BMI Q1 Earnings Call: Margin Expansion Driven by Mix, Tariff Uncertainty Remains

Water control and measure company Badger Meter (NYSE:BMI) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 13.2% year on year to $222.2 million. Its non-GAAP profit of $1.30 per share was 23.1% above analysts’ consensus estimates. 

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StockStory’s Take

Badger Meter’s first quarter results reflected a combination of favorable sales mix and continued adoption of advanced metering technologies, according to management’s discussion on the earnings call. The company attributed its margin expansion to strong performance in software, positive product and customer mix, and the initial contribution from the SmartCover acquisition. CEO Kenneth Bockhorst emphasized the durability of Badger Meter’s replacement-driven demand, citing sustained investment in water technology even during periods of broader economic uncertainty.

Looking ahead, management acknowledged significant uncertainty related to tariffs and global supply chain pressures. Bockhorst indicated that while current tariff exposures are considered manageable, the company will implement targeted pricing actions if conditions worsen. CFO Robert Wrocklage noted that while recent gross margin performance benefited from several favorable factors, not all are expected to persist in future quarters. Management maintained its long-term focus on operational flexibility, pricing discipline, and ongoing investment in technology to support sustained growth.

Key Insights from Management’s Remarks

Management identified key factors behind Badger Meter’s Q1 performance and addressed how external challenges may impact future quarters. The discussion highlighted the influence of product mix, customer trends, and macroeconomic pressures on the company’s results and outlook.

• Software Revenue Growth: Software was the leading contributor to revenue growth, with management reporting a 25% increase in this segment. The company sees ongoing software adoption as a structural driver of both sales and margins.
• SmartCover Acquisition: The integration of SmartCover, completed in late January, added sewer and lift station monitoring capabilities to Badger Meter’s portfolio. Management expects this acquisition to generate operational synergies and strengthen its Blue Edge suite of water management solutions.
• Favorable Sales Mix: The quarter benefited from an especially favorable combination of customer and product mix, driving margins above the company’s normalized range. Management cautioned that these mix benefits are partly episodic and may not recur every quarter.
• Tariff and Supply Chain Pressures: Leadership discussed ongoing uncertainty surrounding tariffs, particularly regarding input costs for electronics and rare earth elements. The company plans to use targeted pricing actions to offset these pressures but does not anticipate immediate mitigation effects.
• Stable End-User Demand: Badger Meter’s replacement-driven business model continues to exhibit resilience, with no significant pullbacks or delays reported by customers. Management highlighted the essential nature of water metering for utilities, even during challenging budget environments.

Drivers of Future Performance

Management’s outlook for the coming quarters centers on navigating tariff uncertainty while capitalizing on technology adoption and maintaining operational flexibility. The company’s strategic priorities are aimed at sustaining revenue growth and protecting margins.

• Tariff Management: The company expects ongoing volatility in tariff policies, particularly affecting electronics and raw materials. Management plans to use targeted pricing strategies to offset potential cost increases, but notes that some input costs, such as rare earth elements, are difficult to mitigate quickly.
• Technology and Software Expansion: Continued investment in advanced metering infrastructure (AMI), software solutions, and the expanded Blue Edge suite are expected to drive long-term revenue growth and margin improvement.
• Resilient Utility Demand: The replacement-driven nature of Badger Meter’s business supports stable demand, with utilities prioritizing metering investments despite broader economic or budgetary challenges. Management believes this dynamic will help buffer the company against market downturns.

Top Analyst Questions

• Andrew Krill (Deutsche Bank): Asked whether the favorable mix-driven margin improvement is sustainable and about potential margin moderation if tariffs remain stable. Management replied that some benefits are durable, but others are episodic and mix-dependent.
• Nathan Jones (Stifel): Inquired about the aggregate tariff impact on costs and whether customers are accelerating orders. Management stated that tariff impacts are manageable and order patterns remain normal, with most revenue direct to end users, limiting pull-forward.
• Jeffrey Reeve (RBC): Sought commentary on municipal budgets, AMI investment prioritization, and the risk of utility budget inflation affecting demand. Management indicated utilities tend to protect metering investments, viewing them as essential.
• Scott Graham (Seaport Research Partners): Asked what would trigger tariff impacts to become unmanageable and about notable changes in order mix. Management cited potential changes to USMCA or raw material tariffs as triggers and emphasized continued strength in software mix.
• Rob Mason (Baird): Queried the timing of price increases and the impact of inflation on multi-year contracts. Management indicated price increases are forthcoming and that recent inflation has prompted more flexible contract terms.

Catalysts in Upcoming Quarters

In the upcoming quarters, the StockStory team will closely monitor (1) management’s ability to implement targeted price adjustments in response to evolving tariff and raw material costs, (2) the integration progress and revenue contribution from the SmartCover acquisition, and (3) sustained growth in software and AMI adoption. Execution on these fronts will be critical to assessing Badger Meter’s ability to maintain margin improvement and capitalize on technology-driven opportunities.

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