Badger Meter, Inc. Aktie

Ladies and gentlemen, welcome to the Third Quarter 2026 Badger Meter Earnings Conference Call. [Operator Instructions]

It is now my pleasure to turn the conference over to Dan Weltzien, Chief Financial Officer and Treasurer. Please go ahead, Mr. Weltzien.

Good morning. Thank you for joining the Badger Meter Third Quarter 2026 Earnings Conference Call. I'm here today with Ken Bockhorst, our Chairman, President and Chief Executive Officer; and Bob Wrocklage, our Executive Vice President of North America Municipal Utility.

This morning, we posted the earnings release and related slide presentation on our website. As a reminder, any forward-looking statements made on this call are subject to various risks and uncertainties, the most important of which are outlined in our news release and SEC filings.

On today's call, we may refer to certain non-GAAP financial metrics, including base results, which exclude the impact of UDlive acquired May 1, 2026. Our release and earnings presentation provide a reconciliation between the most directly comparable GAAP measure and any non-GAAP financial measures discussed.

With that, I'll turn the call over to Ken.

Thanks, Dan, and good morning. We were pleased with the sales and operating profit performance in the quarter. Excluding the solid revenue contribution of the UDlive acquisition, third quarter base sales increased 5% sequentially from the second quarter. This was largely in line with our expectations and the result of the ongoing ramp of previously disclosed awarded projects and solid underlying market demand in the quarter.

As noted in the release, we continue to anticipate both sequential and year-over-year improvement in revenue in the fourth quarter and expect to sustain this growth momentum into 2027, which I'll discuss further in the outlook. The team executed well on the profitability front as we continued operating cost management actions to mitigate the uneven 2026 sales cadence while also addressing ongoing material cost pressures related to broad electronic supply chain dynamics as we described last quarter.

I'll turn the call over to Dan to walk through the specifics of the quarter, and then Bob will provide an update on commercial activity, including our formal launch of OneNetwork. I'll then come back to cover the outlook and take your questions.

Go ahead, Dan.

Thanks, Ken. Turning to Slide 3. Total sales in Q3 were $235.9 million, in line with the third quarter of 2025. Excluding the benefit of UDlive sales of $5.6 million, base sales were down 2% year-over-year. Sequentially, base sales were 5% higher than the second quarter levels with a number of the previously disclosed awarded projects ramping, including another quarter of PRASA shipments. Utility water sales were flat year-over-year and excluding the acquisition, were down 3%, reflecting the same project pacing dynamics mentioned earlier.

Lower AMI-related product sales were partially offset by higher software revenue. It is important to note that base utility sales improved 5% sequentially. Sales of the flow instrumentation product line were up 2% year-over-year against the prior year's most difficult comparison as we experienced broad-based water application demand. We continue to see increasing demand in data center applications for our flow instrumentation products, albeit from a relatively small revenue base. We were pleased with operating profitability this quarter, largely the result of higher sales, ongoing structural mix benefit to gross margins and effective price/cost management.

On a year-over-year basis, operating earnings increased 4% with margins up 60 basis points to 20.2% Base operating profit margins, excluding UDlive were 20.9%, up 130 basis points from last year's third quarter.

Gross margin was 41.9%, up 120 basis points from the third quarter of 2025, reflecting structural mix improvements primarily from higher ultrasonic meter sales and continued growth of our Software-as-a-Service revenue, partially offset by the dilutive impact of UDlive's inventory fair value step-up amortization in the quarter. Base gross margin was 42.1% at the top end of our normalized range, indicative of the resiliency of our overall structural mix and pricing discipline.

Last quarter, I called out the increasing level of electronic component costs and availability pressures to gross margins, which are a byproduct of the AI and data center build-out demand. As demonstrated by our margin performance, we have thus far been able to adequately mitigate these impacts. However, the challenges posed by these pressures have not abated.

Turning to selling, engineering and administrative expenses. The third quarter's $51.1 million was $1.3 million higher year-over-year, including $2.3 million from the addition of UDlive, inclusive of the intangible asset amortization. This was partially offset by lower incentive compensation and the benefit of appropriate cost controls. As a reminder, our preliminary expectation for UDlive intangible asset amortization is approximately $5 million annually. The effective income tax rate in the quarter was 25.1% compared to 26.1% last year.

Finally, diluted earnings per share were $1.24, an increase of 4% from $1.19 in the prior year period. Primary working capital as a percentage of sales was 23.6%, up slightly from 22.9% at the prior quarter end. We anticipate continuing to work down the above-average inventory levels resulting from revenue pacing dynamics and electronic safety stock levels as the year concludes.

Free cash flow was $40.3 million, down from $48.2 million in the prior year comparable quarter. As always, we remain focused on delivering free cash flow conversion in excess of 100% of net earnings. In the third quarter of 2026, we repurchased 423,000 shares for a total of approximately $55 million and have roughly $35 million remaining on our current share repurchase authorization.

With that, I'll turn the call over to Bob.

Thanks, Dan. A few weeks ago, we had the opportunity to connect with customers, engineering consulting firms and investors at WEFTEC in New Orleans. During the show, we formally launched OneNetwork, our real-time network monitoring and analysis platform for water and wastewater utilities.

For those that attended our Investor Day back in May of this year, you heard an early preview of OneNetwork. In short, OneNetwork brings AMI, network monitoring and water quality data together in one platform, enabling customers to identify issues sooner, coordinate responses faster and make more informed operational decisions.

Why is this important? Utilities today have an immense amount of data from online sensors to SCADA and GIS information. OneNetwork provides a unified real-time view of this disconnected data to make it usable. By moving from fragmented data to a single operational view, OneNetwork empowers utilities through alerts, advanced analytics and workflows to better manage issues such as pressure events, water quality changes and non-revenue water spikes. This saves utilities both time and money while increasing their capability to respond faster and act with purpose.

WEFTEC visitors were able to view OneNetwork demonstrations and customer and consultant interest was high. It serves as another example of our competitive differentiation through innovation, portfolio constructions and the benefits derived by customers from our sole focus on value-driven water technology.

One important way we gain critical feedback and inform our innovation is through our engaged customer community, which encompasses in-person and virtual discussions throughout the year. This week, we had the signature event, ENGAGE Live hosted in our hometown of Milwaukee, where current and prospective customers interacted with our leadership, product management and sales and customer support teams.

Among other outcomes, the event has served to share best practices for implementations, outcomes and funding sources as well as gain insight and share feedback on our future product and software plans. It is clear from talking to customers that utility needs for and interest in our tailorable solutions to meet their increasing challenges remains high, and we are well positioned to capitalize on these opportunities to improve customer outcomes.

With that, I'll turn the call back to Ken.

Thanks, Bob. Looking ahead to the fourth quarter, I'll reiterate here what we said in the release, which is consistent with our discussions over the past few quarters. We continue to anticipate further ramping of awarded utility projects, noting, as always, the inherent unevenness typical of the business. We expect both year-over-year and sequential quarterly base sales growth in the fourth quarter of 2026, despite fewer total operating days given the holidays, which is a standard annual dynamic.

While I won't delve into 2027 specifics at this point, I will note that our conviction in sustaining this growth momentum into 2027 as well as the long-term growth profile for Badger Meter remains intact as we continue to manage usual quarter-to-quarter dynamics. We remain committed to the strategic formula that has driven our prolonged success, focusing on our customers, offering innovative and differentiated technologies and driving operational excellence.

You heard Bob speak to advancements in software outcomes and customer engagement, which reinforce our multiyear opportunities in both metering and beyond the meter growth. Our long-standing capital allocation approach of investing in growth while also returning cash to shareholders also supports this long-term growth strategy.

For example, in August, we increased our annual dividend rate by 10%, marking the 34th consecutive year of increases, and we repurchased $55 million of our outstanding shares, bringing the trailing 4 quarters to over $130 million.

In summary, I remain optimistic about our team's ability to deliver value creation opportunities for our customers and shareholders alike.

With that, operator, please open the line for questions.

[Operator Instructions]

Your first question comes from the line of Nathan Jones with Stifel.

I guess, Ken, I'm going to start off with the 4Q guidance. You guys have talked about full year revenue being flattish. The 4Q guide being sequentially and year-over-year better would be a pretty wide range to get into something that would be flattish. So I'm hoping you can put a finer point on what you think 4Q revenue is likely to be? And what's the upper and lower bound view on flattish?

Yes. Yes. Thanks, Nathan. Yes. When we put that term out there earlier in the year, you'll recall that at Investor Day, when we were asked on flattish, I called out, don't expect upside, right? So on a year-over-year basis, I was pretty vocal on the best case would be flat year-over-year. The way things have played out, we're really proud of where we're headed going into Q4, looking at year-over-year growth. We said we'd exit the year with momentum. We're doing that. When we talk about modest growth in the quarter, that keeps in mind the 5% fewer workdays in the quarter, but we expect to be up. So if you needed to peg me on something at this point, I would say that I would expect modest growth in the quarter sequentially and perhaps low single digits on a year-over-year full year basis.

Okay. That's helpful. I guess my follow-up question is on gross margins, which were much better than I expected them to be in the quarter given some of the pressures that you were facing from lower gross margins on some of the projects that are ramping up. Obviously, there's inflation that's passing through. So maybe you can just talk a little bit about the dynamics there, what led to those gross margins being as strong as they were and how you're thinking about those in the fourth quarter and as we head into next year?

Yes, sure. So first thing, I want to clarify, I'm sure you understood what I meant, but I didn't say the word down. So we expect to be down year-over-year, low single digits, just to be clear. In terms of...

Low single digits year-over-year...

Full year, down low single digits.

Low single digit. Full year, down low single digits, 4Q up low single digits? Or was that not what you said?

I'm not providing a digits on the up for Q4. Modestly up.

Down low single digits full year. Got it.

Correct. Got it. Perfect. Now when it comes to margin -- yes, sure thing. When it comes to margins, I'll just reiterate what we've said for several years now. We have this really positive structural mix that regardless of operating conditions, it does tend to get incrementally better every year when we have really nice growth in software that's higher margin. Beyond the meter is all higher margin.

So the structural mix remains greatly intact, which helps us with a really strong floor on margins. And then also our hallmark, I think, for the last 5 or 6 years is when challenged, we've performed in a really operationally excellent way. So we understood what the challenges are, and I'm really proud of our team, how we handled it. I'll turn it to Dan here for some more specifics. But just generally, I feel really good of how we've navigated the quarter.

Yes. And so Nathan, if I look at the quarter specifically and go back to the remarks that I had in the script, the biggest 2 drivers within the quarter were what I called out, which was ultrasonic meter mix generally across the residential space and then continued software growth. So as we move throughout the year, and as you know, the resiliency of our software growth is in the installed base. And so despite the unevenness that we've experienced throughout the year, that software growth has continued.

All the other things I've called out in prior quarters are the same drivers that we're paying attention to, both on the positive side from a structural mix perspective, but also on the downside risk perspective from turnkey mix and electronic component availability and supply and cost. So it's really all of the same drivers. It's just how does that particular quarter play out.

No onetimers like tariff refunds or anything in the quarter?

Nothing meaningful.

Your next question comes from the line of Quinn Fredrickson with Baird.

Recognize you have these larger AMI projects kicking off, but the release mentioned solid underlying demand trends in the third quarter. I know you don't break it out, but even qualitatively, does the underlying day-to-day replacement business feel like it's getting a little healthier or more normal? Just any commentary there?

Yes. Just if we circle back to how we talked about this in Q1, we were pointing out that on that shorter visibility window, there is inherent unevenness, can be up, can be down. And certainly, we were surprised to how far down in Q1. But Qs 2 and 3 have been perfectly normal. So obviously, to get to the result that we did, Q2 was better than Q1. Q3 was better than Q1. So structurally, demand feels good to us. And while Q1 was down, the year has really been pretty normal other than that one outlier.

Great. Second, just on PRASA. There's been some headlines about drought and water supply pressures in Puerto Rico. Is the urgency around the AMI rollout changed at all with that? Or does that create any more urgency to create a faster deployment schedule? Just any commentary on how that impacts the project there?

Yes. So it wouldn't be appropriate for me to comment on their ability or desire to go faster or not. The challenges you read about are certainly real, and that's why they're looking to adopt our AMI system. What I can tell you is we've begun shipping product this year. We had mentioned that we began in Q2 and Q3 because they're ramping up to get started with installations. They've hired the installation contractors. They're in planning, and they're expecting to start installations in Q4.

Yes, I think ideally, if they could go faster, they'd love to. But the way these projects are, I should probably point out that just because the projects are ramping, they will also be inherently uneven. Some go faster, some go slower from quarter-to-quarter as you run into manpower challenges or weather issues. So the project starting, inclusive of PRASA and the others feels great for the long term, but I do always want to remind people quarter-to-quarter, there can be variation even though these projects are in flight.

The next question comes from the line of Jeff Reive with RBC Capital Markets.

So given the 9 projects ramping, UDlive annualizing midyear next year and kind of easier comps across all 4 quarters, is it fair to expect a return to high single-digit organic next year? Or could that ramp dynamic actually push you above that range?

Yes. I think the math equation of that sounds correct, right? As we head into Q4, that's an easier year-over-year comp and the first couple of quarters are certainly easier than the back half will be. I'm not going to peg a year because of all the inherent unevenness I just talked about when short cycles can be and how projects can ramp or not, but we feel really good about the year in general in terms of our ability to get back on our strategic growth horizon of high single digits. But to peg the year is probably not great at the moment, but we feel good about it.

Fair enough. And then last quarter, you flagged the increasing electronic component costs and availability pressures tied to AI and data center demand. Have those pressures escalated further? And have you needed to take any incremental pricing or sourcing actions?

Yes. So they have escalated. So we do continue to see some price escalation. We do continue to see availability challenges. Again, I want to point out, our team has been excellent this time and the last time we faced a similar situation. We understand the challenge in front of us. Our team is working hard on it. Fortunately, for us, our portfolio is highly valued by our customers. They understand what we do for them, and we're able to extract the value that we deserve. So the word -- I'd rather talk about that than pricing. But yes, we can balance price/cost dynamics pretty effectively.

The next question comes from the line of James Ko with Jefferies.

Just one quick clarification question. When you say low single-digit decline for the full year, is that organic or inclusive of UDlive here?

That is organic.

Awesome. Yes. And I guess, can we talk about like the non-metering businesses like UDlive and SmartCover, how they are doing, whether those are growing above the company average and whether those are kind of trending in line with your deal case?

Yes. So as you know, those are also in our utility bucket that we talked about more broadly. UDlive is still very public. We're really excited about the opportunities as we were when we acquired both of these companies. It's an absolute need that every utility customer deals with. It's an innovative product. We've got the right sales channel. So feel good about the progress on UDlive, feel equally as good about SmartCover, and that will continue to be part of this high-digit growth story that we talked about for years to come.

The next question comes from the line of Scott Graham with Seaport.

I have 2 questions for you. First is, I know you talked about underlying demand in a previous question. I'm just wondering, the other 2 of the big 3, so to speak, are talking about the category having been fairly sluggish all year. And it's hard to say if they're parsing out their software businesses. But certainly, the metering units seems to be an issue this year. Could you talk about that a little bit and kind of why that weakness has kind of pervaded all year and perhaps what you're thinking that the category looks like in units, meter units next year?

Yes. So that's a great question. So with 50,000 utilities of different sizes and shapes and geographies, it's hard for me to tell you across the board, a cookie-cutter answer that the market is down x percent. I don't know what the other big 2 have in terms of projects like we detailed for you. They may have different unevenness in their business that -- actually, I'm certain they have it. I just don't know what their particular mix is.

So it wouldn't be appropriate for me to comment on what their issue is. But what I see and when we talk to customers, and we -- as Bob pointed out, we saw customers at WEFTEC, we saw customers this week in Milwaukee. And I get all the noise that's out there about the market and all the things that people have talked about in the past around funding, but our customers are looking forward to the future to deal with the issues that they have to deal with. They have to upgrade their infrastructure. They have to be better informed about what decisions to make with their limited resources. And we're just really happy that they're choosing our portfolio. So I shouldn't comment on the other guys.

Okay. I wanted to just also ask about the gross margin in the backlog. And I know the backlog has been burned down a lot in the last couple of years with supply chain getting better. I'm just wondering, you have a little bit more visibility now on these projects, which are now starting to ship. I was just sort of hoping if you can just tell us that the gross margin backlog, how much of that is linked to CPI? And for the rest of it, how are you handling price increases?

Yes. So I would just reiterate that even though we've been operating at the higher end, just given all the mix things that can happen and some of the lack of visibility on short term, as you pointed out, we feel really good about our ability to operate within the 39% to 42% gross margin range that we talked about. We feel great as we resume growth, being able to get back to that really good leverage of SEA that we've talked about before. So all in, it feels manageable to us to stay within the margin ranges that we've consistently communicated.

Your next question comes from the line of William Grippin with Barclays.

All right. Apologies to come back to the margin question again. But your commentary last quarter when you called out some of the supply chain cost pressures, it felt to me like maybe you were trying to signal something, right? And here with third quarter results, clearly, margin was quite good at the high end of your long-term target range. Are you trying to signal something in terms of how we should expect margin to trend in the fourth quarter or even into next year as some of these larger projects start to ramp and perhaps I don't know if there's any notable differences in your contract structures we should be aware of there.

Yes. So when I signal those things, I'm trying to signal the whole of all of the components that go into our gross margin picture. And again, I always remind people, structural mix is the biggest driver. And so when we call out in the quarter, what's happening with ultrasonic meter mix and what's happening with software mix, maybe that's masking some of what's happening on the electronics side, but we're also managing that dynamic as well.

And so me calling that out as a particular risk isn't trying to, in the next quarter, tell you what's going to happen. It's just trying to show you that there's multiple levers that contribute to what our margin performance is in any given quarter or month -- quarter or year. And at the time where we are right now, we started to talk about that pressure here in the second quarter and as of the end of the third quarter, I would say the challenges still exist. We've been able to manage it. We feel over the long term, we'll be able to continue to manage it. But quarter-to-quarter, there can be leading and lagging impacts of that.

Appreciate that color. And then maybe a bit of a long shot here. Are you able to share how much PRASA contributed in the third quarter to the top line?

No, we're not going to get into that. I think the other thing, William, that's important to notice, too, is throughout the year, we have won other projects, too, like the year has gone on and been normal. So I know there's a lot of focus on PRASA and rightfully so because it's very large. But the year has played out really well and really, I guess, normalized for us. So we're not going to get into quarter-by-quarter any project on what it is, but we're happy that we've seen these projects beginning to start. And what that does is quarter-to-quarter can be uneven. But how we look at the business over the 5-year horizon, we feel fantastic that these are all now moving to in-flight status.

The next question comes from Michael Fairbanks with JPMorgan.

On one of those last points you made, Ken, beyond the cohort of projects that you've talked about extensively, how would you say the pipeline and awards or even backlog beyond that are trending compared to this time last year?

Yes. So throughout the past several years, when we look at the universe of utilities that are currently working with consultants to scope out doing metering projects, which are revenue later in our 5-year horizon or the people that are currently in RFP that are going through the selection processes up to and including in-flight projects, that whole piece feels as robust as it has over the past several years.

Okay. Great. And then we saw share buybacks accelerate this quarter. How are we thinking about capital allocation from here?

Yes. So our capital allocation priorities remain the same. So we're going to continue to invest in the business and extend our lead in R&D and innovation. We're going to continue to return cash to shareholders and 34 years of increased dividends. We're certainly in a position to continue on that trend.

And in terms of share buybacks, we still have $35 million on the authorization. Even before this period when we weren't buying shares, we've always had an authorization open. So -- so I would imagine as long as we feel great about our superior position of being a cash generator, we'll be able to do that. And this year, we also did a really exciting acquisition. So regardless of this being a pretty challenging year for us, we've been able to navigate through this, execute on all 3 of our important capital allocation priorities, and we'll continue to do that going forward.

We have now reached the end of the Q&A session. I will now turn the call back to Dan Weltzien for closing remarks.

Thank you, operator. Just a quick note for your planning purposes that our year-end 2026 earnings release is tentatively scheduled for January 28, 2027. Feel free to reach out to me if you have any follow-ups at [email protected]. Have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, welcome to the Second Quarter 2026 Badger Meter Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the conference call over to Dan Weltzien, Chief Financial Officer and Treasurer. Please go ahead, Mr. Weltzien.

Good morning. Thank you for joining the Badger Meter Second Quarter 2026 Earnings Conference Call. I'm here today with Ken Bockhorst, our Chairman, President and Chief Executive Officer; and Bob Wrocklage, our Executive Vice President of North America Municipal Utility. This morning, we posted the earnings release and related slide presentation on our website.

As a quick reminder, any forward-looking statements made on this call are subject to various risks and uncertainties, the most important of which are outlined in our news release and SEC filings. On today's call, we may refer to certain non-GAAP financial metrics, including base results, which exclude the impact of UDlive acquired May 1, 2026. Our release and earnings presentation provide a reconciliation between the most directly comparable GAAP measure and any non-GAAP financial measures discussed.

With that, I'll turn the call over to Ken.

Thanks, Dan, and good morning. As expected, we delivered sequentially improved sales in the second quarter as a number of our previously awarded AMI projects began initial ramping of shipments. We also saw a modest increase in our short-term order rates and within flow instrumentation. Importantly, we are reaffirming our outlook for improving sequential top line results for the balance of the year with full year 2026 organic revenue still expected to be roughly flattish with 2025 levels. The team executed well on the margin front as we continue to manage operating cost controls as we described in detail last quarter.

I'll turn the call over to Dan to walk through the specifics of the quarter, and then Bob will provide an update on commercial activity and collective customer feedback from our recent annual AWWA ACE trade show. I'll then come back to cover the outlook and take your questions.

Go ahead, Dan.

Thank you, Ken. Turning to Slide 3. Total sales in Q2 were $222.3 million, representing a 7% decline year-over-year. Excluding the 2-month benefit of UDlive sales of approximately $2 million, base sales were down 7.5% year-over-year.

Importantly, base sales were 9% higher than first quarter levels as we anticipated, with a number of awarded projects in the pipeline beginning their initial ramp in shipments. Note that we will not be providing individual project level detail from the anonymized subset of awarded but not yet started projects list that we shared last quarter. But as we mentioned during Investor Day back in May, product shipments for the PRASA project have begun.

Utility water sales declined 8% year-over-year and excluding the acquisition, were down 9%, reflecting the project pacing dynamics we have been discussing for some time. Lower AMI-related product revenue was partially offset by higher software as well as collective beyond the meter growth. It is important to note that utility sales improved 8% sequentially on an organic basis. Sales for the flow instrumentation product line were up 6% year-over-year as we experienced broad-based water application demand.

Turning to profitability. Overall, we delivered improved operating leverage versus the first quarter, the result of sequentially higher sales and the favorable impact of cost actions put into place earlier in the year. On a year-over-year basis, operating earnings declined 12% with margins down 110 basis points to 17.7%. Base operating profit margins, excluding UDlive were 18.4%, down 40 basis points from last year's second quarter.

Gross margin was 40.8%, down 30 basis points from the second quarter of 2025, primarily reflecting lower sales volumes and project mix. Gross margins remained solidly in the upper half of our normalized range, indicative of the resiliency of our overall structural mix and pricing discipline. One item I want to call out is the increasing level of electronic component cost and availability pressures, which are a byproduct of the AI and data center build-out demand. While we have been able to adequately mitigate these impacts to date, the challenges posed by these pressures are not easing.

Turning to selling, engineering and administrative expenses. The second quarter's $51.4 million was $1.6 million lower year-over-year due to the benefit of spending controls, lower incentive compensation and specific cost containment actions. These more than offset $1.8 million from the addition of UDlive for 2 months, including related intangible asset amortization, along with the final $1.2 million of transaction-related costs, which combined added approximately $3 million to year-over-year spending.

For your ongoing modeling, our preliminary expectation for UDlive intangible asset amortization is approximately $5 million annually. The effective income tax rate was 25.2% compared to 24.5% last year. Finally, diluted earnings per share were $1.02, down 13% from $1.17 in the prior year period. Primary working capital as a percentage of sales was 22.9%, up from 20.0% at the prior quarter end. The receivable increase simply relates to revenue timing, and we anticipate working down the above-average inventory levels resulting from the revenue pacing dynamics throughout the fiscal year.

Free cash flow was $21.9 million, down from $40.6 million in the prior year comparable quarter, given lower earnings, the temporary increases in working capital. As always, we remain focused on delivering full year cash flow conversion in excess of 100% of net earnings. In the second quarter of 2026, we repurchased 204,000 shares for a total of $25.3 million and have approximately $90 million remaining on our current share repurchase authorization. Over the past 3 quarters, we have deployed roughly $80 million in share repurchases.

Finally, as noted in the release, we did finalize a 5-year renewal of our $150 million credit facility in the quarter. This facility remains undrawn and provides us with ample financial flexibility under attractive terms, including its expansion feature.

With that, I'll turn the call over to Bob.

Thanks, Dan. Last month, we had the opportunity to connect with multiple customers, engineering consulting firms and investors at ACE 2026 in Washington, D.C. For those not able to visit in person, we showcased our AMI and beyond the meter applications in a way that conveys our ability to deliver critical outcomes our customers are seeking across the full water cycle from source water to wastewater treatment.

From the many customer conversations, it is clear that the market remains constructive about our solutions as utilities continue to prioritize modernization, efficiency and visibility across their water and wastewater networks. These long-term secular drivers remain intact. In fact, our meetings with consultants during the show who are looking to gain further insight into our water cycle spanning solutions were booked solid. Given the role these consultants play in the early part of the opportunity funnel, it bodes well for the long-term durability of the multi-decade transformation of the water sector and for our competitive position.

Consultant and customer discussions were heavily focused on both the hardware and software components of our Network as a Service or NaaS solutions. Of particular focus were advancements to network resiliency and flexibility in communication devices such as dynamic multi-carrier [ E-SIM ] technology and our enhanced ORION Lens endpoint solution for metal pit leds.

From a software standpoint, EyeOnWater Premium, our BEACON Field app and, of course, our embedded AI functionality, Cobalt garnered strong interest. Collective feedback reinforced our NaaS leadership position and an AMI hardware and software set that provides value to all utility stakeholders and their customers. Finally, we continue to educate utilities on stormwater and sewer line applications with the broad solution portfolios from both SmartCover and now UDlive.

As Dan noted, we are starting to see early ramp activity at PRASA and several other awarded projects beginning deployment, which will continue to advance as the year progresses. I will remind you that these include both turnkey and supply-only projects and that implementations will continue to be uneven, the result of numerous external factors inherent in the industry.

With that, I'll turn the call back to Ken.

Thanks, Bob. Looking ahead, as we noted in the release, we continue to anticipate sequential improvement in base quarterly revenue dollars as each quarter progresses, resulting in full year 2026 revenue, excluding UDlive, flattish with 2025.

As we noted last quarter and as Bob just reiterated, you should read that not as flat but flattish with variability and unevenness in project ramping and short-term order patterns. Given the fourth quarter represents the easiest year-over-year comparison, you should expect the year-over-year base sales growth rate to be heavily weighted to Q4. As noted last quarter, we implemented certain cost reduction actions and have been maintaining spending discipline to protect margin integrity as we navigate revenue pacing throughout the year.

And as Dan mentioned, we are actively managing the electronics availability and cost dynamics. While we continue to navigate quarter-to-quarter factors, our confidence in the long-term outlook for the business has not wavered. To reinforce what you heard from our team at our recent Investor Day, we have multiple enduring revenue and profitability drivers underpinned by the ongoing digital transformation of the water sector, which we believe will positively drive shareholder value.

These include the long-term durable growth foundation of replacement demand, which is bolstered by AMI adoption and hardware-enabled recurring software. The extension of our offerings across the full water cycle with our beyond the meter technologies, leveraging core innovation excellence as well as acquisitions to continue to strengthen our competitive position; and finally, building on our disciplined execution, which we believe will extend the profitable growth runway into the future.

Finally, I'd like to call out our recently published 2025 sustainability report, which highlights our progress across the key pillars of our solutions, operations and people. It remains clear that by managing sustainability as a business process, it enables us to both provide industry-leading water solutions to grow our business while also reducing our environmental footprint.

With that, operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Jeff Reive with RBC Capital Markets.

So now that we are about at the halfway point of the year and certain projects have commenced initial deployment, how has your visibility into the second half ramp changed versus 90 days ago? And are any at risk of slipping into 2027?

Jeff, so yes, so as we talked about last quarter, we fully expected as the year progressed, it would become a little more clear to us how things would play out given how important the 9 projects are to the rest of the year and frankly, the positivity they have for the next several years.

So as you know, we talked about PRASA has begun and a few of the other projects have begun. We'll always note that there can be possible unevenness, but the total cohort of 9 projects feels like it's pretty solid at this point.

Okay. Got it. And to hit that flattish organic revenue target for the year, do all of the projects need to start shipping in the back half? Or is there ample cushion in that guide?

Yes. So just keep in mind, it's not like they're all starting at the beginning of Q3. So there's multiple phase-ins and pieces. So it is a whole collection of we're expecting some certain positivity around these projects. We also have a robust funnel around just near-term projects that are in negotiation and other things that are not part of that. And yes, in Q2, we had a higher daily turn rate of orders than we had in Q1. So those numbers of factors give us the confidence to remain on this flattish for the remainder of the year stance.

Got it. And if I could just sneak in one more on UDlive, it seems like the revenues were a bit lower than I would have expected on kind of the trailing revenue. Is that just a timing issue maybe related to the May close? Or is there anything else driving that?

Yes, definitely just a timing issue. So as with any acquisition, particularly sometimes with small companies, you get just certain distractions and things. But yes, certainly understand that question, but not concerned at all.

Your next question comes from the line of Quinn Fredrickson with Baird.

On the short-cycle portion of the business, could you put a finer point there on what you saw in the quarter, maybe in context of the $15 million to $20 million shortfall in the first quarter, how second quarter compared to what you would expect seasonally, if there's any additional room for short-cycle recovery in the back half?

Yes. So as we did expect, Q1 was the outlier in terms of short order cycle rates, as you called it. So we would just say it was more normal-ish in Q2 and typical of the operating environment. So we certainly don't intend to get into sizing every quarter. I think in Q1, it was outsized enough that we did that just to provide some more clarity for investors to understand what happened. But we're really not going to get into that from quarter-to-quarter because that portion of the business is always somewhat uneven by nature.

Okay. And then, Dan, just given your comments on electronic component costs, any additional color on how to think about price/cost or gross margin in the back half, perhaps any details you can share on your memory exposure as well would be helpful.

Yes. Can I just go first.

Yes, sure.

Yes. So Quinn, I think it's an important context here. So we've been here before, right? So if you go back to 2021 with supply chain shocks and electronics availability and inflation. So we know that the entire world is going through this, not just if this isn't a Badger Meter challenge at the moment. But we are positioned to continue to manage this accordingly to work our way through it, but we wanted to call out the potential supply issues there. And from a margin point of view, just like all the other puts and takes structurally, we certainly feel fine within our range, but just wanted to call this out.

So Dan, any other color, if you'd like?

Yes. I think you hit on the 2 relevant points here. And there really are 2 things that we're managing through right now. It is a cost component dynamic that we're dealing with, but then also availability. And so as Ken mentioned, we're managing through both.

Your next question comes from the line of James Ko with Jefferies.

I wanted to touch on the awarded project kind of ramp-up timeline. I mean, looking at the historical revenue profile of the cohorts that you guys shared, it seems like deployment tends to peak like 1 or 2 years after deployment. Should we expect kind of similar dynamic for the like 9 kind of awarded projects that you guys shared?

Yes. So there's -- that's a lot to unpack because just like every acquisition is different, every AMI project is different. But absolutely, you pace from this arrangement of there's nothing in the base and then initial implementation begins. So product shipments in a supply-only case begin or even in a turnkey solution, and then that is married up with the installation activity. So there is a ramp concept. I don't know that you could pinpoint the average project to a particular year or time duration because some projects will be 3 years in nature, some will be 5.

But I think the curve that you're describing in terms of a ramp, a scale of deployment for a period of time and then as projects begin to wind down that, that other side of the curve begins to decline. But trying to pinpoint precisely an average project is a very difficult thing to do in this industry.

Great. And I think you guys talked about like other like opportunities outside of this like 9 awarded projects. Can you kind of provide more color on opportunities outside of those awarded projects that you guys shared?

Yes. I mean I think your point is perfect because I think sometimes when you publish a list of a cohort, particularly of the scope and scale that we did, that almost implies that those are the key projects and only projects, and that is absolutely not the case. That was a representative sample of projects that spanned everything from utility projects to investor-owned projects from competitive conversions to incumbency experiences and then a dynamic of both supply and turnkey type projects.

