Welcome, and thank you for being here. Today's call is being recorded. I would now like to give the floor to Mr. Whit Kincaid. Please proceed.

Good morning, everyone. Welcome to Mueller Water Products' first quarter 2020 conference call. We issued our press release reporting results of operations for the quarter ended December 31, 2019, yesterday afternoon. A copy of it is available on our website, muellerwaterproducts.com. Discussing the first quarter results and our outlook for 2020 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 non-GAAP and 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 September 30. A replay of this morning's call will be available for 30 days at 1 (866) 411-8817. 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 Whit. Thank you for joining us today to discuss our first quarter results for 2020. We had a very good start to 2020 as we generated solid organic consolidated net sales growth, improved margins, and increased adjusted EBITDA on the quarter. Our net sales increased 10.3% driven by the benefit of the Krausz acquisition, with organic net sales increasing 3.1%. Both higher pricing and increased shipment volumes of our core infrastructure products drove our organic net sales increase. We increased our gross margin by 290 basis points to over 34% in the quarter, as our pricing, favorable product mix, and the addition of Krausz more than offset increased costs from tariffs and inflation. Both infrastructure and technologies contributed to the gross margin improvement in the quarter. I was especially pleased to see technologies achieve breakeven adjusted EBITDA in the quarter. This performance and the addition of Krausz helped deliver nearly 20% consolidated adjusted EBITDA growth. During the quarter, we settled the Walter Energy tax liability with a $22.2 million payment to the IRS. After a significant effort managing and resolving a complex situation over the past four years regarding the obligation of our one-time parent company, we can finally put this matter behind us. For fiscal 2020, we expect to see continued favorable demand in our end markets driven by healthy municipal spending and improved residential construction. However, we remain cautiously optimistic due to continued uncertainty from global and domestic matters. After a solid start to the year, we are increasing our expectations for both net sales and adjusted EBITDA growth for fiscal 2020, which I will discuss in more detail later in the call. With that, I will turn the call over to Martie.

