Ladies and gentlemen, welcome to the Third Quarter 2022 Badger Meter Earnings Conference Call. If you would like to ask a question today, please press star followed by one on your telephone keypad to enter the queue. As a reminder, today's conference is being recorded. It is now my pleasure to turn the conference over to Karen Bauer, Vice President of Investor Relations, Corporate Strategy, and Treasurer. Please go ahead, Ms. Bauer. Good morning, and thank you for joining the Badger Meter third quarter 2022 earnings conference call. On the call with me today are Ken Bockhorst, Chairman, President, and Chief Executive Officer, and Robert Wrocklage, Chief Financial Officer. The earnings release and related slide presentation are available on our website. Quickly, I will cover the safe harbor, reminding you that any forward-looking statements made during this call are subject to various risks and uncertainties, the most important of which are outlined in our press release and SEC filings. On today's call, we will refer to certain non-GAAP financial metrics. Our earnings slides provide a reconciliation of the GAAP to non-GAAP financial metrics used. With that, I'll turn the call over to Ken. Thanks, Karen, and thank you for joining our third quarter earnings call. The Badger Meter team delivered another record sales performance with 15% sales growth in the quarter and double-digit organic sales growth in each of the past four quarters. Our orders and bid funnel remain strong with another positive book-to-bill ratio in the quarter. We were very pleased with the 100 basis points improvement in operating profit margins in the quarter. While we continue to face persistent macro challenges with inflation and sporadic component shortages, gross profit margins have consistently been within our tightened normalized range of 38%-40%, and we have improved SEA expense leverage throughout the year. The combination of our differentiated Choice Matters technology portfolio, commercial excellence, operational execution, and world-class global team continue to drive strong, profitable growth and demonstrate that we are well-positioned to manage under the economic scenarios that may lie ahead. I'll talk about the current environment and our market outlook later in the call, but for now, I'll turn the call over to Bob to go through the details of the quarter. Thanks, Ken, and good morning, everyone. Turning to slide four, our total sales in the third quarter were $148 million. A quarterly record and a 15% increase over the $128.7 million in the same period last year. The stronger U.S. dollar reduced sales by nearly $2 million or about 1.6 percentage points in the quarter. Total utility water product line sales increased 17.1% year-over-year. We experienced continued strong order demand, improving production output and ongoing price realization, all of which helped to offset intermittent supply chain challenges. Sales growth in the quarter was broad-based across both water quantity and quality, and again, most notable in ultrasonic meters, ORION Cellular radio endpoints, and BEACON software as a service sales. Utility water order rates and bid activity continue to be strong, and as we noted last quarter, they have not moderated despite the slowing macroeconomic environment. Even with the mid-teen sales growth, we exited the quarter with a strong utility water backlog. Sales for the flow instrumentation product line increased 5.3% year-over-year, led by double-digit sales growth in water-related markets such as HVAC. The impact of the stronger U.S. dollar was most meaningful to this product line, with constant currency growth of just over 9%. Order trends remain steady, with water-related markets outperforming the array of industrial end markets served. As we look to Q4, we expect the rate of growth to moderate on more difficult year-over-year comparisons. We also want to remind everyone that due to holidays, there are about 5% fewer shipping days sequentially in the fourth quarter, and that the challenged operating environment persists. Turning to margins, as Ken noted, we were pleased with the operating earnings growth of 23% and operating margin improvement of 100 basis points year-over-year to 16.1% from 15.1% in the comparable quarter last year. Gross profit as a percent of sales in the third quarter was 38.9% in the middle of our normalized range. While favorable product mix trends continued, the impact of persistent and widespread inflation across various material components, logistics, labor, and other input costs remain challenging as we anticipated. Input cost escalation on components that were previously in tight supply are now becoming more visible in our cost structure, such as certain electronic components and battery materials. Copper pricing dynamics represent another example. In addition to the normal one-quarter lag in margin realization, our recycled brass input costs have not yet eased to the same extent as LME-quoted copper prices. Given the acute and dynamic nature of the inflation challenges, we continue our pricing rigor, integrating modifications in accordance with the value we deliver to customers. We remain committed to our normalized gross margin range, and we remain confident in our overall margin resiliency of our business model. SEA expenses in