So it's important to note that was chosen very purposefully to illustrate those factors, but those are not the only projects. whether we're selling direct or whether we're going through distribution, there are absolutely lots of opportunities. And sometimes those opportunities come through as turnkey or projects that we would have disclosed like that. And in other cases, that's coming through that short-cycle order rate that I think has now been coined as a term.

Really, that, in my mind, is implied to be those things that we have limited visibility to in terms of direct ordering behavior. But those are taking place all day, every day in the natural course. And as Ken indicated, that rate of activity improved versus Q1 levels or increased versus Q1 levels. That's what's happening here in Q2, and that's what we're forecasting forward in our full year outlook of getting to flattish on an organic basis.

Your next question comes from Nathan Jones with Stifel.

I'll follow up on the project ramp-ups to begin with. We've been focused on how they ramp up in the back half of the year. But I guess the question is, are they at full run rate as we exit the end of the year? Or is there further for them to go to hit kind of a full run rate as we get into 2027 and you should continue to see that sequential improvement as we get into early next year just from those specific projects?

Yes. So the one thing that, as Bob pointed out, it's hard to compare one project to another and what a ramp rate looks like and how long it goes for. But I think we did provide a little bit more detail at Investor Day that showed some of the actual projects of how they flow and some of the unevenness. But some of them will be at full run rate end of year. Some of them will not, but that also doesn't mean that they might slow down or speed up in any particular quarter. So the main thing to think about that makes us feel good about it is that it is a large cohort as well as the other pieces going forward, and it gives us more air cover to deal with some of that unevenness than we've dealt with in the past few quarters.

Okay. I guess second question then is going to be on price and costs. You talked about increasing electronics costs. I know copper has become a bit less important over the years, but it has increased significantly throughout transportation costs and all that kind of stuff. Can you talk about where you are in terms of price/cost? Are you able to pass this through to customers? And then within these projects, are the contractual pass-through of increased costs? Or do you have some exposure to increased costs there?

Yes. So Nathan, I guess I'll take that in 2 parts. First, just talking about price/cost dynamics. That's an ongoing discussion that we're having internally and with customers as we're looking at RFP opportunities and working with customers on pricing individual projects. And we feel good about our ability to continue to recapture cost increases that we see within the market through our pricing excellence programs and really how we look at each individual opportunity.

I'll also just remind you, again, the biggest driver of our overall gross margins is the structural mix benefits that we continue to see. So as we move from mechanical to static metering, more cellular AMI deployments and then the beyond the meter and software solutions that come along with that are really the main drivers toward that gross margin performance that we see over time. In terms of specifically within our contracts, we negotiate in most contracts, I'll say, the ability to pass along escalations throughout the 3-, 4-, 5-year deployments that we might have. So while not maybe 100% in all of our contracts, that's certainly a common term that we're negotiating with our customers.

Your next question comes from the line of Bobby Zolper with Raymond James.

I think I saw that you renewed your credit facility. It seemed like also, relative to the pace you were repurchasing shares at the Investor Day versus the end of the quarter that may have decelerated a little bit. Is there anything to read into that in terms of what you'll be doing with your excess capital? Does that imply that you're going to be doing more deals versus repurchasing shares?

Yes. Yes. So Bobby, it's just a continued balanced approach to our capital allocation priorities. So continuing to invest in the business and make sure that we're super focused on our R&D innovation growth runways. Returning cash to shareholders, obviously, dividends. And for 3 consecutive quarters, we've been buying shares. We still have $90 million left on the authorization. So that's obviously something we've been doing recently. And we still are every bit as excited about M&A as we were. So nothing has really changed from when we saw you in May.

And Bobby, I'll just add. The renewal of that credit facility was largely driven by the fact that, that was due to expire in July of this year. So we enjoy having that financial flexibility of having that facility in place.

All right. I appreciate it. And then in terms of swing factors to get to flattish for the year, I know there's this, like, letter floating around about the PRASA project from, I think it's the Resident Commissioner of Puerto Rico. Since that was published in early June, has that, I guess, changed your opinion of the likelihood of the PRASA project hitting your expectations for the year?

Yes. So Bobby, the normal disclaimer of we don't talk about legal issues and things publicly, but nothing has changed on our view on the PRASA project. And this has been -- it's been public that there have been several reviews over the years. It's gone to appeals courts and it's been to other things. And nothing has changed the fact that from our view, they ran a fair and open process, and we won it.

I think it's just important to -- while your question is very process-specific. Like the idea of challenging a procurement process or appealing the application of a procurement process is very common to our industry. This is all government bidding, government contracting. The things that you're mentioning here are commonplace in the United States as well. Obviously, sometimes those can be more or less supercharged depending upon the political environment. But the point is like this is a common thing that we deal with and anticipate in the normal course all day, every day.

Your next question comes from the line of Andrew Krill with Deutsche Bank.

Ken, I think in the prepared remarks, you noted 4Q organic sales would heavily weighted the growth would be heavily weighted to that quarter. So for 3Q, can you grow organically? Or is there a chance sales are still down year-over-year on that tough comp?

So not getting into specific quarterly guidance. I will tell you, though, we do expect sequential growth again in Q3 over Q2. Not going to size up what that growth is, but I think just wanted to be pointing out of the fact that the -- obviously, the comp in Q4 is easier than the comp in Q3. So I just wanted to point out that the growth rate will be more heavily skewed to 4 than 3.

Okay. Fair enough. And then flow instrumentation, I didn't get a ton of airtime, but the growth there, very impressive and pretty sudden. So just could you unpack what drove that? Is this sustainable? Or was it more a one-time large order? I think that can happen here. So can we extrapolate that looking forward? Or does this revert back to the kind of low single-digit area that product line tends to grow at?

Yes. So 2 things. So I just want to call out again the law of small numbers. So I'll point that out even when the growth rate is higher than when it's lower. It's -- we still view this product line as GDP-like in growth over the 5-year strategic horizon. We've kind of downplayed in the past some of our role in what we sell into data centers. We get asked that a lot.

And frankly, as a whole, it's not a big percentage of Badger Meter revenue. But within that flow instrumentation product line, we have 2 particular products that do well in data centers. It's our clamp-on meters that are really flexible to use and finding a lot of headway in data centers, MAG meters for cooling towers and monitoring flow. So we do have a couple of products that do really well there. And in this particular quarter, we had some orders that came through and drove it a little higher. Since I'm talking about data centers, we also have good opportunities there within water quality. But I would caution you to stick with the GDP like low single-digits growth on average.

Your next call comes from the line of Scott Graham with Seaport.

Nice, there was a pause there, maybe that she meant to put a drum roll. I don't know. So all things aside from the other questions, which were all good ones. The UDlive loss, are you saying that it includes -- so you're saying intangibles are $5 million for the year, so $1.25 million for a quarter, and I know less than that because it's a partial quarter. Are you saying the difference between the intangibles and the loss is made up by these transaction costs? In other words, is the $3 million that you referred to inclusive of the $1.25 million? Or is that separate?

Yes. So Scott, what we were trying to point out there in the SE&A dollars in the quarter is there's 2 pieces. There's the $1.8 million, which is just the ongoing run rate of SE&A that you should see coming from UDlive. And we did a reconciliation this quarter to break apart the consolidated business from the base business so that you can specifically see that. In that breakout reconciliation, that does not include the other piece, which is the transaction costs of $1.2 million that were the remaining transaction costs within the quarter.

So ongoing run rate is that $1.8 million, which includes the intangible asset amortization and the transaction costs are separate from that.

Very clear. The other question I had was, Bob, you referred to successes in talking at the recent trade show with meetings with consultants and you brought in digital. Could you give us more color on what you mean there? Some -- I know you guys have a lot of things going on in digital and the use of consultants, I was -- maybe just not clear what you were trying to say there.

Yes. So I mean that trade show in and of itself is, of course, designed to reach many an audience. And the comments in the script were very specific to the engineering consulting community. And so that's an opportunity for us to meet with those consultants, understand what opportunities they're working on, but also to then sometimes talk about things that have been launched already that they may not be aware of or in many cases, foreshadow what is forthcoming for hardware and software.

And so in those meetings, we're able to provide a whole view to both hardware and software solutions. In that case, that was a trade show very much focused on the clean water side. So it was all about advanced metering infrastructure. And through those discussions, the combination of the evolution of our hardware set, our network -- our NaaS capabilities and then the software enablement reaching all constituents of the utility, no longer just the billing read, but in large part, workflows associated with utility efficiency and customer care, enabling the field service crews to see the real-time power of BEACON data and as they're doing work in the field and then EyeOnWater with consumers, the collective feedback was your leadership in cellular, which started as a differentiated form of AMI has evolved now into NaaS capabilities that is fully encompassing all stakeholders at utilities and even importantly, the customer of those utilities who are the citizenry using water in every city and state.

And so the collective feedback was this is no longer just a discussion about cellular versus fixed network. It's a discussion about Badger Meter's cellular leadership, NaaS capabilities, and that's become the industry standard. And your leadership position is evident not only in your financial results, but in the products that you bring to market and our ability to provide customers with those outcomes and consulting firms recognize that.

Your next question comes from the line of Ryan Connors with Northcoast Research.

You've been very comprehensive, but I do have a couple of things left on my list here. One, I wanted to go back to the improvement in short-cycle orders that you talked about. And I'm wondering whether the exit by one of your competitors from the mechanical meter space has anything to do with that.

Obviously, you also see static growing faster, but you're still in the mechanical business, and I know that's a big part of the installed base. So was that at all a factor there?

I would not say it was a factor that fast. It will be a factor because we are the provider of the premier mechanical meter that much of the market still very much desire. So there was no sizable impact at all within that quarter that we would call out, but we feel happy about that decision by that competitor.

I think that's a reinforcement of our long-standing choice matters approach to our BlueEdge portfolio and that we continue to believe that there's a place for both mechanical meters and ultrasonic meters in the decision-making that utilities undertake, whether it's upon standard replacement cycle or whether they're making technology adoption decisions. That -- Ken is exactly right. That did not manifest itself in the short term, but it's certainly something we hope to capitalize on.

Got it. Okay. And then sticking with that theme of ultrasonic versus mechanical. One of the things we've heard from some of the some of the peers, not necessarily from Badger Meter, but that although there's positives to the ultrasonic side for the customer and for the manufacturers as well, the barriers to entry on ultrasonic and static tend to be a little lower than in some of the traditional mechanical applications. Would you agree with that? Have you heard that? And do you think that's been a factor at all in the competitive shifts? And just curious your thoughts or your reaction to that.

Well, what I would tell you about that is if you look at -- we'll just start with the question that you just asked. So a very large portion of the market still by choice, chooses mechanical. So if anyone comes in with ultrasonic, obviously, there's a large portion of the market, if that's their only offering that they can't participate in to begin with.

Secondly, when you do come in with a me-too product of ultrasonic and you're trying to compete with very large entrenched strong great competitors like us, Sensus and Neptune as the big 3 who all have that and have the relationships and really the incumbency position is so strong. It's still very hard to get over for new entrants. So I would agree with you that a technology-for-technology-base, yes, they have a me-too product, but I think there's a lot more to it than that to be successful in this market.

Your next question comes from the line of Michael Fairbanks with JPMorgan.

Just on the electronic component pressures, can you clarify what these subcomponents exactly are? And then maybe what products in the portfolio this could affect?

Yes. So Michael, it's really a broad-based thing. So as you can imagine, it's the electronics industry in total. So that could be certain capacitors that are used in different offerings. It could be right down to the bare boards that circuit boards are made from. So it's kind of across the way. Memory chips obviously are a big part of AI and hyperscaling. So it's kind of a general macroeconomic comment that us and everyone else out there is going to be dealing with. So...

And then tying to specific products, it's obviously without this isn't intended to create fear in any way. I'm just saying this as an obvious connection tie that all relates to any of the enabled products that have electronics. So it's ORION Cellular, it's ultrasonic products, it's beyond the meter technologies. But as Ken alluded to in the prepared remarks and in his first answer, we've dealt with this before. Everyone is dealing with the same situation. This is not a Badger unique challenge. This is an industry challenge.

Yes. And one of the things that, frankly, in our industry positions us better than everybody else is the fact that last time this bore out that being on the newest electronics, being on the newest platforms, our innovation edge was important last time and the flexibility of our cellular offering versus fixed networks and all of those things that were positive factors for us the last time still are true today.

Got it. And then maybe as a follow-up, you called out the working capital increase on the quarter. How should we think about working capital in the second half of this year as you gear up for more of these projects?

Yes. There's probably 2 things to focus on there. On the receivables side, certainly, there's some timing impacts within any given quarter in terms of when shipments are going out and those types of things. The other side is the inventory and a couple of things to point out there.

Number one, when we acquired UDlive, it came along with some inventory. So that contributes to the increase there. And obviously, there's no sales in the trailing 12 months. So that's going to work itself out over time. We mentioned some cost pressures as you look at things from a year-over-year perspective, things like copper is more expensive. And so just naturally, the dollars that are sitting there on the balance sheet are higher.

And then again, with some of the revenue pacing things throughout the first half of the year, there was just some supply that showed up a bit earlier than we needed it. So fully anticipate working through that in the back half. I think the other thing to just point out is as sales continue to grow sequentially here in the third and fourth quarter, the sales base in the calculation of primary working capital as a percentage of sales is going to help that percentage to normalize as well. So those are all factors, I think, to what we're seeing right now.

We have now reached the end of the Q&A session. I will now turn the call back over to Dan Weltzien for closing remarks.

Thank you, operator. Just a quick note for your planning that our third quarter 2026 earnings release is tentatively scheduled for October 21, 2026. As most of you know, Barb is no longer with Badger Meter. So please don't hesitate to reach out to me if you have any follow-ups at [email protected]. Have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, good morning. My name is Bill Blank. I'm the Director of Global Marketing and Communications for Badger Meter. And on behalf of our entire team, I'm pleased to welcome our audience here in New York City and our audience watching online around the world to Badger Meter Investor Day.

To get us started today, it's my pleasure to introduce Barb Noverini, our Senior Director of Investor Relations. Barb?

Thank you, Bill. And once again, welcome to Badger Meter's 2026 Investor Day. It's really great to see a lot of familiar faces out there in the audience. And of course, hello to everybody on the webcast today.

We have a really great agenda planned for you today. You'll be hearing from several members of our executive management team, who will take you through the evolution of our company, from a 120-year-old meter manufacturer to a hardware-enabled software platform that's powering the digital transformation of our industry.

We'll begin by talking about the durable, replacement-driven growth drivers of our Municipal Water Utility business. And we will talk about the ongoing adoption of Cellular AMI. And then we'll talk about the expansion of our platform into what we call Beyond The Meter, where we are addressing a broad array of challenges across the water cycle. And we'll discuss our software strategy, where we'll take data and analytics and emerging capabilities of AI and show you how they are powering customer outcomes.

You will hear from a panel of former utility directors who all went through Cellular AMI deployments and had such meaningful experiences, that they now work for us to empower change across the industry. And finally, we'll put it all together with our financial framework and show you how all of these elements come together to drive revenue growth, margin expansion and long-term shareholder value. And of course, we'll leave time for Q&A at the end.

So before we begin, let me call your attention, of course, to our safe harbor. And as you familiarize yourself with that for a moment -- thank you. And then please allow me to introduce you to BlueEdge.

[Presentation]

What if every drop of water you manage was also a data point? And what if you could use all that data to your advantage? You'd eliminate uncertainty. You'd have the edge.

Welcome to BlueEdge by Badger Meter. BlueEdge connects water management technology, software and support to deliver the insights you need to gain clarity and take action. BlueEdge is a suite of solutions tailored to your exact needs. Measurement and control for precise monitoring of your entire water system. Connectivity and communication, resilient, secure and flexible communication to relay data. Insights and action to move from reactive to proactive water management. Collaboration and support, providing water industry expertise, training and solution delivery every step of the way.

BlueEdge goes beyond the meter, transforming water into insights. With BlueEdge, you see what is happening with your water and can proactively manage your system and take action with confidence. So whether you manage water for a single building, large facility, small town or a major city, you can customize BlueEdge to your exact needs, and it's all from a single trusted source.

No matter where you are in the water management cycle, BlueEdge by Badger Meter gives you the advantage. That confidence is your edge. What will you do with it?

All right. Well, good morning. I'm Ken Bockhorst, Chairman, President and CEO of Badger Meter. Welcome to our Investor Day.

First off, at Badger, we have a proud history of 120 years of innovation as a pure-play water company with global reach. In 2025, for the first time in our company's history, we achieved more than $900 million in revenue, a 17% 5-year compound annual growth rate, while maintaining a premium financial profile of 24% EBITDA, a 120% free cash flow conversion and a 3-year average ROIC of 33%.

Some of you have asked, why now for your first Investor Day in 121 years? And I think if you look at the bottom of the slide, you'll see that 5 to 6 years ago, there was one logo. There was the Badger Meter on the left. Now there's 6 additional logos to the right, which are the acquisitions we've done over the past 5 years. And those acquisitions, in tandem with the internal investments we've made, have fueled this evolution to the BlueEdge video that you just saw. So we thought this was the right time to bring everyone together to try to reinforce certain messages.

So what we'd like you to take away from today is the following. A, the metering business that we've been a leader in for many, many years, 100 years or more, is very strong, continues to be driven by replacement demand, ongoing AMI conversion and our 100% attachment rate to our Software-as-a-Service BEACON platform.

Two, we now span the entire water cycle with our Beyond The Meter technologies, expanding value for both customers and shareholders alike. Third, now leveraging innovation with our strategic portfolio evolution, we've strengthened our competitive offerings within the market in the very attractive end markets that we serve in Smart Water. And fourth, our disciplined execution, which has already driven strong growth and margin expansion positions us to win in the early stages of the multi-decade transformation of the digital Smart Water network. And within that framework, we're positioned to win and continue to grow in high single digits over the next 5-year strategic plan horizon.

With me today as part of our leadership team, one of the things that I'm really proud of is the team that was already at Badger before I got there and what we've been able to continue to build since I've arrived. Experienced, proven leadership. If you look at this group of 10 leaders, we have roughly around 10 years of average tenure. And it's a nice mix. We've got 3 of our leaders who've been with us roughly 20 years, you'll hear from 2 of them today. Four of us that have been there 6 to 10 years, and in Badger Meter terms, that means kind of new employees. We have a long-standing history of long tenure. And then we have 3 leaders that are newer to the business within the last few years that continue to bring new ideas and experiences.

This is a battle-proven leadership team. We've been through COVID together, supply chain disruptions that followed, hyperinflationary periods after that, geopolitical issues. And -- who is that? Okay, sorry. And throughout that, we've always come out the other side stronger than we were when we entered into those difficult challenges. So feel great about the team that we have in place and our ability to continue to drive value long into the future.

At Badger, we are a values and metrics-based culture. We have really high expectations to get great results, but we also have really high expectations about how we get them. So our values are really rooted and deep throughout the business, around responsibility, collaboration, excellence, customer focus and trust, all the things that you would think are really important, especially important to us when we have customer -- oh, I said E-Series. If you say E-Series, Siri will answer you many times. Sorry about that. I was getting mad at somebody else.

So anyway, so our core values are deep in our business and they matter to us because we have customer relationships that span decades, supplier partnerships that span decades. We have to do things right all the time.

And then simply focused around safety, quality, delivery cost environment. We expect every day to be better than we were before. And I'm really proud of how our company does live its values and create great results at the same time.

Our competitive moat is strong. So our leadership position in this market has been one that we have always been confident that we could defend, and we've also proven that we can grow. Switching costs are real. Utilities spend a lot of money to have assets in the ground for a very long time. Utility leaders can be risk averse, slow moving, so they're very loyal. So it's hard to get people to switch. With our long leadership in the market, that benefits us in many cases. It also helps us open other doors because of the strong brand that we built.

Intangible assets, we have many proprietary technologies that provide great quality, great reliability and resilience no matter what happens throughout the utility.

Network and data effects. Over the last several years, we've built out a really, really strong software platform that you're going to get to see today in a much deeper and meaningful way than you ever have before. It really is a powerhouse model. It really has a secure ability to grow long into the future given all the concern around AI. You'll hear why we feel great about that.

And efficient scale, with 50,000 utilities in the United States, we've got a great model that I think is differentiated in how we go to market directly for 75% of our revenue. Great distribution partners to cover the rest. But we can reach all utilities, large, medium and small.

We continue even with those benefits already inherent in our business to differentiate our solutions. And our loyal customers trust us to buy new solutions from us.

The next slide here, I first would call your attention to the left. Our secular drivers individually are all compelling. Collectively, they are a force multiplier. And it's pretty simple if you just will go down these really quickly. Demand growth and scarcity, more people on the planet in the country living in areas where water is scarce. Challenge for utilities every single day.

Workforce churn and retirements, we've talked over and over about baby boomers retiring, that's happening. They are not often replaced even if workforce is available, but they're not replaced with people that come for 30 or 40 years anymore. Workforce churn has become an issue.

Aging infrastructure. Everybody knows the story. Infrastructure never gets younger. Utilities have to become more effective in how they plan for the future and more efficient for how they react to today's problems.

Elevated customer experience. Now customers want to know what's in their water. They want to know what's happening within their homes, much different than things used to be several years ago.

Regulation is our friend in this industry. Utilities have to deliver available, affordable, safe drinking water. And every utility is striving to be more efficient because, frankly, they just have to be.

The BlueEdge video that you just saw will explain it much more effectively than I just did, but what we've built are these 4 pillars that we're really proud of where we already have this history of great meters, but now through acquisitions and development, we've added sensors all throughout the system. So we have high quality, high reliability throughout the distribution network.

Then as you go to the right, connectivity and communication. We are the undisputed leader in cellular communications within the water industry. We've added satellite, we've added RTUs through acquisitions. We can get information from all those devices in very rugged, difficult environments no matter what's happening within the city or the utility.

Insights and action, we have collected billions and billions and billions, in fact, trillions, of data points throughout the system. What we have done that's unique, and you'll hear about this from Matt, is that now we don't just send gobs and gobs of information. We turn it into real actionable insights that customers can use when and where they need it.

And collaboration and support, you can imagine 120 years in the industry, we don't just sell products and go away. We help utilities plan. We help them implement. We help them make sure they get the value out of the investments that they make. And we're here for them throughout their entire relationship with us, which oftentimes spans decades.

The outcomes are simple and easy. We can enable utilities to increase revenue, increase capacity, be able to capture labor and other efficiencies just by being able to operate better. Reductions in water and greenhouse gas emissions, where conservation is more stressed and, of course, compliance is something every utility has to be concerned about every single day, and we play in here in a very meaningful way.

Next, the key takeaway here, kind of a busy slide. If you start on the left, that's depicting that, in the U.S., roughly 20% of all water that's created is lost, non-revenue water. That equates to roughly $6 billion a year of lost revenue for utilities. Our trusted, tried, proven metering solutions enable utilities to identify where that nonrevenue water is happening and be able to fix that and increase revenues, increase conservation efforts.

If you transition to the right, you'll see that roughly $150 billion is spent every year in OpEx costs. Our solutions around software and Beyond The Meter are designed to enable utilities to reduce their cost there, where 60% of those costs are around labor, energy and chemicals. And that's where we've designed our platform to help. So it's very simple, lower cost, improved efficiency. If you just think about it on the plain simple sense, we enable utilities to increase revenue, we enable them to reduce their costs. It's a pretty simple model.

So innovation and portfolio evolution, when I talked about the added logos, the new acquisitions we did on the front page, if you rewind the clock to just 2020, just back to when we were all talking about COVID, we had a great TAM, $5 billion, growing market, strong place in it, felt great about our future, even if we didn't expand. With the acquisitions that we've done, in concert with the internal investments, we've now opened up from just dealing in water consumption to the entire water cycle, from sourcing through production, through treatment, collection systems, and opened that TAM up from $5 billion to $15 billion.

Now the reason that's important again is that we have built a trust with water utilities for decades, decades, a century. And we are a brand that people will trust to bring them new solutions to solve real and immediate problems that they deal with every single day. So again, from $5 billion to $15 billion, that's a global number, but it comes with added sensors throughout the system, added communications and more software monitoring.

So our strategic evolution, if you rewind the clock back to 2009, '10, we were the first to introduce an ultrasonic meter into the U.S. market, to the North American market. We've also kept a very strong best-in-class mechanical meter, one of our differentiators, even against long-entrenched peers, is that we offer both types of technologies. And it's also a differentiator against new entrants who don't have the tried-and-true mechanical meters. So that's been growth laneway for us.

Second, under that, AMI, that journey began roughly 20-ish years ago. It was a fixed network -- it was a fixed network process. Through an acquisition and ongoing development in 2014, we launched our innovative ORION Cellular AMI radio. It takes much of evangelizing in this market, but we built this market over 5 years and really started gaining traction around 2019, '20 with our first large reference accounts that we built. And over time, we have been cementing Cellular AMI as the gold standard for AMI for the water industry. And we have tremendous runway on that; bob will go deeper into that later.

Over time, we've expanded our cellular endpoint and installed base, which has grown that software business now that, again, is 100% attachment rate, essentially uncancelable, unreducible. And that then builds many more great solutions around software that we've taken advantage of.

And then strategic M&A. We started on our M&A journey around 2021. Extremely proud of what we added, and we'll touch on that.

So what's that meant for us so far? Results that I'm really proud of. So over the last 5 years, as I mentioned earlier, a 17% compound annual growth rate on revenue, a 28% compound annual growth rate on software, a 470 basis point improvement in margins, which, of course, makes me proud that I think only great companies can grow and increase margins at the same time. Some companies make an individual choice, and focus on reduced primary working capital intensity. We were a great cash flow company even at 26%. Now that we've gotten it down to 21%, we continue to be able to fund any capital allocation priorities that we want to.

And importantly, this is just beginning. This is a multi-decade transformation and we're still at the early stages.

So the value creation process is simple. So we've got durable macro trends that provide a constructive industry backdrop, our leadership position, long-standing in the metering and AMI space, coupled now with our Beyond The Meter solutions, provides us a very long runway for growth. Our great balance sheet allows us to continue to invest both internally and through M&A to make any growth-focused investments that we need. Our differentiated execution through all the things we've been challenged with, time and again we've proven to be the best operator in our space. And we have an exceptional team, which I'm excited you'll get to see more of today.

So with that, I'm not going to rehash the key messages. I'm going to turn it over now to Bob. First, we're going to show a customer video to walk me off the stage here. But I will be back later and we'll go through some Q&A at the end. But thanks again for coming. Looking forward to spending the rest of the morning with you.

[Presentation]

I'm [ George Hays ], I'm the Director of Chesterfield County Utilities. Chesterfield County is located in Central Virginia. We're just south of the City of Richmond. We're the fourth largest county by population in the Commonwealth. We have about 340,000 customers. We have about 117,000 accounts with about 130,000 water meters throughout Chesterfield County.

Our focus is on exceptional customer service and really providing value for our customers with the rates that we do have. In 2020, we put an RFP out for a vendor to supply us an entire solution for our AMI wants. Our consultant, along with our AMI team, interviewed and selected Badger as the most qualified and providing the best technology for our needs. .

One of the reasons that we're really focused on AMI technology is really the timely component, so that our customers could actually have near real-time data. Our customer service reps love ion water. We have a customer calling, especially one that's aggravated, they are able to assist that customer, when, in the past, they just didn't have the data to really do their job as a customer service rep.

I have to say that the reason that we selected Badger as our partner with this AMI project really is what we believe is a superior technology that they provided. But what's going to keep us as a customer is the exceptional customer service they provided us, their flexibility and really their ability to deliver on the promises that they made through the RFP process.

I think that video is an exceptional peak into the decision-making process of our customers and really serves as a great jumping-off point to discussing a number of our capabilities in what we call customer water usage.

Good morning, everybody. My name is Bob Wrocklage, Executive Vice President of North American Municipal Utility. I'm excited to address you day. And in large part, my portion of the discussion is really going to focus on 4 key messages tied exclusively to customer water usage.

The first message will be that municipal digital -- water digitization is, in fact, the multi-decade transformation driven by enduring industry trends. These are trends that have existed already for decades-plus and will continue to exist moving forward. By no means are they flash in the pan.

Secondly, that our approach to our metering portfolio and our broader BlueEdge suite of solutions, Choice Matters, positions us best to take participation in the largest portion of the replacement-driven demand. that enables mix and margin upside over time.

Thirdly, that the market that we created, Cellular Advanced Metering Infrastructure, otherwise known as AMI, that our creation of that market, our expertise positions us with a strategic gateway to share gains. Some of those share gains we've talked about actively. And in other cases, there's, I would say, secondary share gain effects that I'll talk a little bit about this morning. But really provides an opportunity for competitive displacement as well as enhanced returns.

And then fourth, a consultative sales approach. I think you'll hear that very much our approach to selling is a much more direct approach than our competitors. And it's that direct approach that puts us at the nexus of customer decision-making and influence, that allows us to curate a portfolio that perfectly meets customer needs, drives meaningful customer outcomes. And not only that, informs our own innovation priorities, whether it's innovation in the products themselves or how we innovate through organic and inorganic means.

The combination of all those factors drives mid-single-digit growth within the customer water usage portion of our business, which, of course, is just one element that aggregates to the high single-digit growth outlook that Ken mentioned.

So let's get into the details. This is now the second time you're seeing this water cycle slide. And if I had to hazard a guess, most likely, the portion of the water cycle that I'm going to talk about is probably the one that's most familiar to you: customer water usage. This is our principal business. It's where we've played for over 100 years, and it's likely what you know Badger Meter for.

Our ability to provide a critical solution, metering, whether that's the meter itself or other reading technologies like AMR and AMI, to utilities largely around what we call the meter-to-cash cycle, generating a billing read that facilitates billing at the utility to complete the revenue cycle. That's the historic focus of customer water usage.

But as data and information and device capability expands, that meter now serves at the critical nexus of the opportunity to expand that value chain beyond just core billing reading into other utility workflows, utility personas, utility functions, to solve challenges both up and downstream from the meter that, as Ken said, enhance nonrevenue water capture as well as cost and efficiency at the utility.

And there's 2 primary growth drivers that influence customer water usage. The first of which is an ongoing trend of converting mechanical metering to a static metering technology that's been playing out already for 15-plus years, as Ken mentioned. And the second driver of which is advanced metering infrastructure adoption, which I'll talk about here in greater depth. That transition has been ongoing for over 20-plus years. I'm confident what you'll hear from me is that the tale of those 2 drivers continues for a long, enduring future.

Focusing on that first driver, the transition from mechanical metering to static metering. As is the case in many aspects of our business, to understand the driver today, you have to start 15 or 20 years ago. And 15 years ago plus, Badger Meter was the first company in the U.S. market to launch a static meter. Static metering is all about nonrevenue water reduction. In fact, the underlying replacement demand in the marketplace, very predictable and ongoing, is equally part of nonrevenue water.

And 15 years ago, we launched the first ultrasonic meter in the market, largely targeting our existing installed base for converting from mechanical to static. And after 15 years, still today in 2026, 25% to 30% of our meter volume is static, and the balance, the 70% to 75% inverse, remains mechanical meters.

When we're able to make that transition with customers, it offers an opportunity for average sell price increase and ASP lift, if you will, and is margin additional or margin accretive.

What I'm about to say I want to make sure I frame properly. Because while certainly the market itself, from a unit perspective, grows at about a low single-digit growth rate every year, and that's units, the opportunity to participate in this average sell price increase allows us to drive revenue dollars in excess of that unit growth projection.

And that's been the dynamic for many years. And so what I want to now illustrate to you, and it's back to that share gain comment that I made earlier, and I want to be careful as I say this because, as Ken alluded to, the incumbency advantage is real and that's still very much a key part of how we go to market and our competitors go to market. So I'm not telling you that the incumbency advantage isn't real.

What I am telling you is when you do something exceptionally well, for example, our leadership in Cellular AMI or our go-to-market approach with a consultative selling approach or our extension Beyond The Meter, those core competencies open a door to modest share conversion. And the best way to illustrate that over the last 5 years is to look at the graph at the bottom of this slide.

As I just mentioned, unit volumes in metering by themselves have only grown at 2% to 3% per year. And over this 5-year period, you can see our meter unit growth, both static and mechanical, has grown at a compound annual growth rate of 7%. So in some cases, 2 to 3x the industry. And our belief is the driver of that compound annual growth rate in excess of market is a core byproduct of our strength in Cellular AMI and, of course, those other layers that I had just mentioned. So again, this driver is revenue extension and margin enhancement and uplift that drives part of our core growth.

Equally, when you look to the second driver, now instead of going back 15 years, you have to go back 25 years. And this driver is all about the adoption of advanced metering infrastructure. And so what this graph on the left-hand side of the page illustrates is a 25-year time horizon, from 2000 to 2025, and charts reading technologies on the installed base in North America. And what you can see is that 25 years ago, 85% of the market was manually red. The balance was largely AMR or drive-by technology for automated meter reading.

