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Badger Meter (NYSE:BMI)
Q4 2018 Earnings Conference Call
Feb. 5, 2019 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, welcome to the fourth-quarter 2018 Badger Meter earnings conference call. [Operator instructions] Today's call is being recorded, Tuesday, February 5, 2019. It is now my pleasure to turn the conference over to Karen Bauer, director of investor relations and corporate strategy. Please go ahead, Ms.

Bower.

Karen Bauer -- Director of Investor Relations and Corporate Strategy

Good morning, and welcome to the Badger Meter fourth-quarter 2018 earnings conference call. On the call with me today are Ken Bockhorst, president and chief executive officer; Bob Wrocklage, chief financial officer; and Rick Johnson, senior VP of administration. Quickly, I will cover the safe harbor, reminding you that any forward-looking statements made during this call are subject to various risks and uncertainties, the most important of which are outlined in our press release and SEC filings. Finally, please note that on today's call, we will refer to certain non-GAAP financial metrics.

Our earnings press release schedules provide a reconciliation of the non-GAAP to GAAP financial metrics. With that, I'll turn the call over to Ken.

Ken Bockhorst -- President and Chief Executive Officer

All right. Thanks, Karen, and thanks to all of you for joining our fourth-quarter earnings call today. We are very pleased with the results for the quarter and for the full year, with the positive momentum we experienced in the past couple of quarters continuing in the fourth quarter. Sales were a fourth-quarter record as was our adjusted EPS of $0.40.

Bob will walk you through the details of the quarter, and after that, I'll come back and talk about our key strategic initiatives and our outlook. Before turning the call to Bob, I first want to recognize and thank Rick Johnson, who is on the call with us today for the final time. Rick is sometimes described as the kingmaker, the person comfortably standing a step behind the CEO, who influences the decisions and helps execute and make them happen, as he did for Rich Meeusen. He never sought the limelight but was clearly instrumental to the great success of Badger Meter for nearly two decades.

He will be missed. Now let me introduce you to Bob. Knowing Rick was nearing retirement, I began a broad search for a CFO to join Badger Meter who would fit the culture and have the metrics-driven style that would complement me. The existing leadership team and I unanimously selected Bob from among the qualified candidates, and with the final approval of the board, he joined us in August.

He has now worked alongside Rick and both the finance and broader leadership teams for the past six months, and I'm extremely happy to have him on board. With that, let me now turn the call over to Bob.

Bob Wrocklage -- Chief Financial Officer

Thanks, Ken, and thank you, Rick, as well as Beverly Smiley, our corporate controller, who will also be retiring, for your guidance and counsel over the past six months. The two of you have made this transition seamless. Let me begin by first repeating Rick's long-stated guidelines. For competitive reasons, we do not comment on specific individual product line profitability, other than in general terms, nor do we disclose specific components of cost of sales, for example, brass or other material or conversion cost components.

We do not provide specific guidance on future earnings as we believe this does not serve the long-term interest of our shareholders. Turning to the results, I will be talking to adjusted operating results and earnings per share during my commentary. To arrive at the adjusted results, I am adding back the half a million pre-tax or $0.01 per share after-tax charge required for the accelerated vesting of equity resulting from the announced CFO and corporate controller retirements. Now turning to sales, our fourth-quarter sales increased 8% to $104 million compared to $97 million in the same period last year.

The rate of increase was largely consistent between the municipal water and flow instrumentation product categories. The modestly favorable impact of distributor acquisitions was offset by unfavorable foreign currency translation, and in total, the net of those two was not significant to the year-over-year comparison. Municipal water sales grew 8% in the fourth quarter due to higher domestic volumes of newer technology meters and related radios, as well as increased service revenue. International sales were approximately level year over year.

Flow instrumentation sales increased 9% year over year, reflecting solid industrial demand and improved channel distribution, most notably within two of our targeted end markets, water and wastewater and oil and gas. Adjusted operating profit was 14.6%, a 20 basis-point improvement over the prior year. Our selling, engineering and administrative, or SEA, expense leverage more than offset the modest year-over-year gross margin decline resulting from a difficult prior-year comparison. Gross margin for the quarter was 38.5%, what is in the upper half of what we would call our normalized range of 36% to 40%.