the third quarter were $33.7 million, an increase of approximately $2 million year-over-year, due primarily to higher personnel costs, research and development spend, and travel. As a percent of sales, SEA was 22.7%, a 200 basis point improvement from 24.7% in the comparable prior year quarter. As we have previously discussed, the SEA sales leverage inherent in our business model provides us with operating margin durability. The income tax provision in the third quarter of 2022 was 25.1%, compared to 18.3% in the comparable prior year quarter, which included a discrete tax benefit associated with equity compensation. Consolidated EPS was a record $0.61 in the third quarter of 2022, up 13% from $0.54 in the prior year comparable quarter. Year-over-year EPS growth was 22%, excluding the 4% EPS discrete benefit in the prior period tax rate. Free cash flow of $21.9 million was $8 million higher than the prior year's $13.9 million due to higher earnings and working capital timing between years. Working capital as a percent of sales was 23.8% at the end of the third quarter, which is consistent with the prior quarter end and down from 24.5% when we started the year. On a year-to-date basis, our free cash flow conversion of net earnings is now right around 100%, and we anticipate that we will meet or exceed our 100%+ goal as we finish out the year. With that, I'll turn the call back over to Ken. Thanks, Bob. Turning to slide five, I wanted to spend just a few minutes today on our industry-leading cellular communication technology.. You may recall back in early 2019, we announced the Columbia, South Carolina AMI win. While we normally don't announce specific wins, we did announce this one for a couple of reasons. First, to highlight the commercial success of our then newly launched LTE-M cellular endpoint, and second, to reinforce that mechanical metering technology has been and will continue to be an important choice for utilities. Last month, we celebrated the completion of that Columbia AMI deployment, which you can watch on the city's Facebook page with the link on this slide. The collaborative efforts of our team, the city, and other partners was evident in the demonstrated outcomes, including a reduction in truck rolls, improved customer service, rapid leak detection, and as the city described, it has changed the way we live as a utility. We routinely speak about our nearly decade of expertise with cellular AMI, including the flexibility, resiliency, and security of our infrastructure-free solution. Having a customer speak to how our solution is digitally transforming their operations to drive greater efficiency and sustainability through data insights truly validates our industry-leading differentiated solution. Turning to the current environment and outlook here on slide six, in summary, we are confident in our competitive position and the underlying drivers supporting our markets. With continuing strong order rates and a robust backlog, we remain confident that our exceptional customer support and winning portfolio of digital solutions will provide sustainable growth. Badger Meter is uniquely positioned with a full line of smart water offerings, including market-leading cellular communications, water quality monitoring, and tailorable software to enable customers to monitor, manage, and support operational efficiencies and sustainability throughout the water distribution system. We have differentiated our performance by mitigating the impacts of ongoing material cost increases, supply chain disruptions, and logistics availability in support of our customers. As we discussed last quarter, our business model remains resilient, especially in times of potential economic softening. Our replacement-driven demand, secular AMI drivers, and growing proportion of stable SaaS revenue are supportive of durable, multi-year growth against a backdrop of evolving economic conditions. We have ample capacity to execute our capital allocation priorities, which includes the recently announced increase of our annual dividend, as well as an attractive funnel of strategic growth investments. I want to again thank the Badger Meter team around the world for their efforts meeting the needs of our customers. With that, operator, please open the line for questions. Of course. As a reminder, if you'd like to ask a question today, please press star followed by one on your telephone keypad now. When preparing to ask your question, please ensure your headset is fully plugged in and unmuted locally. That's star followed by one on your telephone keypad. The first question today comes from Nathan Jones from Stifel. Nathan, please go ahead. Your line is open. Good morning, everyone. Hi, Nathan. I wanted to start off with a question around supply chain. I think you're calling the disruptions a bit more sporadic now. I'm just interested to hear kind of how much is that holding your production back? Like, if there were no supply chain challenges and you were able to produce X per quarter, are we at 90% of X, 80% of X, 99% of X? How much is that causing you a problem at the moment with just throughput? Yeah. As you can imagine, there's no easy answer to that question because whether from quarter to quarter, the disruption could be on one specific product line that wasn't an issue last