[00:00:00] Speaker A: Undoubtedly, regulations have a significant impact on utility investment behavior, and that is the case anywhere in the world. But this is also where the US and Europe are really quite distinct.
[00:00:19] Speaker B: I am Rhys Tisdall. This is the future of water which we talk about, all the ways which companies, utilities and people are addressing the challenges and opportunities in water. This is episode 113, and I can already tell it's going to be a good one. That's because today I'm going to be joined by Bluefield analyst Christine Au and we're going to take a deep dive into the digital water landscape. Really, the goal today is going to be to break down Badger Meter's latest move into wastewater, Ferguson's recent M and A activity into the Smart Building segment. And then more broadly, I thought I'd take the opportunity to step back a little bit, talk to Christine about the outlook, or should I say forecast for digital water not only in the US and Canada, but also Europe. I have questions about one what is driving all of the investment in these markets for digital technologies and solutions and services?
Also, where do the opportunities lie and how do these markets, such as the US and Europe, stack up against one another? These are questions that clients are coming to us with. So thought I'd speak for you and ask Christine and see what she has to say. But before we do that, you have to bear with me a little bit and let me talk about what's caught my attention recently. So for three podcasts running, I'm going to do it one more time because we're almost at a Runway and that is one last reminder. Bluefield will be at AquaTech Amsterdam. We'll March 11th, 14th. Make sure you stop by Bluefield's booth. According to my records, it's 11.318 and you can meet a number of Bluefield experts there from the Barcelona and Europe office.
So it's a good opportunity. Take advantage of the time and you can meet in person. For those of you who know me, I like to meet in person. I think that's where. Where things happen. So once Again, Aquatech Amsterdam, March 11th 14th. My real point that I want to talk about today is the topic du jour, that is impoundment. Impoundment could be the next iconic word or phrase to come out of all the government chaos in Washington. For those old enough, it feels a bit like, you know, the Scud missile or the hanging chad. These iconic words that stick with us over decades that we still think about today in some respects.
And we may be talking about it for a While so impoundment, what is it? Why am I talking about it? And the reason is because clients are asking. So impalement is the act of a US President refusing to spend money that Congress has appropriated. It occurs when the executive branch withholds or delays funding that has been legally authorized and allocated by Congress. So let me put this in perspective on why are we thinking about this? So I'll just give you a little bit of context and then I'd like to just sort of walk through the process of appropriated funds.
$43 billion has been appropriated by Congress for state revolving funds through the Infrastructure Investment Jobs Act.
18.4 billion of that has been obligated. So 4, 40.2% has been obligated to be spent. And then according to Bluefield's records, which we track on an ongoing basis, 5.4 billion, or just 12% has been awarded at the project level. So that's sort of the flow of the fund. So why is this important? Well, the Trump administration is attempting to freeze any climate related funding from the bipartisan infrastructure law in the Inflation Reduction act, despite legal obligations to disperse these funds. So it is important and it creates a bit of uncertainty and puts projects and or decision makers in limbo. So let's just talk a little bit about the process, from appropriations to outlays, to make sure we're all on the same page.
Congress allocates the money to a federal agency for a specific purpose through legislation such as the Inflation Reduction act or Bipartisan infrastructure Law. Once the funds are appropriated, they're legally available for spending, but are not yet committed to specific projects. So these are the appropriated monies. The next step in the process is the obligated money. The agency to which the funds have been directed commits the funds to a specific project or recipient through a binding agreement. These are grant awards, contracts, purchase orders.
Obligated funds must be spent as agreed, making them difficult to claw back legally. So at this stage, they're kind of there and there's a legal obligation. So an example is the EPA signs a contract with a state to fund clean energy projects.
This money is now obligated, but has not been paid out. So then the third step in the process is, is the outlaid money. Federal government actually transfers the money via the treasury to the recipient. That's the state, the company, the nonprofit. Pick your organization.
Once outlaid, the money is then fully spent. Is fully spent. It cannot be withheld. The city receives the wired funds for an infrastructure project and then it moves forward. So why does this matter? Well, Water infrastructure funding is currently at risk in different ways depending on the program, whether it be through IIJA, whether it be through the Inflation Reduction act, the EPA's Clean Water and drinking water state revolving funds. It did receive billions from the bipartisan infrastructure law to upgrade water infrastructure, replace lead pipes, improve wastewater treatment.
