• Total Sales Growth: 13% year-over-year in Q1 2025.
• Utility Water Product Line Sales: Increased 16% year-over-year.
• Flow Instrumentation Sales: Decreased nearly 5% year-over-year.
• Operating Profit Margins: Record 22.2%, expanding 360 basis points year-over-year.
• Gross Profit Margins: 42.9%, a 360 basis point improvement from the prior year.
• Software Revenue Growth: Up 25% in the quarter.
• SEA Expenses: Increased by $5.4 million or 13% year-over-year to $46 million.
• Income Tax Provision: Increased to 24.4% from 23.5% in the prior year.
• EPS: Increased 31% to $1.30 from $0.99 in the prior year comparable quarter.
• Free Cash Flow: $30 million, up 60% from $18.8 million in the prior year.

• Warning! GuruFocus has detected 5 Warning Sign with FR.

Release Date: April 17, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Badger Meter Inc (NYSE:BMI) reported a strong start to the year with solid revenue growth and record operating margins.
• The acquisition of SmartCover has been positively received by customers, enhancing the BlueEdge suite of water management solutions.
• Total sales grew 13% year-over-year, with utility water product line sales increasing by 16%.
• The company achieved a record operating profit margin of 22.2%, with gross profit margins improving to 42.9%.
• Software revenue grew by 25% in the quarter, contributing significantly to the positive sales mix.

Negative Points

• Sales for the flow instrumentation product lines decreased nearly 5% year-over-year due to lower demand in certain market applications.
• There is significant uncertainty surrounding tariffs and the macroeconomic situation, which could impact future margins.
• The company faces potential import tariff exposure on electronics and components from various countries, which could increase costs.
• SEA expenses increased by 13% year-over-year, partly due to the SmartCover acquisition.
• The income tax provision increased to 24.4% from 23.5% in the prior year, impacting net earnings.

Q & A Highlights

Q: Can you provide more color on the favorable product and customer mix benefits and whether gross margins will moderate back to the 38% to 40% range in Q2 if the tariff backdrop remains stable? A: Kenneth Bockhorst, CEO, explained that despite the uncertain environment, the company feels strong about the durability of their margins due to positive structural mix. CFO Robert Wrocklage added that while many factors contributed favorably to the Q1 margin, some are episodic. They are cautious about declaring a new margin range due to potential tariff-related input cost pressures.

Q: Are there any signs of customers pulling back on spending or delaying projects due to economic uncertainty? A: Kenneth Bockhorst, CEO, stated that they are not seeing any signs of customers pulling back. The replacement-driven nature of their business and the ROI from technology adoption continue to support demand. Even during challenging times like COVID, the company experienced growth, indicating the resilience of their market.

Q: What is the impact of tariffs on your cost of goods sold (COGS), and can you cover it with pricing actions? A: Kenneth Bockhorst, CEO, mentioned that while the exact impact is difficult to quantify due to the evolving situation, the current tariff environment is manageable. CFO Robert Wrocklage added that they are implementing targeted pricing actions to mitigate potential impacts, maintaining a level playing field competitively.

Q: Are municipal budgets healthy, and how are utilities prioritizing AMI investments? A: Kenneth Bockhorst, CEO, noted that with 50,000 utilities in the U.S., there is no one-size-fits-all answer. However, utilities often prioritize metering replacements even if they face budget issues, as meters serve as cash registers. The company remains positive about the outlook for AMI investments.

Q: Have you notified customers of price increases due to tariffs, and how are you handling multiyear contracts? A: Kenneth Bockhorst, CEO, stated that they are being prudent and fair with customers regarding price increases. Some competitors have already notified customers. CFO Robert Wrocklage added that they have learned from past inflationary periods to push back on multiyear price hold requests, maintaining flexibility in pricing.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.