Badger Meter, Inc. Q3 FY2025 earnings call

• Spent time with customers at WebTech and Engage Live, reinforcing confidence in BlueEdge solutions and long-term growth.
• Excited about Smart Cover's growth, with 25% growth in the quarter, and confident in its integration into the BlueEdge suite.
• Increased gross margin range due to structural mix improvement and price increases mitigating tariff pressures.
• Increased dividend for the 33rd consecutive year.
• ~$200 million net cash position, demonstrating financial flexibility for organic and inorganic growth.

Total sales for Q3 2025 were $236 million, a 13% year-over-year increase (8% base sales growth). The utility water product line saw 14% year-over-year sales growth (8% excluding SmartCover), driven by higher ultrasonic meter unit volumes and BEACON Software as a Service, water quality product sales. The flow instrumentation product line grew 4% year-over-year, with strength in water-related markets offsetting lower demand in non-water-related applications. Operating earnings increased 13% year-over-year to $46.1 million, with operating margins at 19.6%. Gross margin expanded to 40.7% from 40.2% prior year, with a new normalized range of 39% to 42%. Consolidated EPS was $1.19, up 10% year-over-year. Record free cash flow of $48.2 million was reported, up ~$6 million year-over-year.

• Confident in average top-line growth rate of high single digits over the next five-year horizon.
• Reminder of fewer operating days in the fourth quarter due to utility holiday schedules, but year-to-date trajectory implies solid close to the year.
• On track to deliver expected cost and sales synergies from the Smart Cover acquisition.

• Macroeconomic and trade uncertainty remains, though the business has proven resilient.
• Ongoing tariff-related cost pressures, but price increases partially mitigated these.

Q: Robert Mason on gross margin and customer decision-making A: Robert Wrocklage discussed gross margin range increase due to lack of new tariff news and structural mix, while Kenneth Bockhorst addressed customer decision-making noting federal funding noise is external and customers are still planning long term.

Q: Nathan Jones on Smart Cover growth and margins A: Kenneth Bockhorst expressed excitement for Smart Cover's growth, and Robert Wrocklage discussed Smart Cover's underpenetrated market potential and incremental margins above line average.

Q: Jeffrey Reive on pricing and water quality A: Robert Wrocklage discussed ongoing price increases mitigating tariff impacts, and Kenneth Bockhorst highlighted strong water quality performance and parameters in the portfolio.

Q: Andrew Krill on 2026 growth and capital allocation A: Robert Wrocklage and Kenneth Bockhorst discussed confidence in five-year growth outlook and capital allocation priorities focusing on organic growth, dividends, and M&A.

Q: Bobby Zulper on federal stimulus and comparison to 2011 A: Kenneth Bockhorst discussed irrelevance of 2011 comparison due to technological advancements and changed utility needs.

Q: Scott Graham on mix and software sales A: Robert Wrocklage discussed structural mix benefits and software sales as a result of device sales with 100% attachment rate.

Q: Michael Fairbanks on ultrasonic meters and flow instrumentation A: Kenneth Bockhorst discussed strong ultrasonic meter volumes and flow instrumentation growing in line with GDP.