We continue to see favorable impact of manufacturing absorption from the higher sales volume year over year, along with positive net pricing as brass input costs remained stable sequentially. We experienced favorable product mix with higher-than-average sales growth of meters with radios, Ultrasonic meters and service revenue, however, it wasn't quite as favorable as the fourth quarter of last year. For example, the fourth quarter of 2018 included a reasonably sized meter-only project with a large municipality that was a modest drag to margins in the current-year quarter. Adjusted SEA expenses in the fourth quarter declined modestly year over year, and as a percent of sales, were down 220 basis points to 23.8% from 26% in the prior year as prudent spending controls were in place.

The income tax provision in the fourth quarter was 23% compared to 44% last year, with the decline largely representing the impact of Tax Reform, which yielded a lower federal statutory rate year over year and the non-recurrence of certain transition tax items recorded in 2017. In total, the change in tax rate added about $0.09 of EPS growth year over year. Bottom line, adjusted net earnings and EPS were $11.6 million or $0.40 in the fourth quarter, an increase of 60% over the prior year. Our balance sheet remains solid.

Free cash flow for the year was approximately $52 million compared to $35 million in the prior year. 2018 free cash flow represents 115% conversion of adjusted net earnings for the year. Our net debt to adjusted EBITDA declined to less than 0.1 times, which clearly provides us ample liquidity to fund organic and acquisition growth, as well as return capital to shareholders through dividends, which remains a capital allocation priority for the company. With that, I'll turn the call back over to Ken.

Ken Bockhorst -- President and Chief Executive Officer

Thanks, Bob. Just a few comments as we begin the new fiscal year. We received this question more than a few times, so I want to be clear that Bob and I will be continuing the long-standing Badger Meter practice of not providing specific earnings guidance quarterly or annually. Like Rich and Rick before us and our customers, we are focused on managing the business for the long term.

Having said that, I will provide some color on our trends. I continue to feel good about our order rates and backlog, which position us well for the year. As always, seasonality, with the second and third quarters being strongest, along with unevenness quarter to quarter, are still anticipated, but overall, the backlog and quote activity bodes well for the year as a whole. We're experiencing increasingly positive feedback about our E-Series, ORION Cellular and BEACON product lines.

The market is becoming more knowledgeable about the benefits of cellular, in part from the smart cities' enthusiasm, but most importantly, because of the demonstrated benefits our customers are realizing. This is translating to commercial inquiries and wins. Our ORION LTE-M cellular radio offering is 5G ready, compatible and will improve the battery life, extend the range, lower costs and increase the number of on-demand reads for utilities. We remain on schedule to complete the integration of D-Flow Technology into our commercial E-Series meters as the first quarter progresses and into our residential offering thereafter.

Our input costs and material availability have remained stable as we expect to further leverage our SEA as the year progresses as the duplicative transition leadership costs taper off. Finally, our adjusted tax rate should remain in the mid-20s. In summary, we've had three strong quarters in a row. We're reaping the benefits of our commitments to R&D to maintain our technology leadership position, and our minimal exposure to some of the unsettling macro uncertainties such as China all serve to reinforce our positive outlook for 2019.

I want to thank our employees across the globe for their strong efforts in 2018 and look forward to working alongside them to execute in 2019 and beyond. With that, we're happy to take your questions. 

Questions and Answers:

Operator

[Operator instructions] Your first question comes from the line of Nathan Jones with Stifel. Your line is open.

Nathan Jones -- Stifel Financial Corp. -- Analyst

Good morning, everyone.

Ken Bockhorst -- President and Chief Executive Officer

Good morning, Nathan.

Nathan Jones -- Stifel Financial Corp. -- Analyst

I know you guys don't provide long-term guidance -- or don't provide annual and quarterly guidance or anything like that. I'm wondering if you could talk maybe more philosophically about where you think some of the levels you should operate. Maybe where you think SG&A should be long term, where you think working capital should be long term, where you think -- well, actually, you guys already said 36% to 40% on gross margins. But maybe just start with SG&A and working capital and where you think those kinds of metrics should settle out over an extended period of time.

Ken Bockhorst -- President and Chief Executive Officer

Yes, Nathan, good question and good try to get us to provide some kind of guidance. That was a nice shot right out. So as we think about the long term, and you asked a lot of questions there, so I'll touch on a few of them, but one of the things I talked to you about when I first was on the call was building a culture of continuous improvement. So we've been setting long-term goals around SEA, around working capital.

And I'll start with working capital first. So right now, we're probably around the 28-ish range. I could see us over the next couple of years working that into the mid-20s. As Bob just talked about with the SEA, we were at 23.8% adjusted.

