Q1 2024 Badger Meter Inc Earnings Call
Karly: Ladies and gentlemen, welcome to the first quarter 2024 Badger Meter Earnings conference call. My name is Karly, and I'll be coordinating your call today. During the presentation, you can register to ask a question by pressing star followed by 1 on your telephone keypad. If you change your mind, press star followed by 2.
Ladies and gentleman and welcome to the first quarter 2020 for Badger meter earnings Conference call. My name is currently now be coordinating your call today. During the presentation. You can register to ask a question by pressing star followed by one on your telephone keypad. If you change your mind request godfather bite you.
Karly: It is now my pleasure to... I turn the conference over to Karen Bauer, Vice President of Investor Relations, Corporate Strategy, and Treasurer. Please go ahead, Ms. Bauer.
Speaker Change: It is now my pleasure to.
Speaker Change: Turning the conference over to Karen Bauer, Vice President of Investor Relations Corporation.
Karen Bauer: And treasure.
Karen Bauer: Go ahead Ms Bauer.
Karen Bauer: Good morning, and thank you for joining the Badger Meter First Quarter 2024 Earnings Conference Call. On the call with me today are Ken Bockhorst, Chairman, President, and Chief Executive Officer, and Bob Wrocklage, Chief Financial Officer. The earnings release and related slide presentation are available on our website. Quickly, I will cover the safe harbor, reminding you that any forward-looking statements made during this call are subject to various risks and uncertainties, the most important of which are outlined in our press release and SEC filings. In today's call, we will refer to certain non-GAAP financial metrics. Our earnings slides provide a reconciliation of the GAAP to non-GAAP financial metrics used. With that, I'll turn the call over to Ken.
Karen Bauer: Good morning, and thank you for joining the Badger meter first quarter 2024 earnings conference call on the call with me today are Ken <unk>, Chairman, President and Chief Executive Officer, and Barbara <unk>, Chief Financial Officer.
Karen Bauer: The earnings release and related slide presentation are available on our website quickly I will cover the safe Harbor reminding you that any forward looking statements made during this call are subject to various risks and uncertainties. The most important of which are outlined in our press release and SEC filings.
Karen Bauer: On today's call, we will refer to certain non-GAAP financial metrics, our earnings slides provide a reconciliation of the GAAP to non-GAAP financial metrics used with that I'll turn the call over to Ken.
Kenneth C. Bockhorst: Thanks, Karen, and thank you for joining our first quarter earnings call. We began 2024 extending our 2023 track record of solid execution and differentiated financial performance, delivering record revenue, operating profit, and EPS results for the first quarter. Early in the quarter, we completed the TELOG and Unity network monitoring acquisition, adding to our suite of SmartWater offerings along with onboarding their talented team. Early discussions with customers reinforced their trust in Badger Meter to bring them complementary hardware-enabled software solutions. I'll come back to discuss a few common investor topics and our outlook later in the call, but for now, I'll turn it over to Bob to go through the details of the quarter.
Ken: Thanks, Karen and thank you for joining our first quarter earnings call. We began 2024, extending our 2023 track record of solid execution and differentiated financial performance delivering record revenue operating profit and EPS results for the first quarter.
Ken: Early in the quarter, we completed the Tau logging unity network monitoring acquisition, adding to our suite of Smartwater offerings, along with Onboarding their talented team.
Early discussions with customers reinforced their trust and badger meter to bring them complementary hardware enabled software solutions I'll come back to discuss a few common investor topics in our outlook later in the call, but for now I'll turn it over to Bob to go through the details of the quarter.
Robert A. Wrocklage: Thanks Ken, and good morning everyone. Turning to slide 4, our total sales in the first quarter were $196 million, an increase of 23% compared to $159 million in the same period last year, representing another all-time record sales quarter for Badger Meter. Total utility water product line sales increased 29% year-over-year, which, as we've noted, represents the easiest comp of the prior year. We continue to experience strong demand for our suite of utility smart water solutions, which benefited from ongoing favorable water industry fundamentals, coupled with increased adoption of our innovative offering. Strong cellular AMI demand, including higher sales of Orion cellular endpoints, E-series ultrasonic meters, and Beacon software-as-a-service, continues.
Thanks, Ken and good morning, everyone.
Bob: Turning to slide four our total sales in the first quarter were $196 million, an increase of 23% compared to 159 million in the same period last year, representing another all time record sales quarter for Badger meter.
Bob: Total utility water product line sales increased 29% year over year, which as we've noted represents the easiest comp of the prior year.
Bob: We continued to experience strong demand for our suite of utility Smartwater solutions, which benefited from ongoing favorable water industry fundamentals, coupled with increased adoption of our innovative offerings.
Bob: Strong cellular EMI demand, including higher sales of Orion cellular endpoints E series ultrasonic meters and Beacon software as a service continued.
Robert A. Wrocklage: Additionally, water quality, pressure, and network monitoring sales contributed to the top line growth. Sales for the Flow Instrumentation product line declined 3% on a difficult prior year comparison, namely the 22 percent growth last year that benefited from supply chain easing and related backlog conversion. Flow instrumentation sales were up 13% sequentially, and order trends remained solid within water-related applications.