There are some questions about how those monies are being spent, whether they're going to disadvantaged communities or other drivers. So once again, a lot in limbo there. As of Trump's inauguration, the EPA had obligated about 88% of its funds, but many of the projects have yet to receive payments.
If impoundment holds, municipalities may face delays or cancellations of critical drinking water or wastewater projects. So that's kind of gets to the point. There's, there are communities, towns, people, organizations awaiting funds and they don't know if they're going to receive it.
Secondly, PFAS and emerging contaminants is a big topic. The IRA, IIJA allocated billions of dollars for PFAS remediation, you know, inventorying the problem for drinking water protections and much of it is through the EPA and the state revolving funds. If these funds are frozen or clawed back in some way, utilities that rely on the federal, federal support for compliance is at that point, if it matters, and treatment upgrades, infrastructure investment, then there's going to be a problem. And it not only impacts local communities, but also supply chain. You know, the supply chain is obviously or is benefiting from all of this, whether it be new technology, deployment for water treatment, advanced water treatment at that, but also just pipes, pumps, plants, valves and construction. The third point I wanted to bring up was climate resilience and you know, drought mitigation delays. Western states, they are receiving a significant amount of funding through the IRA or the Inflation Reduction act for drought resilience projects. This includes everything from water reuse to desalination initiatives.
Also, you know, water working with farmers to offset water usage because of concerns about the Colorado River.
So this is a problem. Bureau reclamation projects are now in legal limbo as well, creating uncertainty for agricultural, industrial and municipal users. Then lastly, I just wanted to bring up that, you know, the private sector and utility investment impacts, it impacts water technology firms, engineering firms, equipment suppliers expecting federally backed contracts. So now these contracts may see delayed revenues and project disruptions. Public private partnerships, large scale infrastructure projects, leveraging these could be stalled.
The water sector as a whole is like a battleship group. It's not fast, it's not fleet of foot, has long term, long rates, planning goals that need to be met and such A sudden shock to the system creates uncertainty that can not only impact the supply chain itself, but also labor. So the bottom line is the Trump administration's attempted impoundment is already influencing water sector funding. I can tell you this because we're getting a lot of questions about this and what it might mean from Colorado River Compact and what it means and how that's going to be addressed to the Inflation Reduction act, and what does it mean for electric vehicle battery plants that are expected to receive funding to hydrogen projects that rely on water supplies. Water touches anything and everything, you know, around us. So keep that in mind. All these projects will rely on some form of water management, water treatment, even at the most basic level.
And then you can get more specific when you start thinking about PFAs and lead and direct water quality issues that we're facing. So while courts may ultimately force the release of obligated funds, the current freeze creates disruptions, legal uncertainty, and at the bottom line, like I said, financial risk. So if prolonged, it could reshape federal water investment priorities and force local governments to seek alternative funding mechanisms, which actually might be the ultimate point. But that's not an easy process. Remember, we're talking about 72,000 water and wastewater systems and utilities in the U.S. it's extremely fragmented and something that not a lot of these systems and system operators can actually deal with on their own. I think, as I've said multiple times, 85% of water utilities in the US have less than three employees. So to say that they don't have enough to do is quite the understatement. But with that being said, I wanted to clarify that. And now we can get on to digital water and talk with Christine now and see how things are going. And if you have any questions about impalement, you can always reach out to me.
All right, I'm joined by Christine Al. Christine, how's it going?
[00:11:26] Speaker A: Doing good. It's great to be back on the podcast. Thanks so much for having me.
[00:11:30] Speaker B: Yeah, it's been a while. So you're in Boston. I'm in New Hampshire. It's snowing like crazy here. I don't know what it's like there.
[00:11:37] Speaker A: The weather is definitely eased up a little bit. Thankfully, it's getting a little less cold, but there's still some streets which are practically ice rink, so I'm walking very carefully.
[00:11:47] Speaker B: I've said this before. Maybe it was with Dave McGimpsey on the water Values podcast. I don't remember. This is a. Feels like the first real winter we've had in a while. It's been cold. It snowed a decent amount and hadn't gotten any warmer. And I'm looking out the window right now and it is a complete white out. So that's the way it goes.
[00:12:06] Speaker A: Gotta say, I'm not that envious.
