BMI | Q4 2025

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Overview

• Non-GAAP EPS of $1.14 beats by $0.02.

• Revenue of $220.7M (+7.6% Y/Y) misses by $10.94M.

KEY Takeaways

• Badger Meter delivered another strong quarter, with Q4 revenue of $221M (+8% YoY), EPS of $1.14 (+10% YoY), operating margin of 19.5%, and record quarterly free cash flow of $50.8M.

• Full-year 2025 was a record across the board, with revenue up 11% to over $900M, operating margin expanding to ~20%, and free cash flow again surpassing net earnings.

• Margins continue to trend higher, driven by a favorable mix toward cellular AMI, ultrasonic meters, software, and SmartCover, pushing Q4 gross margin to 42.1%.

• The PRASA project is strategically significant, representing ~1.6M connections over multiple years and reinforcing Badger’s leadership in cellular AMI, though management did not size near-term revenue impact.

• Software revenue is becoming more meaningful, now ~8% of total sales, growing at a ~28% CAGR over the past five years, improving visibility and recurring revenue mix.

• SmartCover is integrating well, delivering ~$40M of revenue in 2025, improving profitability, and expected to be earnings accretive in 2026.

• Capital allocation remains shareholder-friendly, with a 17.6% dividend increase (33rd consecutive year), $15M in Q4 share repurchases, and continued M&A capacity.

• The balance sheet remains a major strength, with over $225M in cash and no signs of financial stress, providing flexibility to invest, return capital, or pursue acquisitions.

NOTES

Badger Meter (BMI) finished out 2025 with another strong quarter, closing the book on a year that management repeatedly described as record-setting across sales, profitability, and cash flow.

Fourth-quarter revenue came in at $221 million, up 8% year over year, with growth driven primarily by continued demand for its cellular AMI technology and higher-margin smart water solutions.

While sales were down sequentially from the third quarter, management was clear that this had far more to do with normal calendar effects and project timing than any change in underlying demand.

Fewer operating days in Q4 and the natural ebb and flow of large utility projects created some lumpiness, but nothing in the data suggested weakening customer budgets or a slowdown in adoption.

Margins were one of the more notable highlights of the quarter. Operating income grew faster than revenue, with operating margins expanding to 19.5%.

Gross margins jumped to 42.1%, helped by a favorable mix of products like ultrasonic meters, cellular AMI, water quality solutions, and SmartCover, all of which carry above-average profitability.

Interestingly, the same project timing that weighed on revenue actually helped margins, since Badger acted less often as a prime contractor in turnkey projects during the quarter. Those turnkey projects typically include more low-margin pass-through costs, like installation labor, so their absence lifted overall profitability.

Earnings reflected this strength, with EPS rising 10% year over year to $1.14, alongside record quarterly free cash flow of just over $50 million.

Looking at the full year, Badger Meter delivered 11% sales growth in 2025, surpassing $900 million in revenue and extending a five-year compound growth rate of 17%.

Software revenue, now about 8% of total sales, continues to scale quickly, growing at a 28% CAGR over the past five years.

Despite the near-term dilution from the SmartCover acquisition, operating margins expanded to 20% for the year, and free cash flow once again exceeded net earnings.

The balance sheet continues to be a clear strength for Badger, with more than $225 million in cash, giving the company flexibility to invest, pursue acquisitions, return capital to shareholders, or all three.

The dividend was increased for the 33rd consecutive year (by 17.6%), and management also took advantage of what it viewed as an attractive share price to repurchase $15 million of shares in the fourth quarter.

Management spent a fair amount of time addressing tariffs, commodity costs, and the broader macro backdrop. The company has largely achieved price-cost parity on tariff-related impacts, and importantly, it handled pricing through standard list price increases rather than temporary surcharges. That approach reduces the risk of having to unwind pricing later if trade rules change.

Looking into 2026, management acknowledged that tariffs persist and that higher copper prices could pressure margins, but these factors are already baked into Badger’s long-term gross margin framework.

Regarding funding, management pushed back on concerns that federal or state water funding constraints could derail growth, noting that water infrastructure projects are funded through many channels and that current legislative actions support stable long-term investment levels.

A major focus of the call was the newly awarded PRASA project in Puerto Rico, which will be one of the largest AMI deployments in the world, covering roughly 1.6 million service connections. Management emphasized that this is a multiyear project that has been in the works for over five years, moving from planning to pilots to formal award.

Revenue contributions are expected to begin ramping in 2026, with more meaningful impact in the second half of the year, but the company was careful not to size the project financially.

The key takeaway wasn’t the short-term revenue bump, but rather what the project says about Badger’s competitive position. The PRASA award underscores how cellular AMI has become the industry standard and reinforces management’s confidence in sustained high single-digit growth over the long term.

During the Q&A, analysts pressed management on project timing, margins, and growth confidence. The message stayed consistent throughout: project pacing is inherently uneven, quarter-to-quarter forecasting is unreliable, and focusing too narrowly on near-term fluctuations risks missing the bigger picture.

Management expects 2026 to look like the inverse of 2025, with slower growth in the first half as some projects wrap up or shift, followed by stronger growth in the back half as awarded projects begin ramping. Importantly, they stressed that these are not speculative opportunities—these are known, awarded projects already in hand.

Regarding SmartCover, management reiterated why the acquisition mattered. Sewer line monitoring remains in the early innings of adoption, and SmartCover was already growing at a roughly 20% annual rate before being acquired. Integration is largely complete, profitability is improving, and the business is on track to be earnings accretive in 2026. More broadly, leadership framed AMI as the entry point into a much larger opportunity set. Once utilities adopt AMI and begin using real-time data, it often opens the door to additional solutions across pressure management, water quality, and network monitoring—areas where Badger continues to expand its footprint.

Overall, demand for smart water infrastructure remains strong, the company’s competitive position in cellular AMI looks durable, and capital allocation continues to balance reinvestment, dividends, buybacks, and M&A.

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