Q3 2024 Badger Meter Inc Earnings Call

Speaker Change: Ladies and gentlemen, welcome to the 3rd quarter 2024, Badger Mata Arning Conference School.

Operator: for Learning Conference School. After prepared remarks, there will be an opportunity to ask questions. If you'd like to ask a question during the Q&A, you can do so by pressing star followed by one on your telephone keypad.

Speaker Change: After prepared remarks, there'll be an opportunity to ask questions. If you'd like to ask a question during the Q&A, you can do so by pressing staff followed by one on your telephone keypad. It's now my pleasure to turn the conference over to Karen Bauer, vice president of the Investor Relations, corporate strategy and treasurer. Please go ahead, Miss Bauer.

Karen Bauer: It's now my pleasure to turn the conference over to Karen Bauer, Vice President of Investor Relations, Corporate Strategy, and Treasurer. Please go ahead, Miss Bauer.

Karen Bauer: Good morning, and thank you for joining Badger Meter's third quarter, 2024 earnings conference call. On the call with me today are Ken Bockhorst, Chairman, President and Chief Executive Officer, and Bob Rocklage, Chief Financial Officer. Also joining our call today is Barb Noverini, our new Senior Director of Investor Relations.

Karen Bauer: Good morning, and thank you for joining the Badrometer Third Quarter 2024 earnings conference call. On the call with me today, our Ken Bockhorst Chairman, President and Chief Executive Officer, and Bob Rocklage, Chief Financial Officer.

Karen Bauer: Also joining our call today is Bob Noverini, our new Senior Director of Investor Relations.

Karen Bauer: I have made the decision to retire after our annual shareholder meeting in the spring of 2025. Barb and I will be working together over the next six months to see mostly transition, investor relations, sustainability, and strategy activities, and I know she will be a great resource to the company and to you all in the years ahead. Let the countdown to my last Erning's call begin with two to go after today. Moving on, the Erning's release and related slide presentation are available on our website. Quickly, I'll 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: I've made the decision to retire after our annual shareholder reading in the spring of 2025. Barbara and I will be working together over the next six months to seamlessly transition and best relations, sustainability and strategy activities, and I know she will be a great resource of the company and to you all in years ahead. But the countdown to my last earnings call begins with two to go after today.

Speaker Change: Moving on, the earnings release and related slide presentation are available on our website. Quickly, I'll 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. On today's call, we are referred to certain non-gap financial metrics.

Karen Bauer: On today's call, we will refer to certain non-GAAP financial metrics. Our Erning slides provide a reconciliation of the gap to non-gap financial metrics used.

Speaker Change: are earning slides provide a reconciliation of the gap to non-gap financial metrics used. But that, I'll turn the call over to Ken.

Kenneth Bockhorst: But that, I'll turn the call over to Ken. Thanks, Sharon. We will definitely miss your expert safe harbor reading skills. But all joking aside, we recognize the importance of a professional IR function and consider ourselves very fortunate to have had Karen's expertise as Bob and I began our first public company CEO and CFO roles about six years ago now. It's also why we believe in well-planned transitions, and we're happy to have Bob on board to work alongside Karen.

Ken Bockhorst: Thanks, Karen. We will definitely miss your expert, safe, harder, harbour reading skills. But all joking aside, we recognize the importance of a professional IR function.

Ken Bockhorst: and consider ourselves very fortunate to have had Karen's expertise as Bob and I began our first public company CEO and CFO roles about six years ago now. It's also why we believe in well-planned transitions, and we're happy to have Bob on board to work alongside Karen.

Kenneth Bockhorst: Turning to the third quarter, I'm very pleased with our financial results, which reflect continued strong performance across a broad array of metrics, including delivering 12 percent year-over-year top line sales growth against increasingly difficult comparisons. We reported record operating margins of 19.5 percent, with both year-over-year gross margin expansion and SEA leverage contributing. We delivered strong EPS improvement, even with a higher tax rate, and last but not least, we generated robust year-over-year cash flow growth. In summary, our team continues to do a tremendous job in executing against our strategic priorities and support of our customers.

Speaker Change: Turning to the third quarter, I'm very pleased with our financial results, which reflect continued strong performance across a broader array of metrics, including delivering 12% your over-year top line sales growth, again increasingly difficult comparisons.

Speaker Change: We reported record operating margins of 19.5% with both year-over-year gross margin expansion and SAA leverage contributing. We delivered strong EPS improvement even with a higher tax rate and last but not least, if we generated robust year-over-year cash flow growth.

Speaker Change: In summary, our team continues to do a tremendous job in executing against our strategic priorities and support of our customers.

Robert Wrocklage: I hand the call over to Bob to go through the details of the quarter, and I'll come back to talk about market conditions and the outlook. Thanks, Karen. Good morning, everyone. Turning to slide four, as we have been anticipating and communicating to you, our top line sales growth rate did indeed moderate to a still strong 12 percent growth in the third quarter. As a reminder, this 12 percent growth was on top of a 26 percent increase in the prior year comparable quarter. Total utility water product line sales increased 14 percent year-over-year, as we continued to deliver on solid demand for our Blue Edge suite of utility smart water solutions.

Speaker Change: and the call over to Bob to go through the details of the quarter and I'll come back to talk about Mark and Mark at Conditions in the Outlook.

Bob: Thanks, Ken and Good Morning, everyone.

Bob: Turning to slide four, as we have been anticipating and communicating to you, our top line sales growth rate did indeed moderate to a still strong 12% growth in the third quarter.

Bob: As a reminder, this 12% growth was on top of a 26% increase in the prior year comparable quarter.

