Badger Meter : Investor Overview Presentation

BADGER METER, INC.

STANDARD INVESTOR PRESENTATION

January 2021

© 2021 Badger Meter, Inc.

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FORWARD LOOKING STATEMENTS

Certain statements contained in this presentation, as well as other information provided from time to time by Badger Meter, Inc. (the "company") or its employees, may contain forward looking statements that involve risks and uncertainties that could

cause actual results to differ materially from those statements. Potential factors that could affect such forward-looking statements include the duration, severity and geographic spread of the COVID-19 pandemic, government actions to address or mitigate the impact of the COVID-19 pandemic, and the potential negative impacts of COVID-19 on the global economy, the company's operations and those of our customers and suppliers. In addition, the company's results are subject to general economic conditions, variation in demand from customers, continued market acceptance of new products, the successful integration of acquisitions, competitive pricing and operating efficiencies, supply chain risk, material and labor cost increases, tax reform and foreign currency risk. See the company's Form 10-K filed with the Securities and Exchange Commission for further information regarding risk factors, which are incorporated herein by reference. Badger Meter disclaims any obligation to publicly update or revise any forward-looking statements as a result of new information, future events or any other reason.

In this presentation certain non-GAAP financial measures may be used. Please see the supplemental financial schedules at the end of this presentation for a reconciliation to the appropriate GAAP measure.

© 2021 Badger Meter, Inc.

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SMART WATER SOLUTIONS ENCOMPASSING FLOW MEASUREMENT, QUALITY AND OTHER PARAMETERS

• Integrated technology company providing a comprehensive suite of flow measurement, water quality and other parameters with software / analytics solutions
• Industry leader in North American smart water metering, with a strong global position in flow metering technologies
• Attractive, long-term growth fundamentals:
• • Stable business model supported by replacement demand
  • ASP runway for technology adoption (static metering, radio adoption, data/analytics)
  • Strategic tuck-in acquisitions to expand offerings

Flow

Instrumentation

• Non-Water10%

90% WATER

RELATED

BUSINESS

Flow

Instrumentation

• Water 9%

Utility Water

Meters and

Systems

81%

• Culture of innovation and investment in R&D
• Premium financial profile and exceptional operational track record

Market Leader in the Best Smart Water Market in the World

© 2021 Badger Meter, Inc.

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FOURTH QUARTER FINANCIAL SNAPSHOT

(US$ in millions, except per share data)	Q4 2020	Q4 2019	Change
Sales	$112.3	$107.6	4.4%
Gross Margin	44.1	41.1	7.1%
	39.2%	38.2%	100 bps
SEA	27.1	24.8	9.3%
	24.1%	23.0%	110 bps
Op Income	17.0	16.3	3.8%
	15.1%	15.2%	(10) bps
Income Tax Rate	22.6%	24.3%
EBITDA	23.2	22.3	4.0%
	20.7%	20.7%	- bps
EPS	0.45	0.42	7.1%
Free Cash Flow	$12.7	$17.7

See appendix for reconciliation of GAAP to Non-GAAP measures

• Utility water sales increased 8%, with 5% organic growth reflecting higher meter, radio and software sales. 3% contribution from two months of s::can.
• Flow instrumentation sales declined 10%; weakness continued across majority of end markets.
• Gross margin expansion on higher volumes, pricing and favorable sales mix which more than offset network sunset provision and cost inflation.
• SEA includes s::can operations and related intangible amortization.
• Continued strong free cash flow generation.

© 2021 Badger Meter, Inc.

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WATER QUALITY MONITORING - S::CAN AND ATI

• Complementary offerings
• • Product technology - robust and full portfolio of both electrochemical and optical sensors
  • Geographies - ATi strong in the US and UK, while s::can has installed product in 50 countries, with concentration in W. Europe and SE Asia
  • Scale - customer relationships, inside sales, rep networks, distributors, for greater ability to cross sell
  • Coverage - combined solutions provide opportunities across all aspects of the water eco-system - including water utilities, wastewater treatment and industrial water applications

Macro Trends Driving Applications

Potable water monitoring; optimize water treatment and ensure safety of water supply

Increased reporting mandates for

wastewater discharge

• Long-termgrowth synergies
• • Quantity plus quality data parameters - online, near real-time via ORION® Cellular radio
  • BEACON® and EyeOnWater ® to store, integrate, analyze and visualize information providing holistic view of water network
  • Expanded international footprint/customer relationships for smart metering

Heightened COVID-19 impact to vulnerable populations - hospitals, senior living, education

Corporate ESG reporting

requirements

Evolving to Smart Water Solutions Provider - On Demand / Real Time / Anywhere

© 2021 Badger Meter, Inc.

