Welcome everyone and thank you for standing by. At this time, all participants will be on a listen only mode until the question-and-answer session of today's conference. [Operator Instructions] And now I would like to introduce our speaker for today, Yolanda Kokayi. Please go ahead.

Good morning, everyone. Welcome to Mueller Water Products 2018 First Quarter Conference Call. We issued our press release reporting results of operations for the quarter ended December 31, 2017 yesterday afternoon. A copy of it is available on our website, muellerwaterproducts.com. Discussing the fourth quarter and full-year results this morning are Scott Hall, our President and CEO; and Martie Zakas, our CFO. This morning's call is being recorded and webcast live on the Internet. We have also posted slides on our website to help illustrate the quarter's results as well as to address forward-looking statements and our non-GAAP disclosure requirements. At this time, please refer to Slide 2. This slide identifies non-GAAP financial measures referenced in our press release, on our slides and on this call, and discloses the reasons why we believe that these measures provide useful information to investors. Reconciliations between GAAP and non-GAAP financial measures are included in the supplemental information within our press release and on our website. Slide 3 addresses forward-looking statements made on this call. This slide includes cautionary information identifying important factors that could cause actual results to differ materially from those included in forward-looking statements. Please review Slides 2 and 3 in their entirety. During this call, all references to a specific year or quarter, unless specified otherwise, refer to our fiscal year, which ends on September 30. A replay of this morning's call will be available for 30 days at 1866-380-8124. The archived webcast and corresponding slides will be available for at least 90 days in the Investor Relations section of our website. In addition, we will furnish a copy of our prepared remarks on Form 8-K later this morning. I'll now turn the call over to Scott.

Thanks, Yolanda. Thank you for joining us today as we discuss our 2018 first quarter results. I'll give you a quick overview of the quarter and then Martie will follow with additional analysis. I will then provide some further color on key performance indicators later in the call. We'll finish up with an updated discussion of our outlook for 2018. Overall, I was pleased by the 6.6% growth in consolidated net sales. We had a strong 9.4% increase in Infrastructure net sales, primarily driven by higher shipment volumes, the addition of Singer Valve and favorable pricing. These factors were partially offset by lower volumes in Technologies meter business. From an operating perspective, we benefited from ongoing manufacturing productivity improvements this quarter. However, we continue to experience a rise in material costs particularly in brass which increased 3.6% sequentially and 23.8% year-over-year. You've heard much about tax legislation and we will spend time on it this morning. The new tax legislation improved our first quarter earnings and will be an ongoing benefit by providing additional liquidity and earnings. We will continue to balance our capital allocation among strategic investments to strengthen and grow the business, while at the same time returning cash to shareholders through share repurchases and dividends. We repurchased $10 million worth of shares during the first quarter and we recently declared a 25% increase in our quarterly dividend. We remain confident in our ability to deliver both strong consolidated net sales growth and conversion margin improvement for 2018, driven by healthy end markets and continued execution of our strategic initiatives. With that I'll turn the call over to Martie. Martie Zakas Thanks, Scott, and good morning. I'll start with our first quarter consolidated financial results and then review our segment performance. I will then move on to the…

Thanks, Martie. I'd like to talk now about five key areas for the quarter, but first being net sales growth and then on to operating performance, material cost, pricing and then finally capital allocation. At that point, we'll move on to take a look at our full year outlook. Starting with net sales growth, Infrastructures first quarter net sales growth of 9.4% was driven by growth across all our major product lines, which includes valves, hydrants and brass products. We're seeing favorable market dynamics in both our municipal and residential end markets and all indications to us are that the fundamentals are very good for a healthy demand environment throughout 2018. Although Technologies first quarter net sales decreased year-over-year, we were pleased to see $2.5 million increase in sales of our fixed and mobile leak detection solutions in the quarter. This increase was more than offset by decline in metering volumes and pipe condition assessment services. As mentioned earlier, the decline in metering shipment this quarter was primarily due to a difficult comparison with a year ago when several large AMI projects were at peak deployment. Technologies fixed leak detection solutions continued to win new business and ended the quarter with more business under contract than a year ago. Technologies is focused on growing sales of its AMI and leak detection Technologies and improving operating performance over the course of the year. On the manufacturing front, I continue to be encouraged by the operating performance at Infrastructure, as we gain delivered meaningful cost savings and productivity improvements in the quarter. We're still experiencing an unfavorable material cost environment that more than offset these improvements, as first quarter material cost rose about 5.5% compared with the prior year quarter or about 1% sequentially, which lowered our conversion margin in the quarter.…

