[Management View]
Badger Meter reported $236 million in total sales for fiscal Q3 2025, representing a 13% year-over-year growth. The company highlighted the growth in its Utility Water Product Line and Flow Instrumentation Product Line. Management emphasized the strategic importance of the SmartCover acquisition and the steady demand for BlueEdge and AMI solutions.

[Outlook]
Management remains confident in achieving an average top-line growth rate of high single digits over the next five years. The company expects EPS accretion from SmartCover in the second year post-acquisition and continues to focus on organic investment, dividend increases, and selective M&A.

[Financial Performance]
- Total Sales: $236 million, up 13% YoY
- Utility Water Product Line Sales: Increased by 14% YoY
- Flow Instrumentation Product Line Sales: Rose 4% YoY
- Operating Earnings: $46.1 million, up 13% YoY
- Gross Margin: 40.7%, up 50 basis points YoY
- EPS: $1.19, up 10% YoY
- Free Cash Flow: $48.2 million, a record high

[Q&A Highlights]
Question 1: What prompted the increase in the expected gross profit margin despite tariff cost pressures?
Answer: The lack of new tariff-related news and another quarter of above-target performance gave confidence in the structural mix benefits. The new normalized gross margin range is expected to be enduring.

Question 2: Has anything changed in customer decision-making timelines due to federal funding noise?
Answer: Despite external noise, customer enthusiasm and long-term planning remain strong. The typical Q4 seasonality due to fewer operating days was noted.

Question 3: Can you comment on SmartCover's growth and profitability expectations?
Answer: SmartCover reported ~25% growth and is expected to continue growing at an outsized level. Incremental margins are expected to be above line average, with EPS accretion anticipated in year two post-acquisition.

Question 4: How are you tracking on price cost for the year amidst tariff impacts?
Answer: Targeted product-specific price increases have been implemented, and price realization is expected to reach parity with cost effects moving forward.

Question 5: Can you comment on water quality performance and any new customer testing needs?
Answer: Strong traction in water quality offerings was noted, with no significant new parameter needs identified. The company remains competitive in its technology and application offerings.

Question 6: What are your views on 2026 growth potential amidst tariff uncertainty?
Answer: Confidence in high single-digit growth over the cycle remains, with no specific guidance for 2026. The company continues to see healthy levels of activity across its pipeline.

Question 7: Any change in thinking on potential for share buybacks given the current multiple?
Answer: The focus remains on organic growth, dividend increases, and M&A. No immediate plans for share buybacks were indicated.

Question 8: How much of the ARPA funding has gone to metering?
Answer: Very little ARPA funding has gone toward metering, with utilities finding budget to solve critical issues independently.

Question 9: Why is the 2011 comparison period not relevant today?
Answer: Significant changes in product mix, technology, and recurring customer needs since 2011 make the comparison irrelevant.

Question 10: Is the five-year forward view organic or does it include potential M&A?
Answer: The five-year forward view is organic.

Question 11: Any changes in 2025 mix that could carry into 2026?
Answer: Structural mix benefits from higher-margin products are expected to continue, supporting the new normalized gross margin range.

Question 12: How were software sales in the quarter?
Answer: Software sales continued to grow robustly, driven by high attachment rates to hardware sales.

Question 13: Any changes in demand for ultrasonic meters?
Answer: Demand for ultrasonic meters remains strong, with growth expected to continue.

Question 14: What is the outlook for the Flow Instrumentation segment?
Answer: The segment is expected to grow in line with GDP, with some quarters showing stronger performance.

[Sentiment Analysis]
Analysts were generally positive, focusing on the company's strong financial performance and strategic growth initiatives. Management maintained a confident and optimistic tone, emphasizing long-term growth prospects and resilience amidst external challenges.

[Quarterly Comparison]
| Metric | Q3 2025 | Q3 2024 | YoY Change |
|-------------------------------|---------------|---------------|--------------|
| Total Sales | $236 million | $209 million | +13% |
| Utility Water Product Line | +14% YoY | N/A | N/A |
| Flow Instrumentation Product Line | +4% YoY | N/A | N/A |
| Operating Earnings | $46.1 million | $40.8 million | +13% |
| Gross Margin | 40.7% | 40.2% | +50 bps |
| EPS | $1.19 | $1.08 | +10% |
| Free Cash Flow | $48.2 million | $42.2 million | +$6 million |

[Risks and Concerns]
- Tariff and trade-related cost pressures remain fluid and could impact future margins.
- Federal funding noise and budget concerns in the water industry could affect customer decision-making timelines.
- The uneven nature of project timing and deployment could lead to variability in quarterly performance.

[Final Takeaway]
Badger Meter delivered strong financial results in Q3 2025, driven by robust sales growth and effective cost management. The company remains confident in its long-term growth prospects, supported by strategic acquisitions like SmartCover and steady demand for its BlueEdge and AMI solutions. While external challenges such as tariff pressures and federal funding noise persist, Badger Meter's resilient business model and strategic focus on organic growth, dividends, and selective M&A position it well for sustained performance.