Bob: Additionally, water quality pressure and network monitoring sales contributed to the top line growth.
Bob: Sales for the flow instrumentation product line declined 3% on a difficult prior year comparison, namely the 2020, 22% growth last year that benefited from supply chain easing and related backlog conversion.
Bob: Flow instrumentation sales were up 13% sequentially and order trends remain solid within water related applications.
Robert A. Wrocklage: While we don't provide guidance, I will remind you that in fiscal 2023, revenue increased sequentially 11% from Q1 to Q2, partially benefiting from the easing of supply chain constraints, which will not reoccur in 2024. Turning to margins, we were very pleased with the operating margin expansion of 290 basis points in the quarter, reaching a record high of 18.6%. Gross profit dollars increased $14.4 million year-over-year, and as a percent of sales, it remained in the upper half of our normalized range at 39.3%.
Bob: While we don't provide guidance I will remind you that in fiscal 2023 revenue increased sequentially, 11% from Q1 to Q2, partially benefiting from the easing of supply chain constraints, which will not reoccur in 2024.
Bob: Turning to margins, we were very pleased with the operating margin expansion of 290 basis points in the quarter, reaching a record high of 18, 6%.
Bob: Gross profit dollars increased $14 $4 million year over year and as a percent of sales remained in the upper half of our normalized range at 39, 3%.
Robert A. Wrocklage: SEA expenses in the first quarter were $40.6 million, an increase of approximately $3 million year-over-year and up just over $1 million from the fourth quarter, due primarily to personnel-related costs including higher headcount, salaries, sales commissions, and R&D spend. Despite this increase in growth spending, SCA as a percent of sales declined 300 basis points to 20.7% from 23.7% in the comparable prior year quarter. We would expect absolute SEA spending to increase as we progress throughout the year with additional growth investment and spending.
Bob: SCA expenses in the first quarter were $40 6 million, an increase of approximately $3 million year over year and up just over $1 million from the fourth quarter due primarily to personnel related costs, including higher head count salaries sales Commission and R&D spend despite.
Bob: This increase in growth spending FCA as a percent of sales declined 300 basis points to 27% from 23, 7% in the comparable prior year quarter.
Bob: We would expect absolute FCA spending to increase as we progress throughout the year with additional gross growth investment and spending.
Robert A. Wrocklage: The income tax provision in the first quarter of 2024 was 23.5%, modestly below the prior year's 24.3%. In summary, consolidated EPS was $0.99 in the first quarter of 2024, a 50% improvement from $0.66 in the prior year comparable quarter. Primary working capital is a percent of sales at 21.9 percent, a 20 basis point improvement from 22.1 percent at calendar year end. We continue to carefully manage working capital investments to support growth
Bob: The income tax provision in the first quarter of 2024 was 23, 5% modestly below the prior year's 24, 3%.
Bob: In summary, consolidated EPS was <unk> 99 in the first quarter of 2020 for a 50% improvement from 66.
Bob: In the prior year comparable quarter.
Bob: Primary working capital as a percent of sales was 21, 9% a 20 basis point improvement from 22, 1% at calendar year end, we continue to carefully manage working capital investments to support growth.
Bob: Free cash flow of $18 $8 million was higher than the prior year's $13 7 million as always the first quarter reflected typical seasonality with incentive compensation and retirement plan contributions earned in 2023 that were then made in the first quarter.
Robert A. Wrocklage: Free cash flow of $18.8 million was higher than the prior year's $13.7 million. As always, the first quarter reflected typical seasonality with incentive compensation and retirement plan contributions earned in 2023 that were then made in the first quarter.
Bob: With that I'll turn the call back over to Ken Thanks, Bob.
Ken: I wanted to take the opportunity to expand on a few of the more common investor topics, starting with perhaps a simple one but actually a common misunderstanding.
Robert A. Wrocklage: With that, I'll turn the call back over to Ken. Thanks, Bob. I want to take this opportunity...
And ultrasonic or static meter and smart metering are two different things meter technology choices for example, mechanical or ultrasonic are distinct from meter reading technology choices, such as manual read drive by Rmi.
Kenneth C. Bockhorst: Thanks, Bob. I want to take the opportunity to expand on a few of the more common investor topics. Starting with perhaps a simple one, but actually a common misunderstanding. An ultrasonic or static meter and smart metering are two different things. Meter technology choices, for example, mechanical or ultrasonic, are distinct from meter reading technology choices such as manual read, drive-by, or AMI. Smart metering includes a radio endpoint attached to a meter, which communicates data from the meter back to the utility or homeowner. A mechanical meter can be smart when connected to a radio endpoint, and conversely, an ultrasonic or static meter could also be manually read.
Smart metering includes a radio endpoint attached to a meter which communicate data from the meter back to the utility our homeowner mechanical meter can be smart when connected to a radio endpoint and Conversely, and ultrasonic or static meter could also be manually red.
Ken: Second a common topic with investors is our growth algorithm and our endorsement of high single digit utility water growth over our strategic cycle.
Ken: Firstly, when we say strategic cycle, we typically mean, a five year period, we used to talk about a mid single digit growth rate for the company as a whole and even after the strong performance of the past several years, we have increased that strategic cycle rate of growth to high single digits.