quarter versus one that's in the backlog. What I would say is, you know, we're very proud of our growth. It would be difficult to continue to grow mid-teens to begin with. Right? We've got this great growth trajectory. We've got a strong backlog. Overall supply chain is getting better. It's easy for me to say. Our supply chain people are still fighting the battles. We're certainly, as I said last quarter and the quarter before that, we're in a better space now than we were before. It still has hampered some growth for sure. Okay. I guess second question. Volume tends to be fairly consistent from year to year for the industry as a whole. You guys have seen continued growth here, like sequentially since the second quarter of 2020. Sequentially just about every quarter's revenues just continue to go higher and higher. Can you talk about the, you know, the impact of mix, the impact of price to the extent that you're willing to disclose those kinds of things? Clearly that, you know, your average selling price is going up here with your more extensive products being the ones that are seeing higher growth. Yeah, I'll go first, and then I'm sure Bob will add in here. You know, we certainly are seeing growth in volumes. Now, if you break that into a couple different things, we always talk about the fact that the meter portion of the business is replacement driven, and those quantities are pretty static from year to year. They don't really increase or decrease. We are absolutely seeing really exciting volume growth when it comes to the cellular radios that we've talked about. Then, of course, the 100% attachment rate to software. We're seeing, you know, really strong, very durable software growth that comes along with the Orion cellular growth. We're excited about the activity and the growth we've seen in the water quality acquisitions that we've done. Year-over-year in flow instrumentation, we've done well also. I think from a volume point of view, you know, I think part of it has been that our portfolio is very strong and our execution is differentiated. I'm not sure how far Bob wants to go on price, but volume has been a really strong driver here, not just price. Yeah, I think, and again, when we think of price, obviously we do think about the tactical reactions to price cost, price cost dynamics, but largely we think of average sale price increase. While, let's say, in the metering portion of the portfolio, at least on the mechanical side, there might not be unit growth, there is an average sale price from the conversion to static metering. That we've called that structural mix for a long time. That structural mix is evident, but as Ken alluded to, it isn't just structural mix, it's also volume gain, primarily in the AMI category of products. Do you guys, I mean, you have a competitor that's having some more challenges than you have. Do you believe you're picking up market share here? Do you believe that market share is sustainable or transient? I would say on the AMI side, especially when we talk about the cellular leading solution and software, we absolutely are picking up market share, and it's totally durable and locked in. Okay. Thanks very much for taking my questions. Yeah, you're welcome. The next question comes from Connor Lynagh from Morgan Stanley. Connor, your line is open. Please go ahead. Yeah, thanks. I just wanted to put a bit of a finer point on some of the supply chain commentary. It sounds like things got a little bit better, but I guess what I'm trying to understand is the you know, pretty strong sequential growth that you saw. Was that more a result of supply chain easing? Was that more a result of underlying demand increasing? I know that's hard to answer, but just high level, how do you think about that? Yeah. I would. You know, I could answer it both, but I will say that a portion of it has been in some of the product lines that were, say, a little more growthy. We've had better supply chain than we had in previous quarters. Yeah. I would say specific to the sequential step change from Q2 to Q3, it would be more in the category of supply and availability improvement than it is demand. I think if you look longer term over the cycle, right, the six-quarter cycle we keep talking about, then it's more about demand step change improvement, obviously, with intermittent supply chain throughout that period. Okay. Got it. Then just thinking through sort of incremental margins, I mean, it would seem that you would generally be seeing a step up versus historical trend as supply chain continues to ease. But then again, maybe you've got a bit of positive mix. Maybe that's what you're alluding to there. Could you just help us think through the next few quarters here? You know, is there any big deviation we should think about in how, you know, profitable that incremental revenue is going to be? I would say historically, we've talked about incremental margins in that 20%-25% range. I don't think there's anything that changes that. That would be kind of how I would think about it. I'm saying that on a short-term basis, not on a long-term basis. Yeah. I think if you think just in terms of margin performance relative to that, you know, we're really focused on that normalized range. We've been really laser focused on that 38%-40% range, at least from a