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BM

BADGER METER INC (BMI)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered record sales of $238.1M (+10% y/y), gross margin of 41.1% (+170 bps y/y), operating margin of 18.8% (-40 bps y/y), and diluted EPS of $1.17 (+4% y/y). Robust cash from operations was $44.6M (+22% y/y).
  • Versus estimates, EPS missed (actual $1.17 vs consensus $1.254*), revenue was essentially in line ($238.095M vs $238.085M*), and EBITDA was below consensus ($53.686M vs $56.359M*). Drivers included higher SEA (SmartCover inclusion, deferred comp) and tariff-related cost pressures partially mitigated by pricing.
  • Sequentially vs Q1: revenue rose to $238.1M from $222.2M, while gross margin moderated from 42.9% to 41.1% and EPS decreased from $1.30 to $1.17; operating margin fell from 22.2% to 18.8%.
  • Guidance/tone: Management expects a sequential decline in Q3 core sales as several AMI projects wrapped up, with normalized gross margin range maintained at 38–40%, citing tariff uncertainty; SmartCover integration is on track.
  • Capital allocation: Post-quarter, BMI raised its quarterly dividend 18% to $0.40 per share, marking 33 years of consecutive annual dividend increases.

What Went Well and What Went Wrong

What Went Well

  • Record sales and continued technology adoption in cellular AMI and BlueEdge solutions; SmartCover contributed in its first full quarter. “We delivered strong sales growth… yet another record sales quarter.”
  • Structural mix benefits and operational excellence drove gross margin expansion y/y to 41.1% despite tariff pressures. “Structural mix benefit of technology adoption… gross margins expanded 170 bps.”
  • Strong cash generation: cash from operations $44.6M (+22% y/y) and free cash flow increased 19% y/y to $40.6M, supported by working capital discipline.

What Went Wrong

  • EPS and EBITDA misses vs consensus amid higher SEA and tariff-related cost impacts; interest income was lower due to acquisition capital deployment.
  • SEA expenses rose $9.1M y/y to $52.9M (22.2% of sales) due to SmartCover (incl. $1.6M amortization) and ~$1.0M deferred compensation tied to stock price movement.
  • Trade/copper tariff uncertainty persisted; pricing actions were mid-April and not fully effective across shipments, prompting caution on redrawing margin normalization.

Financial Results

Multi-Period Performance (oldest → newest)

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$205.182 $222.211 $238.095
Diluted EPS ($USD)$1.04 $1.30 $1.17
Gross Margin %40.3% 42.9% 41.1%
Operating Margin %19.1% 22.2% 18.8%
SEA % of Sales21.2% 20.7% 22.2%
Net Earnings ($USD Millions)$30.717 $38.398 $34.584
Cash from Operations ($USD Millions)$52.067 $33.027 $44.586

Q2 2025 vs Wall Street Consensus (S&P Global)

MetricConsensus*Actual Q2 2025Beat/Miss
Revenue ($USD Millions)$238.085*$238.095 In line
Diluted EPS ($USD)$1.254*$1.17 Miss
EBITDA ($USD Millions)$56.359*$53.686*Miss

Values retrieved from S&P Global.*

Segment / Product Line Indicators

ItemQ2 2025 YoYNotes
Utility Water Sales Growth+11% +6% ex-SmartCover; continued adoption of meters, BEACON SaaS, water quality, remote monitoring
Flow Instrumentation Sales Growth~Flat Modest water-related market growth offset lower de-emphasized applications

KPIs

KPIQ2 2025Context
Primary Working Capital / Sales21.8% ~200 bps better y/y
Tax Rate24.5% Modestly above prior-year 23.8%
Cash from Operations$44.6M +22% y/y
Free Cash Flow$40.6M +19% y/y; driven by earnings and working capital

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Normalized Gross Margin RangeFY 202538–40% maintained 38–40% maintained Maintained
Core Sales TrajectoryQ3 2025Not specifiedExpect sequential decline due to AMI timing (wrap-ups; start timing of new projects) Lowered (sequential)
Dividend per Share (Quarterly)Q3 2025 payable Sep 5, 2025$0.34 $0.40 Raised 18%

