Badger Meter (BMI) Q2 2026 Earnings Call Transcript

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DATE

Wednesday, Jul. 22, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• Chairman, President, and Chief Executive Officer - Ken Bockhorst
• Chief Financial Officer and Treasurer - Dan Weltzien
• Executive Vice President of North America Municipal Utility - Bob Wrocklage

TAKEAWAYS

• Total Sales -- $222.3 million, representing a 7% year-over-year decline driven by project pacing dynamics and lower utility water revenue.
• Organic Revenue -- Down 7.5% year over year, excluding a $2 million contribution from the UDlive acquisition.
• Sequential Growth -- 9% increase in base sales compared to the first quarter, reflecting the initial ramp-up of awarded project shipments.
• Utility Water Sales -- $191.2 million, a decline of 8% year over year primarily due to the timing of AMI product shipments.
• Flow Instrumentation Sales -- Up 6% year over year, driven by broad-based demand for water applications and data center solutions.
• Diluted EPS -- $1.02, representing a 13% decline from $1.17 in the prior year period.
• Operating Margin -- 17.7%, a decrease of 110 basis points year over year reflecting lower sales volumes and project mix.
• Gross Margin -- 40.8%, down 30 basis points from 41.1% in the prior year due to volume headwinds.
• Free Cash Flow -- $21.9 million, down from $40.6 million in the prior year period due to lower earnings and temporary working capital increases.
• Share Repurchases -- 204,000 shares for a total of $25.3 million during the second quarter.
• Remaining Buyback Authorization -- $90 million, following the deployment of approximately $80 million over the past three quarters.
• Primary Working Capital -- 22.9% of sales, an increase from 20% at the end of the first quarter due to revenue timing and higher inventory levels.
• SGA Expenses -- $51.4 million, reflecting a $1.6 million year-over-year decrease achieved through spending controls and lower incentive compensation.
• UDlive Amortization -- $5 million annually, based on preliminary expectations for intangible assets acquired in the May 1 transaction.
• Transaction Costs -- $1.2 million, representing the final costs associated with the UDlive acquisition.
• Effective Income Tax Rate -- 25.2%, compared to 24.5% in the prior year period.
• Credit Facility -- $150 million, following a five-year renewal of the undrawn facility during the quarter.
• Full Year Revenue Guidance -- Flattish organic growth, with management anticipating that year-over-year growth rates will be heavily weighted to the fourth quarter.
• UDlive Sales Contribution -- $2 million, representing two months of results since the acquisition closed on May 1, 2026.
• Cash Flow Conversion -- Target in excess of 100% of net earnings for the full fiscal year.
• Base Operating Profit Margin -- 18.4%, excluding the impact of UDlive, representing a 40 basis point decline year over year.

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RISKS

• Weltzien stated, "One item I want to call out is the increasing level of electronic component cost and availability pressures, which are a byproduct of the AI and data center build-out demand," noting that these challenges are not easing.

SUMMARY

Management reported sequentially improved sales for **Badger Meter, Inc.** (NYSE:BMI) during the second quarter, driven by the commencement of shipments for nine awarded AMI projects including PRASA. The company maintained its full year 2026 organic revenue guidance of approximately flattish compared to 2025 levels, while implementing cost containment actions to manage operating margins. Results reflected a decline in utility water sales offset by growth in flow instrumentation and contributions from the UDlive acquisition. The company indicated that year-over-year growth rates are expected to be more significant in the fourth quarter due to favorable comparisons and project timing.

• CEO Bockhorst clarified the revenue outlook by stating, "You should read that not as flat but flat-ish, with variability and unevenness in project ramping and short-term order patterns."
• Management confirmed that product shipments for the Puerto Rico Aqueduct and Sewer Authority (PRASA) project have officially begun as part of the nine-project cohort.
• The company noted that flow instrumentation demand is being bolstered by data center expansion, specifically through clamp-on meters and mag meters used in cooling towers.
• EVP Wrocklage highlighted strong engagement at the recent ACE 2026 trade show, stating, "Our meetings with consultants during the show who were looking to gain further insight into our water cycle spanning solutions were booked solid."
• Management addressed supply chain concerns by noting they have previously navigated electronics inflation and are utilizing newer technology platforms to maintain flexibility.
• The company reaffirmed its commitment to a balanced capital allocation strategy, including the deployment of $80 million for share repurchases over the last nine months while seeking further M&A opportunities.
• Operational focus remains on Network as a Service (NaaS) leadership, with management citing increased interest in embedded AI functionality and cellular-based communication devices.