Thanks Scott and good morning everyone. I will begin with our first quarter consolidated GAAP and non-GAAP financial results. Then, I will review our segment performance. Our consolidated net sales for the quarter increased 10.3% or $19.8 million to $212.6 million. This increase was primarily driven by the acquisition of Krausz as well as higher pricing and increased shipment volumes at infrastructure. As Scott mentioned, we achieved organic net sales growth of 3.1% in the quarter. Our gross profit this quarter increased 20.8% or $12.5 million to $72.6 million. Gross margin of 34.1% improved to 290 basis points over the prior year. This improvement was primarily due to higher pricing, product mix, and the addition of Krausz, and was partially offset by higher costs associated with tariffs and inflation and approximately $500,000 in startup costs associated with our large casting foundry expansion in Chattanooga. Selling, general and administrative expenses were $49.9 million in the quarter, an $8.9 million increase over the prior year. The increase was primarily due to the addition of SG&A from Krausz, which accounted for about half of the increase, IT-related activities, personnel-related costs, and professional fees. SG&A as a percent of net sales was 23.5% in the first quarter compared to 21.3% in the prior year. Our current expectations for full year 2020 are for total SG&A expenses to be about 20% of consolidated net sales. Operating income increased 27.7% to $20.3 million in the first quarter compared to $15.9 million in the prior year. Operating income included strategic reorganization and other charges of $2.4 million in the quarter versus $3.2 million in the prior year. Turning now to our consolidated non-GAAP results, adjusted operating income increased 18.8% or $3.6 million to $22.7 million in the quarter. Both infrastructure and technologies increased adjusted operating performance in the quarter, which was partially offset by higher corporate SG&A expenses. Adjusted EBITDA for the quarter increased by 19.5% or $6.1 million to $37.4 million. Adjusted EBITDA margin improved by 140 basis points to 17.6%. Consolidated adjusted EBITDA conversion margin was 31%. For the last 12 months, adjusted EBITDA was $204.4 million or 20.7% of net sales. As compared with the prior 12-month period, we've increased the latest 12 months adjusted EBITDA by 10.3% or $19.1 million, and improved the adjusted EBITDA margin by 80 basis points. Net interest expense for the 2020 first quarter was $7.4 million as compared with $5.5 million in the prior year quarter. The increase in net interest expense in the quarter resulted from a non-cash adjustment to capitalized interest and decreased interest income due to lower cash balances and lower interest rates. Our updated full year 2020 expectations are for net interest expense to be between $24 million and $25 million. Income tax expense was $3.1 million or 23.1% of income before tax, as compared with an income tax benefit of $5.9 million or 21.9% of loss before tax in the prior year quarter. The prior year quarter included a $7.7 million tax benefit on the Walter Energy accrual. We continue to expect our effective tax rate for 2020 will be between 24% and 26%. Our adjusted net income per share increased to $0.08 for the quarter compared to $0.07 in the prior year. Turning now to segment performance starting with infrastructure. Infrastructure net sales increased 12.1% or $20.8 million to $192.8 million in the quarter. This increase was due to $13.8 million in sales from Krausz and a 4.1% increase in organic net sales this quarter, which was primarily driven by higher pricing and increased shipment volumes of our core products. Adjusted operating income for the quarter increased 15.5% or $4.8 million to $35.7 million. The increase was primarily due to higher pricing, product mix, increased shipment volumes, and the inclusion of Krausz, partially offset by higher costs associated with tariffs and inflation, increased SG&A expenses, and approximately $500,000 of startup costs previously mentioned. Adjusted EBITDA for the quarter increased 16.3% or $6.7 million to $47.7 million, yielding an adjusted EBITDA margin of 24.7% and a conversion margin of 32% in the quarter. Moving on to technologies; technologies net sales decreased by $1 million to $19.8 million in the quarter driven by lower shipment volumes at Metrology, which were partially offset by higher volumes at Echologics. Adjusted operating loss improved by $1.7 million from the loss of $3.7 million in the prior year, primarily due to product mix and higher pricing, partially offset by lower shipment volumes and higher costs associated with inflation. Technologies adjusted EBITDA also improved $1.7 million in the quarter to breakeven as compared with a loss of $1.7 million in the prior year. Including with liquidity, cash used in operating activities for the first quarter was $12.4 million with negative free cash flow of $27.6 million. Both cash flow from operations and free cash flow were impacted by the $22.2 million payment associated with the Walter tax settlement. As a reminder, our cash generation is generally stronger in the second half of our fiscal year due to the seasonality of our business. We invested $15.2 million in capital expenditures in the period, which was similar to the first quarter of the prior year. We continue to expect our capital expenditures will be between $80 million and $90 million for 2020. At December 31, 2019, we had total debt of $446.4 million in cash and cash equivalent of $136.8 million. At the end of the first quarter, our net debt leverage ratio was 1.5x. Finally, on October 1st, we adopted new accounting requirements for leases. As a result, we reported assets and liabilities of approximately $30 million each related to our operating leases, which had previously not been recorded on the balance sheet. I'll turn the call back to Scott to talk more about our results and outlook for 2020.