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024)Previous Mentions (Q1 2025)Current Period (Q2 2025)Trend
BlueEdge / TechnologyIntroduced BlueEdge; strong AMI/SaaS adoption Record GM; de minimis tariff impact; BlueEdge integration of SmartCover progressing BlueEdge momentum; new field app; Cobalt ML for BEACON; SmartCover included at ACE Strengthening product suite; AI/ML features emerging
Supply Chain / TariffsPrice/cost benefit; solid execution Tariff impacts de minimis; maintain 38–40% GM range Tariff cost pressures; copper tariff uncertainty; pricing actions partially mitigated Caution rising; maintaining GM normalization
Product Performance (AMI, SaaS)Robust cellular AMI adoption Increased meters, ORION cellular endpoints, BEACON SaaS sales Continued adoption across metering, BEACON SaaS, water quality, remote monitoring Sustained demand; mix benefits continue
SmartCover IntegrationAcquisition announced Integration on track; synergies expected First full quarter; commercial synergies prioritized; EPS decretive yr 1 Positive integration; earnings accretive path yr 2+
Funding / RegulatoryN/AN/AMultiple muni funding sources (SRFs, WIFIA, rates, bonds); EPA cuts seen as manageable Stable demand outlook
Capital AllocationRecord cash flow Flexibility for innovation and acquisitions Dividend growth history emphasized; strong FCF supports priorities Continued discipline

Management Commentary

  • “We delivered strong sales growth, solid profitability and robust cash flow against last year's quarterly sales high-water mark.” — Ken Bockhorst
  • “Gross margins… expanded 170 basis points to 41.1%… pricing increases partially mitigated certain tariff-related cost pressures.” — Bob Wrocklage
  • “We expect absolute sales to decline sequentially in the third quarter of 2025… excluding SmartCover.” — Ken Bockhorst
  • “We remain on track to deliver the anticipated sales and cost synergies associated with the SmartCover acquisition.” — Ken Bockhorst
  • “Cobalt… leverages machine learning for advanced insights within our BEACON platform.” — Ken Bockhorst

Q&A Highlights

  • SEA trajectory and components: Investors probed the apparent step-up; management cited SmartCover inclusion ($1.6M amortization) and ~$1.0M deferred comp tied to stock price, with underlying investment pace consistent with recent years.
  • Tariffs and pricing: Strategic price increases mid-April were not fully reflected across shipments; tariff cost uncertainty (incl. copper) restrains resetting GM normalization despite >40% GM again.
  • AMI project timing: Several projects completed in Q2; new projects in hand but timing implies a sequential revenue decline in Q3 for core. Demand funnel remains robust.
  • SmartCover contribution and EPS impact: ~first full quarter sales > prior run-rate; EPS decretive yr 1, accretive yr 2+ as commercial synergies scale and SEA base is leveraged.
  • Mechanical vs ultrasonic under potential copper tariffs: BMI highlighted portfolio flexibility; could migrate customers to ultrasonic if economics shift, while continuing to mitigate mechanical meter costs.
  • Funding resiliency: Multiple muni funding channels (SRF, WIFIA, rate increases, bonds) underpin continued investment despite EPA budget headlines.

Estimates Context

  • Q2 2025 performance vs consensus: EPS $1.17 vs $1.254* (miss), revenue $238.095M vs $238.085M* (essentially in line), EBITDA $53.686M vs $56.359M* (miss). Mix shift and tariff costs, alongside higher SEA (SmartCover amortization, deferred comp), likely drove EPS/EBITDA underperformance.
  • Forward look: Management’s expectation of a sequential sales decline in Q3 (core) suggests near-term estimate risk to revenue/EPS, while maintained 38–40% normalized GM range and strong underlying demand trends support medium-term estimate stability.

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Mix-led margin strength is intact; structural gross margin >40% continues, but tariff uncertainty (incl. copper) tempers near-term margin normalization changes.
  • Near-term caution: Q3 core sales expected to decline sequentially due to AMI project timing; monitor sell-side revisions and Q3 order conversion cadence.
  • SmartCover is strategically additive, with commercial synergies the key driver; expect EPS accretion from year 2 as SEA base is leveraged.
  • Cash generation remains robust, enabling continued dividend growth (18% raise to $0.40) and optionality for innovation and M&A.
  • SEA run-rate elevated by acquisition and unique deferred comp; watch expense leverage as integration matures and pricing actions flow through.
  • Technology roadmap expanding (field app; Cobalt ML in BEACON), enhancing competitive differentiation and software attachment rates.
  • Funding backdrop for municipal utilities remains supportive across multiple channels despite EPA headlines, sustaining long-term high single-digit growth conviction.