Badger Meter, Inc.

Ladies and gentlemen, welcome to the Q1 2026 Badger Meeting Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. As a reminder, today's conference is being recorded. It is now my pleasure to turn the conference over to Barbara Noverini, Head of Investor Relations. Please go ahead, Ms. Noverini.

Thank you, operator. Thank you for joining the Badger Meter first quarter 2026 earnings conference call. I'm here today with Ken Bockhorst, our chairman, president, and chief executive officer, Bob Rockledge, our executive vice president of North America Municipal Utility, and Dan Welstein, our chief financial officer. This morning, we made the earnings release, acquisition announcement, and related slide presentation available on our website, at investors.badgermeter.com. As a reminder, any forward-looking statements made on this call are subject to various risks and uncertainties, the most important of which are outlined in our news release and SEC filings. On today's call, we may refer to certain non-GAAP financial metrics. Our earnings presentation provides a reconciliation between the most directly comparable GAAP measure and any non-GAAP financial measures discussed. With that, I'll turn the call over to Ken.

Thanks, Barb, and good morning. Before getting into the specifics of the quarter, I'd like to start this morning by setting the stage for a more detailed discussion on our Q1 results and how we're thinking about our metering business more broadly. We operate in a market supported by strong, long-term macro drivers, recurring replacement cycles, and increasing adoption of advanced technologies ranging from our ultrasonic meters to industry-leading cellular AMI, beyond the meter solutions, and recurring software and analytics. These durable factors, combined with solid execution, have driven consistent value creation over time. At the same time, it has always been true that our business can be uneven quarter to quarter and year to year. Over the 2023 to 2025 time period, robust revenue growth, driven by multi-year cellular AMI share gains, and overlapping project activity reduced the visibility of this inherent unevenness. In mid-2025, we began to signal that the revenue contribution from certain historical AMI projects would decline as deployments concluded ahead of awarded but not yet started AMI projects. As a result of this project pacing and backlog normalization dynamic, we previously communicated that our 2026 revenues would be weighted toward the back half of the year. On page three of our earnings slide deck, you can see the impact from project pacing in our first quarter 2026 revenue. In addition, short cycle order rates, for which visibility is always more limited, were weaker than we anticipated, resulting in approximately $15 to $20 million of lower revenue versus our internal expectations. As a result of those combined headwinds, first quarter sales were down 9% year over year to $202 million. While our expectations for a solid second half have not changed, the softer start up to the year prompts us to anticipate full year 2026 organic revenue to be on balance with 2025. Normally, I would turn the call over to Dan at this point to walk through the financial results in detail. However, in light of the below expectation sales results, I'm going to turn it over to Bob to walk through greater detail on this multi-layered customer dynamic. In short, Bob will explain our view that this first quarter outcome is timing related and does not reflect the structural change in either market demand, our broader competitive position, or the long-term market drivers of our business. Bob will walk through a subset of anonymized details related to several awarded but not yet started AMI projects that are expected to begin deployment in the back half of 2026. This isn't the level of project detail we'd normally provide each quarter, But these awarded projects, along with others in the funnel, help to inform our outlook for the rest of 2026 and support our expected momentum into 2027. With that, I'll turn it over to Bob.

