BMI | Q3 2025

The content provided on this website, including any communications, posts, videos, social media interactions, and other materials, is for informational and educational purposes only. It should not be considered as financial or investment advice. Read our full disclaimer here.

Links

• Link to Transcript

• Link to Presentation

• Link to 10-Q

Overview

• Non-GAAP EPS of $1.19 beats by $0.10.

• Revenue of $235.7M (+13.1% Y/Y) beats by $3.82M.

KEY Takeaways

• Sales rose 13% year-over-year to $236 million, with 8% organic growth from the core business.

• Gross margin improved to 40.7%, and management raised its long-term target range to 39–42%, showing confidence in sustained profitability.

• Operating income increased 13%, margin reached 19.6%, and EPS rose 10% to $1.19.

• Free cash flow hit a record $48 million, helped by lower taxes and strong working capital management.

• The balance sheet remains strong with about $200 million in net cash, giving the company flexibility for growth and acquisitions.

• The water-quality business remains strong, and management is sticking to its focused approach rather than chasing every new testing trend like PFAS.

• Utilities are continuing to invest in modernization and efficiency projects despite federal funding uncertainty.

• Management reaffirmed confidence in averaging high single-digit annual growth over a five-year stretch, even if results fluctuate quarter to quarter.

NOTES

Badger Meter (BMI) delivered another solid quarter in Q3 2025. Sales came in at $236 million, up 13% from last year, with about 8% of that coming from the core business.

The water utility segment led the way — up 14% (8% excluding SmartCover) — driven by higher ultrasonic meter volumes, continued adoption of cellular AMI, growing BEACON software subscriptions, and steady demand for water-quality products.

Flow instrumentation returned to growth too, up 4%, helped by water-related markets even as Badger keeps de-emphasizing some of its older non-water applications.

Margins also looked great this quarter. Gross margin inched up to 40.7%, and management raised its long-term “normal” range from 38–40% to 39–42%. That increase reflects a mix that’s getting stronger over time as a result of more connected products like radios and ultrasonic meters, not just temporary cost savings.

Operating income rose 13% to $46 million, operating margins inched up to 19.6%, and earnings per share climbed 10% to $1.19. All solid across the board.

Free cash flow hit a record $48 million, helped partly by lower taxes this year, and the balance sheet remains spotless with around $200 million in net cash.

Tariffs are still a thorn for the company, but management sounded confident about how they’re handling them. They’ve been passing through selective price increases to offset tariff and input cost pressures, and while there’s always a short lag before prices catch up, they expect things to stay balanced going forward.

With that said, the margin range bump wasn’t because tariffs disappeared — it’s because the product mix keeps improving and the cost environment hasn’t gotten any worse.

On the product side, the water-quality business continues to perform well, and management said they feel good about their existing lineup without feeling the need to chase every new testing trend (they specifically mentioned staying pragmatic on PFAS).

Ultrasonic meters had a strong quarter, and while mechanical meters aren’t going away anytime soon, ultrasonic continues to gain ground. Software growth is also chugging along — since BEACON is tied directly to device deployments and runs over the life of those assets, the recurring revenue naturally builds as more meters and radios go into the field.

SmartCover, which Badger acquired last year, is living up to expectations. It grew roughly 25% in the quarter, and management still sees it as a major long-term opportunity.

While it’s still in investment mode and not yet fully profitable, they expect it to be accretive to earnings next year. As SmartCover scales, the combination of hardware, software, and service revenue should drive strong incremental margins.

Customer sentiment seemed upbeat too. At recent industry events, utilities reaffirmed that they’re thinking long term — labor shortages and water challenges are forcing them to modernize, whether or not federal funding programs move quickly.

While management doesn’t give year-ahead guidance (which is preferable, to be honest), they reiterated their confidence in averaging high single-digit growth over a five-year stretch, even if some quarters bounce around a bit. They also reminded investors that Q4 typically sees a seasonal dip since utilities have fewer workdays during the holidays.

When asked about comparisons to 2011, management brushed it off, saying that the business is fundamentally different today. Utilities can’t just go back to manual reads when their connected meters run out of battery life, and Badger’s now deeply embedded in the digital infrastructure of water management.

Overall, this was another great quarter from a “boring” company that keeps quietly compounding. With strong cash-flow generation and a cash-rich balance sheet, Badger Meter has plenty of flexibility if new opportunities come up.

---