[00:12:08] Speaker B: Well, you're from Singapore, so. And I'm from South Carolina. I shouldn't say anything, but I've learned to embrace it. But. All right, so let's get to it. So I wanted to take this opportunity really to talk about digital we haven't talked about in a little while. We've talked about a deal here and there, but there have been some recent deals both with Badger and Ferguson. But also, you know, we've done a lot of forecasting whether be in the US and Canada as well as in Europe over the past couple months. So I maybe we could just sort of walk through it. That was when I reached out to you about this. I thought that, you know, you could shed some insights into that. So why don't we make it easy? Let's just, let's start with Badger Meters. I think it was $185 million acquisition of Smart Cover Systems. It seems to mark a shift for Badger as far as its role in wastewater. But maybe we can talk a little bit about Badger, what it means for its strategy and what this deal overall means for the company and going forward.
[00:13:11] Speaker A: Yeah, definitely. Badger has certainly had a year. It's one of the many companies we track here at Bluefield. And in 2024 the company logged consistent double digit year over year growth for each quarter. It even grew over 20% in Q1 and Q2 of 2024. They recently released their annual financials for the year. And Badger reported over $825 million in net sales, which is a 17% increase from 2023. So it's quite obvious here that Badger has built up a lot of momentum. And by starting the year with this very large acquisition, it really would mean that they're certainly not slowing down. I remember when the SmartCover acquisition was first announced, I got almost deja vu because it was around this time last year actually when Badger acquired Telloc, a suite of remote monitoring solutions from Trimble. It's starting to feel almost like an annual tradition on Badger's part. And it certainly is in line with the growth strategy Badger has been pursuing over the years. Most of us, of course, are familiar with Badger as a metering company, and that certainly still makes up the core of its business. But over the years, Badger has been expanding to provide solutions for drinking water and wastewater networks. I mentioned tellog earlier, but some other key acquisitions include S Scan, ATI and Sirinix.
[00:14:29] Speaker B: All right, Christine, this is super interesting. So what has really stood out about SmartCover when you've in your analysis and what you've seen thus far?
[00:14:38] Speaker A: Yeah, I think something that's really interesting about this acquisition is that smartcover is actually Badger's first wastewater pureplay acquisition.
So for everyone's information, smartcover is a US Based company and they provide remote monitoring as well as control solutions for wastewater collection networks and lift stations. In its previous acquisitions that I mentioned earlier, Badger has targeted companies that are both in drinking water and wastewater. But SmartCover is specifically focused on waste water and stormwater. And this definitely is intentional, at least from what we can tell. According to Bluefield's latest US Digital water forecast, utility investment in digital wastewater solutions is expected to grow at 11.1% CAGR from 2024 to 2033. And this slightly outpaces drinking water investments, which is at about like 10.5% CAGR on the stormwater side because of really we've seen, we've had a year of extreme weather events, so we expect CapEx investments, at least in the US for stormwater infrastructure to really grow at 6.4% from 2024 to 2030. And this is significantly higher than the CapEx investments we're expecting on the drinking water and wastewater sides. So there's a significant growth opportunity in the collection network space and Badger is definitely looking to capitalize on it through smartcover as well as its other subsidiaries. Another thing I'd like to Note is that SmartCover also significantly expands Badger's software capabilities. It joins Badger with a rather diverse set of analytics solutions, including asset performance monitoring and overflow predictions. And this really adds to what Badger currently already has in its portfolio, which includes meter data management, customer engagement, as well as network monitoring.
[00:16:29] Speaker B: To your point about software capabilities and analytics, it seems like I don't know of another way to put it. Is it all the rage these days or at least for metering companies?
[00:16:38] Speaker A: I think that's an accurate way to put it. And frankly, as I've been talking to some of our clients as well as other metering companies, many of them do identify software and analytics to be a key area of growth to I guess point out some interesting events that happened last year. At the end of last year, Deal Metering actually acquired Provincial, which is a startup that adds predictive analytics capabilities to deal's leakage management portfolio. Everyone is familiar with Xylem and its very comprehensive Xylem Vue platform. And Xylem actually recently increased their stake to become a majority stakeholder in Eedrica, whom they collaborated with to create Xylem Vue and also Itron. They launched a pipeline asset management solution with startup Vota AI back in June 2024. So SmartCover, it not only increases Badger's exposure to adjacent water solutions like we've already talked about, but it's really also going to allow Badger to go toe to toe with many of its metering competitors, both here in the US as well as abroad, particularly on the software front.