And over those 25 years, what you can see is that, fast forwarding to 2025, the manual read portion of the market has declined from 85% to 20%. The portion of the North America installed base that has some form of radio technology on it is 80%, split roughly 50-50 between AMR and AMI.

Now I'm going to focus this discussion largely on advanced metering infrastructure or AMI. And what you can see is that the earliest adoption of AMI started nearly 20 years ago. It took a while to get ramping, but that was largely a fixed network solution or fixed network installed base. And while we had a fixed network solution, it was not our core competency. Beginning in 2015, as Ken alluded to, is when we doubled down on cellular as an alternate form of technology for AMI, and in fact, created the market of Cellular AMI, with a 10-year head start on our nearest competitor, with the expertise of commingling electronics and water in harsh environments to sustain and deliver flexible, non-infrastructure-reliant AMI outcomes. And while it took a number of years for that to take root in the market, you can see the robust growth that it delivered over 2020 to '25.

The best part of that robust growth, that drove a 17% -- the major portion of the 17% compound annual growth rate that Ken mentioned, is just how small it is on that chart. If we can drive that CAGR on that small amount of the dark blue layered as cellular, imagine what happens when we reach into the remaining portion of the installed base.

And so the important takeaway from this slide is the opportunity to reach into the remainder of the installed base. It's not just the green portion of the graph in 2025 that's manual read, nor is it just the AMR portion of the light blue portion of this graph. It's really all of those layers, particularly as the earliest adopters of AMI transition to AMI 2.0, which I'll talk about here in a moment. But just note, the expertise, the creation of a market and the clear market leadership in this area is a key driver.

Diving in a little bit deeper, the opportunity for conversion is all 3 of those layers. And as we look at our opportunity funnel, whether that's utilities first engaging with a consultant in 2026, whether that's RFPs that we've participated and been awarded or RFPs that are pending all layers of our opportunity funnel, we see cities, towns, municipalities in all 3 of these buckets: large, medium and small, some starting from manual read and going direct to AMI. Some who are going end of life on their AMR technology and are migrating to AMI. And then thirdly, which I think maybe is the most -- probably the most surprising aspect for some of you in the room, is that when a utility has already had a fixed network in place, and when they go to their AMI 2.0 solution, they will choose, in many cases, cellular because of the challenges they've lived with for the last 20-plus years.

And 2 great examples, one of which you'll hear about today, are 2 projects that we talked about in connection with our first quarter earnings: Orlando Utility Commission and Jacksonville Energy Authority. And you'll hear from Orlando later on about their conversion on AMI 2.0 to an alternate solution and a different provider.

The key takeaway to this is also at the bottom of the chart in the graph. And you can see that same 5-year period that I just talked to you about, our meter adoption and our meter share gain. You can now overlay that with our radio growth over that same time frame. 2020 to 2025 are units of cellular endpoints shipped, went from what was, call it, hundreds of thousands in 2020, to considerably more, and that grew at a 21% compound annual growth rate. And our thesis and belief is that that's a success. Creating Cellular AMI as the industry standard has had a pull-through effect into our meter volumes, which again doesn't displace the incumbency advantage totally, but certainly allows for share gain in a portion of the market that was largely viewed to be blocked historically. Put those 2 layers together and that's a key part of our growth rate.

The third piece I want to talk about here is growth drivers and long, enduring macro trends and all the outcomes that Ken mentioned are all great. but you have to be positioned to participate in them. I think I've already illustrated to you the hardware, the design, the engineering aspects of our products and why those are viewed favorably by the market. But a very even more critical part of that is our go-to-market strategy.

And Ken talked about BlueEdge, one of the 4 pillars of BlueEdge is collaboration and support. And when we say that, yes, we mean training and, yes, we mean post-sales support. But our support and collaboration element begins on day 1. And without question, I can tell you that our direct sales approach and our direct sales team, who you'll hear from later today, are very much a core competency of our existence. We have the best sales team in the industry, comprised of industry experts, comprised of former utility operators, comprised of teams and members who are able to sell what a network longevity commitment looks like and how cellular works and how software works.

And when you put those things together, with the proximity that we have to our customers and largely a direct model, it pays dividends in many ways. It pays in the form of win rates. It pays in the form of competitive conversions. It pays in informing our innovation and M&A strategies. And most importantly, it pays in the sense that we've been able to walk up a continuum of supply relationship where maybe, historically, we were on the preferred supplier solutions provider level, and we've now walked comprehensively to the strategic partner level, which not only aids us in capturing share within customer water usage, but positions us to influence and accelerate growth in the Beyond The Meter technologies.

I'm now going to change gears completely and move away from growth drivers and talk really about 2 topics that I think are just important to address as we meet here today. Those 2 topics are funding, and you'll hear more from the customer panel here shortly; and then project pacing and unevenness in our business. And so remember, this is a discussion of sort of demystifying maybe things that aren't widely understood.

The first slide I'll talk about is funding. And while the graphic on the left is not intended to be market size or a complete market opportunity, this is a subset of 700 to 800 of the largest water and wastewater municipality capital expenditure plans or capital improvement plans on record. And what it does is it tries to look across those 800 utilities and define where have they said and indicated they're going to spend CapEx in the next 10 years.

And what you can see is that CapEx spend is largely dominated by categories of spend, including pipes, pumps, plants, the 3Ps as we would call them. And that spend dwarfs many other categories, including metering.

Now the intent of this slide is not to tell you that metering isn't important. Of course, it is. But what it is, is to illustrate to you where company or utilities spend their CapEx monies, and where, in turn, federal funding programs and stimulus has been allocated from a priority standpoint. And so when I say capital -- government funding and stimulus, I'm largely addressing state revolving funds, which are the conduits for IIJA and/or ARPA monies.

And if you analyze, as many market research firms have, where those dollars have largely gone, not surprisingly, they overlay almost perfectly with the priority of investment of utilities, largely being allocated to pipes, plants and pumps. And very little, if any, has gone to the lower, smaller categories like metering. That's not to tell you that metering is not an attractive market. What it is intended to illustrate to you is that our success from 2020 to 2025 is more about market leadership and share gain than it is about any sort of funding windfall.

And in reality, our projects and the types of projects that we work on, AMI projects and metering projects, are largely driven by asset life, length of service, the desire to capture and attack nonrevenue water, the desire to improve the customer experience and achieve labor efficiency and OpEx. And as a result of that, the funding mechanisms used to drive those projects, which are revenue generating, less capital-intensive, is a much wider variety of funding categories than just infrastructure money or stimulus. In fact, it runs the gamut of rate base, municipal bonds, revenue bonds, [ WFIA ] loans, enterprise funds, a myriad of funding sources that are available in any type of operating dynamic or economy.

The second ad hoc topic I want to address is project pacing and order rate unevenness. And what you see on the slide here is our best attempt to trying to illustrate what the average utility procurement process looks like. And there's 50,000 utilities of varying scopes, sizes, so it's absolutely difficult to try to capture the average experience in one.

But what I will tell you is probably one of the most under -- I should say, misunderstood, dynamics in our industry is what an advanced metering infrastructure project is comprised of. In many cases, an AMI project for a water utility director or utility decision-maker is potentially a once-in-a-lifetime, once-in-a-career opportunity, an opportunity for business transformation, not only in revenue generation, but in the form of business transformation that spans multiple areas beyond metering and beyond billing, including the full suite of operations, personas and workflows that encompass the utility.

And for that reason, it operates very much like an [ ERP ] project for a manufacturing business, a project that would never be planned for, executed, multivariable considerations, would never be rushed. Something that takes purposeful planning from the engagement of a consultant on the front-end, definition of specs, solicitation of a procurement process under government bidding exercise, shortlist presentations, contract negotiations, including service level agreements, SLA commitments that span a 15-year life cycle.

The point of raising all these points is not to bore you to death. It's instead to give you an idea that this is a complex beast. And project timing inevitably, while we can do our best as an OEM to sort of control those dynamics, we're not always in the position to be able to do that. And these projects, depending upon their scope and complexity, can span 1 year in the making, to 5 years on the far end.

Another dynamic that I want to mention that we've somewhat talked about in the aggregate is this concept of turnkey project versus supply only. And so if you look at the slide, the graphic on the left, which is 9 representative projects, this is a representative project cohort that we included in our first quarter disclosures, forward-looking, that captures not the only projects but a subset of projects that we've been awarded and not yet started.

And what you can see is the scope of work on those projects are split between both turnkey and supply-only projects. And rather than getting into why would a utility choose to do a turnkey project versus a supply-only project, the most important takeaway for you today is that, first and foremost, as an OEM in the space today that largely goes to market direct, we have to be equipped to meet our customer wherever their needs drive them. And so if they choose to just solely engage us on a supply-only basis where we provide meters, endpoints and software, we're willing to do that. But should that utility choose to engage our expertise in project management, in construction project deployment, in coordination with outside installers and third parties, we need to be able to do that as well. Because in the absence of doing that, we'd be limiting our opportunity to participate in those 2 drivers that I talked about.

And so the key takeaway here should be I can have or we can have a project of 100,000 connections that, when it's supply-only, produces a certain amount of revenue. And when it's turnkey, produces that certain amount of revenue and up to 50% extra. In both cases, we're providing 100,000 meters endpoints and software, but the revenue outcome can be dramatically different depending upon the scope of work on that project.

And to help illustrate that for you, I'm going to show you a revenue curve. And imagine again that this is that same 100,000-connection opportunity. It's a project that is supply only. Even within that project itself, there's unevenness and lumpiness, or unevenness, let's just call it, as that project goes from all of those earlier RFP process steps to then being able to deploy, in a ramping phase, in a full deployment phase, in a ramping down phase and then being supported for the next 15 years in a Software-as-a-Service model. That in and of itself at the project level creates lumpiness and unevenness.

Now if you were to overlay that same turnkey -- excuse me, supply-only project in the dark blue and put it next to an equivalently-sized turnkey project, you can see that same unevenness, not only created in project, but the potential valley that exists if there's not a perfect coordination of start and stop between 2 different projects at 2 different utilities that are probably in 2 different states on 2 different time lines.

And it's that discongruity that ultimately creates, in some cases, a project pacing air pocket. And certainly, if those projects are -- happen to be timed close together, that also provides a certain amount of air cover, if you will, from otherwise unevenness or short-cycle order rate variation.

So this is again an attempt to try to give you some context to our current situation as it relates to project unevenness and pacing. None of this has to do with funding. None of this has to do with projects being slowed or started or stopped. This is just the nature of the beast that has existed for a long period of time, creates unevenness quarter-to-quarter, but is trumped at the end of the day in the long term by the enduring macro drivers and trends that I talked about earlier.

So now to put a bow on it and a wrapper, hopefully, you understand now that our municipal water digitization is a multi-decade transformation. It's been playing out for decades to date, and it will continue as we move forward, both because the amount of conversion from mechanical metering to static metering runway is long, and our opportunity to drive cellular AMI across the installed base has 3 multiple layers of dimension to it.

Our Choice Matters approach positions us best to participate in the largest portion of that underlying replacement demand, enabling mix and margin enhancement. Clearly, our cellular AMI leadership positions us to take share in AMI, as I described, to drive meter unit volumes above market level growth of low single digits.

And finally, that consultative sales approach, which I know you will see in spades in a short while here with our customer panel, is a differentiator that provides an underpinning level of mid-single-digit growth within customer water usage.

I'm now going to turn the presentation to Kim Stoll, and we're going to expand into the water cycle beyond customer water usage into Beyond The Meter. But first, let's listen to a customer set that up for us. Thank you very much.

[Presentation]

We've actually taken the SmartCovers and made it part of our overall preventative maintenance plan for our collection systems. The first thing we're doing is to set a baseline for flows in the area is we're deploying the SmartCover systems in different areas of our collection system and then we follow that up with different technology.

The one thing that our staff is following is these systems are very easy to deploy. They're very reliable. There's very low maintenance, very reliable communication and it's 24/7. I for one come into the morning after a rain event overnight, and one of the first things I'll do is open up the SmartCover desktop. I can overlay the various manholes that we have SmartCovers deployed. I can look at the rainfall in that area and see how it was impacted, how it impacted our collection system. So it's very convenient, quick snapshot of how your system reacted to a rain event the night before, and it identifies problems for you way sooner than a resident call or somebody calling beforehand.

The SmartCover system has saved us money because of the labor. To use the example of the wastewater treatment plant that we just built, part of the pumping plan was to have 24/7 monitoring with our operators. And in a rain event, we were actually going to have operators go out physically into the field, check the manholes to verify depths in those manholes. With the SmartCover system, we actually have 3 different systems deployed on the front end of that plant, and it enabled us to watch at 24/7 and not have anybody out in the field during rain events or storms.

Well, good morning. I just want to introduce myself. I am Kim Stoll. I am the Vice President of Customer Support and the General Manager of SmartCover.

Before we begin today and get into the details, there's 5 key messages that I'd like to make sure that you leave with today. Beyond The Meter unlocks a large early-stage opportunity with multi-decade upside. All utilities have critical measurement needs and desired outcomes. It's those critical needs that drive the opportunity for expanded wallet share within our existing customers, giving us the opportunity to convert those episodic hardware sales into recurring high-quality growth, and it opens the door to new customer acquisitions both domestically and from an international expansion perspective.

With SmartCover and UDlive, we are the global leader in an early-stage sewer and storm water market with a long runway.

And curating this portfolio through our own innovation and our acquisition strategy, gives us the opportunity to accelerate growth and drive double-digit Beyond The Meter growth.

So now I think this is the third time that you've seen this water cycle picture. Beyond The Meter is all of those aspects of the water cycle besides the customer water usage that Bob just talked about. It starts with the environmental monitoring, moves into drinking water production and treatment monitoring, distribution network monitoring, the collection system monitoring and the wastewater treatment monitoring.

The growth opportunity for us is great. We are globally ready. We have differentiated solutions. We have a strong relationship. We are a trusted adviser with the utility. When you combine all of these things, it unlocks the potential for us to capitalize on that incremental $10 billion market.

So how do we do that? Beyond The Meter applications typically connect back to the pain points of the utility, things such as aging infrastructure, aging workforce, source water protection. Those pain points, we can drive the customer to need to adopt additional technology beyond the meter. How do we do that? We will enable adoption and grow faster than the market using cellular AMI as the gateway, expand through sales and channel optimization and expanded services.

And software and analytics is critical because it holds, all of the sensors, the meters, the devices that are in the field, contain data. That data then through the software and analytics gets turned actionable insights, enabling the customer to make more effective and faster decisions.

The result for us is a more strategic relationship and partnership with the customer. We're able to know and understand what the customer needs. We identify their pain points. We help them prioritize those pain points. We deliver targeted solutions that we've built through our own R&D, through acquisitions based on Voice of Customer. We know, we've seen, we've heard what the customers need and want. And our solutions target those challenges and provide us the ability to provide them with the outcomes that they need.

All of those targeted solutions then help support the utility to make faster and more efficient decisions. That then, in turn, enables faster adoption across additional use cases throughout the utility, enabling us to grow faster than the market.

So within the BlueEdge portfolio, that customer journey always begins with a critical measurement need and outcome. Typically, that starts with within customer water usage, what Bob just talked about. Why? Because the utility needs to produce a bill. But once we have the meters and the AMI embedded in the system, we now have built a trusted relationship and partnership with the utility. We are able then to help them identify additional pain points in their utility and leverage that platform that they already have to be able to expand and easily add on additional use cases with very little effort, increasing the software and services revenue over the lifetime of that customer relationship.

And while that journey typically will start with customer water usage, it doesn't have to. The flexibility of BlueEdge and the versatility of BlueEdge gives us the ability to meet the customer regardless and wherever their pain points are that they have prioritized, whether that be at the source, whether that be in the distribution network or within the wastewater treatment plant.

What I'd like to do now is turn the session over to Matt Stuyvenberg. He is going to walk you through some critical use cases to help you understand what Beyond The Meter applications address and the value that they deliver to our customers.

Great. Thank you, Kim. I'm Matt Stuyvenberg. I'm Executive Vice President of Software as a Service, Global Commercial and International Utility. And as Kim alluded to, I want to give a little bit more color to what is Beyond The Meter. What are these applications that we're now serving? And what's the value to the customer and to our business as we grow?

And where we like to start with this is in source water, right, that water cycle starts at the point of where the water enters the system, potentially into the treatment plant. And that source water could be groundwater extraction, could be a surface river/lake reservoir or could even be wholesale water purchase from another water producer. All of our equipment is set up to monitor at that point of collection to inform how that water is going to be treated, how and the quality of which you're procuring from the supply company, and potentially even married up with quantity in groundwater extraction. We continue to see significant regulatory pressure on depleting our aquifers and reservoirs and monitoring for how much is pulled out. So both a quantity and quality proposition.

This is a global solution. So we've got hundreds of units deployed in South Korea across reservoir monitoring for intake protection. We've got units deployed all through Vienna waterworks on their spring-fed mountain water from the Alps that requires no treatment. But using the information collected from the sensors that have been deployed for years to determine is the water of a sufficient quality to go into the distribution network or should they switch sources? Or in Ohio, monitoring river water quality for nitrate runoff from agricultural usage, to be able to protect what goes through the treatment works. Or down into Texas on wholesale water production or purchases from other utilities into the distribution network.

Ultimately, for source water quality monitoring, improving the water safety and security, optimizing the chemical usage and improving on energy savings across water production.

As we move downstream from where the water is sourced into the distribution network, this is really where the acquisition strategy started: expanding around the meter, pulling together the best-in-class solutions for remote monitoring, high-quality sensors that live in rugged environments connected to cellular data backhaul, to fill in those blank spots from the time that water is produced to the time that water is consumed at that customer water usage portion.

And not only is that an amalgamation of all the different acquired brands, but they're fully integrated into one sales team to represent all of these solutions, so that we can seamlessly transition from that AMI program into moving upstream and leveraging that meter data. That 15-minute information isn't just useful for bill, that is now operational information that can be paired up with meters in the network, district metering applications, with high frequency [ assure ] monitors to be able to identify other issues in the network, with acoustic leak detection systems and even with water quality sensors paired up to provide additional insights across the network.

Now what does that mean for a utility? You heard Ken talk about it, nonrevenue water, often in excess of 20% across the network. That's water of which the utility is not getting paid for that they still had to put money into producing. By leveraging a full view of this distribution network, utilities can reduce their nonrevenue water, increase their operational efficiency and apply dollars and resources into smart technologies to improve their operations.

And I'll highlight briefly here distributed water quality monitoring as well. This was really the calling card of our acquisitions of ATI and s::can that had a dedicated portfolio of low OpEx, agent-free, in-line/online, real-time water quality monitoring, of which 5, 6 years ago was still in early stages of adoption. We're starting to see now that very proposition to come to life with thousands of units deployed across Spain, with now U.S. utilities who aren't regulated to have to deploy real-time monitoring choosing based on an ROI to deploy the equipment. The pain points of going out and collecting water quality samples at possibly the furthest points of your distribution network, having to bring those back to a lab and then wait multiple days to get results creates a significant leg in responding to issues, a significant cost and risk, and all of your people have to go out in the field to collect these samples.

So real-time monitoring throughout distribution network is gaining steam. It's increasing safety for the utilities. It's reducing nonrevenue water. And it's driving labor savings.

As we move downstream from customer water usage now so into water treatment. The water has been used, it's gone through the collection network. Badger also provides a number of online instrumentation for the water treatment facility, not that we do treatment ourselves. But if we take, for example, the aeration basin in a wastewater treatment plant, Ken referred to the 60% of OpEx for utilities being tied to labor, chemicals and electricity. Significant electricity is consumed in that aeration process. By deploying online real-time monitoring to optimize that aeration process, that labor comes down, the chemical usage comes down and the quality goes up, ultimately, increasing safety, extending the asset lives and reducing chemical and energy costs.

So if we take one step back from the wastewater treatment plant into the collection system, this is now where the water has been used, customer water usage. A customer could be an industrial property or a homeowner, but really an under-monitored and undermeasured portion of the water cycle and one in which significant problems can arise if there are problems in the collection system. We heard a little bit about it in the video, heavy rain events, inflow and infiltration can cause now not just clean water leaking out on to a street, but now you have potentially sewage and a combined sewer overflow leaking out. This is now a health and safety hazard. This is now something where internationally, let's take the U.K., for example, there are millions and millions of dollar fines being levied on overflows occurring and damage to the environment.

And if you look at the U.S., consent decrees being applied in order to then drive investment in technologies to mitigate those overflows.

We've built a portfolio of products, integrated it and continue to develop it to optimize cleaning, optimize the labor resourcing that goes into it, identify problems before they happen so that compliance can be maintained, asset lives can be extended, and inform that capital planning. It might be something we're deploying. Some of these sensors can mitigate and delay the significant amount of concrete that might have to be put into a new treatment plant, by minimizing that inflow, by optimizing the cleaning processes.

And so that leads us to something we're excited about. You heard Ken talk about it already too. But now the combination of SmartCover and UDlive. So 16 months ago, the acquisition of SmartCover, the leader in the U.S. for sewer line monitoring, and now UDlive, the leader in sewer line monitoring in the U.K., both the leading markets for sewer line monitoring and both the technology leaders, of which together we can pull a significant portfolio and really be the global leader in sewer line monitoring, something that is in the early stages of growth that we believe there is a very long runway and significant investment interest in.

Now when we look at the U.K., [ AMP8 ] spending being record spending across the board with more than hundreds of millions of dollars being allocated into sewer line monitoring and long-tenured long-term framework contracts, of which UDlive is in the driver seat for. We've already had a significant relationship in the U.K. across our ATI and s::can brands and [ Zenith ] brands. This now provides us a bigger foothold internationally and a launching point for more international expansion.

From a technology perspective, SmartCover being satellite in nature and ultrasonic for the level sensing, UDlive being radar-based, and cellular in data backhaul. We have an opportunity to provide a best-in-class Choice Matters portfolio for how the customer wants to deploy, in what unit volumes, at what critical infrastructure for continuous data backhaul and management, and expands our laneways for growth and the problems of which we can solve for our customers.

So at this point, I'm going to turn it back over to Kim to provide a little bit more insight on how this materializes into our financial profile.

Okay. Great. So thank you, Matt. So what does this mean? So Beyond The Meter applications, they transform episodic hardware sales into ongoing sales opportunities at more frequent intervals.

So let's think about this from a North American perspective. When we do a project with a utility and we've got the meter and AMI project, that is not the end of the relationship with the customer. It's really just the beginning.

Once we've got our meters, Badger Meter and ORION Cellular and BEACON embedded in the utility, we have privileged access to the data, to the customers' challenges, their workflows and their decision makers. This intimate knowledge then is a natural pathway to expand beyond the meter, to identify additional opportunities into water quality, distribution monitoring, source monitoring, those examples that Matt just walked through.

We've got a long runway to expand the relationship with these customers. We've built the relationship. We have the trust and the credibility. We have the knowledge of what's going on within their system. That increased system visibility gives us the ability to work with the customer to identify those additional pain points and expand beyond their AMI project.

As I mentioned before, because of the fact that the platform is already embedded, it's little effort for the utility to add on additional solutions. And as Matt talked, these Beyond The Meter applications are low OpEx, and they're generally sole sourced. So again, making it very easy for the customer to add on to their system.

It also opens the door for us to capture competitive customers that might be competitive meter and AMI customers. But because we're now in there with our Beyond The Meter, we can easily then transition and help them move towards their next meter AMI solution.

And on the international side, because oftentimes that's where the Beyond The Meter application start, that's where we start our relationship with the customer, it opens up the door internationally for customer water usage.

So to conclude, we started this by indicating that Beyond The Meter unlocks a large early-stage opportunity with multi-decade upside. Badger Meter is well positioned to capitalize on that $10 billion incremental market. We have the trusted relationships with our customers. We're a trusted adviser in the market with our customers. We have curated a portfolio of the best technologies available globally. We've integrated those technologies into solutions that drive outcomes for our customers. And we have provided the opportunity for the customer to easily work with us by delivering the best customer experience, we operate as one company, making it easy for the customers to do business with us. That is how we accelerate adoption. That is how we drive double-digit Beyond The Meter growth.

Now what I would like to do is bring Matt back up to the stage. He's going to highlight for you our software solutions to pull this all together.

Great. Thank you again, Kim. So as Kim alluded to, we'll now walk through a little bit of the Software-as-a-Service platforms that Badger Meter has developed and the offering that we've got for our customers.

So I want a few key messages left with you all as we go through these slides that, first and foremost, our software platform is a hardware-enabled software platform. This is not pure-play software. This is something that is attached to every device that we sell. And by doing so, we convert that installed base into a compounding annuity model. So all of those meter sales that Bob talked about, each one coming with a connection rate of data backhaul and Software as a Service to each meter and radio that gets put in the ground, that one network, a product that we'll talk about in more detail, unifies the data and accelerates adoption of the Beyond The Meter solutions that we just walked through in the previous section, bringing together all the data from all the distributed sensors into a unified pane of glass, and that Badger Meter owns critical utility workflows. These are not things that utilities necessarily just want to do. They are things utilities have to do. And our products, services and software are embedded into each one of those workflows.

The hardware-enabled software nature of our business deepens the competitive moats, especially in an era of which we're now hearing AI as having the potential to disrupt all the different Software-as-a-Service models. And by embedding and developing our own analytics layer and AI within our platforms, we defend against pure-play AI software competitors as well. By leveraging all of these points, we're able to drive double-digit growth across a very long-term horizon yet for our software platform.

So how this materializes financially. If we were to go back, and we reviewed already the stack bar of when we launched Cellular AMI, and that Cellular AMI came with, again, the component of data backhaul and software layer presentation into a service unit fee, which if we went back 10 years, that number would be roughly 0 from a revenue perspective. So this has been a very fast-growing portion of our business that today we're collecting roughly $75 million worth of Software as a Service revenue and have confidence over what Bob just talked about in customer water usage that a significant driver getting us to $150 million in 5 years will be on the growth of continued smart metering and AMI sales, with then a stack bar of the Beyond The Meter solutions that come with a higher dollar per unit attachment rate. But again, looking at the length of time, slow-moving, risk-averse industry, took many years to get to the build around AMI stacking up to $75 million, we're in the early stages of a Beyond The Meter stack bar as well.

But by continuing to bring those forward-looking solutions to our customers, we build an enduring Software-as-a-Service model, with better customer outcomes and increased customer stickiness. When we think about what the customer is operating with day over day, it's the software layer, right? Ideally, we put that meter in the ground, we put that sensor on the ground, and you aren't touching it for 5, 10, 15 years. But what you are interfacing with is that software layer. What you are interfacing with are the outcomes that software generates for you on a daily basis based on a platform and a system level, not on an individual piece of software or hardware.

So touching on the idea of mission-critical applications here. We've already hit on it, that metering is the cash register for the utility. Collecting metering information is a requirement. It's how the utility gets paid for the water of which they're producing, distributing and the customers are using. And that's really where our solution grew out of, but we've developed an integrated set of software solutions, custom tailored to the workflows that utilities need to do. And that expands to customer engagement and conservation, into field services and into network operations.

And these all come from Badger self-developed. These are not things in which we partner with or bring in separately. These are our own software development teams. And these are insights and product features that get informed from that close direct to the customer sales model, so that we can hear the pain points that the customers are dealing with daily and inform our software development process to make sure that those features, functions and products get developed, being -- the field application that will dive into being one of our newest products to really put that power into the field workers' hands and take the insights that are being generated out of meter collection and enabling them to be more effective.

So again, on the backbone of all this as well, ensuring cybersecurity and the highest level of protections, ISO 27001, SOC2 compliant software solutions to make -- to ensure full data protection as we deliver enterprise-level solutions to utility customers, data security is something that Badger Meter takes of the utmost criticality.

And I want you to think just a little bit about these different modules as think about Microsoft 365. You've got a whole suite of solutions, but they all work natively together. Similarly here, if you want to go in and do a PowerPoint, you can put a spreadsheet into a PowerPoint presentation. But if you want to do some high-powered financial modeling, you're going to do it in Excel. Similarly here, we've got custom tailored user interfaces for the actual job that you're looking to accomplish, whether that be the customer service representative, customer care support, field service application person or the homeowner.

Ultimately, by creating this platform that doesn't require interfaces, doesn't require other services, we decreased the reliance on system integrators. We have full native device management. This understands all of the way our devices function, something of which a separate software layer sitting on top of wouldn't be able to do. So if you think about firmware updates and all the different pieces of information of device health that are getting passed up from our sensors, our system understands that better than anyone else's.

And we provide full visibility, proactivity, enabling the utility to move from reactive to proactive management with a sticky, scalable and simple product.

So we'll start first with BEACON, BEACON being our meter data management platform, MDM. And this is the economic engine for the utility. This is where we collect all of that meter data. This product interfaces to CIS, customer information systems, that the utility maintains all of their account information and to the billing platforms to generate the bill. But it's also housing operational information as well and all of that native device management.

And I want to call your attention to the chart that Bob walked through in great detail, and just giving us the confidence again here that we are not tapped out on the growth runway for BEACON and the revenues collected from Software as a Service connected to AI. Still very early growth stage that and a lot of capture left as we continue to deliver the value that customers are asking for from AMI through our Software-as-a-Service platform.

And then just on the back of this, Kim touched on it, but success in this mission-critical application opens the door for Beyond The Meter applications. And as we start to look at leveraging the data within BEACON for those upstream or downstream applications, it becomes an easy journey for the customer to choose to do those Beyond The Meter solutions. Ultimately, BEACON, increasing the labor efficiencies, increasing billing accuracy and enhancing the visibility for the health of the network for our utility customers.

Now what I'd like to do is show a few vignettes of our software, and we'll start with BEACON and tracing really through, in this case, a leak or a continuous flow that's highlighted in BEACON, and how that migrates through any number of our other software platforms. But just to recall that this is one of the applications. There's any number of stories and abilities for the platform to provide insights, but we'll walk you through and show you a little glimpse into how the software functions.

[Presentation]

Every day, utilities are turning the challenge of managing thousands of meters into an opportunity to understand and connect with their customers. Here, in BEACON, Badger Meter's advanced metering and customer management platform, a utility manager opens their morning dashboard. Most meters are quietly working away, but some are telling a story. At a glance, across their city, the system has done the work flagging accounts that need attention. One property stands out. Days of continuous usage. No interruption, no explanation. The system senses this is a customer leak. And if it's left unchecked, their bill could be sky-high, or worse, damage to their property could be significant.

Before the customer rings in, BEACON equips the utility with all the information it needs to have an informed conversation. This is what it means to move from reactive to proactive. BEACON doesn't just record what happened. It tells you what matters. And in this case, time really matters.

Now when you think about all of the data that BEACON is collecting across millions of metering points, 15-minute data, pressure, temperature, empty pipe arms, freeze alerts, consumption use, everything. While it's great to have to go in and be able to see that information and manually sort through it, that can also create a bit of death by data.

And so how we help the utility get to the outcomes they're looking for has been a big focus for us over the last number of years in developing different event management systems, but then also Cobalt, which is Badger Meter solution for AI, self-developed and incorporated into all of our platforms. So not needing to rely on a third-party source, but having natural language interrogation, GenAI capabilities built into the platform, to be able to extract insights and information. Perhaps you're not an expert in the utility yet and you need help on understanding what this data is even presenting to you. Or in the case of the image on the lower right, having it presented natively while you're in one of the cards that we have in BEACON, being presented with a button to help you analyze service performance or leak sources and then using all of the data that we can collect across our thousands of customers and many millions of devices to give you insights that only Badger Meter can supply.

So when you look at the chart on the lower right of possible league sources, that's informed by data that we collect across all of our customers, anonymize it and use it to help improve the analytics as we go forward. So ultimately, AI resides within our platform to extract that information, deliver those outcomes that only we can, and we'll show you a little bit about how that expresses itself in this next video.

[Presentation]

Billions of data points being generated every day. An explosion of information. Are you going to drown in data? Or are you using it to reveal the secrets of what's really happening out there?

Cobalt is Badger Meter AI. It brings data to life, harnessing massive data sets using the power of AI techniques and crowd-sourced to feedback loops that build trained data without effort.

How does that help? Cobalt can predict where your leak is occurring, even support you with advice on how to fix it. Cobalt can tell if a pump might be malfunctioning or if a sewer line might be blocking.

The opportunity to deliver useful information just went exponential. Cobalt is the intelligence that ties everything together, grows with your data and unlocks the real benefits of connected measurements, bringing a predictive future into the hands of utilities and their consumers.