Thanks, Ken, and good morning, everyone. Please turn to slide four. To put the first quarter results into context, it's helpful to briefly revisit the 2023 to 2025 time period. During this multi-year timeframe, we consistently described backlog as elevated in 2023 and 2024 with normalization progressing through 2025. That backdrop supported strong but moderating revenue growth. As shown on the slide, four sizable AMI projects that began deployment in 2023 were meaningful contributors during the same time period, collectively representing nearly 800,000 connections. These were not the only AMI projects ongoing or completed during this multi-year timeframe. Rather, this selected cohort of projects represents the most significant project revenue contributors for illustrative purposes. Two of these projects, JEA and OUC, were supply-only projects, with our involvement limited to the shipment of our meters, endpoints, and recurring beacon SAS revenue rather than full deployment execution. PCU and Galveston were turnkey projects for which the scope of work included badger meter products and SAS, plus installation labor and ancillary equipment such as meter boxes and lids. As previously noted, both project size and scope matter. Turnkey projects generate significantly greater revenue than equivalently sized supply-only projects. That relationship is illustrated in the stacked bar chart and is one of several drivers of revenue unevenness. These projects ramped in 2023 off a prior year consolidated revenue base of $566 million, They peaked in 2024 and declined through 2025 as the projects approached completion. Over the same period, our generalized order backlog moved from elevated to more normalized levels. Together, the size and scope of projects, combined with backlog normalization, supported strong results over this three-year period, while muting the impact of underlying short cycle order variability, which was always present, just not visible in our results against this positive backdrop. Within these four AMI projects, you can see the revenue contribution is uneven with meaningful variability quarter to quarter based upon project and customer specifics that are not related to underlying demand, competitive dynamics, or long-term market drivers. We entered 2026 with these projects largely completed and a normalized backlog. Against this 2026 backdrop, short cycle order rates where we have the least amount of visibility were weaker than expected, and thus the below-expectation revenue outcome. Now to the facts that have and will continue to inform our forward revenue outlook. Slide 5 highlights our forward look at awarded AMI projects that are expected to begin deployment in the back half of 2026. Importantly, this is not a top projects list, but rather a snapshot that illustrates several important characteristics of our business, competitive positioning, and technology leadership. Many of these awards have been known to us for some time, in some cases years, with typical lags between initial award indication and deployment driven by a number of factors. These timing differences are common in our industry and contribute to revenue unevenness, and they also represent just one layer of the multistage opportunity funnel that informs our view of future growth. This list also reflects a wide range of funding sources, including capital budgets, rate cases, grants, WIFIA loans, and other financing, underscoring broad funding availability and sources. Also illustrated here is additional information on competitive conversions, diverse deployment types, and technology adoption across both municipal and investor-owned utilities. Most importantly, this project set represents between 2.6 million and 3.6 million connections over multiple years, meaningfully larger than the prior project cohort of 800,000 connections that supported growth from 2023 to 2025. Turning to the PRASA project, we received the first significant purchase order for the project in the first quarter, and we expect the utilities installation partners to begin deployment activity around mid-year. PRASA, together with the successful completion of the projects previously discussed on the call, and others not announced, underscore our continued AMI success with customers of any size and complexity. In summary, while the first quarter results stand out relative to recent history, we view the first half of 2026 as a short pause, not a break in our trajectory. As we move into the next phase of growth, we expect continued expansion of our AMI installed base, and this in turn will emphasize Orion Cellular AMI as the market standard for AMI. which creates opportunities for further meter share gain, recurring software revenue, and broader adoption of our Beyond the Meter solutions. With that, I'll turn the call back over to Ken.

Thanks, Bob. In addition to the project awards described by Bob, we continue to see constructive market and customer activity across our extended opportunity funnel, including pending RFPs and early utility engagement with consultants. which remains healthy as utilities continue to prioritize modernization, efficiency, and visibility across their water networks. These long-term secular drivers remain intact. Despite the soft start to the year, I'm encouraged by the consistency we've delivered in gross margin performance, overall SEA discipline, and cash flow, which speaks to the strength of our team's execution around the world and the resilience of our business model. From a near-term cost perspective, we've implemented measured cost reduction actions, including a 10% salary reduction for our executive officers for the next six months to maintain spending discipline and protect margin integrity as we navigate revenue pacing throughout the year. I'll come back at the end to talk about our outlook and the exciting announcement we made this morning around the acquisition of UD Live. But before I do that, I'll turn the call over to Dan to talk more about the numbers.

