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BM

BADGER METER INC (BMI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered solid growth and profitability: revenue $205.2M (+13% YoY), diluted EPS $1.04 (+24% YoY), gross margin 40.3% (+110 bps YoY), and operating margin 19.1% (+150 bps YoY), with a record $52.1M cash from operations and $47.4M free cash flow .
  • Management reiterated a resilient demand backdrop and cycle-average high single-digit sales growth, while maintaining the 38–40% gross margin “comfort zone”; noted tariff uncertainty and SmartCover-related SEA reset in 2025 as near-term considerations .
  • BMI announced the acquisition of SmartCover for $185M (~5x 2024 sales), expanding BlueEdge into sewer line and lift station monitoring with meaningful recurring revenue; management expects 2025 EPS to be dilutive, turning accretive in year two .
  • Sequentially, revenue moderated from Q3 to Q4 (seasonal operating days and project timing), consistent with prior commentary on quarterly unevenness; working capital improved, supporting robust cash generation .

What Went Well and What Went Wrong

What Went Well

  • Strong quarterly execution: +13% sales, +24% EPS, +110 bps gross margin expansion, +150 bps operating margin expansion; record cash from operations ($52.1M) and record free cash flow ($47.4M) .
  • Utility water growth remained broad-based (+14% YoY), driven by robust cellular AMI adoption (ORION Cellular endpoints, BEACON SaaS) and metering momentum; software exceeded $56M for FY 2024 .
  • Strategic portfolio expansion: SmartCover acquisition extends BlueEdge to sewer/lift station monitoring and adds recurring revenue; funded with cash, leaving >$100M cash post-deal and untapped revolver .

Management quotes:

  • “We finished 2024 with yet another quarter of excellent results… strong sales growth, expanding operating profit margins, robust EPS growth and record cash flow from operations.” — CEO Ken Bockhorst .
  • “Operating margins expanded 150 basis points to 19.1%… gross profit margins came in at 40.3%.” — CFO Bob Wrocklage .
  • “SmartCover… is the market leader in the fast-growing stormwater management space… very early stages of adoption.” — CEO Ken Bockhorst .

What Went Wrong

  • Sequential revenue cadence softened vs Q2 peak and Q3, reflecting backlog timing and fewer operating days; management reiterated inherent quarterly unevenness .
  • 2025 margin headwinds: SmartCover’s higher SEA and intangible amortization ($6–$7M annually), Q1 inventory step-up amortization, and lower interest income given cash deployment .
  • Tariff uncertainty (scope, timing) keeps gross margin range at 38–40% despite recent performance above the high end; management highlighted contingency planning amid macro unpredictability .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$182.4 $217.0 $208.4 $205.2
Diluted EPS ($USD)$0.84 $1.12 $1.08 $1.04
Gross Margin %39.2% 39.4% 40.2% 40.3%
Operating Margin %17.6% 19.2% 19.5% 19.1%

Cash generation comparison (quarters with disclosed CFO):

MetricQ4 2023Q3 2024Q4 2024
Cash from Operations ($USD Millions)$37.945 $45.088 $52.067
Free Cash Flow ($USD Millions)N/A$42.0 $47.4

Segment breakdown (YoY growth rates):

SegmentQ2 2024Q3 2024Q4 2024
Utility Water Sales YoY Growth (%)+26% +14% +14%
Flow Instrumentation YoY Growth (%)+5% 0% +1%

KPIs

KPIQ3 2024Q4 2024
SEA as % of Sales20.8% 21.2%
Primary Working Capital as % of Sales21.7% 20.8% (reclassified)
Cash from Operations ($USD Millions)$45.088 $52.067
Free Cash Flow ($USD Millions)$42.0 $47.4

