Company Overview
Badger Meter, Inc. (BMI) is a leading provider of water management solutions, leveraging its expertise in flow measurement, communication, and data analytics to empower utilities, commercial, and industrial customers to optimize water usage and enhance sustainability efforts. With a rich history spanning over a century, the company has evolved from producing traditional water meters to offering a comprehensive suite of cutting-edge technologies that are transforming the way the world manages its most precious resource.
History
Founded in 1905 and headquartered in Milwaukee, Wisconsin, Badger Meter's origins can be traced back to its invention of the first frost-proof water meter, revolutionizing the industry and laying the foundation for its enduring success. Over the decades, the company has continued to innovate, expanding its product portfolio and geographic reach to become a global leader in smart water solutions.
Early Innovations
In the 1950s, Badger Meter introduced its first electronic meters, marking a significant technological advancement for the company. This innovation was followed by the development of ultrasonic flow meters in the 1990s, which provided increased accuracy and durability compared to traditional mechanical meters. During this period, Badger Meter also expanded its international presence, establishing operations in key markets around the world.
Transition to Smart Water Solutions
The company faced a major industry challenge with the transition from manually read water meters to remotely read meters using radio technology. In response, Badger Meter developed its ORION line of radio communication endpoints, enabling water utilities to remotely collect meter data and gain valuable insights into their distribution networks. This innovation positioned the company at the forefront of the smart water management revolution.
In the 2010s, Badger Meter further expanded its product offerings by introducing new water quality monitoring solutions and software platforms, providing customers with a comprehensive suite of smart water management tools. The company's commitment to innovation and customer service has been a key driver of its success throughout its history, allowing it to navigate the evolving needs of the water industry over the past century.
Financials
Badger Meter's financial performance has been consistently strong, with the company reporting net income of $92.60 million and revenue of $703.59 million in the fiscal year 2023. The company's robust cash flow generation, with operating cash flow of $110.12 million and free cash flow of $98.11 million in 2023, has allowed it to invest in research and development, pursue strategic acquisitions, and provide an attractive dividend to shareholders.
In the most recent quarter, Badger Meter reported revenue of $208.44 million, net income of $32.04 million, operating cash flow of $45.09 million, and free cash flow of $41.96 million. The company achieved a 12% year-over-year revenue growth, demonstrating its continued success in the market. Furthermore, Badger Meter reported record operating margins of 19.5% in Q3 2024, with both year-over-year gross margin expansion and SG&A leverage contributing. The company also delivered strong EPS improvement of 23% compared to the prior year quarter and generated robust year-over-year free cash flow growth of 48%.
Liquidity
Badger Meter maintains a strong financial position with no debt, as evidenced by its debt-to-equity ratio of 0. As of the most recent quarter, the company had $258.95 million in cash and cash equivalents. Additionally, Badger Meter has access to a $150 million multi-currency credit facility, of which $154.5 million was unused as of September 30, 2024. The company's current ratio of 4.10 and quick ratio of 2.87 further demonstrate its solid liquidity position.
Products and Solutions
At the heart of Badger Meter's success is its focus on addressing the growing global demand for efficient and sustainable water management. The company's product offerings span a wide range of applications, including utility water meters, water quality monitoring solutions, and flow instrumentation for industrial and commercial customers. By seamlessly integrating hardware, communication technologies, and data analytics platforms, Badger Meter empowers its customers to make informed decisions, reduce water waste, and meet increasingly stringent regulatory requirements.
Utility Water Product Line
Badger Meter's utility water product line, which accounts for approximately 85% of the company's net sales, focuses on providing smart metering solutions for water utilities. This product line includes water meters, related radio communication technology, and software platforms that enable water utilities to generate revenue, improve operating efficiency, and engage with end consumers.