Bob: Total Utiliter water product line sales increased 14% year-over-year as we continue to deliver on solid demand for our blue-edge suite of Utility Smartwater Solutions.

Robert Wrocklage: Year-over-year growth was broad-based, including flow measurement, water quality, pressure, and related communication solutions.

Bob: You know, every year growth was broad-based, including flow measurement, water quality, pressure, and related communication solutions.

Robert Wrocklage: Jones. Notably, software as a service revenue is increased to approximately 35 percent in the quarter, reflecting the increasing customer reliance on insights and analytics delivered from our industry-leading Beacon digital solution. Sales for the flow instrumentation product line reflect in the quarter, with solid order trends globally within our focused water-related applications, offsetting modest declines across the array of de-emphasized end markets. As noted in the release, as we move into the fourth quarter, we do expect the typical pattern of fewer customer operating days given the heavy U.S. Holiday season. In addition, hurricane-related recovery activities have the potential to temporarily delay certain Southeastern U.S.

Bob: Notably, software as a service revenues increased approximately 35% in the quarter, reflecting the increasing customer reliance on insights and analytics delivered from our industry-leading beacon digital solution.

Bob: Sales for the flow instrumentation product line were flat in the quarter, with solid order trends globally within our focused water-related applications, offsetting modest declines across the array of de-emphasized end markets.

Bob: As noted in the release, as we move into the fourth quarter, we do expect the typical pattern of fewer customer operating days given the heavy US holiday season.

Bob: In addition, her, Karen related recovery activities have the potential to temporarily delay certain Southeasturne US utility projects in the near term. It is still too early to quantify any possible impact.

Robert Wrocklage: utility projects in the near term.

Robert Wrocklage: It is still too early to quantify any possible impact. Turning to margins, we were very pleased with the operating margin expansion of 260 basis points in the quarter, reaching a record high of 19.5 percent. Gross profit dollars increased 15 percent year-over-year, and as a percent of sales, gross margins were 40.2 percent, a 110 basis point improvement from 39.1 percent in the prior year comparable quarter.

Bob: Turning to margins, we were very pleased with the operating margin expansion of 260 basis points in the quarter, reaching a record high of 19.5%.

Bob: Gross profit dollars increased 15% year over year and as a percent of sales, gross margins were 40.2%. A 110 basis point improvement from 39.1% in the prior year comparable quarter.

Robert Wrocklage: For those ready to ask me if we are set to declare a new gross margin normalized range, the answer is no. While we were pleased with the outcome this quarter, one quarter is not a trend, and although we remain confident in the long-term gross margin improvement trendline, driven predominantly by positive structural mix, which was evident this quarter, we are also confident in saying that the mix can and will be uneven quarter to quarter. The overall higher volumes, along with solid price cost management, also contributed to the year-over-year gross margin improvement. SEA expenses in the third quarter were $43.3 million, an increase of approximately $2 million year-over-year.

Bob: For those ready to ask me if we are set to declare a new gross margin normalized range, the answer is no.

Bob: While we were pleased with the outcome this quarter, one quarter is not a trend.

Bob: And although we remain confident in the long-term gross margin improvement trendline, driven predominantly by positive structural mix, which was evident this quarter, we are also confident in saying that the mix can and will be uneven quarter to quarter.

Bob: The overall higher volumes along with solid price cost management also contributed to the year-over-year gross margin improvement.

Bob: SIA expenses in the third quarter were $43.3 million and increase of approximately 2 million year over year.

Robert Wrocklage: The spending increase was due primarily to personnel-related costs, including higher head count and salaries. Despite this increase in growth spending, SEA as a percent of sales declined 140 basis points to 20.8 percent from 22.2 percent in the comparable prior year quarter on the higher sales. The income tax provision in the third quarter of 2024 was 25.3 percent, compared to 20.3 percent in the comparable prior year period, which benefited from a discrete tax benefit from equity compensation transactions. We continue to expect an ongoing effective income tax rate in the plus or minus 25 percent range, assuming no change in overall corporate income tax rates.

Bob: The spending increase was due primarily to personnel-related costs, including higher-head count and salaries.

Bob: Despite this increase in growth spending, SEA is a percent of sales declined 140 basis points to 20.8% from 22.2% in the comparable prior year quarter on the higher sales.

Bob: The income tax provision in the third quarter of 2024 was 25.3% compared to 20.3% in the comparable prior year period, which benefited from a discrete tax benefit from equity compensation transactions.

Bob: We continue to expect an ongoing effective income tax rate in the plus or minus 25% range assuming no change in overall corporate income tax rates.

Robert Wrocklage: In summary, consolidated EPS was a dollar rate in the third quarter of 2024, a 23 percent improvement from 88 cents in the prior year comparable quarter. Primary working capital as a percent of sales was 21.7 percent, consistent with the prior quarter end and 40 basis points of improvement from 22.1 percent at calendar year end. We continue to carefully manage working capital investments to support growth. Record quarterly free cash flow of 42 million dollars was 48 percent higher than the prior year's 28 million, largely the result of higher earnings and the effective working capital management.

Bob: In summary, consolidate APS was a dollar rate in the third quarter of 2024, a 23% improvement from 88 cents in the prior year comparable quarter.

Bob: Primary Working Capital as a percent of sales was 21.7%. Consistent with the prior quarter end and 40 basis points of improvement from 22.1% at calendar year end.

Bob: We continue to carefully manage working capital investments to support growth.

Bob: Record quarterly free cash flow of $42 million was 48% higher than the prior years, $28 million, largely the result of higher earnings and the effective working capital management.