gross margin performance. On an incremental margin perspective, we're talking about that 20%-25% range. Right. Okay. Last one on supply chain. Just, you know, as things, you know, hopefully do continue to normalize, do you have a lot of working capital you want to pull out of the balance sheet, or you feel like it's at the right place given where demand is, you know, for the foreseeable future? I would start by saying I'm obviously really proud of the working capital performance that we've had here for several years. The past couple quarters certainly are showing that this year we're still strong. There's absolutely opportunity in inventory as and when supply chain normalizes. We certainly have opportunity to take things out. Yeah. I would say again, if you look at our working capital journey over time and you go back two, three years ago, we were running working capital as a percent of sales in the high 20s, you know, 28-29%, high 20s. We've obviously been able to stabilize that kind of mid- to low 20s. Right now we're running at 23.8%. I would say, you know, as if we're able to ever lap supply chain, you know, I think there's opportunities to improve that, but I don't ever see that going, you know, 20% or below. I think it's consistent with our continuous improvement philosophy, the ability to continue to lever there is an opportunity. Right now, as Ken alluded to, it's inventory that's on a broader scale, inventory would be the target. On a one-quarter scale, I would say AR would be the target. We've got a slightly elevated level relative to history that I think we'll recover here in the fourth quarter. All right. That's great, scholars. Thank you very much. I'll turn it back. The next question comes from Andrew Buscaglia from Berenberg. Andrew, your line is open. Please go ahead. Hey, good morning, guys. Hi, Andrew. You know, you talked a little bit about the dynamics around demand, price volume, and maybe some being able to meet demand, you know, this quarter. Generally like that mid-teen growth, you know, I think people are trying to gather how sustainable it is and obviously that's gonna level out. Maybe I wanted to hear a little bit more about what maybe your customers are saying and what and the types of orders and order activity you're seeing that maybe provide some insight into, you know, yeah, sustainability about kind of an above average growth rate for you guys. Maybe comment on, like, what you're seeing with the water infrastructure stimulus, how that will play into things over the next year. Sure. Yeah, yeah. I'll go first and then, you know, if Bob wants to add on, he will do so. Yeah, first of all, you know, the thing about the infrastructure bill, as we've talked about many times, that can be helpful for us. When you look at the macro drivers, particularly around AMI and real-time water quality monitoring, the macro drivers are there for those businesses with or without infrastructure. When we've been out at the ACE trade show in June, when we've been at WEFTEC here most recently, and we're talking with consultants and talking with customers, you know, the engineering pipeline, the upfront planning is still very resilient. Our bid funnel is as strong as it's ever been throughout the cycle. Obviously, our order rates, you can see, very clearly are extremely strong as we continue to ship in, you know, the mid-teens. I think this year we're up roughly 16% in utility, yet we keep booking more backlog. We're not hearing anything that looks like a slowdown. You know, in general, the utility world feels really strong. Okay. Yeah, I mean, the demand outlook looks positive. In the near term, you know, maybe Bob, you talked about a lot of nuances around these input costs, some getting better, some things not yet. Were you trying to say, like, I guess there's still room for improvement on that side of things? Or yeah, what were some of the specifics you mentioned there? Well, I think if you're generally speaking toward commodity pressures, right? What in the prepared remarks I think we're signaling is that, you know, while the whole world seemingly thinks inflation's easing, it's still real, and we're certainly seeing that on electronics and battery components and otherwise. The other comment we specifically made related to copper. As everyone knows, kind of copper at all-time highs in the earlier part of this year leveled out over the balance of second and third quarter. As we've typically signaled, that's about a one-period lag till we realize that benefit in our margins. There was not a whole pronounced effect to that in the third quarter. We would expect to start seeing that in the fourth quarter. However, you know, I would just point out that whereas if you just look at copper as a commodity-listed price change, it's down 25% from highs. Our purchased component is brass ingot, which is a recycled product, which hasn't seen that same level of price decline. So that's simply a signal that that benefit to copper will be smaller than maybe if you just looked at it on a piece of paper. A reminder that, of course, our exposure to copper here is not what it used to be, say, five years ago. Now that we're selling a broader array of Choice Matters products, now that we're selling more radios and communications, water quality software, et cetera, our