Thanks, Martie. I will provide some additional insights into key areas and then comments on our full-year 2020 outlook. After that, we'll open the call up for questions. Going forward, we are continuing to focus on executing our key strategic priorities. These include accelerating new product development, developing a fully integrated technology platform for infrastructure monitoring, driving operational excellence, and modernizing our manufacturing facilities. Our goal is to deliver above-market organic net sales growth and improvements in our margins from productivity initiatives and continued price-cost realization. Our organic net sales in the first quarter performed well as we benefited from higher pricing as well as higher volumes in our core valve, hydrant, and leak detection products. During the quarter, our natural gas and metrology products experienced headwinds versus the prior year. Our natural gas product sales experienced what we believe is a temporary slowdown in sales. We expect that sales will improve through the balance of the year as our markets normalize. For Metrology products, our 2019 sales benefited from a significantly stronger backlog entering the year. Our current backlog is meaningfully lower than the prior year due to an inconsistent pipeline of large orders. As a result, we expect our Metrology sales to be flat this year. In recent years, we have focused on developing stronger partnerships in the distribution channel. As a result, we have enhanced our partnership with Ferguson, one of our largest customers for many of our Metrology products, and have seen a greater percentage of our Metrology sales go through their distribution channel. Recently, we worked with Ferguson to win a $34 million multi-year AMI water meter contract for Newport News, Virginia. This contract win is an example of how we were able to differentiate ourselves with our technology for remote disconnect meters. We could start benefiting from orders associated with this contract in the fourth quarter of this year. I was pleased with the gross margin improvement we generated in the quarter. This was driven by a combination of increased volumes of our core valves and hydrants, which are some of our higher margin products, and improved price realization. During the first quarter, we benefited from carryover pricing, which included two price increases for iron products and more than offset the impact of increased costs from tariffs and inflation. We recently announced additional price increases in the U.S. and Canadian markets for many of our infrastructure products, which will be effective in February and March. The timing of these announcements is comparable to the prior year. Although raw material costs are not currently contributing to inflation, we expect this higher pricing will help offset the anticipated increases in material costs and other inflation for the balance of the year. The execution of our key capital investment projects to accelerate the modernization of our manufacturing facilities, equipment, and processes is well underway. We have major projects driving capital spending above historical levels in order to deliver above-market sales growth by broadening our product capabilities and expand gross margins. As we have previously discussed, we have three large projects underway including the large casting foundry expansion in Chattanooga, Tennessee; a new brass foundry in Decatur, Illinois; and a new specialty valve manufacturing facility in Kimball, Tennessee. These transformational projects are forecasted to account for approximately $130 million of capital spending. Based on current timelines, we expect that these projects together will drive approximately $30 million of incremental gross profit in 2023 through both operational efficiencies and sales growth. As mentioned previously, we expect capital expenditures as a percentage of consolidated net sales to decrease to less than 4% in fiscal 2023. We have nearly completed the large casting foundry expansion in Chattanooga. We expect to begin producing product with our own castings by the end of the second quarter. As a reminder, this was a large multi-year investment in our Chattanooga facility to expand domestic manufacturing capabilities for large valves and introduce additive manufacturing technologies to our foundries. This includes one of the largest 3D printers in the world, which will help decrease time to develop new tooling and shorten turnaround times for our customers. This investment will help us further differentiate ourselves in the marketplace. Historically, we have focused on small valves, which are less than 12 inches as they are used much more frequently. Increased population density and urbanization are driving a greater need for large valve sizes. Although today the market for large gate valves in North America is less than 30% of the gate valve market, we expect large gate valves to grow at a faster rate than small valves. As a result, this investment will add additional flexibility and capabilities for new product development and help us provide a broader range of products to our customers. In addition, it helps with product efficiencies through insourcing and provides more products which will satisfy our customers' 'made in America' specifications with less reliance on sourcing valve bodies from China. As with any large project and new capabilities, we expect there to be a ramp-up this year and anticipate that we will ultimately recognize the benefit of this project in fiscal 2021. The impact of the startup costs until full ramp-up of these new operations is included in our annual guidance and was $500,000 this quarter. I will wrap up my comments with a review of our updated expectations for full-year 2020 results. During fiscal 2020, we expect to see favorable demand in our end markets driven by healthy municipal spending and improved residential construction. The residential construction market appears to be improving based on the housing start data reported for our first quarter. It's still early in the year and we continue to see a wide range of predictions for housing growth in 2020. For our fiscal year, we anticipate residential construction growing in the low-single-digit range, municipal spending, which accounts for the majority of our end markets, continues to be healthy. For our fiscal year, we expect the municipal end market will grow in the low-single-digit range. Despite continued uncertainty from global and domestic matters, we are increasing our expectations for growth in both net sales and adjusted EBITDA for fiscal 2020. Based on our current expectations for end market growth, we anticipate that our 2020 full-year consolidated net sales growth will be at the high-end of the 3% to 5% range we previously provided. This growth will be driven by higher pricing, increased shipping volumes, and the contribution from Krausz in the first quarter. Additionally, we expect adjusted EBITDA growth to be at the high end of the 4% to 8% range we previously provided. I am confident that we are in a position to accelerate our transformation to become a municipal and residential solutions company with a growing percentage of our products incorporating technology. The traditionally conservative water and wastewater utilities are increasingly more open to using digital tools to deliver more benefits to their stakeholders with limited resources, not to mention many faced significant challenges from the aging infrastructure. We expect technology-enabled products to achieve significantly higher growth rates than some of the traditional products in the water utility industry. In fact, the overall digital water market is expected to grow at a 6.5% compound annual growth rate between 2019 and 2030, as forecasted by Bluefield Research. The segments most relevant to our growth strategies like asset network and information management, our forecast is set to grow even faster. With our market-leading positions and extensive installed base of infrastructure products, we are well positioned to take advantage of these trends. Today, we have a number of products addressing these segments including Echologics pipe condition assessment services and fixed leak detection solutions, Metrology's advanced meters and communications equipment, smart hydrants, pressure and water quality monitors, and most recently our Sentryx software platform. In summary, we are well on our way to incorporating technology into our infrastructure products while also modernizing our manufacturing facilities and operations. As a result, we believe we will be able to deliver above-market sales growth and drive margin expansion and earnings growth while also continuing to return cash to shareholders. And with that operator, please open the call for questions.

