BMI Q2 2025: SmartCover Delivers $10M Sales, EPS Dilutive by $0.70
- SmartCover Integration and Upside: The Q&A highlighted that the SmartCover acquisition is already showing strong revenue momentum with a multi‐year, even multi‐decade growth outlook, and is expected to transition from being EPS decremental in year one to accretive in subsequent years.
- Robust Pipeline & Enduring Demand: Despite natural quarter-to-quarter fluctuations, management confirmed a resilient pipeline of AMI and core meter projects, emphasizing that metering remains a high priority for utilities, ensuring steady revenue growth.
- Effective Pricing and Cost Management: Strategic price increases have mitigated tariff-related cost pressures, resulting in above-target gross margins and strong free cash flow, underscoring the company’s operational resilience in a challenging trade environment.
- Rising SG&A expenses: Sequential increases of roughly $7,000,000 in SG&A, driven by the SmartCover integration and a one‑time $1,000,000 deferred compensation charge, pose concerns about maintaining cost efficiency amid ongoing investments.
- Tariff cost uncertainty: Despite strategic pricing actions mitigating tariff impacts in Q2, ongoing uncertainty—particularly around potential changes to copper tariffs—could pressure margins and erode future pricing power.
- Cyclicality and project timing risks: The sequential decline in core sales, linked to the completion and deferred start of AMI projects, highlights revenue volatility and the challenges of relying on uneven project cycles.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +10% | Total Revenue increased from $216.7 million to $238.1 million driven by solid performance in key business segments and continued adoption of smart water technologies, building on prior period momentum seen in Q1. |
Utility Water Market | +11% | Utility Water Market revenue grew from $190.6 million to $212.2 million as a result of increased sales in digital smart water solutions and advanced metering, reflecting trends established in previous periods with strong product demand. |
United States Revenue | +10.5% | United States revenue rose from $193.96 million to $214.35 million owing to robust domestic demand and an improved product mix that continued to deliver value from previously established growth and technological advancements. |
Asia Revenue | +49% | Asia revenue surged from $2.74 million to $4.08 million indicating a significant regional expansion likely driven by increased adoption of digital smart water solutions and market penetration, a marked acceleration compared to prior modest figures. |
Mexico Revenue | -59% | Mexico revenue declined sharply from $1.43 million to $0.59 million, suggesting intensified market challenges or competitive pressures in the region that were more pronounced compared to previous periods. |
Middle East Revenue | -51% | Middle East revenue dropped from $5.46 million to $2.65 million likely due to tariff-related cost pressures and supply chain challenges affecting the regional market, contrasting with growth trends seen in core segments during earlier periods. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Gross Margins | Q2 2025 | 38% to 40% | 38% to 40% | no change |
Sales Growth | Q3 2025 | no prior guidance | year-over-year sales growth excluding SmartCover with anticipated absolute sales decline sequentially from Q2 2025 | no prior guidance |
Long-Term Revenue Growth | long-term | no prior guidance | high single-digit revenue growth target through the cycle | no prior guidance |
SmartCover Integration | N/A | no prior guidance | anticipated sales and cost synergies from the SmartCover acquisition; expected to be EPS accretive in year two | no prior guidance |
Macroeconomic and Trade Uncertainty | N/A | no prior guidance | fluidity in the trade environment, particularly around tariffs impacting costs and pricing actions | no prior guidance |
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SG&A Guidance
Q: Impact of high SG&A on future growth?
A: Management explained that the $52M SG&A expense this quarter includes both recurring items, such as the $1.6M intangible amortization from the SmartCover acquisition, and a one-time $1M deferred compensation charge. Excluding these, the underlying increase was modest and reflects targeted investments for future growth. -
Tariff Impact
Q: Do price increases neutralize tariff pressures?
A: While strategic price increases helped offset some tariff-driven cost pressures, management cautioned that uncertainties in tariff costs and commodity price movements prevent a definitive claim of cost neutrality going forward. -
AMI Outlook
Q: Are AMI project delays worrisome?
A: Management noted that fluctuations in AMI project commencements are typical; despite some projects wrapping up early this quarter, the robust pipeline and sustained customer interest ensure core sales growth remains intact. -
SmartCover Sales
Q: Is SmartCover performance seasonal or organic?
A: SmartCover delivered approximately $10M in sales in its first full quarter under management, reflecting strong integration and long-term demand rather than mere seasonal factors. -
EPS Impact
Q: What is SmartCover’s effect on EPS?
A: The acquisition was EPS dilutive by about $0.7 in Q2, but management expects the revenue and cost synergies—primarily commercial—to turn the acquisition accretive from the second year onward. -
Meter Technology
Q: Will tariffs shift meter technology preference?
A: Management believes that although tariff concerns, such as those affecting copper, could influence costs, their diversified product portfolio allows utilities to choose among mechanical, ultrasonic, and smart solutions—mitigating any negative competitive impact. -
Cost Synergies
Q: What synergies are expected from SmartCover?
A: The primary synergy is commercial—leveraging enhanced market reach and existing customer relationships—while also realizing cost improvements through scale in component purchasing, positioning SmartCover for long-term incremental growth. -
Funding Outlook
Q: Do EPA budget cuts affect utility funding?
A: Management is confident that even with potential cuts to EPA budgets, utilities can rely on a variety of funding sources—such as state revolving funds, local loans, and municipal bonds—to continue investing in critical metering infrastructure.
Research analysts covering BADGER METER.