We're going to continue to invest in R&D. So this isn't going to be just a complete leverage situation, but I would suspect over the next couple of years, we could be leveraging that into the 22-ish range. We definitely are setting longer-term targets for the business and managing accordingly. I kind of missed what some of the other ones were you had there, but those were the first two off the top of my head.

Bob Wrocklage -- Chief Financial Officer

So I think the key takeaway there is I don't think we see a big step in any single year but mostly targeting continued improvement over the long term, both in terms of SEA leverage as well as primary working capital achievement as a percent of sales.

Nathan Jones -- Stifel Financial Corp. -- Analyst

OK. So the way we should be thinking about it is working capital is a tailwind to free cash flow over the next few years. You should leverage SEA over the next few years despite some continuing investment in R&D.

Ken Bockhorst -- President and Chief Executive Officer

Yes, that's fair.

Bob Wrocklage -- Chief Financial Officer

Correct.

Nathan Jones -- Stifel Financial Corp. -- Analyst

OK. On the D-Flow integration into your products here, I know Rich and Rick have been talking about that for a while. And that technology is supposed to start being in the products in the first half of this year. I know the company is pretty guarded on how much difference that makes to margins for competitive reasons, which I understand.

Maybe if you could give us any color on what the performance of those product improvement is there, how customers are reacting to it and any color you can give us on kind of how much that reduces costs.

Ken Bockhorst -- President and Chief Executive Officer

So let me take that in a couple of parts. So first, we have launched our commercial E-series meters, which are three- and four-inch. That's our first launch into the commercial space, includes added features like pressure sensing, temperature sensing as well as the metering. Last week, we had our sales and distribution meeting, annual meeting.

And it was tremendous excitement around the quoting activity, and we do certainly have growth plans in the year for the three- and four-inch. And we would expect to see similar conversion from mechanical meters to Ultrasonic in the commercial space going forward. As far as the residential, that's next in our value engineering projects. We will begin rolling out the smaller sizes toward the end of Q1 but most likely kind of mid-Q2.

You're right, we still are working through the how much is going to be margin enhancement, how much is going to be share gain and transitional. I'm looking at Bob here before I say anything about costs, so I'm going to stop just short on that.

Nathan Jones -- Stifel Financial Corp. -- Analyst

That's fair. Thanks for the color. All positive. Thank you.

Operator

Your next question comes from the line of Richard Eastman with Baird. Your line is open.

Richard Eastman -- Robert W. Baird & Co. -- Analyst

Yes, good morning. Best of luck to the kingmaker. I like that. I need to remember that.

Rick Johnson -- Senior Vice President of Administration

Thanks, Rick.

Richard Eastman -- Robert W. Baird & Co. -- Analyst

Nice to work with the new group as well. Ken, could you kind of speak maybe a little bit to pricing? 2018 was a little bit unusual. I think we took our typical January price increase. Then we, I think, bumped the flow instrumentation prices in October.

How does pricing look here going forward in 2019? Will we stick with the typical January price increase? Or how are we going to approach price here going forward?

Ken Bockhorst -- President and Chief Executive Officer

Yes. So -- sure, sure. So in the utility space, you've -- well, frankly, in both of them, you've described it correctly. What you're going to see this year is, in the utility space, we did our normal January list price increase.

I would just caution you to keep in mind that many of the things we do are project based, which are kind of more competitive in nature. But we did -- the list price increase was normal. In flow instrumentation, we just went out early in October, and we did not do a January price increase like we normally would have.

Richard Eastman -- Robert W. Baird & Co. -- Analyst

OK. So you did not do one in January of '19.

Ken Bockhorst -- President and Chief Executive Officer

Correct. Correct. Yes.

Richard Eastman -- Robert W. Baird & Co. -- Analyst

Is that what you were saying? Yes, OK, you pulled that forward into -- OK, into October. Gotcha.

Ken Bockhorst -- President and Chief Executive Officer

We've -- yes.

Richard Eastman -- Robert W. Baird & Co. -- Analyst

And is there a price capture number that you could speak to for the fourth quarter? I mean, is that possible to sift through?

Ken Bockhorst -- President and Chief Executive Officer

I -- well...

Rick Johnson -- Senior Vice President of Administration

No.

Richard Eastman -- Robert W. Baird & Co. -- Analyst

No. OK. I heard the kingmaker in the background.

Ken Bockhorst -- President and Chief Executive Officer

There is Rick's final answer for you, Rick.

