Badger Meter - Earnings Call - Q1 2017

Transcript

Speaker 0

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Badger Meter First Quarter twenty seventeen Earnings Conference. At this time, all participants are in a listen only mode to prevent background noise. We will have a question and answer session later and the instructions will be given at that time. And as a reminder, this conference is being recorded.

Now I would like to welcome and turn the call to our Senior Vice President of Finance, Chief Financial Officer, Mr. Rick Johnson.

Speaker 1

Thank you very much, Carmen. 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. 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 let's discuss what happened in the first quarter. Yesterday after the market closed, we released our first quarter twenty seventeen results. I am pleased to tell you that sales, earnings and earnings per share were all first quarter records. Overall sales for the most recent three months increased to $101,600,000 compared to $100,600,000 in the 2016. Municipal water sales represented 77.3% of sales in the first quarter this year compared to 76.9% in the first quarter of last year.

These sales increased $1,100,000 or 1.4% to $78,500,000 from $77,400,000 last year. Municipal water sales were driven by substantially higher sales of commercial meters as several cities were completing projects during the first quarter. Overall, residential sales were down slightly. However, if you look at the details, you'll find that we had a significant order for The Middle East in the 2016 that did not recur this year. Overall, domestic residential sales did increase quarter over quarter.

We often describe our domestic water business as lumpy simply because it is difficult to predict the timing of orders. I would characterize sales from The Middle East as sporadic in nature. However, we are continuing to respond to opportunities there. Flow instrumentation products represented 22.7% of sales for the most recent quarter compared to 23.1% for the first quarter of last year. These sales decreased just $60,000 to $23,100,000 from $23,200,000 last year.

As we indicated during our last call, we believe that we've seen the bottom of the sales decline in the oil and gas business. That was borne out by this quarter's increases. Unfortunately, several large flow instrumentation product sales that occurred in the 2016 did not recur in the 2017. We believe these are simply a function of timing and that overall our flow instrumentation business will show increases for the year as a whole. Gross margin as a percent of sales was 38% in the 2017 compared to 38.8% in the 2016.

Increased material costs, in our case brass, were higher in the first quarter of this year compared to last year. However, higher capacity utilization and product mix helped to offset some of that impact. As we move forward, we hope that pricing will enable us to hold margins against increasing material costs. There was no significant pricing impact in the first quarter. Selling, engineering and administration expense declined $1,000,000 from the first quarter of last year to $25,200,000 from $26,200,000 The decrease was driven principally by lower employee compensation related expenses, including staffing levels, offset somewhat by a $450,000 write down in an investment in an emerging technology company.

The provision for income taxes as a percent of earnings before taxes for the 2017 was 34.2% compared to 36.3% in the 2016. This quarter's tax expense is net of certain discrete credits that were recognized during the quarter. Without those credits, our effective tax rate would have been 35.6%, which is still slightly lower than last year's rate. Our estimates at this time suggest slightly higher foreign earnings in 2017, resulting in an overall lower tax rate. As a result of all these factors, net earnings increased to $8,700,000 or $0.30 per diluted share for the 2017 compared to $8,000,000 or $0.28 per diluted share for the same period last year.

Our balance sheet changes since the end of the year generally reflects seasonal factors, for instance, higher receivable balances. Cash generated from operations for the first three months of the year declined to $12,400,000 from $18,200,000 in the same period last year. This is due to payments made in the first quarter of this year for incentives earned in the prior year. At the end of this first quarter, our debt as a percentage of total capitalization was 12.8%. With that, I will turn the call over to Rich Musson, Badger Meter's Chairman, President and CEO, who will have some additional comments.

Rich?

Speaker 2

Thanks, Rick, and thank all of you for joining us today. My comments are going to be brief. We were pleased with our first quarter record results, and we believe that we are positioned for a good year. While the 1% top line growth was less than what we had expected due to the lower Middle East sales, the 9.5% bottom line growth was very strong and we believe indicative of both our strong market position and our ongoing cost containment efforts. As Rick mentioned, domestic water meter sales increased driven by strong increases in our two flagship products, our E Series Ultrasonic Water Meters and our Orion Cellular Radios.