Thanks, Ken. The contrast between the first quarter of 2026 and the first quarter of 2025 is clear, so let's get into those details. Turning to slide six, total sales were $202 million, representing a 9% decline year-over-year. Utility water sales declined 10% year-over-year, reflecting the project pacing and weaker short-cycle order rates referenced by both Ken and Bob. Lower metering product revenue was partially offset by increased beacon SAFs smart cover, water quality, and network monitoring product revenues. Collectively, beyond the meter product line growth was a bright spot in the quarter that should not be lost in the broader revenue headline. Sales for the flow instrumentation product line were down 4% year over year. Turning to profitability, gross margin was 41.7%, down 120 basis points against a record gross margin in the first quarter of 2025. primarily reflecting product and project mix. Gross margins remained robust and near the top end of our normalized range, which reinforces the durability of our pricing discipline and structural mix benefits, despite lower year-over-year volumes. Selling, engineering, and administrative expenses were $49.2 million, increasing $3.1 million year-over-year, driven primarily by $1.2 million in transaction costs associated with the UDLive acquisition, higher personnel costs, and an additional month of smart cover SEA costs, offset by reduced incentive compensation expense based upon the first quarter results. SEA as a percentage of sales increased by 360 basis points year over year, primarily due to the deleveraging effect of lower volumes in the quarter, which we expect will be temporary. As a result, operating earnings were approximately $35.2 million and operating margin was 17.4%, compared to a record 22.2% in the prior year period. As awarded projects begin in the second half, we expect operating leverage to improve while maintaining our typical level of cost discipline. The effective income tax rate was 24.8% compared to 24.4% last year. Diluted earnings per share were $0.93 compared to $1.30 in the prior year period. Primary working capital as a percentage of sales decreased from 20.9% at year end to 20.0% as of March 31, 2026. We generated strong free cash flow in the quarter of about $30 million in line with the first quarter of 2025. As is normal, our first quarter reflected typical seasonality with incentive compensation and retirement plan contributions paid out for the previous year. In the first quarter of 2026, we repurchased 256,000 shares for a total of $38 million and have $115 million left on our share repurchase authorization. With that, I'll turn it back over to Ken.

Thanks, Dan. Before I give the outlook, I want to highlight the acquisition we announced this morning. Please turn to slide seven. We signed a definitive agreement to acquire UDLive for $100 million, funded with cash on hand plus contingent consideration. UDLive, a UK-based provider of hardware-enabled software solutions for sewer line monitoring, complements SmartCover by extending our sewer monitoring capabilities across a broader range of use cases, network conditions, and geographies. Much like SmartCover in the U.S., UDLive has built a leading position in the U.K., pairing low-power, easy-to-install sensors with proprietary analytic software that delivers continuous, real-time insight into sewer network conditions. The value and differentiation of UDLive's sewer line monitoring technology is evidenced by a 90% tender success rate since inception and routinely high technology assessment scores from utilities and consultants. Please turn to slide eight. The combination of Smart Cover and UDLive within our BlueEdge suite of solutions positions Badger Meter as a global leader in sewer line monitoring, offering customers options across hardware-enabled software platforms and communications configurations consistent with our choice matters approach. For those familiar with our history, there's a clear parallel to our acquisitions of ATI and SCAN, which together created that comprehensive water quality platform and extended our geographic reach. The strategic rationale for UDLive and SmartCover is similar within the sewer line monitoring market. In the trailing 12-month period ended February of 2026, UDLive generated approximately $22 million in revenue and delivered positive operating profit. The transaction will be accretive to EPS in year one, and we anticipate the close at the end of April. we believe our global channels can further accelerate UDLive's growth and enhance operating leverage over time. Now looking ahead, we continue to expect 2026 activity to be back half-weighted as awarded AMI projects advance into deployment. As you're aware, we typically don't provide formal guidance. However, we recognize that investors are navigating this project pacing dynamic for the first time in several years. With that in mind, we are offering additional transparency to our current view, informed by today's inputs of revenue pacing for the remainder of the year. As awarded projects enter deployment and short cycle orders recover from first quarter levels, we expect sequential improvement in absolute quarterly revenue dollars as the year progresses, resulting in full year 2026 revenue, excluding the UDLive acquisition to be in line with 2025. More specifically, we expect second quarter 2026 organic revenue dollars to sequentially improve from the trough of Q1, but expect them to be down year over year against the highest quarterly revenue figure in the company's history. In the near term, our focus remains on disciplined execution to manage near-term variability while building momentum throughout the year. Importantly, our financial model is built to support our capital allocation priorities across uneven operating conditions, enabling continued investment in the business, returning cash to shareholders, and value-enhancing M&A while maintaining a strong balance sheet. With that, operator, please open the line for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you'd like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Nathan Jones with Stifle. You may proceed with your question.

Good morning, everyone.

Good morning, everyone.

Hey, good morning.