Richard Eastman -- Robert W. Baird & Co. -- Analyst

I wouldn't have expected more. OK, that's fine. We're kind of parsing it a little tight. And then a question around, as the year-end kind of unfolded, the fourth quarter unfolded, was there any traction, and I'm thinking more orders, around the utility international business, whether it be in the Middle East or even in Mexico that maybe gives us some outlook into 2019 in terms of how the international utility business might perform?

Ken Bockhorst -- President and Chief Executive Officer

No. I mean, we're still optimistic on Middle East, but we didn't see any big orders flow through in the quarter. But the overall environment in the Middle East still feels the same to us. And no, on Mexico, we didn't see anything meaningful either.

Richard Eastman -- Robert W. Baird & Co. -- Analyst

OK, OK. And then last question. I think we kind of know the second and third quarter typically are fairly significant quarters or the biggest quarters of the year. Given the kind of unusual weather here in January, certainly in the Midwest, but any thoughts around the seasonality into the first quarter? I mean, typically, we can -- in last few years, we've seen actually an up sequential quarter in revenue.

But just any thoughts in terms of the trend here early in the year? Should we be just aware that we may see maybe a break with the trend and we may actually see a little bit of down revenue sequentially just due to weather?

Ken Bockhorst -- President and Chief Executive Officer

Well, the first thing I'll do is caution you that we're only 35% of the way through the quarter and I have no idea what the weather will be. I don't think anybody does. But if you remember, last year, Q1 was a pretty bad weather quarter, right? So we certainly felt some impact last week for that one particular week. Obviously, people weren't out working and doing installations.

But year over year, I think it's too early to say that there's going to be a negative impact because last year was -- I think some -- a lot of facilities were closed 12 days in the quarter last year. And in terms of then just a normal quarter, I don't feel like we should be cautioning you that Q1 is going to be worse than, say, Q4.

Richard Eastman -- Robert W. Baird & Co. -- Analyst

OK. And then just last question, I promise here, around the industrial flow business. Given some of the macro data points we've seen around -- maybe around oil and gas, I mean, water, wastewater should be largely unaffected. But is there any caution or concern on your part in '19 that the industrial flow business may roll over just relative to what we're seeing from a macro perspective?

Ken Bockhorst -- President and Chief Executive Officer

Yes. So I think in our core target markets that we've talked about, we're still small enough and we still have enough channel build that I still fully expect that we're going to be able to get high single digits in those four target markets even if they moderate a bit.

Richard Eastman -- Robert W. Baird & Co. -- Analyst

Yes, I see. Very good. Well, thank you so much.

Operator

Your next question comes from the line of Ryan Connors with Boenning and Scattergood. Your line is open.

Ryan Connors -- Boenning & Scattergood -- Analyst

Great. Thanks for taking the question. A couple of actually big picture questions for you. One is you've talked a little bit about the competitive dynamics, but specifically, as it relates to the Ultrasonic metering, I guess there's been some talk about some new entry there, some of the international players becoming a lot more active in the U.S.

Can you just talk about what you're hearing on that front and how you interpret that?

Ken Bockhorst -- President and Chief Executive Officer

Yes. So first off, for us on the Ultrasonic side, I know in the past, Rich has told you that it had been growing to be about 30% of our meter revenue. And now with another strong fourth quarter, it's higher than that. So we're continuing to see some really good conversion and wins there.

Yes, last year, we did have some people -- some of the European players kicking around, but we really didn't see anything meaningful happen, right? There was an announcement of one of them at the ACE Show that they were going to release a meter. Didn't really make an impact. There was another one who was trying to set it up in the U.S. So they're here.

We're aware of them. We're watching them. But we haven't seen any impact from it.

Ryan Connors -- Boenning & Scattergood -- Analyst

OK. That's good to hear. My other question was just real big picture in nature Kevin, you know, given that this is your first official call as CEO, obviously, you've got a phenomenal base business in the North America utility metering side. But at the same time, there's not a lot of room for maneuver from a portfolio standpoint within that space.

So what is your vision for the company? Are there adjacencies you think expanding into? Or upstream? Or I guess if I look out a decade from now and you're handing over the reins to your successor, how might Badger look differently? What's your vision in that respect?

Ken Bockhorst -- President and Chief Executive Officer

Well, I only did a five-year strategic plan and that sounds like a 20-year horizon probably, Ryan. But I'll try to give it. So we definitely have a long history of investing in R&D and innovation, and we're going to continue to do that and continue to grow in our space. Additionally, we are virtually out of debt.

And we have been spending a lot of time looking at what some of the adjacencies are, whether that's water quality, pipeline monitoring. We're getting a really good handle of what's available in that space. And it would be very -- I think, very reasonable to think of us as a company that's going to do a lot more than just metering in the future.

