Ken: So, Dan, any other color if you'd like?
Dan Weltzien: Yeah, I think you hit on the two relevant points here. And there really are two things that we're managing through right now. It is a cost component dynamic that we're dealing with, but then also availability. And so, as Ken mentioned, we're managing through both.
James Ko: Thank you both.
Operator: Your next question comes from the line of James Ko with Jefferies. Your line is now open. Please go ahead.
James Ko: Good morning. Thanks for taking questions here. I wanted to touch on the awarded project kind of ramp-up timeline. I mean, 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 like nine kind of awarded projects that you guys shared?
Bob: Yeah, so that's a lot to unpack because just like every acquisition is different, every AMI project is different. But absolutely, you pace from this arrangement of there's nothing in the base and then initial implementation begins. So product shipments in a supply only case begin or even in a turnkey solution. and then that is married up with the installation activity. So 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. But I think that 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 that other side of the curve begins to decline, but trying to pinpoint precisely an average project is a very difficult thing to do in this in this industry.
James Ko: Thanks for the caller. And I think you guys talked about other opportunities outside of these nine award projects. Can you provide more color on opportunities outside of those award projects that you guys shared?
Bob: Yeah, 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. And 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. So 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 have disclosed like that. And 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. But 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.
Operator: Your next question comes from Nathan Jones with Stiefel. Your line is open. Please go ahead.
Nathan Jones: Good morning, everyone. 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, but 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 kind of a full run rate as we get into 2027? You should continue to see that sequential improvement as we get into early next year just from those specific projects.
Ken: Yeah, so the one thing that, as Bob pointed out, it's hard to, you know, compare one project to another and what a ramp rate looks like and how long it goes for. But 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. But, you know, 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. So the main thing to think about that that makes us feel good about 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 then is going to be on price and costs. You talked about increasing electronics costs. I know copper has become a bit less important over the years, but it has increased significantly. So transportation costs and all 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? And then 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.
Dan Weltzien: Yeah, so 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. And 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 Thank you for joining us. 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. So 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.
Operator: Your next question comes from the line of Bobby Zolper with Raymond James. Your line is open. Please go ahead.
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.
Ken: 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 yeah so uh yeah so Bobby it's just you know a continued balanced approach to our capital allocation priorities so you know 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 and for three consecutive quarters. We've been buying shares. We still have $90 million left on the authorization. So that's obviously something we've been doing recently. And we still are every bit as excited about M&A as we were. So nothing has really changed from when we saw you in May.
Dan Weltzien: and Bobby, I'll just add the renewal of that credit facility was largely driven by the fact that that was due to expire in July of this year. So, you know, we enjoy having that financial flexibility of having that that facility in place.
Bobby Zolper: All right. I appreciate it. Thank you. And then if in terms of swing factors to get to Fladish for the year, I know there's this letter floating around about the PROSA 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 PROSA project hitting your expectations for the year?
Ken: Yeah, so Bobby, the normal disclaimer of we don't talk about legal issues and things publicly, but nothing has changed on our view on the PROSA project. Thank you for having me.
Bob: All right, I appreciate it. Thank you.
Operator: Your next question comes from the line of Andrew Krill with Deutsche Bank. Your line is now open. Please go ahead.
Andrew Krill: Hi, thanks. Good morning, everyone. Ken, I think in the prepared remarks, you noted 4Q organic sales would have heavily weighted the growth of the, heavily weighted to that quarter. So for 3Q, you know, can you grow organically or is there a chance sales are still down year over year on that tough comp thing?
Ken: So 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, you know, pointing out of the fact that the obviously the comp in Q4 is easier than the comp in Q3. So just wanted to point out that the growth rate will be more heavily skewed to four than three.
Andrew Krill: Fair enough. And then flow instrumentation, I didn't get a ton of airtime, but the growth there, very impressive and pretty sudden. So just could you unpack, you know, what drove that? Is this sustainable or was it more, you know, one time large order? I think that can happen here. You know, so can we extrapolate that looking forward or does this revert back to the kind of low single digit area that product line tends to grow at? Thanks.
Ken: Thank you so much for having me. It's not a big percentage of Badger Meter revenue, but 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. So Thank you. Your next call comes from the Lions.
Operator: of Scott Graham with Seaport. Your line is now open. Please go ahead.
Scott Graham: Hey, good morning. Nice that there was a pause there. Maybe that she meant to put a drum roll. I don't know. So all things, you know, aside from the other questions, which were all good ones, the UD Live lost Are you saying that it includes transactions? So you're saying intangibles are $5 million for the year, so $1.25 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 losses made up by these transaction costs is that, in other words, is the $3 million that you referred to inclusive of the $1.25, or is that separate?
Dan Weltzien: Yeah, so 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 UD Live. And 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. So 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 I know you guys have a lot of things going on in digital, and the use of consultants, it may be just not clear what you were trying to say there.
Bob: Yeah, so I mean 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. And so 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. And so 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. And through those discussions, the combination of Thank you for joining us. Your leadership in cellular, which started as a differentiated form of AMI, has evolved now into NAS 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. And so 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, NAS capabilities, and that's become the industry standard. And 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: That's very helpful. Thanks, Bob.
Operator: Your next question comes from the line of Ryan Connors with North Coast Research. Your line is now open. Please go ahead.
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 and many more.
Ken: Very much desire. So 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: I think that's a reinforcement of our longstanding choice matters approach to our Blue Edge portfolio and that 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 Thank you for joining us.
Ryan Connors: 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? And 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: Well, what I would tell you about that is if you look at, we'll just start with the question that you just asked. So a very large portion of the market still by choice chooses mechanical. So 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 products, Strong, great competitors like us, Census, 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. So 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. Sure.
Operator: Your next question comes from the line of Michael Fairbanks with J.P. Morgan. Your line is now open. Please go ahead.
Michael Fairbanks: Hey, just on the electronic component pressures, can you clarify what these subcomponents exactly are and then maybe what products in the portfolio this would affect? Thank you.
Ken: Yeah, so Michael, it's really a broad-based thing, so As you can imagine, it's the electronics industry in total. So 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. So it's kind of across the way. Memory chips, obviously, are a big part of AI and hyperscaling. So it's kind of a general macroeconomic comment that us and everyone else out there is going to be dealing with.
Bob: And then tying to specific products, it's obviously without, you know, 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. So it's Orion Cellular, it's ultrasonic products, it's beyond the meter technologies. But 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: Yeah, and one of the things that frankly in our industry positions us better than everybody else is the fact that last time this bared 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. And then 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, and a couple things to point out there. Number one, when we acquired UD Live, it came along with some inventory, so that contributes to the increase there, and obviously there's no sales in the trailing 12 months, so that's going to and many more. 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. So 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 gonna help that percentage to normalize as well. So those are all factors, I think, to what we're seeing right now.
Michael Fairbanks: Thank you.
Operator: We have now reached the end of the Q&A session. I will now turn the call back over to Dan Weltzien for closing remarks.
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 at badgermeter.com. Have a great day.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.