Kenneth C. Bockhorst: Second, a common topic with investors is our growth algorithm and our endorsement of high single-digit utility water growth over a strategic cycle. First, when we say strategic cycle, we typically mean a five-year period. We used to talk about a mid-single-digit growth rate for the company as a whole, and even after the strong performance of the past several years, we have increased that strategic cycle rate of growth to high single-digits. We have confidence that our expanding suite of offerings, competitive positioning, customer relationships, strategy, and our team continue to position us well to grow sales and earnings at this higher rate.
Ken: We have confidence that our expanding suite of offerings competitive positioning customer relationships strategy and our team continue to position us well to grow sales and earnings at this higher rate.
Ken: We have resilient industry fundamentals, but the reality is while our anticipated growth growth rate has increased it will likely continue to be uneven in its realisation from quarter to quarter and year to year.
Ken: It's the nature of the industry and the impact of dollar changes on our rate of growth. For example, if we grew sales the same dollar amount in 2024 as we did in 2023 that rate of growth would be a full 500 basis points lower by simple law of larger numbers. So while some may question why our growth would slow we would say over a cycle.
Kenneth C. Bockhorst: We have resilient industry fundamentals, but the reality is, while our anticipated growth rate has increased, it will likely continue to be uneven in its realization from quarter to quarter and year to year. It's the nature of the industry and the impact of dollar changes on our rate of growth. For example, if we grew sales by the same dollar amount in 2024 as we did in 2023, that rate of growth would be a full 500 basis points lower by the simple law of larger numbers.
Ken: It has increased.
Ken: The third topic, we often get asked about is whether we're seeing any federal infrastructure funds being made available for our solutions. The answer is nothing meaningful at this point.
Ken: We have long stated that we didn't anticipate or count on much in the way of infrastructure or other government funding to drive growth and that is still the case.
Ken: We do have certain buy American compliant products. We recently provided a comment letter to the EPA in response to the market wide requests for information on various requirements.
Ken: We did that in coordination with Lima, the industry Trade Association, representing nearly all of the meter providers in North America.
Ken: The goal of providing this comment letter was simply to advocate for our customers to support them. If they were to decide to utilize infrastructure funds by easing the administrative burden and cost of project by project waivers for certain electronic components that simply cannot meet baba requirements across the industry.
Kenneth C. Bockhorst: So while some may question why our growth would slow, we would say, over a cycle, it has increased. The third topic we often get asked about is whether we are seeing any federal infrastructure funds being made available for our solutions. The answer is nothing meaningful at this point. We have long stated that we didn't anticipate or count on much in the way of infrastructure or other government funding to drive growth, and that is still the case.
Ken: Another question, we often get asked is about gross margins most of you've heard Bob referenced the led Zeppelin.
Ken: Led Zeppelin classic stairway to Heaven in response to this question.
Ken: We have several long term structural sales mix gross margin tailwind with growth in AMRI ultrasonic meters water quality and software at.
Ken: At the same time, while rationale we have competitors, we have customers, who request that we oversee turnkey project installations and as we move up the technology curve and our products the complexity of those solutions naturally carry higher support costs.
Kenneth C. Bockhorst: We do have certain Buy America-compliant products. We recently provided a comment letter to the EPA in response to their market-wide request for information on various requirements. We did that in coordination with WEMA, the industry trade association representing nearly all of the meter providers in North America. The goal of providing this comment letter was simply to advocate for our customers, to support them if they were to decide to utilize infrastructure funds by easing the administrative burden and cost of project-by-project waivers for certain electronic components that simply cannot meet BABA requirements across the industry. Another question we often get asked is about gross margin. Most of you have heard Bob reference the Led Zeppelin classic Stairway to Heaven in response to this question.
Ken: As such there is not a gross margin stairway to heaven, we're extremely proud of our profit margin improvement trajectory over time with both gross margin and FCA leverage contributing.
Ken: Finally, we are often asked to describe how we win in the market. There are many aspects of our business model and strategy that collectively have proven successful for our growth in the interest of time I'll highlight just two <unk>.
First our choice matters broad portfolio of solutions with 50000 utilities have differing sizes needs and challenges in a variety of wastewater and other industrial customers, providing them tailorable and customizable solutions to best meet their needs and preferences is highly valued.
Ken: The second is innovation and the breadth of complementary solutions beyond metering and AMRI for example, water quality and network monitoring pressure in leak detection and robust in house developed software.
Ken: Specific to our innovative and infrastructure free cellular AMRI, while others may be attempting to imitate we have a decade headstart and millions of endpoints installed with an array of customer reference accounts that routinely attest to its delivered benefits.
Kenneth C. Bockhorst: We have several long-term structural sales mix gross margin tailwinds with growth in AMI, ultrasonic meters, water quality, and software. At the same time, while rational, we have competitors. We have customers who request that we oversee turnkey project installations, and as we move up the technology curve in our products, the complexity of those solutions naturally carries higher support costs. As such, there is not a gross margin stairway to heaven.
Ken: Hopefully these insights help shed additional color on topics of interest for our shareholders.
Ken: Finally, turning to the outlook and then on to your questions. We continue to see robust order pacing in a strong bid pipeline that positions us well for continued sales and earnings growth as Bob noted, but it bears repeating our year over year sales and earnings comparisons become more difficult as the year progresses.
