in growth in that end-market which many people are still saying is in trouble, given the pension issues and so forth. I mean, do you read that as a recovery in that end-market or is there something else going on there? Janney Montgomery Scott: Okay. And then one more just kind of revisiting a topic, that was a hot topic last year, I haven’t been hearing as much about it. But just the state of the municipal customer base and the municipal end-market in general, I mean you are posting some pretty strong numbers in growth in that end-market which many people are still saying is in trouble, given the pension issues and so forth. I mean, do you read that as a recovery in that end-market or is there something else going on there?

And Ryan, I know that you do a lot of research into the health of the municipalities, and in fact I rely on some of it because it’s pretty good, surprisingly good.

Applying to the qualified done that once in a while? Janney Montgomery Scott: Applying to the qualified done that once in a while?

I couldn’t leave you with an open complement like that, Ryan I had to, but the fact is I also think what we are seeing is that the municipalities can cut back on water meter replacement for a while. But at some point they have to go back to it. So, you have a bad winter, maybe the municipal budget gets used up, filling potholes, and salting roads. And so they decide for six months, weren’t you going to cut back on water meter replacements. At some point, those meters are getting old, they are becoming inaccurate, they lose their accuracy with time, revenue is being lost, and the utility has to go back to it. So remember that the water meter is the cash register of the water utility. And as Rick Johnson, our CFO loves to say even a restaurant going out of business keeps an accurate cash register by the door, so no matter how difficult a city’s pension obligations are or other budgetary constraints are, they want to have accurate cash registers and at some point they will start that replacement, I think that’s what we are seeing. I think we are seeing them come up and say we have got to get back into these replacement programs.

And Ryan, one other comment on the first quarter sales, one of the things that we’re kind of getting anecdotally is that we introduced BEACON in the first quarter, okay. We introduced it at our sales meeting in January perhaps the training didn’t take place until mid-March on it alright. So we have a lot of people say, they just paused for a while, okay, so they have record sales for any first quarter despite the fact that if we had not introduced BEACON may be sales would have been higher. Now we can’t guarantee that but we have had anecdotal instances where cities are just thinking about it. The lack of infrastructure associated with this is very attractive to some people also.

Great, that’s great as always. Thanks guys. Janney Montgomery Scott: Great, that’s great as always. Thanks guys.

Thank you.

Thank you. The next question we have comes from the line of Glenn Wortman from Sidoti & Company. Please go ahead.

Yes, good morning guys. Sidoti & Company: Yes, good morning guys.

Good morning, Glenn.

I am blank and if this had come up on past conference calls but with the introduction of the E-Series meter and the hold of the accuracy longer, I mean do you think that would lengthen the replacement cycle if these meters really catch on? Sidoti & Company: I am blank and if this had come up on past conference calls but with the introduction of the E-Series meter and the hold of the accuracy longer, I mean do you think that would lengthen the replacement cycle if these meters really catch on?

No, Glenn. The reason I say no is because in our industry meters are warranted for 20 years, batteries generally last 20 years and the average replacement is about 15. There are some utilities that we will replace earlier than the 20 years and some that go before 20 years. So, we run an average of about 15. I don’t see accuracy stretching that out much. It certainly can’t go beyond 20 because by then batteries die and product has to be replaced. If anything, there are some utilities that may be stretched a little bit beyond the 20 and I think once they go to electronic metering, the 20 becomes kind of a hard wall for them.

Okay, alright. And then just to ask you a acquisition question a little bit differently, can you may be just comment on what types of businesses you might be interested in going forward? Sidoti & Company: Okay, alright. And then just to ask you a acquisition question a little bit differently, can you may be just comment on what types of businesses you might be interested in going forward?