Thanks Scott. Turning to some of the other expectations for our 2018 performance, corporate expenses are expected to be between $33 million and $36 million. We expect depreciation and amortization to range from $44 million to $46 million, net interest expense to be between $21 million and $23 million and capital expenditures to range from $40 million to $48 million. As Scott outlined we are evaluating possibilities for additional capital expenditures in 2018. We anticipate that our adjusted effective income tax rate for the full year will be between 26% and 29% excluding the one-time transition tax. Based on our current expectations for capital expenditures we expect free cash flow to be higher than adjusted net income. With that operator, please open the call for questions.

[Operator Instructions] Our first question in queue is coming from Mr. Mike Wood from Nomura Instinet. Mike your line is now open.

Hi, good morning. Thanks for taking my question. First, may be to start on the conversion margin, it's happy to see that you are able to reiterate the guidance the year. Can you talk about your confidence in achieving that, specifically the evidence that you are seeing on price hikes announced in December across all those product categories that you called out?

Yeah, I think that we remain confident because we have seen this strength sequentially. We continue through the January booking period to see strength. So, I think that we - once we see the slowing in brass and steel and I believe the scraps deal has slowed now. We are confident that we'll continue to be able to pass that along. So, I think the spreads with price are good. I think the actual efficiencies that we are getting in the factories are good. I think Martie kind of pointed towards a little bit in her comments. The SG&A bubble we experienced, those personnel related expenses, takes things that are important to the side and recognize that we had basically through our first quarter through 1231, we still had some, let's call them duplicate costs associated with some of the re-structuring that we had to get kind of through the system. So as we go into our Q2, all of that is done basically and behind us. So, the piece that wasn't adjusted out a lot of people were working within that SG&A number. So, price, good volume, good manufacturing productivity, especially at the Foundry, especially Indicators, especially in Chattanooga and especially in Albertville really leave me confident that they could conversion margin should line up with our full year guidance in that 35% to 40% range.

And, related to that question, would there be a pre-buy hearing your fiscal second quarter, how should that impact growth here in this current quarter that we are in now?

Yeah, we would expect that we'll give our important customers their window to make two releases of products before they have to pay the new price that will be limited on some formulate basis. So, our order books should swell and they'll be on our timeline to have us get the shipments through. So, I am a little less excited about that, I don't want - you'll recall last year when we went through that process, we weren't sure what the uptick was going to look like from distribution because they've gotten burnt before. So, we haven't gotten a huge amount of pre-buy forecast, if we get more than we have forecasted. We'll get some manufacturing efficiencies from it and if we are kind of in this muted level that we are anticipating right now, we'll still be able to deliver the 35 to 40.

Great, just finally can I ask about Technologies, just sounds like in your remarks you're attributing the sales softness to the tough large project comps - I think this is supposed to be a pretty fast growing business segment in general. So, can you just talk about what you are seeing in backlogs in order activity, what your patience is in this business and your longer term confidence in it?