[00:17:42] Speaker B: Yeah, I think that point about Deal metering is super interesting because I know our colleague Mike Miroff and I think he worked on this as well, and Antonio Del Olmo. They were looking at deal metering in Europe and the acquisition of Proventio and kind of some of the drivers behind it. It was interesting to kind of look behind the curtain at Deal and see what's happening not only with their metering business, but why they may be moving in different directions. And I know we did some research on that and that's why I'm calling it out for that, you know, for that purpose, but more importantly because it's interesting. So. Well, let's shift gears a little bit. So that's helpful to hear about Badger and Smart Cover.
So from the outset, there's another deal, as I mentioned, about Ferguson's partnership with WNT Water Intelligence, that'd be W I N T and it marks another step in Ferguson's digital water expansion. And Digital is a distributor. Right. So they come from a different angle. So what does this mean for Ferguson's strategy going forward? That you can tell.
[00:18:48] Speaker A: Yeah. So this was definitely another interesting announcement that was. That happened back in January. So Wind Water Intelligence, they are a commercial water management and leak detection company. So they offer sensors as well as a AI powered platform to identify building leaks. And it's marketed as a way to help facility managers and industrial building managers to help reduce their water damage as well as reduce their facility level carbon emissions. The company has raised over $50 million in funding and have some notable clients including Microsoft, PepsiCo and even the Empire State Building, which I thought was really fun to see. Wind has a network of resellers and distributors that it partners with to sell its solutions all over the world. They have a pretty significant footprint here in the us but this partnership with Ferguson is, is particularly notable just given Ferguson's expansive Footprint in the hardware and equipment distribution, particularly in North America. So Ferguson will now be offering Wind Solution as a part of its growing catalog of digital water offerings. And why it's interesting is because like many distributors, Ferguson's main business is selling equipment. Historically, Ferguson's involvement in digital water has been as a distributor for meters primarily. But in recent years Ferguson has really been diversifying its catalog to actually include software on top of the WIT partnership. Ferguson also has ongoing deals with Vota that we mentioned earlier as well to distribute its AI powered pipeline assessment software. It has a partnership with Trimble to sell asset management software and even Transcend to sell its engineering design software. So now with wint, Ferguson adds yet another software solution. And this time it's less in the municipal space and actually more in the commercial space, specifically commercial leak detection.
[00:20:41] Speaker B: Yeah, I think the scale of Ferguson is pretty impressive when you look at, you know, not only just their total revenues but their overall footprint. But Ferguson's not the only distributor expanding into digital water or the digital water space. Can you maybe expand on that as well?
[00:20:59] Speaker A: Yeah, for sure. I mean we all know that digital solutions are really kind of where we're expecting to see a lot of growth when it comes to the water market. And distributors see that and they're trying to, trying to kind of capitalize on that opportunity as well. So Ferguson's primary competitor is Cormain and they're also pursuing a similar strategy in terms of diversifying and expanding into digital water. Cornmain also has partnerships with companies like Orbis Intelligence Systems and Infinity AI to distribute network sensors and software. And in fact, back In October of 2024, Cornmain actually launched a distribution partnership with Smartcover. Now that Smartcover is under Badger, we're going to have to look out for any updates of how this relationship might evolve. But I digress. I think what's particularly interesting about Cornmain's digital strategy is actually on the services side. So Cornmain has an offering called Core plus which is where they provide a range of professional services from meter installation, leak detection to even asset management. Through Core Plus, Coremain is aiming to really become this one stop shop solution for utilities, providing the hardware solutions along with consulting and installation services. Ferguson offers similar services, but it's definitely on a much more limited basis.
The last thing I'll say is that the wind partnership will also really allow Ferguson to continue to push into non residential and industrial markets to help even out its end market exposure. Reec, you mentioned this earlier, but our colleague Mike Murov, he wrote a report on distributors. And that was something that he really highlighted. And it's interesting because Ferguson has been facing some headwinds on the residential side, largely due to the slowdown in new housing developments. So long story short, what the Wynt partnership will really do is not only help Ferguson expand in terms of digital, but also into the commercial industrial space. So yeah, long story short, this partnership is likely to be quite fruitful for Ferguson.
[00:22:57] Speaker B: Yeah, and speaking of Mike, who seems to be getting a lot of shout outs on this, one thing that was interesting is looking at the distributors. We did a deep dive into companies like Corn Main as well as Ferguson, Vesco, Water, Fortaline, Granger and a number of others. For some of them, just over time we could look back and sort of see even just how their.