So while the last 2 slides have really highlighted more applications for the utility themselves, Ion Water is our application for the homeowners. So this is our consumer engagement app, which puts the power of all that 15-minute data into the hands of the homeowner. You now have the opportunity as a consumer of water to be able to set your own leak alerts, to be able to be notified of continuous flow events. If there's a dispute on billing, you have the same information in your hand that the utility has.

And as we think about as well conservation, a bigger topic, especially across the U.S. right now, in the South and in the West, these are now not nice-to-have products and services, these are need-to-have, and that driving that conservation of putting the power of how much water I'm using into the hand of where I don't see it just every month or every 3 months, I'm seeing it down to 15-minute resolution on what my usage is, what might be causing those usage characteristics. And it drives a tighter relationship between the utility and the homeowners as well.

So now instead of potentially having a customer call up the utility, the customer service rep, after 3 months of usage with a $1,000 bill, irate about why the bill was so high, and the utility potentially having to forgive that high bill as part of their policy, that homeowner now sees when that leak started. They see when that high usage began. They see when that hose was left on or their pool started leaking.

And now we've actually heard directly from utilities that when they call those customers to notify them of the usage because they're seeing it as well, that customer oftentimes will say, "Yes, I actually know what that was. I saw it in my app. I left the hose on. My bad." Instead of having an angry customer, you flipped that relationship with your constituents with your homeowners and you now have higher engagement with them and you've turned an angry discussion into a happy homeowner.

So with that, we'll go through a brief video here, but really driving improved customer service and satisfaction, eliminating those write-offs and driving conservation. So let's see how this expresses itself in the video.

[Presentation]

So let's look at this same leak from another perspective. Not only does the utility know there is a service leak, but the customer is notified immediately too. Ion Water, Badger Meter's consumer engagement application, sends an alert straight to the consumer's phone. There's a spike in usage or continuous flow event. In their Ion Water app, they can see the same leak as the utility. They can also see their usage, trends, comparisons, estimated savings, service interruptions, all in 1 place. The same picture their utility already has. So if they call, both sides are working from the same truth.

Ion Water doesn't just know customers. It transforms the relationship between a utility and its community, bringing visibility to previously unseen issues. And most importantly, it empowers consumers with information so they can conserve our planet's most precious resource.

So we've now addressed the back office and the consumer of water. And the gap in the middle is the field application, the field services. So part of what we identified is that there was a demand for the same information to be in the hands of the field crew. And so at the end of last year, we launched a field app to be iOS and Android native to put that same power of BEACON into the hands of anyone out in the field so that they can be more effective with their time.

One of the bigger costs for utility is sending out trucks, sending out people to go visit a service residents, whether that's for a start-stop service, investigate a leak, do some sort of maintenance. And being more effective and efficient while you're out in the field is key to those resources and labor efficiency.

We've also additionally put the power of Cobalt into this application. So if you've got a less tenured person out face-to-face with a customer, instead of not being able to answer that question, you can have a native GenAI interface into the platform to give you insights about what that residence and what that data might be showing you.

The application has been widely adopted already by our utility customers with multiple users at each utility already downloading it and positive feedback, and a lane way for additional development around the product as well into premium features for upsell and ASP lift as well.

So ultimately, the app drives increased labor efficiency, fewer truck rolls and improves that customer satisfaction. And we'll see in this next video how this comes to life.

[Presentation]

Some customer issues can't be resolved from the office. In those cases, the next step is simple, send someone out. But let's make sure they have access to the same powerful data from BEACON when they're in the field. Why? Because being effective in the field can be the difference between great customer service and, well, frankly, just making matters worse.

When the utility operator opens the BEACON field app and uses the Cobalt AI search, it's not just 1 issue waiting. Ten nearby properties need some investigation too. Perhaps this isn't an isolated problem on ground. They check meters, log replacements and add notes and photos in real time. The culprit, a fire hydrant found open, affecting pressures. Records are updated and customers are satisfied. The problem is resolved for now. Today's minor crisis was averted. It is all in a day's work for the modern utility operator armed with the best information out in the field.

So I hope you can start to see that when you choose AMI from Badger Meter, this isn't just about a billing meter platform, this isn't just about getting the reads back. This is how the utility operates. This is how that data can be useful to any number of people within the utility. And this is why our customers have chosen us resoundingly and why we gain -- why we're gaining that market share that Bob alluded to.

Now shifting a little bit from purely that customer water usage portion into One Network. This is a new product being offered by Badger Meter. But really, it's something that unifies all of those acquisitions that we've made over the years, all the sensor layers that we now have. So that's something of which combines all of those robust sensors that are deployed in the field from Badger through the data communications backhaul into one network view, making use of that 15-minute data that comes from those billing meters but also tying it together with the high-frequency pressure monitors, with the acoustic leak detections, the district metering products, the water quality solutions. Everything sold from Badger Meter being pulled into one platform, but not being limited just to a Badger Meter product.

One Network integrates with any of the third-party sensors that are already deployed, can pull in utility [ SCADA ] information to help inform those insights. And it's GIS -- leveraging the GIS layer from the utilities as it is.

Again, hardware-enabled, pulling together those insights into a unified platform, but delivers on the promise of cross analytics and leveraging not just a purely acoustic leak detection product and service or purely a billing meter service, leveraging those 4 combined and enhanced insights. The information from your billing meter plus that district meter, plus a pressure event plus a turbidity signal gives you ground truth to what's actually happening in your network.

Similarly, on the collection side, looking at water quality coming from an industrial affluent user plus-level monitors, plus overflow and cameras in the system, provide you a significantly enhanced level of actionability. And that really is what One Network is about, driving those actionable outcomes for the utility so that they can be more specific in where they deploy their resources, how they maintain their system, reduce service disruptions, increase their compliance and be more proactive about the way their systems are managed in general.

So with that, I'd like to turn it over to the video again, and you can see a brief insight into where the One Network development is going.

[Presentation]

Now let's look at everything we've just seen, not as 4 separate moments, but as one. A billing alert in BEACON, a field investigation, a customer side league, all of it flowing into a single unified platform built for the people responsible for keeping the network running. This is One Network, the center of network operations, the single space where every stream of intelligence converges and where the decisions that matter most get made.

And what the technician found on the ground, One Network already saw it coming. Pressure running low, services under strain, conditions for failure building quietly, until they weren't. Individual signals becoming network-wide, giving a clear picture of who is impacted and the next steps required to act.

One Network goes further, continuously monitoring performance across water distribution, water quality and collection systems, simulating future scenarios, so operators are always one step ahead, a utility that sees further, acts faster and run smarter every single day.

So I hope it's starting to come together here that this is a whole platform developed, delivered, custom tailored by Badger Meter for our utility customers with their outcomes in mind. And by developing software in that manner, we've created a competitive moat around our solutions. And the first pillar of that moat is really around switching costs. That hardware-enabled, physical-bound layer of what we deliver provides a competitive moat to switching and the inability to just simply throw another software layer on top. There's a service unit fee that includes data backhaul. There's the reliability and robustness of the sensor generating the information, and then the analytics layer that we include as part of that whole ecosystem.

The network and data effects and the intelligence that compounds from within the system, the information that we collect that can help improve those analytics year-over-year to provide better outcomes for the customer, that's information that resides from our own hardware, that's information that we collect from millions of end users, giving us label data around what's happened within the network or at their homes. And that helps enhance and continue to drive our competitive advantage long term.

Intangible assets and the way we're embedded into the workflows. These are, again, mission-critical workflows. These aren't nice-to-do. These are have-to-do's for the utility. And our products and services are tightly integrated into all of those workflows.

And we develop all of our software ourselves. We leverage that close relationship. We leverage the quality of our direct sales team to have that tight relationship with what's the next problem that your utility needs to solve. How can we help you do that? How can we help expand into that next laneway and leverage that trusted relationship and that 100% attachment rate of our software to each product that we sell, helps continue to drive that confidence forward.

So in summary, our hardware-enabled software model converts our installed base into a compounding annuity. One Network unifies the data across all the Beyond The Meter solutions and enables us to continue to expand and grow double-digit in those beyond the meter solutions. We own the mission-critical utility workflows. We're embedded with the utility. We understand the problems, and we'll continue to develop solutions to solve them. Our hardware-enabled nature deepens our competitive moat, even in the age of which AI is supposed to be threatening Software as a Service. And by enhancing and building in our own internally developed AI solutions into our software platforms, we deliver the outcomes that the customer is looking for.

By leveraging all of these things, we have very high confidence in double-digit Software-as-a-Service growth over the next horizon, building to $150 million of a Software-as-a-Service business by 2030.

And with that, I'm going to turn it over to Bill Blank. Thank you.

Thank you, Matt. All right, everyone. We're going to take a short break right now, before we start our second half of the day. So to our audience online, it's 10:00 in New York City right now. We'll be back at 10:15, 15 minutes from now. And to our audience here in the room, please do stretch your legs. Our beverages are still available. The restrooms are by the elevators where you came to the fifth floor today, and we'll see you back in 15 minutes.

[Break]

All right. Ladies and gentlemen, welcome back from break. We're going to move into our second half right now, and we're going to continue to dive a bit deeper into that reality of what our customers go through on a daily basis.

First, with a video from Galveston Texas, one of our most advanced BlueEdge customers who has deployed so much of the technology you've seen across their system. Roll it.

[Presentation]

We have a really good water system here in Galveston. We don't treat water on the [ island ]. We buy our water treated, but we're at the end of the straw, we're the last customer on the Gulf Coast Water Authority chain. We constantly monitor water quality here.

We now have multiple pressure monitors throughout our distribution system. We have water quality bollards, water quality nano-stations and strategically located throughout our system. Before, we only relied on our SCADA operation system where we had eyes solely at our pump stations and our elevated storage tanks. And now we have 15-plus pressure monitor systems scattered throughout our island.

We use the pipe minders, which give us pressure data, which we can also see through BEACON and also through radar. We also use the MetriNet bollards to see water quality data. The MetriNet bollards can be customized to show whatever water quality parameters that you wanted to see for your system.

The MetriNet bollards take 96 samples every single day, which has empowered us to have a plethora of data to make the decisions that we need to make at the pump stations in order to provide a higher quality of water service to these historical low water quality areas. And the goal with these is to have a proactive approach.

With the BlueEdge technology, when we get calls from residents that are concerning the quality of water, for example, in their area, "My water tastes a little funny. My water might be cloudy." We can actually use the device and immediately see if we have an issue with turbidity or if there's an issue with the chemicals. And it used to be we would have to hop in a truck, go out there, take a sample, dip your stick and wait a couple of minutes. But now it's instant, it's right there in front of you. You're able to make those adjustments as needed and resolve the problem much more efficiently.

I have loved all the data that we have been able to receive from all the water quality devices and the pressure monitoring devices. Looking at the system as a whole, I'm able to have a much better understanding on what our customers are seeing versus only with our SCADA.

Next for Galveston, we are going to continue installing water quality devices throughout our system. We are also expanding to the wastewater side, installing devices at some of our wastewater treatment plants, as well as our sanitary lift stations. And the goal with all of this is to have a proactive approach to our system. And it encompasses the entire BlueEdge portfolio that Badger Meter is offering. And it allows us more proactive on maintaining system pressure, water quality, equipment operators, utilizing our team to improve customer service and provide a better quality of service to all of our residents.

Well, good morning, everyone. I'd like to start the session off with a very simple question. When water utilities decide to invest millions of dollars in new technology, what do they actually buy? Are they buying hardware? Are they buying software? Are they buying some level of efficiency?

I think what you'll learn from today's session is what they're really buying is confidence. Confidence that their revenue is going to be protected. Confidence that they're going to have visibility across their entire water system. Confidence their teams can respond. And confidence to understand that when something goes wrong, they'll know it before their customers will.

Today's panel is made up of individuals that have sat on that side of the decision-making process at utilities across the country. They've managed the budgets, they've carried the operational responsibility. They've lived with the outcomes of those decisions. That's what we think will make this session very useful.

The interesting thing about this panel is I think their experience with Badger Meter was so good that they actually crossed the aisle and now they are employees of Badger Meter. So you're going to hear from a perspective directly from utility professionals.

I want to start off today, I'm happy to be your moderator. I'm Morrice Blackwell. I'm a Senior Manager in the Utility Solutions Group at Badger Meter. In about a couple of months, 6 weeks, I'll have been with the company for 32 years. I've worked across manufacturing engineering, our production operations, marketing and sales.

Let me introduce our panelists for today. To my right, I have Eric Larson. Eric Larson is the Senior Manager in the Utility Solutions Group at Badger Meter. He's the former Utility Director at Illinois American Water.

Some of Eric's responsibilities as director include firsthand experience with field operations, meter reliability, read performance and infrastructure decision-making.

Next, I have Trino Pedraza is a Regional Sales Leader here at Badger Meter and a former Executive Utility Director at City of Galveston, Texas. Some of his responsibilities include compliance, capital decisions and modernization across a very unique coastal water system.

Last but not least, I have Joe DeVito. Joe is the Senior Manager of Enterprise Solutions at Badger Meter, and brings over 30 years of direct utility experience, where he retired as a Director of Operations at Beaufort-Jasper Sewer & Water Authority.

The other part about Joe that I think he'll bring a unique perspective today's discussion is that he also served as the mayor of Port Royal South Carolina. So he'll bring both his utility side and as well as has a public accountability side of things.

So let me start the discussion off just by talking about why utilities make technology changes. These changes aren't taken lightly, right? These are things that have to have a real operational driver towards making that decision. So I'm going to ask each of the guys to respond to this here. When you are on the utility side of things, what were the key drivers behind change? Eric, let's start with you.

Key driver for change really was people first. So we looked at everything through that lens of safety. Is this going to improve the safety situation? Is it going to force our hand because of a safety situation where we need to make that change for the people?

But then secondly, it's around value. So are end customers value? Are we delivering something new to them that they're wanting or operational value? It's going to lower our operational costs, increase operational efficiency, or some kind of compliance mechanism supporting the system in that way. So 2 kind of factors there. The people through safety and then through that lens of value.

Okay. Fantastic. Trino, what about you?

Yes, Morrice. So for me, it was pretty cut and dry. I focused on compliance and resilience. The reason I did that was because early on in my career, I learned that there's never a dull moment in public works and utilities, right? Everything that kept me up at night fell under those 2 categories, whether it was the city manager calling me on a Saturday about customer complaints, people posting pictures on Facebook about water quality issues, main breaks, aging infrastructure showing its age. It all fell under those 2 categories.

So I challenged by staff to bring solutions. And when they did, I didn't give them this rundown of is this a need or a want, right? Instead, I was asking what problem was this going to solve? Where are we exposed? And what happens if I tell you no.

Okay. Interesting. Joe, what about you?

Yes. Whether it was a hard asset or a soft asset, both of them for me started with a people-first thought. And when I talk about people, I'm really talking about -- I had to think about both sides of the house. So that was the employees that were working for me and with me, along with the end-user customer. Whatever that project was going to be, whatever that technology change that we were going to make, does it cover both those windows? Does it make the employees' day better so that they can ultimately serve the customer? And does it make the customers' experience better.

So whether I was the Mayor of the town of Port Royal or the Director of Operations at Beaufort-Jasper, I always started with let's do the right thing for the right reason, and you really end up spending time at figuring out what's the reason I'm doing this. And then you build that project, you build that change around there.

I never forget, and I always reminded myself that I am just a steward of somebody else's money. I am spending either revenue from an enterprise front, from a water sale or I'm spending tax dollars. And I have to think carefully about are they going to receive a benefit from what we're doing? Are there going to be confidence built around that.

And then the last thing, putting just the director's hat on, there is an awful lot of critical infrastructure that we have to deal with in the public works world, in the mayor's world, streets, road, bridges, gas, electric, Water is one of those critical infrastructure. The main difference, you consume it every day. And you can never forget that when you're thinking about what you're doing each and every day.

Okay. So Eric, you've got an interesting perspective because you came from an investor-owned utility. So when you think about your metering system, when you step back and look at the system, what tipped you off that it's time to make a change?

Yes. I think it's important for us to set the table about the meter. There's 2 kind of big drivers with the meter. The first, it's the linchpin between the utility and the end customer. It's the source of truth. It's kind of what sets the basis for the money exchange. You use this much water, you require this much money for that service.

And then secondly, from operations management, there's a lot of operations that come downstream of the meter. It might be a bill complaint or an investigation. It could be high flows. Is the service line broken? Or is there something going on there? Is there a complaint about pressure, and maybe it could be a stuck meter or anything like that. So from the meter on, there's a lot operationally that you need to investigate. So 2 important factors when we talk about a meter and meter change.

So what tipped me off that it was maybe time for a change. There was a lot of pressure really coming from all different angles. So imagine you have a high bill and you call the utility, they bill you on a 30-day cycle, and it's day 40 by the time you open up that bill and look at it, it's very high. I would get calls, "Eric, why don't you tell me that I was using this much water? Shouldn't you have told me? Why is this 40 days kind of after the fact?" and getting complaints like that.

So my customers wanted more proactive data. I could see how much reactiveness we had as far as downstream of the meter. And I wanted to maybe stop those truck rolls. I wanted to respond to things on a more proactive basis.

But I'm also from a regulated utility company. In my regulated bodies, the Illinois Commerce Commission, the Citizen Utility Board, CUB, they were wanting to see more customer value, they wanted me to give that value to the customers. And my parent company reviewed kind of what was in the industry and brought down kind of the list of options. Those list of options needed to be scalable across 16 regulated states.

We had a length of service requirement. So regulated companies, the regulating body, the PUC, we call them the Public Utility Commission, would put a schedule on how long the meters were allowed to be out there. And then once they hit that age, you are required to change them out. So every year, I was changing meters. And it allowed for this natural transition right?

So as soon as I started ingesting this pressure from my customer base, the regulatory body, I had approved technologies and I selected Badger Meter, I had a natural transition in the next year to go ahead and make that change.

Okay. Interesting. Well, let's kind of move the topic along. We're going to talk now about metering, AMI and software, how they relate to the operational capability or efficiency of a utility. Once utilities decide to make those decisions to modernize, to make a technology change, sometimes that focus now changes from hardware to operations. How is it going to help me on my day to day? That's probably when you start to see that real value.

So Joe, I'm going to ask you to sort of help the audience understand the basics, how closely is the meter tied to the actual revenue generation of the utility itself?

Yes. Well, I'm going to build a little bit on what Eric said. He called it the linchpin, the end of the system. I thought about the meter as the last asset in the distribution system. And ultimately, it's a cash register. It is giving us the ability to send an accurate bill to that customer, and that is absolutely mission-critical. If I cannot get bills out on top of everything else, I can't do all the other stuff that we want to think about.

But then you start realizing as technology change, and I have the advantage of being in the industry for 30 years and starting with manual read to AMR to AMI through my career, and you'll start to see the trends that are available in this data, as you're getting that more frequent read, I'm getting away from the latency of a 30 and a 40-day information, and that then really starts to bring the impact forward. How else can we use this data? How else can we bring that forward?

But again, you can never forget the mission critical. I cannot tolerate not be able to get a bill out. So I still always had to focus around that. Because without the bill, there was no revenue confidence, there was no decision-making and the ability to go forward. The data and all the other stuff that came along with that, that you saw this morning, just allowed me to operate the system more efficiently with that scarce revenue that I can get through billing.

Okay. So I'll take it a step further. So what's the difference between having a system, a metering or an AMI system that supports billing only versus something that can help you on your day-to-day operations, giving you that more granularity of data?

Yes. So I mentioned already the data. So it's giving you that information. It's teaching you the patterns of what your customers are doing. There's only so much you can do to drive customers in the way they use their water. You can put things into place like odd and even watering days and asking them and doing this, but you really never really know for sure how much they're going to do that type of stuff.

By having this data available each and every day, each and every morning, 4 times a day when I went to the cellular system that Badger Meter showed me in 2014, really allowed me to say, "Wow, I didn't realize that this was happening at 4 a.m. every day," and really start to put that kind of stuff in place.

Then you bring it back in-house and you think about the crew, I mentioned the people. So I've got repeatable workflows. I've got data every morning that they can say, look at and say, this is what I need to do today. So having that 15-minute reads, 96 reads a day really start bringing patterns in. And then sharing it with the rest of the authority to say, "Hey, engineering, look at this, "Customer service, look at this, public relations department, we need help with this aspect." It brought that hardware and that software together and made me realize how valuable it is.

Okay. So Trino, you went through it at Galveston, you went through a full AMI deployment. You got to see the benefits of AMI. What are some of the things that maybe someone outside of the industry would underestimate about the levels of operational efficiency? What are some of those things that they may not understand about what you're able to gain from AMI?

Yes. So that's a good question. I think people underestimate the value of the water that you actually save and then the additional revenues that you capture when you place a new meter down.

So let me give you an example. Somewhere between 2010 and 2012, the State of Texas went through a pretty massive drought, right? I don't know about other states, but in Texas, when you go through a level of drought, they start to curtail your water rights, okay? And so during that time, [ New Braunfels ] for multiple years in a row was the #1 fastest-growing city in the nation, right? So that prompted us to do a study. And from that study, we created a water resource plan, right?

And so we try to use the amount of population that we thought was coming, right, with the water that we had. And we had 2 realizations. The first was if we had perfect weather the rest of the way, with that growth, we wouldn't have enough water by 2023. If we experienced another drought, we might not have enough water by 2019, right? So then we had to go shopping for water.

So I ended up purchasing 8,000 acre feet of water from the Guadalupe Blanco River Authority. And 8,000 acre feet is about 8 million gallons a day, right? The cost for that was $1,440 per acre foot, okay? We already own 21,000 acre feet and the cost of the water rights that we had was anywhere from $1 to $139 dollars per acre foot, right? It's a big gap. And that's why in the utility world, they say that the cheapest water is the water that you already own, right?

And so cellular AMI attacks that head on, right? It helps reduce water loss, it helps improve the revenue capture at the meter, which is a necessity, right, for the utility.

Then if you go a step further, if you start to bring in different monitoring devices for sanitary sewer water quality, pressure, and you actually use that as part of your operational strategy, right, now you're going to start seeing some real savings. Now you have real efficiency. So when you roll a truck now, it's proactive. It's not reactive. You're not just sending trucks out to react, right? That's real efficiency. And I think people outside the industry, I don't think they put all that together.

Okay. Eric, again, sort of from that investor-owned side, understanding that you put a meter and an endpoint in the ground, right, they sort of sit there. But I've heard you many times talk about software, and you talk about how within your utility, that's something you all used every day, right? It's something that kind of changed the way you lived as a utility. How does that change the way that you think about selecting a software platform?

Right. I was a Director for Illinois American Water, and I had 8 systems. And I started with piloting AMI in 2 small systems. I was piloting a fixed AMI system and I was piloting Badger's Cellular AMI system. We spent a lot of time on the hardware decision. And as time went on and just kind of talking with my team looking at how they were using the data, the team was really gravitating towards Badger Meter and their software. And started to ask questions why. I was using both myself, and it was kind of becoming apparent for 2 reasons.

You need to have an accessible software that's easy to use. You can get in there, maybe do things yourself, curate the experience yourself with customizable things. But then also, there's got to be data there for you. And I think that some of the beauty of BlueEdge, there is data for water quality, there is data for distribution with pressure management, there was data and reporting that you can make customer reports for engineering when they're doing water flow studies. There is data for the meter shop. There's data for me as far as leadership to kind of see where assets were and how things were performing.

And it dawned on me then that software is the first day of the rest of your life. You get to get that signal for what is happening or what may happen. And if we can pause right now, you look across the room here, we've got a lot of future water system managers. They're in software right now looking for a signal for what is happening and what will happen. That's what we were doing with the water system. But Badger BlueEdge, I got signal for water quality, I got signal for pressure. I got it for kind of everything along the way.

And then I've rolled out Ion Water to my customer base. And they got signal. They could see when a leak was taking place and get a text alert or e-mail alert and know when they were ramping up with usage and go and find that. They love that experience in having that software in their hand.

But then I guess layered on top of that, Morrice, you were part of the team that was engaging with me and giving me the support, going from a drive-by system to AMI had a long list of questions, if you recall.

Yes, we did. I do recall.

Yes, yes. And just having that collaboration support made adopting it really easy.

Okay. So answer this for me. You're sort of ingrained in that software. What would it take for you to have to say, "Hey, I'm going to change. I'm going to go a different direction. I'm using this software every day and my people are using it for their operations." What would it take to make a change?

I'm assuming the room, this is a circle of trust and what's said in this room stays in this room. My first system was a fixed AMI system, right? And then the second pilot was the Badger AMI Cellular system.

So to make a change, I think there's 2 things that really need to take place. You need the absence of something exceptionally well or good. And then you need something to go wrong.

So the something lacking or, you could say, not exceptionally good, the software was okay. It was kind of a single solution stack. It was giving me that meter read. But it wasn't servicing everybody. There wasn't data for everybody. It wasn't giving me a signal for what might happen.

And then the second, something going wrong, when I put up that fixed AMI system, I realize after the fact that I just put a lot of responsibility on my shoulders. I am now managing something I didn't manage before. I now have to put another asset into the asset life cycle, 5-year capital plan as far as collectors. And I had to respond when they were down, and it just made life more difficult.

So pilot 2, Badger cellular. I put those devices out and they worked. And I didn't have to manage it. I didn't have to worry about the cellular network. It was working.

And then the software was really good too. My team liked it. It had more data than the first system. And then, of course, I mentioned you and the Badger team giving me that collaboration and support to understand the software, how to use it, get the most out of the system. It made brand divorce really easy for me going from that fixed system to this Badger Cellular AMI.

Okay. Interesting.

I'd like to add a little bit to that. It's interesting that the way you talk about that, I'm known as an early adopter of technology, but a brand of ours changing something that's in place and working, that really changes things in the way that you have to look at it. Again, I had a 30-year career, I started in the mid-80s, Badger was already in my system. I was introduced to this meter and this style by coming to that system. And it worked well for me. Back then, it was walking the streets and getting meter readings. And then Badger evolved and introduced AMR to us. And that was a technology that made sense to me. I didn't have a brand divorce, I just changed technology, and we move forward in that way.

But there came before me, I report to a Board of Directors different than you with the Public Service Commission, but there came a point in my career with the Board of Directors looked at me and said, "Hey, we have a number of what we call sole-source products within the utility. And we want you to step back, take a look at this." And they gave me a list of them, and said, "And are these the right products? Can we open the door? Can we make it more competitive in that way?"

So I had to step back and go back to that thought. Let's do the right thing for the right reasons. So we have to think about each of those products and say, what are the reasons we're using them? What do we need out of this? What gains are we getting from these products? And as I came back and looked at Badger Meter and looked at what they were offering me, what they brought to the table when I started, what they brought to the table now, and what I knew was coming in the future, it checked all the boxes. It made that decision and gave me the confidence to stand in front of the Board and say, this is the right product. This is the right technology. This is the right company, so that we can work with and keep moving to the future.

I didn't think about it as a brand divorce, but I know I was -- I love technology and rolling it, but I was tentative to change what worked.

So let's move into that topic sort of standing in front of the board. Another key factor to these types of technology changes are how do they get paid for, right? Utilities have a bucket of money they have to pull from and there's a lot of things vying for those dollars. Joe, I'm going to ask you this question because you kind of hit on it here. What makes these types of projects, the AMI projects, what rises those to the top as compared to some of the other projects that the utility, again, vying for those same dollars?

Yes. So there's lots of project capital improvement plans, CIPs we might refer to them as, that go into this plan. We work those plans kind of at 5-year chunks, being updated every single year and trying to look out about 5 years. And some of the plant side, we may go out further to 10 years.

This type of a project, when you're looking at metering, first of all, back in the early part, metering has a life cycle. We know where that life cycle is. It's different in different utilities due to quality of water and this type of stuff. In my system, it was about 15 to 20-year life cycle on a meter. So that project already had that. The cycle -- the asset was going to come to an end of life.

But are you just going to change the asset out? Are you going to do a full upgrade? Are you going to bring in the new technology? So that's when you have to start bringing together the project, and bringing that project up to the rest of the team that's going to look at that.

So with metering and AMI, specifically Cellular AMI in this case, safety benefit always is one of those things. I've already talked about the fact that people are so important to me. Eric mentioned it as well. So I'm looking at a project now that may reduce truck rolls.

One of the things that I learned after the career -- 30 full year career, is that putting our employees on the road each and every day in trucks is the most dangerous thing we can do. We can put all kinds of safety precautions in place in plant all over in the system. What we couldn't do is protect them from the other drivers around them. And the accidents are going to occur.

So that is -- immediately brings it up, rises it up. And then you start looking at that operational data, and engineering is going to get 15-minute reads, which means the water model is going to be upgraded. Customer service is going to be able to respond, like Eric talked about. All of these build into that project. And ultimately, in my authority, we ended up with bringing all the divisions together, our group of people, we sat in the room, we called it Survivor Island. And basically what it was, a large project list and a revenue list. And did you make it? Where did you end up? Because this is a cross-sectional project, it would rise up and it would remain on Survivor Island and be funded when the time came available. Best way I can describe it.

Okay. Interesting. All right. So Eric, from a standpoint of ROI, now most manufacturers are going to talk about a return on investment for these types of projects. You said on that other side of the decision-making process, and if someone were to come in and sort of put you a premium solution, maybe not the lowest-cost solution, how did you think about that?

Yes. I mean I enter these decision-making process with there's problems I want to solve, okay? And I'm looking for a solution to a specific problem and the return on investment is how quickly is that problem solved? Is it robust? But is it also solving maybe some other problems?

And AMI specifically, if it's a glorified meter reading system, your ROI is on one solution stack. And I mentioned when -- like with BlueEdge and what was available in the BEACON software and setting up alerts, alarms, the pressure reading, et cetera, it wasn't a single solution stack. I was solving problems for water quality. I was solving problems, for distribution management, for customer service, for billing, for leadership engineering, and it goes on.

So the return on investment may or may not just be that initial problem set. You have to look at all the different problems you're solving. In Badger, then I'm solving all these different problems immediately. I'm addressing my nonrevenue water, my customer value. So the ROI was high just for that nature, multiple solution stacks. So it's not maybe that initial problem. It's much broader than that, and Badger brought that and the long-term value.

Okay. So I think that kind of jumps right into my next question here. You heard Matt and Kim talk about Beyond The Meter solutions, right? Utilities sort of go on a journey. They may start with the metering side of things, but they start to look at other areas, water quality, distribution system management, those types of areas. So Trino, I remember, again, I was one of the salespeople that was involved with you on a project, when you were at the City of Galveston going out for your AMI RFP, I remember like, man, this guy's got a lot of questions, a lot of -- he's got this broad vision, like he wanted to do not just AMI, but he wanted to do, again, pressure management, water quality, you wanted to do all those things.

What gave you that sort of broad vision, if you will, of like all the things you wanted to attack? And then how did that play into the fact that you were a coastal community. Did that play into the factor as well?

Yes. So well, first off, I think you give me too much credit, right? Because I served at multiple utilities, this was actually my third run, right? And I wanted to get one right, right? Third time is supposed to be a charm.

So when you consider like utilities, it's not uncommon that offer utilities to deal with water quality or pressure issues or sanitary sewer issues or tons of main breaks and sewer collapses and whatnot. That's just normal. Even in brand-new utilities like municipal utility districts, they have their fair share of problems, right? Galveston is no different. We had our problems. And we were embarking on this journey to go with this new smart system. And I knew the capabilities that were out there that, I always missed, and I wanted to make sure that I had this one, I had this one right.

You were there, Joe was there. Both of you were in my ear telling me what we could do. And so that played into it, right? And so Eric talks about ROI, and at the time that we're planning this, right, we're also going through winter storm [ Uri ] in Texas. And then I was on an island, right, in South Texas, so snow in the beaches is no good. And so we're going through that. And so Eric is talking about ROI, but what also came to mind after that event was political ROI, right?

What do you mean by that?

Well, so not being prepared, not being resilient, not being able to come back up and be elastic, that's political suicide, right? And so you got to prepare for that.

And so we went for it, right? When we did our project, we did 100% of our meters with a remote connect disconnect. We put pressure at our meters. We purchased a [ Cerenix ] pressure monitoring system, put it throughout our island. And then we purchased s::can and ATI water quality devices and placed that throughout our island.

And then there was a learning gap, but we learned how to use it, right? And then we started to solve so many different problems along the way. I mean I can tell you a whole bunch of stories to be honest with you. But for here, I'm going to share 2 of them, right? So like 2 of my favorite ones happen near the end of my tenure with Galveston.

And so the first one was the Texas Department of Transportation was doing a highway whitening project. As part of that project, they were requiring the Gulf Coast Water Authority to relocate their water line. Now if you paid attention to the video at the beginning, the city manager was saying that we're at the end of the straw, right? We import 100% of our water. And so Gulf Coast was going to have to sever that line to tie into the new line, right? And it's summertime.