We are continuing to invest in the development of these two as the market acceptance of solid state metering and cellular technology grows. We are also seeing some improvement in certain areas of our flow instrumentation business, although the overall business was still flat. In particular, our meters sold into the oil and gas markets reflected strong growth this quarter over last year, confirming our reports from the field that the long awaited rebound is starting to appear. With the continued strength of our core water meter business led by our newest products and some recovery in the flow instrumentation business, we are optimistic about our prospects for 2017 and beyond. And with those very brief comments, we would love to take your questions.

Speaker 0

And our first question is from the line of Tate Sullivan with Sidoti. Your line is now open.

Speaker 3

Thank you and good morning. Rick, can you help me I don't think you touched on it in your comments, you manage inventory traditionally? And is there any seasonality in the first quarter? Is the lower inventory one way you avoided higher copper price impact too? Thank you.

Speaker 1

Well, lower I think it was just more a function of the sales. I mean it's a function of the timing of our purchases more than anything else. We generally don't talk specifics about an individual month, but the strongest month of this quarter was March. We really dipped into some of the safety stock of the inventories and actually exceeded our plan in the particular month of March. In particular, castings, for instance, is probably one of our fastest turning items.

But, you know, overall I think inventories come up later in the year. But we did very well.

Speaker 2

This is Rich. I'll also add that that drop did bring us down below where we are comfortable. So as Rick said, we will be adding. Also, we when you ask about how we manage inventories, we don't try to manage inventories for the cost of copper. In other words, we didn't stock up while copper was cheap and then try to take it down now that copper is more expensive.

That was not what was driving that. Our inventories are more managed to the needs of the business and to the expectations of the customers and being able to achieve the on time delivery targets that we have. I will also say that as we look at 2017 and some of the new products we're looking at and other products we're phasing out, we may have some increases in inventory just to provide safety stock as we phase from one version of a product into another. So that's going to happen too. Because we have certain customers that will say, I know you're introducing a new product, but I kind of like the old one better.

Could you continue to provide me the old one while I finish out my, my implementation? And in those cases, we will generally go buy the inventory and stock it so that it's there for that customer as a customer service. So you can, I think, expect inventories to come back up in future quarters?

Speaker 1

And I just hope the VP of Manufacturing is not listening to this conversation.

Speaker 2

Yes, yes. I don't particularly want the VP of If it

Speaker 1

down, we prefer to keep it down. Right.

Speaker 3

Okay. Thank you very much. That helps a lot. I'll get back in queue. Thank you.

Speaker 0

Thank you. And our next question is from the line of Richard Eastman with Robert W. Baird. Your line is open.

Speaker 4

Yes, good morning. Rich, could you maybe just comment with your commentary there or Rick's comment about March being the strongest quarter, I would kind of presume that might be the case normally with normal seasonality. But does the business as it tracked through the first quarter and here into the second quarter, does it feel as though it's tracking seasonally just the municipal side of the business? Or is there any inflection there, uptick, downtick, softness? It doesn't sound like it, but maybe give us your thought there.

Speaker 1

Well, is Rick. Let me just comment first. For those who live in Wisconsin here, I hope you enjoyed our Kentucky winter. Your question is, is the weather playing any impact? Did we pull anything forward from Q2?

That question remains unanswered right now because it's too early into the second quarter to really make that determination. It's a possibility. But also, think we're seeing strong orders continue into the second quarter, but it's still early.

Speaker 2

Right. And I'll also say, Rick, we did not make any effort to pull orders up from the second quarter into the first. As Rick says, you may have had customers who, and we've seen this cycle before, started meter replacements, Northern customers starting meter replacements a little early because the weather was pretty nice. And so there may have been some of that impact. But I'll also say he mentioned March as an unusually strong month in relation to inventory coming way down, lower than what we expected.