We still -- there are really two distinct buckets of acquisitions that we see as potentials. One, are smaller strategic acquisitions, primarily in the one-third of our business that is flow instrumentation or what we are ere always calling industrial metering. And acquisitions like we have made in the past with Cox and Remag and companies like that. Those are smaller acquisitions. We are not looking at any large companies there. We are talking maybe south of $10 million may be as high as 20 million something like that but not huge acquisitions. But the second thing we have to do as a company is keep ourselves up open to major opportunities that if something significant came along that we would have an opportunity to jump on it. We have a very healthy balance sheet. We have a very good stock price, so a very good currency in our stock and we think we have a strong team here that could absorb a major acquisition. When it comes to water meter companies, there aren’t small ones, I mean they are all pretty much significant players and we have to remain open to opportunities that come along those lines.

Okay. Thanks for taking my questions. Sidoti & Company: Okay. Thanks for taking my questions.

Okay.

Thank you for that question. And the next question we have comes from the line of Hasan Doza from Water Asset. Please go ahead.

Hi, good morning gentlemen. Just a follow-up on the two questions, first on earnings growth, if I look at the company in the last two years, obviously the last year was an earnings down year versus the year before and if I look at this year’s first quarter results of $0.39 adding back the charges, it’s still down from your first quarter 2012 which was a normal quarter versus the first quarter of last year. So, the reason I wanted to kind of get your thoughts is that how do you think about Badger beginning to grow earnings again in their organic business or do you think that at this point, you really need a transformational acquisition to grow earnings because the last couple of years we really haven’t seen Badger grow earnings, so I just wanted to get your thoughts on that dynamic of finally seeing earnings growth coming out of Badger Meter? Water Asset Management: Hi, good morning gentlemen. Just a follow-up on the two questions, first on earnings growth, if I look at the company in the last two years, obviously the last year was an earnings down year versus the year before and if I look at this year’s first quarter results of $0.39 adding back the charges, it’s still down from your first quarter 2012 which was a normal quarter versus the first quarter of last year. So, the reason I wanted to kind of get your thoughts is that how do you think about Badger beginning to grow earnings again in their organic business or do you think that at this point, you really need a transformational acquisition to grow earnings because the last couple of years we really haven’t seen Badger grow earnings, so I just wanted to get your thoughts on that dynamic of finally seeing earnings growth coming out of Badger Meter?

Well okay. So, 2012 was a year of very good earnings growth and you are right the first quarter of 2012 was a strong quarter. I’ll also point out that the winter in that first quarter of 2012 was one of the mildest winters we have had in years. Snow cover was 20% below normal whereas last year it was about 15% above normal and this year it was about 9% above normal. So, that has a significant impact, so ’12 was a very strong year of earnings growth, ’13 our earnings growth slowed down and dropped in that year. So, I don’t think it’s several years of lower earnings, it’s really we have had one year. I think in ’14, we are optimistic and we believe we can grow earnings. We have some very strong tailwinds, some very strong new products. We have copper prices very favorable. Yes, we have had some pricing pressures but I do think, I think we can deliver in ’14 a very good year. I wouldn’t read much into the fact that the first quarter was not as, it was $0.39 and perhaps the street was expecting $0.42. In my opinion that’s within the noise level of our business. We always say we run a lumpy business, quarters are very hard to predict and a $0.02 miss I don’t read a lot into it maybe you do, but I don’t think it’s that bigger deal.

In fact a penny is almost $150,000, yes.

No I was not really focusing on the $0.02 I was really looking at kind of the quarter-to-quarter earnings growth looking at the first quarter of '12 looking more normal here. But the bigger picture question to add to your comment Rich is, do you feel the business as it is right now? You need an acquisition to really have visible earnings growth, given the volatility, that’s kind of my second part of the question? Water Asset Management: No I was not really focusing on the $0.02 I was really looking at kind of the quarter-to-quarter earnings growth looking at the first quarter of '12 looking more normal here. But the bigger picture question to add to your comment Rich is, do you feel the business as it is right now? You need an acquisition to really have visible earnings growth, given the volatility, that’s kind of my second part of the question?