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RECAP / OUTLOOK

• Strong performance in 2020 despite backdrop of pandemic's health and economic implications
• Build on leading market position with comprehensive and tailorable solutions across our differentiated flow measurement, temperature, pressure and water quality monitoring products, communication and data analytics offerings
• Continue to organically invest in software solutions that operationalize real- time data to enhance operational efficiency
• Balance sheet flexibility and strong cash flow to enable strategic, tuck-in acquisitions to expand offerings
• Further advance sustainability efforts in our products/solutions and within our operations, helping to conserve the world's most precious resource

Optimistic About Opportunities for Growth in 2021 and Beyond

Full Year 2020

4% Utility

Water Sales

Growth

90 BPS

EBITDA

Margin

Expansion

163% Free

Cash Flow

Conversion

5% EPS

Growth

TCIR 0.59 ↓ 35%

© 2021 Badger Meter, Inc.

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CAPITAL ALLOCATION PRIORITIES

Internal Investment to support organic

growth and sustain core business

Grow the dividend annually in line with earnings

Accelerate acquisitions that align to strategy and return targets

• No outstanding debt obligations and $73M of cash at December 31, 2020 (~$44M used for ATI)
• Strong free cash flow, working capital management - 163% conversion of net earnings in 2020
• $125M untapped revolver
• August 2020 marked 28th consecutive year of dividend increases.

Ample Liquidity to Fund Growth Priorities

© 2021 Badger Meter, Inc.

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ENVIRONMENTAL, SOCIAL AND GOVERNANCE

• Estimate our products save >5B gallons of water annually, equating to >11.5M kWh of energy (7,850 tons of CO2 ) avoided to heat, pump and treat that water
• Biennial Sustainability Report issued in August 2020
• • Meaningful improvement across a variety of environmental and social metrics reported
  • Diversity and inclusion
  • • 40% of executive officers diverse (30% female, 10% Latino)
    • 40% of employee population is female
    • Implemented and completed a pay equity study, taking action to make adjustments where warranted
    • Formalized human rights policy to affirm commitment to respect and support internationally recognized human rights and freedoms
• Governance actions
• • Shareholder engagement to inform priorities
  • Board gender diversity of 25%

Metric	2018	2019	2020
TCIR/Safety	1.30	0.98	0.59
Employee	9.9%	7.6%	4.3%
Turnover

© 2021 Badger Meter, Inc.

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BACKGROUND INFORMATION

© 2021 Badger Meter, Inc.

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COMPETITIVE ADVANTAGES - WHY BADGER

METER WINS

Broadest Range of Offerings	•	Brass and polymer
- Choice Matters	•	Mechanical and static (ultrasonic)
	• Drive by, fixed and cellular radio technology
Technology Leadership	•	Well established E-Series Ultrasonic expertise - maintains accuracy
		and lower cost circuit boards
	• ORION Cellular - leverages existing infrastructure, coverage
	• BEACON/EyeOnWater - actionable data for utility and homeowner
Innovation	•	D-Flow technology for performance enhancement, cost reduction and
		larger sizes
	• Remote actuating flow restriction valve
High Service Levels and	•	Strong brand preference - long term relationships / loyalty
Customer Support	•	Channel coverage - regional service center and local distribution to
		cover smaller utilities
	• Highly trained Solution Architect, customer care and field technology
		support
Low Lifecycle Costs	•	Highly accurate and quality products / low warranty
	•	Exceptional battery life
	•	Leverage existing cellular technology network

>50K Water Utilities

in US

Utility Size and their Share of

Meter connections

Large 400

45%

Mid 4,000

35%

Small

45,000+

20%

Strong Market Position in North American Oligopoly; Significant Customer Diversity

© 2021 Badger Meter, Inc.

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CELLULAR COMMUNICATION VS. FIXED NETWORK

• Easy

• Flexible

• Resilient

• Savings

• Standard

LTE-M Cellular Communication Technology - Example of Innovation Leadership

© 2021 Badger Meter, Inc.

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SMART WATER ACCELERATION

The Business Case

The Solutions

Why are utilities willing to pay more?