exposure is lighter, but it is still an influence on what we're expecting moving forward. Okay. Does that help unpack the prepared comments? Yeah, very much. Yeah, you know, maybe just on the last, you know, something adding on that is you guys have done a great job with gross margins in probably the toughest period, you know, in recent history that you guys have faced, and that you got some interesting acquisitions rolling through that could be higher margin. When we come out on the other side of this, like I ask this question probably once a year, but why don't you hit the upper or above the high end of that band when things normalize of that, you know, 40% gross margin? Like, why is that not possible? You know, Andrew, with everything that's happening right now and just everything that we're seeing, it's just hard to, you know, obviously we have total confidence in our average sell price, average margin uplift story, our software growing as a percent of business. We absolutely have complete confidence in the fundamentals to improve margin. It's just right now with everything that we're seeing, it's difficult to talk more than, you know, what we're gonna see over in the next quarter or two. Yeah. The difficulty is predicting that point of when we're back to normal. At the same time, I would point out, and I think this is clear in the results, at least if you look to the last three quarters, we've long been talking about the ability to leverage SG&A as a percent of sales, and that has played out in spades the last three quarters. We would expect that ability to exist moving forward. It's not, I mean, I understand gross margin gets all the focus, but when you look at op margin and EBITDA margin improvements, it's two levers and one is producing now, and one has produced in the past and obviously we're looking to get them hitting on both cylinders at the same time. It's two levers, it's not just one. Yeah, adding to that a little bit. The SEA leverage is gonna be durable, you know, during that we can do now in an inflationary environment and we will continue to do that when the inflationary period stops, so. Yeah. Okay. So that's- All right. Thanks, Ken and Bob. Appreciate it. Yeah, you bet. The next question comes from Rob Mason of Baird. Rob, please go ahead. Your line is open. Yes, good morning. Yeah, my question. Hey, Rob. Good morning, Ken, Bob. My question was around capacity expansions. I know that was a topic that Bob, I think you briefly broached last quarter, that it was, you know, maybe being considered in the future, just given the strength of the order pipeline as you continue to see it. I don't know if there's any update there that you can provide, but I'm also just curious, how long does it typically take Badger to add capacity, you know, of the type you might be contemplating in that scenario? A couple of quick reactions. Yeah, last quarter, we did signal we're thinking about capacity more. You're exactly right. In large part, that's been a function of our success. Not only the demand environment, the bid funnel, but what we expect moving forward. Quite frankly, our aspirations, not just here at home in the North American market, but certainly in the rest of the world. That comment was largely to signal a modestly higher level of CapEx, not to necessarily signal the development of greenfield spaces or the creation of new facilities. Here's the fundamental answer to your question. Our maintenance, OpEx, CapEx hasn't changed. We will continue to invest in expanding capacity, but think of that as more throughput optimization, eliminating bottlenecks in production, whether that's testing capacity versus production capacity. The comment is not necessarily about developing brand new greenfield space. To your earlier question then, the impact is relatively immediate with those investments. This isn't a two-year, three-year, four-year journey. These are inside existing four wall type improvements that simply come with a higher degree of CapEx than where we've been running. A specific example would be back, Rob, in 2020 when, you know, when we had COVID going on and people weren't working, but we still had strong demand for our cellular offering, or when we saw supply chain disruptions on the electronics and we couldn't deliver, in the early stages of supply chain. We made an investment in 2020 to upgrade our cellular capacity by 50% at that time, and that's been a huge driver. This is one example of what we're talking about here is, it costs a little bit, but we certainly have a handle of what we need to do and get really near-term benefit from it. Okay. Okay, that's very helpful. Ken, you mentioned earlier just clearly the macro drivers around your business firmly in place, and I think water conservation has always been a secular driver within that. I'm curious, just specific to that particular area around conservation, if you're seeing anything in your utility customers, you know, where they're taking on a higher urgency around compliance, if there's anything you're detecting in your bid conversations or even, you know, I guess regional demand patterns that would suggest that. You know, if that's the case, how would you position Badger relative to competitors in terms of ability to respond to that with your offering? Yeah. First off, on the