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DATE
Tuesday, July 22, 2025 at 11 a.m. ET
CALL PARTICIPANTS
Chairman, President, and Chief Executive Officer — Kenneth C. Bockhorst
Senior Vice President and Chief Financial Officer — Robert A. Wrocklage
Vice President, Investor Relations and Corporate Strategy — Barbara J. Novarini
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TAKEAWAYS
Total Sales: Total sales were $238 million in Q2 2025, representing a 10% increase compared to the prior year. Sales rose 5% year over year when excluding the SmartCover acquisition.
SmartCover Contribution: SmartCover contributed just over $10 million in sales during Q2 2025.
Operating Earnings: Operating earnings rose 8% year over year to $44.9 million.
Operating Margin: Operating margin decreased 40 basis points to 18.8% in Q2 2025, compared to 19.2% in Q2 2024.
Gross Margin: Gross margin rose 170 basis points to 41.1% in Q2 2025, up from 39.4% in Q2 2024; It sequentially declined from 42.9% in Q1 2025 to 41.1% in Q2 2025, due to nonrecurring product mix benefits.
Adjusted Gross Margin Guidance: Management maintained the normalized gross margin range at 38%-40%, citing tariff and commodity cost uncertainty.
SG&A/SEA Expenses: SG&A/SEA expenses were $52.9 million, up $9.1 million year over year, including $1.6 million in intangible asset amortization from SmartCover. The remainder was mainly due to higher personnel costs and $1 million in unique deferred compensation tied to stock price movement.
Income Tax Provision: The income tax provision was 24.5% in 2025, compared to 23.8% the previous year.
EPS: Consolidated EPS was $1.17, compared to $1.12 in the prior year quarter.
Primary Working Capital: Primary working capital was 21.8% of sales in Q2 2025, consistent with the prior quarter end and 200 basis points lower than a year ago.
Free Cash Flow: Free cash flow grew 19% year over year to $40 million in Q2 2025, primarily due to higher earnings and improved working capital management.
Product Line Dynamics: Sales of Meter, Beacon SaaS, water quality, and remote monitoring products increased in Q2 2025, while flow instrumentation was flat year over year, as growth in water-related end markets was offset by declines in deemphasized applications.
Outlook on Sales: Management stated, "We expect absolute sales to decline sequentially in Q3 2025."
SmartCover Strategic Progress: Management reported on-track integration and continued pursuit of anticipated sales and cost synergies.
BlueEdge Platform: Badger Meter highlighted traction in its BlueEdge water management suite, noting customer interest and expanded offerings such as the new field app and Cobalt machine learning insights. Management cited "meaningful momentum" and customer enthusiasm as of Q2 2025.
Tariff and Commodity Exposure: Ongoing trade uncertainty, particularly regarding tariffs and copper prices, was said to potentially affect future cost structure, though management believes mitigation efforts and industry dynamics keep exposures broadly level.
SUMMARY
Badger Meter, Inc. (BMI -16.48%) delivered record quarterly sales in Q2 2025. It also maintained gross margins above its target range, supported by higher demand across core product categories and contributions from the SmartCover acquisition. Management expects sequential sales to decline in Q3 2025 due to AMI project timing, although year-over-year sales growth excluding SmartCover is still anticipated. The company maintained its long-term outlook for high single-digit revenue growth, and underlined progress integrating SmartCover and expanding the BlueEdge solutions portfolio, while emphasizing fluidity in tariff and commodity costs as a moderating factor for future margin expectations.
Chief Financial Officer Robert A. Wrocklage said, "Recently implemented price increases partially mitigated certain tariff-related cost pressures in Q2 2025," but cited ongoing uncertainty for cost recovery moving forward.
Commercialization synergies were prioritized for revenue growth.
Badger Meter cited robust utility project pipelines and customer demand, noting, "Our funnel remains as robust as ever," suggesting stable end-market fundamentals despite lumpiness in project rollouts.
The company highlighted that it exceeded its 2024 greenhouse gas intensity reduction targets, as disclosed in its 2024 sustainability report, aligning sustainability progress with record financial results.
INDUSTRY GLOSSARY
BlueEdge: Badger Meter’s unified suite of hardware, software, and analytics solutions designed to manage water and wastewater systems beyond basic metering.