And so in order to do this, like we had to truly prepare. We had to get it all organized. We filled up all of our storage tanks. We projected we'd have about 5 days' worth of storage. The project was supposed to take 1 day for the tie-in, 1 day for flushing, we threw in 1 day for emergency. They cut the pipe, everything goes wrong. Murphy's law full effect, right?

And so they keep coming back to us saying that we need extra time, we need extra time. On our side, we're looking at our customers, and they're not conserving. They're not participating. They are irrigating like nobody's business, right? So we're just watching that storage go down and go down and go down. And one of my managers starts doing some calculations and he said, "I think we're going to run out of water Friday before 6:00 a.m. and Gulf Coast is needing all of that time."

And so now we're panicking, city managers panicking. And I call the city manager, this is Wednesday before lunchtime. And I'm like, hey, I would like I would like to meet with you. And then we get together, and I'm like saying to him that I want to cut off all the irrigation meters, right? And he gives me this look of disappointment like that was the worst idea one of my executives could have given to me. And he goes on, and he says, Trino, if I took all your crews, the Fire Department, the Police Department, send them out closing meters, we're not going to shut off enough meters in time. And I said, sir, we bought this fancy Badger Meter system and we can shut it right off from the computer. He paused for a second and then it hit him. And then he was proud of me. I was his favorite employee, right?

And so he gave me the thumbs up. He made the phone call, he gave me the thumbs up, and we were able to execute that command. Meter shut off, Water reduced by about 70%. And 2 things came out of that. One was we realized we had some data integrity issues where meters were crossed, and we corrected that. And then the bigger piece was our citizens never saw the water outage occur. Okay?

And then my real favorite story was in 2024 when Hurricane [ Beryl ] came in. I mean that was the real test of this system. Everything that we had learned and all those little problems I was talking about all came together for this scenario, right? And so we put together a video for you all, and I want to play that video.

[Presentation]

From a utility point of view, resiliency is our ability to anticipate, absorb, adapt and recover. We design and build our systems with catastrophic events in mind.

In Galveston, that's hurricanes. When we chose Badger Meter, it was based on the promise that they could deliver a system that could tackle those exact challenges. Hurricane Beryl was the first true test of that promise. Beryl came in over the Fourth of July weekend. The early trajectory suggested it wasn't going to hit us. Very little preparation was done in advance.

Then on July 7, at the 4:00 p.m. National Hurricane Center briefing, everything changed. Beryl was heading straight for the island and Galveston was going to be on the dirty side of the storm. With a hurricane reaching wind speeds up to 90 miles per hour in Galveston and producing a storm surge of 5 to 7 feet, our water system is going to be challenged. It was too late and too dangerous to issue an evacuation. I had hurricane bearing down on us, an island full of residents and tourists and very little prep in the tank.

When Beryl came through, followed by storm surge, our fiber lines and tower-mounted communications were ripped out. The greater majority of the island lost power for 5 days. However, the cellular network stayed operational throughout the hurricane. No visibility on my tanks, no visibility on my external pump stations, no power across most of the island. Because of the cellular network resilience, what we did have was an operational ORION Cellular AMI system, ATI water quality system and a functioning [ Cerenix ] system for monitoring the distribution system. Using the Cerenix devices and the E-Series ultrasonic meters closest to each tank, we took pressure readings and converted them to feed, giving us a working estimate of water levels across the entire island.

We weren't exact, but we were close enough. Where we saw pressure dips, we used the E-Series of ultrasonic plus meters with flow restriction capabilities to isolate problem areas and preserve our water supply. Our ATI bottlers gave us real-time water quality data across the distribution system. Even without power, even without SCADA, we were maintaining pressure, holding system integrity and delivering clean, safe water.

Because the water system was holding itself together, I was able to redeploy my distribution staff, helping pump out lift stations so residents could bathe, use restroom and begin to recover.

We never lost our water system. We never lost our sewer system. And the fact that we held that system together in those conditions with no SCADA and no power speaks to the level of resiliency that the Badger Meter system was able to provide.

I'm jealous because I had 9 hurricanes hit me in a 30-year career, and I retired just a little too early because this came out around 2020 and I retired in 2018. But I'm glad I got to work with you and watch you deploy this and get to see you use it.

Yes. Well, Joe, let me ask you that question. So if you had this, all these different types of systems, right, pressure management, distribution system management, water quality, you heard Matt earlier talk about the One Network platform. What does that mean for a utility to sort of bring all these systems under a single pane of glass?

It gives the utility another reason to tear down silos, to stop working individually and working in their area and bring everybody together and sharing that data. Because the reality is, is what's happening in one part of your system is affecting another part of your system. And the way we've had to do it in the past is it's more about the local knowledge or breaking out a set of plans and doing it. But now everything is right there in front of you. And when you're seeing a leak occur over here, but you got a pressure drop here, well, they're related, and you're bringing that together.

So the coordination that becomes available and the efficiency that becomes available for your crews, sending them in the right direction, like Trino talked about. He knew the water system was fine and he sent them over to deal with the sewer system. So it's so, so important to have all that data available, visible and have the analytics behind it. Like Matt said, the ability to ask Cobalt a question and give you an answer rather than having to dive into the data yourself, it makes me want to go back to work sometimes. Then I realize all the headaches and the midnight calls, and I say, "I'm okay. Yes."

Can't do that. So gentlemen, thank you. We've covered a lot of ground. And I want to end this session with sort of 2 rapid-fire questions, right? So here's my question number one. If a utility director was sitting in the audience right now, what's the one mistake you'd say to them that they can't afford to get wrong? Eric, let's start with you.

Yes. I can't say it better than Joe and Trino did. Trino got the good, old boy pat on the back for operating the software and shutting off the meters from software, save a system, and then Joe was just saying breaking down silos enabled by software. .

It is the first day of the rest of your life. It's what you're using now to get signal. It's what water professionals use to get signal. You've got to get the software right.

Okay. Trino, what about you? What can they not get wrong?

You can't get compliance wrong, right? It handles public safety, environmental safety. And to stay on top of compliance, you need the proper tools. You need the proper analytical tools.

Okay. Joe, [indiscernible] at you.

Yes. I keep focusing on people. That's just who I am. You've got to make sure whatever you do, the decision you make for, what keeps the confidence of the people around you, whether that's your staff or the end customer. And for me, making a decision to stick with a company that's been around for 120 years focused solely on what it was, I wake up in the middle of the night and think about all the time I was operating a water system and operating utility just makes sense. You can't get that wrong. You got to do it.

Okay. So here's my last question. If you could correct one misconception about how water utilities make technology decisions, what would that be? Trino, let's start with you.

I think one misconception is that we're forced to buy at the lowest bid. And that's not the case. That's not the rule. The rule is that's value, right? And so because of that rule, when every time I bought, I planned, I bought for the worst day, and Hurricane Beryl was an example of that.

Right. Joe, what about you?

Yes. So Trino just said it. Price is important because, again, I talked about it, I'm spending public dollars. So take the time, ask that question. Do the right thing for the right reason. Get your specification right. Figure out what the solution is that meets that, and then move forward with your decision buying.

Okay. Eric?

Yes. I would repeat my comment about single solutions act versus multiple. So you're buying long-term value and breadth of value. .

Okay. Thank you, gentlemen. This has been a great discussion. We started this today of asking the question about what water utilities, when they decide to invest millions of dollars, what are they actually buying? I think the answer is what you've heard here today, right?

The confidence that water utilities are looking for, it isn't sold in a brochure. It's really built on decades of engineering and supporting solutions that water utilities can really rely on, right? This is the type of standard that Badger Meter is held to every day. And I think from what you've heard today, you can see why we're quite proud of it. Thank you.

Thank you for the time, Morrice.

[Presentation]

My name is Charlie Wright. I work for Orlando Utilities. I'm the Manager of Metering and Field Operations for the water side. OUC has been around for 100-plus years. We're a multi-utility in terms of services. We have electric water and chilled water, reclaimed water, sewer credit metering, a variety of different services in the metering arena.

Moving to the next-generation water, we had our legacy AMI system and some challenges that we want to solve and overcome, same data sets very important back office processes and data collection to support all our customer-facing customer services and billing operations. So it makes it easier on that front.

The other major piece is we don't have to have a drive-by system anymore. We can satisfy all our water only without having any infrastructure. We also did a couple of years of piloting different types of technologies, cellular technology, fixed network technology. And we had an opportunity to evaluate those and see what was good and what was bad, the pros and cons, if you will.

So the reason we went with cellular as opposed to fixed or continued [ mesh ], we need a solution that works for all the different scenarios that we have. Fixed network would be challenging in some of those areas. And that's what we learned from the process.

When you combine the BlueEdge suite of solutions that the team has walked you through today, from metering to AMI to BlueEdge and the Beyond The Meter technologies, tied together by software, combined with the sales force that you just saw over the last 45 minutes, we have instant credibility when we walk into any of our customers and present in a shortlist presentation or an RFP.

I'm Dan Waltzien, I'm the Chief Financial Officer of Badger Meter. And I want to talk a little bit this morning about the financial framework of Badger Meter and the things that we find important and are really our guiding financial principles by which we operate the company.

So I'm really going to break that down into 2 pieces. Number one, I'm going to talk about capital allocation. We have a long-standing capital allocation priority list, and I'll dig a little bit deeper into those this morning. And then secondarily, I want to talk a little bit about the durable financial model that we have, built on driving profitable growth, robust free cash flow and a rock-solid balance sheet that allows us to continue to invest in and build out this great company that I'm proud to work for.

As we talk about capital allocation priorities, there's really 3 priorities that we talk about, and these are long-standing priorities. There's nothing new that I'm unveiling today. For those of you that have followed the story for a long time, these will sound familiar.

First and foremost, we invest in the company in the way of R&D and spend, and I'll talk a little bit more about those in the coming slides. Number two, returning capital to shareholders, and that's either in the form of dividends or through share buybacks. And then thirdly is through M&A. And we've built out this BlueEdge suite of technologies and offerings by internally investing but also by doing accretive acquisitions to the business.

So again, let's dig a little bit deeper into each one of those priorities. First and foremost, as I mentioned, is internal investment. So we look at R&D investment as key and critical to what we do every single day. On the left-hand side of the page is just some highlights of some of the investment that we focus on, continuing to build out our ultrasonic meter capabilities, continuing to build out the SaaS platform that we have and the advanced metering infrastructure offering that we created in the market just over 10 years ago with our Cellular AMI offering, and then certainly continuing to innovate and be at the leading edge of the ORION Cellular offering that we do.

I think sometimes it gets lost, how difficult it is to do what we do, taking a cellular device, putting it in a very rugged environment, combining water and electronics, and having those devices last for over a decade, 10 to 15 years in most cases, is really hard work, and we're proud to be the market leader in that space.

When you combine all of these allocation priorities, really the measure by which we look at, first and foremost, is in the lower right-hand quarter, free cash flow conversion. This is one of the 2 metrics, which our leadership team is measured by from a long-term incentive plan perspective. Our stated objective is to have free cash flow conversion in excess of 100% of net income every year. We've demonstrated our ability to do that and are confident we'll be able to do that here moving forward.

Next, I want to turn our attention to capital return to shareholders. Number one, we look at this in really 2 buckets. Number one, annually. We've increased our dividend 33 years consecutively to earn us the Dividend Aristocrat status, which we're proud of, and we fully anticipate continuing to do that. Secondarily, we look at share buybacks as a second avenue. And we look at this more opportunistically. If you think about our stock price performance relative to our peers, we certainly feel, like given the leadership position that we hold within the water space, we feel like our stock should trade at a premium to our peers. And when it's not, we view that as a buying opportunity of our own stock.

Over the last 6 months, up to and including the second quarter of this year, we bought back about $70 million in stock, and that includes about $20 million so far in the second quarter of 2026. And so as we continue to see dislocation in the stock, we will certainly use that as an opportunity to continue to do buybacks.

And then the last priority is M&A. On the left-hand side of the page is our ROIC performance relative to our water industry peers over the last 5 years. And I think the results speak for themselves. And over that 5-year period, I think it's important to point out, we've doubled the business organically, we've deployed $400 million or close to $400 million in accretive acquisitions, that really round out the majority of that Beyond The Meter technology space that we talk about, the water quality and sewer line monitoring and pressure monitoring.

And we've also operated through a very difficult operating environment. We dealt with COVID. We dealt with supply chain challenges. We've built with a highly inflationary environment. And throughout that period, we've been able to grow the business and really performed very well from a ROIC perspective. This is the second measure of which our leadership team is measured from a long-term incentive plan. And so we, again, are focused on performance.

On the right-hand side of the page, we're not done. We view that there are plenty of great acquisition targets still out there in the market. We have a funnel full of opportunities that we continue to focus on. And as the right opportunities come to the forefront, we're certainly taking a good hard look at those.

We still feel like we have a lot of dry powder, if you will, to continue to add to our portfolio via acquisition when the right opportunities present themselves. Turning the page now just to talking about the robust performance of Badger Meter. And before you look forward, I think it's important that we look back at the performance of the company, and I want to point out a number of things on this slide. If you go back to what Bob said earlier this morning, we were the first to go to market and create the cellular AMI space.

And we did that all the way back in 2014 and 2015. And as you can see, over that first 3-, 4-, 5-year period, we really had to prove to the market that this was the leading technology and the technology of choice across the market. And really with the first significant wins that we had in the cellular AMI space with Aurora, Colorado and Columbia, South Carolina, both in early 2019 that's really what's propelled this change in our business in terms of how we operate and how we've been able to drive through not only cellular AMI, but follow along with the meter technologies that go along with it, and that's really what's propelled this growth over the last 5 years.

And as Bob illustrated earlier, we feel like there's a long tail to that opportunity that we're going to continue to capitalize on and then add to that the beyond the meter technologies that we've added to that. We often talk about we have greater visibility within our opportunities within our customer base to the next 3- to 5-year period than we do to the next month or the next quarter.

Bob illustrated that, but I wanted to just highlight that a little bit further as we talk about our strategic outlook over the next 5 years. As we look at each of the positions within the opportunity funnel, we feel really good about the customers that we know have systems that are coming end of life. And they may be on a manually right system, they may be on an AMR system.

They may be on an AMI 1.0 system, and we feel great and that we're in a great position to convert those customers wherever they stand in that technology adoption curve. And we have great visibility and are working with the customers.

Those solution architects that you just heard from are engaging with customers all the way back at the consultants stage, working with them to set up the RFI to really highlight the benefits of the technology that we have so that they understand what they want in their systems as they go out and eventually get to a get to a project pilot, analyze the opportunities that they have in front of them and to ultimately getting to the awarded projects, and I'm going to talk about that here in a minute.

Once those awarded projects are visible to us, there's still a bit of a delay between when those projects are awarded and when we actually get to deploying revenue. We still have to negotiate a contract, set up, whether it's a supply only or a turnkey process to make sure that we can deploy that system or that the customer can deploy that system efficiently and get that system installed.

If you pay attention to the first quarter earnings release, this slide should look familiar. This is the same subset of projects that we highlighted on that first quarter call. And the purpose of highlighting that was to give the -- or to show the confidence that we have in the subset of projects that we have in front of them that we have in front of us, they've been awarded to us, and they're in the process of getting closer to starting deployment in the second half of 2026 and beyond.

I think if you look beyond just the opportunity in terms of the size of the number of connections that are on the page, there's a few other things that we were trying to communicate as part of this subset of projects that I just want to highlight this morning, and I think it ties back to a number of points we've made throughout the morning.

Number one, if you look at 7 of the 9 of these projects are competitive conversions. So go back to what Bob talked about in terms of the sticky nature of the customers within the space and us leading with the AMI technology is pulling through meter share gains. And that's existed historically, but it's also illustrated in these awarded projects that are going to be deploying over the next 3 to 5 years.

So that trend was not a flash in the pan, was not a onetime event. That's consistently how we're seeing opportunities in the market continue to transition. Number two, about half of these projects are supply only. Half of these projects are turnkey.

We're happy to do either one. We meet the customer where they are in their conversion cycle. And if they need help with that deployment, we're happy to do that with them. Just to understand that comes with a bit of a different revenue profile, and that comes with a bit of a different margin profile.

And so it's important to point out that 100,000 connection opportunity might look from a revenue perspective, very similar to a 200,000 connection opportunity. And so again, all opportunities are not created equal, we'll meet the customer where they are and help them to deploy AMI.

This slide then really just takes the individual pieces that we've talked about throughout the morning. Ken started off by talking about our high single-digit organic, 6% to 8% CAGR over the next 5 years. If you look back over the last 5 years, yes, that includes acquisitions. We've grown at about a 17% CAGR. And we feel confident in the 6% to 8% CAGR on the back of the individual components we already talked through.

Bob talked to you about moving from mechanical meters to static metering and the adoption of AMI and the pull-through of software that comes with the adoption of AMI. Tim and Matt highlighted the benefits of the beyond the meter technologies and how we feel those can grow at double digits and the software when you combine both the metering portions of our software, but also the beyond-the-meter portions of the hardware that also have software attachment rates to them feeling like we can continue to grow software at a double-digit CAGR over the next 5 years.

Next, I want to turn your attention to margins. We have a longstanding practice of talking about our margin in a normalized range, the chart on the right-hand side shows our margin performance over the last 5 years, and I'm specifically talking about gross margins now. We talk about our normalized margins being in that 39% to 42% range.

And the reason we talk about a range is, as we think about each of the projects that we're stacking in any given year or quarter, it is a real -- it's a mix game of those particular customers choose to go with a mechanical meter or with an ultrasonic meter, are they doing a supply-only deployment? Or are they doing the turnkey deployment.

And all of those things impact the structural mix in any particular quarter which is the reason that we look at this in a range. There's a number of other things called out on the left-hand side of the page in terms of additional margin drivers and other pressures that we may experience -- just know that we manage all of those pressures proactively.

We have a value-based pricing model in order to make sure that we're capturing and recovering those things to maintain our margins and we feel very confident that as we continue to grow the business, that structural mix benefit will continue to persist.

So if I pull all of these things together and really talk about what is the financial framework of Badger Meter -- we talked about the high single-digit growth algorithm organically. I want to make sure that's clear that we're talking about organic growth there, continuing to drive strong gross margins in that 39% to 42% range. and strong incremental margins.

We used to, in this business, talk about incremental margins in that 20% to 25% range. We now think about it in the 25% to 30% range, really on the back of those beyond the meter technologies and the gross margins and the SEA leverage that we get there along with the software. Finally, free cash flow conversion.

Again, we feel great that this has been a really good cash flow-producing business. And at the end of the day, we have plenty of dry powder available to us to continue to grow out the business both organically and through attractive acquisitions.

So with that, I want to turn the slides back over to Ken for some closing remarks, and then we'll open it up for some Q&A after that.

Where was that? We have pretty good results. Yes. Okay. So you saw the slide from me before. So before we move on to the next section here, I hope that for you now, the answer to the question at the top here is obvious. And why we feel so good about not just what we've done, but where we're going. So the why invest in Badger Meter. Back to the point that the macro drivers in the attractive markets that we play give us a constructive industry backdrop. .

Second, the leadership position that we have shown displayed and continued to defend and grow around metering and AMI and software is firmly in place. Beyond the meter gives us the long runway for growth that we're really excited about. The ability to continue to meet all of our capital allocation priorities and invest back in this business for organic and M&A growth, differentiated execution, and I'll just skip right past that right to exceptional teams.

So if you heard me say before, or Bob or Dan, when we talk about our exceptional people, what sets us apart in the short list presentations, if you didn't feel that today from our panel of solution architects, that's a real change because those guys are the real deal.

So I'd like to give those guys around -- they are the ones that make it happen every day. So our team really is differentiated. We do drive value compared to our peers. So overall, feeling great about the future of the business. Thank you for coming here.

I'm going to ask the team to come back up. We're going to convert over back to Q&A. So a little bit of a set up here, take us some of the 2, so no break. We'll roll right into Q&A here in a minute.

[Operator Instructions]

Nathan Jones, Stifel. Thanks for all the information today. I guess I'll just start with the growth rate in the metering business, mid-single digit over the 5-year planning horizon. Can you break down a little bit more on the building blocks to get to mid-single digit out of that.

There is a slide early on in a pace that had I think, over the last 5 years, 2% to 3% industry unit growth on meters. Badger had done 7. There should be some tailwind, I think, from conversion of mechanical to solid-state meters on that as well in terms of ASP.

Are we now to a point where the ASP lift from radios on meters has kind of reached an equilibrium where you're shipping at that level? Do you say you get to mid-single digit should be some inflationary price increases each year. I'll stop there.

Yes. Perfect. So instead of 3 or 4 of us giving you a portion of that answer, I'm going to turn it to Bob first since you're running that piece won't you kick that up for us, and we'll jump in if we want to.

Yes. So I think, Dave, you've hit some of the key elements there is that certainly the conversion from mechanical to static remains ongoing. In the past 5-year period, we grew unit volumes at 7% and ASP would be on top of that. I think, ultimately, you have to remind yourself that on an ongoing basis, that market level of growth is low single digits.

So banking in at something higher than that from a unit growth perspective is certainly what we believe in light of the comments on market conversion and competitive conversions. And certainly, price is a dynamic to that as well.

On the AMI side, again, continued belief in market leadership and the ability to convert customers. I think the challenge becomes at least on that at least in the historic period, 21% unit growth is we've already done a significant step change in units from what was hundreds of thousands per year to now considerably more.

That doesn't mean we don't believe that it can continue to grow. But in certain cases, it's just a case of the math on the base. Realize that when we say mid-single-digit growth relative to customer water usage, that is excluding it from the software piece that Matt talked about.

And so really, if you really thought about the meter to cash cycle and the customer water usage growth kind of holistically, it would notch that high single -- or mid-single digit growth up a little bit when combined with the double-digit growth on the software side, which is maybe more in line with the algorithm expectation that your question seems to suggest .

James Ko from Jefferies. I guess I wanted to touch on the 9 working projects that you guys showed on there. So I think [indiscernible] have pilots underway before fully going to be deployed. So I wanted to understand what is kind of historical conversion rate from pilot to full award? And what are the kind of key variables that you guys watch like what could cause pilot convert the full project? And like what are the risk that it gets delayed further?

Yes. So first, just because I'm not sure that I got the question, but in pilot phase, these are all awarded just not started projects. So sometimes utilities will still do a pilot phase even though they know that's the technology that they're going with because they want to put the radios and maybe their hardest to read areas and they're doing just certain tests along the way.

Sometimes that can lead to a delay if they have just some challenges along the way. But being in pilot phase is really good because they've awarded the business. They're going to be moving forward. Other things that might delay a project from starting could be aligning labor and resources and getting some of those pieces moving, where it's turnkey we have much more control over that.

We're at supply only. Sometimes that can be not in our control, but that doesn't mean it won't go on time. So a myriad of factors on how one utility gets in play -- but I think that question probably has some recency bias. And every day, we get closer to the second half of the year, and we feel better about those projects in the phases that they're in, in terms of moving forward.

Andrew Krill, Deutsche Bank. I wanted to dig in on the incrementals target. One, switch from EBIT to EBITDA. So maybe just give us some more color on that? Does that have to do with the M&A, new amortization? Are you going to focus more on EBITDA going forward?

And secondly, could this be higher, your gross margins consistently 40% or better, that's kind of a proxy for where they can go suggest are you suggesting you need to reinvest a lot? Or is there some conservatism? Any more color there would be great.

Yes. I can start and then you guys can jump in. So in terms of the EBITDA target, that's how we've thought about it more recently in terms of what those incremental margins could look like. And again, I'd like to point out it's on the back of really 2 levers. It's gross margin, which I did talk about. The other piece is we feel like we can continue to leverage the FDA.

In particular, when you look at the beyond-the-meter technologies and some of those businesses as we acquire them, had invested in SCA just to sort of grow the businesses on their own. And as those sales levels are growing, we feel like we can continue to drive additional incremental margins through those businesses.

So that's why we switch from, call it, low 20s to high 20s incremental margins on that base. I guess I'll let you decide whether you think those are conservative or not, but I think it's important to just understand the other mix drivers that can exist within gross margin.

Yes, we've been operating towards the higher end of the margin range. But keep in mind, commodity cost pressures. Keep in mind, sales mix when we don't have a lot of those large turnkey type projects with potentially some of that pass-through revenue, those are margin pressures that may exist as some of those larger -- the subset of those 9 projects and some of those start to deploy some of those pressures will exist.

Yes. I think I would add the structural mix nature of this is really strong and during -- so when you start to think about software being twice the size of what it is today, software is software-like margins. And beyond the meter solutions that we've added are accretive to gross margin.

So of course, we're going to have cost pressures -- of course, there are going to be things that come along the way. But that structural mix benefit that we've built in is very positive. So I'm not going to say that it's conservative, but we feel really solid about what's happening within our gross margin and SEA profiles.

And then secondly, as we look forward with the high single-digit growth, are there any guideposts you could give us and maybe a standard deviation type of framework of what you think could be a high point versus low? And would you say this year being flattish is an anomaly as we kind of reset from the post-COVID world?

Yes. So that's a good question. I think most of you have heard me say at some point that when we say high single digits, we don't mean -- we're not pegging 6 to 8 every single year. We've talked about some years could be 13, some years could be this year is an outlier.

And I think it's simple math when you look at the cohort of projects that are coming up, the way that you see the double-digit growth stacking on top of software and the beyond the meter solutions that we still expect some variance.

You could still have a year that's in the teens. And I think you -- I can stick with the -- I still would expect we could ever year that's 12 or 13, a year, that's 4 because that is the nature of how this works, but there is a variance on is between 6% to 8%.

B

Ut those reference points you just gave are just examples, not the high and low -- it's about a range the whole reason we unpack kind of the supply only turnkey concept, the whole reason we unpacked the duration of the lead-up schedule to first assets put in the ground is to express the inherent unevenness that while muted over the long term can provide variation year-to-year to quarter-to-quarter. I wish it were easier than that, but it's not as simple as what it might see.

Well, I think, frankly, if you take the top 2 on the cohort of pros with the $1.6 million supply only and the #2 on that list of a 330,000 connection turnkey. We've known about those for 5 years. So when we've been talking about our growth through the cycle, it was reasonable for us to assume that maybe 1 of those 2 would have started.

And if it did, this would be a completely different discussion.

Ryan Connors here with Northcoast Research. Kind on the competitive landscape, you alluded to that, but I wanted to kind of drill down there a little bit. Obviously, I think there's a -- there's no question about munis had a tremendous run competitively, and it's been great. However, the company doesn't win every job, competitors are out there, long-term incumbents, new entrants, as you alluded to, you've got major national distributors who have invested a lot of money in this business largely with your competition.

They're determined to grow this business. So obviously, every job is different, but you've got this high-class problem now of having to defend yourself on the pets and how do you strategically look at competition as relative to everything that I just mentioned. I mean, is it when a job comes up when you're a little bit above, are you willing to -- is there a framework where you have a range you're willing to go on price and things like that? Just curious how you look at that strategically and I do have a follow-up as well.

Yes. So first of all, if there is such a thing, we run the business with a healthy [indiscernible] We know that we're in a fantastic market with great growth macro drivers. We know that everybody would like to be in our space. You and I talked about this 9 years ago when I started, it's always been this way. .

And I told you then that what we were going to do was build out a best-in-class strategy, build on the brand recognition that we have differentiate ourselves with technologies, tie in the software, that was the plan. So I can't feel better about what's happened over all these years. I think you heard the team talk and they have a tremendous amount of credibility that not every decision is based on price and some of the competitors think that, that is their way in.

But proven technologies, real references that matter, real outcomes that are tangible. I think -- I hope most of you learn say something new about how the software actually works and the problems it really solves for utilities. -- versus people who say, I can sell a meter, and I can sell some other thing, but trust me, it will work, and I'll be here for 20 years for your deployment.

So there are so many tangible and intangible benefits that we have and we take none of them for granted. So we know who every competitor is, whether they're here already entrenched whether they're European entrants, regardless of who they are, what they do, we take them all very serious, and we know that they're out there, but we feel great about how we differentiate it and drive forward.

And then as a follow-up, just specifically on cellular. I'm looking at Slide 21 on the PDF, they're not number, but I don't know if you can flip to it or not, but is the chart where you show cellular kind of emerging as the latest mountain on the various technologies that have come out over time.

And if I logically run that chart forward, there's going to be some other mountain that starts to emerge once cellular has gotten to critical mass. So the company talks a lot about cellular. I think it's in the early innings, but there are people talking about satellites. There's people talking about amazon Sidewalk and things like that. What's your vision of how you make sure that you're as successful in the next round as you've been in cellular .

Yes. So when we talk about that internal investment and the M&A funnel, you can imagine our excitement around sewer line monitoring particularly smart cover was even more exciting because they already have an installed base of satellite radios and communications, which we, of course, fully know and understand and research -- but we are going to stay on the front end of innovation like we have.

We were the first with the ultrasonic meter first with cellular. And we will continue to advance and have the best cellular offering but as technologies evolve, we will continue to be in the best position to take advantage of that.

I'd say, even if you look at that 10-year line on the blue line on the chart that you're referring to, yes, that's cellular as a general category, with the amount of innovation that's gone into our sixth generation of radio, the ability to migrate battery architecture and cellular communication and getting more out of that battery architecture, now going from a single carrier SIM to a multi-carrier SIM that's intelligent enough to switch from one network to the next.

All of those augmentations and iterations were born out of that natural curiosity of innovation that's made us the market leader -- we're not just saying cellular, cellular so we're really saying most efficient means of communication.

And that will evolve just like it did in that 10-year chart that we've generalized to cellular, but really represents 6 to 7 to even in innovations that gives you a clue of how precise and tight our innovation curves are. This is not a technology that's 10 years old. It's a series of iterations that's 10 years old.

Scott Graham from Seaport. I would -- sorry for asking the 2026 question of, but has anything changed? Your outlook statements off of the first quarter suggested a flattish year for sales, second half up momentum into 2027. Has anything changed in the last month? Sorry to ask.

No, I knew it would be you so it's been 6 weeks since then, and we don't feel different today than we did 6 weeks ago. We do expect Q2 to be sequentially better. We do expect to see the projects start to begin as we talked about in the second half. We have confidence around that.

I'm not sitting here today saying that we're expecting upside right? But we still feel that, that flattish range is about where we're going to be for the year. But we fully expect to be exiting 26 with tremendous momentum compared to how we entered the year.

Thank you I wanted to ask about non revenue water, and there was a chart shown showing about a 20% non revenue water quotient. Unfortunately, that chart looks conspicuously like the same one I saw years ago that nonrevenue order, the percentage really hasn't changed. How does Bluewater attack that? What is your value proposition to your customers to make that a true revenue driver because it just doesn't look like it has been for the market.

Yes. So the first thing, and then I'll turn it to someone else, but that's why AMI is not going to stop at 40%. right? So this whole idea of, well, geez, how much more room is there to grow because 80% already has our radio. The benefits, the step change from AMI to address nonrevenue water and conservation issues like Trio and the guys talked about. AMR is fine is sufficient for getting a read better than manually doing it, but it doesn't get even close to the AMI benefit.

So if you really want to tackle that, the 40% has to get up into the and that won't happen for a long time. That's why we're excited about the continued AMI adoption. In terms of other -- beyond the meter, sorry because I think your question is framed from the perspective that if AMI were driving these benefits, the 20% would decline.

And I think maybe what that perhaps misses, is the state of the aged infrastructure, all right? I would look at the question is, what would that percentage be if we haven't -- hadn't seen the amount of AMI adoption that we have in the last 5 to 10 years, and I would argue that it would be larger than the 20% that chart said 5 or 6 years ago.

So to Ken's point and to that point, the only way to make headway into that is to be tackling not only the aging infrastructure, but in this case, the tools by which you're able to finitely define and identify and pinpoint the aging infrastructure requirement, whether that's which main line do I need to replace instead of just holistically chunking through my 100 miles?

How do I targetedly do that? How do I then also look at a variety of other aspects of network monitoring distribution mode that I'm sure Matt is ready to happy to jump in.

Yes. And I think some of it comes down to the efficacy in different modes to do this. So if you look at the U.K. or some of the European areas where there's been high density regulated leak detection and network monitoring teams in order to remove that leakage portion or the U.S. started with AMI.

And so now as we get into something that 1 network can enable of that marriage of that information from the meter, plus those network monitoring capabilities to be smarter about it, instead of just deploying hundreds of thousands of sensors for the sake of deploying them.

We can get to real insights and actions that's where you start targeting things like transmission main monitoring, where if you have a leak occurring on a transmission main, you have scarce resources to invest and you have to choose where you're going to dig and replace pipe.

