Company Overview - Badger Meter is the leading North American provider of water management solutions, offering a range of products from flow measurement to software solutions for data analytics [5] - The company is set to celebrate its 120th anniversary in March and aims to modernize outdated water utilities through its technology-focused BlueEdge offering [6] Recent Performance - Badger Meter has experienced a significant pullback, down 16% from its highs in late 2024, despite a long history of outperforming the S&P 500 [3][4] - The company has seen its revenue growth accelerate as customers invest in aging infrastructure rather than just cutting costs [7] Strategic Acquisitions - Badger Meter has made 14 tuck-in acquisitions since 2010 to enhance revenue growth and technological capabilities [8] - The recent $185 million acquisition of SmartCover positions Badger Meter as the largest provider of sewer line monitoring in the U.S., capturing around 50% market share [9][10] Market Trends - The company is well-positioned to benefit from megatrends such as aging infrastructure, stricter environmental regulations, and population growth that demands a more resilient water grid [10] Profitability and Financial Metrics - Badger Meter's SaaS revenue has grown by 28% annually over the last six years, contributing to higher profit margins [14] - The company's return on invested capital (ROIC) stands at 22%, indicating strong management performance in generating profits [16] Dividend Growth - The company raised its dividend by 26% this year, marking 32 consecutive years of annual increases, with a low payout ratio of 25% of free cash flow [17] - Historical performance shows that an investor who bought Badger Meter in 2000 would now receive a 36% yield compared to their original cost basis [18] Valuation - Trading at 41 times free cash flow, Badger Meter is considered more expensive than the market, but its improving profitability and dividend history make it a compelling investment opportunity [20]

Financial Performance - Net sales in 2024 increased by $123.0 million, or 17.5%, to $826.6 million from $703.6 million in 2023, with utility water market sales rising by 20.3% to $725.5 million [141]. - Operating earnings in 2024 were $157.9 million, or 19.1% of sales, compared to $118.0 million, or 16.8% of sales in 2023, with gross margin as a percentage of sales increasing from 39.3% to 39.8% [143]. - Cash provided by operations in 2024 was $155.0 million, up from $110.1 million in 2023, driven by increased operating earnings and effective working capital management [150]. - Earnings per share on a diluted basis increased to $4.23 in 2024 from $3.14 in 2023, reflecting strong operational performance [147]. Acquisitions and Investments - The Company acquired 100% of SmartCover for approximately $185 million in cash effective January 30, 2025, enhancing its sewer line monitoring capabilities [136]. - The Company also acquired the Telog/Unity Assets for $3.0 million in cash effective January 1, 2024, expanding its remote water monitoring offerings [137]. Working Capital and Efficiency - Primary working capital as a percentage of sales was 20.8% as of December 31, 2024, compared to 22.1% in 2023, indicating improved efficiency [149]. - The Company had a net cash position of $295.3 million at the end of 2024, with $154.1 million of unused credit lines available [153]. Warranty and Tax Liabilities - The reserve for product warranties increased from $11.1 million in 2023 to $16.7 million in 2024, reflecting a rise in warranty claims rates due to new technology introductions [156]. - The gross accrued liability for unrecognized tax benefits decreased from $1.4 million in 2023 to $1.2 million in 2024, with accrued interest remaining approximately $0.1 million for both years [157]. - Valuation allowances for deferred tax assets rose from $2.7 million in 2023 to $3.3 million in 2024, primarily related to foreign net operating loss carryforwards [159]. Market Position and Risks - The Company estimates that approximately 40% of water utility connections in the U.S. have converted to an AMI radio solution, positioning it well for future growth [130]. - The Company is exposed to market risks due to competition in the water metering market, with potential impacts from new entrants lacking brand recognition [164]. - The Company relies on single suppliers for certain components, which could disrupt operations if those suppliers are lost [166]. - The price and availability of raw materials are influenced by economic conditions, with commodity risk managed by locking in purchase prices [167]. - The Company believes foreign currency risk will not materially affect its financial position or results of operations [168]. - The Company does not hold or issue derivative instruments for trading purposes, adhering to a strict policy against such practices [169]. - The Company is subject to contingencies related to environmental laws, which could result in future costs if circumstances change [162]. Goodwill and Intangible Assets - The Company completed its impairment analysis for goodwill and intangible assets in Q4 2024, noting no impairment and no adjustments recorded [161]. Software and Margin Improvement - The Company’s revenue from Software as a Service (SaaS) has significantly increased, contributing to margin improvement [134].