Beacon SaaS: Subscription-based advanced metering analytics platform offered by Badger Meter, enabling utilities to monitor and manage water usage through cloud-hosted services.
AMI (Advanced Metering Infrastructure): Technology system that enables automated, remote measurement and communication of utility meter data for water utilities and customers.
SG&A/SEA Expenses: Selling, General & Administrative expenses (SEA is equivalent, per company disclosure) represent overhead and personnel costs not directly tied to production.
Full Conference Call Transcript
Ken Bockhorst: Thanks, Barb. Welcome to our second quarter 2025 earnings call. I'm pleased to report another quarter of record sales and solid financial results that demonstrated disciplined execution and the durability of the drivers that support technology adoption across the water industry. Against difficult comps in the prior year quarter, sales grew 10% year over year, or 5% excluding the Smart Cover acquisition. Despite trade-related cost headwinds, gross margins continued to trend above our normalized range of 38% to 40%, and we generated robust free cash flow in the quarter. Halfway through the year, I remain encouraged by the resilience of our business as we face ongoing macroeconomic trade and policy uncertainty.
Our proven history of differentiated operational execution combined with ongoing customer demand and momentum and technology adoption trends positions us to successfully navigate this near-term uncertainty while supporting the long-term goals of our customers. Bob will review the details of the quarter, then I'll be back to provide some thoughts on Blue Edge and our outlook. Go ahead, Bob.
Bob Wrocklage: Ken, and good morning, everyone. Turning to Slide three. Total sales of $238 million in 2025 represented an increase of 10% year over year, or 5% sales growth when excluding just over $10 million in sales from SmartCover in its 11% year over year, or 6% excluding Smart Cover. As expected, moderating core sales growth from recent double-digit levels was primarily a function of the difficult second quarter sales comparison, which was the high watermark for the prior year. In the quarter, we delivered higher sales of meters, Beacon Software as a Service, water quality, and remote monitoring solutions.
Sales for the flow instrumentation product line were essentially flat year over year, as lower demand in the deemphasized array of market applications offset modest growth in water-related end markets. Turning to profitability, operating earnings increased 8% year over year to $44.9 million, with operating margins down 40 basis points to 18.8% from the prior year's 19.2%. The structural mix benefit of technology adoption by our customers continues to benefit gross margins, which expanded 170 basis points to 41.1% in the second quarter from 39.4% in the prior year quarter.
As expected, this did represent a sequential decline from 42.9% in the first quarter of the year, which you'll recall was the result of favorable customer and product mix that quarter that did not repeat this quarter. Gross margin in 2025 also continued to benefit from ongoing operational excellence initiatives, while recently implemented price increases partially mitigated certain tariff-related cost pressures in the quarter. Year to date, we have adeptly managed the controllable aspects of the known tariff landscape. However, the trade environment remains fluid. As an example, copper prices recently spiked on copper-specific tariff concerns. Although we primarily use recycled brass in our ingot recipe, secondary markets like these do experience ripple effects when the primary commodity is impacted.
Last quarter, we walked you through the manufacturing and supply chain footprints supporting our US sales, along with the tariff-related exposures and mitigation efforts. While announced and rumored tariff rates by country and commodity continue to evolve, our underlying tariff-related exposures and mitigation actions remain the same. Most importantly, we continue to see the competitive playing field as level in terms of both exposures and planned mitigation actions, including any potential targeted pricing actions. That said, the ongoing trade uncertainty and lag impact of mitigation actions once again prompts us to leave our normalized gross margin range of 38% to 40% unchanged for now, despite another quarter of gross margin performance above 40%.
SEA expenses in the second quarter were $52.9 million, an increase of approximately $9.1 million year over year, due primarily to the addition of SmartCover, including $1.6 million of intangible asset amortization. Excluding the acquisition, SEA expenses increased $3.3 million, the result of higher personnel costs to support growth and approximately $1 million of deferred compensation expense resulting from the year-over-year change in stock price that is unique to this quarter. The income tax provision in 2025 was 24.5%, modestly above the prior year's 23.8%. Consolidated EPS was $1.17, versus $1.12 in the prior year quarter.