Okay, so I knew it's coming, so we are not going to talk. Were we disappointed in volume in meters in the quarter, yes we were. We continue to work three contracts right now that are meaningful and will be meaningful to the business that we think will be able to announce here in the few - next 12 or 14 weeks. But, fundamentally whether we win these contracts or have a little win here or little win there is not the point; we have to scale the business. And, if we can't scale the business then we have to run the business more efficiently than we've been running it. And, I believe in the technology, I continue to believe in the strategy. I think we have to do a better job with our selling proposition, I think we have to do a better job with larger cities so they understand why it is advantageous to go open architecture way. But, there are still lots of things we can do with the business from a cost structure point of view, to not have these results. I think the problem with volume was part of the problem. But, we could have done a better job containing cost, given the volume problems we saw in the quarter. So, I don't want to talk on it, I still love the technology and I still love the selling proposition. I think it is a winning combination and I think that if you think about large cities, then you think about mid-sized cities then you think about rural areas and the need for a water authority to actually address all of them, and the need to have both fixed networks and open networks like wide area networks showing your denser populated areas, your wide area networks and your kind of your BARB areas. You've got kind of your proprietary network and then when you are out in the kind of formally rural areas, you're interconnecting through cellular network, we are the only people that can provide an umbrella over all of it and have software integrate to all of it and all at the same time, integrate lead detection. So, I still believe in it, you'll know when we don't, because we'll take the engineering out, but I believe we are going to continue down this path. We are having wins, certainly not at the rate I would like them, but I believe the team is on the right path and I am encouraged by some of the signature wins that they have had. So, we are not giving up yet.

Okay, I appreciate your time there. Thank you.

Our next question is coming from Mr. Bill Nuby from D.A. Davidson. Bill, your line is now open.

Good morning guys. Bill Nuby on for Brent Thielman today, thanks for taking my questions. Just hoping to get a little bit more color on the price increases the other end for many, are you seeing competitors responding the similar price increases across the market?

We don't really comment on what they are doing and I am not in a position where I can say. I know even how they've respond, and we went in with our lists in December, we'd not seen a lot of pushback and distribution seems to understand what's going on. So, I would imagine if they had some other options they would, but we try not to comment one way or the other.

That's understandable.

I think though that everybody is experiencing higher material cost and I think so unless anybody wants to see our margins shrink; we are got to have to take some pricing action by definition in order to cover the higher material costs.

Okay, I mean it sounds like form your earlier comments that you are pretty comfortable being able to fully recover the material increases with recently announced price increases. Is there a chance you guys might entertain a further price increase later this year or are you guys pretty comfortable with where you stand there?

It's tough to answer that one, I mean, we would come back with more pricing, if we are wrong and the full markets are wrong but we are you know grab always you look like you are going to be. If you look at the copper content and you look forward, we think we've taken appropriate action given out timing and the position of the market. But, if that were to change materially, yeah, we would have to make some changes as well because we are not going to let this run away from us.

Right, I'll join back in queue, so thanks guys.

Our next question is coming from Mr. Brian Lee from Goldman Sachs. Brian your line is now open.

Hi guys thanks for taking the questions. Maybe first one on Infrastructure, this is the second straight quarter pretty robust year-on-year, so, you've got some forward momentum here heading into fiscal '18. I know Scott; you're maintaining the overall growth targets of 4 to 7. But, just in the context of Infrastructure sitting to be on its foot, how should we be thinking about sort of the progression through the year, because I would suggest may be your anticipating some moderation in the cadence or maybe there is some implication here that you think neither Technologies continues to not grow. But just wondering how we should take that into context because Infrastructure just seems to be doing better than we would have anticipated?

Right, well I think that in the Infrastructure the organic growth is right where I've gotten it here, you know Singer will drop off costs in February, so we'll have this quarter, partially this quarter and then the , then we are back to pure organic. We don't have any pick up from the acquisition, so I think we are well guided. Obviously I would like to see us kind of be at the top end of that and then something a lot more than the comeback in the June timeframe and guide you to larger number than seven. But, we are not there yet, and we are not seeing it in the market, so, I think we expect that growth rate to moderate once you see Singer drop off the cart first and foremost.