Ken: Our cash on hand, overall strong ability to generate free cash flow and debt free balance sheet provide us with ample capacity to further invest in both organic and inorganic growth.
Kenneth C. Bockhorst: We are extremely proud of our profit margin improvement trajectory over time, with both gross margin and SEA leverage contributing. Finally, we are often asked to describe how we win in the market. There are many aspects of our business model and strategy that, collectively, have proven successful for our growth. In the interest of time, I'll highlight just two.
Ken: Finally, we were proud to again be named to Barron's list of 100, most sustainable companies and as the USA top workplace. These types of recognition demonstrate that our holistic approach to corporate responsibility positions us well to deliver long term shareholder value with that operator. Please open the line for questions.
Ken: Yeah.
Ken: Yeah.
Speaker Change: Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad.
Kenneth C. Bockhorst: First, our choice matters a broad portfolio of solutions. With 50,000 utilities of differing sizes, needs, and challenges, and a variety of wastewater and other industrial customers, providing them with tailorable and customizable solutions that best meet their needs and preferences is highly valued. The second is innovation and the breadth of complementary solutions beyond metering and AMI. For example, water quality and network monitoring, pressure and leak detection, and robust in-house developed software.
Speaker Change: If you change your mind, Please press star followed by Q1.
Speaker Change: When do you plan to ask your question. Please make sure your devices on mute locally.
Speaker Change: Our first question comes from Andrew <unk> from Deutsche Bank.
Okay.
Andrew: Hey, Thanks, good morning, everyone.
Andrew: Wanted to ask.
SCA costs.
Andrew: Incrementals this quarter were very impressive.
Andrew: 30%.
Andrew: SG&A cost as a percentage of sales.
Andrew: All the way down to 27% I think.
Andrew: Yes.
Andrew: With percentages.
Andrew: All of that 2008.
This level of sustainable I think it's now been two quarters.
Kenneth C. Bockhorst: Specific to our innovative and infrastructure-free cellular AMI, while others may be attempting to imitate, we have a decade-head start and millions of endpoints installed with an array of customer reference accounts that routinely attest to its delivered benefits. Hopefully, these insights helped shed additional light on topics of interest for our shareholders. Finally, turning to the outlook and then on to your questions. We continue to see robust order pacing and a strong bid pipeline that positions us well for continued sales and earnings growth. As Bob noted, but it bears repeating, our year-over-year sales and earnings comparisons become more difficult as the year progresses.
Andrew: And the recent trend more in the 'twenty, two 'twenty, 3% area.
Andrew: Is that sustainable and maybe like what's changed that you are tracking the slower areas.
Andrew: Yeah.
Speaker Change: Yes, good morning, Andrew Thanks.
Speaker Change: For the question just this has been a consistent theme that we've been talking about now for.
Speaker Change: For a few years, which is that with our portfolio and the selling more into <unk> and the higher valued areas that we expect and frankly to customers that we've had for a very long time that we could continue to grow top line at a rate.
Speaker Change: Certainly faster than the SCA lines. So from a continuous improvement point of view, we have always expected it to get better year over year in terms of planting a flag in the ground at a particular percent or a number.
Speaker Change: That's well enough that we won't do that but we.
Speaker Change: We certainly expect to continue to see positive leverage at Esa FCA line.
Speaker Change: Yes, I would say that.
Speaker Change: The mainstay in the.
Speaker Change: The mainstay and this is.
Speaker Change: The reason why we've been successful in the market and we're positioned where we are as we've been an innovator in so we will continue to do that but while still doing that as Ken alluded to the hypothesis that we've long put forth is.
Kenneth C. Bockhorst: Our cash-on-hand, overall strong ability to generate free cash flow, and debt-free balance sheet provide us with ample capacity to further invest in both organic and inorganic growth. Finally, we were proud to again be named to the Barron's List of 100 Most Sustainable Companies and as a USA Top Workplace. These types of recognition demonstrate that our holistic approach to corporate responsibility positions us well to deliver long-term shareholder value. With that, Operator, please open the line for questions.
Speaker Change: <unk> leverages possible given our growth drivers. If you will I would just remind you consistent with what we said in the script, we do expect our absolute dollar spend to increase as the year progresses, consistent with ongoing growth investments I think a little bit of what youre seeing here in the first quarter is just a.
Speaker Change: Timing alignment of sales growth versus that investment.
Speaker Change: Okay, Great makes sense and then as a follow up.
Operator: Thank you. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. Our first question...
Speaker Change: I think it may not be.
Speaker Change: Lee applicable for Badger meter.
Speaker Change: Three final ruling on peace.
Speaker Change: Just wondering if the company <unk>.
Speaker Change: Hey.
Speaker Change: Anyway.
Speaker Change: Whether it's for testing I don't thank you.
Speaker Change: You have that capability right now, but is that something maybe if your M&A you could gain just anything there would be helpful.
Andrew Jon Krill: Hey, thanks. Good morning, everyone.
