• Quarterly Sales Growth: 13% increase year-over-year.
• Utility Water Product Line Sales: 14% increase year-over-year.
• Flow Instrumentation Product Line Sales: 1% increase in the quarter.
• Operating Margins: Expanded 150 basis points to 19.1%.
• Gross Profit Margins: Improved to 40.3%, a 110 basis point increase.
• Quarterly Expenses: $43.5 million, up approximately $4 million year-over-year.
• Income Tax Provision: 27.1% for the fourth quarter of 2024.
• EPS: $1.04, a 24% improvement from $0.84 in the prior year quarter.
• Primary Working Capital as a Percent of Sales: 20.8% at December 31, 2024.
• Free Cash Flow: Record $47.4 million, up 32% year-over-year.
• Full Year Sales Growth: 18%, surpassing $800 million in revenue.
• Software Revenue: Exceeds $56 million, representing 6.7% of sales.
• EBITA Margins: Hit a record 23% in 2024.
• Smart Cover Acquisition: $185 million purchase price, approximately $35 million in 2024 sales.

• Warning! GuruFocus has detected 2 Warning Sign with WT.

Release Date: January 31, 2025

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

Positive Points

• Badger Meter Inc (NYSE:BMI) achieved a record year with strong fourth-quarter results in sales, operating profit, earnings per share, and cash flow metrics.
• The company reported a 13% quarterly sales growth, building on a 24% increase in the prior year comparable quarter.
• Operating margins expanded by 150 basis points to 19.1%, with gross profit margins improving to 40.3%.
• The acquisition of Smart Cover is expected to enhance Badger Meter Inc (NYSE:BMI)'s portfolio with sewer and lift station monitoring solutions.
• The company generated a record free cash flow of $47.4 million in the quarter, up 32% year-over-year.

Negative Points

• The income tax provision increased to 27.1% in the fourth quarter of 2024, compared to 26.1% in the prior year period.
• Expenses in the fourth quarter rose by approximately $4 million year-over-year, primarily due to personnel-related costs.
• The acquisition of Smart Cover is expected to be EPS dilutive in 2025 due to the opportunity cost on interest.
• There is macro uncertainty, particularly regarding potential tariffs, which could impact future financial performance.
• Smart Cover's current high single-digit EBITDA margins reflect its scale and heavy growth investments, indicating potential challenges in achieving profitability improvements.

Q & A Highlights

Q: Can you provide more details on your exposure to Mexico manufacturing and contingency plans if tariffs are implemented? A: Kenneth Bockhorst, CEO: We have limited exposure to China as we've reshored much of our manufacturing to North America, including our operations in Nogales. While tariffs could impact everyone, we've consistently managed challenges like tariffs and supply chain issues by controlling what we can and acting with urgency.

Q: What are the main demand drivers for Smart Cover, and how much of its revenue is recurring? A: Kenneth Bockhorst, CEO: Demand drivers include regulation, labor availability, and extreme weather events. About a third of Smart Cover's revenue is recurring from software and maintenance services, with an additional 20% from aftermarket product replacement services.

Q: Can you explain the revenue cadence through 2024 and expectations for 2025? A: Robert Wrocklage, CFO: The second quarter had elevated revenue due to backlog deployment, but overall, our growth remains in the high single digits. We expect some quarterly variability but remain focused on our strategic growth targets.

Q: How does Smart Cover fit into your existing business, and what competitive advantages do you have? A: Kenneth Bockhorst, CEO: Smart Cover complements our existing presence in the collection network. Our core competencies in communications and software provide a competitive edge, allowing us to integrate Smart Cover's solutions with our existing offerings.

Q: Will the Smart Cover acquisition be accretive or dilutive to earnings in the short term? A: Kenneth Bockhorst, CEO: For 2025, the acquisition will be EPS dilutive due to interest opportunity costs, but it is expected to turn accretive in the second year.

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