What do you want to just simply put, their website had changed. They've gone from these hardware and equipment distributors to more to just even how they present themselves as solutions providers. And I think that, you know, as you pointed out, they've moved from just sort of the meters to more like aftermarket services and solutions and consulting, I think you said in the case of Cord, Maine. So it's interesting, not only do they see it, but I think we're seeing it as well. And then we're also seeing it through their M and A and how they're shifting into different directions, whether it be Smart Cover. I think another thing that was also interesting and I mentioned this I believe on the last podcast, is sort of my one thing that caught my eye this past week's segment and that is Badger and Smart Cover, how they get to market, what are their channels, do they go through distribution, do they go direct to customer? And they both come, you know, respectively in different angles. Badgers has its own distribution network which relies heavily on Smart Cover, relies on third parties. So will be interesting to see how that evolves as far as a business strategy. And like any M and A deal, it usually takes 12 to 18 months to digest it. And then the truth comes out how the new management team wants to run it. So we'll keep an eye on that. So now let's step back. We've been down in the weeds a little bit when it comes to M and A and the reason I wanted to bring this up, we haven't really had a chance to talk about this, but I guess we've done a lot of forecasting over the past three to six months, whether it be in the US and Canada, but also Europe. So why don't we start with the U.S. and Canada's digital water market and it seems to be set to double according to your numbers. You've worked on this forecast. And why don't we talk a little bit about sort of why is it going to grow from 11 and a half billion in 2024 to almost 24 billion by 2023? So what are the drivers behind that and what should I guess in this case listeners be thinking about when they think about those numbers?
[00:25:33] Speaker A: There is an immense opportunity in digital and I think we say this, other people in the industry say this all the time. The future for water is definitely digital. And the reasons for that, they're obviously the age old culprits like aging infrastructure, the silver tsunami, a desire on the utilities part for greater financial efficiency that's helping motivate and drive the adoption of digital technologies. But to break down the reasons behind this expected growth, I think there are a few interesting things to know. So first thing first, there is the policy side of things. So in both the US and Canada there are major infrastructure funding initiatives currently underway. Namely in the US we have the Infrastructure Investment and Jobs Act. We talk about it a lot here at Bluefield. And over in Canada there's also a investing in Canada infrastructure planning. These investments are most likely to benefit digital products that will be logged as capex investment. So that would kind of be your core technologies like SCADA and meters. And in the US also there's the revised lead and Copper rule. And this is helping drive investments in digital solutions for lead detection tools, inventory management software and even like public engagement platforms in both countries. There's also this growing concern over cybersecurity and efforts to lay out frameworks to help tackle this threat methodically for utilities is still currently being laid out.
[00:26:56] Speaker B: Yeah, I can't, you know, I'll stop you there for a second because one thing is cybersecurity. It is, is it, is it the topic du jour or maybe it's an indirect topic du jour and partly because of the role of digital, the cloud, AI, all these factors, geopolitical tensions. So what about cybersecurity? What sort of, what role does that play in our forecast? And, and what did you guys see?
[00:27:22] Speaker A: Certainly because of how this geopolitical situation has evolved over the past couple of years, it's getting more and more hostile. And places like the EPA for example, has really been sounding the alarm about the growing threat of cybersecurity to critical infrastructure and that includes water and wastewater systems. There have been a couple of pretty high profile attacks on both Small and large utilities. Notably, late last year, American Water actually got some of their systems breached. Some water vendors have also been a subject of these attacks. But when we're really looking at policies, I think what's interesting to note or notable at least for the US And Canada, is that cybersecurity policy is still very much in the early stages of development. Some things have been proposed, but nothing has exactly been set into stone just yet. That being said though, just because cybersecurity is a growing concern, we think that this is going to translate into more investments from utilities on cybersecurity solutions. And that's stuff like firewalls, monitoring software, consulting services. Greece, you mentioned AI. There definitely are like AI based cybersecurity solutions. There are a lot out there in the market.
So in our latest US In Canada digital report, actually we expanded our product coverage to include CyberSecurity and also led service line replacement solutions, which I called out earlier just because of some of the recent developments, particularly here in the US when it comes to lead. So I definitely would encourage everyone to check out the report if they have a chance.
