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Text: I hope you are all doing well and staying safe.
While the majority of our production employees continue to work from home, we have many dedicated employees at our manufacturing sites and with customers all adhering to the many layered health and safety protocols.
As a matter of fact, we delivered a record quarter in terms of earnings per share and tied the record for quarterly sales.
We improved manufacturing output and experienced more consistent order demand after the trough in activity last quarter stemming from the rapid onset of widespread pandemic lockdowns.
Not surprisingly, and as we anticipated, most flow instrumentation end markets remain challenged.
Bob will walk you through the details of the quarter and after that, I'll come back and talk further about the market outlook and what we're hearing from customers in the current environment.
As you can see on slide 4, total sales for the third quarter were $113.6 million compared to $108.6 million in the same period last year, an increase of 5%.
As we noted last quarter, activity levels began to improve as lockdown started to be lifted in mid-May and into June and this activity stabilization continued out throughout the third quarter.
In municipal water, overall sales increased 11%, a roughly equal combination of improved order rates and recovery of the backlog built in Q2, which as we noted last quarter was the result of lockdown induced manufacturing disruptions which limited our output.
Positive revenue mix trends continued with further adoption of smart metering solutions including ORION Cellular radios and BEACON software-as-a-service revenue along with ultrasonic meter penetration.
As noted and as anticipated, flow instrumentation sales declined 18% year-over-year, reflective of the broadly challenged markets and application served globally.
Operating profit as a percent of sales was 17.2%, a 210 basis point increase from the prior year's 15.1% with improved gross profit margins and SEA leverage contributing to the strong results.
Gross margin for the quarter was 39.6%, up 120 basis points year-over-year.
Margins benefited from higher sales volumes and positive sales mix.
Notably, the overall trends of ultrasonic meter adoption and AMI implementations, including higher BEACON software-as-a-service and ORION Cellular radio sales.
While copper prices, which serve as a proxy for Brass have been increasing.
Our average price cost in the third quarter was effectively neutral compared to the prior year due in part to the normal purchasing to production lag.
Finally, a reminder that prior year's results included a non-recurring discrete warranty provision associated with the products sold only outside North America.
SEA expenses for the third quarter were $25.5 million down $300,000 year-over-year with higher personnel costs, mostly offset by lower travel, trade show and other ongoing pandemic impacted expenses.
The expense run rate was $2.3 million higher than the second quarter's $23.2 million reflecting the lifting of the temporary cost actions taken in the second quarter in response to the rapid onset of the pandemic.
The income tax provision in the third quarter of 2020 was 23.9%, slightly higher than the prior year's 22.1% rate.
In summary, earnings per share was $0.51 in the third quarter of 2020, an increase of 16% from the prior year earnings per share of $0.44.
Working capital as a percent of sales was 23% relatively in line with the prior two quarters.
We again delivered strong free cash flow which at $19.1 million dollars was consistent with the prior year comparable quarter despite the deferral of our federal income tax quarterly instalment payment under the CARES Act from the second quarter into the third quarter.
Our year-to-date free cash flow of $67.8 million was 22% higher than the prior year $55.6 million and is currently tracking at 187% conversion to net earnings.
We ended the quarter with approximately $94 million of cash on the balance sheet as we paid down the small euro line of credit with excess cash.
We continue to have full access to our untapped $125 million credit facility.
Our stable balance sheet and ample liquidity remain a clear source of strength for Badger Meter.
Unfortunately, much of the globe, including the majority of US states are experiencing a resurgence in COVID cases.
While this continues to create uncertainty, we are optimistic that extensive lockdowns will not again become a necessity, regardless, we remain fully prepared to manage safely in support of our customers in the critical and essential water sector.
Municipal water customer base is large and diverse.
The potential for some to experience difficult budgetary challenges exist due to a variety of contributing factors.
However, as we've continued to learn from our active dialog across the spectrum of customers, their activities are essential and in many cases regulated.
Some are implementing temporary cost reduction measures such as hiring freezes and travel restrictions.
However, spending on critical and necessary activities, which includes metering solutions required for billing and controlling non-revenue water continues in many respects.
Our large and diverse customer base means that there will not be a sole or single response as each municipal operation is unique with different needs and priorities.
Municipal water bid tenders and awards are mostly proceeding as planned, although a few have incurred extended timelines or deferrals.
There have been no widespread or significant cancellations and most daily order activity has returned to near normal.
Our supply chain and the logistics partners continue to operate with new safety protocols and processes in place to address the needs of customers with no critical shortages currently.
In spite of other challenges and uncertainty, I'm extremely pleased with the level of execution of our team as evidenced by our operational and financial results.
Through the first nine months of 2020.
Most of this fiscal year, we've been managing in a pandemic environment with countless changes to how all of us do business and severe economic shock to the global economy.
Despite that backdrop, we have delivered municipal water sales growth, strong EBITDA margin expansion, robust working capital management and cash flow and an increase in earnings per share.
It is a true testament to the criticality of the water industry and the exceptional Badger Meter team.
Now turning to the outlook.
Let me start at a granular level where I do want to highlight a few items in terms of near-term outlook.
First, the benefit of the backlog conversion into sales we saw in Q3.
On a year-to-date basis, it is neutral, created in Q2, recovered in Q3.
But as you analyze the municipal water growth rate in the quarter, order activity alone accounted for a solid mid-single-digit growth rate in sales.
The second as Bob noted, copper prices on average have trended up and with our normal leg, this will be a factor in Q4.
I remind you that, while still important, the impact of Brass on our cost structure has been moderating over time as we sell more software and radios versus primarily in meters.
Lastly, you may recall, we had a seasonally strong fourth quarter of municipal water sales a year ago, which creates a tougher comp for the balance of 2020.
Turning to the more important longer-term dynamics, it is clear that COVID-19 will have a profound impact on the global water sector and we will -- and we believe there will be a catalyst or increased adoption of smart water solutions.
Our customers have a need for holistic integrated solutions that operationalize real time data.
These digitally enabled solutions such as our smart meter AMI offering reduce overall cost and offer safer remote solutions.
These factors are in addition to the secular drivers that have already been evolving such as the need to reduce non-revenue water, drive conservation, address the aging workforce of utilities and connect with end consumers.
With our robust cash flow and ample liquidity, we are actively investing in, and developing products and solutions to address these challenges.
This includes both organic and acquisition driven growth geared toward augmenting our offerings and attractive adjacencies serving water-related markets and applications.
For example added sensors and instruments for complementary data elements, such as pressure and temperature, which are used to determine system health.
It also includes expanding functionality of our ion water software app [Phonetic] that helps drive consumer engagement.
We will continue to stay close to the rapidly changing implications of the pandemic on both near term operations and longer-term trends and are prepared to successfully manage all aspects within our control.

user
q3 earnings per share $0.51.
q3 sales $113.6 million versus refinitiv ibes estimate of $101.5 million.
believe long term opportunities for growth remain intact.

assistant