Andrew Jon Krill: I wanted to ask about the FEA costs and, you know, the incrementals this quarter were very impressive, a bit over 30%. FEA costs, the percent of sales, were all the way down to 20.7%, and I think, if I look, this is, you know, one of the lowest percentages you've had since all the way back to 2008. So, the question is just, is this level sustainable? I think it's been two quarters in a row, or it's been kind of lower than the recent trend, more in this 22-23% area. So, is that sustainable?
Speaker Change: Yes, so Andrew I'll take that from a very high level general point of view.
Speaker Change: Consequently.
Speaker Change: Through our strategic planning process looking at all of the areas.
Speaker Change: <unk> to customers that we could participate throughout the cycle and just frankly, so far given some of the requirements and guidelines around <unk> and where we are we've chosen not to participate in that at this time and we will continue to monitor the situation and if and when we see a place where we can provide value to customers and provide value to shareholders at the <unk>.
Speaker Change: Same time, then we would get in but Theres nothing on our horizon for that right now.
Great. Thank you.
Speaker Change: Our next question comes from Rob Mason from Baird.
Robert W. Mason: Hi, good morning. Thanks.
Robert W. Mason: I just wanted to first address.
Robert A. Wrocklage: Yeah, good morning, Andrew. Thanks for the question. Just, you know, this has been a consistent theme that we've been talking about for now for a few years, which is that, you know, with our portfolio and the selling more into AMI and the higher-valued areas that we expect, and, frankly, to customers that we've had for a very long time, we could continue to grow top line at a rate, you know, certainly faster than
Robert W. Mason: Commentary I think.
Robert W. Mason: Around inflationary pressures and Bob I'm, just curious if you could kind of.
Robert W. Mason: Walk through maybe some what are some of the puts and takes on that side. If there is anything in particular.
Bob: That you would call out and just maybe relatedly.
Bob: I know, we talked a while back is we were going through higher inflationary periods and more aggressively trying to address with price.
Bob: The natural contracting cycle that needs to occur there.
Bob: Has that largely been complete through all your customers, where you have been able to address pricing more.
Bob: A more complete linked to your satisfaction.
Speaker Change: Yeah, Rob. So you started your question and then you started to answer it at the end, so that's where I was going to start with this.
Robert A. Wrocklage: Yeah, I would say that, you know, the mainstay of this is...
It has been for really good years now since we put in our value based pricing model, which is really trying to understand all of the benefits for customers all of the competitive angles.
Kenneth C. Bockhorst: Great, makes sense. And then as a follow-up, you know, I think it may not be directly applicable for Badger Meter, but with the EPA's recent final ruling on PFAS, just wondering, as a company, can you participate in this in any way? You know, whether it's for testing, like, I don't think you have that capability right now. But is that something, you know, maybe through M&A, you could gain? Just anything there would be helpful.
Speaker Change: And really finding a way to price at the point that we provide on the promise that our customers expect and we get all the value that we deserve for the offering that we put out there. So we feel really good about our balance on how we how we're able to handle that through pricing in the market I'll turn it to Bob to talk about.
If there's anything more specific but but we do feel good about even if they're short term shocks our ability to manage this through the through the cycle.
Yes, Rob the first thing I would say is pricing and when we say pricing it's the kit.
Kenneth C. Bockhorst: Yeah, so, Andrew, I'll take that from a very high...
Start and finish of tactical pricing and value based pricing that exercise never ends and so I don't want to suggest that we're done with that because it's an ongoing effort, we're always going to have leading and lagging effects to that but it's something that we do every day not just once a year or not just with a list price increase so that's the first comment second comment really the Commons.
Kenneth C. Bockhorst: Yeah, so Andrew, I'll take that from a very high level general point of view, you know, we're constantly through our strategic planning process, looking at all of the areas of value to customers that we could participate throughout the cycle, and just frankly, so far, given some of the requirements and guidelines around PFAS and where we are, we've chosen not to participate in that at this time, and we'll continue to monitor the situation, and if and when we see a place where we can provide value to customers and provide value to shareholders at the same time, then we would get in, but there's nothing on our horizon for that right
Speaker Change: Jerry in the prepared remarks surrounding inflation is really two fold purpose of.
Speaker Change: Of course, everybody in the World is focused laser early on are laser focused on inflation and while it's moderating there is still inflation in the system and categories of costs like transportation.
Speaker Change: I'll highlight one and albeit we've always talked about how the impact of copper to us is lesser than it was say five or 10 years ago, just because of the shift in our product. If you look at copper in the last 45 days, it's increased commodity pricing by almost 50% or 20%. So that's not necessarily resident in the quarter, but a reflection of.
Operator: Our next question comes from Rob Mason from Baird.
Robert W. Mason: Hi, good morning. Thanks. I just wanted to first address, there was commentary, I think, just around inflationary pressures, and Bob, I'm just curious if you could kind of walk through, maybe some, what are some of the puts and takes on that side? If there's anything in particular that you would call out, and maybe relatedly, I know we talked a while back as we were going through higher inflationary periods and more aggressively trying to address with price, you know Has that largely been complete through all your customers, where you've been able to address pricing more completely to your satisfaction?
Speaker Change: Something that we're watching very closely and we'll continue to monitor.
Speaker Change: But I would say, there's not really many puts and takes in the quarter per se. It's just the concept that inflation has not gone and certainly one potential driver of future pressure is evident I would say the other thing I would highlight is that again from a quality perspective, we're extremely pleased with our product and our product.