[00:28:55] Speaker B: Yeah, the cybersecurity question is a big one. It's also really hard to put your finger on. One, partly, you know, the market is so fragmented, you know, that maybe that goes without saying. I think the other problem is, you know, utilities as a whole are understaffed under resourced. They don't know exactly what to do. And I know we've worked on white papers with companies talking about the role of the cloud. Is it actually better to have all the information in the cloud? Is Amazon better prepared to deal with cybersecurity as opposed to pick your city, the city of Houston, you know, do they have the resources to manage all of the attacks that may or may not come their way? Whereas is Amazon better prepared? They're spending hundreds of millions, if not billions of dollars on things like that. So it remains a big question. And I know we'll get into Europe in a little bit, maybe, you know, it depends on the country as well. Right. Some countries require all data to be housed in country. So there are a lot of different factors. And like I said, cybersecurity is a hot topic. But what about the meat and potatoes of the forecasts and the business opportunities going forward? Where are most of those dollars going as far as our forecast goes, at least for the US And Canada?
[00:30:11] Speaker A: Yeah, for sure. So a significant proportion of utility digital water spending. We expect to really still be in the established foundational solutions. Those that we're all very familiar with like scada, metering, gis, basic kind of asset management solutions like cmms, stuff like that. In fact, in our forecast, plant and remote SCADA will actually account for just over 20% of spending from 2024 to 2033. Once again, for context for the report, we actually cover 36 different technology solutions. So for two of these huge solutions to account for so much of it, I think it really shows that while digital is going to be growing fast, I think a lot of the interest is still on these core technologies and that's really driven by replacement cycles as well as greenfield implementation implementation for small and rural utilities. That being said, though, I do want to still acknowledge that there is going to be significant growth for the cutting edge solutions, particularly those leveraging AI as well as machine learning. In the report we highlight that these solutions we think will grow at about an average of 20% CAGR from 2024 to 2033. And this is much higher than the overall digital water market which Bluefield anticipates will grow at about 8% CAGR for the US and Canada. In that vein, data is really going to be key for utilities and to appropriately kind of harness that IoT solutions like remote sensors are likely to see a boost so that utilities can get better insight on their specific network conditions as well as their plant conditions. Because of that, we kind of expect connectivity spend. So spending on connecting these devices to IoT networks, we think that that's going to scale at about a 9.9% CAGR. And with this data, utilities are expected to invest pretty heavily in software solutions to really help process and perform analytics to really make sense of the data that's being collected to support their day to day operations and decision making. So to that we think that the software spend is also similarly expected to grow pretty quickly at about a 9.3% CAGR. Reece, you mentioned cloud earlier and we actually in our forecast think that cloud based software solutions are likely to outpace on PREM versions just because first of all, there's a huge push on the vendor side to push to the cloud because of its relative strengths when it comes to analytics, security and even costs. From a very practical perspective, as you mentioned Reece, the US and Canada is expected to continue to be hotspots for digital water solutions and the opportunities are going to be very varied just given how fragmented the utility landscape is. More than 75% of utilities in both the US and Canada serve less than 5,000 people and these present different challenges and opportunities compared to the very large utilities which also have their own sets of barriers and resources, whether it's bureaucracy or decision making being a little bit slower because of red tape.
[00:33:12] Speaker B: Yeah, it is interesting when you step back and get out of the weeds a little bit and you sort of think about how the world is today.
It is all going digital in various forms, however broad or however you define that. So like you said, I mean we all have computers in our pockets, whether it be our telephone to our iPads or the computers we're on right now. And it's all interconnected and so why wouldn't the water sector go in that direction? I guess the question always is the pace of adoption. And I think as you said, it's so fragmented and one way we do look at the market is just we tier the utilities by size because different utility sizes respond or adopt in different ways or at different paces. Right. The large utilities like the LADWPs or the D.C. waters for instance, they're large, they're well funded, well resourced. They may argue that it's all relative compared to the utility and let's say Beeville, Texas or Ames, Iowa, that might be smaller. So I think it's really important to keep that in mind. And so if you're an outsider or a vendor is a better way to put it and you're looking at the market and where do you target?
Some have been very good at, you know, identifying their addressable market. I think 120 water is a good example. Right. They've targeted the small medium sized systems and they're targeting states. They've done a really good job of that and they've been committed and dedicated to that particular for the lead, for the lead remediation or mitigation challenge that they're facing or we're all facing. Whereas others, you know, you know, you go to the larger systems and you know, they may need less services because they do a lot of it internally. But I don't want to ramble on about that. That's a whole nother podcast discussion that we can do down the road.
So as we continue to step back even further, so we're going in reverse order here. We've had the benefit now at least a bluefield of doing or taking two deep dives, one into the US and Canada. We also just released our Europe digital report, which I think you were involved with as well, and helping guide that, you know, in the, in the Europe team and what they're working on. So each region has a little bit of a different story, different regulatory or investment landscapes.