Are you going to dig up hundreds of different pipes as a service level connection that have a small leak -- or are you going to dig up that pipe of which is leaking thousands of gallons -- so being targeted about where and how you go about your non-revenue water reduction is the toolkit that we deliver through Blue Edge had

Quinn Fredrickson from Baird. Just a question on 1 network. I think a couple of the panelists and speakers spoke about utilities being a little bit more risk averse and maybe hesitant to embrace change. So how do you overcome that as you seek to roll out 1 network? And how should we think about the monetization model and just time line of deployment?

Yes. So the beautiful thing is that as you heard Trino talk about the way he used the solutions already. it was essentially using 1 network before it was there. So there was already RADAR, which was the software platform that came through with this high frequency pressure monitoring equipment through the [ Cemex ] brand.

He was already using Beacon for his metering and district metering he was already using beacon for the water quality information. It was just living within platform, software platforms that we had that weren't necessarily the ideal place for that information to reside and weren't co-mingling it all into the outcomes of which were more natively delivered.

So one network delivers on that promise. So it's the same equipment that he already had in the ground. It's the same information that's being presented back, it's now just presented in a much more meaningful way and an opportunity for us to provide those cross-product analytics.

So I don't view it as a big hurdle for them to adapt. We're still solving problems at the level of which the customer wants to solve. They're buying for a purpose. We aren't promising a massive digital twin that's going to solve every problem for a utility.

We're working through individual problems at a time. It could be non-revenue water that they're starting with could be water quality data collection and discoloration problems in.

One network gives them the opportunity to step through that in a manner which they can solve a problem at the time, not have to jump to a full digital twin day one.

Yes. I think it also goes to the Blue Edge portfolio when you get the collaboration and support and the point that we don't just sell a piece of hardware and maybe some piece of software and then walk away for 15 years. .

We're there with them, making sure that they actually get all the benefits that are possible to them from our collection of hardware and software together. Then what happens in this industry is 1 utility director tells another 1 a town away or when we do a shortlist RFP, someone says, Can you tell me 3 utilities you've done this for that have these specific pain points and problems that I have that I can talk to.

So this business and the reason it takes a while to get going is you just need to get more and more of those success stories out there and then it starts to build on itself as more people say, okay, I'm not the first one to find out the hard way that this may or may not solve my problem. I know several other people that will vouch for it.

To Ken's point on that walking the customer along the journey post deployment for many years. we've embedded that in a customer success function that literally ensures that the ROI investments that were defined as part of the justification of an AMI project get realized throughout.

It's part of the cornerstone of collaboration and support for Blue Edge and it's a big part of that differentiating that our service offering relative to competitors.

And then second one would just be on supply only versus turnkey 5 of the 9 projects that you highlighted in the second half that are going to be kicking off our turnkey projects? Is there more of a trend for utilities wanting turnkey? And are you competitively advantaged in turnkey at all?

Yes. So that literally is the point -- I would say if you went back 7 or 8 years ago, previous in my career, I used to run a service business, and I didn't particularly like that very much.

But it was very clear strategically that utilities when they do these once in a career once in a lifetime project that Bob talked about, they need help and support. So we evolved our model to the point that now we can and will willingly take on turnkey if you didn't, you wouldn't be participating in those bids as well.

So for us, it's been a strategic shift, if you will, several years ago, not recently to be able to participate in that and make those things make that part of our portfolio.

I would argue in the cases where we do provide the turnkey solution, we've built out a team that is very professional trained in construction management and understands exactly how to deploy those systems. And it's an expectation of the customer that we deliver that level of service.

And so we're proud when we're chosen to go that route that we can do it very, very well. Bobby Zolper from Raymond James.

I think I've heard you all talk about that your success over time relative to the 2 other incumbents has largely been due to your focus on meters specifically. When you think about the Blue Edge strategy and now that you are, I guess, becoming a more complex organization, you have multiple different products under the Badger name. How do you think that impacts you competitively over time?

Yes. So I don't view us as becoming more complex. I view us as more dialed in to the pain points of utilities and be able to cross-sell and get share of wallet and solving the biggest pain points. Again, I'll point back to the guys in the back room. They can go talk about any of those solutions.

And in fact, if you stay at lunch, you'll see that as we go through the boards that you saw in the breakfast and much room there. So we have and this is where we differentiate on the sales front. We're not represented by distributors coming in talking about all of their distribution products and all those different things that they have.

We have industry experts who've chosen to work for us that can talk about all those aspects. So it's an in tandem strategy that I think because we integrate into the business as well, we're operating as one company.

We're not having 3 or 4 different sales forces running around trying to get attention. So I don't -- I wouldn't say it's complex. I would say we're evolving sideways.

And I think more importantly, as customers do an RFI or an RFP for, let's say, an AMI project, they may not be ready to implement the full complement of Blue Edge, but they certainly will be inquiring about the capabilities that, that solution provider has in those areas, even if that trigger pull for those features and benefits is year 2, year 5 or year 10.

So because we're able to respond affirmatively to that immediate now IRP that says, yes, we do network monitoring. And yes, we have assets and solutions that can be deployed into the collection network. It may just be a -- this is not intended to be in any way to diminish.

But check the box in 2026, that's what becomes a decision for awarding AMI. That's the door that opens the challenge, the incumbency advantage, and that's the lever that sets us up for to your initial question, how does this benefit us going forward different from our competitors.

Our competitors don't have those arrows in their quiver.

Understood. And then in the deck, you provided a lot of good detail on the business growth in meter volumes, growth in cellular growth in your nonmeter business. How do you think about reporting those on a more regular basis to help investors more accurately to SaaS and value of your business?

Well, I would say we've taken quite an evolution already. If you just look at what we've done over the last 6 to 9 months. We're not -- we don't have any plans to start doing segmentation or other things. But we have embraced the idea that providing more information, I think, is helpful, in particular, in how things have been in the last few quarters. So I think we will continue to measure that based on what we think needs to be communicated at the time to make sure the investor base is up to speed on what we're doing. But we're not looking to go towards a segmentation approach.

Jeff Reive, RBC Capital Markets. So you've shown a fairly comprehensive software stack today begin through the field service app how differentiated is that offering versus peers or kind of third-party providers?

And would you do win your AMI deployments. How much of the decision is driven by the cellular network architecture versus the software stack that you can provide on top.

Yes. So I'll start with the software specific question and then hand over to Bob. But I would say that the software solution is differentiated from our competitors. We see any number of our competition having a portion of what we offer. Other competitors are choosing, for example, to go completely away from their own consumer engagement portal and partner with others to deliver that solution.

We view owning that whole development cycle to be an important part of our offer to our customers and enhance value in not having to have those additional integrations. We've seen portions of it being offered, let's say, through holistic digital twin solutions but again, our approach being different in the way we operate this and really leveraging the value that the customers already purchased with some of our hardware-enabled software and providing them clean bridges to grow.

So it's not to say that other competitors don't have portions of what we offer. But we are differentiated in how well it naturally [indiscernible] with each other and the values that they can extract as they look to grow throughout their platform. And it's water centric aimed around solutions and outcomes that are informed by close proximity to customers.

So there's all those competitive differences. There's all those layers of how good is the engagement tool, how good is the MDM. Putting it all together, it's driving toward water-centric income outcomes that our customers value.

To your second part of your question, look, to be honest, it is extremely hard to disentangle the buying decision for cellular AMI from what is the cellular backhaul network resiliency side of things versus the outcome and insights and analytics. You have to look at them together. It's almost what Eric said during the panel is, yes, software is the first day of the rest of your life.

So that might seem like the most intimate every day dealing but he also said the alternative was taking a whole lot of weight on the shoulders and getting into the business of managing a network and a telecommunication set of infrastructure that with cellular, you don't need to, they really go hand in glove, and so it's very difficult to say which won the day.

And even if there were a differentiation, I can all but guarantee it was different for JEA as it was for AUC as it will be for Puerto Rico.

And most of your software is internally developed -- just curious how you think about software through the M&A lens.

Yes. So even as Dan laid out the M&A line ways. Certainly, we're always looking for additional bolt-ins, I would say, not for full transformative software platforms, but with the scale and scope that we've developed now around our software platforms, there are certainly aspects of which differentiated novel technologies will look to pull in as we continue that funnel that Dan referenced.

And part of what we've developed in our software platform have come from those initiating sparks of M&A. So whether that's going all the way back to the acquisition of Aqua in 2013 and that connectivity of cellular radios to a cloud-based software and then us investing in and developing and growing that into what Beacon is today.

We look for those sparks externally as well as internally and then building those into our enterprise-grade solutions.

Will Grippin, Barclays. I appreciate the time and all the detail. And early in the presentation, you mentioned on the software piece, that was uncancelable, unreducable. And I think a couple of slides showing software revenue for an existing customer stepping up over the course of time. post deployment.

So could you provide a little bit more color on how you think about that growth with an existing customer being either price or incremental services being sold or just growth in water usage or consumption.

Yes. So the reason I say that is, of course, we have a model where it is a 100% attachment rate for you to get the data to begin with. So every utility we sell AMI to, that's the case. The reason I say it's uncancelable and unreducable is because once you've made the investment to put the radio on the meter, there has never been a case we said, I know of, and I can't imagine in case that there ever would be where someone would say, I screw it, I'm just going to put guys in trucks and drive around and read them again.

So it's every meter every month. No one would cancel it and it's unreducible because of that every meter every month. The way that, that grows is in many cases, and obviously, several utilities can be different, but we have pricing escalators built into several of the models.

There's another way that it grows in that now we sell more MDM solutions that has additional software revenue layered into it. every city tends to grow, and it's really easy when a city grows, that 2% to 3% meter growth that is inherent in the market every year. those come out and just get radios that have more software attachment.

So there's multiple layers that keep driving the software revenue for us, whether that be price, unit growth -- or just in -- yes, expansion winning more share. .

I think in 1 of the early slides, there was a comment about when we think about your framework, I said something like 30% market share in a rational market. I thought the word rational is an interesting inclusion in there. What are you seeing in the market right now?

What we need about the market being rational is that people still want best technologies at reasonable prices. So meaning we're not seeing any structural shifts or pricing changes. Obviously, we've sold more unit volume than we ever have at the best gross margins we've ever had. So we're not seeing irrational activity . If that's what you were taking from that.

Okay. Understood. And this is more of a modeling question, so apologies. But when we think about the detail you provided on basically the ramp-up of large projects, it looks like it basically ramps up sequentially every single quarter going into year 2 as you get to like, I don't know, peak revenues or whatever you want to call it, is that how we should think about the project contributions that you have as starting in the second half of 2026, meaning the initial contribution is small in the second half of 2026 and it should get bigger every quarter for the next years effectively?

Yes. So again, this is the danger in trying to represent behaviors of 50,000 utilities into a single graph. I think what you can take away from that is that the average deployment has a period where you're getting ready to deploy, then there's an early stage of being able to prove that deployment and that at some point, the meter installations go through a period of ramping as labor gets in tune with optimal routes and the ability to hit certain install rates per day, and then that runs for a period of time at a peak.

And then over time, it winds down. It's like building a house, right? That doesn't mean every project is 4 years. That doesn't mean the ramp happens in the first 6 months. The intention of the graph is to show you a representative sample that cannot be -- just like every acquisition is different for a business, every AMI project is different. So you can't draw a singular conclusion from that other than knowing there is a ramp, there is a decline.

There is an opportunity for gaps in projects. There is an opportunity for perfect alignment of projects, taints can often expose can mask exposure to short-cycle order rates, but none of that can be drawn on a straight line to reach the conclusion to your question.

Yes. Directionally correct. Andrew, right behind you.

I have 1 more on capital allocation. On M&A, could you give us some flavor on if there's any new verticals you're interested in, like Smart cover was effectively was brand new. You say you're participating in 60% of the smart -- the smart water market, excuse me. And then conversely, are there any portfolio pruning opportunities at Badger Meter flow instrumentation.

I think, is obvious. I know it's kind of several products within it only growing low single digits. Color on both those would be great.

Yes. So a couple of things. Just first of all, on the TAM sizing that we opened up from $5 billion to $15 billion, it's a huge market. So we can just grow by rolling up companies that are already in the spaces that we're in.

There are site adjacencies that we could continue to go into on wastewater collection systems and those types of things. So we have plenty of opportunities that are still out there within that space. And sure, we could expand adjacent outside of that as well.

We do review all those things within our funnel. We do our 5-year refresh on our strategic plan every single year. So we have a lot of exciting opportunities inside the funnel already. So I would say more of the same types of companies for add-on as far as portfolio proven, I'll turn that to Matt.

And maybe even just briefly on sewer monitoring being different than what we've done. I would argue that it's similar to what we've done. Our strategy was instrumentation, the malt data collection around the meter. And so we've already gone upstream into the distribution network.

Moving downstream into the collection. We actually already have positions in already with Kellogg with the SCM product line in water quality monitoring this was additive to that remote network monitoring just on the collection system side instead of.

So just reinforce what Ken said that looking additive to in alignment with that strategy on collection, remote resources and providing visibility to those networks adjacent to where we are in metering.

On the pruning perspective, and the thing I want to reinforce and maybe something I missed in the presentation before, some of those flow instrumentation technologies, the core ones that are water-related actually end up showing up in some of the municipal spaces as -- so if we think about our electromagnetic meter product line or a clamp on ultrasonic meters, those reside within flow instrumentation.

Those are ones that are in focus for us that we continue to develop that we continue to invest in. that are used for municipal business, but also could be used in side of C&I applications in building inside defense application.

Now within that portfolio of flow instrumentation, yes, there are product lines that are deemphasized that are potentially right to pruning, and we are going through any number of assessments on which ones are valuable to keep in the portfolio.

And are there strategic opportunities to move on for some of them.

The scope and scale of those potential pruning are extremely small, dated under-invested product lines that aren't a distraction in the short term, but aren't wholesale scale either.

Is that assessment new more recently? Or has this been going on for years?

So I'll take that first. So one of the things that you can imagine is we have an intense focus on the great opportunities in front of us in the growth. If and when those things become distractions, that's when we look more seriously at doing something about it.

But if it's not distracting, which it hasn't been, keeping our focus on the exciting growth that we've been driving has been why we haven't done anything previously.

You've already had about 4.

[indiscernible] Capital Management. I was hoping we could take a step back and talk about your value-based pricing strategy and what that necessarily entails specifically looking for more color as these larger projects are sitting in your backlog, waiting for deployment, how dynamic you can be with pricing?

And as commodity prices change, if you have to concede price or gain price as these prices move?

Yes. So coming out of COVID, we got a lot smarter in the way that we contract some of these large projects. And so we have price escalators built into the majority of our projects now to cover things like commodity pressures and other changes that happen across the environment.

Really, we sell about 25% of our activity through [indiscernible] of our sales goes through distribution. That's based on a list price and we have the opportunity to adjust for those things on an annual basis. On a direct basis, it's really more of an RFP and specific pricing to a specific customer.

And so we look at the whole of the opportunity? What meter opportunity is there, what radio opportunity is there, sales and beyond a meter opportunity. And really, take a holistic view toward what is the value we're providing to the customer and what do we think is a fair price for that value.

So we have a specific team dedicated to looking at comparable opportunities and other things in the market, competitive pressures, et cetera, and coming up with the price that we feel is appropriate for every opportunity.

So maybe just a quick add there when Dan says we got smarter. It really means the industry as a whole gesture and certainly, we were part of that. So pre-COVID, the days of 3-year price holds for your price holds was commonplace. And I think the reminder of the inflationary environment, collectively across the industry got to a much finer pen of more frequent kicks at they can, if you will.

But at the same time, there are exposures that -- we will always have price cost dynamics that have leading and lagging effects. There's never a perfect watch to being able to say resin prices went up today.

Therefore, we're going to 100% convert that through the channel immediately but we have more frequent kicks at the can. And certainly, the lift is easier on through distribution, but there's always leading and lagging effects.

Yes. And just more holistically around value-based pricing. Our sales model has been evolving at a pretty significant rate as you go from selling mechanical meters to now electronic meters you go from selling drive-by radios to cellular technologies and you start adding software to it.

So we really just leaned into that pretty heavy at the same time and started developing a model of how can we how can we schedule get a pricing schedule in place that drives maximum value for utilities that they want to adopt this, but extract every dollar that we deserve for the value we provide -- that has, of course, a competitive angle and every city has a different competitive dynamic.

But we're really dialed in on how we understand what those competitive dynamics are, what the value as customers get and what we deserve.

That brings us to the end of our question-and-answer session. I'd like to thank our executives for fielding all those questions, providing their answers. That brings us to the end of the day for you online. We thank you very much for joining us and listening in today, and thank you to everybody in the room as well.

We do invite you now to join us for lunch across the hallway in the Huber ballroom where in addition to lunch, we'll have unique opportunity to journey through the water cycle and experience all of the technology from Badger Meter that is helping our customers deliver the outcomes you've heard about today.

We're going to have 1 of those two were starting at 12:15, about 15 minutes from now and a second tour at 12:35. So once again, thank you all very much for joining us today. Have a wonderful afternoon.

Ladies and gentlemen, welcome to the Q1 2026 Badger Meter Earnings Conference Call. [Operator Instructions]. As a reminder, today's conference is being recorded. It is now my pleasure to turn the conference over to Barbara Noverini, Head of Investor Relations. Please go ahead, Ms. Noverini.

Thank you, operator. Thank you for joining the Badger Meter First Quarter 2026 Earnings Conference Call. I'm here today with Ken Bockhorst, our Chairman, President and Chief Executive Officer; Bob Wrocklage, our Executive Vice President of North America Municipal Utility; and Dan Weltzien, our Chief Financial Officer.

This morning, we made the earnings release acquisition announcement and related slide presentation available on our website at investors.badgermeter.com. As a reminder, any forward-looking statements made on this call are subject to various risks and uncertainties and the most important of which are outlined in our news release and SEC filings. On today's call, we may refer to certain non-GAAP financial metrics. Our earnings presentation provides a reconciliation between the most directly comparable GAAP measure and any non-GAAP financial measures discussed. With that, I'll turn the call over to Ken.

Thanks, Barb, and good morning. Before getting into the specifics of the quarter, I'd like to start this morning by setting the stage for a more detailed discussion on our Q1 results and how we're thinking about our metering business more broadly.

We operate in the market supported by strong long-term macro drivers, recurring replacement cycles and increasing adoption of advanced technologies ranging from our ultrasonic meters to industry-leading cellular AMI beyond the meter solutions and recurring [indiscernible] and analytics. These durable factors, combined with solid execution, have driven consistent value creation over time. At the same time, it has always been true that our business can be uneven quarter-to-quarter and year-to-year.

Over the 2023 to 2025 time period, robust revenue growth driven by multiyear cellular AMI share gains and overlapping project activity reduced the visibility of this inherent unevenness. In mid-2025, we began to signal that the revenue contribution from certain historical AMI projects would decline as deployments concluded ahead of awarded but not yet started AMI projects. As a result of this project pacing and backlog normalization dynamic, we previously communicated that our 2026 revenues would be weighted toward the back half of the year.

On Page 3 of our earnings slide deck, you can see the impact from project pacing in our first quarter 2026 revenue. In addition, short-cycle order rates for which visibility is always more limited, were weaker than we anticipated, resulting in approximately $15 million to $20 million of lower revenue versus our internal expectations. As a result of those combined headwinds First quarter sales were down 9% year-over-year to $202 million. While our expectations for a solid second half have not changed, the softer start up to the year prompts us to anticipate full year 2026 organic revenue to be on balance with 2025.

Normally, I would turn the call over to Dan at this point to walk through the financial results in detail. However, in light of the below-expectation sales results, I'm going to turn it over to Bob to walk through greater detail on this multilayered customer dynamic. In short, Bob will explain our view that this first quarter outcome is timing related and does not reflect a structural change in either market demand, our broader competitive position or the long-term market drivers of our business. Bob will walk through a subset of anonymized details related to several awarded but not yet started AMI projects that are expected to begin deployment in the back half of 2026.

This isn't the level of project detail we'd normally provide each quarter, but these awarded projects, along with others in the funnel helped to inform our outlook for the rest of 2026 and support our expected momentum into 2027. With that, I'll turn it over to Bob.

Thanks, Ken, and good morning, everyone. Please turn to Slide 4. To put the first quarter results into context, it's helpful to briefly revisit the 2023 to 2025 time period. During this multiyear time frame, we consistently described backlog as elevated in 2023 and 2024, with normalization progressing through 2025. That backdrop supported strong but moderating revenue growth. As shown on the slide, 4 sizable AMI projects that began deployment in 2023 were meaningful contributors during the same time period, collectively representing nearly 800,000 connections.

These were not the only AMI projects ongoing or completed during this multiyear time frame, rather this selected cohort of projects represents the most significant project revenue contributors for illustrative purposes. Two of these projects, JEA and OUC were supply-only projects with our involvement limited to the shipment of our meters, endpoints and recurring BEACON SaaS revenue rather than full deployment execution. PCU and Galveston were turnkey projects for which the scope of work included Badger Meter products and SaaS plus installation labor and ancillary equipment such as meter boxes and lit.

As previously noted, both project size and scope matter. Turnkey projects generate significantly greater revenue than equivalently sized supply-only projects. That relationship is illustrated in the stacked bar chart and is one of several drivers of revenue unevenness. These projects ramped in 2023 off a prior year consolidated revenue base of $566 million. They peaked in 2024 and declined through 2025 as the projects approached completion. Over the same period, our generalized order backlog moved from elevated to more normalized levels.

Together, the size and scope of projects combined with backlog normalization supported strong results over this 3-year period, while muting the impact of underlying short-cycle order variability, which was always present, just not visible in our results against this positive backdrop. Within these 4 AMI projects, you can see the revenue contribution is uneven with meaningful variability quarter-to-quarter based upon project and customer specifics that are not related to underlying demand competitive dynamics or long-term market drivers. We entered 2026 with these projects largely completed and a normalized backlog.

Against this 2026 backdrop, short-cycle order rates where we have the least amount of visibility were weaker than expected and thus the below expectation revenue outcome. Now to the facts that have and will continue to inform our forward revenue outlook. Slide 5 highlights our forward look at awarded AMI projects that are expected to begin deployment in the back half of 2026. Importantly, this is not a top projects list but rather a snapshot that illustrates several important characteristics of our business, competitive positioning and technology leadership. Many of these awards have been known to us for some time, in some cases, years, with typical lags between initial award indication and deployment driven by a number of factors.

These timing differences are common in our industry, and contribute to revenue unevenness. And they also represent just one layer of the multi-stage opportunity funnel that informs our view of future growth. This list also reflects a wide range of funding sources, including capital budgets, rate cases, grants, with loans and other financing, underscoring broad funding availability and sources.

Also illustrated here is additional information on competitive conversions, diverse deployment types and technology adoption across both municipal and investor-owned utilities. Most importantly, this project set represents between 2.6 million and 3.6 million connections over multiple years, meaningfully larger than the prior project cohort of 800,000 connections, that supported growth from 2023 to 2025.

Turning to the PRASA project. We received the first significant purchase order for the project in the first quarter, and we expect the utilities installation partners to begin deployment activity around midyear. PRASA, together with the successful completion of the projects previously discussed on the call, and others not announced underscore our continued AMI success with customers of any size and complexity.

In summary, while the first quarter results stand out relative to recent history, we view the first half of 2026 as a short pause, not a break in our trajectory. As we move into the next phase of growth, we expect continued expand of our AMI installed base. And this, in turn, will emphasize Orion cellular AMI as the market standard for AMI, which creates opportunities for further meter share gain, recurring software revenue and broader adoption of our beyond the meter solutions. With that, I'll turn the call back over to Ken.

Thanks, Bob. In addition to the project awards described by Bob, we continue to see constructive market and customer activity across our extended opportunity funnel including pending RFPs and early utility engagement with consultants, which remains healthy as utilities continue to prioritize modernization, efficiency and visibility across their water networks. These long-term secular drivers remain intact. Despite the soft start to the year, I'm encouraged by the consistency we've delivered in gross margin performance, overall SEA discipline and cash flow which speaks to the strength of our team's execution around the world and the resilience of our business model.

From a near-term cost perspective, we've implemented measured cost reduction actions including a 10% salary reduction for our executive officers for the next 6 months to maintain spending discipline and protect margin integrity as we navigate revenue pacing throughout the year. I'll come back at the end to talk about our outlook and the exciting announcement we made this morning around the acquisition of UD Live. But before I do that, I'll turn the call over to Dan to talk more about the numbers.

Thanks, Ken. The contrast between the first quarter of 2026 and the first quarter of 2025 is clear. So let's get into those details. Turning to Slide 6. Total sales were $202 million, representing a 9% decline year-over-year. Utility water sales declined 10% year-over-year, reflecting the project pacing and weaker short-cycle order rates referenced by both Ken and Bob Lower metering product revenue was partially offset by increased BEACON SaaS, smart cover, water quality and network monitoring product revenues.

Collectively, beyond the meter product line growth was a bright spot in the quarter that should not be lost in the broader revenue headline. Sales for the flow instrumentation product line were down 4% year-over-year. Turning to profitability. Gross margin was 41.7%, down 120 basis points against a record gross margin in the first quarter of 2025, primarily reflecting product and project mix. Gross margins remained robust and near the top end of our normalized range, which reinforces the durability of our pricing discipline and structural mix benefits despite lower year-over-year values.

Selling, engineering and administrative expenses were $49.2 million, increasing $3.1 million year-over-year, driven primarily by $1.2 million in transaction costs associated with the UD Live acquisition, higher personnel costs and an additional month of smart cover SCA costs, offset by reduced incentive compensation expense based upon the first quarter results. SCA as a percentage of sales increased by 360 basis points year-over-year, primarily due to the deleveraging effect of lower volumes in the quarter, which we expect will be temporary. As a result, operating earnings were approximately $35.2 million and operating margin was 17.4% compared to a record 22.2% in the prior year period.

As awarded projects begin in the second half, we expect operating leverage to improve while maintaining our typical level of cost discipline. The effective income tax rate was 24.8% and compared to 24.4% last year. Diluted earnings per share were $0.93 compared to $1.30 in the prior year period. Primary working capital as a percentage of sales decreased from 20.9% at year-end to 20.0% as of March 31, 2026. We generated strong free cash flow in the quarter of about $30 million, in line with the first quarter of 2025.

As is normal, our first quarter reflected typical seasonality with incentive compensation and retirement plan contributions paid out for the previous year. In the first quarter of 2026, we repurchased 256,000 shares for a total of $38 million and have $115 million left on our share repurchase authorization. With that, I'll turn it back over to Ken.

Thanks, Dan. Before I give the outlook, I want to highlight the acquisition we announced this morning. Please turn to Slide 7. We signed a definitive agreement to acquire UD Live for $100 million funded with cash on hand plus contingent consideration. Duty Live, a U.K.-based provider of hardware-enabled software solutions for sewer line monitoring, complement Smart cover by extending our sewer monitoring capabilities across a broader range of use cases, network conditions and geographies.

Much like Smart cover in the U.S., UD Live has built a leading position in the U.K. pairing low-power, easy-to-install sensors with proprietary analytics software that delivers continuous real-time insight into sewer network conditions. The value and differentiation of UD Live's sewer line monitoring technology is evidenced by a 90% tender success rate since inception and routinely high technology assessment scores from utilities and consultants. Please turn to Slide 8.

The combination of Smart cover and UD live within our Blue Edge suite of solutions positions Badger Meter as a global leader in sewer line monitoring, offering customers options across hardware-enabled software platforms and communications configurations consistent with our Choice matters approach. For those familiar with our history, there's a clear parallel to our acquisitions of ATI and scan which together created a comprehensive water quality platform and extended our geographic reach. The strategic rationale for UD Live and Smart Cover is similar within the sewer line monitoring market.

In the trailing 12-month period ended February 2026, UD Live generated approximately $22 million in revenue and delivered positive operating profit. The transaction will be accretive to EPS in year 1, and we anticipate to close at the end of April. We believe our global channels can further accelerate UD Live's growth and enhance operating leverage over time. Now looking ahead, we continue to expect 2026 activity to be back-half weighted as awarded AMI projects advance into deployment. As you're aware, we typically don't provide formal guidance. However, we recognize that investors are navigating this project pacing dynamic for the first time in several years.

With that in mind, we are offering additional transparency to our current view, informed by today's inputs of revenue pacing for the remainder of the year. As awarded projects enter deployment and short-cycle orders recover from first quarter levels, we expect sequential improvement in absolute quarterly revenue dollars as the year progresses, resulting in full year 2026 revenue, excluding the UD Live acquisition to be in line with 2025, more specifically, we expect second quarter 2026 organic revenue dollars to sequentially improve from the trough of Q1 and but expect them to be down year-over-year against the highest quarterly revenue figure in the company's history.

In the near term, our focus remains on disciplined execution to manage near-term variability, while building momentum throughout the year. Importantly, our financial model is built to support our capital allocation priorities across uneven operating conditions, enabling continued investment in the business, returning cash to shareholders and value-enhancing M&A while maintaining a strong balance sheet.

With that, operator, please open the line for questions.

[Operator Instructions]. Your first question comes from the line of Nathan Jones with Stifel. You may proceed with your question.

Morning, everyone. I guess you said -- I'll start with the cycle orders first. You talked about maybe $15 million or $20 million less than expected on that, which is half of domestic consensus during the quarter. I have been around with Badger for long enough to remember the volatility in some of those. Is there any color you can give us on what the underlying reasons for that were. I mean, there was some pretty bad weather in the Northeast during the quarter. Is it weather-related or something else? Any kind of color you can give us on that?

Yes. So I think the key to maybe remind the group some people newer to the story, maybe the unevenness that you have recognized because you've followed us for a long time, is not new as we talked about. And there's really not one underlying thing. It's selling to 50,000 utilities across the country through various different replacement cycles. The variability has always been there, and we've talked about this a few times, sometimes the variability is there in an equal amount to the high side.

But when it's to the high side, it doesn't really affect people's view very much because that's all goodness. But in this particular case, I wouldn't limit it to one thing. It's just happened at this particular time and unfortunate timing, given what Bob had just talked about on where we are in the midst of this air pocket, but not really 1 thing and relatively normal.

I would just add to say, certainly, we're not chalking it up to geographic weather by any means. And while it is generalized, if we look at where -- from our look at customer segmentation, where the weakness came from, it's definitely indicative more of timing aspects than certainly anything related to our positioning in the market or share or other things. So this is absolutely timing-based.

I guess I'll ask one on PRASA. You talked about how you got the first PO for that, which is awesome and expecting the first installations to start midyear a more confident today that, that project will ramp up on time and ramp up in the second half? I guess investors are bit concerned that the Puerto Rican government not hasn't been exactly the most reliable in terms of getting things done, not for bad year, but just overall over the last few years. So just your level of confidence that, that really does ramp up in the back half of the year.

Yes. So Bob will probably have something to add here as well since he's managing that very closely. But the fact that we brought it up last month, I think it shows that we already had quite a bit of confidence in it. The fact that we have a PO, the fact that we know that installation partners are lined up. The confidence is higher today than it was before. So Bob put his hands up, so he agrees.

Your next question comes from the line of Jeff Reive with RBC Capital Markets.

I appreciate all the color thus far. For your updated guidance, what's the risk that some of the late to starts push into 2027? And like is this guidance appropriately conservative now? So.

So I would say this additional transparency before I agreed its guidance because, again, given the variability, it's hard to guide from quarter-to-quarter or year-to-year. But as the year progresses and we get closer to each of these projects, getting into deployment mode. We see more activity on some of these that you can see on the list are turnkey. We're actively engaged with them on the upfront planning. For those that are supply only, in some cases, we have POs in some cases, they're still planning.

So as we get closer and closer to that, our confidence level is better today than it was 90 days ago.

Appreciate that. And then can you just remind us what specifically is in that short-cycle mix? Maybe what percent of sales? And is that muni budget driven? Is it macro-driven? Kind of what drives that?

Yes. So I think a lot of people, even though we talk about the short-term variability, we talk about why we don't necessarily size or talk much about backlog is because the majority of the business is short cycle. So distribution is very short cycle. Individual utilities that we sell directly to that are just doing the ordinary buying that aren't an in-flight AMI project they're oftentimes ordering and those tend to be short cycle and utilities order them when they want them. Everybody in the industry is at normal lead times.

So we basically reverted back to normalized lead times for before normalized lead times and backlog for before the supply and COVID and the whole situation. And even when backlog was elevated, frankly, it isn't like it was elevated to something. It was -- went from a short visibility to slightly more visibility. It wasn't like we had a huge backlog that we were chunking through.

Your next call comes from the line of Quinn Fredrickson with Baird.

To build on your commentary there about short-cycle order weakness being timing related. Does the flat organic outlook contemplate any recovery opportunity relative to that $15 million to $20 million? Or does it assume that, that short cycle weakness persists here?