Speaker Change: <unk> focus, but as we continue to accelerate the growth into more technology oriented products just by default, having nothing to do with the underlying performance of the product, but just by default there are higher carrying costs or support costs. If you will associated with electronic products or more technical products than when youre just dealing.
Robert A. Wrocklage: I guess, yeah, Rob, the first thing I would say is...
Robert A. Wrocklage: Okay, that's very helpful. Just as a follow-up, on the flow instrumentation side, I know we don't talk about that as much, but the revenue in the quarter did appear to maybe pop back up from where it had been trending the last two or three quarters. Have you seen any shift in the business momentum in that area? I know you call that water-related products, but just from perhaps a cyclical or industrial perspective, that maybe presents more of a growth perspective in that
Speaker Change: With selling mechanical meters. So I would say, that's an item to factor into the equation as well.
Speaker Change: Okay, that's very helpful.
Speaker Change: Just as a follow up on the flow instrumentation side I know, we don't talk about that as much but the revenue in the quarter did appear to.
Speaker Change: Maybe pop back up from where it had been trending the last.
Speaker Change: Two or three quarters.
Have you seen any shift in the business momentum and that that area I know you've called out the water related products, but just from a perhaps a cyclical or industrial perspective.
Speaker Change: Maybe presents more of a growth perspective.
And that business this year.
Kenneth C. Bockhorst: Yeah, so in the water-related areas like wastewater or HVAC building sustainability, we continue to see extremely positive trends that we're excited about. But when you really parse out the rest of flow instrumentation, all of the different pieces that we have in industrial or auto or all those pieces, we don't really, I think, have a large enough slice in any of those to give you any type of clarity across the market. They're small in nature, so it can be uneven, as we say, about the business in general.
Speaker Change: Yeah. So so in the water related areas like wastewater or the HVAC building sustainability, we continue to see extremely positive trends that we're excited about.
Speaker Change: When you really parse out the rest of flow instrumentation all of the different pieces that we have an industrial or auto or all of those pieces. We don't really I think have a large enough slice in any of those to give you any type of clarity across the market.
Small in nature. So it can be uneven as we say about the business in general, but water related markets really excited about the rest probably don't know enough to help you with that question and we're certainly not looking at our dashboards and reading through to other parts of the industry just given the small scale I mean flow instrumentation that was 15% of our revenue.
Kenneth C. Bockhorst: But water-related markets, really excited about the rest, probably don't know enough to help you with that question. Yeah, and we're certainly not looking at our dashboards and reading through to other parts of the industry, just given the small scale. I mean, flow instrumentation is now 15% of our revenue book. And to Ken's point, the non-water markets are highly fragmented and not all that sizable.
Speaker Change: Book and.
Speaker Change: Ken's point, the non water markets are highly fragmented and not all that sizable.
Robert W. Mason: Fair enough. Okay, thanks much.
Speaker Change: Fair enough okay. Thanks, so much.
Operator: As a reminder, to ask a question, press the star followed by 1 on your telephone keypad. Our next question comes from Nathan Jones from SIPO.
Speaker Change: As a reminder to ask a question press star followed by one on your telephone keypad.
Speaker Change: Our next question comes from Nathan Jones from Stifel.
Nathan Hardie Jones: Good morning, this is Adam Farley on 4 Nation. Can you provide an update on the water quality and pressure? Hey, good morning. You brought an update on the water quality, pressure, and network monitoring solutions portion of the portfolio. Are there cross-selling opportunities from recent acquisitions, maybe driving increased wallet share from customers?
Good morning, this is Adam Farley on coordinator.
Could you provide any update on the water quality.
Speaker Change: Morning.
Nathan Hardie Jones: You've got an update on the water quality pressure network monitoring solutions portion of the portfolio are there cross selling opportunities from recent acquisitions might be driving increased wallet share from customers.
Kenneth C. Bockhorst: Yeah, so we have been, you know, over the past four years now adding SCAN and ATI on the water quality side, following that with Cerenix for pressure monitoring, now adding TELOG with remote monitoring and RTUs. You know, the water industry moves slowly. We, as Badger Meter, with our 119-year history and brand, I think we're able to affect that a little faster than other people. But yeah, we're thrilled with the feedback that we've gotten in the field and some of the tangible results that we've had in share of wallet by bringing these other pieces into the portfolio and selling the whole value.
Speaker Change: Yes, so we have been over the past four years, now with adding essakane and ATI and the water quality side, following that with <unk> or pressure monitoring now adding.
Speaker Change: Kellogg with remote monitoring and are to us.
Speaker Change: The water industry moves slowly.
Speaker Change: Badger meter with our 119 year history and brand I think we're able to affect that a little faster than other people, but yes, we're thrilled with the.
Speaker Change: The feedback that we've gotten in the field and some of the tangible results that we've had in share of wallet by bringing these other.
Speaker Change: Other pieces into the portfolio and selling the whole value and that was everything we expected it to be from the state of initially looking at some of those acquisitions early on that was the strategy and I think of course, there's always the ability to go faster right but.