INDUSTRY GLOSSARY

• AMI (Advanced Metering Infrastructure): An integrated system of smart meters, communications networks, and data management systems that enables two-way communication between utilities and customers.
• NaaS (Network as a Service): A business model where a utility pays for metering capabilities and data access without owning or managing the physical communications infrastructure.
• Flow Instrumentation: Devices such as meters and valves used to measure and control the flow of substances like water, steam, and gases in industrial or utility systems.
• PRASA: The Puerto Rico Aqueduct and Sewer Authority, a major utility customer currently undergoing a large-scale AMI deployment.
• ORION: The company's suite of automatic meter reading technologies, including cellular and fixed network solutions.
• BEACON: A cloud-hosted software platform used for water analytics and consumer engagement.
• UDlive: A technology company acquired by Badger Meter that specializes in real-time wastewater and stormwater monitoring.
• AWWA ACE: The American Water Works Association Annual Conference and Exposition, a primary industry event for the water sector.

Full Conference Call Transcript

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

Dan Weltzien: Good morning. Thank you for joining the Badger Meter Second Quarter 2026 Earnings Conference Call. I'm here today with Ken Bockhorst, our Chairman, President, and Chief Executive Officer, and Bob Wrocklage, our Executive Vice President of North America Municipal Utility. This morning, we posted the earnings release and related slide presentation on our website. As a quick reminder, any forward-looking statements made on this call are subject to various risks and uncertainties, the most important of which are outlined in our news release and SEC filings. On today's call, we may refer to certain non-GAAP financial metrics, including base results, which exclude the impact of UDlive, acquired May 1st, 2026.

Our release and earnings presentation provide a reconciliation between the most directly comparable GAAP measure and any non-GAAP financial measures discussed. With that, I'll turn the call over to Ken.

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

Bob will provide an update on commercial activity and collective customer feedback from our recent annual AWWA ACE trade show. I'll come back to cover the outlook and take your questions. Go ahead, Dan.

Dan Weltzien: Thank you, Ken. Turning to slide three, total sales in Q2 were $222.3 million, representing a 7% decline year-over-year. Excluding the two-month benefit of UDlive sales of approximately $2 million, base sales were down 7.5% year-over-year. Importantly, base sales were 9% higher than first quarter levels, as we anticipated, with a number of awarded projects in the pipeline beginning their initial ramp in shipments. Note that we will not be providing individual project-level detail from the anonymized subset of awarded but not yet started projects list that we shared last quarter. As we mentioned during Investor Day back in May, product shipments for the PRASA project have begun.

Utility water sales declined 8% year-over-year, and excluding the acquisition, were down 9%, reflecting the project pacing dynamics we have been discussing for some time. Lower AMI-related product revenue was partially offset by higher software, as well as collective beyond the meter growth. It is important to note that utility sales improved 8% sequentially on an organic basis. Sales for the flow instrumentation product line were up 6% year-over-year, as we experienced broad-based water application demand. Turning to profitability, overall, we delivered improved operating leverage versus the first quarter, the result of sequentially higher sales and the favorable impact of cost actions put into place earlier in the year.

On a year-over-year basis, operating earnings declined 12%, with margins down 110 basis points to 17.7%. Base operating profit margins, excluding UDlive, were 18.4%, down 40 basis points from last year's second quarter. Gross margin was 40.8%, down 30 basis points from the second quarter of 2025, primarily reflecting lower sales volumes and project mix. Gross margins remained solidly in the upper half of our normalized range, indicative of the resiliency of our overall structural mix and pricing discipline. One item I want to call out is the increasing level of electronic component cost and availability pressures, which are a byproduct of the AI and data center build-out demand.