AMI side, we've traditionally talked about non-revenue water, and that obviously is a big driver for AMI in our space. Now, you also hear people refer to things such as unaccounted for water. If you're in an area that's more water stressed, you know, you worry about losing it all, whether you're getting paid or not, right? You got to have it. Conservation is a big deal. AMI helps with that. You know, just in terms of whether it's ESG and how much you're doing in greenhouse gas emissions. If you look at the Columbia project we talked about on the website, their truck rolls are reduced dramatically. It saves on manpower. It saves on, you know, driving all over the city to try to do things. Our cellular AMI offering, as well as our online water quality monitoring, is square in the center of what people are trying to do within utilities for conservation. We are, again, certainly the leader on the cellular side of AMI with a very long head start. Again, just around the urgency, is there, you know, a distinction to be made there that cellular could perhaps be deployed more quickly to address that than, you know, other networks, other types of networks? Well, yeah, absolutely. From a cellular point of view, if you wanted to monitor the larger users in your city commercial, we could ship you radios, now, and you could hook them up today, and you could be monitoring them tomorrow. Nobody's gonna do that with a fixed network. Nobody's gonna do that with any other option other than our cellular offering. It's very quick, and you can do specific things right away. You can deploy a city so much faster because you don't have to wait a year to build out a fixed network. It's absolutely the most efficient way to get benefit from your AMI solution, bar none. Yeah. Okay. Okay, very good. Thank you. You're welcome. The next question comes from Tate Sullivan of Maxim Group. Tate, your line is open. Please go ahead. Hi. Thank you. Good morning. I think I'll start on your comments on SG&A leverage. I think in the past, you talked about SG&A as a percent of revenue of about 25%-26%. Also, I think you're hiring people based on your general presentation on your website. Can you talk about, I mean, do you have a current, a new target for SG&A leverage given, and are you indeed continuing to hire people, please? Yeah. The 25-26 comment was made, I would argue 18-24 months ago, post-acquisition. Just as we were doing the s::can and ATi acquisitions, we've signaled consistently our ability to lever that. Yes, you're exactly right. We're continuing to invest in the business, so this isn't a financial maneuvering to choke SEA to produce a result. We're still investing in people, we're investing in products, we're investing in R&D. That is what has gotten us to where we are today. While remaining steadfast in that investment, we've simply been able to lever that SEA, meaning grow sales at a rate faster than SEA. We've ran the last three or four quarters in the 22%-23% range. While we won't guide certainly, you know, I think what you've seen in the recent past is a relative degree of where we're at. Okay. Great. Thanks. Also on the international markets, just if you can comment, I think you sort of point out potentially targeting UK and Middle East with markets that combine both smart meter and industrial applications. Can you talk about what countries have what types of infrastructure when they have both the smart water and industrial applications, or what differentiates UK and the Middle East, please, in terms of expansion? Yeah. UK, Middle East, and there are some other markets as well, but there are certainly markets in the world that have the same problems that we solve here, you know, in North America. They have characteristics where they're looking for the best technology at reasonable prices. Those are the markets that we find to be the best, obviously, for us to work in. The U.K. being one of those really good, strong market, invests, easy to do business in. Middle East also, you know, investing heavily in smart water and looking to do the best solutions. There are certainly pockets of Europe that fall into that space. We have definitely not changed our, you know, our desire to do more in international. We're balancing that at the same time, though, of taking advantage of being the leader in the best smart water market in the world already, so. Okay. Great. Thank you very much. Sure. As a reminder, if you'd like to ask a question, that's star followed by one on your telephone keypad. As we have no further questions, I'll hand back to Karen for concluding remarks. Great. Thank you, operator. One final item to mention. Today, we published within the investor section of our website a supplement to last year's report by our board of directors addressing the topic of board diversity. That supplement outlines the further progress Badger Meter has made during the past year on our diversity journey. I encourage you to read that report, and please feel free to reach out to me with any questions or comments. Thanks for joining our call today. For your planning purposes, our year-end 2022 call is tentatively scheduled for January twenty-seventh. I'll be around all day to take any follow-up questions you have. Have a great day. This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.