Ryan Connors -- Boenning & Scattergood -- Analyst

Fair enough. Thanks a lot.

Ken Bockhorst -- President and Chief Executive Officer

Sure. Thank you.

Operator

Your next question comes from the line of Hasan Doza with WAM. Your line is open.

Hasan Doza -- Water Asset Mgmt. -- Analyst

Hi, good morning, everyone, and thanks for the presentation deck, it's helpful. Two questions. One, I did notice that the account receivable ticked up year over year. Any kind of underlying reasons or trends for the receivables ticking up this quarter versus same quarter in -- the fourth quarter in '18?

Bob Wrocklage -- Chief Financial Officer

Yes. So I think, clearly, what you're seeing in those numbers is a reflection of the Middle East revenue growth that we had in 2018. As you know, there's regional differences in payment terms, pay practices and otherwise. So we're currently carrying a modestly higher international receivable balance that largely is a function of payment terms.

But other than that, it's pretty standard course across our North American customer base as well as the residual piece of international. So nothing that I would call as an outlier or anything that we're concerned about.

Hasan Doza -- Water Asset Mgmt. -- Analyst

How much -- in a ballpark or order of magnitude, how much in sales would you have already booked your waiting payments on? Is it like on the international munis piece, is it like $5 million, $10 million? What's kind of the order of magnitude?

Bob Wrocklage -- Chief Financial Officer

Yes. I don't -- we're not in the practice of commenting specifically on that, but it would be less than that amount.

Hasan Doza -- Water Asset Mgmt. -- Analyst

OK. And my second question is more for Ken. And Ken, thank you for Slide No. 7, which kind of talks about the capital allocation priorities.

And as you've kind of highlighted in your slides about the future capital allocation, it's going to be, according to the pie chart, more geared toward acquisitions. So would love to kind of hear your view and your thoughts about what are you thinking in terms of acquisition opportunities in terms of regions, countries that you particularly like. So would love to kind of hear your strategic thoughts on the acquisitions given that, based on your slide deck, it appears to be -- have a more pronounced view going forward versus historically.

Ken Bockhorst -- President and Chief Executive Officer

Yes. No, sure, yes, it's a good question. So I guess the way you should think about is rather than us continuing to pay down debt because we virtually have none now, we're looking to redeploy that into some really disciplined M&A activity. So as I mentioned previously, water quality is certainly something that is of interest to us that I think whether it's being able to sell it globally or not, frankly, we can just sell that to the customers we already have, or pipeline monitoring.

There's definitely regions that interest us. We're not going to go on a global crusade, but there's several regions that we're sure that we can win with, with the portfolio that we have as well as some M&A tuck-in activities. So we're not going to go out and buy huge companies. We're not going to go out and buy a company in China.

But we're certainly going to add in the water quality and monitoring-type space.

Hasan Doza -- Water Asset Mgmt. -- Analyst

OK.

Operator

Your next question comes from the line of Richard Verdi with Coker & Palmer. Your line is open.

Richard Verdi -- Coker & Palmer -- Analyst

Good morning and thank you for taking my call. First, I just wanted to say, Rick, I wish you all the best in your retirement. And I really appreciated all your times of -- all your time over the years and getting to know you. I thought you did an excellent job.

And I just want to congratulate you on a well-deserved retirement, Rick. Thank you very much.

Rick Johnson -- Senior Vice President of Administration

Great. Thank you.

Richard Verdi -- Coker & Palmer -- Analyst

So just a first question for kind of both of you guys. It's a follow-up to Ryan's. He asked the question, but -- his second question, but just a follow-up. The initiatives that you had mentioned, Ken, what would you say would be the first on the list that the company is going to pursue?

Ken Bockhorst -- President and Chief Executive Officer

Well, I wish it were...

Richard Verdi -- Coker & Palmer -- Analyst

Go ahead. I'm sorry, go ahead.

Ken Bockhorst -- President and Chief Executive Officer

No, finish your question. Go ahead.

Richard Verdi -- Coker & Palmer -- Analyst

No. You just had mentioned where you see the -- what the vision will be in five or 10 years. I'm just hoping you kind of give us what that -- give us a sense of where you'll focus first.

Ken Bockhorst -- President and Chief Executive Officer

Yes. So do you mean specifically what types of technologies will we add? What countries would we be going into? Is that the type of color you're asking?

Richard Verdi -- Coker & Palmer -- Analyst

Yes, that would be perfect.