While we have been able to adequately mitigate these impacts to date, the challenges posed by these pressures are not easing. Turning to selling, engineering, and administrative expenses, the second quarter's $51.4 million was $1.6 million lower year-over-year due to the benefit of spending controls, lower incentive compensation, and specific cost containment actions. These more than offset $1.8 million from the addition of UDlive for two months, including related intangible asset amortization, along with the final $1.2 million of transaction-related costs, which combined added approximately $3 million to year-over-year spending. For your ongoing modeling, our preliminary expectation for UDlive intangible asset amortization is approximately $5 million annually. The effective income tax rate was 25.2%, compared to 24.5% last year.

Finally, diluted earnings per share were $1.02, down 13% from $1.17 in the prior year period. Primary working capital as a percentage of sales was 22.9%, up from 20.0% at the prior quarter end. The receivable increase simply relates to revenue timing, and we anticipate working down the above-average inventory levels resulting from the revenue pacing dynamics throughout the fiscal year. Free cash flow was $21.9 million, down from $40.6 million in the prior year comparable quarter, given lower earnings, the temporary increases in working capital. As always, we remain focused on delivering full-year cash flow conversion in excess of 100% of net earnings.

In the second quarter of 2026, we repurchased 204,000 shares for a total of $25.3 million and have approximately $90 million remaining on our current share repurchase authorization. Over the past three quarters, we have deployed roughly $80 million in share repurchases. Finally, as noted in the release, we did finalize a five-year renewal of our $150 million credit facility in the quarter. This facility remains undrawn and provides us with ample financial flexibility under attractive terms, including its expansion feature. With that, I'll turn the call over to Bob.

Bob Wrocklage: Thanks, Dan. Last month, we had the opportunity to connect with multiple customers, engineering consulting firms, and investors at ACE 2026 in Washington, D.C. For those not able to visit in person, we showcased our AMI and beyond-the-meter applications in a way that conveys our ability to deliver critical outcomes our customers are seeking across the full water cycle, from source water to wastewater treatment. From the many customer conversations, it is clear that the market remains constructive about our solutions as utilities continue to prioritize modernization, efficiency, and visibility across their water and wastewater networks. These long-term secular drivers remain intact.

In fact, our meetings with consultants during the show who were looking to gain further insight into our water cycle spanning solutions were booked solid. Given the role these consultants play in the early part of the opportunity funnel, it bodes well for the long-term durability of the multi-decade transformation of the water sector and for our competitive position. Consultant and customer discussions were heavily focused on both the hardware and software components of our Network as a Service or NaaS solutions. Of particular focus were advancements to network resiliency and flexibility in communication devices such as dynamic multi-carrier SIM technology and our enhanced ORION Lens endpoint solution for metal pit lids.

From a software standpoint, EyeOnWater Premium, our BEACON Field app, and of course our embedded AI functionality, Cobalt, garnered strong interest. Collective feedback reinforced our NaaS leadership position and an AMI hardware and software set that provides value to all utility stakeholders and their customers. Finally, we continued to educate utilities on stormwater and sewer line applications with the broad solution portfolios from both SmartCover and now UDlive. As Dan noted, we are starting to see early ramp activity at PRASA and several other awarded projects beginning deployment, which will continue to advance as the year progresses.

I will remind you that these include both turnkey and supply-only projects, and that implementations will continue to be uneven, the result of numerous external factors inherent in the industry. With that, I'll turn the call back to Ken.

Ken Bockhorst: Thanks, Bob. Looking ahead, as we noted in the release, we continue to anticipate sequential improvement in base quarterly revenue dollars as each quarter progresses, resulting in full year 2026 revenue, excluding UDlive, flat-ish with 2025. As we noted last quarter, and as Bob just reiterated, you should read that not as flat but flat-ish, with variability and unevenness in project ramping and short-term order patterns. Given the fourth quarter represents the easiest year-over-year comparison, you should expect the year-over-year base sales growth rate to be heavily weighted to Q4. As noted last quarter, we implemented certain cost reduction actions and have been maintaining spending discipline to protect margin integrity as we navigate revenue pacing throughout the year.