Right. And my direct answer to that it is, I don’t feel we need an acquisition to drive earnings growth. What we need is some strong new products to put into the pipeline and what we need is our competitors to cooperate if you will or to help us by having difficulty into their own businesses. And to be real blunt with you, I think we are at a perfect position right now. Because whereas in the past it’s taken us anywhere from three to five years to introduce a significant new product. In the last 12 months we’ve introduced two, we introduced ORION SE a year ago and now we’ve introduced BEACON both very strong products and we now have two of the industry leading technologies on the market but the other things that’s happened is our competitors have made strategic decisions to narrow their product offerings, they are either getting out of mechanical meters and only offering electronic meters. Or they are getting out of metal meters and only offering polymer meters. Badger Meter is the only company in North America that is still offering a full suite of electronic, mechanical, metal and polymer meters. So we feel that in our legacy markets in our North America markets we have the two perfect situations, very compelling new products at the same time our competitors are reducing their offerings. And then when you add onto that, that we now for the first time have significant opportunities to take our products globally because we have a meter and a radio that works in foreign markets that too it could drive significant growth for us. That’s why we are so optimistic and we’re factoring in acquisitions as a major growth driver.

And my last question on the gross margin and just to understand the newer, as you’re absorbing the Elster customers you have said most of the absorption will happen during 2014 meaning that you’re picking up these under priced contracts mostly during 2014? Water Asset Management: And my last question on the gross margin and just to understand the newer, as you’re absorbing the Elster customers you have said most of the absorption will happen during 2014 meaning that you’re picking up these under priced contracts mostly during 2014?

No. I don’t think you have got that right. Most of the pickups happened in the last nine months.

Okay. Water Asset Management: Okay.

From June 30th to the end of the first quarter, we’ve picked up we believe over 50% of Elster’s customer base in that period of time. What I said in 2014 is most of the contracts that we took over will be renewed 2014, where we will have price improvement opportunities.

Got it. Okay. Thanks for clarifying it. I appreciated it. Thank you. Water Asset Management: Got it. Okay. Thanks for clarifying it. I appreciated it. Thank you.

No problem.

Thank you. The next question we have comes from the line of Rich Eastman from Robert W. Baird.

Yes. So in fact hey, Rich from that very last comment, can we assume in this first quarter that maybe your Elster sales were around 2.5 million? Robert W. Baird & Company: Yes. So in fact hey, Rich from that very last comment, can we assume in this first quarter that maybe your Elster sales were around 2.5 million?

No you can’t.

Okay. But we’ve got half. Robert W. Baird & Company: Okay. But we’ve got half.

Right, right, right.

And a 20 million annualized. Robert W. Baird & Company: And a 20 million annualized.

Right. But would you financial guys love to do is draw a straight lines.

Yes. That’s what we do. Robert W. Baird & Company: Yes. That’s what we do.

Yes. You do. And you remember your…

With all the information and all the data points that we collect we have to draw a straight lines. Robert W. Baird & Company: With all the information and all the data points that we collect we have to draw a straight lines.

Yes. Yes. And so what you really need to do is put away your ruler and get out a protractor.

Too much caffeinated coffee in the morning apparently.

So it’s not 2.5 it’s somewhat -- it must be less than that. Robert W. Baird & Company: So it’s not 2.5 it’s somewhat -- it must be less than that.

Rick, I know where your math is going because Elster was doing about a 20 million a year in sales in the North America in the water business, they’ve pulled out of that, they have mostly pulled out of debt. We feel we have taken over 50% that would be about 10 million a year and you divide that by four and you get 2.5. Of course as you’ve now learned is our business is lumpy, the first and fourth quarters tend to be weaker quarters and the second and third tend to be stronger. Whereas I do believe we will have about 10 million in sales this year. I don’t believe it will come in at 2.5 million every quarter for the next four quarters.

Yes okay. Robert W. Baird & Company: Yes okay.

So the first quarter was south of 2.5 the fourth quarter will be south of 2.5. The third and fourth will be north.

Yes. Okay. And just, as we talk about price pressure and we’ve kind of mentioned this in the trailing quarters as well and it just, it strikes me that Elster is out of the market which I guess you could include their pricing as price pressure but we knew that’s been out there. I can’t, Neptune doesn’t cut prices I don’t think? Robert W. Baird & Company: Yes. Okay. And just, as we talk about price pressure and we’ve kind of mentioned this in the trailing quarters as well and it just, it strikes me that Elster is out of the market which I guess you could include their pricing as price pressure but we knew that’s been out there. I can’t, Neptune doesn’t cut prices I don’t think?