Kenneth C. Bockhorst: And that was everything we expected it to be from the state of initially looking at some of those acquisitions early on. That was the strategy, and I think, of course, there's always the ability to go faster, right? But we're seeing the fruits of what we anticipated to see in terms of how those... A more comprehensive offering helps us to more completely respond to RFPs as well as how the influence of decision makers and the ultimate buyers is very closely related, and it's not hard for us to reach them.
Speaker Change: We're seeing the fruits of what we anticipated to see in terms of how those.
Speaker Change: More comprehensive offering helps us too.
Speaker Change: More completely respond to rfps as well as how the influence of decision makers and the ultimate buyers are very closely related and it's not hard for us to reach them.
Nathan Hardie Jones: Okay, and then, you know, I want to take a stab at the forward outlook. You know, understand that there are tougher comparisons for the remainder of 2024, but how should we think about growth for the year, balancing the tougher comparisons, coupled with, you know, your resilient ad market trends?
Speaker Change: Okay, and then I wanted to.
Speaker Change: That's a forward outlook.
Understand that there is tougher comparisons for the remainder of 2024.
Speaker Change: How should we think about growth for the year balancing the tougher comparison.
Speaker Change: With a resilient end market trends.
Kenneth C. Bockhorst: Well, I think you prefaced your question perfectly, and you should take a stab at it. But given that we don't provide guidance, we'll probably not get close to where you want to get to. I guess I would just come back to some of the prepared remarks, which are over ours.
Speaker Change: Yeah, well I think you prefaced your question perfectly take a stab at it.
Speaker Change: But given that we don't provide guidance, we'll probably not get close to where you want to get too.
Speaker Change: I guess I would just come back to some of the prepared remarks, which is over our strategic planning cycle, which again, we define as 5% forward looking years.
Kenneth C. Bockhorst: Strategic Planning Cycle, which we define as five forward-looking years. We believe we can grow the business by single digits in the aggregate. That doesn't mean that it's going to be high single digits every year. Some years it's going to be mid-teens, and other years it might be mid-single digits. So, the point of signaling the tougher comps is that we just put up 23% growth against the easiest comp. The rate of growth is likely to moderate from that as we move forward, but yeah, we certainly can't, and we won't certainly size that or put that percent on a piece of paper or even in the commentary here. Yeah, I just think the thing that I would add...
Speaker Change: We believe we can grow the business high single digits and in the aggregate.
Speaker Change: That doesn't mean that it's going to be high single digits every year. Some years, it's going to be mid teens in other years it might be mid single digits.
Speaker Change: So the point of signaling the tougher comps is that we just put up 23% growth against the easiest comp.
Speaker Change: The rate of growth is likely to moderate from that as we move forward, but yes, we can certainly and we won't certainly size that or put that percent on a piece of paper or even in the commentary here.
Speaker Change: I just think the thing that I would add is that what we didn't have in the quarter was significant one off so what we're excited about is it's been a broad based.
Kenneth C. Bockhorst: Yeah, I just think the thing that I would add is that what we didn't have in the quarter were significant one-offs. So what we're excited about is it's been a broad-based, you know, demand profile that we feel good about.
Speaker Change: Demand profile that.
Speaker Change: That we feel good about.
Speaker Change: Yeah.
Nathan Hardie Jones: Alright, fair enough. Thank you for taking my question.
Speaker Change: Fair enough. Thank you for taking my questions.
Speaker Change: Our next question comes from Nathan Jones from Stifel.
Operator: Our next question comes from Nathan Jones from Special.
Nathan Hardie Jones: The other one. Good morning, everyone.
Nathan Hardie Jones: The other one.
Nathan Hardie Jones: Good morning, everyone.
Operator: Please see the complete disclaimer at https://sites.google.com or at www.google.com. A couple of questions on the SEA line. You guys talked about expecting that to drift up a little bit as we go through the year. Can you talk about what the growth investments are targeted at? And then, you know, increasing SEA a little bit here, but it doesn't sound like you think there's more FEA expense needed just to support the base business and how it's going, so if you can just confirm that and just talk about where the growth investments are targeted.
Nathan Hardie Jones: Good morning, Nathan Nathan walk you through your voice on that first call.
Nathan Hardie Jones: Thank you.
Nathan Hardie Jones: I'll, let Adam.
Hey.
A couple of questions on the <unk> line, you guys talked about.
Nathan Hardie Jones: And that to drift up a little bit as we go through the year can you talk about what the growth investments are targeted to that and then increasing a little bit but it doesn't sound like you've seen.
Nathan Hardie Jones: Yeah.
Nathan Hardie Jones: More MCA expense needed just to support the base business and how it's going so if we can just continue.
Nathan Hardie Jones: We found that and just talk about why the growth that you're targeting.
Robert A. Wrocklage: Yeah, I would say first and foremost, with a growing business such as ours that just a few short years ago was in the $400 million or $500 million range and is now where we stand today on a trailing 12-month basis, inevitably, that brings with it investments in people, investments in engineering resources to remain an innovator, and investments in software and software development to keep our beacon radar and other SaaS platforms not only current but cutting-edge and best in class So they're the exact, what I would say, forward-looking, customer-facing areas that you'd expect as we continue to be an innovator, which remains our number one capital allocation priority.
Yes, I would say first and foremost with a growing business as ours that.