Core Insights - Badger Meter, Inc. (BMI) reported fourth-quarter 2024 earnings per share (EPS) of $1.04, exceeding the Zacks Consensus Estimate by 3% and up from 84 cents in the same quarter last year [1] - Quarterly net sales reached $205.2 million, a 12.5% increase from $182.4 million year-over-year, driven by higher sales in utility water and flow instrumentation segments, and surpassed the consensus mark by 2.6% [2] - The company anticipates high single-digit sales growth rates in the future [2] Financial Performance - Gross profit for the quarter was $82.8 million, reflecting a 15.8% year-over-year increase, with a gross margin of 40.3%, up 110 basis points from the previous year [8] - Operating earnings were reported at $39.2 million, representing 19.1% of sales, compared to $32.1 million or 17.6% of sales in the prior year [9] - Selling, engineering, and administration expenses totaled $43.5 million, or 21.2% of sales, down from 21.6% in the previous year, attributed to increased headcount and acquisition costs [11] Cash Flow & Liquidity - Badger Meter generated $52.1 million in net cash from operating activities, up from $37.9 million a year ago [12] - The company reported a record quarterly free cash flow of $47.4 million, a 32% increase year-over-year, indicating improved earnings and working capital management [13] - As of December 31, 2024, Badger Meter had $295.3 million in cash and cash equivalents, compared to $259 million as of September 30, 2024 [12] Strategic Developments - Badger Meter announced the acquisition of SmartCover Systems for $185 million in cash, enhancing its BlueEdge suite with real-time monitoring capabilities for sewer lines and lift stations [4][5] - SmartCover, with annual revenues of $35 million, provides solutions that help utilities monitor sewer levels and prevent overflows, thereby reducing costs and protecting public health [4] Segment Performance - Utility water sales increased by 14%, driven by strong adoption of the BlueEdge suite among utility customers, particularly in cellular AMI [6] - Sales of flow instrumentation products saw a modest 1% increase year-over-year, with growth in water-related applications offsetting declines in other markets [7] Stock Performance - Following the earnings announcement, Badger Meter's shares rose by 2.6%, closing at $213.91 on January 31, 2025, with a 52.9% increase over the past year compared to the industry's 5.6% growth [3]

Financial Data and Key Metrics Changes - The company reported a 13% quarterly sales growth, building on a challenging 24% increase in the prior year comparable quarter [6] - Consolidated EPS was $1.04 in Q4 2024, a 24% improvement from $0.84 in the prior year comparable quarter [10] - Operating margins expanded by 150 basis points to 19.1% in the quarter, with gross profit margins improving to 40.3% from 39.2% in the prior year [7][10] - Free cash flow reached a record $47.4 million, up 32% year over year [11] Business Line Data and Key Metrics Changes - Total utility water product line sales increased by 14% year over year, driven by strong demand for the Blue Edge suite of utility smart water solutions [6] - Sales for the flow instrumentation product line were up slightly by 1% in the quarter, as growth in core water-related applications offset declines in other areas [7] Market Data and Key Metrics Changes - The company achieved 18% sales growth in 2024, surpassing $800 million in revenue, with a five-year top-line CAGR of 14% [12] - Software revenue exceeded $56 million, representing 6.7% of sales and a 28% compound annual growth rate over the past five years [12] Company Strategy and Development Direction - The acquisition of Smart Cover was announced, aimed at enhancing the company's offerings in sewer and lift station monitoring [4][14] - The company plans to leverage existing cash for the acquisition, which was priced at $185 million, equating to about five times Smart Cover's 2024 sales of approximately $35 million [15] - The strategic focus remains on addressing macro water challenges and enhancing the Blue Edge suite of solutions [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing positive tone of the business, with expectations for high single-digit growth in 2025 [27] - The company anticipates continued improvement in margins and working capital efficiency, despite potential macroeconomic uncertainties [18][19] Other Important Information - The company reclassified the current portion of deferred revenue from payables to other current liabilities, which does not affect cash from operations or free cash flow [70] - The next earnings call is tentatively scheduled for April 17, 2025, marking the last call for the current VP of Investor Relations [71] Q&A Session Summary Question: Can you clarify your Mexico manufacturing exposure and contingency plans for potential tariffs? - Management acknowledged the uncertainty surrounding tariffs but emphasized their limited sourcing from China and strong operational capabilities in North America [22][25] Question: What are the demand drivers for Smart Cover? - Demand is driven by regulatory compliance, labor availability, and the need for real-time monitoring due to extreme weather events [31][32] Question: How much of Smart Cover's revenue is recurring? - Approximately one-third of Smart Cover's $35 million in trailing revenue is classified as recurring, with an additional 20% from aftermarket product replacement services [35] Question: What enabled the improvement in working capital performance? - Continuous improvement efforts and a focus on inventory management contributed to the reduction in inventory levels [36][38] Question: What is the outlook for revenue cadence through 2024? - Management noted that revenue can be uneven from quarter to quarter, with expectations for high single-digit growth over the strategic planning horizon [44][45] Question: Why does Smart Cover have a significant market share in monitoring solutions? - Smart Cover has established a strong presence in the market, leveraging its expertise and existing relationships with utility customers [49][50] Question: Will the acquisition of Smart Cover be accretive or dilutive to earnings in the short term? - The acquisition is expected to be EPS dilutive in 2025 but accretive in the following year [67]