Okay, fair enough. May be secondarily there's something goes topic. Are you expecting Mueller Technologies to grow this year versus fiscal '17, you talked to some of the Aqualogics streams which is persisted for a couple of quarters. But, can you also talk to what you are seeing in AMI mix and also the good trends there?

Yeah, so the AMI mix continues to be good. All of our new winds continue to be in that technology and yes I expect it to grow. I think we got targeted a couple or more areas that we should win, we will need though pretty much flawless schedule maintenance on the projects we have in-house in order to hit that growth number. So, nobody can push, or will have to pull in some things, so if you think about the way this business works, everything I'm negotiating right now, probably will have zero revenue in this fiscal year on basically - in contract negotiations on two or three is right now, when you look at all of the shipments, they will be basically in my fiscal '19. So, what I have in front of me, I have to execute on perfectly, which also means the municipality has not to push date or push funding because, we never ride around so that the growth that I anticipate when we started is going to be a little less due to some of these projects changing. So, we are going to have to go out in to the market, into the distribution market and try and hassle some orders in order to provide the growth. I think that's where we are with the business right now.

So, just may be drill down on that a bit more, if you are thinking about a returning growth in Mueller Technologies is it fair to say, we are talking pretty much into the back half of fiscal '18 if not towards the very end of it?

Yeah, first in technology side I would expect you to see continuous growth quarter-quarter-quarter in the Aqua business. I think we have another top comp through this quarter with the Mueller business and then I would expect the Mueller business to grow in my Q3 and 4. That's how I think about the business and it's why I didn't want to get into this. If you would recall, I didn't want to get into quarterly guidance, because I knew it's going to be lumpy and I knew where we wanted to be from a cost structure point of view. I mean we still have to get there.

Okay, fair enough, last one form me. Just I know you haven't delineated a specific margin target per sale but, it sounded like last quarter when you gave initial guidance obviously you are maintain the metrics of the growth rate and conversion margin expectations? What should we be thinking about as it flows to operating margin here? What sort of extension can we see on that line item and then if you could just detail it a bit more on the specific productivity danger you are targeting across the two seconds you are moving the year?

I'm not sure.

I think Brian part of the question in the way that we've addressed operating margin that you're thinking about is just from the standpoint of conversion margin. So, what we said is that we see the incremental growth that we are projecting year-over-year, where do we take the full benefit from that grows on an operating income basis.

Yeah right, so you have to look at the accretion if I'm making, I can't even remember the numbers. If I'm making let's say ballpark 20% EBITDA margin and then all my new stuff comes in as it becomes a 37.5%, then you're accretion would say that you are going to be a 20.2 or 20.3. So, I think you have to do that math and to answer your other question. Yeah, I'm still kind in that easy full threw of somewhere between, somewhere right around 50 basis points from productivity. And, as we add new product development skills and assets and people, you know, part of that dilution takes place. But, we think in terms of a 50 to 100 basis points, every year of productivity, some break it through all the way, and then some re-investment in the business and then some falling back to the bottom-line. And, you know we are going to continue with that line.

Alright thank you, that's alright.

Our next question is coming from Tristan Margot from Cowen. Joe, your line is now open.

Hi guys good morning. This is Tristan in for Joe. Thanks for taking my question. If we can talk about your hydrant business just for a little bit, are you more or less likely to gain share at small municipalities or larger municipalities. I guess, in other words how sticky is that business at different muni sizes?