As Dan mentioned, we are actively managing the electronics availability and cost dynamics. While we continue to navigate quarter-to-quarter factors, our confidence in the long-term outlook for the business has not wavered. To reinforce what you heard from our team at our recent Investor Day, we have multiple enduring revenue and profitability drivers underpinned by the ongoing digital transformation of the water sector, which we believe will positively drive shareholder value. These include the long-term durable growth foundation of replacement demand, which is bolstered by AMI adoption and hardware-enabled recurring software. The extension of our offerings across the full water cycle with our beyond-the-meter technologies. Leveraging core innovation excellence as well as acquisitions to continue to strengthen our competitive position.

Finally, building on our disciplined execution, which we believe will extend the profitable growth runway into the future. Finally, I'd like to call out our recently published 2025 sustainability report, which highlights our progress across the key pillars of our solutions, operations, and people. It remains clear that by managing sustainability as a business process, it enables us to both provide industry-leading water solutions to grow our business while also reducing our environmental footprint. With that, Operator, please open the line for questions.

Jeff Reive: Thank you. Good morning, everyone. Now that we are about at the halfway point of the year and certain projects have commenced initial deployment, how has your visibility into the second half ramp change versus 90 days ago? Are any at risk of slipping into 2027?

Ken Bockhorst: Hey, Jeff. As we talked about last quarter, we fully expected as the year progressed, it would become a little more clear to us how things would play out, given how important the nine projects are to the rest of the year, and frankly, the positivity they have for the next several years. As you know, we talked about PRASA has begun, and a few of the other projects have begun. We'll always note that there can be possible unevenness, the total cohort of nine projects feels like it's pretty solid at this point.

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

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

Jeff Reive: Got it. I could just sneak in one more on UDlive. Seems like the revenues were a bit lower than I would have expected on the trailing revenue. Is that just a timing issue, maybe related to the May close, or is there anything else driving that?

Ken Bockhorst: Yeah, definitely just the timing issue. As with any acquisition, particularly sometimes with small companies, you get just certain distractions and things. Yep, certainly understand that question, but not concerned at all.

Jeff Reive: Great. Thank you.

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

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

Quinn Fredrickson: Okay. Thanks, Ken. Dan, just given your comments on electronic component costs, any additional color on how to think about price cost or gross margin in the back half? Perhaps any details you can share on your memory exposure as well would be helpful.

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

Dan Weltzien: Yeah, I think you hit on the two relevant points here, there really are two things that we're managing through right now. It is a cost component dynamic that we're dealing with, also availability. As Ken mentioned, we're managing through both.

Quinn Fredrickson: Thank you both.

James Ko: Good morning. Thanks for taking questions here. I wanted to touch on the awarded project ramp-up timeline. Looking at the historical revenue profile of the cohorts that you guys shared, it seems like deployment tends to peak like one or two years after deployment. Should we expect kind of similar dynamic for the nine kind of awarded projects that you guys shared?

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

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

James Ko: Great. Thanks for the color. I think you guys talked about other opportunities outside of just nine award projects. Can you provide more color on opportunities funnels outside of those awarded projects that you guys shared?

Bob Wrocklage: I think your point is perfect because I think sometimes when you publish a list of a cohort, particularly of the scope and scale that we did, that almost implies that those are the key projects and only projects. That is absolutely not the case. That was a representative sample of projects that spanned everything from utility projects to investor-owned projects, from competitive conversions to incumbency experiences, and then a dynamic of both supply and turnkey-type projects. It's important to note, that was chosen very purposefully to illustrate those factors, but those are not the only projects.

Whether we're selling direct or whether we're going through distribution, there are absolutely lots of opportunities, and sometimes those opportunities come through as turnkey or projects that we would've disclosed like that. In other cases, that's coming through that short cycle order rate that I think has now been coined as a term. Really that, in my mind, is implied to be those things that we have limited visibility to in terms of direct ordering behavior. Those are taking place all day, every day in the natural course, and as Ken indicated, that rate of activity improved versus Q1 levels or increased versus Q1 levels.