Core Viewpoint - Badger Meter (BMI) reported quarterly earnings of $1.04 per share, exceeding the Zacks Consensus Estimate of $1.01 per share, and showing an increase from $0.84 per share a year ago [1][2]. Financial Performance - The earnings surprise for the quarter was 2.97%, with the company having surpassed consensus EPS estimates in all four of the last quarters [2]. - Badger Meter's revenues for the quarter ended December 2024 were $205.18 million, surpassing the Zacks Consensus Estimate by 2.60%, and up from $182.44 million year-over-year [3]. Market Performance - Badger Meter shares have declined approximately 1.7% since the beginning of the year, while the S&P 500 has gained 3.2% [4]. - The current consensus EPS estimate for the upcoming quarter is $1.10 on revenues of $211.14 million, and for the current fiscal year, it is $4.76 on revenues of $887.82 million [8]. Industry Outlook - The Instruments - Control industry, to which Badger Meter belongs, is currently ranked in the top 36% of over 250 Zacks industries, indicating a favorable outlook [9]. - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which could impact Badger Meter's stock performance [6].

Financial Results Announcement - Badger Meter, Inc. announced its financial results for Q4 2024 on January 31, 2025[4] - The press release detailing the financial results is available as Exhibit 99.1[5] Company Information - The company is listed on the New York Stock Exchange under the symbol BMI[2] - The report was signed by Robert A. Wrocklage, Senior Vice President – Chief Financial Officer[10]

Core Viewpoint - Badger Meter, Inc. (BMI) is expected to report its fourth-quarter 2024 earnings on January 31, with revenue and earnings estimates indicating growth compared to the previous year [1][2]. Financial Performance Expectations - The Zacks Consensus Estimate for revenues is $198.9 million, reflecting a 9% increase year-over-year [2]. - The consensus estimate for earnings is $1.01 per share, indicating a year-over-year increase of 20.2% [2]. - Analysts have raised their earnings estimates by 1 cent in the past 60 days [2]. - BMI has consistently beaten the Zacks Consensus Estimate in the last four quarters, with an average surprise of 10.4% [3]. Factors Influencing Earnings - Continued demand for BMI's smart water solutions, including mechanical and E-Series Ultrasonic meters, ORION Cellular endpoints, and BEACON Software-as-a-Service revenues, is expected to drive revenue growth [4]. - Secular trends in the water industry are increasing demand for digital water solutions, supported by a strong opportunity funnel and order book rates [5]. - The introduction of the BlueEdge platform in May 2024 is anticipated to contribute to revenue growth, with utility water sales rising 14% in the last quarter due to its adoption [6]. Market Expansion and Challenges - BMI is enhancing its presence in selected international markets with growth potential, likely increasing its market share in water-related applications [8]. - Management expressed caution regarding fewer operating days in Q4 due to the holiday season and potential delays in utility projects in the Southeastern U.S. due to hurricane recovery efforts [8][10]. - The company expects high single-digit sales growth rates moving forward, facing challenges from increased expenses, global macroeconomic uncertainty, forex volatility, and intensified competition [10].