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Sales Growth (cycle-average)2025 and over cycleHigh single-digit over cycle High single-digit over cycle; demand “resilient” Maintained
Gross Margin Normalized RangeOngoing38–40% range Maintain 38–40% amid tariff uncertainty; delivered > high end in H2 Maintained (caution)
SEA as % of Sales2025 baselineImprove with scale over LT Resets higher in 2025 due to SmartCover and added amortization Raised baseline
Intangible AmortizationAnnualN/A~$6–$7M per year (prelim) New
Q1 2025 Margin FactorsQ1 2025N/ASmartCover inventory FV step-up amortization to mute margins New
Interest Income2025N/AWill decline YoY after cash deployment Lower
Tax RateOngoing~±25% effective rate ~±25% effective rate; Q4 at 27.1% Maintained
EPS Impact (SmartCover)FY 2025 / Year 2N/AEPS dilutive in 2025; accretive in year two New
DividendOngoingRaised 26% to $1.36 in Q3 2024 No incremental change disclosed in Q4 materialsMaintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
BlueEdge & AMI adoptionIntroduced BlueEdge; strong cellular AMI; SaaS attachment; cross-selling thesis Continued robust adoption; strong ORION Cellular and BEACON SaaS; utility water +14% YoY Expanding
Revenue cadence/unevennessBacklog conversion benefited Q2; guidance to high single-digit in H2; uneven quarters Sequential moderation; fewer operating days; unevenness reiterated Normalizing
Gross margin framework38–40% normalized range; copper/inflation pressures but resiliency Above high end in H2; maintain range due to tariff uncertainty Stable with caution
Working capital & FCFPwC ~21.9% (Q2); record FCF in Q3 PwC improved to 20.8% (reclassified); record CFO/FCF in Q4 Improving
Tariffs/macroDiscussed inflation/copper; minimal reliance on stimulus High uncertainty; contingency readiness; low China sourcing; US/Mexico capacity Watchful
SmartCover/M&AOngoing sensor/software adjacencies; disciplined funnel $185M acquisition; ~$35M sales; recurring revenue; EPS dilutive in 2025 Strategic expansion
Regional (hurricanes)Potential Q4 delays; resilient communications during storms Continued awareness; project timing may shift Manageable
Tax/SEAEffective rate ±25%; SEA leverage with growth Q4 tax 27.1%; SEA 21.2%; 2025 SEA reset with SmartCover SEA up near-term

Management Commentary

  • “We utilized our strong balance sheet and cash flows to expand… adding real-time monitoring of water collection systems with the acquisition of SmartCover.” — CEO Ken Bockhorst .
  • “SmartCover… equates to about 5x SmartCover’s 2024 sales of approximately $35 million… sewer line monitoring is barely in the first inning.” — CEO Ken Bockhorst .
  • “We expect… positive structural sales mix and SEA leverage will continue to gradually improve margins over the strategic cycle.” — CEO Ken Bockhorst .
  • “We are pleased that operating margins expanded 150 bps to 19.1%… gross margins 40.3%.” — CFO Bob Wrocklage .
  • “Even after acquiring SmartCover, we'll have cash… over $100 million… significant financial flexibility.” — CEO Ken Bockhorst .

Q&A Highlights

  • Tariffs exposure and contingency: Low China sourcing, US/Mexico capacity; preparedness to control what can be controlled amid uncertainty .
  • SmartCover demand drivers and revenue mix: Regulatory compliance, extreme weather resilience, labor constraints; ~1/3 software/maintenance recurring revenue and ~20% aftermarket durability .
  • Working capital/inventory: Multi-quarter operational focus produced inventory reductions and optimal levels exiting year; supports strong FCF .
  • Revenue cadence and backlog: Q2 benefited from deeper backlog draw; sequential moderation later; unevenness is normal; order pipeline remains constructive .
  • EPS impact and margin path from SmartCover: 2025 EPS dilutive; accretive in year two; SEA and amortization reset near term .

Estimates Context

  • We attempted to retrieve Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue but it was unavailable due to a request limit error. As a result, we cannot provide a beat/miss comparison for Q4 2024 at this time. Values would normally be retrieved from S&P Global.

Key Takeaways for Investors

  • High-quality quarter capped a record year: revenue $205.2M, EPS $1.04, gross margin 40.3%, operating margin 19.1%; robust cash generation underpins flexibility .
  • Cycle narrative intact: management reaffirmed high single-digit sales growth over the cycle and maintained gross margin range despite recent outperformance; expect uneven quarterly cadence .
  • SmartCover is strategically additive: enhances BlueEdge scope, adds recurring revenue, leverages BMI’s direct sales; near-term EPS dilution in 2025 is a tradeoff for longer-term accretion and portfolio depth .
  • Near-term watch items: tariff developments (gross margin range discipline), SmartCover amortization/SEA reset, lower interest income; Q1 2025 margin muted by inventory step-up amortization .
  • Utility demand drivers remain favorable: cellular AMI adoption, BEACON SaaS attachment, and broader sensor portfolio support growth even without relying on stimulus .
  • Working capital and FCF execution are strong: PwC improved to 20.8% (reclassified); record CFO/FCF provide dry powder for organic/inorganic investments and shareholder returns .
  • Trading implications: absent consensus data, focus on durability of margin structure (38–40%), cash conversion, and SmartCover integration milestones; tariff headlines could create volatility but BMI’s diversified sourcing and capacity offer buffers .