Well, so by definition that it is short cycle, we don't have a tremendous amount of -- it isn't like we've seen a few weeks of excess purchase orders coming through that would change our view. But our view is informed by talking to our distributors and hearing what they're saying in the field because they're out talking directly to people. It is informed by the direct sales relationships that we have with our direct sales force. We are not getting from the market in any way that people are constraining budgets for the normal replacement demand that comes with metering. It just -- it's just happens to be an air pocket at the same time that there's a project air pocket.

I think the thing I'll reinforce here is -- the variability that we're talking about specific to Q1 that is now more visible has always existed, inclusive of 2023 to 2025 time frame. It's just that it was less visible in the revenue outcomes because of the backlog condition combined with the projects in flight. And so I just want to make it clear that this variability is and has always existed. It's just happening to be more visible. In this particular first quarter of 2026.

Okay. And then on the flat organic outlook for the year. I just wanted to see if we could dial in 2Q versus the second half a little bit more. Ken, you mentioned 2Q would be down year-over-year? Should we assume kind of a similar decline to.

Well, again, given the short cycle nature of the largest portion of the business, I'm not going to get into sizing it. I wanted to give you enough detail to make sure that everyone understands that we don't just snap back to growth. on a year-over-year quarter basis, especially against an all-time record quarter. So we're just trying to be realistic. I don't think I'm looking to size it to a number in between, but we absolutely expect sequential growth that is likely below last year.

Your next question comes from the line of Andrew Krill with Deutsche Bank.

On gross margins, they've held up well in the first quarter, considering anything you'd call out there? And then could you give us some help on how they should trend the rest of the year? Do you think still near the higher end of your 39% to 42% target range. Or could there be some sequential pressure as these projects ramp.

Yes. I think the important thing to point out here is a couple of things. Number one, the 39% to 42% range, we still have confidence in, and that's still where we anticipate operating for the rest of the year. In terms of the Q1 result, as we pointed out in the prepared remarks, some of the areas where we saw strength in the first quarter were in those around the meter technologies.

Of course, our BEACON SaaS revenue continuing to chunk along in the recurring nature that it is and all of those things being above line average margin, which helped us to get to this blended rate in the first quarter. So certainly, as we progress throughout the year, again, our expectation is to continue to operate within that range. We've talked about previously when you think about things like turnkey projects, they may have different margin profiles than sales through distribution, for example. So all of those mix factors may exist. But again, just reiterating that range that we talked about historically is still within what we think is reasonable.

Yes. And just to add to that, when we think about it from an operating point of view, your question was, what do we see as these projects ramp? Well, first of all, our value-based pricing principles all remain intact. So we're extracting all the price that we deserve for providing this value that at a price that customers see the value to invest in. So whether it's a little lower on the front side on gross margin, it feels really good on the SEA leverage side and vice versa. So operating profit in any of these cases is something we're good with.

That's helpful. And then switching to Section 232 tariffs has been a big debate the past couple of weeks with some of the changes to how those are implemented. Just can you give us any color on how that impacts Badger Meter in particular, the [ Nogales ] facility I think if everything or most of what you are bringing back into the U.S. used to be excluded under USMCA. Is that now a headwind you have to deal with? And maybe how are you going about doing that?

Yes. The team in Nogales and, frankly, here in the that's managing this for us continues to do a great job in terms of managing the supply chain to continue to optimize cost of our products, and that includes the tariff situation. The short answer is if we look at our tariff exposure over the last 12 months, it hasn't really changed, even in light of recent news as we sit here on April 17, always subject to change. But as we sit here today, I don't think about tariffs differently than I have over the last couple of quarters.

Your next question comes from the line of Bobby Zolper with Raymond James.

I had come to the conclusion that your overall volumes of meters might be in the neighborhood of 20% elevated versus pre-COVID. What are your thoughts on that statement?

I don't have a lot of thoughts on your statement on that, and I don't mean that to be a snarky response. It's just that our revenue is so different. And not that we want to go into this much detail, but when you look at what Bob just talked about on projects between being between turnkey or supply only or the other dynamics that roll through or the new products that we've added beyond the meter. I don't know how you draw that conclusion. We have gained meter share over the past few years. So that is that I'll agree to. But in terms of specific sizing, I don't think I'll get into that.

Okay. Fair enough. Appreciate it. And then sorry, just one clarifying question on the 232 tariffs, does that get applied to the full value of either the meter or the cellular device when they go in and out of Mexico? So...

We don't -- we certainly don't talk about tariffs on individual product line item levels. Any exposures that we do have are on the component side of our business as we're procuring materials generally. And Bobby, just to point out, that's because of USMCA and our position within USMCA.

Okay. So I'm assuming like because you're getting your copper like your brass bodies in Milwaukee, those aren't getting tariff themselves. It would just be the electrical equipment that's going into the meter and the cellular vices.

Yes. I'll remind you, the majority of the copper that we use is recycled brass, which is primarily in the U.S. because you're not going to ship that around the world. typically. So yes, that's not where we have exposure. It's on things like electronics and other things that may be sourced elsewhere in the world. But again, as we're shipping products in and out of Mexico, USMCA provides us protections there from a tariff perspective.

Your next question comes from the line of James Ko with Jefferies Financial Group.

I just wanted to kind of ask a question on the -- what's it the awarded project that you guys put on the flight. So it seems like 7 out of 9 awarded projects involved or partial competitive miller conversions. So that's pretty impressive. So what do you think is driving that like success given the strong kind of incumbent bias in the industry? And have you experienced any meaningful losses of your income positions to competitors. Yes, just wanted to ask that.

Yes. So thanks, James, for the question. Yes. So One of the dynamics that we've explained over the past several years is that our portfolio, the resiliency of the cellular AMI, the leadership position that we've taken in software. We've been saying now for a few years that we have been converting market share. When you look at some of the projects that we highlighted today, two of them are Generation 1 fixed network combo utilities that used to be someone else's meter and someone else's radio and during generation the utilities, the water utilities decided that they no longer wanted to be on a fixed network.

They went out to RFP, and we won that. And then after winning the AMI RFP because it wasn't a full product RFP, then we also converted the meters afterward. We have 2 other products on here that were one where we were the meter incumbent but someone else's AMR radio was on it. And because of our relationship, our cellular technology leadership, we were able to convert someone from a competitive AMR drive by to our ORION Cellular with BEACON SaaS revenue. We have others where we converted both meters and radios. But for the most part, it's been because we've already been 121-year great leader in the industry for meters. Now we're also the leader in the industry for AMI and we're pulling in both ways.

Got it. Great. Yes. That's very helpful. And I guess I wanted to ask one more clarification question on short cycle orders here. So it seems like there's no particular reason that kind of caused the slowdown. It's more kind of just inherent variability here. So if this like inherent variability kind of continues in a negative way like throughout the year, like does that like post downside risk to the guidance? Or does the guidance just kind of assume what is it, improvement? Or yes, I just wanted to kind of understand the dynamic a little bit better for the remainder of the year.

Yes. So the first thing that's important to remember in the metering industry is that nothing gets canceled. So things only move right because eventually, you have to replace your meter if you want to improve nonrevenue water conservation. And frankly, 80% of the market has a radio attached to it. And once the radio goes dark, you can't read the meter at all, and you'd have to go out and do it manually. So the dynamics of the business are, it only moves right. So we have this timing issue here. We do expect some recovery. We don't expect it to stay on the weaker side of uneven. But to that degree, it's still where we have the least amount of visibility, but we do expect some upside to -- compared to the current quarter. It looks like Bob wants to...

I'm just going to say just at the risk of being overly pedantic, just realize what we're saying for the whole year is flat-ish, okay? So don't hear flattish as flat are flattish. So in that -- in there, there's some variability, right, but not a wide degree of variability. But just to your point on what are you expecting? And how does the short cycle play out in future quarters? We're giving you the direction but know that there's some variability accounted in that descriptor.

Your next question comes from the line of Michael Fairbanks with JPMorgan.

As we look at this new project level disclosure, how should we think about the 800,000 connections over the last 3 years kind of relative to overall volumes? And then same question as we look ahead to the 2.6% to 3.6%, just overall in terms of expectations.

Yes. So projects, again, with the variability between turnkey revenue driving much higher than supply only and some of the other pieces. So we're not going to size the revenue of what they were, but certainly from what you can see, they were largely impactful. As you compare that, I would just tell you that $2.6 million, obviously, simple math is 3x the size of 800,000. Now don't go take a ruler and draw 300% up, but we do expect the next 3 to 5 years of these projects to be more than the last 3 years of those projects.

I think the other thing I'll point out is, again, we've provided this additional level of detail this quarter given what the result was. And we felt like it was important for analysts and investors to understand what's informing our view toward the forward look of the high single-digit outlook that we've continued to talk about consistently across the business. And it's having had this visibility over the last number of years, frankly, as we saw these projects moving throughout that multiyear funnel that we talk about, and that's what's informed our view.

Your next question comes from the line of [ William Grippin ] with Barclays.

I appreciate the time here. And congrats on the UD Live acquisition. Just wanted to maybe focus in on that and your thoughts and strategy in the connected tower line market. I guess, first, do you have a view on sort of how penetrated that market is today? And could you elaborate a little bit on maybe what are some of the driving forces underpinning adoption of those products? And how do you think utilities are thinking about the value proposition or typical paybacks.

Yes. So what we really enjoyed about Smart cover, which we acquired just slightly more than a year ago, is that it's the leader in the U.S. market, which is a fantastic smart water market, as you know, adoption is very early, but the problems are very real. So by adoption being early meeting it's less than 0.5% of the manhole covers in the U.S. have monitoring on it. The payback is really quite simple. And if you've experienced any of the rain falls in the Midwest this week combined sewer overflows is a significant and real problem that nobody wants. Influent infiltration is something that's a real problem.

Cleaning sewer optimization, the ability to save a lot of money. There's almost an immediate payback on cleaning optimization by having that in place. So the dynamics are extremely real, and every utility understands the value of implementing this technology. In the U.K., it's also very early in adoption. Bob and I like using baseball analogies, but being early in the early innings doesn't play in the U.K. So let's just say they're very, very early in adoption as well. These two markets though, in particular, are the absolute markets that we want to be in because they're already the largest, albeit early and fastest growing at the same time.

Within both markets and in particular, in the U.K. regulation is really driving this. So it's not even just that a utility who already knows they should do it needs it. They're being mandated to do it. And then if you look inside the U.K. AMP spending cycle, there is massive amounts of investment allocated, Actually demanded, to be spent in this area. So acquiring the two premier brands in the two already largest fastest-growing regulated markets with an absolute understanding of why they should have it feels really good to us.

And just another one here on the -- I appreciate some of the incremental disclosure you've provided around some of the project wins I'm just curious, once the project actually starts to ship, how predictable typically is the timing around that in terms of shipping the rest of those units in the deployment. Does it follow a fairly typical deployment time line?

Yes. So I'd refer you back to, I think, it's Slide 4, where you can see even on these 4 projects, even within the 4 projects, there's variability throughout those 3 years. So Oftentimes, it will come down to what available labor that they have? Or do they have some other issue that maybe they find a priority for a few weeks. So while it's generally over a 3-year or 4-year period, going to be pretty predictable over a 3-month period, it's really not.

That's an important reason why in PRASA, for example, we point out it's to hurricanes. And as a hurricane might come by, that might impact a quarter or 2 of shipments that we've had. So you can't just draw a straight line on that project, in particular, but it applies across the board.

Your next question comes from the line of Scott Graham with Seaport.

Thanks for all the additional detail. I have one and then a follow-up. So the incremental margin for the year, I guess, we can see what the decremental was, of course, for the first quarter, I would assume something similar in the second quarter. But does the second half with implied top line growth kind of get us back to that 25%, 30% level that we've seen from you guys for incremental margin? Or does PRASA hurt that?

Yes. As we've talked about, and we've described -- let me answer the second part of your question first on PRASA. We've described because this is one of the -- it's the largest project we've ever done and a competitively bid very attractive opportunity. The gross margins on that, of course, are not quite at the line average level as other projects that we've been awarded. However, the SEA leverage on a project like that is still very interesting to us and gets us back to an OP leverage that's in line with the rest of the business. And I would say, generally, as we think about the business and getting back to this flattish top line result, we don't have any different view in terms of the gross margins, like I talked about and we're managing our SCA such that it should be flattish to where we were a year ago as well, which results in incrementals that kind of look the way that it does this year. So that's more information than we've given historically. We don't give guidance, but I just wanted to sort of connect some of those dots that we've tried to paint throughout the script.

It is, indeed. When you say A flat meaning dollars?

If you look over the last number of quarters, our SCA dollars have been relatively flat, and that expectation isn't different moving Forward.

Well, and keeping in mind, we're closing the UD Live acquisition in April. So there's more SEA work to be done there. So if you're talking -- if you're asking on an organic basis, that answer was more for that.

Got it. And then my quick follow-up is, so we've -- you've talked about ad nosing about high single is the way to look at you guys long term with 2026 rolling out the way it does and you're indicating that you're going to exit the year with really a lot more momentum fourth quarter versus fourth quarter last year. Can we get back to that high single next year or perhaps higher?

Well, so I will talk to you about sentiment and things that we think we know we're stopping short of telling you a number. But I think as we progress through the year as these projects head into deployment and again, while they may be uneven, they will be in route. So we certainly will feel better coming into '27 than we did coming into '26. But our views on the long-term health of the market do remain unchanged, Scott. So I'm not going to give you a number for 2017, but I do expect us to be back into a momentum period coming out of this.

[Operator Instructions]. There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Barbara for closing remarks. Correction. Apologies. We have one more question from Bobby Zolper with Raymond James. Your line is open. Please go ahead.

Let me jump back in. I just had a question on price and maybe related also price cost. In tracking some of the larger, like competitively bid projects, specifically like Charlotte, Glendale. It seems like some of that pricing is below maybe what it was in 2022 and 2023? How does that look, I guess, throughout your business kind of extrapolate that trend to the rest of the business?

Well, first of all, Bobby, we're not going to comment on price project to project because there's so many different variables. And due to respecting our customers, we won't talk about price from project to project either.

There are no further questions at this time. We have reached the end of the Q&A session. So now I will turn the call back to Barbara for closing remarks.

Thank you, operator. As a reminder, Badger Meter's Inaugural Investor Day will take place on May 21 in New York City. Virtual participants may access the event through a live webcast accessible on the Badger Meter Investor Relations website. During the event, we will provide greater color and tangible examples of the evolution of our Blue Edge portfolio, along with a discussion of the key drivers, enabling growth of our comprehensive suite of smart water management solutions. In addition, Badger Meter's Second quarter 2026 earnings release is tentatively scheduled for July 22, 2026. Thanks for your interest in Badger Meter, and have a great day.

This concludes today's call. Thank you for attending, and you may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to the BMI Q4 and Full Year 2025 Earnings Call. [Operator Instructions] I will now hand the conference over to Barbara Noverini, Head of Investor Relations. Barbara, please go ahead.

Thank you for joining the Badger Meter Fourth Quarter and Full Year 2025 Earnings Conference Call. I'm here today with Ken Bockhorst, our Chairman, President and Chief Executive Officer; Bob Wrocklage, our new Executive Vice President of North America Municipal Utility; and Daniel Weltzien, our recently appointed Chief Financial Officer.

This morning, we made the earnings release and related slide presentation available on our website at investors.badgermeter.com. As a reminder, any forward-looking statements made on this call are subject to various risks and uncertainties, the most important of which are outlined in our news release and SEC filings. On today's call, we will refer to certain non-GAAP financial metrics, including certain base metrics. Use of the term base for these purposes is intended to refer to certain financial metrics, excluding the SmartCover acquisition. Our earnings presentation provides a reconciliation between the most directly comparable GAAP measure and any non-GAAP or base financial measures discussed.

With that, I'll turn the call over to Ken.

Thanks, Barb, and thank you all for joining our call. Turning to Slide 3. We delivered solid financial results in the fourth quarter, capping off another full year of record sales, profitability and cash flow. We continue to see robust demand for our industry-leading Cellular AMI solution, and the recent addition of SmartCover to our BlueEdge suite of smart water management solutions positions us well for long-term growth across the water cycle.

I'm thankful for the dedication and perseverance demonstrated by the entire Badger Meter team during a year marked by global trade uncertainty and exciting acquisition integration and many ongoing AMI projects in various stages of deployment. I'll be back to provide a recap of the year and discuss our outlook later in the call, but for now, I'll introduce you to Daniel Weltzien.

As announced in December, Dan became our new CFO on January 1, 2026, following 7 years as Vice President and Controller. Dan, welcome to the earnings call. Bob Wrocklage is also here today in his new capacity as Executive Vice President, North America municipal utility. Bob will join me later in the call to provide more detail about the significant AMI project for PRASA that we mentioned in today's press release.

With that, I'd like to turn the call over to Dan to cover the numbers.

Thank you, Ken. I'm truly honored to serve as Badger Meter's Chief Financial Officer. I've benefited personally and professionally from the strong relationships I've had with both Ken and Bob for many years. And remain excited by the opportunity we have ahead of us to build upon our long track record of market leadership and success. So let's go ahead and start by reviewing another quarter of solid financial performance.

Turning to Slide 4. Total sales of $221 million in the fourth quarter of 2025, represented an increase of 8% year-over-year or 2% base sales growth. Total utility water product line sales increased year-over-year by 9% or 2% excluding SmartCover. As expected, fewer operating days in the fourth quarter and previously communicated project pacing effects resulted in a 6% sequential decline in utility water sales versus the third quarter of 2025. The term project pacing is intended to describe typical variation in activity driven by periodic changes in our active customer base and whether or not we act as a prime contractor in what we refer to as turnkey projects.

Simply put, the sequential quarterly sales decline between the third and fourth quarters of 2025 has everything to do with the calendar and quarter-specific customer and project mix and very little to do with other influences, such as underlying market conditions, customer demand trends, utility budgets or the broader funding environment.

On the last point, though not all that relevant to metering, recent congressional actions support funding of state revolving funds consistent with historic levels. This should allay some broader water industry funding reduction concerns.

Sales for the flow instrumentation product line were flat year-over-year with modest growth in water-focused end markets, offsetting declines across the array of deemphasized applications.

Turning to profitability. We were very pleased with the year-over-year operating earnings growth of 10%, which outpaced revenue growth. Operating profit margins increased 40 basis points from 19.1% to 19.5%. Base operating earnings increased 9% year-over-year expanding base operating profit margins by 140 basis points to 20.5%. Gross margins expanded 180 basis points to 42.1% in the fourth quarter from 40.3% in the prior year quarter. Gross margin continued to benefit from structural mix driven by Ultrasonic meters, Cellular AMI, water quality and SmartCover sales, which were all above line average profitability.

It's also important to mention that the same project pacing effects that impacted utility water sales also benefited margins in the fourth quarter. This is because when we act as a prime contractor during certain turnkey projects, sales often include pass-through activities, such as outsourced meter installation labor and ancillary meter pit supplies, which tend to have a lower margin profile.

Separately, while we now have largely reached price cost parity on 2025 tariff and trade-related cost impacts and related price mitigation actions we do expect global tariff and trade conditions to remain fluid in 2026. In addition, we expect elevated prices of copper and certain other components of our [ BiAlloy ] material cost to be a gross margin headwind in 2026. We factor all of these components, along with other puts and takes into our normalized gross margin range of 39% to 42%, and into ongoing and routine price mitigation actions.

SEA expenses in the fourth quarter were $49.9 million, with the $6.4 million year-over-year increase driven primarily by the SmartCover acquisition. When excluding SmartCover related expenses, including $1.6 million of intangible asset amortization, base SEA expenses increased $1.3 million or 2.9% year-over-year. The year-over-year increase in base SEA expense was mainly driven by higher personnel costs to support normal course growth of the business. The income tax provision in the fourth quarter of 2025 was 24.8% and versus the prior year's 27.1%.

Consolidated EPS was $1.14 versus $1.04 in the prior year quarter, representing a 10% year-over-year increase. Primary working capital as a percentage of sales at December 31, 2025, was 20.9%, largely consistent with the comparable prior year period. Record quarterly free cash flow of $50.8 million increased by approximately $3.4 million year-over-year.

With that, I'll turn the call back over to Ken.

Thanks, Dan. For those of you who followed our story and interacted with Bob over the years, you've certainly experienced the passion and knowledge he has for our business, extending well beyond the traditional CFO focus. Badger Meter will benefit greatly from Bob's business acumen, customer focus and growth mindset as the leader of our largest line of business.

I'm now going to hand it over to Bob, so he can talk specifically about the Puerto Rico Sewer Aqueduct Authority or PRASA AMI project.

Thanks, Ken. From the CFO's chair, it's been gratifying to be part of more than doubling our top line revenue over the past 7 years. In my new role, I'm excited about further expanding our market leadership as Cellular AMI technology continues to increasingly be adopted by North American water utilities as the industry standard for AMI. Consistent with our Choice Matters BlueEdge portfolio, we continue to enable our customers to walk up the technology curve at a pace that's right for them.

Our Blueprint for Growth begins with Cellular AMI as the foundation to real-time insights and analytics and expand through the BlueEdge suite of smart water management solutions, enabling visibility and efficiency throughout the entire water cycle. A very recent example of our success with Cellular AMI is the announced award for the PRASA AMI project, which will be 1 of the largest deployments in the world.

An overview of the project is provided on Slide 5. This transformative multiyear project will include E-Series Ultrasonic Meters, ORION Cellular AMI radios and BEACON SaaS across the island of Puerto Rico, representing approximately 1.6 million service connections. Badger Meter's role in the project will be supply only, and we will not assume any prime contractor or installation or ancillary product supply responsibilities. Those activities will be handled by others. We will be utilizing our Racine, Wisconsin facility for production.

Over the past year, investors have understandably focused on assessing the installed base of AMI and the remaining AMI adoption potential in North America. Along with the underlying customer demand drivers and typical time horizons for AMI projects. To provide color on these factors, let's use the PRASA award as an example of a large project.

Process planning for the project began over 5 years ago. That planning materialized into a technology pilot in RFP, which Badger Meter, along with its partners, first participated in beginning in 2021. The pilot deployment began in 2023 and the project award occurred in 2025. We expect the PRASA project to translate into product shipments in 2026, with an initial ramp earlier in the year and more meaningful revenue contributions in the second half of 2026 when project deployment begins, as expected to begin in earnest.

To be clear, project awards of this nature, PRASA or otherwise underpin our long-term high single-digit outlook over the next 5 years. And PRASA project specifically is not additive to that either in a single year or over the long-term horizon. While we don't regularly share customer-specific wins and project awards, we're highlighting PRASA due to its scope and scale, to illustrate the drivers behind the uneven project nature of our business, and to acknowledge that even today, there are many PRASA project variables known and unknown, that will influence near-term 2026 revenue contributions, the year-to-year project pacing thereafter, and the duration of the project deployment. Explicitly stated for these reasons, we will not be sizing the revenue impact of this project on 2026 or more broadly.

On that note, I'll pass it over to Ken for his closing remarks.

Thanks, Bob. I'd like to take a moment to review our full year 2025 performance against the 5-year trend line. Please turn to Slide 6. In 2025, we delivered 11% sales growth, surpassing $900 million in revenue. This reflects a 17% compounded annual growth rate over the past 5 years. Our software revenue, which includes SmartCover, now exceeds $74 million and represents 8% of sales. Software revenues, largely driven by Cellular AMI, have grown at a 28% compounded annual growth rate over the past 5 years.

In 2025, operating profit margins expanded 90 basis points to 20%, despite the initially dilutive impact of the SmartCover acquisition. Base operating profit margins increased 200 basis points year-over-year. Over the last 5 years, both gross margin improvement and SEA leverage contributed to 470 basis points of operating margin expansion. And finally, we continue to manage our working capital intensity and again generated free cash flow in excess of 100% of net earnings.

Our clean balance sheet with more than $225 million of cash on hand, continues to provide significant financial flexibility to reinvest in our business, both organically and inorganically. In the third quarter, we increased our dividend for the 33rd consecutive year. And in the fourth quarter, we opportunistically repurchased $15 million in shares when the market price implied an attractive long-term return on capital.

Turning to Slide 7. I'm proud of what we accomplished in just 11 short months as we integrated SmartCover into the Badger Meter organization. SmartCover delivered $40 million of sales in 2025 or 25% on an annualized basis. Over this time, SmartCover's profitability improved driven by both higher sales volumes and focused cost management. We successfully transferred SmartCover's manufacturing operations to our facility in Racine, Wisconsin, and we're on track for earnings accretion in 2026 as expected.

And finally, I'll conclude with some thoughts on both our near-term and long-term outlook. As we mentioned in our press release this morning, the second half of 2025 included a concentrated mix of concluding AMI turnkey projects, resulting in base revenue growth of 6%, which was lower than our 5-year forward outlook. We expect this project pacing dynamic to extend throughout the first half of 2026 until several awarded projects, including PRASA, begin multiyear turnkey deployments.

We'd like to remind investors that it is not unusual to experience certain quarters or even whole years that are above or below our expectation of high single-digit sales growth over a 5-year forward period. Quarter-to-quarter variation in project pacing is typical in our industry and attempting to precisely time it can cause those who follow us to miss the big picture. Our products and solutions support critical elements of the water infrastructure and the long-term secular trends impacting the water industry will continue to influence our customers to plan for better resiliency. We are actively involved in enabling that change.

For example, we created the market for Cellular AMI against an incumbent technology and have since demonstrated success at gaining share via acquisition and internal development. We've expanded our opportunity set to include solutions across the entire water cycle, long enduring secular trends support demand for smart water management solutions. When speaking directly with our customers, we have not seen meaningful evidence that real or perceived federal funding constraints will impact our ability to generate high single-digit sales growth, operating profit margin expansion and free cash flow conversion in excess of earnings over a 5-year forward time horizon.

In summary, I'm proud of our performance in 2025, look forward to what's ahead in 2026 and see great opportunity for the execution of our long-term strategy to compound value for both our customers and shareholders.

With that, operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Robert Mason with Baird.

And congratulations, Bob and Dan, on your new roles. Can you just to touch on the topic around the timing of projects. understandable that it's not going to be always an even flow there. But I'm just curious did we see the full impact of the conclusion of those projects in 4Q? Just trying to think about maybe we normally see a sequential rise in the number of operating days in the first quarter, how that dynamic may play into the first part of 2026.

Yes. So first off, Rob, there are several projects that can be at play at any given time, some large, some medium, some small. So it's hard to really nail down exactly that point. But if I could take just a little look back to some of the earlier calls. If you recall, in Q2 of the year, we talked about project pacing and timing and some of those issues that we thought we might see in the second half.

And then additionally, we talked about the fewer working days that you start to see in Q4. So it isn't a unexpected to us that the second half of the year was a lower growth than the first half. So nothing specific on any individual project, but just the nature of the business that can be uneven from time to time.

Fair enough. I guess, just did we -- I guess, did more of those conclude in the third quarter versus the fourth quarter, if we're looking at another step down as those have now fully concluded?

Yes. So what I would think about, if you look at 2025 and how it played out in 2026 and how we see it happening. The first half started out with a higher growth rate, the second half of the year with a lower growth rate. I think the way we see '26 is a lower growth rate in the first half and a higher growth rate in the second half. And that's something that is driven by the confidence that we have in projects that are in flight, awarded projects that haven't yet started. So we have visibility to some of those projects, and we do see how they're layering out in the year.

Your next question comes from the line of Nathan Jones with Stifel.

I guess I'll start -- I know you don't want to talk about the size of this Puerto Rico project. So maybe I'll ask another question that you have answered previously. I think, Ken, you've said over the years that the size of the U.S. market is about 6 million meters per year and Badger's share is roughly about 30%. Are those numbers still accurate for what the size of the overall U.S. market is?

Yes, give or take, 85% of the market every year is replacement, and it's roughly in that space, yes.

So Badger shifts about, give or take, 2 million meters a year is the rough way that would break down for what the overall U.S. market is?

Yes. I mean it's not far off. Again, the indicated general volume that you alluded flexes year-to-year. It's probably a little bit higher than $6 million. That reference figure is dated. But at the same time, the share element that you mentioned is still relevant.

Got it. I'm just trying to give people a general sense for how big a project [ 1.6 million ] connections per Badger Meter even over a 3- to 5-year period.

And Nathan, 1 thing is -- the reason we mentioned PRASA is because, as you know, we don't get into the habit of announcing projects because there are so many. But obviously, this 1 is pretty meaningful in size, as you point out. And to just give it some reference and the reason we're talking about it more publicly is we never announced the win and the project that we did recently complete in Orlando. So everyone is aware Orlando a pretty large city to put it in scope and scale, the PRASA award is at the equivalent to 8 Orlando's.

That's extremely helpful. My next question is going to be around gross margins. Obviously, gross margins are very strong. There's probably a few headwinds as we go through the year. I mean second half of '26, you're talking about some more turnkey projects, which will be headwinds to gross margins. You've obviously seen a big spike in copper prices that will come through your business on a delay. But the first half is, as you said, is going to have an absence of some of these turnkey projects, which is a tailwind for margins. Any help you can give us with how we should think about first half to second half gross margins in terms of that mix or how we should think about the full year for gross margins, given you're at the very high end of the gross margin target range in 2025?

Yes, Nathan, this is Dan. I think a couple of things to point out. I think as we think about it quarter-to-quarter, there's nothing that we would specifically point to say there's going to be variability from quarter-to-quarter. I think you're thinking about the right topics being, we continue to see structural mix impacting margins in a positive way in 2026.

And I think you highlighted a couple of the areas that we're continuing to watch, which are the commodity input costs into our ingot recipe. And then certainly, tariffs is something that we continue to monitor. We've gotten to price cost parity on tariffs in 2025, and we'll continue to manage whatever comes our way in 2026 from that perspective.

Your next question comes from the line of Jeff Reive with RBC Capital Markets.

Thanks for all the color thus far. I had another 1 on the Puerto Rico project. I mean this is a really sizable win. Can you walk us through the typical timing and phasing of the large AMI project like this? How do deployments ramp? Are they smooth or chunky? How much is in year 1, 2 versus 3, 4, 5 just over the life.

Andrew, that's a fantastic question, and I would say you're a straight man for why we don't provide guidance from quarter-to-quarter. The project ramp-ups, oftentimes, there's a plan, there's so much that goes into an AMI project in terms of going through all the budget cycling, and then having to align all the resources because you need people out on the street doing installations. And then you might have weather factors from quarter-to-quarter.

So it's not as smooth as people might think that it would be to do a large deployment, whether that's something the size of Puerto Rico or something the size of a medium town anywhere in the United States. So typically, people look at these things and they expect them to be done over a 5-year period. If everything goes really smoothly, it could potentially go faster. If you have issues, it could go longer. But there's no real blueprint, but generally, we're thinking of this over a 5-year horizon for PRASA.

Got it. And I think you said in the prepared remarks, meters are being manufactured in Racine, not your Mexico facility. Is there a margin differential happening there?

Yes. I mean I think you can imply just you can imply just from labor cost differential, there would be a potential margin impact. Of course, that was all contemplated in the contracting stage. And so ultimately, the location of manufacture is being driven by U.S.-made manufacturing requirements. So that's part of the reason why we made an investment in that facility and continue to invest there. That's what dictates where it's made and we understand that cost footprint. And we're able to engage and embed that, if you will, into the RFP process.

Yes. And I'm sure I'm jumping the route here on anticipating the margin question on the project, which, of course, which we won't disclose, but -- since we're not -- since it's not full turnkey and there's a whole lot of different factors in here, but this is 1 where I think we've struck a really good value proposition where PRASA sees their value in what we're offering and they're happy to buy it, and we're happy to sell it at the margin it's going for.

Your next question comes from the line of Andrew Krill with Deutsche Bank.

I want to go back to the [indiscernible] 1 of your competitors yesterday suggested their revenue to be slightly to modestly down year-over-year. I think you used the word growth for this year. So I just want to confirm, I think that would -- do you feel pretty confident sales should grow this year even if they're below that high single digit through the cycle target?

Yes. So real quick. I know people really enjoy the read-through on trying to do the competition how things will work. First of all, there could be inherent unevenness in their business that's different than the mix of customers that we have that is hard to do, just to begin with industry-wide. Secondly, the particular competitor you're talking about, I think we have several differences that have been built over the last several years. We have an industry-leading AMI offering that has several in-flight projects and awarded not started projects.

Informing our view. We've got a really exciting software business at 8% of our revenue now that's 100% recurring. We're really excited about what's happening with sewer line monitoring and water quality monitoring and network monitoring. And these are things that I believe the competitor you're talking about doesn't have. So the read-through that people are getting, I would say, isn't the same.