Primary working capital as a percent of sales at June 30, 2025, was 21.8%, consistent with the prior quarter end, and about 200 basis points better than a year ago. Free cash flow increased 19% year over year to $40 million, largely due to higher earnings and working capital differential between years. With that, I'll turn the call back over to Ken.
Ken Bockhorst: Thanks, Bob. Next, I'd like to talk about the progress we've made since the launch of BlueEdge last year. As a reminder, BlueEdge is the brand that unifies the comprehensive suite of products and solutions that enable our customers to manage their water and wastewater systems beyond the meter. In June, our booth at the ACE trade show in Denver, our industry's biggest event of the year, highlighted the various use cases of our extensible solution and included SmartCover for the first time. We also featured our new field app, which brings the power of our Beacon software to utility field personnel, and we introduced Cobalt, which leverages machine learning for advanced insights within our PJ platform.
Our booth was a physical representation of our evolution beyond the meter. Today, our Blue Edge portfolio of water management solutions provides tremendous value to customers, and it was exciting to see the energy in our booth as well as the enthusiasm that both long-standing and soon-to-be new customers have for our solutions. While it's only been a year since we've launched this concept, we've already seen meaningful momentum in our efforts to inform utilities of the advantages of our Blue Edge solutions. Furthermore, we've elevated our already strong reputation as a trusted partner. A long-term relationship with us means that we'll be there to enable our customers as they evolve and plan for the future.
We're seeing increasing numbers of RFPs that ask for solutions beyond the meter, and our offering elevates our standing in the bid process while providing tangible reasons for us to continue our partnership with customers post-sale, even after their AMI projects are complete. In summary, I'm very pleased with the strong start to this evolving aspect of our long-term strategy. Finally, turning to the outlook, we routinely highlight that our business can be uneven quarter to quarter and year to year. It is simply the nature of the business given utility replacement cycles, project deployment schedules, project phase-in, phase-outs, etcetera. The difficult second quarter comparison from a year ago that Bob discussed earlier is just one example of that phenomenon.
Another example is that we did have a number of AMI projects wrap up in the second quarter. While we already have new AMI projects in hand to replace them, the timing of the start of those projects is such that we expect absolute sales to decline sequentially in the third quarter of 2025. Despite the moderation in sales, we still expect sales growth year over year excluding SmartCover. Nevertheless, despite the macroeconomic trade and policy uncertainty we've experienced year to date, the multiple long-term secular trends fueling growth where we are positioned in the water industry remain strong. Our core products and solutions are critical to the operations of the water utility, commercial, and industrial customers.
As a reminder, the meter is the cash register of the utility and remains a priority for our investment. Thus, our ongoing conviction in high single-digit revenue growth in the long term is underpinned by these enduring favorable industry fundamentals along with customer order and demand trends, project awards, pending and future RFP activity, and the competitive positioning of our broad portfolio of solutions to best address water challenges. We continue to generate strong cash flow and retain a balance sheet with significant financial flexibility to withstand macroeconomic pressure while pursuing both organic and strategically relevant inorganic investments, all while paying a dividend that has grown in line with earnings for over three decades.
After nearly six months of integration, we remain on track to deliver the anticipated sales and cost synergies associated with the Smart Cover acquisition. We made tangible progress in leveraging Badger Meter resources across SmartCover's business and continue to identify go-to-market opportunities for SmartCover as part of our BlueEdge suite of solutions. Finally, I'd like to call out our recently published 2024 sustainability report. I'm proud that the collective efforts of our team allowed us to exceed and raise our targets for greenhouse gas intensity reduction while also delivering record 2024 financial results. Our continuous improvement philosophy towards sustainability efforts continues to produce favorable outcomes, as it has across the entire business.
In summary, we're carefully managing through uncertainty in the broader environment by focusing on what we can control in the near term while diligently executing against the long-term strategic plan that we're confident will continue to create value for both our customers and our shareholders. With that, operator, please open the line for questions.
Operator: Thank you. And ensure your devices are muted locally when it's your turn to speak. If you change your mind or your question has already been answered, you can withdraw your question by pressing star followed by the number two. Our first question today comes from Nathan Jones with Stifel. Please go ahead. Your line is open.
Nathan Jones: Morning, everyone.
Ken Bockhorst: Morning, Nathan. I guess,
Nathan Jones: I guess my question is gonna be on the SG&A expense line.