The company offers both manually read meters and remotely read meters via radio technology. Remotely read meters can be either automatic meter reading (AMR) systems or advanced metering infrastructure (AMI) systems. Badger Meter's ORION family of endpoints offers water utilities a choice of industry-leading options for communicating meter reading and event data, including the ORION Cellular solution that enables a Network as a Service (NaaS) approach to AMI.
In addition to metering hardware, Badger Meter's utility water product line includes water quality monitoring solutions utilizing optical sensors and electrochemical instruments that measure various parameters such as turbidity, pH, chlorine, and nitrates.
Flow Instrumentation Product Line
Badger Meter's flow instrumentation product line, accounting for approximately 15% of the company's net sales, primarily serves water applications throughout the broader industrial market. These solutions include meters, valves, and other sensing instruments sold worldwide to measure and control the quantity of fluids in various industries and applications, with a primary market focus on water/wastewater, HVAC, and corporate sustainability.
AMI Solutions
One of the key drivers of Badger Meter's growth has been the industry's ongoing transition from manually read water meters to advanced metering infrastructure (AMI) solutions. The company's ORION family of endpoints, including its ORION Cellular offering, has been at the forefront of this transformation, enabling water utilities to collect and analyze real-time data, improve operational efficiency, and enhance customer engagement.
Industrial and Commercial Markets
In addition to its core utility water business, Badger Meter has also made strategic investments to expand its presence in the industrial and commercial water management markets. The company's flow instrumentation product line serves a diverse range of industries, including wastewater treatment, HVAC, and corporate sustainability initiatives.
Growth Strategy
Acquisitions
Badger Meter's growth strategy has also incorporated selective acquisitions to bolster its technological capabilities and geographic reach. Recent examples include the acquisition of Syrinix, a provider of high-frequency pressure monitoring and leak detection solutions, and the TelogUnity Assets, which expanded the company's remote water monitoring hardware and software offerings.
Future Outlook
Looking ahead, Badger Meter remains well-positioned to capitalize on the growing demand for smart water solutions. The company's robust innovation pipeline, strong customer relationships, and disciplined capital allocation approach position it as a compelling long-term investment opportunity. As the world grapples with the challenges of aging infrastructure, water scarcity, and sustainability concerns, Badger Meter's solutions are poised to play a crucial role in helping customers manage their most valuable resource more efficiently and responsibly.
The water technology industry that Badger Meter operates in is seeing increasing demand driven by factors such as aging infrastructure, sustainability initiatives, and the adoption of smart water management solutions. Industry analysts estimate the global smart water management market could grow at a CAGR of around 12-15% over the next 5-10 years as utilities and industrial customers invest in technologies to improve efficiency, conservation, and resiliency of water systems.
Badger Meter is well-positioned to capitalize on these industry trends with its portfolio of smart water meters, communication devices, data analytics software, and other water management solutions. The company has been an innovation leader in areas like cellular-based advanced metering infrastructure (AMI) and ultrasonic metering technology.
As Badger Meter closes out 2024, they expect the typical pattern of fewer customer operating days given the heavy U.S. holiday season. The company also anticipates that hurricane-related recovery activities could temporarily delay certain Southeastern U.S. utility projects in the near term, although it is still too early to quantify any possible impact. Going forward, Badger Meter remains confident in the long-term gross margin improvement trend line, driven predominantly by positive structural mix. The company continues to expect an ongoing effective income tax rate in the plus or minus 25% range, assuming no change in overall corporate income tax rates. Badger Meter remains focused on high single-digit sales growth rates over the strategic cycle, though they note that year-to-year growth can be uneven.
It's worth noting that the majority of Badger Meter's sales (over 90%) are in North America, primarily the United States. While the company does have some international sales, with modest exposure in Europe, Asia, Canada, Mexico, and the Middle East, these international markets represent a relatively small portion of their overall business.
Throughout its more than 100-year history, Badger Meter has maintained stable leadership and has not faced any major scandals, short seller reports, or CEO departures. This stability, combined with the company's strong financial position and innovative product offerings, positions Badger Meter well for continued success in the evolving water management industry.