The first question in the queue is from Michael Wood with Nomura Instinet. Your line is now open.

Hi, good morning. Great job this quarter. Infrastructure gross margin stepped up versus last quarter despite the seasonally slower sales. Was there anything unusual there? I know you typically experience a seasonal gross profit margin decline, so I'd love it if you can just talk about what drove margins higher, whether they're sustainable, and how that compared to your expectations?

As we mentioned earlier, I believe it was a mix of factors. Infrastructure and the Krausz impact, along with pricing, were likely the two main contributors. Additionally, the combination we discussed involving hydrants and R&D, which accounted for a larger share of sales, also influenced the margin. In terms of sustainability, I am confident that if we maintain these kinds of mixes with IVH, we will see positive trends throughout the year.

And how should we think about the three projects contributing to the $30 million of gross margin improvement? Is it roughly $10 million each one larger or smaller than the other? And can you just talk about how long it takes once a plant's up and running to get the planned efficiencies?

Yes. I think you should think about it that the brass foundry is certainly the largest project of the three. And that the $30 million is going to be frankly fairly lumpy with the first piece coming from the improvement as a result of the Chattanooga large casting foundry being virtually complete by midway through this year. And then, the balance with Kimball and Decatur having a much longer fuse and the bulk of the savings coming in the back half as a result of Decatur and Kimball.

Got it. Just finally wanted to ask about the guidance. It seems early in the fiscal year to increase guidance. So just wondering if you could shed some more light on maybe the top one or two things that you're seeing that gives you the confidence in the visibility. Thank you.

I think that the biggest thing is, you know, when you come out of the gate at 7.3 you know, and you do the weighted average math for the rest of the year, right. I feel confident that we should be able to maintain implied organic growth rates in the 3.5%, 4.5% range given bookings and the state of the market. We also put the language in there that we're cautiously optimistic given some of the global domestic uncertainties. And certainly, we recognized as we're in the early days of the coronavirus that there could be some supply chain impact. And so, nodding to what's been a strong order book through the first four or five months. But at the same time, recognizing there's some risks on the horizon.

Great. Thank you.

Next question in the queue is from Brent Thielman from DA Davidson. Your line is now open.

Thank you. Hey Scott, maybe just touching on that last point, I mean, anything in particular you're looking at related to supply disruptions or risks that you're monitoring? I'm assuming with no change in the guidance, if you want, but I'm just curious where you might see it show up.

Yes. So I think with our facilities in China, we have a great handle on what they produce, how they produce, what's at risk, what the timeline of the month being and running in. That is what I think the uncertainty for all of them. The National Association of Manufacturers may apply in other organizations is how about you have your domestic supply chain is dependent on components from a foreign supply chain. And one of that foreign supply chain dependence looks like, especially in the Hubei province in China. So I think that's the part that we're all scrambling frankly to figure out where resource components are two or three steps back in the supply chain. And I think that's where the real risk to manufacturing lies in the next, let's call it 12 to 16 weeks.

