Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Badger Meter Inc (BMI, Financial) surpassed the $200 million quarterly revenue milestone, achieving $217 million in total sales, representing a 23% year-over-year growth.
- The company reported record operating margins and EPS for the quarter, along with strong year-over-year cash flow growth.
- Total utility water product line sales increased by 26% year-over-year, driven by strong demand for smart water solutions.
- Operating margin expanded by 240 basis points, reaching a record high of 19.2% for the second quarter.
- Free cash flow increased to $34.1 million, up from $20.1 million in the prior year, largely due to higher earnings.
Negative Points
- Sales growth is expected to normalize to high single digits in the back half of the year, indicating a slowdown from the current growth rate.
- The company does not anticipate the same level of backlog conversion that benefited the second quarter, which may impact sequential revenue trends.
- SEA expenses increased by approximately $4 million year-over-year, primarily due to higher personnel-related costs.
- Copper prices, which are 18% higher than the previous year, pose a potential pressure on gross margins.
- The company faces ongoing inflationary pressures in areas such as transportation, energy, and other costs, which could impact profitability.
Q & A Highlights
Q: Can you talk about the contribution of the first half backlog burn off in the second quarter and how it affects the second half run rate?
A: The positive market outlook remains unchanged, but year-over-year comparisons are getting tougher. We aim to manage expectations as our business has always been uneven, and we don't want to set a precedent that each quarter will sequentially be larger.
Q: Should we expect incremental margins to normalize back to mid-20s levels if organic growth is lower?
A: No fundamental shift in our normal incrementals. Recent quarters have shown higher margins due to robust growth and slower growth investment, but we still expect mid-20s incrementals as the norm.
Q: How do you plan to leverage the BlueEdge platform to generate additional revenue?
A: BlueEdge allows us to offer a comprehensive suite of solutions to customers, meeting them where they are in their technology journey. It simplifies our offerings and helps us sell more products by integrating hardware, software, and services.
Q: Is there any update on the impact of US government stimulus related to water on demand?
A: Our growth has not been significantly aided by infrastructure funds. The fundamentals of the market and our execution have driven growth. We don't expect any air pockets due to these funds, and any future benefits would be additional.
Q: Should we expect copper price movements to pressure gross margins in the back half of the year?
A: Copper prices are a headwind, but they are just one of many factors affecting gross margins. Despite inflationary pressures, we expect to maintain our normalized gross margin range, which has been stable over the last six quarters.
Q: Does the high single-digit growth target for the second half assume further backlog reduction?
A: We haven't sized the backlog, but we remain excited about our order rates and backlog levels. Our view on this hasn't fundamentally changed.
Q: How have utility customers adapted their staffing models to support higher deployment paces?
A: There's no standard answer, but we've seen more installation companies working for utilities and some utilities trying to staff up. The aging workforce is driving technology adoption, which supports our growth.
Q: Should we expect SEA expenses to stay at the current level in the second half of the year?
A: The comment about modest operating margin improvement was year-over-year, not sequential. We continue to invest in the business at a rate slower than top-line growth, which remains an operating lever for us.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
