Badger Meter Earnings Call: Growth, Margins, and 2026 Setup

Badger Meter ((BMI)) has held its Q4 earnings call. Read on for the main highlights of the call.

Badger Meter Showcases Record Growth but Flags 2026 Timing Bumps

Badger Meter’s latest earnings call struck a confident but measured tone. Management highlighted record revenue, expanding margins, and robust free cash flow, underscoring a strong multi‑year growth story and successful integration of recent acquisitions. At the same time, they were candid about near‑term headwinds: project pacing, cost pressures from tariffs and commodities, and the inherent timing uncertainty around large Advanced Metering Infrastructure (AMI) deployments. The overarching message was clear: the long‑term outlook remains solid, even if quarterly results may be uneven.

Record Full-Year Revenue and Strong Top-Line Growth

Badger Meter crossed a major milestone in 2025, with revenue surpassing $900 million. That figure represents 11% year‑over‑year sales growth and a striking 17% compounded annual growth rate over the past five years. The sustained expansion underscores strong demand across its water technology portfolio and validates the company’s strategic focus on smart water metering and analytics. For investors, this multi‑year performance suggests that growth is not just cyclical but supported by structural trends in water infrastructure and digitalization.

Solid Q4 Sales Performance

Fourth quarter sales reached $221 million, up 8% from the prior year. Excluding the SmartCover acquisition, base growth was 2%, indicating that acquisitions and software are increasingly important contributors to the top line. Utility water product line sales were a particular bright spot, rising 9% year‑over‑year (2% on a base basis). While the quarter did not deliver break‑neck organic growth, it continued a steady upward trend and reflected resilient demand from water utilities.

Margin Expansion and Profitability Improvement

Profitability improved meaningfully in 2025. Full‑year operating profit margins expanded to 20.0%, an increase of 90 basis points from the prior year. In Q4, operating margins rose to 19.5%, up 40 basis points year‑over‑year, and base operating margins climbed even more to 20.5%, a 140‑basis‑point improvement. Gross margin in the fourth quarter improved to 42.1%, up 180 basis points year‑over‑year. These gains indicate that Badger Meter is managing pricing, mix, and costs effectively, even against a backdrop of inflationary input pressures.

Earnings and Cash Generation

Earnings growth kept pace with revenue and margin gains. Consolidated EPS for the fourth quarter came in at $1.14, up 10% from $1.04 a year earlier. Cash generation was particularly strong: the company delivered record quarterly free cash flow of $50.8 million, an increase of roughly $3.4 million year‑over‑year. For the full year, free cash flow conversion remained above 100% of net earnings, a key quality metric that signals disciplined working capital management and strong underlying cash economics.

Software Expansion and Rising Recurring Revenue

Software continues to grow as a strategic pillar of Badger Meter’s business. Software revenue, including SmartCover, exceeded $74 million in 2025 and now accounts for about 8% of total sales. Importantly, software has grown at a 28% compounded rate over the past five years. This shift matters for investors because software and analytics typically carry higher margins and a larger recurring revenue component, which can make cash flows more predictable and valuations more resilient over the long term.

SmartCover Integration Delivers Sales and Profit Upside

The integration of SmartCover appears to be progressing smoothly and ahead of expectations. SmartCover delivered approximately $40 million in sales in 2025, with about a quarter of that on an annualized basis, pointing to strong momentum. Management credited higher volumes and cost management for improved profitability, and noted that manufacturing has been transferred to Badger Meter’s Racine facility. The company reiterated that it expects SmartCover to be earnings‑accretive in 2026, reinforcing the strategic and financial benefits of the deal.

Major PRASA AMI Win Adds Multi-Year Growth Visibility

One of the headline developments is Badger Meter’s award from the Puerto Rico Aqueduct and Sewer Authority (PRASA), covering roughly 1.6 million service connections. This is one of the largest AMI deployments globally and represents a significant validation of Badger Meter’s technology. The company will serve as a supply‑only partner, providing meters, ORION Cellular AMI radios, and BEACON software‑as‑a‑service, with production centered in Racine. The project is expected to be deployed over multiple years, with initial shipments in 2026 and more meaningful revenue contribution in the second half of that year.

Strong Balance Sheet and Disciplined Capital Allocation

Badger Meter enters this next growth phase with a solid balance sheet. The company reported cash on hand in excess of $225 million, providing ample firepower for both organic investments and acquisitions. In the fourth quarter, management opportunistically repurchased $15 million of shares and marked the 33rd consecutive annual dividend increase. The capital allocation playbook remains consistent: reinvest in the business, pursue strategic M&A, and return excess cash to shareholders, all while maintaining financial flexibility.