Yes. Okay. And then, can you just talk about kind of how Krausz is integrating or are benefitting from the integration in Mueller? I mean, it seems like good growth. Are they seeing faster core growth in their business and sort of benefiting from the synergies and kind of distribution channel you've brought to them?

Yes. I believe that everything that we identified in our synergies case when we made the acquisition, we've tracked quarter by quarter and I would say that without question on at the aggregate. We're very pleased with the acquisition, how it's performed, where we've gotten growth, the introduction to existing Mueller customers, and conversely, very pleased with exposure to some of the traditional Krausz customers of Mueller products. In the aggregate, I would give it an A, the team's done a very good job of integrating the sales teams and doing a very good job of harmonizing programs across our customer base. But, we still have room for improvements and we're going to continue to measure and manage, measure and manage, measure and manage all the way through the process until we get to our fully integrated stake, which I think is another year away.

Yes. Okay. And then, any views or I guess expectations built in related to kind of larger municipal CapEx projects, which some of your larger products and valves are attached to? Is this going to be a stronger year based on what you can see today?

So, thanks for that and happy to get into it. I think that in the large valve market, you will see far more kind of project base. It's not going to be kind of the routine maintenance kind of thing. And so, there will be some lumpiness in that. And the fuse on these things tends to be much longer timeline. So jobs that are bidding for a 72-inch valve today are likely not going to be in an installed base for another 12 to 18 months and sometimes even longer. So I do not anticipate a huge lift this year for large valves.

Yeah. Okay. I appreciate it. I'll pass it on. Thank you.

Thank you.

Next question is from Deane Dray with RBC Capital Markets. Your line is now open.

Thank you. Good morning everyone.

Good morning, Deane.

Hey, and just congrats on resolving that tax overhang. I know that was annoying and it did take cash to do it, but it is resolved. So just a moment of appreciation for that, thanks.

Thank you.

So Scott, I was really interested in hearing more regarding when you listed all the different technologies at Mueller today that you're developing and between the Echologics, Metrology, the smart hydrants, Sentryx. So how will you and you would say you like to measure and manage? What's the deployment of these? What's the take rate of these technologies? What's the contribution either this year and the ramp in the next couple of years? I know each one of them is different, but from our perspective, this is where all the growth is going to be, the higher growth, the higher margins that will come through. So, maybe in terms of triage, the most important ones, just expectations of take rates and growth and contribution, and maybe we can start there please.

That's a lot to cover. Let me provide a general overview first, and then you can ask any follow-up questions. Currently, our most developed technology is the Advanced Metering Infrastructure (AMI), which has seen significant adoption among water municipalities. Over the past three years, the business has shifted from about 70% Automated Meter Reading (AMR) and visual reads to approximately 30% AMI. Now, the majority of our revenue and project management is AMI-dependent. When we discuss the meter business, we're focusing more on radios, collectors, and other components that will make up a larger share of future sales. Next, pipe condition assessment and fixed leak detection technologies are also evolving, though they are still in the early stages. Industry estimates suggest that this market could range from $100 million to $200 million today and may grow significantly, potentially exceeding $1.5 billion by 2030. While these technologies are expected to double in size every three to five years, starting from relatively small numbers means their immediate impact may not be substantial. Lastly, the water quality segment, which includes smart hydrants, flow and pressure monitoring, and sampling stations, is currently the least developed but holds the greatest revolutionary potential for smart water systems. Some believe that large utility-owned wireless infrastructure will continue to be expanded over the next four to ten years. Looking at market valuations and acquisition prices, it seems we might see several more generations of utility-owned wireless network technologies, particularly with 5G. Its impressive bandwidth could enable more connected devices through mesh networks, leading to transformative adoption at smart hydrants. We are actively developing various AMI solutions with different backhaul options, ensuring our architecture remains open and flexible for future advancements. Regarding the adoption rates, we have proved successful with our Sentryx platform, launched fixed leak detection solutions, and gained over 50 customers for pipe condition assessment. Our focus now is on educating customers and ensuring that adopting these technologies makes economic sense for them. We believe we have robust business cases and low-risk implementation strategies to assess utility health, which makes us optimistic about adoption rates. In a typical environment, I would expect growth rates of 8%, 9%, or even 10%. However, we are currently in the tenth year of an economic expansion, which makes us cautious about future spending, interest rates, and market conditions. Therefore, we've moderated our growth expectations somewhat, but we haven't provided multi-year guidance.