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

Kenneth Bockhorst: Thanks, Bob. Turning to slide 5, you may recall that last quarter we introduced you to Blue Edge. In short, Blue Edge is the overarching name we've given to our tailorable suite of solutions that solve critical water challenges across the entire water cycle. It's a way to simplify for our customers, including both utility and commercial and industrial users, the breadth of offerings available to best meet their needs and preferences today and as they advance and change in the future. In June, we demonstrated the elements and connectivity of Blue Edge to our utility customers at ACE. Last week, we did the same for our wastewater and industrial customers at WebTech.

Speaker Change: with that I'll turn the call back over to Ken.

Ken Bockhorst: Thanks Bob, turning the slide five, you may recall that last quarter we introduced you to Blue Edge. In short, Blue Edge is the overarching name we've given to our tailorable suite of solution that solve critical water challenges across the entire water cycle.

Ken Bockhorst: It's a way to simplify for our customers, including both utility and commercial and industrial users. The breadth of offerings available to best meet their needs and preferences today, and as they advance and change in the future.

Ken Bockhorst: In June, we demonstrated the elements and connectivity of Blue Edge to our utility customers at ACE. Last week, we did the same for our wastewater and industrial customers at Weptech.

Kenneth Bockhorst: We showcased a literal representation of Blue Edge, highlighting the various hardware and communication technologies that relay data to both our proprietary software solutions and to traditional SCADA or building management systems. By taking that actionable data and providing true insights, we aid customers in making more informed decisions for efficient water management. Customer interest and technical discussions at the show were robust with concrete examples of our solutions, improving water efficiency, resiliency, and sustainability.

Ken Bockhorst: We showcased a literal representation of blue edge, highlighting the various hardware and communication technologies that relay data to both our proprietary software solutions and to traditional skatea or building management systems.

Ken Bockhorst: By taking that actionable data and providing true insights, we aid customers in making more informed decisions for efficient water management.

Ken Bockhorst: Customer Interest and Technical Discussions at the show were robust with concrete examples of our solutions improving water efficiency, resiliency and sustainability.

Kenneth Bockhorst: And speaking of resilience, I wanted to highlight recent customer feedback we've received as it relates to the hard-hit hurricane regions in the Southeast and the United States. Most importantly, the tragic loss of life and devastation from these storms is truly heartbreaking. Yet during these events, as well as Hurricane Barrel and Texas in July, our customers have confirmed that our solutions continued communicating information critical to maintaining clean water availability and to prioritize identified leaks and other fixed and repair activities for countless end users, even when utilities were without power. This is only possible with a resilient cellular network.

Ken Bockhorst: and Speaking of Resilience, I wanted to highlight recent customer feedback we've received as it relates to the hard hit hurricane regions in the Southeast and United States. Most importantly, the tragic loss of life and devastation from these storms is truly heartbreaking.

Ken Bockhorst: Yet, during these events, as well as hurricane barrel and Texas in July, our customers have confirmed that our solutions continued communicating information critical to maintaining clean water availability and to prioritize identified leaks and other fixed and repair activities for countless end users.

Ken Bockhorst: Even when utilities were without power.

Kenneth Bockhorst: It demonstrates again that our differentiated solutions resulted in differentiated performance when it counted most.

Ken Bockhorst: This is only possible with a resilient cellular network, it demonstrates again that our differentiated solutions resulted in differentiated performance when it counted most.

Kenneth Bockhorst: Finally, turning to the outlook, the structural macro drivers that underpin technology adoption in the water industry are becoming more pronounced, as evidenced by these extreme weather events and exacerbated by aging infrastructure and labor availability challenges. We continue to operate with an encouraging opportunity funnel, bid pipeline, and order book, which bodes well for continued sales and earnings growth, with our focus on high single-digit sales growth rates over the strategic cycle. As we noted in the press release and Bob's earlier comments, as we close out the year, we expect that the fourth quarter will include fewer customer operating days given the various U.S.

Ken Bockhorst: Finally, turning to the outlook, the structural macro drivers that underpin technology adoption in the water industry are becoming more pronounced as evidence by these extreme weather events and exacerbated by aging infrastructure and labor availability challenges.

Ken Bockhorst: We continue to operate with an encouraging opportunity funnel, bid pipeline, and orderbook which roads while for continued sales and earnings growth.

Ken Bockhorst: with our focus on high-singled, rigid sales growth rates over the strategic cycle.

Speaker Change: As we noted in the press release in Bob's earlier comments, as we close out the year we expect that the fourth quarter will include fewer customer operating days given the various U.S. holidays.

Kenneth Bockhorst: holidays. Additionally, we anticipate customers in the hurricane-impacted regions could potentially delay certain projects in the near term.

Speaker Change: Additionally, we anticipate customers in the hurricane impacted regions could potentially delay certain projects in the near term.

Kenneth Bockhorst: It's still too early to quantify any potential impact, and this type of situation serves as a reminder of the unevenness inherent in the industry. We remain steadfast in our commitment to existing capital allocation priorities, and we have the balance sheet and cash flow generation profile to further invest in both organic and highly strategic inorganic growth while we also provide an attractive dividend. In summary, we remain excited about the opportunities ahead, and our team remains engaged in driving continued exceptional results.

Speaker Change: It's still too early to quantify any potential impact and this type of situation serves as a reminder of the unevenness inherent in the industry.

Speaker Change: We remain steadfast in our commitment to existing capital allocation priorities, and we have the balance sheet in cash flow generation profile to further invest in both organic and highly strategic in our organic growth while we also provide an attractive dividend.

Speaker Change: In summary, we remain excited about the opportunities ahead, and our team remains engaged in driving continued exceptional results. But that operator please open the line for questions.