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

Yeah, so, you know, I think the key to maybe remind the group, some people newer to the story maybe, you know, the unevenness that you have recognized because you followed us for a long time, is not new, as we talked about. And there's really not one underlying thing. It's selling to 50,000 utilities across the country through various different replacement cycles. The variability has always been there. And we've talked about this a few times. Sometimes the variability is there in an equal amount to the high side. But when it's the high side, it doesn't really affect people's view very much because that's all goodness. But In this particular case, I wouldn't limit it to one thing. It just happened at this particular time, an unfortunate timing given what Bob had just talked about on where we are in the midst of this air pocket, but not really one thing and relatively normal.

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

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

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

Okay, fair enough. I'll punt it on. Thank you very much.

All right. Thank you.

Your next question comes to the line of Jeff Reeves with RBC Capital Markets. Your line is open. Please go ahead.

Hey, good morning. Appreciate all the callers thus far. For your updated guidance, what's the risk that some of the late 2-H starts pushing to 2027? And, like, is this guidance appropriately conservative now?

So... So I would say this additional transparency before I agree to its guidance, because, you know, again, given the variability, it's hard to guide from quarter to quarter or year to year. But as the year progresses and we get closer to each of these projects getting into deployment mode, you know, we see more activities. Some of these that you can see on the list are turnkey. We're actively engaged with them on the upfront planning. For those that are supply only, yeah, in some cases we have POs. In some cases they're still planning. So As we get closer and closer to that, our confidence level is better today than it was 90 days ago.

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

Yeah, so I think a lot of people, even though we talk about the short-term variability, we talk about why we don't necessarily size or talk much about backlog is because the majority of the business is short cycle. So, you know, distribution is very short cycle. Individual utilities that we sell directly to that are just doing the ordinary buying that aren't an in-flight AMI project are oftentimes ordering and Those tend to be short cycle, and utilities order them when they want them. Everybody in the industry is at normal lead times, so we basically reverted back to normalized lead times and backlog for before the supply and COVID and the whole situation. And even when backlog was elevated, frankly – It isn't like it was elevated to something, you know, it went from a short visibility to slightly more visibility. It wasn't like we had a huge backlog that we were chunking through.

I appreciate that. I'll pass it on.

Your next call comes from the line of Quinn Fredrickson with Baird. Your line is open. Please go ahead.

Hi. Excuse me. Good morning. Thanks for taking my questions. I wanted to build on your commentary there about short cycle order weakness being timing related. Does the flat organic outlook contemplate any recovery opportunity relative to that 15 to 20 million, or does it assume that that short cycle weakness persists here?

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

Sure.

Okay.

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

And then on the flat organic outlook for the year, I just wanted to see if we could dial in 2Q versus the second half a little bit more. Ken, you mentioned 2Q would be down year over year. Should we assume kind of a similar decline to 1Q? No.

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

All right. Thank you very much.

Sure.

Your next question comes from the line of Andrew Krill with Deutsche Bank. Your line is open. Please go ahead.

Hi. Thanks, Maureen, everyone. On the FOM gross margins, they're held up well in the first quarter considering the So, anything you'd call out there, and then can you give us some help on how they should trend the rest of the year? You know, do you think still near the higher end of your 39 to 42% target range, or could there be some sequential pressure as these projects ramp? Thanks.

Yeah, I think the important thing to point out here is a couple things. Number one, the 39 to 42% range, we still have confidence in, and that's still where we anticipate. you know, operating for the rest of the year. In terms of the Q1 result, you know, as we pointed out in the prepared remarks, some of the areas where we saw strength in the first quarter were in those around-the-meter technologies. Of course, our Beacon SAS revenue continuing to chunk along in the recurring nature that it is, and all of those things being above line average margin, which helped us to get to this you know, blended rate in the first quarter. So certainly as we progress throughout the year, again, our expectation is to continue to operate within that range. We've talked about previously when you think about things like turnkey projects, they may have different margin profiles than, you know, sales through distribution, for example. So all of those mixed factors may exist. But again, just reiterating that range that we talked about historically is still within what we think is reasonable.

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

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

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

Thank you.

Your next question comes from the line of Bobby Zolper with Raymond James. Your line is open. Please go ahead.