Yeah, I don't think we think of about it very - I mean we think about the top 25 MSA's, where is our spec position, where do we have to get spec position, where is it on open spec, we tend to think of it in terms of you know, how our spec position is positioned, is it easy to break, is it generic, is it very specific and then focusing or selling proposition or reference around making sure we have you know, tight positions. And that goes basically for all the large MSA's, we are dependent or rather really small MSA's on distribution. That's where our partnership comes in. you know, we are present on the big ones, we are building relationship with the larger cities and water authorities in the country, but then distribution handles, you know there's 50 something thousands water facilities in the country and then so basically distribution handles the smaller ones and we rely on them and we work with them territory by territory as do our competitors. So, I don't like to think of it as stickiness or anything like that. I will say that there is a notion out there around some kind of volume discounting and I don't know how to say it other than to say, you know if you look at the quarter and you look the last three quarters in each of them, the price has been nosed up to $2.5 million and so there is no, there is no discounting going on around account target. You know we are getting price in the market because we are increasing prices not because we are doing some kind of volume discount.

Thanks for the detail and then the second I just asked about the contribution from the Singer Valve during the quarter.

Yeah, Singer was as expected not accretive, we had some purchase counting expectations associated with performance of the business and they came in right on target. And I think our revenue for the quarter is right around 3.7 million, might have been a little ahead of that like 3.6 or something but let's call it 3.7, but if you're thinking about our organic growth for the Infrastructure business that was more like -

That was probably about 4% or 4.5% on a consolidated basis.

Our next question is coming from Mr. Jose Garza from Gabelli. Jose your line is now open.

Hey, good morning guys.

Good morning, Jose.

Just following on that Infrastructure side, could you just deviate in terms of may be just volume, just hydrants and valves versus may be some of the products that you guys have been doing into the waste water market?

Sure, so the stakes in the Infrastructure business probably kind of segmented there without giving you specific. So, I would say that the brass and the gas business led the way in growth, part of that was you know, very much resolved of price increases and sort of combination of volume and price in the brass, put on link brass businesses, while we had the largest growth there. That was really followed by the crack business with Singer. So, if you think about the special deal valve business we have, our business was up the next most amount. You know just under double digits and then the slowest growth would have been in the gate valve and hydrant business. So, in Infrastructure kind of when brass and gas, then specialty think about their project driven business and then hydrants and valves, which would have been below the average growth for the segment.

Okay, that's helpful. And then I guess this is for Martie, Martie I just kind of the put and takes on the kind of tax rates, may be looking beyond I guess 2018 and even may be 2019. What's kind of a reasonable assumption for us to kind of utilize?

Exactly, first of all, I want to point out as we look at our fiscal 2018; we gave you an expected range of 26%, 29%. But, one thing I want to make sure everybody is clear on, is when you look at when the tax legislation was enacted effective January 1st, because of our fiscal year, we have a blended year that is in effect for us for the our entire fiscal year which is 24.5%. So, that sort of forms the basis for our outlook for fiscal '18 being 26% to 29%. We don't have specific guidance yet on cash rate for 2019, but just to help you think about it, we will in our fiscal '19, we will be subject to the corporate tax rate of 21%. I will point out that there are some deductions that are available to us, and I talked about these before primarily, the domestic manufacturing deductions and those will go away in fiscal '19. So, that's a benefit that we had in the past that is eliminated as part of the tax legislation. So, we would expect to be probably a little bit lower as we go into fiscal '19, but probably not benefitting for the full difference between the blended rate and the corporate rate because of somebody's deductions that will go away.

There's something else that chiming on there, Jose, that supplement Martie, may be you can talk about it a little bit. I've read some things recently that would indicate that there is a lack of understanding of how much State Income taxes are being collected. So, if you think about our guidance we have every year, if you look in our 10K, there is a rate reckon there, I think last year the rate reconciliation was about 4% state tax that gets added to your Federal tax and then you take your deductions from there. So, there is a lot written around these things but if you look at our, if you go to our 10-K and you look at our Income tax reconciliation, you'll be able to certainly see some of the puts and take.

Yeah, we are probably 4%, 4.5% as you look around State tax rate.

And, that's in our guidance as well.

Okay, actually continuing on the taxes, is there anything that customers are saying I guess positively or negatively in terms of the salt elimination?

I would say on a corporate basis, I don't reckon that question, it's

End user?