Part of that was because we did have some supply interruption in February from a plastics supplier, in fact, from one of the world's largest plastics suppliers and

Speaker 1

Who shall remain nameless.

Speaker 2

Who shall remain nameless, but you can probably do some research and find out they they shut down some automotives. So it did have some impact on us. We got completely caught up by the March. So there were some February sales that were delayed into March. But I think that impact did draw down safety stock a little more than what we wanted to.

And that's really what he was referring to. It was also a brief interruption. Was about a one week interruption. Sure.

Speaker 4

I understand. Rich, the are these BEACON deployment issues, has that normalized? I know it's been more on the customer side, but Yes, has that been kind of

Speaker 2

it has normalized. We feel we're now at a backlog level that is manageable and it's where it should be. It's where the, you know, when the customers say, please install BEACON, they know there's going to be a period of time for us to integrate it to their billing provider. But we've caught up with a lot of the customers who were grossly delayed, and we're now down to the the normal four to eight weeks it might take to get somebody onto the system, assuming their software supplier is their billing supplier is is cooperative. Yeah.

I mean, we have a few that have gone way out because, you know, they they buying their billing software from a two person shop, and the two people took an extended vacation. So, you know, the I was shocked to find out how many billing software vendors there are in the water meter space, in the water utility space. I was just surprised that there's a huge number of very small ones. And we're chipping away at them. We obviously triaged.

We wanted the largest ones first. Got a lot of those on board. I would not say I would say that we are not seeing a holdup in our BEACON rollouts due to this issue anymore. It's now part of our ongoing process.

Speaker 4

Okay. I understand. And then Rich, I wanted to ask you, we've talked about Orion cellular now for a number of quarters about how fast grower, there's some other vendors in the space that at least speak to offering or will offer a cellular radio. And can you just give us a quick picture of how this is impacting the marketplace? I mean, AMI deployments now from an endpoint standpoint?

Has the cost come down since you don't need a dedicated backhaul? Or how is it impacting the industry?

Speaker 2

Well, so let's back up just a second for the sake of everybody who might not be as knowledgeable about this as you. Obviously, we and all of our competitors offer the drive by meter reading technology that we've been offering for decades. We all offer fixed network technology. There's a lot of variety in that. Some of them have like a census, where it is one very powerful, expensive device put way up on a tower in the middle of the city, and it can read the whole city.

Other approaches, Badger and some of our other competitors, are numerous smaller devices that are put up on telephone poles or buildings that read the city. So different approaches to fixed network, but we've all got fixed network solutions. There are also mesh solutions out there. We chose not to offer a mesh solution. We chose not to go that way because we don't think mesh is the right solution for water.

Mesh is very popular in electric because the electric meters are located above ground. And therefore, to have one electric meter talk to another is pretty simple. When you get into water, having one water meter talk to another, you're going out from a pit or a basement, across a lawn and back down into a pit or a basement, and it becomes very difficult. So we chose not to go mesh, and there are some competitors out there with mesh technology. Finally, the technology that we introduced that we're seeing very strong growth on, in fact it was over 30% growth this quarter over the first quarter of last year on our Orion technology, is the Orion Cellular.

We are the only ones out there really with a reasonable residential solution. We have some small competitors who have commercial solutions for the commercial applications, but we're talking about a twenty year residential meter, a cellular radio that can go in a basement or and for twenty years transmit its reading. We like that solution because there's no infrastructure. When you say, has cost come down? The answer is no, because frankly, the radios cost the same, whether you're using a fixed network or a cellular.

However, with fixed network, you've got the cost of all the towers and the collectors. With cellular, you've got some monthly fees. So the costs are very competitive across this. It's really a matter of performance and what you're looking for. And a lot of water utilities don't like maintaining devices up on towers.