Project Pacing Drives Sequential Sales Decline

Despite year‑over‑year growth, the company experienced a 6% sequential decline in Q4 utility water sales compared with Q3 2025. Management attributed this to fewer operating days in the quarter and project pacing factors such as timing and customer/project mix. They cautioned that similar unevenness should be expected into the first half of 2026, with activity and growth skewed toward the second half. This highlights the project‑driven nature of the business, where quarter‑to‑quarter swings may not reflect underlying demand trends.

Timing Uncertainty for Large AMI Deployments

While the PRASA contract is a major win, management was explicit that they will not provide a specific 2026 revenue figure for the project. Large AMI deployments frequently span around five years and can experience shifting schedules that alter quarterly revenue patterns. Badger Meter emphasized that these dynamics introduce timing uncertainty, even when long‑term contract value is solid. For investors, this means focusing more on multi‑year growth rather than near‑term quarterly beats or misses tied to deployment timing.

Commodity and Tariff Headwinds Pressure Margins

Input costs remain a swing factor. Badger Meter reached relative price‑cost parity on tariff impacts in 2025, but management expects tariffs and trade conditions to remain fluid in 2026. Elevated prices for copper and Bi‑alloy ingot components are expected to be a headwind for gross margin. The company set a normalized gross margin guidance range of 39% to 42%, bracketing the strong 42.1% reported in Q4. The message: recent margin strength is sustainable within a range, but not immune to macro cost pressures.

Higher SG&A From Acquisition and Personnel Investments

Selling and administrative expenses (SEA) in Q4 were $49.9 million, up $6.4 million year‑over‑year, largely reflecting the SmartCover acquisition. Excluding SmartCover, base SEA rose a modest 2.9%, mainly due to higher personnel costs. The increase shows both the cost of integrating acquisitions and the company’s willingness to invest in talent to support growth in software, analytics, and large‑scale projects. Management’s focus appears to be on maintaining cost discipline while not starving the business of the resources required to execute its strategy.

Slower Second-Half Base Growth in 2025

Base revenue growth in the second half of 2025 was 6%, below Badger Meter’s long‑term high‑single‑digit growth aspiration. Management attributed the softer pace to concentrated, concluding AMI turnkey projects, which created a tougher comparison and temporary lull as projects wound down. While this slowdown may concern short‑term traders, the company framed it as a timing issue rather than a demand problem, particularly in light of the sizeable PRASA award and ongoing software growth.

Turnkey Projects’ Impact on Margins

Badger Meter reminded investors that turnkey projects—where the company acts as prime contractor and passes through installation and ancillary supplies—tend to carry lower margins. These pass‑through elements can drag on blended margins during heavy turnkey periods even if revenue appears strong. The effect was particularly relevant for concluding AMI turnkey projects in 2025. Over time, the mix between turnkey, supply‑only, and software will remain an important driver of margin volatility.

Manufacturing Location and Cost Structure Considerations

In order to satisfy Buy American requirements for the PRASA contract, Badger Meter is routing production through its Racine facility. Management acknowledged that this may have some impact on margins compared with manufacturing in lower‑cost regions, but emphasized that these factors were built into the project economics when the contract was negotiated. This provides investors some comfort that the company is not chasing headline wins at the expense of profitability.

Guidance and Forward-Looking Outlook

Looking ahead, Badger Meter reaffirmed its long‑term target of high‑single‑digit organic sales growth over the next five years. Management expects 2026 to be back‑loaded, with lower growth in the first half and stronger growth in the second half as project pacing improves and the PRASA deployment ramps. The company guided normalized gross margins to a 39%–42% range, acknowledging that tariffs and higher copper and ingot costs will remain key watchpoints. SmartCover, which generated $40 million in 2025 sales, is fully integrated and on track to be accretive to earnings in 2026. Over the five‑year horizon, Badger Meter anticipates continued operating margin expansion and free cash flow conversion exceeding net earnings, supported by its strong balance sheet and expanding software footprint.

In summary, Badger Meter delivered another year of record revenue, rising margins, and robust cash generation, while reinforcing its evolution toward a more software‑ and analytics‑driven business. Management was transparent about near‑term variability from project timing, cost inflation, and the mix impact of large deployments, but maintained a clear focus on long‑term value creation. For investors willing to look beyond quarterly noise, the company’s combination of structural growth drivers, disciplined capital allocation, and a growing recurring revenue base paints a constructive picture for the years ahead.