From an end user?

It's not something that the industry is talking about; I think from a municipality perspective too, it's not really going to be tropical because of you know the non-tax status. But, you know, it's not the way we should think about it I guess. But, no, it's not being talked about today Jose. And you said salt right?

Yeah. Thank you.

Our next question is coming from Seth Weber from RBC Capital Markets. Seth your line is now open.

Hi, good morning. I wanted to just make sure, I guess, first to make clarify what your comments are on the tax business with the revenue ramp Scott. Are you - were you saying that you think of the business growth at some point this year, or do you think it's up for the full year year-over- year?

I think it's up for the full year year-over-year. So, we would cover this $2.4 million and be up slightly. In order for that to happen as I mentioned earlier, we need perfect execution on the rest of the outstanding projects that we have to ship. We can still achieve growth and the expectations for the team is given some of the pushback's we've had and some of the project allies we've had as a result of this first quarter, the challenge to the team is to get in to the distribution market. It is to get in to some of these other areas, and power up some of the miss from Q1. Is that in my outlook? Right now, it's not, I still think we can get to some rope but we've got some work to do.

Okay, and so just backing into the numbers, it's sort of as you just you know a mid $20 million kind of run rate at some point right probably at the end of the year. so, my question is, is that a level, is that an upscale for you for that business to start to at least to have a visibility towards profitability and are you still adding engineers and sales marketing? You know, how should we think about, you called out scale, so I'm just trying to understand, what do you think the right number is, to kind of reach, what's the scale number you're targeting here?

So, let me kind of break this up into two answers. Yes, the meter business at $25 million and a quarter has to make money. That kind of scale, it has to be profitable. No, the Aqua business is not going to be finished with engineering, software development and frankly new product development. So that if they were to kid its goals completely this year, I would expect, it would be good if it's kind of a break even performance. Does that answer it?

Yeah. And can you just remind us what the revenue is mixes between Echo and Systems?

Think of it, think of it is about 80% to 20% or 75% to 25%.

Okay so

With meters being the bigger piece.

Right, but you called out a $25 million systems revenue run rate, but it doesn't seem like, you know that's it doesn't seem like you're going to be this year based on you know, kind of flat to up growth to the whole business right?

I think we should have one quarter in that profitable range, I think, if you are trying to get to where I think you are trying to get to then yes, I think we have to have a quarter of profitability in that business at the $22 million or $23 million low income group.

Okay, now, that's exactly where else I confirm, thank you guys. I appreciate it.

Our next question is coming from Mr. Ryan Connors from Boenning & Scattergood. Ryan your line is now open.

Great thanks for taking my question. I wondered if you can expand a little bit on the residential and land development home building side. You've talked a lot about the minuscule market and you touched on residential but can you talk, expand there a little bit on, what you're seeing there in terms of order backlog and outlook?

Yeah, I mean so to be clear when I say the dynamics are good, I think that land development dynamics are even better than housing stocks. And that's why I remain bullish for the year. I think that if you look the land development numbers you can see that they could realistically be in that kind of double slope, low double digit kind of 10% number. I think right now, before cash already went 9. And, we really need land development for hydrants and valves. I mean if you think about it a house gets started, there's already cold and sore in when the house gets started. So, we are kind of in the front end of the cycle. And that number you know, I think looks like 10%. On top of that home inventories are low, and house formations are running right around 1.2, 1.3 million a year and so if you think about all of those factors, I think that the fundamentals are 30%, 35% of the business, are really, really good for continued growth. But, on the other side, we have seen the census data would indicate right and I know you watch this, that the waterline business and the pseudo line business is actually been shrinking, spending. Even the water spending has been up, Infrastructure in water line and pseudo line has actually shrunk through November. And, this pause is really because too much of municipalities money has been spent on pumping stations, disaster recovery, de-watering pumps; you know things associated with Erma and Harvey, the California flooding. And, so we saw a lot of increase in spending but not all of it, kind of in our power alley. We are starting to see that term has been neglected, those areas will start to see owing up dollars, come back in especially in December and I think again in January. We are seeing good O&M activity, so I think we had a pause last year, you know when I'm spending, and it's returning. And, at the same time, we see it fairly favorable land development in number along the housing starts, along with home formations, which would indicate that the houses will be taken off the market. So, I feel pretty bush about demand.