That's what's happening here in Q2, and that's what we're forecasting forward in our full-year outlook of getting to flattish on an organic basis.

James Ko: Great. Thanks for taking questions.

Nathan Jones: Good morning, everyone.

Bob Wrocklage: Good morning.

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

Ken Bockhorst: Yeah. The one thing that, as Bob pointed out, it's hard to compare one project to another and what a ramp rate looks like and how long it goes for. I think we did provide a little bit more detail at Investor Day that showed some of the actual projects of how they flow and some of the unevenness. Some of them will be at full run rate end of year, some of them will not, but that also doesn't mean that they might slow down or speed up in any particular quarter.

The main thing to think about that makes us feel good about it is that it is a large cohort as well as the other pieces going forward, and it gives us more air cover to deal with some of that unevenness than we've dealt with in the past few quarters.

Nathan Jones: Okay. I guess the second question is going to be on price and costs. You talked about increasing electronics costs. I know copper's become a bit less important over the years, but it has increased significantly, so have transportation costs and all of that kind of stuff. Can you talk about where you are in terms of price cost? Are you able to pass this through to customers? Within these projects, are there contractual pass-through of increased costs, or do you have some exposure to increased costs there? Thanks for taking the questions.

Bob Wrocklage: Yep. Nathan, I guess I'll take that in two parts. First, just talking about price cost dynamics, that's an ongoing discussion that we're having internally and with customers as we're looking at RFP opportunities and working with customers on pricing individual projects. We feel good about our ability to continue to recapture cost increases that we see within the market through our pricing excellence programs and really how we look at each individual opportunity. I'll also just remind you again, the biggest driver of our overall gross margins is the structural mix benefits that we continue to see.

As we move from mechanical to static metering, more cellular AMI deployments, and then the beyond the meter and software solutions that come along with that, are really the main drivers toward that gross margin performance that we see over time. In terms of specifically within our contracts, we negotiate in most contracts, I'll say, the ability to pass along escalations throughout the three, four, five-year deployments that we might have. While not maybe 100% in all of our contracts, that's certainly a common term that we're negotiating with our customers.

Nathan Jones: Thanks for taking the questions.

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

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

Dan Weltzien: Bobby, I'll just add, the renewal of that credit facility was largely driven by the fact that was due to expire in July of this year. We enjoy having that financial flexibility of having that facility in place.

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

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

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

Bobby Zolper: All right. I appreciate it. Thank you.

Andrew Krill: Hi. Thanks. Good morning, everyone. Ken, I think in the prepared remarks, you noted 4Q organic sales, the growth would be heavily weighted to that quarter. For 3Q, can you grow organically, or is there a chance sales are still down year-over-year on that tough comp? Thanks.

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

Andrew Krill: Okay. Fair enough. Flow instrumentation, I didn't get a ton of air time, but the growth there, very impressive, and pretty sudden. Could you unpack what drove that? Is this sustainable, or was it more one time large order? I think that can happen here. Can we extrapolate that looking forward, or does this revert back to the low single digit area that product line tends to grow at? Thanks.

Ken Bockhorst: Yeah. Two things. I just want to call out again the law of small numbers. I'll point that out even when the growth rate is higher than when it's lower. We still view this product line as GDP-like in growth over the five-year strategic horizon. We've kind of downplayed in the past some of our role in what we sell into data centers. We get asked that a lot. Frankly, as a whole, it's not a big percentage of Badger Meter revenue. Within that flow instrumentation product line, we have two particular products that do well in data centers.

It's our clamp-on meters that are really flexible to use and finding a lot of headway in data centers, mag meters for cooling towers and monitoring flow. We do have a couple of products that do really well there. In this particular quarter, we had some orders that came through and drove it a little higher. Since I'm talking about data centers, we also have good opportunities there within water quality. I would caution you to stick with the GDP-like low single digits growth on average.

Andrew Krill: Yeah. Thank you.

