Badger Meter, Inc. (BMI) Q4 2025 Earnings Call Transcript
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Overview
The earnings call highlights several positive factors: increased gross margin range, strong top-line growth expectations, and successful SmartCover acquisition synergies. The Q&A section reveals confidence in long-term growth and strategic project wins like PRASA. While there are some uncertainties, such as project timing variability and margin impacts, the overall sentiment is positive, bolstered by strong financial metrics and optimistic guidance. The company's strategic focus on growth and shareholder returns further supports a positive outlook.
Key Financial Performance
Total Sales (Q4 2025) $221 million, an increase of 8% year-over-year or 2% base sales growth. The increase was driven by robust demand for cellular AMI solutions and contributions from the SmartCover acquisition.
Utility Water Product Line Sales (Q4 2025) Increased by 9% year-over-year or 2% excluding SmartCover. Sequential decline of 6% from Q3 2025 due to fewer operating days and project pacing effects.
Flow Instrumentation Product Line Sales (Q4 2025) Flat year-over-year with modest growth in water-focused end markets offsetting declines in deemphasized applications.
Operating Earnings Growth (Q4 2025) Increased by 10% year-over-year, outpacing revenue growth. Operating profit margins rose by 40 basis points to 19.5%.
Base Operating Earnings (Q4 2025) Increased by 9% year-over-year, with base operating profit margins expanding by 140 basis points to 20.5%.
Gross Margins (Q4 2025) Expanded by 180 basis points to 42.1% from 40.3% in the prior year quarter. Benefits came from structural mix driven by ultrasonic meters, cellular AMI, water quality, and SmartCover sales.
SEA Expenses (Q4 2025) $49.9 million, a $6.4 million year-over-year increase primarily due to the SmartCover acquisition. Excluding SmartCover, base SEA expenses increased by $1.3 million or 2.9% year-over-year, driven by higher personnel costs.
Income Tax Provision (Q4 2025) 24.8%, down from 27.1% in the prior year quarter.
EPS (Q4 2025) $1.14, a 10% year-over-year increase from $1.04 in the prior year quarter.
Free Cash Flow (Q4 2025) $50.8 million, an increase of approximately $3.4 million year-over-year.
Full Year Sales Growth (2025) 11%, surpassing $900 million in revenue. This reflects a 17% compounded annual growth rate over the past 5 years.
Software Revenue (2025) Exceeds $74 million, representing 8% of total sales. Software revenues grew at a 28% compounded annual growth rate over the past 5 years.
Operating Profit Margins (2025) Expanded by 90 basis points to 20%. Base operating profit margins increased by 200 basis points year-over-year.
Free Cash Flow (2025) Exceeded 100% of net earnings.
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Operating Highlights
SmartCover integration: SmartCover was integrated into the BlueEdge suite of smart water management solutions, contributing $40 million in sales in 2025. Manufacturing operations were transferred to Racine, Wisconsin, and profitability improved through higher sales volumes and cost management.
Cellular AMI solution: Continued robust demand for the industry-leading cellular AMI solution, which is increasingly adopted by North American water utilities as the industry standard for AMI.
PRASA AMI project: Awarded a transformative multiyear project for the Puerto Rico Aqueduct and Sewer Authority (PRASA), involving 1.6 million service connections. The project includes E-Series ultrasonic meters, ORION Cellular AMI radios, and BEACON SaaS, with production in Racine, Wisconsin. Revenue contributions are expected to begin in 2026.
Profitability and margins: Operating profit margins increased by 40 basis points to 19.5% in Q4 2025, with gross margins expanding to 42.1%. Base operating profit margins increased by 140 basis points to 20.5%.
Free cash flow: Record quarterly free cash flow of $50.8 million, a $3.4 million year-over-year increase.
Long-term growth strategy: Focus on high single-digit sales growth over a 5-year horizon, driven by cellular AMI and smart water management solutions. Expansion into solutions across the entire water cycle through acquisitions and internal development.
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Risk or Challenges
Global tariff and trade conditions: The company expects global tariff and trade conditions to remain fluid in 2026, which could impact cost structures and pricing strategies.
Elevated material costs: Prices of copper and certain other components of Bi-alloy ingot material are expected to remain elevated, posing a gross margin headwind in 2026.
Project pacing dynamics: The company anticipates project pacing dynamics to extend into the first half of 2026, potentially impacting revenue growth until new projects like PRASA begin deployment.
PRASA project variables: The PRASA project, while significant, has many known and unknown variables that could influence near-term revenue contributions and year-to-year project pacing.