Industry Overview - The Zacks Instruments – Control industry comprises manufacturers of precision and specialty motion-control components and systems used in a wide range of industries, including flow measurement, control, and communication solutions for air, water, and other gases and liquids [3] - The industry faces challenges such as unpredictable raw material prices, high capital expenditures, market volatility, supply-chain disruptions, and high customer inventory levels [1] - Despite these challenges, the industry is expected to benefit from a focus on energy-efficient production processes and integrated software systems [1] Key Drivers and Challenges - **Margin Erosion**: The industry faces intense price-sensitive competition, particularly from low-cost suppliers in China, which is expected to erode margins [4] - **Digitized Technologies**: Growth is driven by the adoption of digitized technologies, such as the Industrial Internet of Things, process automation, and safety automation systems [5] - **Raw Material Volatility**: Inflationary pressures, rising transportation costs, and geopolitical tensions have led to increased raw material prices, affecting production schedules and profitability [6] - **Industrial Automation**: Increased adoption of automation across industries, particularly in North America, is expected to drive growth, supported by infrastructural investments and favorable government policies [7] Industry Performance and Valuation - The Zacks Instruments – Control industry has underperformed the S&P 500 and the broader Zacks Computer and Technology sector, with an 8% growth compared to 25.3% and 28.4%, respectively [10] - The industry's trailing 12-month EV/EBITDA ratio is 10.79X, lower than the S&P 500's 19.02X and the sector's 19.28X [12] Key Companies - **Watts Water Technologies (WTS)**: Focuses on water safety and flow control products, benefiting from cost-reduction actions and a strong balance sheet. The company has a long-term earnings growth expectation of 6.8% and delivered an average earnings surprise of 7.1% in the trailing four quarters [14] - **Badger Meter (BMI)**: Provides flow measurement and control solutions, with a focus on digital solutions and real-time data analysis. The company has a long-term earnings growth expectation of 19% and delivered an average earnings surprise of 10.4% in the trailing four quarters [16][17] - **Thermon (THR)**: Offers industrial process heating solutions and has expanded its product lines through acquisitions. The company delivered an average earnings surprise of 14.9% in the trailing four quarters [19] Future Outlook - The industry is expected to benefit from the growing emphasis on digitized technologies, industrial automation, and energy efficiency, despite ongoing challenges such as raw material price volatility and competitive pressures [5][7]

Company Performance - Badger Meter (BMI) closed at $219.02, with a +0.25% change, underperforming the S&P 500's gain of 0.53% and the Dow's gain of 0.93% [1] - Over the past month, shares of Badger Meter have depreciated by 0.69%, while the Computer and Technology sector gained 3.02% and the S&P 500 gained 2.69% [1] Upcoming Earnings - Badger Meter's earnings report is scheduled for January 31, 2025, with projected earnings per share (EPS) of $1, reflecting a 19.05% increase year-over-year [2] - The Zacks Consensus Estimate for revenue is $198.92 million, indicating a 9.04% increase from the previous year [2] Analyst Projections - Recent shifts in analyst projections for Badger Meter should be monitored, as positive revisions indicate optimism regarding the company's business and profitability [3] Zacks Rank and Valuation - Badger Meter currently holds a Zacks Rank of 2 (Buy), with a stagnant consensus EPS projection over the past 30 days [5] - The company has a Forward P/E ratio of 46.07, which is a premium compared to the industry average of 23.46 [6] - Badger Meter's PEG ratio is 2.42, aligning with the industry average [6] Industry Context - The Instruments - Control industry, part of the Computer and Technology sector, has a Zacks Industry Rank of 172, placing it in the bottom 32% of over 250 industries [7] - The top 50% rated industries outperform the bottom half by a factor of 2 to 1 [7]

Company Performance - Badger Meter (BMI) closed at $215.17, with a +0.57% change from the previous day, underperforming the S&P 500's daily gain of 1% [1] - The stock has decreased by 2.06% over the past month, which is better than the Computer and Technology sector's loss of 4.13% and the S&P 500's loss of 2.14% [1] Upcoming Financial Results - Badger Meter is set to announce its earnings on January 31, 2025, with an expected EPS of $1, reflecting a 19.05% increase year-over-year [2] - The consensus estimate for revenue is $198.92 million, indicating a 9.04% increase compared to the same quarter of the previous year [2] Analyst Estimates and Stock Performance - Recent changes to analyst estimates for Badger Meter are important as they reflect short-term business dynamics, with positive changes indicating analyst optimism [3] - The Zacks Rank system, which incorporates these estimate changes, has shown a strong track record, with stocks rated 1 producing an average annual return of +25% since 1988 [4][5] Valuation Metrics - Badger Meter is currently trading at a Forward P/E ratio of 45.12, which is a premium compared to the industry's average Forward P/E of 23.02 [6] - The company has a PEG ratio of 2.37, aligning with the average PEG ratio of the Instruments - Control industry [6] Industry Context - The Instruments - Control industry is part of the Computer and Technology sector and currently holds a Zacks Industry Rank of 173, placing it in the bottom 32% of over 250 industries [7] - Research indicates that the top 50% rated industries outperform the bottom half by a factor of 2 to 1 [7]