• Reduce non-revenue water (NRW)
• • Mechanical meters lose some accuracy over time
  • Leak detection
• Lower operating cost / improve efficiencies
• • Move out reads / billings
  • Flow shut-off/restriction technology - labor to turn off and on water services
• Encourage conservation
• • Manage what you measure
  • Leak avoidance / fix

How our leading technologies deliver

• Meters
• • Static (E-series ultrasonic) holds accuracy over lifetime; commercial sizes
• Radio
• • Safety- remote reads
  • Data and analytics - more data, more often
  • Cellular - infrastructure-free for utilities; enables efficiencies for remote flow restriction, move-outs, installation pacing
• Software
• • Leak identification / detection
  • EyeOnWater App for consumer awareness

Overall Served Available Market Value Continues to Trend Higher

© 2021 Badger Meter, Inc.

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UTILITY WATER-INTEGRATED SOLUTION OFFERING

Mechanical Meters 1

Static Meters 1

Recordall® Disc

E-Series® Ultrasonic

	2	2
Cellular		Fixed Network
Endpoint		Endpoint

2		2
		ORION® Network
Cellular Network	3
		Gateway Transceiver

BEACON®

Cloud-Based

Solution

3	3

1

METERS

2

RADIOS

3

SOFTWARE

• Broadest product offering - both mechanical and static meters in both metal and polymer
• Next generation E-Series Ultrasonic Meter with D-Flow technology
• Complete line of connectivity solutions, including drive-by, fixed network and cellular radios
• Leading edge ORION Cellular radio, including LTE-M technology. Infrastructure free.
• BEACON AMA, (Advanced Metering Analytics) software suite -analytics tools, dashboards and integration with utility billing systems
• EyeOnWater® Consumer Application

Consumer Smart		Utility
Utility Co.	Client
Portal Phone		Computers

© 2021 Badger Meter, Inc.

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GLOBAL MANUFACTURING AND INNOVATION

				LULEA SWEDEN
			BERN,	BRNO, CZECH REPUBLIC
	MILWAUKEE	MILWAUKEE - HQ	SWITERLAND	 VIENNA AUSTRIA
			
		RACINE, WI		VIENNA
LOS GATOS, CA		 COLLEGEVILLE PA	NUEFFEN,
TULSA, OK	GERMANY

NOGALES

MEXICO

• Manufacturing Facilities  Innovation / R&D Centers
  Also operate four US distribution centers and a variety of global sales offices

© 2021 Badger Meter, Inc.

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FLOW MEASUREMENT METHODS

Badger Meter Offering

Positive Displacement

Turbine

Ultrasonic

Magnetic

Diff Pressure

Coriolis

Vortex

Variable Area

Thermal/Mass

Single/MultiJet

($ in billions)

• Badger Meter offers eight of the ten common flow technologies
• North American water meter market primarily uses nutating disc meters, a type of positive displacement technology
• Global water meter markets are starting to shift from mechanical to static meters, such as magnetic and ultrasonic
• Rest of world water meter market primarily uses single/multi-jet, turbine or piston (also positive displacement) meters

$0.0	$0.5	$1.0	$1.5
Source: IHS Research and Company Estimates		Water		Flow
			© 2021 Badger Meter, Inc.	15

SMART WATER KEY GROWTH STRATEGIES

• Maintain leading position in the North American smart water market through continued development of leading-edge offerings
• Penetrate and grow select international markets (e.g. Middle East) with fit-for-market solutions
• Leverage addition of real-time water quality monitoring, and other system health parameters into actionable data to improve utility operations
• Augment software, including consumer engagement technology, for optimized customer solution

© 2021 Badger Meter, Inc.

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RADIO CONNECTIVITY - PENETRATION

CONVERSION TO CONTINUE

• Badger Meter was the first US company to offer radios on water meters (1988)
• Radio connectivity allows for automated metering and integration of real-time data with analytics software
• Radio connectivity reduces utility costs, improves billing accuracy, aids in leak detection and encourages conservation
• Approximately 60-65% of the U.S. market has been converted (per IHS) - every 1% additional conversion represents increased sales opportunity for Badger Meter

Installed base - meter units in millions

140

120

100

80

60

40

20

0

MANUAL READ	METERS WITH RADIOS
$40-$50 price	$150-$250 price per
per meter	system

North American water meter market

projected conversion to radio connectivity

	Low	Growing 1-2%
59%	per year
60's%

2017	2020	2025+
	Manual Read Meters		Meters with Connectivity

Source: IHS Research, 2017

© 2021 Badger Meter, Inc.

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SMART CITY ALLIANCE

• One of 11 companies aligned with AT&T to drive initiatives
• Initiative includes

improving utilization of limited budget resources

• Efficient city operations
• Deployment of resources

• Service and delivery

• Smart water metering increases utility revenue and drives conservation and sustainability

© 2021 Badger Meter, Inc.

