Core Insights - The company reported a 13% year-over-year increase in operating earnings to $46.1 million, with operating margins slightly improving to 19.6% from 19.5% [1] - Excluding the Smart Cover acquisition, base operating earnings rose 15% year-over-year to $46.6 million, and base operating margins expanded by 120 basis points [1] - Total sales for 2025 reached $236 million, reflecting a 13% year-over-year increase, with base sales growth of 8% [2] - The company is increasing its gross margin range from a historical 38%-40% to a new normalized range of 39%-42% due to ongoing structural mix improvements and price increases [1][4] Financial Performance - Gross margins improved by 50 basis points to 40.7% from 40.2% in the prior year quarter, benefiting from structural mix improvements and price increases [1] - Record free cash flow of $48.2 million increased by approximately $6 million year-over-year, largely due to lower cash taxes [7] - Consolidated EPS rose to $1.19, a 10% increase from $1.08 in the prior year quarter [6] Sales and Market Trends - Utility water product line sales increased by 14% year-over-year, or 8% excluding SmartCover, driven by higher ultrasonic meter volumes and increased BEACON Software as a Service sales [2] - The company continues to see healthy activity levels across its pipeline, with expectations of high single-digit average top-line growth over the next five years [12] Strategic Initiatives - The integration of Smart Cover is progressing well, with the company expecting to deliver anticipated cost and sales synergies [14] - The company remains focused on investing in organic growth and maintaining its R&D leadership in the industry [43] Customer Engagement and Market Outlook - Customer feedback from recent trade shows indicates strong interest in the company's BlueEdge suite of solutions, which are seen as critical for utility water infrastructure [8][11] - Despite macroeconomic uncertainties, utility customers are planning for long-term technology adoption to enhance efficiency and resiliency [11][13]

Financial Data and Key Metrics Changes - Total sales reached $238 million in Q2 2025, representing a 10% year-over-year increase or 5% growth excluding $10 million from Smart Cover [6][11] - Operating earnings increased by 8% year-over-year to $44.9 million, with operating margins slightly down to 18.8% from 19.2% [7][11] - Gross margins expanded by 170 basis points to 41.1% from 39.4% in the prior year quarter, despite a sequential decline from 42.9% in Q1 2025 [8][10] - Free cash flow increased by 19% year-over-year to $40.6 million, largely due to higher earnings and improved working capital [11] Business Line Data and Key Metrics Changes - Utility water product line sales increased by 11% year-over-year or 6% excluding Smart Cover [6] - Sales for flow instrumentation product line were flat year-over-year, with lower demand in certain market applications offsetting modest growth in water-related end markets [7] Market Data and Key Metrics Changes - The company continues to see a robust demand for its products, with increasing numbers of RFPs requesting solutions beyond the meter [14] - The competitive landscape remains level, with ongoing trade uncertainties impacting pricing and costs [10] Company Strategy and Development Direction - The launch of BlueEdge aims to unify a comprehensive suite of products for managing water and wastewater systems beyond the meter, enhancing customer value [12][13] - The company is focused on long-term growth, expecting high single-digit revenue growth driven by favorable industry fundamentals and customer demand trends [17] - The integration of Smart Cover is progressing well, with expectations for sales and cost synergies to be realized [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating macroeconomic uncertainties while supporting long-term customer goals [5] - Despite expected sequential sales decline in Q3 2025, year-over-year growth is still anticipated, excluding Smart Cover [16] - The company remains optimistic about the long-term demand for its core products, which are critical to utility operations [17] Other Important Information - The company has raised its sustainability targets and published a 2024 sustainability report, highlighting its commitment to greenhouse gas reduction [18] Q&A Session Summary Question: Inquiry about SG&A expense increase - Management acknowledged the increase in SG&A expenses due to the full quarter of Smart Cover and a unique deferred compensation expense, indicating ongoing investments to support growth [20][22] Question: Clarification on SG&A expense levels - Management confirmed that the $1.6 million intangible amortization is expected to continue, and the $52 million SG&A level may be a new baseline moving forward [24][25] Question: Impact of tariff costs on pricing - Management indicated that pricing actions implemented in mid-April may not fully mitigate tariff cost pressures, leading to uncertainty in future gross margins [39][40] Question: Status of AMI projects and market demand - Management clarified that while some AMI projects have rolled off, the overall project funnel remains robust, and customer demand for new projects is unchanged [44][45] Question: Smart Cover sales performance - Management expressed excitement about Smart Cover's integration and sales performance, indicating that the growth is driven by market positioning rather than seasonality [52][55] Question: Potential impact of EPA budget cuts - Management reassured that utilities have multiple funding avenues for projects, and the demand for metering remains a high priority regardless of potential budget cuts [70][71]