Cellular eliminates all of that headache. Now let's go on to and I know I'm going long winded here, but

Speaker 4

I'm glad I asked for short answers.

Speaker 2

This is good stuff, Rick. This is

Speaker 4

I know. Was a good question. But go ahead.

Speaker 2

All right. So now let's go on to another thing you mentioned, which is we always knew when we came out with cellular several years ago that our competitors would not just sit by and watch us take a segment of the market without competing. We also believe we had a several year leap on our competitors, and we are now hearing that some competitors are planning to introduce cellular possibly yet this year. Okay? So we know they're coming.

We're going to be very interested to see what kind of battery life they have. We're going to be interested to see how often they're able to transmit and how well their system works. But we do feel like we've been in the market, we've been the only ones in the market with this technology for several years. It's very proven for us, and that gives us a very strong first mover advantage on that. I will also say that one of our competitors has used an argument to try and sell against us by saying, Badger is selling three gs networks, and we will be coming out

So what you really want to do is wait for our LTE when we eventually come out with that. Now our answer is, well of course, we're also going to be coming out with LTE. We're working on that. And we will be introducing that shortly. That is just the normal evolution of cellular products.

As the towers evolve, this evolves. And we have no indication that the three gs networks are going to be ripped down anytime soon. Yes, for voice, they're going away, but not necessarily for data. So we believe that we're going to be able to continue to support those customers and to offer the LTE product that our competitors are touting as that's the new solution. To me, it's just the next generation.

It's not that radical. So that's a long answer to your question, but I hope that addressed

Speaker 4

Is your cellular sales, Orion Cellular sales today or in this first quarter, were they half of your Orion sales? Were they that good? Well,

Speaker 2

wait a minute. Am looking and I was just handing my my little recap here. The the cellular sales were yeah. When when we talk about Orion Mhmm. For the quarter, they were not half.

They were about 30% to 40% in that range.

Speaker 4

Okay. Okay, very good. I'll relinquish the queue. Thank you.

Speaker 2

Okay, no problem. Thank you.

Speaker 0

Thank you. And our next question comes from the line of Chip Moore with Canaccord. Your line is now open.

Speaker 5

Good morning. Thanks. You called out some momentum with the solid state product in the press release. Maybe you could talk a little bit about penetration trends there. And then you think that's mostly with existing customers or could you be taking some share versus competitors?

Speaker 2

Well, I believe on the cellular we are taking some share. There are customers I'm sorry. I thought your question was about the cellular. I still have Rick Eastman's cellular question stuck in my head here.

Speaker 6

Apologize With for

Speaker 2

the E Series, right now, there are really only two companies offering solid state metering, and it is Badger Meter and Census. My VP of sales is making a really nasty face at me right now because obviously there must be somebody else out there with it's coming. Okay. Alright. Let me put it this way.

For the past several years, there have only been two companies. Okay, she's smiling now. I'm speaking correctly.

Speaker 1

In regards like you're supposed to.

Speaker 2

You know, we should really do these calls by video conference. You people would really enjoy this, watching how I get beat up in this room. So for the last several years, there have been really only two companies in North America selling solid state metering, and it's Badger Meter and Sensis. We chose to go with an ultrasonic technology. Sensis chose to go with a magnetic technology.

Okay? Now we were told that a third company, Neptune, who is the third big player in our market, will be coming out with, or has come out recently, with their own ultrasonic product. Now frankly, we view that as kind of a positive, because first off, it does support our position that ultrasonic is a better technology, since the other competitor has chosen ultrasonic and not magnetic. So that's a good thing. However, both Census and Badger do have a lead in the market.

We believe we've taken market share by being one of the two companies in that position, and that's been helping us. And Camstrup is a bit player. Right. There is a European company named Camstrup that has started selling an ultrasonic meter into The U. S.