Operator: With that operator, please open the line for questions. Thank you. Please press star, fellow, by the number one if you'd like to ask a question and enjoy your devices unmuted locally when it's your time to speak. If you change your mind or your questions already been answered, you can withdraw from the queue by pressing star, followed by two.

Speaker Change: Thank you. Please press star fellow by the number one if you'd like to ask a question and ensure your device is unmuted locally when it's your tentative seat. If you change your mind or your questions already been answered, you can withdraw from the queue by pressing star fellow by key.

Scott Graham: Our first question today comes from Scott Graham with C-Port Research Partners. Please go ahead; your line is open. Yes, I'm high. Good morning, and Karen, you know, I start courage. I hope I didn't change the way you are.

Speaker Change: Our first question today comes from Scott Graham with the Seaport Research Partners. Please go ahead, your line is open.

Scott Graham: Yes, I'm high, good morning, and Karen, you know, I start courage, I hope I didn't change any way. You are one of the great ones out there, and I'm very happy for you, sad for me, but I know you're beautiful.

Karen Bauer: You are one of the great ones out there, and I'm very happy for you, sad for me, but I know that you certainly will be helping the transition. But I'm good luck for you, Karen. Thanks, Scott. Obviously, we'll be speaking some more going forward.

Speaker Change: You certainly will be helping the transition, but um...

Speaker Change: Good luck to you, Ken. Thanks, Scott. I'm sure there'll be speaking some more if we're going far. So the one question I have, then I have a sure follow-up is, you know, I know you guys talk about, you know, sort of high single-digit growth through a cycle night.

Scott Graham: So the one question I have, then I have a short follow-up is, you know, I know you guys talk about, you know, sort of high single digit growth through a cycle and I, you know, I know you're careful not to measure that too specifically, what have you, but if the implication there for 2025 since you're coming off three really strong years, including this one, that that might be sort of like a low-to-mid single digit sales growth for is the measurement period a little bit different than what I'm thinking. Can you give us any thinking on what 25 means given that context?

Speaker Change: You know, I know you're careful not to measure that too specifically what have you but it is the implication there for 2025 since you're coming off three really strong years, including this one, that that might be sort of like a low to mid single digit sales growth for

Speaker Change: is the measurement period a little bit different than what I'm thinking. Can you give us any thinking on what 25 means given that context?

Kenneth Bockhorst: Well, hi, Scott. So welcome to, welcome to coverage, and it's interesting that question that you asked about the high single digits through the cycle going forward because we were asked exactly that same question last year at about this time, about this year. So, as we look forward and we think about the five-year strategic cycle and the market dynamics that we have, the advantages that we have with our portfolio, the way that I think we've been able to deliver best-in-class execution, you know, from year to year, as we always say and remind people it can be uneven or from quarter to quarter, but we feel strong coming into 2025.

Speaker Change: Well, I've got so welcome to coverage and it's interesting that question that you asked about the high single digits through the cycle going forward because we were asking exactly that same question last year at about this time about this year.

Speaker Change: So, as we look forward and we think about the five years to teaching cycle and the market dynamics that we have, the advantages that we have with our portfolio, the way that I think we've been able to deliver best in class execution.

Speaker Change: You know, from year to year as we always say and remind people it can be uneven or from quarter to quarter, but we feel we feel strong coming into 2025 so it isn't like we're trying to signal that you should be expecting some sort of weakness coming into the next year.

Kenneth Bockhorst: So, it isn't like we're trying to signal that you should be expecting some sort of weakness coming into the next year.

Scott Graham: Okay, I think based on my reading of your transcripts, I think that's all I'm going to get out of it. That's fine. Karen has trained as well, Scott. Well, understood. Let's say that you're not seeing weakness, which for you guys would be, I guess, just defined as lesser growth and, you know, look, you guys are doing a phenomenal job on the top line. When it comes to margins, there was a real nice pop there as well, and I believe mix you cited as the primary driver there, but your volumes were up as well. I assume, and that drove some leverage, and price cost was positive, is what you're saying?

Speaker Change: Okay, I think based on my reading of your transcripts, I think that's all I'm going to get out of here.

Speaker Change: is trying to swell.

Speaker Change: I'm glad to see you're not seeing weakness, which for you guys would be, I guess, just to find us, let's regrowth.

Speaker Change: You know, look, you guys are doing a phenomenal job on the top line. When it comes to margins, there was a real nice pop there as well.

Speaker Change: and I believe mix.

Speaker Change: you cited as the primary driver there, but your volumes were up as well. I assume that drove some leverage and price cost was positive, what you're saying. Is that sort of the ranking of the margin drivers?

Robert Wrocklage: Is that sort of the ranking of the margin drivers?

Robert Wrocklage: Yeah, so we typically don't get into kind of the sequential sizing or ranking, but you're exactly right. The top line growth is not a function of, you know, just mix or pricing. It's absolutely unit volumes increasing. It's actually absolutely an element of ASP and customer mix and project mix and product mix. And then when you did hear our specific call out to price, cost benefiting margins. So those are the three elements contributing.

Speaker Change: Yeah, so we typically don't get into kind of the sequential sizing or ranking, but you're exactly right. The top line growth is not a function of...

Scott Graham: Thank you. Appreciate your answers.

Speaker Change: Thank you, appreciate your answers.

Andrew Krill: Next question comes from Andrew Krill, with Deutsche Bank. Your line is open. Hi, thanks. Good morning, everyone, and some of my congrats to Karen as well. Thank you for your help. So I wanted to ask one more on the 2025 sales outlook. Just, I know I think we're not going to get an explicit opinion, but wouldn't an outcome as low as like flat or even down sales be very surprising to you. Just give them, you know, how the industry is over placement driven and the positive next story over time. Yes, a down year would be surprising to us.

