Badger Meter, Inc. Q4 FY2025 earnings call

Financial Results

• Delivered solid Q4 results, full year record sales, profitability, and cash flow. Robust demand for cellular AMI, SmartCover added to BlueEdge suite.

Profitability

• Operating earnings up 10% YOY, operating profit margins at 19.5%, base operating earnings up 9%, gross margins 42.1% (up 180bps) in Q4.

SmartCover Integration

• SmartCover had $40M sales in 2025, profitability improved, manufacturing transferred to Racine, WI, on track for earnings accretion in 2026.

PRASA AMI Project

• Large multiyear project in Puerto Rico (~1.6M service connections), Badger Meter's role is supply only, production in Racine, WI, project planning started over 5 years ago, pilot in 2023, award in 2025, shipments in 2026.

Total sales in Q4 2025 were $221 million, up 8% year-over-year or 2% base sales growth. The utility water product line saw sales up 9% YOY or 2% excluding SmartCover, with a 6% sequential decline from Q3 due to fewer operating days and project pacing. The flow instrumentation product line was flat YOY, with modest growth in water-focused end markets offsetting declines in other applications. Revenue contribution: Utility water product line was a significant portion, with flow instrumentation making up the remaining.

Forward-Looking

• Second half of 2025 had lower base revenue growth due to concluding AMI turnkey projects.
• Expect project pacing dynamic to continue in first half of 2026 until awarded projects like PRASA start deployments.
• Long-term high single-digit sales growth outlook over 5 years, not impacted by PRASA project in short term.

• Global tariff and trade conditions remain fluid.
• Elevated copper and Bi-alloy ingot costs as gross margin headwinds in 2026.
• Project pacing variability affecting revenue contributions and timing.

Q: Just to touch on the topic around the timing of projects, understandable that it's not going to be always an even flow there. But I'm just curious, did we see the full impact of the conclusion of those projects in 4Q?

A: Yes. There are several projects at play at any given time, hard to nail down exactly, but second half of the year was lower growth than first half, and 2026 is expected to have lower growth in first half and higher in second half due to visible projects.

Q: I know you don't want to talk about the size of this Puerto Rico project. So maybe I'll ask another question that you have answered previously. I think, Ken, you've said over the years that the size of the U.S. market is about 6 million meters per year and Badger's share is roughly about 30%. Are those numbers still accurate for what the size of the overall U.S. market is?

A: Yes, give or take, 85% of the market every year is replacement, and it's roughly in that space.

Q: I had another one on the Puerto Rico project. I mean this is a really sizable win. Can you walk us through the typical timing and phasing of a large AMI project like this? How do the deployments ramp? Are they smoother, chunky?

A: Project ramp-ups are not smooth, involve budget cycling, resource alignment, and weather factors. Typically thought of over a 5-year horizon, but can vary based on issues. For PRASA, expected to translate into product shipments in 2026 with initial ramp earlier and more meaningful revenue in second half.

Q: I want to go back to the outlook for sales. One of your competitors yesterday suggested their revenue could be slightly to modestly down year-over-year. I think you used the word growth rate for this year. So I just wanted to confirm, I think that would -- do you feel pretty confident sales should grow this year even if they're below that high single-digit through the cycle target?

A: Yes. Confident in sales growth in 2026, with long-term high single-digit outlook over 5 years based on various factors like AMI offering, software growth, and replacement market.

Q: I guess I wanted to kind of follow up on the project pacing dynamic here. So was this like dynamic kind of extending into first half 2026 expected? Or is this something new kind of developed?

A: There can be variability, some projects starting in second half were expected to start in first half. Confident in 5-year outlook, but quarter-to-quarter timing can be difficult.

Q: It looks like there's about $1 billion of metering projects in the ARPA data, which all needs to be spent by the end of 2026. How have you reflected that in your 2026 commentary?

A: Not reflected significantly. Growth is informed by buckets like RFPs, in-flight projects, awarded not started projects, and replacement market, not overly reliant on ARPA data.

Q: It seems in the press release to suggest that your second half growth was slower than your high single-digit long term and that, that decrement was either because of the roll-off projects, as you've discussed and the days in the fourth quarter, and that the first half of this year will essentially be the same, the roll-off of the projects. Does that suggest, Ken, that the organic growth that you're expecting in the first half of the year will be the same amount lower on a percent basis as the second half was versus the high single?

A: As you expect, not going to get granular, but 2026 is expected to play out inversely to 2025, with lower growth in first half and higher in second half.

Q: My first question is on SmartCover. So it was up 25% annualized and profitable in 4Q. I guess now that the integration is 12 months in, can you just give us an update on what you now see as the potential in that business? And how we should think about the growth algorithm there going forward?

A: SmartCover was growing at 20% CAGR before acquisition, still early in sewer line monitoring adoption, expect to continue growing at higher rate than average due to acquisition of leader in North America.