BADGER METER INC Q3 FY2024 earnings call

Opening Remarks

• Ken and Bob thanked Karen Bauer for her expertise over the years and introduced Barb Noverini for the investor relations transition.

Financial Results

• Record operating margins of 19.5% achieved, with 12% year-over-year top line sales growth, year-over-year gross margin expansion, and SEA leverage contributing. EPS improved despite a higher tax rate, and robust cash flow growth was generated.

BlueEdge Initiative

• BlueEdge is a tailorable suite of solutions for water challenges across the water cycle. Showcased at ACE and WEFTEC, highlighting hardware, communication tech, and actionable data for water management.

Resilience in Hurricanes

• Customer feedback showed Badger Meter's solutions continued communicating critical info during hurricanes, even when utilities were without power, demonstrating resilient solutions.

Outlook

• Structural macro drivers in the water industry are pronounced, with an encouraging opportunity funnel. Fourth quarter may have fewer customer operating days due to holidays, and hurricane-impacted regions could delay projects, but the team remains committed to capital allocation priorities.

Total utility water product line sales increased 14% year-over-year, driven by strong demand for the BlueEdge suite of utility smart water solutions, including 35% year-over-year growth in Software as a Service revenues. Sales for the flow instrumentation product line were flat in the quarter, with solid order trends in water-related applications offsetting modest declines in other end markets. The utility water product line contributed significantly to overall revenue, with its 14% growth being a key driver.

• Expect high single-digit sales growth rates over the strategic cycle.
• Fourth quarter likely to have fewer customer operating days due to U.S. holidays.
• Hurricane-impacted regions may delay certain projects in the near term, but impact is yet to be quantified.

• Unevenness inherent in the industry due to factors like holidays and hurricane impacts.
• Potential delays in projects in hurricane-impacted regions, which could affect short-term performance.

Q: Scott Graham asked about 2025 sales growth implications given strong recent years.

A: Ken noted high single-digit growth through the strategic cycle, not expecting down years, with market dynamics and portfolio advantages supporting growth.

Q: Andrew Krill inquired about hurricane impact on the business and sizing.

A: Ken explained the sales model's direct customer communication, potential delays in projects but no cancellations, and historical resilience during events like COVID.

Q: Rob Mason asked about backlog normalization and SaaS revenues.

A: Ken stated backlog remains positive, and SaaS revenues are driven by 100% attachment rate to hardware sales with additional hardware units contributing.

Q: Adam Farley asked about capital allocation and M&A.

A: Ken mentioned R&D leadership, dividend increases, and ongoing M&A funnel focusing on sensor areas to plug into BlueEdge.

Q: Tate Sullivan asked about international markets.

A: Ken noted growth in international markets via acquisitions and expanded relationships, leveraging installed bases and long-standing customer relationships for BlueEdge solutions.