Speaker Change: And next question comes from Andrew Crowe with the Dutch Bank?

Speaker Change: Your line is open.

Speaker Change: Hi, thank you for supporting everyone and some of my congrats to Karen as well. Thank you for your help. So I want to add one more on the 2025 sales outlust.

Speaker Change: I think we're not going to get an explicit opinion, but wouldn't outcome and low is like flatter even down sales be very surprising to you, just given you how the industry is over placement driven and the positive next up story over time.

Kenneth Bockhorst: If you looked at our history, even in the COVID year when everyone else was down considerably, our utility business even grew 4% in the COVID year. It even grew 9% in the supply chain year. So, regardless of any of these other factors or events, it, the macro drivers in the industry are still very strong. It just can have varying effects that, you know, one year might be 12%; another year might be 5%, but we certainly don't expect down years.

Speaker Change: Yes, a down year would be surprising to us if you looked at our history even in the COVID year when everyone else was down considerably.

Speaker Change: are utility business, even grew 4% in the COVID year, it even grew 9% in the supply chain year.

Speaker Change: Regardless of any of these other factors or events, the macro drivers and the industry are still very strong. It just can have varying effects that, you know, one year might be 12 percent another year might be five, but we certainly don't expect down years.

Andrew Krill: Great. That makes sense. And then on the hurricane impact and the Southeast, they said, you can't quantify it right now, but like, you know, maybe directionally, like, can you size, you know, what percent of the business like the Southeast is for better meter? Just so we can kind of try to get some sense of, you know, how big it could be. Yeah, so no, but let me, let me take a couple of things.

Speaker Change: Great, that makes sense. And then on the Hurricanes Impact and the South East, that makes that you can't quantify it right now. But like, the humidity, maybe directionally, like, can you size, you know, what percent of the business like the South East is for better meters?

Speaker Change: Just so we can kind of, you know, try to get some sense of, you know, how big it could be.

Kenneth Bockhorst: So, so one, I just want to point out a couple of factors as we look at, you know, into Q4 and into next year. So this is the 6th year Bob and I have done this call, and it's the 6th year that we pointed out that there are holidays in Q4. So that's not new for anybody who's followed our story. Second, with the hurricane impact, I think it's important to remember that 75% of our utility revenue is sold direct to end users. So, so we have really great communicative open communication relationships directly with our customers. The distributors that we have that cover the other 25% are outstanding, but our sales model, which we've been doing now for six, eight years, with the change and adoption of technology, gives us insights into how people are operating.

Speaker Change: Yeah, so no, but let me take a couple of things, so one, I just want to point out a couple of factors as we look at, you know, into Q4 and into next year.

Speaker Change: So this is the sixth year Bob and I have done this call and it's the sixth year that we pointed out that there are holidays and Q4 So that's not new for anybody who has followed our story.

Speaker Change: Second, with the hurricane impact, I think it's important to remember that 75% of our utility revenue is sold direct to end users. So, we have really great...

Speaker Change: Communityative, open communication relationships directly with our customers, the distributors that we have that cover the other 25% are outstanding.

Speaker Change: Our sales model, which we've been doing now for six-ish years with the change in adoption of technology, gives us insights into how people are operating and when you're thinking about installing meters and other sensors throughout a network that requires people to go out and do work and when power lines are down and other issues are happening.

Kenneth Bockhorst: And when you're thinking about installing meters and other sensors throughout a network that requires people to go out and do work, and when power lines are down and other issues are happening. This can have an impact, and the way that we've always operated is that we are here for customers when and where they need us. So, so there's no specific sizing, there's no specific issue. I would remind you that if you go back to 2020 when COVID was hitting, we had a pretty good take out what was going to happen because we talked directly to most of our customers and we didn't lay people off, and we rode right back in Q3.

Speaker Change: This can have an impact and the way that we've always operated is that we are here for customers when and where they need us. So there's no specific sizing, there's no specific issue. I would remind you that if you go back to...

Speaker Change: 2020, when COVID was hitting, we had a pretty good takeout, and what was going to happen, because we talked directly to most of our customers, and we didn't lay people off, and we rode right back in Q3. The first quarter of 2021, we were the first to signal that there was potential supply chain challenges.

Kenneth Bockhorst: The first quarter of 2021, we were the first to signal that there was potential supply chain challenges. We still grew 9% that year. So, all that we do is we try to point out to you the things that could potentially be the causes of unevenness. What I can assure everyone is that we are extremely good at controlling what we can control and still delivering really good results.

Speaker Change: We still grew 9% that year.

Speaker Change: So, all that we do is we try to point out to you the things that could potentially be the causes on unevenness. What I can assure everyone is that we are extremely good at controlling what we can control and still delivering really good results. So I know that was a long winded answer that didn't.

Kenneth Bockhorst: So, I know that was a long-winded answer that didn't specifically tell you, but I hope you got the point of what we mean.

Speaker Change: Specifically tell you, but I hope you got the point of what we mean here.

Speaker Change: Scott, and I say one quick last one in just if there were some delays, any of them there think those should have in the first quarter on 2025, there's another chance they just get canceled out, right Chris.

Rob Mason: I would say for sure that they would be delays, not cancellations, but I can't promise they would be the first quarter. Great, thanks so much. You bet. The next question comes from Rob Mason, with Badger; your line is A-Thin. Good morning, thanks for taking the question. You talked about normalizing backlog of I think you've been commenting around that. We've gone through this year, again maybe if this is on the word normalizing not normalized. So can you give us any sense as to where maybe your backlog level is relative to what you would consider more of a steady state?