Scott, I know I asked a pretty complex question, but I admire how thoughtfully you clicked through all the different technologies. I really appreciate the answer and we do consider this to be the exciting part of the story and I'll stop there. Thank you.

Thank you.

Next question from the queue is from Bryan Blair with Oppenheimer. Your line is now open.

Good morning everyone. Nice start to the year.

Thanks Bryan.

I was hoping we could circle back on the quarterly cadence baked into your guide and I know you've touched on some of this, but you had a very strong first quarter, relatively easy second quarter comp. And then it seems like your guide contemplates flat to down operating profitability in the back half. So I guess two parts to that. One, am I correct in what is assumed in your guidance structure and two, if that is the case, what are the specific points of conservatism that, looking into the fiscal third and fourth quarter, admittedly more difficult comps, but on top of that, what drives the conservative stance?

Bryan, I'm going to give that to Martie. As you know, we don't guide to quarters, we guide to years. So I'm not sure what the inference is and I'll leave that to the higher mathematical brains in the room. Martie?

Well, I think just starting off, I think you'd understand one piece is certainly in our first quarter is the last quarter that we have Krausz as an additive on a year-over-year basis. So as we move into the second half of our year, sorry, the last three quarters of our year, Krausz will have been in the prior year's results. So I think that's certainly a portion of what we saw with the growth rate in the first quarter on net sales. And I think as you've heard with the guidance now towards the upper end of the net sales range that we gave with the baked-in addition to Krausz this quarter, that sort of implies continued organic net sales growth going forward. And we would say with that, it also implies continued growth from an adjusted EBITDA perspective as well without any particular guidance with respect to the quarters. Other than, as you know, we're typically going to see stronger growth in the second half of our year due to the seasonality of our business.

Okay. I appreciate the color there. And then, I'll also appreciate the additional detail you've offered on the large project investments. And particularly the $30 million in incremental gross profit step-up. I just wanted to clarify that as we look out to 2023, that is truly incremental as an additive to the more normalized margin progression you've spoken to of upward of 100 basis points of gross margin improvement each year via typical productivity initiatives and you are up there?

I expected that question. It's mostly additive. One-third of it comes from volume, absorption, and incremental profit, while about two-thirds comes from operational efficiency. Restating the question: you mentioned 50 basis points net, 100 basis points of productivity a year, and 50 basis points net after reinvesting in engineering and other areas. Can the 50 basis points and approximately $20 million be considered cumulative, or is there some overlap? The answer is that there is a slight overlap. When considering the math, appreciation, depreciation offsets, and necessary incremental productivity, I believe we can identify other productivity initiatives and capital projects that will contribute in the future, although they may not be fully visible yet. Based on my 20 years of experience, I am confident there will be cost-saving projects that confirm this approach. Therefore, think of it in terms of the 50 basis point net improvement and the $30 million.

Okay. Excellent. And the last one from me, on capital deployment, your balance sheet is obviously in good shape. You do have these large projects underway, but still have decent capacity. So I assume if something Krausz came along, you could pull the trigger on it in terms of deploying that capital. Would you at this stage of Krausz integration be able to take on another deal that size and the complexities that come with it?

Yes. I think what I said to everybody when we bought Krausz is that we would not do deals for 90 to 180 days until we saw how the whole world will be on that now. And I feel like the playbook from the team on the integration and where we are with integration that I'm eager to exercise those both muscles as an organization again. But, it's got to be the right deal at the right price. And so yes, we would nothing to disclose to that.

Got it. Thanks again.

Thank you.

Next question is from Joseph Giordano from Cowen. Your line is now open.