So how does that impact digital water adoption or how do they differ? Can you give us a little bit of insight into what we're seeing or what we're thinking?
[00:35:51] Speaker A: Yeah, I think undoubtedly regulations have a significant impact on utility investment behavior, and that is the case anywhere in the world. But this is also where the US and Europe are really quite distinct. In Europe we see a much more centralized approach in funding and regulations, and a lot of initiatives are being rolled out explicitly to push utilities to invest in digital solutions. So for example, Austria has an action plan to leverage IoT big data analytics and AI for remote monitoring. In Spain and Italy, due to the stress of drought, both governments have established multibillion dollar programs to support water infrastructure improvements. And this explicitly includes digitalization. And in the UK of course, industry regulator OFWA has set a goal to roll out 10 million smart meters in the upcoming AMP8 investment period. There's still some kinks that need to be worked out for the UK market, but still, because of the growing regulatory pressure to better manage leakage as well as pollution, it's kind of pushing these UK utilities to look more into remote monitoring.
In the US there just isn't a similar kind of centralized push. Yes, there obviously is the ija, which is much larger than any single European initiative in terms of funding dollars, but much of that funding is going to go into physical infrastructure and it will benefit the capex based digital investments. But you don't really see kind of a similar push for digital solutions, at least in the language from the federal government or even state, state level governments. A lot of the times. On a utilities level, project approvals are typically faster in the US since there are fewer regulations. And it's probably easier to run pilot programs for innovative technologies in the us especially for the very large utilities. However, that is slightly undercut by longer procurement cycles in the us and that's largely due to just the decentralized decision making within US utilities. Since US utilities also largely rely on private investments as compared to Europe, where like I mentioned earlier, they can tap into more centralized funding sources. Smaller utilities therefore usually face more difficulties with adopting expensive new technologies just because they don't have as much cash in the pocket to experiment or to kind of risk a new technology failing on them. Construction and labor costs. I want to highlight that as well. In the US it's much higher compared to Europe where there are significant pricing controls in place. And this makes automation therefore quite attractive for U.S. utilities. They want to once again be financially efficient with these scarce resources that they have. But US utilities Also run into the challenge of unions. This is something that I recently heard at a conference where like sometimes unions might resist new technologies just because of fear of job loss. Personally, I'm a little less familiar with the union situation for water utility workers in Europe, but I'm sure that this is a relationship that needs to be navigated as well when it comes to adopting these new digital solutions.
[00:38:58] Speaker B: Yeah, I think it's super helpful. I think, you know, I'm just going to call out one thing difference that is sort of happening over time and that is when we look at Europe versus the U.S. you know, the energy, you know, performance or energy usage and operations seem to be of greater focus in some regards, whether that be because of just traditionally higher energy prices, whether it be natural gas which sort of works its way through the system, they've shifted towards renewables. If you look at Germany, but also Russia, Ukraine has created some spikes and some reality checks that are driving efficiencies right across the utility network, whether it be water or wastewater when it comes to treatment. So I think that's probably, that's really important. I think your point is interesting is, you know, how centralized are these systems like the uk While it be the most privatized utility system network in the world, it is very centralized. Othwat has a really tight ish grip. I say that with some caution because they're going through their own problems when it comes to Tim's water and debt loads, et cetera, et cetera. That's another topic which we've talked about with Chloe Meyer on this podcast. But they are different. You know, whether it be centralized, decentralized, operationally focused, CAPEX focused in the U.S. the U.S. is obviously vast.
It has, you know, we have 4 million miles of water and wastewater pipes in the U.S. 72,000 water wastewater systems. So it's very decentralized in many respects. Where Europe, you know, it's just much denser, it's tighter yet in many cases older. Right. They both have old networks depending on where you are in the respective geographies. So let's maybe, let's shift gears maybe to the last question for you. So we've unpacked a lot here, whether it be Badger Ferguson Wastewater, Smart Cover, distribution channels and then we've talked about the US and Europe. But what's next for the digital water market with, you know, market consolidation, increasing investment, digital transformation, if you will. What are some of the key trends that you see? What are some of the key things that we should be looking for going forward?