Got it. Now, on the land development side, does new development and the new Infrastructure associated with that, does that create a future opportunity for Technologies and Echologics in particular. Because, rather than having a retro fitted on to an existing Infrastructure, you know it's a green field and they can put in some lead detection condition assessment upfront, or is that just sort of a material?

I would say, it should be true, but my experience so far would indicate that a lot of developers are not willing to spend the money unless dictated to some water authority. And so, they are trying to put that in as cheaply as they can, and they are not interested in it. The water authorities on the other hand, trying to be really using, lead detection to focus on the non-rent water which the new installations tend not to do. So, I'd love to bundle it, and we've had the idea, it's just hard to execute because nobody is willing to spend the extra money yet, to have kind of a future approved system in place.

Makes sense. Now, my last question going back to the scale discussion with the prior questionnaire there, loved to talk about the internal cost improvement, and what the right revenue run rate is at the existing business to get there? What about acquisitions, as a means of adding scale? Is that just sort of something okay, if it comes along, or is that something that's more of a real focused and a key part of getting there?

Well, we try not to comment too, too much on acquisitions and trying to keep it so that not everybody is aware of what we are doing. But let me say this, there is a really big drop off between number 3 and number 4 in the meter market. If you think about three big eyes and then the drop outs. You would have to do with tonic consolidation at the bottom of the market to have a meaningful presence. And, so if you were you'd have to buy up. And you know it's not something we would say, we would or wouldn't do, I wouldn't comment on that. But, we are aware of the structure of the meter market.

Okay, got it. That's ample, thanks so much for your time.

Our next question is coming from Mr. Jim Giannakouros from Oppenheimer. Jim your line is now open.

Hi, thanks good morning. Good work from Martie, I believed he took up CapEx for FO18, so I missed it Martie as you touched and I didn't prepare it much, but what growth that if you got a $14 million versus the last quarter's guidance?

We did take it up a little bit, and that's largely because as we've looked at what we think or some of the opportunities that we have, as we evaluate some of the internal projects. It's the matter of looking at the projects that we think will further enhance some of their productivity. Our manufacturing capabilities, we are seeing pretty good pay back on them and it's those that we are taking a look at. So, yes I would say our expectation is higher than it was at the end of the quarter. And, I think I'll point out as well, that Scott referenced that we are continuing to look at capital expenditure opportunities and we see additional opportunities, you could see those numbers change again.

Right, one of the things I have asked the team to do is to look at what we can get in service while we have the favorable treatment associated with a 100% balanced appreciation. If you think about our blended rate tax situation, you know, you get 24.5% on that versus '19 you'll get 21. So, you know, let's be smart and let's think about, let's not just spend money stupidly, but let's be smart. Let's spend money on other things that can make us more efficient, that can open new product avenues for us, and they can improve our quality in true point.

Right, okay and on the productivity issues, I caught your - that you reiterated you know 50 to 100 base point margin improvement target in plan. What has your moves or leaning out your facilities and what's done to your capacity utilization, I recall 65%, 70% or so, kind of number being thrown out there and not so in the past. So curious, if it's moving the needle there, you know just given that you are at very high levels from a buying perspective and you just are subscription to the notion you have margin expansion runway just on fixed cost leverage. Thanks.