Also, although they really have a very small market share at this point. But they are out there trying to sell that. So my point being, it does seem the ultrasonic is becoming more of the standard in our industry rather than Sensus' magnetic technology. The other thing I'll say quite openly is that I'm excited to be in the ultrasonic business and not the magnetic business for these applications. Because as I look out over the next five or ten years, I make the point that ultrasonic meters are prime the cost of an ultrasonic meter is primarily related to, electronic boards and components.

Whereas the cost of a magnetic meter is related to coils of copper wire and magnetic resonance material. And when I think about what will probably happen with input costs over the next five or ten years, if history has taught us anything, it's that electronic boards tend to decrease in cost over time, Whereas copper coils and resonance material, that's a harder thing to control the cost on. So I think we've chosen a good horse here. I think ultrasonics is working very well for us. We've got hundreds of thousands in the field.

They are performing very, very well. The customers like them. And I think our first mover in the ultrasonic space has not only gained us market share, but it's going to continue to do so in the future.

Speaker 5

Okay, great. And maybe if we move over to oil and gas, just how much were those sort of year over year headwinds? And I guess what are you seeing into April here that it sounds like you're a little more confident in the outlook there?

Speaker 2

Yes. And I'm not going to go into the percentage increases in each product line. I'll just say that the oil and gas for the first quarter of this year over the first quarter of last year, those products were up. And it was a low single digit type increase I mean, a low double digit type increase. I'm sorry, low double digits type increase.

So far, I think we're still seeing the order input coming in. So I think we're starting I feel like we're starting to finally see this long awaited recovery in oil and gas. Oil prices are not where they once were, but they're a little bit better than where they had bottomed out. And I think a lot of the producers are getting back into action.

Speaker 5

Okay. That's fair. And just lastly, on the M and A pipeline, I think you talked about being in talks with a few distributors last quarter. Just any update there? Thanks, guys.

Speaker 2

Yes. And obviously, guys have gotten me in a talkative mood today, so this is really good for you. But I'm getting a lot of dirty looks around the table here. On the M and A side

Speaker 1

You're ticking them doesn't help.

Speaker 2

Right, right. On the M and A side, we do have a couple distributors that we are talking to that we are trying to bring those home. And we're pretty excited about that. I think there's a good opportunity that we might be able to close a couple of those this year. And we are also continuing to look at both small flow instrumentation acquisitions that we could do of different metering technologies or different market niches within those technologies.

And also of just technology acquisitions that we're always looking for that will give us some competitive advantage in the marketplace. So we are working on all of those.

Speaker 5

Great, thanks.

Speaker 0

Thank you. And our next question is from the line of Ryan Connors with Boerning and Scattergood. Your line is now open.

Speaker 6

Thanks. Good morning.

Speaker 2

So

Speaker 6

Richard, I thought I'd take advantage of your location mood to kind of get your take on a couple of bigger picture issues as it relates to the competitive environment. First off,

Speaker 2

Now talked I'm going to give you yesno answers, you know.

Speaker 6

Right. So you talked earlier about some of the discrete product lines and so forth. But if we look at bigger picture at innovation, a couple of years ago, talked a lot about your technology double leap where you felt like you leaped ahead of the curve in terms of technology. And now you're talking about other folks kind of playing catch up introducing cellular and so forth. And also if you look at some of the talk from some of the big competitors, it seems like R and D budgets are sort of going to go higher industry wide.

So what's your strategic view of how you're managing your R and D spend and just strategically thinking about innovation, how do you make the next technology double leap or can it be done again?

Speaker 2

Yes, next question. Ryan, first off, I think you painted a good picture there that we did get a technology leadership when we came out with the Orion Cellular, when we came out with the E Series, and it is our goal to maintain that leadership. And obviously, we have smart competitors. They don't sit around and do nothing. They have R and D budgets.

They're investing, and they're working on things. And they're not going to want to play catch up forever. They're going to want to try and leap ahead. The way I look at our technology in the water metering space is in three groups. I look at the meters, I look at the radios, and I look at the software.