So when we look at all those factors that we're talking about, again, I would think you should view '26 as the inverse effect of '25, like I talked about before. But we feel confident given what we're seeing. Our conviction on high single digits through the 5-year horizon is as strong today as it was yesterday as it was 3 months, 6 months or 12 months ago, based on all the same factors we use to think about that 5-year horizon.

But some years -- and one thing, not to follow at all up here on this question, but everyone who's talked to us before, we've never pegged and said every single year is going to be 8%. We've said -- some years might be 12, some years might be 5. We just came off of 6 that I'm pretty proud of. And I think this next year is going to be exciting, and our 5-year conviction is as strong as it's ever been.

Great. Very helpful. And then a quick 1 on pricing. And disclose that exactly. But just can you remind us, has it been primarily or all list price increases thus far to deal with tariffs mostly? Or have you been using surcharges as well. And in the event tariffs were ruled illegal? Like do you expect you can hold on to this price looking forward? And then any conversations with customers looking for kind of some discounts at this point?

Yes. So in our pricing, keeping in mind, 75% of our revenue is sold direct. And so when we're in a constant state of doing project pricing based on real-time output. So that helps us in some ways. Two, yes, we do list price increases. What we didn't do was temporary tariff add-ons or tariff issues that could be challenged in court or could be reversed once the customer says tariffs are gone or could be demanded back because tariffs have been rolled back. So ours is pretty clean, I think, compared to how other people have handled the pricing aspects of tariffs.

Your next question comes from the line of James Ko with Jefferies.

I guess I wanted to kind of follow up on the project pacing dynamic here. So was this like dynamic kind of extending into first half 2026 expected? Or is this something you kind of developed? And kind of how much confidence do you have in kind of project converting into revenue in second half 2026?

Yes. There can always be some variability. So in full disclosure, some of the projects that are starting in the second half, we thought would have started in the first half. So things can slide sometimes from a quarter or 2 out. And this is why we talk so much about the 5-year horizon. I'm absolutely confident all those things are going to happen within the 5 year. I'm confident in what's going to happen in the year. But trying to peg it from quarter-to-quarter can be difficult.

I just want to clarify, too, that when Ken says project slides to the right, for example, it's not related to funding. Each 1 of these projects is different. Every customer is different. There's contracting phases, there's initial deployment areas. There's full rollout. So there's multiple steps to these projects. and everyone is different, and that's the largest impact to the timing of them.

I think the point that I would like to maybe emphasize here is that these aren't hoping for backlog increases. These aren't hoping for things to happen. These are known, awarded, not started projects that even if they have some variability in where they move, they're in our pocket.

Got it. And I guess similar question, you kind of reiterated high single-digit kind of organic growth over the 4 to 5-year horizon. So like how much of that outlook is kind of supported by awarded but not executed project versus kind of broader just few opportunities?

Well, so it's a great question. I mean this is how we -- when we think about our 5-year view and what we've talked about in several meetings is we're looking at several segmentations of how many people are looking, working with consultants and working on budget, which are items that turn into revenue 3, 4 and 5 years out. We've got the whole bucket of things that are in RFP today that become revenue in the next year to 2, then we've got in-flight projects. We've got awarded not started project. So it's this whole funnel of activity that we look at.

And -- but what underpins it all, that's really helpful for us is we're confident that no matter what happens with these project cycles, 85% of what we're going to take orders and ship for every year, our replacement by nature in terms of meters and radios. So the project stuff is all very interesting, but the bottom line is very strong. And then, of course, the software continues to grow the last 5 years at a 28% CAGR. So it's a multivariable equation and 1 that we feel good about how those come together.

Your next question comes from the line of Bobby Zolper with Raymond James.

It looks like there's about $1 billion of metering projects in the [ ARPA ] data, which all needs to be spent by the end of 2026. How have you reflected that in your 2026 commentary?

So we haven't. I mean, so when we sit here and we talk about what's fueled our growth for the last 5 or 6 years, it's really informed by the buckets I just walked you through. And when we look at who's planning for projects who is actually doing RFPs for projects, what we have in known projects, there's so many ways that funding is done, especially around the AMI side, whether that be SRFs, [ WIFIA ] loans, rate base increases, municipal bonds, that is 1 factor. You're right, but it certainly is not an outsized consideration for us at all when we think about our forecast.

I'd also be cautious about taking something that's listed in an ARPA database with reference to the word metering, and assuming that, that whole total of money is related to metering. It's oftentimes considerably larger than the actual metering spend. So a headline grabbing number question like that, is not necessarily indicative of the true metering content on those line items.

All right. I appreciate it. And then I have a two-part question on the PRASA project. I guess, one, how is PRASA funding that project? And then secondarily, what is the legal status of that project?

The first part of that question shouldn't surprise anyone. Part of the project purpose and intent is in response to Hurricane Maria, which took place in 2017, so over 8 years ago. And so the funding of that project in part is coming from [ FEMA ] dollars. And so that is a FEMA-funded project, which ultimately drives the Buy American requirement I mentioned earlier, which then drives our location of manufacturer.

In our -- to the second part of your question, in our -- first of all, we don't comment certainly on litigation of ourselves or and/or the legal status, if you will, of even our customers or potential customers. But in the direct sense, in our commentary, we mentioned there's a lot of variables related to this project. And certainly, those variables could impact the pace at which that project gets deployed, whether it be here in the immediate term of 2026 or thereafter. And so I'm not making that statement generally, not specific to your legal question. But ultimately, there are a lot of variables at play, but what is known as the award and our participation in that award.

Your next question comes from the line of Scott Graham with Seaport Research Partners.

I want to understand a little bit more, Ken, about some of your statements in the press release and then follow up on the call here about the first half versus second half. It seemed in the press release to suggest that your second half growth was slower than your high single-digit long-term and that, that decrement was either because of the roll-off projects, as you've discussed in the days in the fourth quarter. And that the first half of this year will essentially be the same the roll-off of the projects. Does that suggest, can that the organic growth that you're expecting in the first half of the year will be the same amount lower on a percent basis as the second half was versus the high single?

So Scott, as you I'm sure expect we're not going to get that granular with you, but when I had mentioned previously that I think you'll see 2026 play out in a similar fashion, except the inverse of how 2025 did. I would just expect a lower growth rate in the first half of the year and a higher growth rate in the second half of the year.

I had to try. Okay. So the stock is obviously -- seems to not be reflecting what you're seeing in this call. And I'm just wondering, you've been buying back some stock last couple of quarters. Is the plan here with that, the stock where it is, is there an opportunity to maybe restrain some costs in the first half of the year to boost earnings? Or will we continue to see share repurchases to boost earnings or both.

Yes. So a couple of things. So first off, obviously, with our great balance sheet, we still feel 100% positive about our capital allocation priorities. So we're going to continue to invest organically and inorganically in the business. So what that means is we'll do the right things to continue to drive long-term strategy and growth. So we would never do any shortsighted cost-cutting type things to try to short-circuit results. So we're going to continue to invest in the business.

Two, returning cash to shareholders. That's traditionally for us been 33rd consecutive year of increased dividends. We did buy some shares back in Q4 as we talked about. And certainly, we have the authorization to purchase more. And if we thought it was attractive in Q4, I'm not forecasting anything for you, but I would think you think we think it's attractive now, too, to repurchase shares.

And then on the M&A funnel, we're really, really thrilled with the deals that we've done over the last 5 years, and we continue to have a really exciting funnel. So the capital allocation priorities are still going to be aligned to support growth return value to shareholders and do more M&A.

Your next question comes from the line of Michael Fairbanks with JPMorgan.

My first question is on SmartCover. So it was up 25% annualized and profitable in 4Q. I guess now that the integration is 12 months in, can you just give us an update on what you now see as the potential in that business? And how we should think about the growth algorithm there going forward?

Yes. You cut out there a little bit, but I think what you asked was we saw 25% growth in SmartCover, and you're asking how we see the future of sewer line monitoring growth rates. So the thing that we were excited about SmartCover to begin with is that before we acquired it, it was growing at a 20% CAGR for multiple years. So that's the first point.

Second point is, we're still so early in adoption of sewer line monitoring that there's still so much more room to grow, which is why we really want to get into that space and acquiring a known brand like SmartCover, the leader in North America was really important to us. So we fully, fully expect to continue to grow our sewer line monitoring at a higher rate than average.

Great. And then on PRASA, can you maybe just talk about how you could use potentially an AMI deployment like that to expand the reach the other offerings in the portfolio just in the BlueEdge portfolio broadly?

Yes. And in fact, the answer doesn't even need to be PRASA specific. I think we have multiple examples where AMI adoption by a utility ultimately serves as the catalyst to the extension of other beyond the meter technologies. Essentially, AMI becomes an implementation that, in many cases, a utility that grows into having data availability and the insights and analytics to influence how they run primarily the meter billing operations, but then having cascading effects into the remainder of the utility. And once that kind of capability or core discipline is in place, it then becomes very clear that marrying up that meter and flow data with other pressure management and/or water quality data becomes a very valuable value proposition, if you will.

And so whether it's PRASA or any other AMI customers of ours that's oftentimes the foundation or the spring board to the broader beyond the meter technologies. We often talk about Galveston. We've talked about [ Galveston ] historically over time. But that is the exact scenario that played out there. AMI was the first technology adoption and then other use cases followed in short order as data and analytics became a primary point of emphasis with the utility.

There are no further questions at this time. I will now pass the call back to Barbara for closing remarks.

Thank you, operator. Badger Meter's First Quarter 2026 earnings release is tentatively scheduled for April 16, 2026. In addition, please save the date for Badger Meter's inaugural Investor Day, which will be held on May 21 in New York City. During the event, we will provide greater color and tangible examples of the evolution of our BlueEdge portfolio, along with the discussion of the key drivers, enabling growth of our comprehensive suite of smart water management solutions. Information about how to attend and what more to expect will be available in early March. Thanks for your interest in Badger Meter, and have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, welcome to the Q3 2025 Badger Meter Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded.

It is now my pleasure to turn the conference over to Barbara Noverini Head of Investor Relations. Please go ahead.

Thank you for joining the Badger Meter Third Quarter 2025 Earnings Conference Call. I'm here today with Ken Bockhorst, our Chairman, President and Chief Executive Officer; and Bob Wrocklage, our Chief Financial Officer. This morning, we made the earnings release and related slide presentation available on our website at investors.badgermeter.com. As a reminder, any forward-looking statements made on this call are subject to various risks and uncertainties, the most important of which are outlined in our news release and SEC filings.

On today's call, we will refer to certain non-GAAP financial metrics, including certain base metrics use of the term base for these purposes is intended to refer to certain financial metrics, excluding the Smart Cover acquisition. Our earnings presentation provides a reconciliation between the most directly comparable GAAP measure and any non-GAAP or base financial measures discussed.

With that, I'll turn the call over to Ken.

Thanks, Barb. Welcome to our third quarter 2025 earnings call. I'm happy to report another quarter of strong financial performance as 13% year-over-year sales growth drove solid operating profit performance and record free cash flows. As these results demonstrate, demand for our industry-leading cellular AMI solution and BlueEdge suite of modular smart water management solutions remain steady, supported by durable macroeconomic drivers that encourage technology adoption across the water cycle.

We also managed persistent tariff and trade-related cost headwinds effectively as evidenced by gross margins remaining above our historic normalized range of 38% to 40%. Amidst macroeconomic and trade environment uncertainty, our business has once again proven to be resilient, thanks to the dedicated Badger Meter employees that serve our customers every day. Bob will review more of the financial details, and then I'll be back to provide some color on a few other topics along with our outlook. Go ahead, Bob.

Thanks, Ken, and good morning, everyone. Turning to Slide 3. Total sales of $236 million in the third quarter of 2025, represented an increase of 13% year-over-year or 8% base sales growth. As expected, while absolute sales dollars declined sequentially from the second quarter, base sales growth of 8% this quarter did increase sequentially from 5% growth in the second quarter of the year.

Total utility water product line sales increased year-over-year by 14% or 8% excluding SmartCover. The underlying sales increase was driven by higher ultrasonic meter unit volumes increased BEACON Software as a Service and water quality product sales. Sales for the flow instrumentation product line increased 4% year-over-year. as strength in water-related markets offset lower demand in deemphasized nonwater related applications.

Turning to profitability. Operating earnings increased 13% year-over-year to $46.1 million, with operating margins up 10 basis points to 19.6% from the prior year's 19.5%. Importantly, when excluding the results of the SmartCover acquisition, base operating earnings of $46.6 million increased 15% year-over-year and base operating margins expanded by 120 basis points.

Gross margins expanded 50 basis points to 40.7% from 40.2% in the prior year quarter. Gross margin continued to benefit from ongoing structural mix improvement while implemented price increases partially mitigated certain tariff-related cost pressures in the quarter. Even though the trade environment remains very fluid, we are increasing our gross margin range from 38% to 40% historically, to a new normalized range of 39% to 42%. Note that the low end of our new range takes into account our scenario planning related to all currently known trade and tariff conditions.

SEA expenses in the third quarter were $49.8 million, with the increase of approximately $6.5 million year-over-year, driven primarily by the SmartCover acquisition. When excluding SmartCover related SEA expenses, including $1.6 million of intangible asset amortization, base SEA expenses increased $1.2 million or 3% year-over-year. When further accounting for the $1.8 million deferred compensation benefit in the quarter that we referenced in the release, underlying SEA expense increased $3 million or 7% year-over-year. The higher year-over-year base SEA expense was mainly driven by increased bonus and incentive expense based upon business performance and higher personnel costs to support the business.

The income tax provision in the third quarter of 2025 was 26.1%, modestly higher than the prior year's 25.3%. Consolidated EPS was $1.19 versus $1.08 in the prior year quarter representing a 10% year-over-year increase. Primary working capital as a percent of sales at September 30, 2025, was 22%, 20 basis points higher than the prior quarter end and 150 basis points better than a year ago. Record free cash flow of $48.2 million increased by approximately $6 million year-over-year, largely due to lower cash taxes in 2025 resulting from timing aspects associated with tax law changes pertaining to the deductibility of research and development costs.

With that, I'll turn the call back over to Ken.

Thanks, Bob. Over the past few months, Bob and I have spent a lot of time with customers at Webtech an annual trade show centered on water quality and Engage Live, which is an annual gathering of Badger Meter customers presenting customer curated roundtable and case study discussions. What we've heard over the course of these events strengthens our conviction in the value of BlueEdge both to our customers as they seek to solve complex problems across their operations and to us as a long-term driver of growth for our business in advanced metering infrastructure and beyond the meter solutions.

At Webtech, we presented our full suite of smart water solutions spanning the entire water cycle for a variety of water treatment, metering and network monitoring applications. 5 years ago, we had a limited presence at this show. Now we exhibit a full complement of solutions that spans the water cycle. It's remarkable to see how far we've come in such a short amount of time.

Customers that engage live expressed enthusiasm for our ability to grow with them as they prioritize where they'll allocate their budget dollars over the coming years. Despite federal funding noise, our utility customers continue to plan for the long term due largely to current labor challenges but also because they recognize the inevitability of adopting new technologies in their operations for efficiency and resiliency.

Our solutions are modular, and we're capable of enabling where and when our customers should begin or continue to adopt BlueEdge components. Rolling out these solutions over time at a pace that works for them and making sure they achieve the outcomes they expect from our advanced technologies, we remain very excited about this growing portion of our long-term strategy.

From our vantage point, we continue to see healthy levels of activity across our opportunity pipeline from planning to bidding to awards to deployment and order activity. While we fully expect to experience the unevenness that's inherent in our industry and business, we remain confident in an average top line growth rate of high single digits over the coming 5-year time horizon.

Finally, turning to the outlook. Let me provide our standard fourth quarter reminder, which should sound familiar to those of you that have followed us for a long time. The fourth quarter usually has 5% fewer operating days due to utility holiday schedules. Nevertheless, our year-to-date trajectory implies a solid close to the year. I remain encouraged that despite ongoing macroeconomic trade and policy uncertainty, our business has proven to be resilient. This is because our products and solutions have an important place within the critical utility water infrastructure.

The long-term secular trends driving change in the water industry will continue encouraging our customers to evolve and we're well positioned to enable them to do just that. With solid cash flow generation capabilities and an approximately $200 million net cash position, we continue to demonstrate significant financial flexibility allowing us to invest in both organic and value-added inorganic growth. In the third quarter, we also returned cash to shareholders by increasing our dividend for the 33rd consecutive year.

We remain on track to deliver the anticipated cost and sales synergies associated with the SmartCover acquisition. For example, we've successfully transitioned certain manufacturing operations to our facility in Racine, Wisconsin, and we continue to identify attractive sales leads for SmartCover as part of our BlueEdge suite of solutions. In summary, we're executing very well, and we'll continue to manage the near term while staying true to a long-term strategy that we expect will compound value for both our customers and our shareholders.

With that, operator, please open the line for questions.

[Operator Instructions] Our first question comes from Rob Mason from Baird.

Ken. First question, just, again, the increase in the gross profit, expected gross profit margin over time, I think we may perhaps have been anticipating this just given the uplift in structural mix. But Bob, you have been citing kind of the backdrop of tariff cost [indiscernible] is some of the reluctance. And so I'm just curious maybe if anything changed in the quarter or if you can reposition some of your suppliers where you feel better insulated or just maybe the catalyst to take this up at the point that you did?

Yes, I think -- thanks, Rob, for the question. And you're exactly right. We've said in prior quarters were it not for some of those evolving tariff situations, we likely would have done the normalized gross margin change sooner. I think that's simply all that the timing now means is that Q1, we are right on the heels of Liberation Day. In Q2, we were right on the heels of rumored tariff on copper, which, of course, didn't prove to be as meaningful to us.

So I just think it's the lack of news. And of course, the environment is changing day by day, but I think it's that lack of new news that I think has us with confidence and then another quarter of above target level performance. And I think it's also an enduring I think, endorsement, if you will, of the structural mix benefit that we all know is resident in our sales volumes. And so I think you combine that entire picture and that's what gives us confidence in that higher range, realizing that just like the 38% to 40% for a number of years. Our expectation is this new range will be something that's [indiscernible] a number of years, not necessarily. That's something that we're revising quarter-to-quarter.

Sure. Just as a follow-up. I think coming into the third quarter, [indiscernible] the thought was you were expecting some sequential decline in the core business and some of that just revolved around normal project timing is project [indiscernible] roll on and roll off. I'm just curious as you go, has anything changed in -- through the year, how are your customers moving forward on their decision-making? Has it been -- it's been a noise a year on the many fronts. I'm just hears if anything's changed on their decision making time lines.

[indiscernible], if you will, that quarter-over-quarter, it wouldn't be a stack bar growth and that inherent in the industry and the business is this common unneededness and sometimes projects are rolling in and sometimes projects are rolling off. So we were just calling out that you shouldn't expect a sequential Q3 being larger than Q2. That wasn't meant to create any concern that perhaps we were expecting declines in the business.

And as far as Q4 goes, yes, it's the typical disclaimer that we've put out there for the last 5 or 6 years. For our customers, days working matters for the work that happens in the field, people need to be working. So anytime that there's fewer workdays, [indiscernible] called seasonality. It's just literally the amount of work that can be done within a quarter is less in Q4 than it was in Q3.

But could you address -- I think you referenced just federal funding noise. Is that -- any sense that, that's impacted the decision-making process or time lines?

I would tend to argue the noise is more external than internal to the industry and the business. The customers that we've talked to, I referenced we were just at [indiscernible] and saw tons of customers literally and also at Engage Live. And the excitement and the views that people have about the future haven't changed. And while there is that noise out there, and again, we've never debated that there could be budget concerns or questions through parts of the water industry.

And I think what we've confirmed over the last quarter since that noise has come out is that our customers who are in various stages of completed AMI projects in the middle of AMI projects are contemplating AMI projects are finding the budget to do that.

Our next question comes from Nathan Jones from Stifel.

I wanted to ask about SmartCover. It looks like based on the report [indiscernible] something like 25% growth in the quarter. Maybe you could just comment on the growth that you're seeing there and the growth expectations going forward?

Yes. So now that we're another quarter into integrating SmartCover into the business. We remain extremely excited about the opportunity to continue to grow this at a really outsized level. Again, when we acquired it, it was in the 5-year CAGR of 22-ish percent and being part of the BlueEdge suite of solutions [indiscernible]

And obviously, the focus is on growth. How should we think about maybe the incremental margins on growth there, just given that at this point in its life cycle, it probably requires plenty of investment to support that growth, maybe it doesn't grow profitability as quickly as that otherwise would affect.

Yes. I would say the commentary is very consistent with what we've said in prior quarters, which is absolutely the opportunity here is growth. Again, I'll remind everyone, at least the sewer line or the monitoring at the man hole, if you will, is an extremely underpenetrated market and 1 ripe for digital adoption, and that will lead to robust growth. And as we've talked about in prior quarters, while the SEA portion or the core SEA of the business is above line average, even without the amortization and certainly well above line average with the amortization, we believe while still investing in the business to support that growth, that we can lever SEA significantly as a percentage of sales that by default then mathematically leads to above-line average incrementals.

And so incrementals that would be more in line with the business that's a durable hardware sales supported by -- in the case of software, 100% attachment rate to software. And in the case of post-service support, a high attachment rate to another element of annual recurring revenue. So that's a long way of saying the incrementals on the SmartCover business are well above line average, and we'll add to up and EBITDA margin accretion going forward. We've long said year 1 EPS accretive, both in the numbers that you can now see in a separate reconciliation as well as when accounting for the opportunity cost of the $185 million of cash deployed. We've also long said since acquisition that we expect that to become EPS accretive in year 2. So that should give you a flavor for a bit of the top line performance expectations combined with than the incrementals that drive that to be accretive in year 2.

Our next question comes from Jeffrey Reive from RBC.

You called out pricing partially mitigating tariff impacts this quarter. Can you size the price increase that you passed through? And what was the price capture? And any update on how you're tracking on price cost for the year?

Yes. So I think, Jeffrey, you know us well enough. We won't size it. I think the way we should think about -- first off, when we talk about tariff and tariff-related costs, we're absolutely talking about the pure line item of tariff costs we see upon importation to whether it's our U.S. market or whether U.S. manufacturing or whether that's in other inbound material flows, but we're also talking about the knock-on effects of bismuth cost increases that remain elevated and very consistent with the story that we told back in the first quarter when those buses tariff pressures became available.

We have implemented, I would say, not across the board, pretargeted product-specific price increases as early as Q2. And that continues on an ongoing basis, whether that's on PO to PO business or annual contract renewals. So there's a series of actions consistently occurring that's allowing essentially that price realization effect to catch up to those cost effects that were experienced immediately. And so I would tell you, without sizing it, Q3 was still a bit of the lagging effect of price versus cost, but we fully expect that to reach parity as we move forward.

Yes, Jeffrey, I think I would like to add to that, that what we are really confident in is that we've got a really strong process for understanding in very short order, the impacts that we see from tariffs, our ability to maneuver is while there is a quarter lag, sometimes we are able to move pretty quickly. And I feel like we have a really strong understanding of our costs and what the value is that we can get from the market for the solutions that we offer.

So overall, we've had a really strong process in place around pricing since we did our value-based pricing initiatives in 2020, and that has helped guide us through this.

Got it. And then can you comment on the water quality performance this quarter, maybe as well as the growth rate, but also from recent customer discussions, are there any testing needs or parameters they're asking for that aren't currently in the portfolio today?

Yes. So typically, since we've integrated this, it is part of the utility part of the utility business. When we do call something out in the quarter, we're particularly excited, though, about the recent performance of it. So as we're into the fifth year now of having water quality in the portfolio, we're really excited about the offering that we have. We're seeing extremely strong traction, really walked away from the WEFTEC show feeling more and more invigorated every year.

In terms of parameters, we have a really strong collection of the parameters that are required for our customers. So we're not getting into -- you know for sure the pragmatic view that we had on PFOS and not chasing that. So for the areas that we're playing throughout the distribution network or in treatment, we feel really strong about the parameters that we have.

And I would also say the capability or the comprehensive nature of our solution, it extends beyond just the pure mechanical parameters and reaches into the means by which those parameters are gathered, whether that's optical or whether that's electrochemistry, it spans beyond not just the technical capability, but also were deployed. We've got capabilities not only in remote network monitoring type applications but also inside the fence at water treatment and at commercial and industrial customers.

So certainly, one of our -- and I'm sure the question is going in the direction of what about M&A type activity. Certainly, one of our acquisition laneways is around augmenting our capabilities around the core of water quality and network monitoring more generally. But I would tell you that we do have a very competitive not only parameter offering, but technology offering and application offering that positions us to deliver forward growth consistent or relatively similarly to what we just delivered in the third quarter.

Our next question comes from Andrew Krill from Deutsche Bank.

I want to ask, looking forward a little bit more based on your current customer conversations sound good, your backlogs, any initial views on 2 and potential for you to deliver on your high single digit through the cycle growth target. I think this should be your easiest comp on a year-over-year basis since COVID, but sympathetic, there's still tariff uncertainty, other things than just maybe how are you thinking about next year and the potential to deliver high single-digit growth.

Yes. So as you know, Andrew, we don't provide guidance, so we'll probably clearly stop short of your expectations and giving you a number related to 2026. I would just tell you the confidence that we have in that high single-digit forward look is over that cycle, recognizing that, that can be uneven year-to-year. I think it's interesting. Your comment is it's the easiest quarter or easiest year-over-year comparison since COVID. But unfortunately, that's not how bigger numbers work, right? It's more challenging to generate growth off of that.

That being said, we still, as you heard in the prepared remarks, regardless of what aspect of the opportunity funnel that we talk to customers about, whether that's starting from the planning phase and the engagement of engineering firms to assist with consulting on one end all the way down to our projects deploying and moving. We remain confident in that outlook. And I would tell you that '26 is no different than any other year.

Yes. And just to add to that a little bit. And it's not trying to be cagey or anything. It's just when you're selling to 50,000 utilities, small, medium, large that all move at different rates and sizes. This is why we talk about this 5-year cycle and how we've segmented that down into where people are within the cycle. We feel great through the cycle, but it is difficult at times to predict a particular year or quarter. But overall confidence, it remains solid.

Fair enough. And then on capital allocation, I think the multiple of the company is the lowest it's been in some time. So maybe has there been any change in thinking on the potential for buybacks, the balance sheet, clearly, Net cash position. So if there aren't any like more deals that get across the finish line, like could that be an outcome that's more likely than it has been in some time.

Yes. So our capital allocation priorities that we've lived by since Bob and I have been here have been around, number one, investing in organic growth to remain the R&D leader in the space, still feel extremely strong on doing that. Number 2 has been increasing dividends, and we've done that now for a 33rd consecutive year at, I think, an interesting rate aligned with operating profit growth. And third has been on the M&A front, where I think we've built out an extremely compelling portfolio that is driving this long-term growth that we've seen.

So I am not unhappy with our capital allocation priorities and how the business has performed and grown through the last several years. So I would never rule anything out, but I would tell you that we are on a path that I think has been working really well for the company, our customers and our shareholders.

Our next question comes from Bobby Zolper from Raymond James.

To add to the federal stimulus noise, could you provide some context on what your customers say about ARPU specifically? And if you have a sense of how much of that money has gone to metering.

Bobby, so very little of that money has gone toward metering. I'm sure throughout the 50,000 utilities, you could probably find some examples where it has. But for the most part, that has not been a meaningful driver. When we talk about the many, many conversations that we've had over the last quarter or the last year, the macro drivers of available labor, adopting technology, nonrevenue water conservation, adopting new technologies. Those all remain the same. And when the utilities are dealing with these problems, they do have the budget to solve the most critical issues that they have within the utility. So I know you're looking for us to size it, but there's really not much there to size.

Okay. Fair enough. I think what some investors are concerned about is making the comparison to the 2011 time period when they read back through the transcripts from then when organic sales were down I guess, could you expand on why that comparison period is not relevant today?

Well, I could compare it for several reasons. I think in 2011, the industry was primarily buying mechanical meters that were not battery operated. We've been selling battery-operated meters now in the ultrasonic for 15 years. We've been selling battery-operated radios. And the idea that in 2025, when metering, which again acts the cash register for the utility, when batteries go end of life and when utilities don't have the available labor, they're not going to stop doing billing. They're not going to find people to go out and start reading meters and radios meters manually.

So software in the business. I mean I could go on and on about how the world has changed from a technology point of view and how our company has changed since then. So those transcripts are history, but I wouldn't say that they predict the future.

Okay. Fair enough. And then last one for me. The forward 5-year forward view, excuse me, is that organic? Or does that include the contribution of potential M&A?

That is organic.

Our next question comes from Scott Graham from Seaport Research Partners.

Nice quarter. I wanted to maybe talk a little bit about mix. And I know in the context of your high single-digit long-term planning horizon growth. I know that volume is still most of that, and hopefully, you'll tell us if that's changed or anything. But this year has been a very interesting year, right? A lot of puts and takes. We have the onset of tariffs, we had an increase in your nonmetering businesses. And I was just wondering if there was anything in 2025 mix-wise, that has changed that could carry into '26 either positive or negative?

Well, I think if you're speaking specific to 2025, the first thing I would remind you is that Q1 was an abnormally rich degree of mix, which drove a gross margin of 42.9%, which we all acknowledged at the time was not expected to repeat. And since then you've essentially -- the last 2 quarters, reflective of that change. That being said, under the covers, if you will, continues to be this idea of what we call structural mix benefit. And when you hear us say that, that's essentially a codeword for the items or line items or product lines that are growing for us are tending to be the items that are average -- higher average sale price, higher average margin. And that's not new to 2025. It's just we're in a later inning, if you want to use a baseball analogy of that occurring.

And so underlying our gross margin profile change over time is the structural mix benefit that can be attributed to the sale of more Orion Cellular radios, the sale of more E-Series meters, the sale of and faster growth in the around the meter or beyond the meter technologies. That is not a trend that stops come the end of 2025. In fact, it's a large underpinning of our decision in this quarter to raise the gross margin range from 39% to 42% -- to 39% to 42% on a normalized basis. And we would expect that to continue as we move forward.

So I know I rambled a bit there, but I was trying to isolate a very episodic event in early 2025, that's an outlier, but then signify how ultimately that structural mix benefit and structural mix change is not only here in 2025, but it's enduring and beyond and a big part of why we were able to increase our normalized gross margin range.

That didn't sound like a ramble to me, that sounds like good information. The other question I wanted to ask was just sort of on software sales. How were they in the quarter?

Yes. So in the script, we called that out as a driver of the core growth or base level growth in the quarter. As you know, Scott, we always say, our software model, at least for Beacon and quite frankly, for our other connected products is different than I think most software models. It's not one that's license-based and/or suite based. It's a 100% attachment rate to an underlying device sale that then lasts for the longevity or field life of that asset. When we're talking about meters and radios, we're often talking about 10 or 15 years in the field, in the ground cycles.

And so essentially, the leading indicator for us is when we talk about growing Orion radio sales, the lagging indicator is a robust growth in SaaS, which if you look at our investor deck, it hasn't been -- I don't think it's been updated for the midyear here, but we've seen a 28% CAGR in our software revenue as a result of the success of selling Orion Cellular AMI and Network as a Service and I would tell you that this quarter was no different on a relative basis.

Our next question comes from Michael Fairbanks from JPMorgan.

Then, you called out higher ultrasonic meter volumes as a driver of growth for the first time in a few quarters. Can you just talk about Ultrasonic and if you're seeing any real changes in demand for that offering?

Yes, it's -- it was -- as things can be, as I'm broken record uneven, it was a particularly strong quarter for Ultrasonic just given the mix of customers that we had each year, we do, and we do expect to sell more ultrasonic meters than we did in the previous year as we continue to see some of that adoption. Our choice matters in our portfolio remains the same. We still we still expect to sell mechanical, especially on the residential side for many, many, many years to come. But we are excited about the expansion that we do see on the Ultrasonic side. It's certainly got its benefits that resonate well with some customers, maybe more so than others, but happy with the growth in the quarter.

Great. And then on the flow instrumentation side, we saw that return to growth. Any more color there on drivers? I know you called out water-related end markets but what's the outlook for that segment in general?

Yes. For us, it's becoming a smaller part of the portfolio, but we remain on the -- yes, a GDP-like numbers. So you might have quarters that are flat, some quarters that are up a little more. But for the most part, it's a business that you should think of growing in line with GDP.

Thank you. We currently have no further questions. So I'll hand back to Barbara for any closing remarks.

Thank you, operator. We appreciate you joining our call today. Our fourth quarter and full year 2025 earnings call is tentatively scheduled for January 28, 2026 and we look forward to engaging with our analysts and shareholders in the meantime. Thanks for your interest in Badger Meter, and have a great day.

This concludes today's call. Thank you for joining. You may now disconnect your lines.