Yeah, so I think that you know, it's a, you fear that I'm talking it's a lot of fun around here but where everybody stands on it. But, long story short, we are running the foundries, 10 hour shifts, 4 days a week. So, I would argue that unless we have full logins on every load, we are probably topped 50% capacity utilization. That we have a ton of growth, now with that said, would I need to put in some more paint line so that I can take away the castings, would I might I need a bit more machining, so I could finish more phases. Yeah, that kind of thing, but, you should take the front end of your production process and you should make it your facing item. You should be able to pull away from the foundry basically, what it can produce. And so, we have lots of room to grow, we have lots of areas that we could expand into. We could melt more brass, we could melt more steel, I think we have tons of growth potential with our existing portfolio and we can even improve its efficiency. So, I think that you know from a melting and a forged capacity perspective we have maybe 50% to 60% capacity utilization that we could grow from. It would take some downstream investment but we are I think, that's not going to be initiative.

That's extremely helpful. Thank you. And your price cost comments or just how you get to parity yet, I didn't understand, is it exit rate FY '18 that you think you can get to, to hopefully offsetting that full FY '18, I mean just as far as the timing there, my take was that you can get to price cost parity by midyear and then for the full year, you'll look to fully offset it, am I understanding it correctly?

Well, if you've taken price cost, what I think is price cost where you include performance and price; we're offsetting it completely right now. I mean if you look at price at around $2.5 million, I think our productivity net number was around $1.9 million and I think the inflation was somewhere around $3, right Martie. Have I got it wrong or. So I think we were -

You think north of 40% incremental if price cost wasn't a headwind and so just trying to get -

Yeah, like if I've gotten my performance and let's say I got no price and I got no material inflation, I would have picked up 1.9, 2 million bucks in my conversion. As it was inflation was like 3.1 or something like that and I only got 2.5 of price back, so I lost 800,000 of my performance between price and - or when I say price cost, I combine performance price and inflation, so it maybe just a terminology thing. Price was not enough to cover inflation. Our manufacturing performance was not enough to cover inflation, but the reason we had expansion at the gross margin line is because the combination of price and performance did cover inflation.

And expectations are the second half year, based on where material cost go, we certainly see an easier comparison because of the rate arise that we saw throughout '17 with respect to our material cost.

Understood, thank you, very helpful.

Our next question is coming from Walter Liptak from Seaport Global. Walter, your line is now open.

Thanks for the entreat forward about the tech segment, but I wonder to ask Scott, I don't - so I think you got these three metering contracts that you're working on and I just want to see if I can clarify, did one get delayed or was there some sort of a timing issue and I guess the question is, what's causing the metering business to have a timing issue? What would they kind of take to book the shelf?

Well, we're sorry. I could tell you. To answer the question, yes, we had delays in several thousand kind of pushed out of the quarter. Part of it is the deployment schedule and part of it is the customer. But I would observe that we have to increase our booking rate and have more than just three in, if we want us to be a scale business because once you get your foot in and you have a position with the water authority, there is a follow on business here, replacement business, damage things, it just kind of builds and then it gets into distribution and so on and so forth. So we have to be aggressively pursuing all of these big contracts so that we establish a position for the follow on business. So win the big thin, but then once it's in there it's almost like the break business is, you want to keep replacing the pads kind of things, so you've got to make sure you have the incumbent position with the water authority and that has been a tough nut for us to crack. And I think the other answer for your question Walter, is that we understand our selling proposition. I'm not sure that we've done a good enough job in making the customer understand the selling proposition and why it is in the City's best interest to put in wide area network and when it's in the City's best interest to put in a dedicated network and when it's in the City's best interest to use proprietary bandwidth or open bandwidth. I think we have a lot of people who'd understand all these stuff and certainly I've come to understand it over the past year and it makes sense to me now, but I…

Okay, great. Thanks for the - again for the candor and it's something you identified the problem, so good luck. It was excellent. Thank you.

Thank you.

And operator thanks. We will end the call at this point. Thanks everyone.

And that concludes today's conference. Thank you all for your participation. You may disconnect at this moment.