BADGER METER INC (BMI)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 delivered strong top-line and record profitability: revenue $222.211M and diluted EPS $1.30, with gross margin 42.9% and operating margin 22.2% .
• Results exceeded Wall Street consensus: EPS $1.30 vs $1.055* and revenue $222.211M vs $220.764M*, driven by an especially favorable product and customer mix and 25% software growth; management maintained normalized gross margin guidance at 38–40% given tariff uncertainty .
• Utility water sales rose 16% YoY (12% ex-SmartCover), while flow instrumentation declined 5% YoY but improved 7% sequentially; SmartCover integration is on track and contributed ~$6M revenue in two months .
• Management emphasized tariff mitigation via targeted pricing and supply chain execution; Q2 is flagged as the toughest comp of 2025, suggesting near-term margin moderation from the Q1 peak .
• Dividend maintained at $0.34 per share; balance sheet remains debt-free with strong cash generation (CFO $33.027M in Q1) supporting ongoing capital allocation and inorganic growth .

What Went Well and What Went Wrong

What Went Well

• Record profitability: gross margin 42.9% (+360 bps YoY) and operating margin 22.2% (+360 bps YoY) on favorable mix and operational excellence; “the 42.9% gross margin outcome…was a perfect combination of nearly all elements contributing favorably” .
• Software momentum: software was the top revenue growth contributor, up 25% in the quarter, underpinning structural mix improvement within BlueEdge .
• SmartCover integration and portfolio extensibility: customers offered “strong positive feedback” on adding sewer and lift-station monitoring to BlueEdge; acquisition closed Jan 30 and is tracking to expected sales and cost synergies .

What Went Wrong

• Flow instrumentation down 5% YoY, reflecting lower demand in de-emphasized applications despite 7% sequential improvement versus Q4 .
• Tariff and input cost risks: management highlighted evolving tariffs (electronics/components, EU imports) and rare-earth price spikes (bismuth ~10x), necessitating targeted pricing actions and caution on margin guidance .
• SEA expenses up $5.4M (+13% YoY) with SmartCover amortization (~$1.1M in Q1) and headcount; interest income declined due to acquisition cash deployment .

Financial Results

Values retrieved from S&P Global.*

Segment trends

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO: “Steady customer demand and disciplined operating execution drove solid revenue growth and record margins in a strong start to 2025… positive feedback… SmartCover’s sewer and lift-station monitoring capabilities” .
• CFO: “Gross profit margins…42.9%… above our normalized gross margin range… quarter benefited from a particularly attractive combination of customer mix… software up 25%” .
• CEO on tariffs: “We will adeptly manage what is in our control… targeted pricing offsets… bismuth prices increased nearly tenfold… we will adjust pricing accordingly” .
• Outlook: “Q2 represents our most difficult prior year comparison… long-term average revenue growth outlook of high single digits and modest margin improvement over time” .

Q&A Highlights

• Margin sustainability and mix: Management emphasized durable structural mix improvement but cautioned that Q1’s margin strength included episodic mix factors; normalized GM range maintained due to tariff uncertainty .
• Tariff impact sizing: Described as “manageable” with lag effects; targeted pricing actions expected to offset input costs; competitive field level .
• Orders cadence: No evidence of pull-forward; 75% direct to end users limits ability to accelerate orders; distribution showed normal patterns .
• Price increases: Forthcoming, not leading; competitors have begun notifications; lessons from 2021–2022 inflation have improved contract flexibility (fewer multi-year price holds) .
• Working capital/receivables: Sequential receivables increase partly SmartCover and timing differences between Q4 and Q1; no risk concerns .

Estimates Context

• EPS beat: $1.30 actual vs $1.055* consensus (+~23%); driven by favorable mix and software growth; potential for upward revisions on profitability, with management still holding GM range due to tariffs .
• Revenue beat: $222.211M actual vs $220.764M* consensus (+~0.7%); utility water strength more than offset flow instrumentation decline .
• Estimate base: 7 EPS and 7 revenue estimates for Q1 2025*. Values retrieved from S&P Global.*

Key Takeaways for Investors

• Q1 outperformance on EPS and margins reflects both durable structural mix (software, AMI) and an unusually favorable quarter-specific mix; expect moderation from the 42.9% GM toward the 38–40% normalized range as tariff offsets lag .
• SmartCover adds growth adjacency with recurring software/service revenue and lift-station capabilities; integration is progressing, with cross-sell potential through BlueEdge and direct channel .
• Near-term watch items: tariff implementations (electronics/components, EU finished goods), commodity volatility (bismuth, copper), Q2 comp headwinds; pricing actions should mitigate but may create timing effects on margins .
• Demand resilient and replacement-driven; municipal budgets tend to reprioritize metering given revenue-critical “cash register” function; limited reliance on federal infrastructure funding in metering .
• Cash generation remains robust (CFO $33.0M Q1), debt-free balance sheet supports continued dividend ($0.34) and M&A optionality; interest income will be lower YoY due to SmartCover purchase .
• Estimate implications: EPS upgrades likely near term; margin guidance maintained due to uncertainty—models should reflect Q2 comp pressure and tariff offset lags while preserving high-single-digit top-line trajectory over the cycle .
• Trading lens: Strength in recurring/software and clarity on tariff pass-throughs are potential positive catalysts; any signals of margin durability above the range or accelerated SmartCover synergies would be upside drivers .