Nathan Hardie Jones: A few short years ago was in the $500 million range and is now where we stand today on a trailing 12 month basis inevitably that brings with it growth investments and people investments in engineering resources to remain an innovator investments in software and software development to keep our beacon radar and other SaaS player.
Nathan Hardie Jones: It forms not only current but cutting edge and best in class. So.
Nathan Hardie Jones: They're the exact what I would say forward looking customer facing areas that you would expect.
Nathan Hardie Jones: We continue to be an innovator, which remains our number one capital allocation priority.
Kenneth C. Bockhorst: And then, I guess, just one follow-up on the mix of what you guys are shipping these days. You're still shipping radios that don't have, sorry, meters that don't have radios, meters that have AMR radios, meters that have AMI radios. Can you talk about how the mix of that will be in 2 or 3 years and maybe where you think the penetration of AMI technology is in the market today?
Nathan Hardie Jones: And then I guess, just one follow up on the mix.
Nathan Hardie Jones: What you guys are shipping these days still.
Nathan Hardie Jones: Still shipping radios that Don has already made us a dominant radios meters that have IMI radio has made it.
Nathan Hardie Jones: Can you talk about how the mix of that.
Nathan Hardie Jones: Two or three years, and maybe where you think the penetration today My technology is in the market today.
Kenneth C. Bockhorst: Yeah, certainly our growth, which we've been very public about and how we think we can build that average sell price of going from a meter plus a radio plus software as a service, 100% attachment rate to AMI. Clearly, a huge portion of the growth has been AMI adoption and our ability to capitalize on selling that full, full value. So I, you know, we haven't publicly stated that we want a penetration number, but you certainly, I think you certainly can understand it's much higher than it was in terms of AMI in the market.
Speaker Change: Yes so.
Speaker Change: Certainly our growth, which we've been very public about and how we think we build that average sell price of going from a meter plus our radio plus.
Speaker Change: Software as a service.
Speaker Change: 100% attachment rate to AMRI clearly.
Speaker Change: Huge portion of the growth has been <unk> adoption in our ability to capitalize on selling that full that full value. So.
Speaker Change: We haven't publicly stated and we want that penetration number but you can certainly I think you certainly can understand it's much higher than it was in terms of Ami in the market I mean, the great News is it is widely accepted that Ami is the way to go and we're seeing whether it's <unk>.
Kenneth C. Bockhorst: I mean, the great news is that AMI is the way to go. And we're seeing, you know, whether it's, you know, particularly medium and large, but even many of the small utilities are going toward AMI. But there's a long way to go. I mean, still roughly 35% of the market is only AMI implemented. Tremendous amount of excitement, penetration of radio is much higher, and a long runway of growth still in AMI. And frankly, by the time we get done with AMI getting implemented, we'll already be into the replacement cycle. So that's why we feel so great about the long-term health of where we're going.
Speaker Change: Particularly medium and large but even many of the small utilities are going toward AMRI.
Speaker Change: But theres a long way to go I mean still roughly 35% of the market is only a omri implemented so.
Speaker Change: Really long.
Speaker Change: It's a tremendous amount of excitement penetration of radio is much higher long runway of growth still in Ams and frankly by the time, we get done with with Ams getting implemented will already be into the replacement cycle. So it's that's why we feel so great about the long term health of where we're going.
Kenneth C. Bockhorst: Maybe the closest we would get to sort of giving a percentage, you know, if you rewind the clock four or five years ago, we always talked about the market having adopted some form of communication technology at around 65% of the installed base. At that point in time, our specific Badger Meter specific ratio of radios to meters sold was very much in line with the installed base. I would say as we sit here in 2024 with our current sales, that penetration rate is now well above the market installed base, which, of course, has grown from 65% four or five years ago, but that mix is higher than that.
Speaker Change: Maybe the closest we would get to sort of giving a percentage if you rewind the clock four or five years ago.
We always talk about the market had adopted some form of communication technology at around the 65% of the installed base at that point in time are our specific badger meter specific ratio of radios to meters sold was very much in line with the installed base I would say as we sit here in 2024 on our current say.
Speaker Change: <unk> that penetration rate.
Speaker Change: <unk> is now well above.
The market installed base, which of course has grown from 65% four or five years ago, but that mix is higher than that.
Nathan Hardie Jones: Thanks very much for taking my question.
Speaker Change: Thanks, very much for taking my questions.
Speaker Change: Yes. Thanks.
Operator: We currently have no further questions; I will hand it back to Karen Bauer to conclude.
Speaker Change: We currently have no further questions I would hand back to Kevin to conclude.
Karen Bauer: Thank you, and thank you to everyone for joining our call today. For your planning purposes, our second quarter 2024 call is tentatively scheduled for July 19.
Kevin: Thank you and thanks, everyone for joining our call today for your planning purposes, our second quarter 2024 call is tentatively scheduled for July 19th.
Karen Bauer: I will be around all day to take any follow-up questions you have. Have a great day. Thanks.
Kevin: I'll be around all day to take any follow up questions. You have have a great day. Thanks.
Operator: This concludes today's call. Thank you for joining us. You may now disconnect your line.
Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your lines.
Operator: Have a great day. Thanks.
Speaker Change: And have a great day. Thanks.