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

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

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

So we certainly don't talk about tariffs on individual product line item levels. Any exposures that we do have are on the component side of our business as we're procuring materials generally.

I appreciate it. Thank you.

And, Bobby, just to point out, that's because of USMCA and our position within USMCA.

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

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

All right. Thank you very much. I appreciate it.

Your next question comes from the line of James Coe with Jefferies Financial Group. Your line is open. Please go ahead.

uh good morning uh thanks for taking questions here uh i i just wanted to kind of ask a question on the what did the awarded project that you guys put on the flight so it seems like seven out of nine awarded projects involved kind of full or partial competitive mirror conversions So that's pretty impressive. So what do you think is driving that success given the strong incumbent bias in the industry? And have you experienced any meaningful losses of your incumbent positions to competitors? Like, yeah, just wanted to ask that.

Yeah, so thanks, James, for the question. You know, one of the dynamics that we've explained over the past several years is that our portfolio, the resiliency of the cellular AMI, the leadership position that we've taken in software, you know, we've been saying now for a few years that we have been converting market shares. So when you look at some of the projects that we highlighted today, two of them are Generation 1 fixed network combo utilities that used to be uh, someone else's meter and someone else's radio. And during generation two, the, uh, the utilities, the water utilities decided that they no longer wanted to be on a fixed network. They went out the RFP and, and we won that. And then after winning the AMI RFP, because it wasn't a full, uh, full product, full product RFP, then we also converted the meters afterward. We have two other, uh, products on here that were, um, One where we were the meter incumbent, but someone else's AMR radio was on it. And because of our relationship, our cellular technology leadership, we were able to convert someone from a competitive AMR drive-by to our Orion cellular with Beacon SAS revenue. We have others where we converted both meters and radios. But for the most part, it's been because we've already been a 121-year great leader in the industry for meters. Now we're also the leader in the industry for AMI, and we're pulling in both ways.

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

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

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

Your next question comes from the line of Michael Fairbanks with J.P. Morgan. Your line is open. Please go ahead.

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

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

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

Great. Thanks. I'll link it there.

Your next question comes from the line of William Griffin with Barclays. Your line is open. Please go ahead.

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

Yeah, so what we really enjoyed about Smart Cover, which we acquired just slightly more than a year ago, is that it's the leader in the U.S. market, which is a fantastic smart water market, as you know. Adoption is very early, but the problems are very real. So by adoption being early, meaning it's less than half a percent of the manhole covers in the U.S. have monitoring on it. The payback is really quite simple. And if you've experienced any of the rainfalls in the Midwest this week, Combined sewer overflows is a significant and real problem that nobody wants. Influent infiltration is something that's a real problem. Cleaning sewer optimization, the ability to save a lot of money, there's almost an immediate payback on cleaning optimization by having that in place. So the dynamics are extremely real, and every utility understands the value of implementing this technology. In the UK, it's also very early in adoption. Bob and I like using baseball analogies, but being early in the early innings doesn't play in the UK. So let's just say they're very, very early in adoption as well. These two markets in particular are the absolute markets that we want to be in because they're already the largest, albeit early, and fastest growing at the same time. Within both markets, and in particular in the U.K., you know, regulation is really driving this. So it's not even just that a utility who already knows they should do it needs it. They're being mandated to do it. And then if you look inside the U.K. AMP8 spending cycle, there is massive amounts of investment allocated, actually demanded, to be spent in this area. So acquiring the two premier brands in the two already largest, fastest-growing regulated markets with an absolute understanding of why they should have it feels really good to us.

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

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

That's an important reason why in process, for example, we point out, is prone to hurricanes and as a hurricane might come by that might impact a quarter or two of shipments that we've had so you can't just draw a straight line on that project in particular but it applies across the board understood appreciate the color that's all for me your next question comes from the line of scott graham with seaport your line is open please go ahead

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

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

It is indeed. When you say SEA flat as you mean in dollars,

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

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

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

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

Appreciate that.

Thank you. Sure thing.

Just as a reminder, if you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Barbara for closing remarks. Correction, apologies, we have one more question from Bobby Zolper with Raymond James. Your line is open. Please go ahead.

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

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

All right. I thank you. I appreciate it.

You're welcome.

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

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

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