Speaker Change: I would say for sure that they would be delays, not cancellations, but I can't promise they would be the first quarter.

Speaker Change: Thanks so much.

Speaker Change: You bet.

Speaker Change: The next question comes from what Robert Mason was bad, your line is open.

Speaker Change: Good morning. Thanks for taking the question. You talked about normalizing backlog. I think you've been commenting around that. You know, so we've gone through this year again, maybe if it's on the word normalizing, not normalized. So can you give us any census to where maybe your backlog level is relative to what you would consider more of a steady state? Assuming it's higher than that.

Rob Mason: Assuming it's higher than that, if that's correct. Yes, so Rob, prior to an extremely building backlog prior to last quarter where we called out that we ate into it a bit more. We've never sized the backlog, but we didn't call it out this quarter because there was no meaningful change within it. So it still remains very positive; all the areas of the market that we look at from customers in the engineering phase to what's in the bid phase to what's in our backlog to what we're shipping remains as solid as it's ever been. Sure, sure.

Speaker Change: If that's correct.

Speaker Change: Yeah, it's a Rob, so, you know...

Speaker Change: Prior to a...

Speaker Change: Extremely building backlog prior to last quarter where we called out that we ate into it a bit more. You know, we've never sized the backlog, but we didn't call it out this quarter because...

Speaker Change: There was no meaningful change within it, so it still remains very positive.

Speaker Change: All the areas of the market that we look at from...

Speaker Change: Customers in the engineering phase to what's in the bid phase, to what's in our backlog, to what we're shipping, remains as solid as it's ever been.

Rob Mason: I also wanted to ask about you noted the growth rate in your SaaS revenues, which was again really strong. Can you maybe tear that down a little bit? Should we think that that is solely a kind of a units driven growth rate or, as you've offered new services, the leak detection, just a number of things obviously under blue edge now. What is the contribution, besides unit growth, to that from other services that are rolling into that SaaS component? Yes, so I think you've picked up on the first clue. Again, we always talk about for AMI our software as a service being a function of 100% attachment rate to hardware sales.

Speaker Change: I also wanted to ask about, you noted the growth rate in your SaaS revenues, which was, again, really strong. Can you, you know, maybe tear that down a little bit, just, you know, should we think that that is?

Speaker Change: Solia kind of a unit's driven growth rate or as you've offered.

Speaker Change: New Services, the leak detection, just a number of things, obviously under blue edge now. You know, what is the contribution besides unit growth to that from other services that are rolling into that SaaS component?

Speaker Change: Yeah, so I think you've picked up on the first clue. Again, we always talk about, you know, for AMI, our software as a service being a function of 100% attachment rate to hardware sales. So the leading indicator is when we talk about more Orion cellular radios sold, the lagging indicator is of course then a SaaS uptake because of 100% attachment rate on a per meter per month basis.

Rob Mason: So the leading indicator is when we talk about more Orion cellular radios sold; the lagging indicators, of course, then SaaS uptake because of a 100% attachment rate on a per meter per month basis. That is the lion's share of the recurring revenue stream SaaS; that doesn't mean on the fringes there aren't additional impacts from those factors that you mentioned: additional water quality, water quality devices, leak detection devices, etc. But where we stand today, 99% of the revenue stream is related to meter to cash surrounding Beacon and AMI. And so the driver today is absolutely additional hardware units in the field, bringing with it the additional insights and intelligence that we talked about in the script and the benefits that that offers to customers.

Speaker Change: That is the lion's share of the recurring revenue stream SaaS that doesn't mean on the fringes there aren't additional impacts from those factors that you mentioned, additional water quality devices, leak detection devices, etc. But where are we staying today, you know?

Speaker Change: 99% of the revenue stream is related to meter-to-cash surrounding beacon and AMI. And so the driver today is absolutely additional hardware units in the field, bringing with it the additional insights and intelligence that we talked about in the script, and that the office benefits that that offers to customers.

Rob Mason: That's helpful.

Rob Mason: If a squeeze, you know, one last one in just maybe again going back to the hurricane impacts, you know, the implications maybe that, you know, could be an interruption, headwind in the business, but the leak detection business is a newer business for Badger, so is that a business that can see actually some incremental demand? You know, those units are deployed out into the field to try to inspect for potential disruptions when you have instances like that. I just don't know, you know, the history nature of that business as well. Yeah, Rob, so as we built out our portfolio of adding new sensors and software, that's one of the reasons that we're so excited about some of the pressure monitoring, leak detection capabilities that we've added.

Speaker Change: Let's see, that's helpful. If a squeeze, you know, one last one and just maybe you can't go back to the hurricane impacts.

Speaker Change: You know, the implications maybe that could be an interruption headwind in the business. But the leaked detection business is a newer business for badger. So is that a business that can see actually some incremental demand? As those units are deployed out into the field to try to inspect.

Speaker Change: For potential disruptions when you have instances like that, I just don't know, you know, the history nature of that business as well.

Speaker Change: Rob So, as we've built out our portfolio of adding new sensors in software, that's one of the reasons that we're so excited about some of the pressure monitoring leak detection capabilities that we've added.

Rob Mason: Events like this just make people realize how much more necessary those products and services are. And, you know, so we were excited about it before. We're just as excited about now. Hurricane doesn't make us feel better about it, but it surely shows the benefits that utilities have. And then on top of that, just as I called out in the script, the fact that our customers in the hardest hit parts of the storm, not just the storm, but the others, continue to communicate throughout. So when they can have our battery powered cellular communications telling them where their issues are throughout their system, it's a heck of a lot more efficient than guys driving around looking for problems. And it's a lot safer than sending people out looking through areas where perhaps there's down power lines.