And when we talk about the radios, we have the cellular radio. I believe we are the technology leader there. I believe our competitors may try to come out with cellular. I think they're going to struggle to match our technology because our technology was many years in the making. I mean, bought AquaQ five years ago, okay, four years ago.

And AquaQ had already been working on this technology for almost for over five years. So that was about a decade of development work to get that cellular radio in place. So for our competitors to try to jump ahead in only a couple of years, that's a tough one. So I'm going to be very interested to see what they do come out with, what their cost structure is and what their performance on the product is. And besides that, we've continued to invest because AquaQ, which we now call Badger Meter Silicon Valley, it's out in Los Gatos, has become our technology center.

We've added engineers there And we've been able to continue to improve the product. And we're coming out with a new LTE version. And I believe we're going to be able to stay ahead there. On the software, there again, our California subsidiary has all of the software programmers. They've done an excellent job.

We believe the Beacon software is industry leading. We are always adding to it. We believe IonWater is the best consumer interface that you can find in the market. But we are continually improving that free download app that the consumers use. So I'm making this point that we're in a very strong position on the radios, and we're in a very strong position on the software.

That leaves the meters. Now with the meters, we did introduce the E Series five years ago, six years ago, whatever it was, five or six years ago. And we have not done a lot with it since then. We've migrated to the other sizes. We've made some improvements.

We've been able to reduce costs on it. But we are looking at the development and the introduction of the next version of the E Series. Whether we do that with partners or with ourselves or how we do that is all being examined. But we are working on that and we are planning to introduce new versions that we believe will keep us ahead on the technology curve. And so that's our focus.

Speaker 6

Got it. Now a separate kind of dynamic of the competitive situation, Rich. You've traditionally been a player largely in North America. My understanding of that has always been that because you specialize in positive displacement, which wasn't used elsewhere, that that was that you were sort of maybe not walled off, but if it made international a more difficult market. Now I know you're making some inroads in The Middle East, but a lot of the talk lately has been that the big project pipeline on some of these very large water deals will be outside the North America.

So what's your view on is there a vision to maybe take Badger more aggressively into some of those international markets? Or do you think you'll remain largely North America company with notwithstanding the Middle East penetration?

Speaker 2

I think you portrayed this correctly. In the world of mechanical meters, there was a technology barrier to entry for the foreign companies into The US and there was a technology barrier of entry for us to leave North America. Once we moved over to electronic metering, that barrier went down. And so now you see companies like Kamstrup in Germany trying to sell electronic meters here in The U. S.

You see Badger Meter pursuing electronic meters in The Middle East. And there are other opportunities for us that we are looking at. However, you have to realize that technology was one of three barriers to entry that existed. The other two barriers to entry, I would say, were brand and channels. Yes, you know, these companies can come over here, but they are an unknown brand in our market.

And and for us to go over there, we are an unknown brand in their market. And as I always say, you know, you and I could develop a new cola in our basement tonight, but are we really gonna take on Coke and Pepsi tomorrow? It's very challenging to be a new brand when all of the other companies are over 100 years old in the market. On the channels, the problem you have is channels are a little easier in Europe, The Middle East. France has four water utilities.

The Middle East, each of The Emirates has a water utility. And so they are large accounts that you can try to sell into. You come to The United States, we have 52,000 water utilities. That's a very big challenge from a channel point of view. Are you really going to just start knocking on doors and believe you're going to make inroads into 52,000 water utilities against companies that have been in the market and doing this for one hundred years?

So, I believe we still have a barrier to entry for the companies coming here and trying to address the channels. Other part of your question is, as there are large cities around the world that are now open to electronic metering, will Badger meter be a player there? Yes, we want to. We will attempt to. We opened an office in The Middle East.

We have people there. We've recently opened an office in Poland. So we selecting certain areas where we believe there's opportunities and we're going be going after them.