Turnkey project mix: The concentrated mix of concluding AMI turnkey projects in late 2025 resulted in lower base revenue growth, a dynamic expected to continue into early 2026.
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Guidance & Outlook
Gross Margin Outlook: Global tariff and trade conditions are expected to remain fluid in 2026. Elevated prices of copper and certain other components of Bi-alloy ingot material costs are anticipated to be a gross margin headwind. Normalized gross margin range is projected to be between 39% to 42%, factoring in ongoing price mitigation actions.
PRASA AMI Project: The Puerto Rico Aqueduct and Sewer Authority (PRASA) AMI project is a transformative multiyear project expected to begin product shipments in 2026, with more meaningful revenue contributions in the second half of 2026. The project includes E-Series ultrasonic meters, ORION Cellular AMI radios, and BEACON SaaS for approximately 1.6 million service connections. The project is not expected to be additive to the long-term high single-digit growth outlook.
Revenue Growth Outlook: The company expects high single-digit sales growth over the next 5 years, supported by long-term secular trends in the water industry. Project pacing dynamics may cause variations in quarterly or annual growth rates.
SmartCover Integration: SmartCover's profitability is expected to improve further in 2026, with earnings accretion anticipated. The integration of SmartCover's manufacturing operations into the Racine, Wisconsin facility has been completed.
Long-Term Financial Goals: The company aims to achieve high single-digit sales growth, operating profit margin expansion, and free cash flow conversion in excess of earnings over a 5-year forward time horizon.
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Shareholder Return Plan
Dividend Increase: In the third quarter, the company increased its dividend for the 33rd consecutive year.
Share Repurchase: In the fourth quarter, the company repurchased $15 million in shares opportunistically when the market price implied an attractive long-term return on capital.
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Key Q&A
Q:Did we see the full impact of the conclusion of those projects in 4Q?
A:Kenneth Bockhorst explained that the second half of the year had a lower growth rate than the first half due to project pacing and fewer working days in Q4. He did not specify if more projects concluded in Q3 versus Q4 but noted that growth dynamics in 2026 are expected to be the inverse of 2025.
Q:Are the size of the U.S. market and Badger's share still accurate?
A:Kenneth Bockhorst confirmed that the U.S. market size is about 6 million meters per year, with Badger's share at roughly 30%. Robert Wrocklage added that the market size might be slightly higher than 6 million, but the share percentage remains relevant.
Q:How significant is the PRASA project for Badger Meter?
A:Kenneth Bockhorst highlighted that the PRASA project is equivalent to 8 Orlando-sized projects, making it a significant win. He noted that Badger does not typically announce projects but made an exception due to the size of this one.
Q:What is the outlook for gross margins in 2026?
A:Daniel Weltzien stated that structural mix will positively impact margins in 2026. He acknowledged headwinds like turnkey projects and rising copper prices but noted that the absence of turnkey projects in the first half will be a tailwind. He did not provide specific quarter-to-quarter variability.
Q:What is the typical timing and phasing of a large AMI project like PRASA?
A:Kenneth Bockhorst explained that AMI project deployments are not smooth and can vary due to factors like budget cycles, resource alignment, and weather. PRASA is expected to be a 5-year project, but timing could vary.
Q:Is there a margin differential for meters manufactured in Racine versus Mexico?
A:Robert Wrocklage confirmed a potential margin impact due to labor cost differences but noted that this was accounted for during the contracting stage. The U.S.-made manufacturing requirement drives the location of production.
Q:What is the outlook for sales in 2026?
A:Kenneth Bockhorst expressed confidence in sales growth for 2026, despite some projects sliding from the first half to the second half. He reiterated a high single-digit growth target over a 5-year horizon, supported by awarded projects and recurring software revenue.
Q:How does Badger handle pricing in light of tariffs?
A:Kenneth Bockhorst stated that Badger uses list price increases rather than temporary tariff add-ons, ensuring a clean pricing strategy. He noted that 75% of revenue is sold direct, allowing for real-time project pricing.
Q:How does project pacing impact revenue in 2026?
A:Kenneth Bockhorst acknowledged some variability in project timing, with some projects sliding from the first half to the second half of 2026. He emphasized confidence in the overall 5-year horizon and noted that these are awarded, not started projects.
Q:How much of the 5-year growth outlook is supported by awarded projects?
A:Kenneth Bockhorst explained that the 5-year growth outlook is supported by a mix of planning, RFPs, in-flight projects, and awarded projects. He emphasized that 85% of annual revenue comes from replacement meters and radios, providing a stable base.
Q:How is the PRASA project funded, and what is its legal status?