Bob Wrocklage: Just looking at it sequentially, it's kind of gone up about $7 million, which was, I think, more than people were looking for. You've got an extra quarter of Smart Cover in there and that one-time deferred comp number in that. Can you talk about the other investments that have been made there to support future growth? I guess, and excluding the million-dollar write-up of deferred comp, is this kind of $52 million a new level of SG&A that we should be expecting going forward?
Ken Bockhorst: Yeah. Well, I think you picked up on, I think,
Bob Wrocklage: two main pieces that are relevant to the quarter, Nathan. Certainly, yes. A full three months of SmartCover's SEA run rate, which of course, we mentioned that acquisition is above line average organically. And then when you add the intangible amortization to that, which, again, we've sized for the year and the quarter, that's certainly an element of that uptick sequentially. You've also picked up on the very unique item to the quarter, that being the deferred comp expense to the tune of about a million bucks.
So absent, you know, those items, essentially, SEA growth year over year is up 2 to $3 million, and it's ongoing investment to support the wonderful things that we're doing in the marketplace in terms of continuing to evolve our software offering to keep it leading, best in class. Continue to bring innovative, product development to market that differentiates not only our meter to cash products, but our around, the meter technologies and continue to drive adoption of those technologies, remain very early stage. In terms of US and North American water utility adoption.
Bob Wrocklage: And so, yeah, I mean, those are those are pieces of it. Obviously, we don't guide, but you
Ken Bockhorst: picked up on the outliers that would help to inform your outlook moving forward.
Nathan Jones: I guess the 1.6 million of intangible amortization, is any of that like, inventory step up or something that goes away, or is that what you're expecting the continuing level of amortization to be?
Bob Wrocklage: Yeah. That is entirely the intangible asset amortization. The inventory step up, that was a small amount in association with the acquisition. Passed out in the first quarter. So, essentially, that's the continuing run rate for the life of those varying lived intangibles that we disclose in the financials.
Nathan Jones: Okay. So there's no reason to expect it to be less than $52 million in the SG&A line going forward?
Bob Wrocklage: Yeah. We'll leave that to you to figure out. But, ultimately, you've picked up on the two unique pieces.
Nathan Jones: Yep. Enough. I guess then maybe you could provide a little bit more color. I mean, ran through a few other things there, Bob. But just on what kind of capabilities, let's not call them expenses, we call them capabilities, have been added to the business to support future growth.
Ken Bockhorst: Yeah. So, Nathan, as you know, you reflect on the past five years, it's probably not fair to think about it because Q2 2020 was the COVID quarter, but we're up a 165% revenue over that five-year period. So some of it's just the random things of continuing to increase capacity on some of the product lines that we continue to invest in. Some of it is investing in, of course, people as we go through our five-year strategic plans every year, and we look forward on what the new skills and new offerings are we're gonna have sometimes that drives investing in different kinds of skills that we currently have today.
Continuing to invest in our software business that we're totally excited about. So all the things that we've told you over the years that we're investing in to grow just a matter of continuing to do that. And, frankly, we still feel taking the SmartCover piece aside, our ability to grow at a rate faster than our investment in SEA is still intact.
Bob Wrocklage: Guess the key there is that there's nothing unique about the rate of investment in this quarter. That is anything different than what we've been doing for the last four or five years in terms of our primary cash capital allocation priority of organic investment in the business. It's just the way I think it's sequencing on a year-over-year basis and in with those two unique items that you mentioned to start your question.
Nathan Jones: K. Thanks very much for taking my questions.
Operator: Next question comes from Scott Graham with Seaport Research Partners. Please go ahead.
Scott Graham: Yes. Hi. Good morning. I have a similar question to Nathan. Just want to maybe come at it a little bit differently. You were, I thought, pretty clear in your bullet points here on the SEA that the $1.6 million stays but the $1 million of variable deferred comp is unique to the quarter.
Bob Wrocklage: So am I
Ken Bockhorst: to infer that means that goes away?
Scott Graham: Next quarter?
Bob Wrocklage: Not in its entirety, but when you experience a quarter where the stock price goes up over $50 from beginning to end and you have liabilities associated that track that, there's going to be an oversized impact that is absolutely unique to the second quarter.