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FLOW INSTRUMENTATION KEY GROWTH STRATEGIES

• Expand niche share by targeting water-related applications, predominately
• • Building Automation/HVAC/Sustainability
  • Water and Wastewater treatment and distribution
• Leverage addition of real-time water quality monitoring for industrial process and discharge water
• Penetrate international markets where both smart water and industrial applications exist

© 2021 Badger Meter, Inc.

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STRATEGIC ACQUISITIONS

• Technology solutions that can be leveraged across both utility and flow instrumentation markets
• • Water quality monitoring
  • Leak detection, conservation
• Software enhancements - SaaS
• • Utility operations
  • Consumer portals
• Smart City / Internet of Things
• International penetration

				Potential		Criteria
	Steps in Process	Acquisition Targets
Ideation List of Potential Targets			•		Companies
				previously tracked
•	Water quality monitoring			•		New targets added
•	Sensors / Instruments	175+		as a result of
•	Software, AI and analytics		strategic review
•	Geographic expansion			•		Searches among
						trade groups and
						various databases

	•	Eliminate
Assess Size and		companies due to
~75	size, ownership,
Ownership
	and unattractive
		business
	•	Apply strategic
Refined	In Process	considerations
Assessment	and assess
	specific
		attributes
Opportunities
	•	Opportunities for
	In Process	further review

Disciplined Capital Allocation - accretive, growth synergies, leverage globally

© 2021 Badger Meter, Inc.

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ACQUISITION HISTORY

Year	Company	Type	Location	Price
Water Utility Instrumentation and Connectivity:
2021	Analytical Technology, Inc	Water quality monitoring	USA / UK	$44M
2020	s::can	Water quality monitoring	Vienna, Austria	$31M
2018	Innovative Metering	Distributor	Tampa, FL	$8M
	Solutions
2017	Carolina Meter	Distributor	Wilmington, NC	$6M
2017	D-Flow	Ultrasonic Technology/R&D	Lulea, Sweden	$23M
2015	United Utilities	Distributor	Smyrna, TN	$3M
2014	National Meter	Distributor	Denver, CO	$23M
2013	Aquacue	Software/cellular technology/R&D	Los Gatos, CA	$14M
Flow and Industrial Instrumentation:
2012	Racine Federated	Technology/Manufacturing	Racine, WI	$57M
2011	Remag	Technology/Manufacturing	Bern, Switzerland	$5M
2010	Cox Instruments	Technology/Manufacturing	Scottsdale, AZ	$8M

© 2021 Badger Meter, Inc.

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ANNUAL FINANCIAL TRENDS

(US$ in millions, except per share data)

	2017	2018	2019	2020
Sales	$402.4	$433.7	$424.6	$425.5
Adj Oper Earnings	56.6	59.4	62.2	65.2
	14.1%	13.7%	14.6%	15.3%
Adj EBITDA	80.0	83.8	86.0	90.2
	19.9%	19.3%	20.3%	21.2%
Adj EPS	1.19	1.54	1.61	1.69
Free Cash Flow	$34.7	$51.7	$73.2	$80.5
FCF Conversion	100%	115%	155%	163%

• Sales growth driven primarily by smart water solution penetration
• • Radios and SaaS
• Margins driven predominately by favorable sales mix, volume and price/cost
• SEA expense control with leverage improvement
• Robust cash flow generation with working capital management; conversion above 100%
• Ample balance sheet flexibility

Note: Adjusted figures in 2018 which exclude pension termination settlement and executive retirement charges.

See Annual Report for GAAP to Non-GAAP reconciliations.

© 2021 Badger Meter, Inc.

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GAAP TO NON-GAAP RECONCILIATIONS
EBITDA	Free Cash Flow

		(US$ in millions)					(US$ in millions)
	Q4 2020	Q4 2019	2020	2019			Q4 2020	Q4 2019
Net Earnings (GAAP)	$13.1	$12.3	$49.3	$47.2		Cash from Ops (GAAP)	$15.9	$19.6
Interest expense	0.0	0.0	0.0	0.2		Capital Expenditures	(3.2)	(1.9)
Income tax provision	3.8	3.9	15.6	14.4		Free Cash Flow	$12.7	$17.7
Depreciation	3.1	2.9	12.3	11.6
Amortization	3.2	3.2	13.0	12.6			2020	2019
EBITDA	$23.2	$22.3	$90.2	$86.0		Cash from Ops (GAAP)	$89.6	$80.7
						Capital Expenditures	(9.1)	(7.5)
						Free Cash Flow	$80.5	$73.2
						Net Earnings (GAAP)	$49.3	$47.2
						FCF Conversion	163%	155%

© 2021 Badger Meter, Inc.

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