Badger Meter(BMI) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total sales for Q3 2025 reached $236 million, marking a 13% year-over-year increase, with BASE sales growth at 8% [5][6] - Operating earnings rose 13% year-over-year to $46.1 million, with operating margins slightly up to 19.6% from 19.5% [6][8] - Consolidated EPS increased to $1.19 from $1.08 in the prior year, representing a 10% year-over-year growth [8][9] - Record free cash flow of $48.2 million, up approximately $6 million year-over-year, primarily due to lower cash taxes [9] Business Line Data and Key Metrics Changes - Utility water product line sales increased by 14% year-over-year, or 8% excluding SmartCover, driven by higher ultrasonic meter volumes and increased Beacon SaaS sales [5][6] - Flow instrumentation product line sales grew by 4% year-over-year, supported by strength in water-related markets [6] Market Data and Key Metrics Changes - The company noted a steady demand for its cellular AMI solution and BlueEdge suite, supported by macroeconomic drivers encouraging technology adoption across the water cycle [3][10] - The trade environment remains fluid, but the company has effectively managed tariff and trade-related cost pressures [3][7] Company Strategy and Development Direction - The company is focused on long-term growth through its BlueEdge solutions, which are modular and allow customers to adopt technologies at their own pace [10][11] - The company is well-positioned to capitalize on long-term trends in the water industry, with a strong cash flow generation capability and a net cash position of approximately $200 million [14] - The company plans to continue investing in both organic growth and potential acquisitions, while also returning cash to shareholders through increased dividends [14][50] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the business despite macroeconomic uncertainties, citing ongoing demand for critical utility water infrastructure [12][13] - The company anticipates a high single-digit average top-line growth rate over the next five years, despite the inherent unevenness in project timing [12][48] Other Important Information - The company has successfully transitioned certain manufacturing operations to its facility in Racine, Wisconsin, as part of the SmartCover acquisition integration [14] - The company has raised its gross margin range from 39% to 42% on a normalized basis, reflecting ongoing structural mix improvements [7][62] Q&A Session Summary Question: Insights on gross profit margin expectations - Management indicated that the lack of new tariff news and continued strong performance gave them confidence to raise the gross margin range [18][19] Question: Project timing and customer decision-making - Management clarified that they do not expect a decline in business but noted the typical seasonal impacts in Q4 due to fewer operating days [22][24] Question: Growth expectations for SmartCover - Management remains excited about SmartCover's integration and growth potential, with expectations of continued strong performance [29][30] Question: Pricing and tariff impacts - Management discussed targeted price increases to mitigate tariff impacts, with expectations of reaching parity between price and cost moving forward [38][39] Question: Water quality performance and customer needs - Management expressed strong traction in water quality offerings and confidence in their current parameters, with no immediate gaps identified [41][42] Question: 2026 growth outlook - Management refrained from providing specific guidance for 2026 but expressed confidence in achieving high single-digit growth over the cycle [47][49] Question: Federal funding impact on metering - Management noted that very little federal funding has gone toward metering, with macro drivers remaining the primary focus for utilities [53][54]