Scott Graham: Understood. Got it. That's clear. Thank you. But one other question, though, around this, Bob. You also
Scott Graham: I think, indicated that if you strip those out, there was a $3 million core increase. Now if my calculations are right here, that $3 million core
Operator: increase
Scott Graham: on a year-over-year basis is about the same as your sales number.
Ken Bockhorst: Sales increase in total, which would suggest
Scott Graham: that maybe there was a little bit more because you typically get leverage off of that line.
Bob Wrocklage: Would suggest maybe
Ken Bockhorst: a little bit more investment in this quarter.
Scott Graham: Although you just said that was not the case. So maybe you can connect those dots for me.
Bob Wrocklage: So I think the simplest way to say this is that we're comparing to a quarter of SCA as a percent of sales at 20.2% which is abnormally low, stripping out all the noise in the quarter. So in essence, stripping out SmartCover for all intents and purposes, we'd have been at 20.7%. So, yes, there is a 50 basis point increase but that is no in any no in any way different than where we've been historically or on a in recent quarters. And as still indicative of our ability to leverage SEA over time. Just not quarter to quarter.
Scott Graham: Yeah. I mean I mean, we Thank you for that clarity. Have done Yeah.
Ken Bockhorst: Okay. So then let me just
Scott Graham: ask this one last question, if I may. The third bullet point says that strategic price increases mitigated
Ken Bockhorst: certain
Scott Graham: tariff impacts. Which suggest to me that you were maybe price cost negative in the quarter. And then if that's the correct assumption, should you essentially be price cost neutral for the rest of the year?
Bob Wrocklage: So I think you're picking up on the right dynamic. Certainly, our book of business here varies in terms of go to market. Sometimes we're direct. Other times, we're through distribution. Sometimes we have PO to PO pricing. Other times, we have long-term contracts. Right? The pricing actions implemented in the quarter were implemented in call it, mid-April. And by default, they won't be effective on everything that we shipped in the quarter. To the extent tariff cost pressures remained static, which I don't think anyone is saying those to be the case. You're exactly right in your diagnosis of how we've characterized the second quarter results.
I think what remains to be seen and the main reason why we're not redrawing a gross margin line or normalized gross margin range in this quarter despite, again, once again having 41.1% gross margins is the uncertainty associated with tariff costs. So the last part of your question is difficult to answer, not knowing exactly what the forthcoming reciprocal tariff impacts are, as well as then, the tariff around copper, which at this time is just a rumored statement, nothing that's been firmly implemented. And so that's the overall hesitancy to tell you that we're gonna be cost neutral moving forward because the cost side can change while, equally, the price side can change as well.
Scott Graham: Thanks very much.
Operator: Our next question comes from Andrew Crow with Deutsche Bank. Please go ahead.
Andrew Crow: Hi. Thanks. Good morning, everyone. Wanted to follow-up on the comments about the AMI project. In the funnel and it being a little unclear, you know, when they might start. So just is this, like, a change where they've been deferred or pushed out a little bit, or is this more normal course of business? And could you maybe also just generally, comment on, like, uni activity in general? Because I think there's been some fears maybe of, like, a little bit of softness there. Thanks.
Ken Bockhorst: Yeah. So, Andrew, yeah. So as we talk about all the time in this business, it can be uneven. From quarter to quarter. So
Andrew Crow: we're just
Ken Bockhorst: basically letting you know it's not a stacked bar where you add one quarter to the next, and it can be the same. So just trying to be transparent here that you know, some projects have rolled off, but we certainly are excited about the project that we'll be rolling out. Our funnel remains as robust as ever. So not a concern for the long term in any way. It change our view on high single digits through the cycle. Just pointing out that, you know, it we still expect to grow next quarter and into the future, but it's just not a stack bar from sequential.
In terms of total, just market demand, you know, like we always have, we continue to spend a lot of time talking to customers in several pieces of the cycle on who's working with consulting firms on AMI projects that we'll see three to five years, how we're doing on RFPs that are currently in motion, things that are that are currently being rolled out, orders, backlog, we're every bit as bullish as we've ever been. So customer demand side, in terms of people inquiring about new projects or moving forward with projects remains largely unchanged.