Good morning. This is actually someone filling in for Joe. What is your outlook for profitability in tech for the rest of the year, and do you have a longer-term outlook as well?

We do not provide guidance by segments, as I believe that can be misleading. However, I expect the technology sector to continue showing operational improvements, consistently enhancing profitability through necessary actions in manufacturing, pricing, and deal-making. My focus is on achieving profitability rather than being the largest meter manufacturer without financial returns. Since I joined, we've reduced losses significantly while launching new products, including Sentryx and multiple radios in the LoRaWAN network. The team has made notable progress and I am confident we will reach profitability over time, especially as we continue investing in Echologics, which needs to achieve scale for profitability. Overall, I believe the segment will perform well.

Great. I appreciate the detailed answer and that certainly encouraging to see the margins improving there. And then when does the impact from price increases last year in infrastructure start to fade out? And do you guys have any more price increases planned for the year?

Yes. So, just to give you a reminder, this is sort of the last quarter where with a lot of our products, we've got the benefit of two price increases, the one we implemented back in September of 18, as well as the February of 19. So going forward, we have announced price increases for a number of our infrastructure products sort of in that February, March timeframe. And so I'd say from that piece, reasonably comparable on a year-over-year basis, but this would be the last where you'd see the benefit of a couple of price increases.

Okay, great. Thank you. If I could squeeze in just one quick one on the outlook for interest expense, I noticed it's about 3 million higher than what it was last quarter. Is this related to the capital interest or lower cash interest or what exactly is driving the increase?

I would say that primarily, when looking at the quarter, it relates to the non-cash adjustment for capitalized interest. Additionally, there's just a minor aspect concerning the lower outlook for interest income moving forward.

Okay. Excellent. Thank you for your answers.

Next question is from Brian Lee with Goldman Sachs. Your line is now open.

Hey everyone, thank you for the questions. Good morning. Starting with technology, I understand the 5% year-on-year revenue decline mentioned in the Q1 conference. I'm curious about how we should view growth in this segment over the next few quarters, as it seems the comparisons will be easier until we reach the fourth quarter. Additionally, do you anticipate technology will perform in line with or better than the 35% consolidated outlook?

Yes. In our prepared comments, we indicated that the Metrology segment will likely experience lag performance compared to last year. As mentioned, we are transitioning the business to a distribution model similar to Ferguson, and we have a lower backlog since we have stopped pursuing high-volume sales at lower prices. We have seen improved performance from both a cost and operational perspective. Therefore, we will continue to manage the business in this manner. You should expect the meter business to remain flat for the year. Growth will come primarily from our fixed leak detection and pipe condition assessment segments, where we are concentrating our sales and marketing efforts to achieve broader acceptance of the Aquasure DX product line. We have successfully penetrated markets in San Jose, Connecticut, and other major customers using this technology to detect leaks in their networks. This year will focus on expanding its acceptance. We aren't disclosing specific growth numbers for obvious reasons, but we anticipate slower growth due to the flat meter business, which currently comprises the bulk of our segments, though this will change in the long run.

Okay. Helpful. Appreciate the color. And then, just the second question and I'll pass it on. I might've missed this, but the EBIT conversion margin in the quarter, we get to something like 18, if our math is correct, so wondering if that sounds like it's about in the right ballpark and if you have any thoughts on the trend line, kind of moving through the rest of the year in the context of your historical targets and 35% plus, you have a number of different initiatives moving through the year. So wondering how we should be thinking about that conversion margin amount? Thank you.

I believe that when considering conversion margins, you may notice some variability on a quarterly basis. The guidance we've provided implicitly indicates where the conversion margin will land. However, it's important to recognize that there can be fluctuations from quarter to quarter.

Okay. Fair enough. Thanks guys.

Next question from the queue is from Walter Liptak with Seaport Global. Your line is now open.

All right, thanks. Good morning everyone. I wanted to ask about Krausz and you guys didn't call out what the contribution was either in percentage or whatever for the quarter. And since this is the last one, I think where it's incremental, I wonder if we can get that number?