[00:41:21] Speaker A: Certainly There's a lot going on. I mean, we're barely two months into the year and there are already two major kind of partnerships and acquisitions have already happened. So it's set to be an exciting 2025, I think. But first off, I think something that we need to be conscious of is tariffs. It's, it's coming under the Trump administration. And at this point when we're recording this podcast, some tariffs have been delayed. So things kind of need to play out a little more. But regardless, there is going to be an impact on the digital water market. On one hand, for companies which produce like hardware products like meters and sensors, recent investor calls have indicated that they are really bracing for impact, whatever that might be, just because it's not entirely clear yet what the tariffs are going to look like. And as a result, where I think we're probably going to see more investments in software products, because that's where that's going to be a lot less affected by tariffs and profit margins are probably going to be much higher on that front. Towards the end of the year we are, last year at least, we actually start to see inflation, inflation start to come down. The federal fund rate was getting reduced gradually, but because of the kind of changing and increasingly uncertain economic situation, especially here in the US Economists are generally expecting these federal fund rate decreases to not continue for now. So it's going to be on pause and inflation is likely to persist. And what this probably will do is really dampen M and A activity across in general, but particularly in like the digital side. We were starting to see a little bit of recovery towards the end of 2024, but I don't think we're going to kind of see that continued gradual upswing. It might stay constant, it might go down a little bit, but the economic situation is definitely going to impact the market pretty significantly. There's also increasing chatter about, like smart stormwater solutions. I mentioned earlier that there have been a lot of extreme weather events, whether it's here in the US as well as over in Europe, a lot of floods, a lot of heavy rains. So that has really prompted a lot of vendors to start considering what are these monitoring solutions we can apply, what are some AI flood predictive models we can use? So yeah, I think smart stormwater is going to be all the rage. It's going to be coming up especially in 2025. And while it continues to be quite a buzzword, I can't leave this podcast without highlighting, once again, AI. I think we are going to see a lot more AI solutions come to the market really looking at how utilities can better leverage their data to do more. Lots of stuff is happening already, and I think there's lots more to come. So I'm really looking forward to all of it.
[00:43:56] Speaker B: Yeah, I think that's an excellent wrap up because, you know, actually in the intro right before we started talking, I was talking a bit about the Trump administration and impoundments and infrastructure funding is how much is going to be withheld or clawed back if possible. So I guess really the point is there's a lot, a lot of uncertainty when it comes to that. There's also uncertainty in Europe as well, obviously. Russia, Ukraine, and how much money are the European countries going to have to start putting money in to that war, more than they have and or defense spending? I think that's a big question that our colleagues in Spain have been talking about recently about, you know, is Europe about to go through its own transformation and maybe, you know, to what extent has the US Held them over the barrel to make sure that happens? So whether it be domestically or abroad, there's a lot of unknowns out there, and I think you kind of hit some of those main points. So super helpful. All right. Well, Christine, with that being said, my last question always what are you working on now and what can the listeners expect to see, at least on our website, that comes from you and the digital team?
[00:45:08] Speaker A: Yeah, for sure. So I'm working on a highly anticipated update to our 2023 global metering report. So really digging deep into what Met companies have been doing. We've already mentioned a lot of the strategies when we're talking about Badger. They're going to be company profiles, really discussing how technology as well as business models have evolved. So everyone can certainly look forward to that. Also, just working very collaboratively, proactively with all our colleagues here in the US as well as in Spain to really kind of boost our continued coverage of the digital water space.
[00:45:39] Speaker B: Yeah, awesome. I didn't even really think about that metering report, so this is good timing. Talk a little bit about Badger, what they're up to as well, so.
Well, I'm sure everybody looks forward to seeing that, so. All right, with that being said, we'll set you free into the the hinterlands of Boston, as I will remain in New Hampshire through the weekend on Kids Winter Break. So thanks again for jumping on and we'll talk again soon.
[00:46:05] Speaker A: Yeah, for sure. Thank you for having me.
[00:46:09] Speaker B: All right, that's a wrap for number 113. That is episode 113. Thanks to you for being part of the journey in 2025. It's February and the year's already moving fast, so before we sign off, if you're in Boston Barcelona, let us know. We'd enjoy the opportunity for a meeting. I know there's some activities in the next couple of weeks in addition to Aquatech. I think there's some discussion about the Digital Water Report at our Barcelona office over the next couple weeks, maybe even a get together with friends and clients in the water space. So if you have any questions about that, let me know and I can see if I can hook you up with an invite to our offices in Barcelona. Send us A note to waterexpertsluefieldresearch.com with any topic ideas you'd like us to discuss. Lastly, tell a friend about it. We do this for you, it's not for us. I like to talk, but not that much. This podcast and these water industry insights have been brought to you by the one and only Bluefield Research. To learn more about us, Visit
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