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

Dan Weltzien: Yeah. Scott, what we were trying to point out there in the SCA dollars in the quarter is there's two pieces. There's the $1.8 million, which is just the ongoing run rate of SCA that you should see coming from UDlive. We did a reconciliation this quarter to break apart the consolidated business from the base business so that you can specifically see that. In that breakout reconciliation, that does not include the other piece, which is the transaction costs of $1.2 million that were the remaining transaction costs within the quarter. Ongoing run rate is that $1.8 million, which includes the intangible asset amortization, and the transaction costs are separate from that.

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

Bob Wrocklage: Yeah. That trade show in and of itself is, of course, designed to reach many an audience, and the comments in the script were very specific to the engineering consulting community. That's an opportunity for us to meet with those consultants, understand what opportunities they're working on, but also to then sometimes talk about things that have been launched already that they may not be aware of, or in many cases foreshadow what is forthcoming for hardware and software. In those meetings, we're able to provide a whole view to both hardware and software solutions. In that case, that was a trade show very much focused on the clean water side, so it was all about Advanced Metering Infrastructure.

Through those discussions, the combination of the evolution of our hardware set, our NaaS capabilities, and then the software enablement reaching all constituents of the utility. No longer just the billing read, but in large part, workflows associated with utility efficiency and customer care, enabling the field service crews to see the real-time power of BEACON data and as they're doing work in the field, and then EyeOnWater with consumers. The collective feedback was, your leadership in cellular, which started as a differentiated form of AMI, has evolved now into NaaS capabilities that is fully encompassing all stakeholders at utilities, and even importantly, the customer of those utilities who are the citizenry using water in every city and state.

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

Scott Graham: It is very helpful. Thanks, Bob.

Ryan Connors: Good morning. You've been very comprehensive, but I do have a couple of things left on my list here. One, I wanted to go back to the improvement in short cycle orders that you talked about, and I'm wondering whether the exit by one of your competitors from the mechanical meter space has anything to do with that. Obviously, you also see static growing faster, but you're still in the mechanical business, and I know that's a big part of the install base. Was that at all a factor there?

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

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

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

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

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

Ryan Connors: Got it. Fair enough. Thanks for your time.

Ken Bockhorst: Sure.

Michael Fairbanks: Hey, just on the electronic component pressures, can you clarify what these sub-components exactly are? Then maybe what products in the portfolio this would affect? Thank you.

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

Dan Weltzien: Then tying to specific products, this isn't intended to create fear in any way. I'm just saying this as an obvious connection tie, that all relates to any of the enabled products that have electronics. It's ORION Cellular, it's ultrasonic products, it's beyond-the-meter technologies. As Ken alluded to in the prepared remarks and in his first answer, we've dealt with this before. Everyone's dealing with the same situation. This is not a Badger-unique challenge. This is a industry challenge.

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

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

Dan Weltzien: Yeah. There's probably two things to focus on there. On the receivable side, certainly there's some timing impacts within any given quarter in terms of when shipments are going out and those types of things. The other side is the inventory. A couple of things to point out there. Number one, when we acquired UDlive, it came along with some inventory, so that contributes to the increase there. Obviously there's no sales in the trailing 12 months, so that's going to work itself out over time.

We mentioned some cost pressures as you look at things from a year-over-year perspective, things like copper is more expensive, so just naturally the dollars that are sitting there on the balance sheet are higher. Again, with some of the revenue pacing things throughout the first half of the year, there was just some supply that showed up a bit earlier than we needed it. Fully anticipate working through that in the back half.

I think the other thing to just point out is as sales continue to grow sequentially here in the third and fourth quarter, the sales base in the calculation of primary working capital as a percentage of sales is going to help that percentage to normalize as well. Those are all factors, I think, to what we're seeing right now.

Michael Fairbanks: Thank you.

Dan Weltzien: Thank you, Operator. Just a quick note for your planning that our third quarter 2026 earnings release is tentatively scheduled for October 21st, 2026. As most of you know, Barb is no longer with Badger Meter, so please don't hesitate to reach out to me if you have any follow-ups at investors@badgermeter.com. Have a great day.

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