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    Badger Meter Inc (BMI)

    Q3 2024 Earnings Summary

    Reported on Feb 18, 2025 (Before Market Open)
    Pre-Earnings Price$219.77Last close (Oct 16, 2024)
    Post-Earnings Price$201.76Open (Oct 17, 2024)
    Price Change
    $-18.01(-8.19%)

    What went well

    • Consistent Sales Growth and Positive Outlook for 2025: Despite challenging conditions, Badger Meter's utility business grew 4% in the COVID year and 9% in the supply chain year. The CEO stated they "certainly don't expect down years" and feel "strong coming into 2025".
    • Margin Expansion Driven by Multiple Factors: The company reported record operating margins of 19.5%, with margin improvements attributed to increasing unit volumes, favorable mix, and positive price/cost dynamics.
    • Strong Capital Allocation and Growth Opportunities: Badger Meter maintains a healthy balance sheet with a net cash position, recently raised its dividend by 26%, and remains focused on strategic M&A activities to enhance growth and shareholder returns.

    What went wrong

    • Potential delays in utility projects due to hurricane-related recovery activities in the Southeastern U.S. may impact near-term revenue growth, and the company is unable to quantify the impact at this time. "It's still too early to quantify any possible impact." ; "I would say for sure that there would be delays, not cancellations, but I can't promise they would be the first quarter."
    • The record high gross margins of 40.2% achieved in the quarter may not be sustainable, as the company notes that "mix can and will be uneven quarter-to-quarter," suggesting potential margin pressure in future periods. "While we were pleased with the outcome this quarter, 1 quarter is not a trend."
    • The company's SaaS revenue growth is heavily dependent on hardware sales, with 99% of the revenue stream related to meter to cash, implying that any slowdown in hardware sales could negatively impact recurring SaaS revenue growth. "99% of the revenue stream is related to meter to cash..."

    Q&A Summary

    1. 2025 Sales Outlook
      Q: Do you expect lower sales growth in 2025?
      A: We feel strong coming into 2025 and do not expect a down year; even during COVID, our utility business grew 4%, and 9% during the supply chain year. While annual growth rates may vary between 5% to 12%, the macro drivers remain strong, and we certainly don't expect down years. ** **

    2. Margin Drivers
      Q: What drove the margin improvement this quarter?
      A: Margin improvement was driven by increased unit volumes, higher average selling prices due to customer and product mix, and positive price-cost benefits; these are the three contributing factors.

    3. Hurricane Impact
      Q: How will the hurricane affect your business, especially in the Southeast?
      A: While we can't quantify the impact, we maintain strong direct communication with customers; there may be delays but not cancellations. We have managed such challenges before and continue to deliver strong results despite potential unevenness. ** **

    4. Backlog Levels
      Q: How does your current backlog compare to normal levels?
      A: Our backlog remains very positive with no meaningful change this quarter; we see solid performance across all market areas from engineering to shipping.

    5. SaaS Revenue Growth
      Q: Is your SaaS revenue growth solely unit-driven or from new services?
      A: Growth is primarily driven by additional hardware units in the field; 99% of SaaS revenue is related to meter-to-cash solutions surrounding BEACON and AMI, with a 100% attachment rate to hardware sales.

    6. Capital Allocation and M&A
      Q: What are your capital allocation priorities, and any M&A plans?
      A: Our priorities remain investing in R&D leadership, maintaining dividends—32 consecutive years of increases—and disciplined M&A to expand our BlueEdge portfolio, focusing on sensors and software to enhance customer satisfaction.

    7. BlueEdge and Bundled Offerings
      Q: Are you accelerating bundled sales through BlueEdge?
      A: BlueEdge allows us to tailor solutions, approaching customers wherever they are in their technological journey, enhancing cross-selling and bundling opportunities; this strategy helps increase wallet share.

    8. International Opportunities
      Q: Can you discuss international market opportunities?
      A: We've seen global growth through acquisitions like s::can, ATI, and Syrinix, which have strong relationships and installed bases in over 50 countries; we're excited about expanding BlueEdge globally, with opportunities like AMP8 in the U.K.

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