Yes. We believe that you should consider the consolidated EBITDA margins as being roughly equal. However, we won't disclose the specific components involved as we are negotiating various product segments. So, Walter, if you view it in relation to the consolidated results, that should give you a good approximation.

Okay. All right, great. And then the CapEx startup cost, you called out, I think a $0.5 million of incremental costs in the first quarter. Is that something that continues on or was this lumpy where we got the extra costs this quarter but then they ramp back down in the second and third quarter?

We reported approximately $500,000 this quarter for the large casting foundry, which includes depreciation. We anticipate starting production by the end of the second quarter. Our expected startup costs for the remainder of the year are included in the guidance we have provided.

Okay. Yes, I heard that. I guess the question is, does $0.5 million keep ramping? Like, is it another $0.5 million or more in the second quarter and then continuing to ramp through the year?

Yes. We mentioned the dollar amount in the first quarter. We anticipate more for the remainder of the year, and that is included in the guidance we have just provided.

Okay. Okay. Got it. If I could just ask the last one on Ferguson and the tech margins, is there something structural that changes with the Ferguson relationship where you have better visibility to profitability in the tech segment now?

I wouldn’t say there’s better visibility or that the inconsistency of the jobs will improve. It seems more like a return to our previous approach. We pursue large multi-year contracts, comparing the average contract price to the average in the replenishment market, and there's a notable difference. I won't disclose specifics, but it's simply a more favorable business model. It offers advantages in terms of flow and yield. While there is some complexity now, I would welcome more distribution business.

Okay, great. Sounds good. Thank you.

Thank you.

And the last question in the queue is from Jose Garza of Gabelli. Your line is now open.

Hey, good morning guys.

Good morning, Jose.

Hey Scott, I noticed you guys bought in that Pratt JV. Just I guess talk about if kind of any structural difference that you guys are undertaking now that you guys kind of bought that in small amount?

Yes. So let me just start off. So this was a joint venture that we entered into in 2014. Just to be clear, as you think about it from a financial statement perspective, since we entered into that joint venture, we have always consolidated the results within our operations. So, as you look at it, you won't see anything different from that perspective. It was just the small amount of the equity interest that was factored out. But we did acquire the balance, the non-controlling interest that we had about 51%. It was just a little over $5 million. It's a small business. It's part of our Pratt brand and gives us capabilities largely in the industrial sale segment of the business. And we think it's a good opportunity. It's a business that we've certainly watched for the last five years. And we'll continue to look to grow that business and integrated as we need to.

So I guess nothing strategic difference?

Well, I would say the strategic rationale to take it over was to be in control of both the brand and the product offering. We liked the industrial space. There are certain applications there that we think have long-term growth capabilities. And that we think we can also bring some technology too that will give us an ability to be successful against the traditional competitors. But, are you asking me, are we going to go into flow control in the industrial and bump against Emerson's, et cetera? No, not interested in doing it. We have our niche. We believe it's got some attractiveness to it. That's why we bought it out.

Okay, fair enough. And then you talked quite a bit about the technologies' new product introductions. I guess if you could talk about on the infrastructure side your new product pipeline kind of going into this and this year and then compared to where you've been?

Yes. I think that we've been working tremendously. I'm not going to say or announce something here that we plan to announce at ACE or something, but I think you've seen at the last couple of ACEs, some new restraints. You've seen some integration of hydrants and the Krausz products, you're seeing some integration of valves and the gross products. You've seen some early indications of a new insertion valve. There have been many, many things that the infrastructure team has been working on that over the past three or four products entry windows we have launched. And the pipeline is full for the year. That is to say that when we review our product development pipeline and we look at our engineering resource availability, we currently set for the year at a deficit. That is, we have more projects than we have resources that we go through the prioritization process and come up with what we'll be launching next. And you obviously have come to ACE, you come to our WesTech, hopefully you'll see some things you have not seen before.

Then we would be there. Thanks very much guys.

Thank you, Jose.

Thanks.

Operator, thank you. I believe that's the end of the queue and you can wrap up now.

This concludes today's call. Thank you for your participation. You may disconnect at this time.