Ken Bockhorst -- President and Chief Executive Officer

Yes. That's great. So...

Richard Verdi -- Coker & Palmer -- Analyst

And if you could just name the company also, that would be wonderful.

Ken Bockhorst -- President and Chief Executive Officer

Yes. So we've been doing quite a bit of scoping out the technologies that we think we could sell to our existing customers as well as take to other regions. We've been looking at regions where perhaps we could leverage both our utility water and the oil and gas and petrochem-type spaces and HVAC. So we've got a pretty good internal map that I don't want to publicly disclose too much about.

But I -- it also depends on someone has to be available in the space. So if I could tell you specifically which companies are going to be willing to sell today, I could be more prescriptive. But I think if you think around it, around water quality, monitoring, the things that we can sell to the customers we already have and leverage around the world, that would be pretty close to what you should think about.

Richard Verdi -- Coker & Palmer -- Analyst

That's great. And then just a last question, it's another high-level question. We've seen some economic data points over the last few months like wages and inflation, we've seen them climb. And I was just wondering if Badger Meter is expecting to see any cost pressures from these data points in 2019 or if there is any other sort of data point maybe the company is watching for cost pressures this year or maybe next.

Ken Bockhorst -- President and Chief Executive Officer

Well, we're certainly watching cost pressures, and we know for a fact that a lot of people have been talking about challenges with electronic parts and inflation costs and wage costs. And I'm really proud of the performance that our team had in Q4 because we're not immune to those issues. But our team did a fantastic job of getting out ahead of some of the supply constraints and making sure that we could satisfy our customers without taking huge increases that we couldn't offset with price. So first off, I think we're doing a really good job in mitigating those costs.

Like anybody else, we're going to have wage inflation this year, but we have it every year, so that's not going to be a different headwind than normal. But we've got our eyes on electronics and commodity costs just like everybody else. And we're taking every action that we can to stay ahead, and so far, I think we've done a great job.

Richard Verdi -- Coker & Palmer -- Analyst

That's excellent color. Thank you very much for the time, guys. Appreciate it. Thank you.

Operator

Your next question comes from the line of Brian Rafn with Morgan Dempsey Capital. Your line is open.

Brian Rafn -- Morgan Dempsey Capital -- Analyst

Good morning, guys.

Ken Bockhorst -- President and Chief Executive Officer

Hi, Brian.

Brian Rafn -- Morgan Dempsey Capital -- Analyst

I just got to say, Rick, it's -- I'm going to miss you, buddy. It's been 20 years. So all the best to you in your retirement. You've done a fabulous job, and it's been enjoyable to get to know you.

Rick Johnson -- Senior Vice President of Administration

Thank you.

Brian Rafn -- Morgan Dempsey Capital -- Analyst

Let me ask on the ORION Cellular radio or the LTE-M. What -- you talked a little bit, Ken, about bids and quotes in that. How do you see that kind of adoption as they roll out a 5G network across the country and early adopters and utilities looking at making those purchases?

Ken Bockhorst -- President and Chief Executive Officer

Sure. Well, this is a really big move for us, right? So we've redesigned our radios, incorporated in the LTE-M chips, and this really now has us ready for 5G. So anywhere that the network goes in and utilities want to use it, we're ready to go. The other thing that's important to understand about it is that we don't lose any of the capability to continue to support 4G, 3G, 2G or whatever happened ahead of it.

So it's a really significant move. It additionally increases the benefits for our customers, whether it's longer battery life, better reach, on-demand reads, the things everyone's been hoping for. And it reduces costs. So overall, this is a really big deal for us and for the market.

And in terms of acceptance, we're absolutely confident that it's going to be accepted. We've had great feedback with it being part of the AT&T Smart City Alliance. We're getting opportunities to be at mayor's conferences and in front of large municipalities talking about it. So it's a really big deal, and we're getting great feedback on it.

Brian Rafn -- Morgan Dempsey Capital -- Analyst

OK. From the standpoint of -- kind of a high-level question. From the standpoint of, as you take over, you come from Rich and Rick's team and the right family and that big legacy, like Aaron Rodgers and Brett Favre, very, very accomplished.

Ken Bockhorst -- President and Chief Executive Officer

Which one do you think was better? Which one was better?

Brian Rafn -- Morgan Dempsey Capital -- Analyst

I don't know. I'm saying prayers for you guys at night. So -- and that's in a good way. So you guys -- that's a really tough legacy.