Speaker Change: Events like this just make people realize how much more necessary those products and services are.

Speaker Change: and so we were excited about it before. We're just as excited about now. Hurricane doesn't make us feel better about it, but it surely shows.

Speaker Change: and the benefits that utilities have and then on top of that, just as I called out in the script, the fact that our customers in the hardest hit parts of the storm, not just the storm, but the others, continue to communicate throughout. So when they can have our battery powered cellular communications telling them where their issues are throughout their system.

Speaker Change: It's a heck of a lot more efficient than guys driving around looking for problems and it's a lot safer than sending people out looking through areas where perhaps there's down power line. So the combination of the whole portfolio coming together is really truly seen at unfortunate times like this.

Rob Mason: So the combination of the whole portfolio coming together is really truly seen at unfortunate times like this. Yes. Yeah. Thank you.

Rob Mason: Appreciate it.

Speaker Change: Yes, yeah, thank you, appreciate it.

Operator: As a reminder, if you want to ask a question today, it's start followed by one on your telephone keypad. We'll move next to Nathan Jones with default. Please go ahead.

Speaker Change: As a reminder, if you want to ask a question today, it starts by one on your Televanky pad.

Speaker Change: will move next to Nathan Jones, move to seeful. Please go ahead.

Adam Farley: Good morning. This is Adam finally on for Nathan. My first question I wanted to ask around blue edge in the way that you frame it. Are you seeing any acceleration in selling more bundled offerings to customers? I know it's still kind of early, but I imagine your expectation eventually is to gain more share with customers. Yeah. What's really exciting about how we've built this is it allows us to approach any customer anywhere at wherever they are in their technological journey. So they could be a water quality customer that then we expand their reach through Badger Meter through the Blue Edge into metering or lift station monitoring or if someone's on the metering side, we can bring them in with water quality.

Speaker Change: Good morning, this is Adam Fawley on for Nations.

Speaker Change: My first question I wanted to ask when I'm blue edge.

Speaker Change: and the way that you explain it. Are you seeing any acceleration and selling more bottled offerings to customers? I know it's still kind of really, but...

Speaker Change: I imagine your expectation eventually is the game won't share with customers.

Speaker Change: Yeah, what's really exciting about how we've built this is it allows us to approach any customer.

Speaker Change: Anywhere at wherever they are in their technological journey, so they could be a water quality customer that then

Speaker Change: We expand their reach through Badgermater through the Blue Edge into Metering, or...

Speaker Change: Lift Station Monitoring, or if someone's on the metering side, we can bring them in with water quality stations and the like. So it's back and forth both ways. Some customers also look at it as the full portfolio upfront. Some look at it as it's great to know that you have all this. I'm going to do my AMI first and I'm going to roll the water quality after them. I'm going to go for it.

Kenneth Bockhorst: So it's back and forth both ways. Some customers also look at it as the full portfolio upfront. Some look at it as it's great to know that you have all this. I'm going to do my AMI first, and I'm going to roll the water quality after them in whatever order that they see. So when we use the word tailorable, what we mean by that is a customer can tap into the blue edge portfolio and pick whatever standard solutions they need based on whatever their current concerns are. Not to be confused with customizable, which would imply highly engineered different products and serve.

Speaker Change: in whatever order that they see. So when we use the word tailorable, what we mean by that is a customer can tap into the blue edge portfolio and pick whatever standard solutions they need based on whatever their current concerns are. Not to be confused with customizable, which would imply highly engineered different products and services.

Kenneth Bockhorst: and that strategy is not new. Blue Edge, absolutely, and how we talk about it and position it with customers is new. But the idea of cross-selling and bundling and being able to take metering customers and sell them water quality and vice versa, that's been the thesis and the behavior since acquisition, you know, starting back in 2020. So I just want to make sure that it's not like that this is some brand new strategy. It's absolutely a better way and a more understandable way and a more tangible way to bring that tailorable solution set to market.

Speaker Change: And that strategy is not new. Blue edge, absolutely, and how we talk about it in position with customers is new. But the idea of cross-selling and bundling and being able to take metering customers and sell them water quality and vice versa, that's been the thesis and the behavior since acquisition starting back in 2020. So I just want to make sure that it's not like that this is some brand new strategy. It's absolutely a better way and a more understandable way and a more tangible way to bring that tailorable solution set to market. But the strategy itself underpinning is not new.

Adam Farley: But the strategy itself underpinning is not new. Yeah, I understand. That's a very helpful color.

Kenneth Bockhorst: I guess, you know, shipping gears to Capital allocation. You recently raised your dividend by 26% annually. The balance sheet is still very healthy in that cash position. You know, one of the main priorities, maybe talk about a little bit about the M&A funnel, anything that would be helpful. Thank you. Yeah, so capital allocation priorities remain constant with how we viewed this for several years now. So, you know, first and foremost, we've been the R&D leader when it came to cellular AMI and software and ultrasonic in the market. Now, expanding that also into leadership in remote water quality monitoring, pressure, and so forth.

Speaker Change: The answer to that was very helpful, Colour. I guess, you know, should think it is to capital allocation.

Speaker Change: Erucally Rains your dividend by 26% annually, the balance should still very healthy in that cast position.

Speaker Change: You know, what are the main priorities, maybe talk about a little bit about the internet funnel, anything that would be helpful, thank you.

Speaker Change: Yeah, so capital allocation priorities remain constant with how we viewed this for several years now. So, first and foremost, we've been the R&D leader when it came to cellular AMI and software and ultrasonic in the market now expanding that also into leadership and remote water quality monitoring pressure and so forth.