A:Robert Wrocklage stated that the PRASA project is funded by FEMA dollars due to Hurricane Maria. He did not comment on the legal status but noted that variables could impact the project's pace.
Q:How does Badger plan to allocate capital in 2026?
A:Kenneth Bockhorst stated that Badger will continue to invest in organic and inorganic growth, return cash to shareholders through dividends and share repurchases, and pursue M&A opportunities.
Q:What is the growth potential for SmartCover?
A:Kenneth Bockhorst noted that SmartCover has been growing at a 20% CAGR and expects continued high growth due to early adoption of sewer line monitoring.
Q:How does AMI deployment expand the reach of other offerings?
A:Robert Wrocklage explained that AMI deployments often lead to the adoption of other technologies like pressure management and water quality monitoring, as utilities grow into data and analytics capabilities.
Q:How has ARPA funding been reflected in 2026 commentary?
A:Kenneth Bockhorst stated that ARPA funding has not been a significant consideration in 2026 commentary, as Badger's growth is driven by other funding sources and project activities.
Q:What is the impact of project roll-offs on 2026 growth?
A:Kenneth Bockhorst indicated that 2026 growth will be lower in the first half due to project roll-offs but higher in the second half. He did not provide specific percentages.
Q:What is the status of share repurchases and cost management?
A:Kenneth Bockhorst confirmed that Badger has the authorization to repurchase shares and will continue to invest in long-term growth rather than short-term cost-cutting.
Q:What is the potential for sewer line monitoring growth?
A:Kenneth Bockhorst emphasized the early adoption stage of sewer line monitoring and expects it to grow at a higher rate than average.
Q:How does PRASA's AMI deployment influence other offerings?
A:Robert Wrocklage noted that AMI deployments often serve as a foundation for adopting additional technologies, enhancing utility operations.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on quarter-to-quarter gross margin variability, the exact margin impact of manufacturing location differences, and the legal status of the PRASA project. They also refrained from disclosing specific growth percentages for the first half of 2026 and the exact impact of ARPA funding on 2026 commentary.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AMI project
America Municipal
Aqueduct
Authority
BlueEdge
CFO
Executive Vice
Full
Municipal Utility
North America
PRASA AMI
PRASA project
President North
Puerto Rico
SEA
Sewer
SmartCover
Vice President
award PRASA
base
contractor turnkey
contribution project
installation
pilot
price mitigation
profitability
project PRASA
project award
project deployment
project pacing
supply
turnkey project
utility
water sale
BMI Transcript
Badger Meter, Inc. (BMI) Q4 2025 Earnings Call Transcript
Positive1-28
The earnings call highlights several positive factors: increased gross margin range, strong top-line growth expectations, and successful SmartCover acquisition synergies. The Q&A section reveals confidence in long-term growth and strategic project wins like PRASA. While there are some uncertainties, such as project timing variability and margin impacts, the overall sentiment is positive, bolstered by strong financial metrics and optimistic guidance. The company's strategic focus on growth and shareholder returns further supports a positive outlook.
Cadence Bank (CADE) Q3 2025 Earnings Call Transcript
Unknown10-21
The earnings call summary and Q&A reveal a mixed sentiment. While there are positive aspects like expected year-over-year sales growth, stable credit quality, and strategic M&A opportunities, there are also concerns about slightly lower revenue and loan growth guidance, and management's avoidance of specifics on certain financial aspects. The stable ACL coverage and expected improvements in deposit mix provide some stability. Overall, the sentiment is neutral, with no strong catalysts for significant stock price movement in either direction.
Badger Meter, Inc. (BMI) Q3 2025 Earnings Call Transcript
Positive10-21
The earnings call shows strong financial performance with a 10% increase in EPS, robust free cash flow, and positive gross margin trends. SmartCover's growth and optimistic future profitability add to the positive outlook. While there are concerns about uneven project timing and lack of specific guidance, management's confidence in achieving high single-digit growth and strategic capital allocation, including potential buybacks, supports a positive sentiment. The Q&A further highlights strong demand and growth in key segments, reinforcing the positive outlook.
Badger Meter, Inc. (BMI) Q2 2025 Earnings Call Transcript
Unknown7-23
The earnings call reveals mixed sentiments: strong free cash flow and strategic investments in growth are positive, but concerns about SG&A expenses, price/cost issues, and potential sales decline offset these. The Q&A highlights management's reluctance to provide specific guidance, adding uncertainty. Overall, the lack of clear guidance and potential risks balance out the positives, leading to a neutral sentiment.
BMI Slides
BMI Report
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