You talked a little bit about the strategic and how you see going out and expanding beyond meters and that. How do you see maybe five, 10 years out, Ken, the culture at Badger Meter? I mean, you guys got a very strong culture, very paternalistic. You got employees that stay forever. How do you see -- do you maintain that? Or does that change, too?

Ken Bockhorst -- President and Chief Executive Officer

Yes. So the first thing that I'd tell everybody, and I'm absolutely sincere about it, is that we're going to preserve the legacy of a 114-year old company that's been priding itself on innovation for all these years. So that is first and foremost on my mind. We absolutely benefit from having long-term employees because we have long-term customers.

And at the same time, we're adding more people to the business that have some of the cellular capabilities as we've been changing over our sales force quite a bit in the past here to be able to sell the new technologies in conjunction with the great sales team that we've had. So we're going to be smart about it. Everybody that we bring in, including me, the board was very exhaustive in doing psych evaluations and culture tests and all these things on the way in. And it's something I take serious.

And when I hired Bob, when we've hired Karen, when we bring other people in, we're really making sure that the skills and the culture of the people are going to be additive to what we do. It certainly will have to change, but it's going to be more of an evolution than a change.

Brian Rafn -- Morgan Dempsey Capital -- Analyst

Gotcha, gotcha. Appreciate the answer. Let me ask you, you talked a little bit about the acquisitions. How do you see -- is there -- are there some sized parameters relative to -- we wouldn't look at deals less than so many dollars in sales, revenue on a niche basis? I think you talked a little bit that you're not really going to see massive transformational.

How do you kind of see maybe the size of the acquisitions and your -- kind of your philosophy on pricing?

Ken Bockhorst -- President and Chief Executive Officer

Yes. I would tell you, as you think about technology, there may not be a field that's too small if it's the right technology that we can leverage through the strong customer base and market share we already have in the U.S. But there are deals that would be too big, right? So we're not interested in going out and swallowing companies that are three or four times our size and then completely changing over what we've been for 114 years. So we'll definitely be -- if I had a sweet spot, I'd say probably somewhere between $35 million to $55 million, $60 million is probably the right size to be meaningful, digestible.

But we definitely won't go huge.

Brian Rafn -- Morgan Dempsey Capital -- Analyst

Yes. And would you also say, Ken, it's fair that you would look at those acquisitions and the digestibility of that cycle be more one-off versus having multiple war fronts where you're making multiple acquisitions of size?

Ken Bockhorst -- President and Chief Executive Officer

No, I think it's -- I think it could be possible that we're picking up a couple of different small companies that are different technologies that we could leverage through together. We will not be precluded from doing that.

Operator

Your next question comes from the line of Andrew Buscaglia with Berenberg. Your line is open.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

Hey, guys. Thanks for taking my call.

Ken Bockhorst -- President and Chief Executive Officer

Andrew, you bet.,

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

I just wanted to touch on your Ultrasonic side. Seems very interesting at this point. And as I recall from past calls, this is about a quarter of your sales. It's growing very fast.

But can you parse out what the rate of growth is or what the normal long-term rate of growth? Maybe -- I don't know if you want to talk about it for the industry or for you guys. Obviously, you're probably outgrowing that, but -- and then what do you expect it to be as a percentage of your sales if you're looking out five years? Or? Have you set targets like that internally?

Ken Bockhorst -- President and Chief Executive Officer

Yes. So first, it's not a quarter of our revenue. It's slightly more than 30% of our meter revenue, right? So that doesn't include radios and other pieces, which -- what excites me about it is that we're seeing the ramp-up in people moving toward the Ultrasonic technology, but we still have a ton of runway on the residential side, plus building up the full line on the commercial side. To say that I have not put a percent, I guess, on what that would be, but I can certainly see that continuing to grow and being surely more than 50% of the meter revenue in the -- over the next few years.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

OK. OK, that's helpful. And then in past presentations, you guys had a comment about how 30 -- you would see about $30 million, I believe, of additional revenue for every percent adoption of smart metering, although it's no longer on your slide. So what -- maybe what happened with that? Or what -- is your expectation lower now? Or can -- you know what I'm referring to?

Ken Bockhorst -- President and Chief Executive Officer

Yes, yes. So let me tell it to you this way instead of trying to put a number on it because that depends on which cities, what size, how fast they implement the technology. But if you go back to a meter with no technology and they just buy a brass meter, which is great, we'll still sell that to people, happily, but the average selling price is perhaps a third of what we would sell an E-Series meter, plus a radio, plus a software package. So if you just think about it as kind of a three times lever as people change, it is certainly meaningful.