I am not sure, I would agree with that statement Neptune has a capacity issue, they have a, they own their own foundry Rick and they are more vertically integrated so when they loss volume it really hurts them a lot more. And I believe that companies that have capacity issues tend to get a lot more aggressive in pricing especially when so much of their business is a fixed cost. We don’t own our own foundry. So when our sales were down we don’t carry all that overhead.

So their lost share, the Hersey could matter, or not. Yes it’s Hersey, and really it couldn’t matter. Robert W. Baird & Company: So their lost share, the Hersey could matter, or not. Yes it’s Hersey, and really it couldn’t matter.

And so newer or water product and so we have been seeing some price pressure coming out of the Neptune area where we haven’t historically seen it.

And then and so, is any of the price pressure coming from non-U.S. vendors trying to gain a little bit of share here on land? Robert W. Baird & Company: And then and so, is any of the price pressure coming from non-U.S. vendors trying to gain a little bit of share here on land?

No, not at all.

No. Okay. Robert W. Baird & Company: No. Okay.

You know, Rick it -- and I don’t want people to get the wrong impression here. At Badger Meter fields we have an opportunity to take our meters and radios internationally. On the other hand am not going to open offices in Berlin and Paris and start knocking on doors. That makes no sense for us. Because brand and channels so matter in our industry to a great extent, and so just as it’s hard for those international firms to get into North America, because they don’t have the brand, and they don’t have the channels, and the companies that are here are all over 100 years old. We’ve all been selling for a long time. We will run into the same problems over there. However we do have partners. We have companies that will private-label our products than are private labeling our products, and then we have regional opportunities such as the Middle East, where they are very open to buying American products.

Yes I just wanted to check the box that what’s not occurring is foreign vendors trying to gain a foothold in share in the U.S. with price? Robert W. Baird & Company: Yes I just wanted to check the box that what’s not occurring is foreign vendors trying to gain a foothold in share in the U.S. with price?

I mean no, we are not seeing that.

Okay, okay. And just one last question, Rick, on the receivables and inventory, that stepped up is there any message there, anybody trying to get ahead of price increases, are you guys building to -- did you build anything on the inventory side in the first quarter for delivery later in the year? Robert W. Baird & Company: Okay, okay. And just one last question, Rick, on the receivables and inventory, that stepped up is there any message there, anybody trying to get ahead of price increases, are you guys building to -- did you build anything on the inventory side in the first quarter for delivery later in the year?

No I mean general -- let’s just, receivables are always low at year-end. So they are higher now because we had obviously record sales in the first quarter. On the inventory side, again at the end of the fourth quarter, it increased $0.10, we are going into our busy time, the second and third quarters, we’ve got long lead times on certain products. And to a certain extent, you know why we did well? We are buying inventory according to a plan and frankly we are a little short of our own plan.

Yes no that’s okay. I just -- there wasn’t any terms given on the distribution side relative to price increase coming up? Robert W. Baird & Company: Yes no that’s okay. I just -- there wasn’t any terms given on the distribution side relative to price increase coming up?

No.

Okay, okay, very good thank you again. Robert W. Baird & Company: Okay, okay, very good thank you again.

Thank you for that question. We have no further questions at this time. (Operator Instructions)

It doesn’t appear we have additional questions so why don’t we wrap it up and I’ll just say that reiterate that we are optimistic about 2014. We think the first quarter was not a record-breaking earnings quarter but it was a good quarter. And that we believe 2014 can be a strong year. We’re particularly impressed with the customer reception to the new BEACON offering, and to the growth in sales that we are seeing in the E-Series meters. Those are two very strong areas. We also think we have continued growth coming in our industrial flow areas as the economy improves and we see more industrial capacity added where a lot of our sales are made. So with that I’ll thank you again for joining us.

Thank you ladies and gentlemen. That includes your conference call for today. You may now disconnect. Have a good day.