Andrew Crow: Okay. Great. That's very helpful. And then a quick clarification on the comments about sales being down quarter over quarter into 3Q. Just was that a total sales comment or more core sales? So in other words, like, kinda strip out Smart Cover and your
Ken Bockhorst: core dollars are down as well.
Andrew Crow: Thanks.
Ken Bockhorst: Yeah, Andrew. That's a core comment.
Bob Wrocklage: Yeah. So the script specifically clarified excluding SmartCover. So, essentially, core growth within, obviously, the noncomparability of SmartCover and Q3 2025 not being in Q3 2024.
Andrew Crow: Okay. Great. Thanks, guys.
Operator: Thank you. Our next question comes from Rob Mason with Baird. Please go ahead.
Rob Mason: Yes, good morning.
Ken Bockhorst: Ken, Bob. Maybe I'll just pick up real quick around Smart Cover.
Bob Wrocklage: So the sales in the quarter look like they were and this is, I guess, you know, the first full quarter we're seeing of Smart Cover. Above the run rate of sales that
Ken Bockhorst: they, reported last, calendar year. So I'm just curious, is that reflective of seasonality in the business? Is that kind of underlying organic growth?
Rob Mason: Just how we should be thinking about
Ken Bockhorst: $10 million contribution this quarter anyway of SmartCover sales and you know, how the you know, maybe quarter to quarter pattern should look there.
Operator: Yeah. So
Ken Bockhorst: so I'm I'll make a general comment, and I see Bob wanted to jump into. So let me just talk in general about how excited we are about the Smart Cover acquisition. So we've we've had it about five months now. I mentioned the, the reaction that we had at age. A lot of the feedback that we're getting within the market. So getting a lot of positive momentum from both market and just through the integration that we've had thus far. I think it we couldn't be more pleased with the results that we've had thus far in the team that's onboard. So feel great about the long-term fundamentals there. I think Bob was gonna make a point sales.
I'll turn it to him, but I just wanted to be clear that everything that we think that we've everything that we thought we knew about SmartCover has proven to be true very early on.
Bob Wrocklage: Yeah. I mean, you've you hit the main point, which is, of course, I know everybody's immediate concern is quarter to quarter, but our long-term growth outlook for Smart Cover is multiyear, if not multi-decade, again, referencing back to you know, the sewer line monitoring portion of this business is virtually greenfield with very low digital adoption. In the, less than one half of 1%. So essentially, we believe not only in the revenue growth in the short term, but the long term.
I would say there's this has little to do with seasonality and entirely to do with advancing our positioning as a leader in the market and helping you helping utilities, solve primarily four main use cases in what generally tends to be out of sight, out of mind, in fact, underground infrastructure that is blind spots for those utilities. And so, yes, we're we're pleased with the revenue growth thus far. But certainly have high aspirations as we move forward as well.
Rob Mason: And
Ken Bockhorst: you know, Bob, you know, my quick math around, the contribution from SmartCover at EPS level. I know this is a GAAP number, of course. You know, would have been in the neighborhood of kind of $0.06 $0.7 dilutive in the quarter year over year.
Bob Wrocklage: Yeah. You're not too far off as you'll as I'll remind everyone. Know, we said at acquisition, EPS decretive in year one. And certainly a path to, EPS contributions shortly thereafter primarily in year two. So as you can imagine, a lot of that is about market adoption and the great sales opportunities and sales growth that we mentioned while also leveraging what at the current time is an above line average SEA business but that we think over time provides well above line average incrementals both through the combination of software attachment rate and then leveraging the cost base.
Rob Mason: Yep.
Ken Bockhorst: If could sneak in one more real quick. Just again, we'll have to see how the tariff tariffs around copper, you know, ultimately play out. You know, if you think that there could be know, some added cost to copper or in that ultimately flows through to scrap brass. Do you think that could have any influence on the adoption rate between mechanical and solid state meters? I mean, does the pricing differential
Rob Mason: that exist today, does that narrow
Ken Bockhorst: Does it make the value proposition for solid state stronger? Relatively? Well, yeah, so the first thing I'd I'd remind everyone, Rob, and I know you know this is we have a great ultrasonic line. So even if that were to happen, think that certainly would not be a negative impact. We could just lock people up from mechanical to ultrasonic within our portfolio. Secondly, people I know I know there's this myth about mechanical meters, and, clearly, we fully understand how mechanical meter can be smart too with the communication. Software. And there are tangible reasons why a lot of utilities still want to buy a mechanical gear.