I don't think I would put a dollar amount on every 1% that changes. But it matters greatly.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

OK. Thanks very much.

Ken Bockhorst -- President and Chief Executive Officer

You're welcome.

Operator

[Operator instructions] Your next question comes from the line of Brian Rafn with Morgan Dempsey Capital. Your line is open.

Brian Rafn -- Morgan Dempsey Capital -- Analyst

Yes. Ken, just a follow-up. As you start seeing with the new ORION Cellular the LTE-M technology and you move to a 5G, how -- what does that do to cannibalize some of the old legacy systems, GALAXY, drive-by and walk-up? Are these really things that are disappearing? Or they're still viable geographies where there might be one-off installations?

Ken Bockhorst -- President and Chief Executive Officer

Yes. Those are still absolutely viable, but you may have a city that's been doing drive-by with us for 20 years that might decide that they want to go to cellular. So they can move up the chain or people can go from no technology at all straight to cellular rather than going to drive-by. It really is extremely flexible.

But it doesn't knock someone out from using drive-by. That's perfectly fine and perfectly acceptable for a lot of utilities.

Brian Rafn -- Morgan Dempsey Capital -- Analyst

Gotcha. No, I appreciate that. What was just the price increase for January? Obviously, that works through different projects, but what was kind of the official number in pricing increase?

Bob Wrocklage -- Chief Financial Officer

Generally, the -- what we implemented in January 2019 averaged out to between 2% and 3% across the board.

Brian Rafn -- Morgan Dempsey Capital -- Analyst

OK. Yes, OK. And then was -- Rich talked a little bit about weather. Was there any favorable weather with a little bit of a warmer winter north of the Mason-Dixon line in the fourth quarter?

Ken Bockhorst -- President and Chief Executive Officer

I don't know if that had any impact.

Rick Johnson -- Senior Vice President of Administration

No idea.

Ken Bockhorst -- President and Chief Executive Officer

Yes, I think -- felt normal to me. I don't know.

Brian Rafn -- Morgan Dempsey Capital -- Analyst

OK. All right. All right. And then any thoughts relative to kind of manufacturing footprint? Any plants moving around, moving production? And how do you feel maybe where you are today with your manufacturing production footprint?

Ken Bockhorst -- President and Chief Executive Officer

Well, as I've said before on the call, our operations haven't been hurting us, but we haven't really implemented a culture of continuous improvement. So what we're driving throughout the business is an intense focus on improving safety, quality, delivery and cost. And we're going to continue to do that. I don't have any -- you asked about footprint.

Footprint is something that we'll continually look at every year as part of a normal process. But we will definitely be improving our operations just through the natural continuous improvement focus.

Brian Rafn -- Morgan Dempsey Capital -- Analyst

OK. And then maybe an adjunct to that, Ken. When you look at kind of the cycle time between engineering concept, design, prototyping and bring it to the markets, are you looking at making any advances relative to moving that kind of concept to production to sales cycle time, compressing that and -- a little more rapidly? Or are you really pretty happy with where it is today in new products?

Ken Bockhorst -- President and Chief Executive Officer

So people who've gotten to know me will know that I'll never be happy with that. It'll never be fast enough. But our team does a great job. But I'll always want it to be faster, yes.

Brian Rafn -- Morgan Dempsey Capital -- Analyst

Yes, OK. Thanks, guys.

Ken Bockhorst -- President and Chief Executive Officer

All right.

Operator

There are no further questions in the queue at this time. I will turn the call back over to Ms. Karen Bauer for closing remarks.

Karen Bauer -- Director of Investor Relations and Corporate Strategy

Thank you all for joining our call today. For your planning purposes, our first-quarter call is tentatively scheduled for April 17. I'll be around all day to take any follow-up questions you might have. Have a great day.

Operator

[Operator signoff]

Duration: 41 minutes

Call Participants:

Karen Bauer -- Director of Investor Relations and Corporate Strategy

Ken Bockhorst -- President and Chief Executive Officer

Bob Wrocklage -- Chief Financial Officer

Nathan Jones -- Stifel Financial Corp. -- Analyst

Richard Eastman -- Robert W. Baird & Co. -- Analyst

Rick Johnson -- Senior Vice President of Administration

Ryan Connors -- Boenning & Scattergood -- Analyst

Hasan Doza -- Water Asset Mgmt. -- Analyst

Richard Verdi -- Coker & Palmer -- Analyst

Brian Rafn -- Morgan Dempsey Capital -- Analyst

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

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