Speaker 6

Got it. Well, that's really helpful color, Rich. Congratulations on stock hitting a new all time high today. It's great stuff. Take

Speaker 2

care. Thanks.

Speaker 0

And our next question is from the line of Tate Sullivan with Sidoti. Please go ahead.

Speaker 3

Thanks for taking my follow-up. And I'm just referring back to some of your previous comments and to your last slide that I can slide deck on converting to connectivity being about 56 this year according to IHS. Out of the connectivity meters, I mean, most of it radio currently in terms of a guy in a truck driving by the meters and getting the signal by radio? Of the Much

Speaker 1

of what's in the ground now, because on average, it's seven, eight years old, is is still drive by? Okay? Now more in recent years, more AMI and now, obviously, more cellular has been sold.

Speaker 2

I mean, we've been selling drive by for over for over two decades. Yeah. We've only been selling fixed networks for about the last eight years or so, and cellular just recently. So, you know, clearly, the bulk of what's in the ground is drive by. Do you think Also, for know, I don't want you to miss the fact that over 40% of the meters in America are still read by somebody who's walking door to door.

You don't see that in the electric because the electric utilities were much faster to adopt some sort of technology. But still the water utilities are very conservative and slower to change. The sales cycle is very long with those

Speaker 1

people. Particularly in North America, other thing is when we talk about solid state meters, the electronic meters, they're what, 15% to 20% of sales right now. So you still have the natural barriers to entry where 80% plus of our sales are still mechanical meters. That barrier to keep others out is still going to be around for a while.

Speaker 3

About longer term, I mean, getting away from the quarterly considerations, I mean, where do you see the connectivity going for cellular as a percent of the total in ten, fifteen years?

Speaker 2

Well, IHS had some projections. Yes, IHS had some projections in their report. They were looking at over the next five years, pretty strong double digit growth among the cellular compared to lower single digit growth among the mechanical.

Speaker 3

Great. Okay. Thank you very much. Have a great rest of the day.

Speaker 2

Thank you.

Speaker 0

And our next question is a follow-up from Richard Eastman with Robert W. Baird. Your line is now open.

Speaker 4

All right. Thank you. It's probably key to cutting off the call when I get back in the queue. But hey, just a quick question, Rick.

Speaker 2

I cannot believe that I didn't answer every possible question you had with that long rambling explanation I gave you. But go ahead,

Speaker 4

forgot to let you go run for another cup of coffee. Hey, just on the Smiga expense, I just wanted to clarify maybe Rick you had made the comment a couple of things. Smiga was down 1,000,000 year over year. And I think you also suggested that that absorbed a write off, a tech write off. So $450,000 right.

So the operating expense was actually down about $1,000,000

Speaker 2

Yes, correct.

Speaker 4

And could you just maybe kind of talk to where the staffing reductions or which business or what's kind of triggered that?

Speaker 1

We had an early retirement program last year in Scottsdale and Tulsa. I'm getting a nod here.

Speaker 2

In our flow instrumentation

Speaker 1

flow instrumentation side of the So it wasn't that anybody was terminated, but obviously when those people retired, we simply didn't replace them, okay? Okay. We've redesigned incentive plans and done a number of other things to help reduce the overall compensation costs.

Speaker 4

Okay, I understand. And that was all done at year end, now this is the carryforward savings?

Speaker 2

Correct.

Speaker 4

All right, great. Thank you again.

Speaker 1

And

Speaker 0

ladies and gentlemen, this concludes our Q and A for today. I would like to turn the call to our CEO, Rich Musin, for final remarks.

Speaker 2

So they're all telling me I should be very brief in my final remarks because they're very worried about how talkative I am today. All I'll say is we were very pleased with the quarter. It was a strong quarter. And as we look forward to the rest of the year, we're pretty optimistic about what we see. I think we're well positioned in a strong market and we have great opportunities going forward.

So I really appreciate your listening today and being with us. And I want to thank you.

Speaker 0

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day.