So along the way, we feel that we have a strong ability to continue to mitigate the cost issues and continue to sell a lot of mechanical meters, and someone wants to walk up that ultrasonic, we're happy to help them do that too. Very good.
Rob Mason: Ken.
Operator: Sure. Our next question comes from Geoffrey Breese with RBC. Please go ahead.
Geoffrey Breese: You mentioned you're progressing as expected on Smart Cover integration. Could you remind us the cost synergy opportunity
Rob Mason: where you are today in capturing it? Maybe how quickly you can expect to realize the remaining upside, is this mostly an SEA cost out opportunity?
Bob Wrocklage: So
Ken Bockhorst: there I don't I'm looking at Bob. I don't believe we ever sized the cost out opportunity publicly.
Bob Wrocklage: Yeah. So I think let me just clarify. So, certainly, when we talk about the most dramatic and impactful synergies of the Smart Cover acquisition, it is all about commercial synergies, accelerating what was already great stand-alone organic revenue growth, by advancing, the connectivity of the technology to our existing and base, whether that's direct at customers or through distribution. So a number one priority from a synergies perspective is commercial synergies. As it relates to cost, the comment I made earlier was about leveraging an existing SEA cost base. So prime prior to Badger's ownership, Smart Cover was private equity owned, and they were in, revenue growth mode.
So they invested heavily in advanced the technology and software, ban having the right feet on the street for sales. And so they carried a higher leverage of lever level of SEA coming into our acquisition. We're not saying we're reducing that. We're saying we're able to lever that as the incremental sales growth that we bring to the table through our great access to market and long-tenured customer relationships occur. There are certain aspects of cost synergies when you start to look at the product side. Meaning, product that SmartCover sells for smart, for sewer line monitoring has PCBAs and has batteries in it and are components that we're familiar with buying.
And while whereas we buy, hundreds of thousands, if not millions of those parts and components. Smart Cover in history has only, you know, has only sold smaller amounts, and we believe that we can leverage certain of those components through our supply chain and otherwise, but that is absolutely secondary to primary synergy, which is commercial synergies. And so a big part of taking this from EPS decretive in year one to EPS accretive in years two, three, and beyond is all about the top line revenue growth and then not having to invest in SCA at a rate commensurate with that great high organic above line average sales growth.
Geoffrey Breese: Got it. Thank you. And maybe just switching gears, there have been some discussions about potential cuts to the EPA budget. Do you have a sense of how that could impact demand for metering? Maybe at a high level, how would you break down customer project funding between muni budgets and federal support, like state revolving funds?
Ken Bockhorst: Yeah. So, Jeffrey, there's a lot of ways that utilities have to fund their projects and remembering again, as I said in the script that the meter and AMI is effectively the cash register of the utility. So it remains a very high priority for them regardless of whatever funding may or may not be available. So, of course, there are state revolving funds, which may be reduced some in the new bill, but they still exist. And the WIPIA local cost interest loans are still out there and very supported by the government. By federal government. And then you've got employees have the ability to raise rates. They have the ability to issue municipal bonds.
There's a myriad of ways that the funding happens, and this is where our direct sales model gives us an opportunity to talk directly with utilities on how they're viewing their upcoming plans and as you can imagine, we always do that, but we've done that even more so in the last three months with all the noise around this. And continue to remain quite positive on the ability to grow high school digits through the cycle because utilities are still talking about investing and they have the means to do that.
For where we've positioned ourselves in the water industry, which your question isn't wrong for the water industry, but I feel like we're pretty well positioned to not be affected by some of those cuts. All right. Thank you.
Bob Wrocklage: Thanks.
Operator: We have no further questions in the queue. So I'll hand back over to Barbara for any closing comments.
Barbara Novarini: Thank you, operator, and thank you all for joining our call today. For your planning purposes, our third quarter 2025 call is tentatively scheduled for October 21, and I'll be around all day to take any follow-up questions you may have. And have a great day.
Operator: This concludes our call. Thank you very much for joining. You may now disconnect your line.