Kenneth Bockhorst: Second, yeah, 32 consecutive years of increasing dividends is something that is certainly important to the capital allocation priorities. And then third, yeah, M&A. So we're really proud of the four deals we've done in the last three and a half years. And we keep a pretty strong funnel, you know, around this sensor area that can continue to plug into Blue Edge, whether that's more water quality, more pressure, more software, interesting global footprint, all those things come into play. So, you know, it hasn't changed. We continue to remain disciplined and look for value where we know it translates into customer satisfaction.

Speaker Change: Second, yeah, 32 consecutive years of increasing dividends is something that is certainly important to the capital allocation priorities.

Speaker Change: and then third, yeah, M&A. So we're really proud of the four-year, four deals we've done in the last three and a half years.

Speaker Change: We keep a pretty strong funnel around this sensor area that can continue to plug into blue edge, whether that's...

Speaker Change: More water quality, more pressure, more software, interesting global footprint, all those things come come into play. So, you know, it hasn't changed, we continue to remain disciplined and look for value where we know it translates into customer satisfaction.

Adam Farley: All right. Thank you for taking my questions.

Tate Sullivan: Sure. And our next question comes from Tate Sullivan with Max Inbre. Please go ahead. Thank you. Thank you for your help over the years, Karen. And can you talk about the X, the international markets a bit? Have you allocated more sales there? Is there still a water quality monitoring opportunity international? Can you address that market, please? Yeah, so some of the things that have occurred over the past couple of years already, we've certainly seen the growth of the acquisitions that had larger footprint with longstanding customer relationships. So particularly, SKN having an installed base in over 50 countries, ATI having extremely long-lasting, strong relationships in the UK and US, CERANIX, long-lasting UK relationships.

Speaker Change: Thank you for taking my questions.

Speaker Change: Thank you for your help over the years, Karen, and Ken, can we talk about the ex-the International?

Speaker Change: Marketsubbit, have you allocated more sales there? Is there still a water quality monitoring opportunity of your national team? Can you address that? Marketsubbit.

Speaker Change: Yeah, so some of the things that have occurred over the past couple of years already, we've certainly seen the growth of the acquisitions that had larger footprint with longstanding customer relationships, so particularly SKN having an installed base in over 50 countries, ATI having extremely long lasting, strong relationships in the UK and US, CERANIX, long lasting UK relationships, so we've been able to leverage those to have these blue edge-type conversations, like Bob talked about, even before blue edge was...

Kenneth Bockhorst: So we've been able to leverage those to have these blue edge type conversations, like Bob talked about even before blue edge was announced the world. We've been having those types of discussions and making certain improvements there. We've been growing globally. It's just, it gets a little bit muted by the fact that our North American growth has been so outstanding that the global growth has gotten a little bit lost in it.

Speaker Change: I announced the world we've been having those types of discussions and making certain improvements there. We've been growing globally, it's just, it gets a little bit muted by the fact that our North American growth has been so outstanding that the global growth has gotten a little bit lost in it. But we're happy with what we're seeing in terms of growth and we're really excited about what we're seeing in expanded relationships for Blue Edge globally.

Kenneth Bockhorst: But we're happy with what we're seeing in terms of growth, and we're really excited about what we're seeing in expanded relationships for Blue Edge Global. Lee.

Kenneth Bockhorst: Any particular areas, or I mean, I know the growth has been a bit higher in Europe historically, but still broad-based, broad-based international approach? Well, I'll just give you one example. We could certainly talk more. But, you know, if you hear a lot about Amp Cycle 8 in the UK and we talk a lot about the relationships that ATI has, we talk a lot about the relationships here, and I can't see her next ad, has still just part of us. And we've been able to have high-level discussions with several of those utilities about how to help them meet their needs for Amp 8, whether that be potential in smart metering in software, whether that be around river monitoring, whether that be around leak detection, customer satisfaction, a lot of the pieces that we've been able to provide here in the US are the same that they're looking for there.

Speaker Change: Any particular areas, or, I mean, I know it's a good growth has been a bit higher in Europe historically, but still broadbrace for on-based international proof.

Speaker Change: Well, I'll just give you one example we could certainly talk more, but, you know...

Speaker Change: If you hear a lot about Ampsychle 8 in the UK and we talked a lot about the relationships that 8G I has, we talked a lot about the relationships here and here and there and that has still just part of us.

Speaker Change: and we've been able to have high level discussions with several of those utilities about how to help them meet their needs for amp-8, whether that be potential in smart metering and software, whether that be around river monitoring, whether that be around leaked detection, customer satisfaction, a lot of the pieces that we've been able to provide here in the U.S. are the same that they're looking for there and then there's other regions of the world too.

Tate Sullivan: And then there's other regions of the world too, but just one specific example that we've been cracking into. Great. Thank you very much. Yeah, thank you. Thank you.

Speaker Change: just one specific example that we've been cracking into.

Speaker Change: Thank you very much.

Karen Bauer: We have no further questions, so I'll turn the call back over to you, Karen. Great.

Speaker Change: Thank you, we have no further questions, so I'll turn the call back over to you, Karen.

Karen Bauer: Thank you all for joining our call today.

Karen Bauer: For your planning purposes, our fourth quarter call is tentatively scheduled for January 29th. Please don't hesitate to reach out with any follow-up questions you might have. Have a great day.

Karen Bauer: Great, thank you all for joining our call today for your planning purposes, our fourth quarter calls, tonedatively scheduled for January 29th. Please don't hesitate to reach out with any follow-up questions you might have. Have a great day.

Operator: This concludes today's call. Thank you for joining. You may now disconnect your line.