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BM

BADGER METER INC (BMI)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 performance was solid: revenue grew 13% YoY to $235.7M and diluted EPS rose 10% YoY to $1.19, with operating margin expanding to 19.6% and gross margin at 40.7% .
  • Both top line and EPS exceeded S&P Global consensus: revenue $235.7M vs $231.9M and EPS $1.19 vs $1.14; management also raised the normalized gross margin range to 39–42% (from 38–40%), signaling confidence in structurally richer mix and pricing power amid tariff headwinds .
  • Sequentially, sales declined modestly from Q2 as expected due to project timing and fewer operating days ahead in Q4, but profitability improved QoQ; free cash flow was a quarterly record ($48.2M) and cash from operations was $51.3M .
  • Capital returns strengthened: annual dividend was raised 18% to $1.60 per share in Q3 and a new $75M share repurchase authorization was approved on Nov 7, 2025, adding an incremental support to TSR and potential share count management .

What Went Well and What Went Wrong

  • What Went Well

    • Raised structural profitability outlook: “we are raising our normalized gross margin range … to 39–42%,” reflecting sustained mix and pricing benefits despite tariff noise .
    • Demand resilience and product mix: utility water sales +14% YoY (ex-SmartCover +8%); BEACON SaaS, ultrasonic meters, and water quality saw increased sales; flow instrumentation returned to growth (+4% YoY) .
    • Cash generation: record free cash flow of $48.2M and $51.3M cash from operations supported dividend growth and balance sheet flexibility (~$201.7M cash balance at Q3-end) .

  • What Went Wrong

    • Tariff and trade headwinds persisted; Q3 pricing still lagged some tariff-related costs, with parity expected going forward as actions flow through contracts .
    • SEA costs increased YoY (to $49.8M), primarily due to SmartCover and amortization; excluding SmartCover, Base SEA grew ~3% YoY, with underlying personnel/bonus inflation noted .
    • Sequential sales stepped down from Q2 as expected (project roll-offs/timing), and management reiterated fewer operating days in Q4 (~5% fewer), tempering near-term growth cadence .

Financial Results

MetricQ3 2024Q2 2025Q3 2025Consensus Q3 2025
Revenue ($USD Millions)$208.4 $238.1 $235.7 $231.9*
Gross Margin %40.2% 41.1% 40.7% N/A
Operating Income ($USD Millions)$40.6 $44.9 $46.1 N/A
Operating Margin %19.5% 18.8% 19.6% N/A
Diluted EPS ($)$1.08 $1.17 $1.19 $1.14*
  • Q3 vs YoY: Revenue +13%, EPS +10%, operating margin +10 bps; Q3 vs Q2: revenue -1% seq (timing), gross margin -40 bps seq from 41.1% to 40.7%, operating margin +80 bps seq .
  • Consensus context: revenue +1.6% vs est., EPS +4.6% vs est. (beats) — see Estimates Context for details .
  • Cash from Operations (Q3): $51.3M; Free Cash Flow (Q3): $48.2M .

Segment/KPI details

  • Segment growth (YoY %):

    Segment / MeasureQ1 2025Q2 2025Q3 2025
    Utility water sales YoY %+16% +11% +14%
    Utility water ex-SmartCover YoY %+12% +6% +8%
    Flow instrumentation YoY %-5% ~0% +4%

  • Operating and cash KPIs:

    KPIQ1 2025Q2 2025Q3 2025
    SEA as % of Sales20.7% 22.2% 21.1%
    Tax Rate24.4% 24.5% 26.1%
    Cash from Operations ($M)$33.0 $44.6 $51.3
    Free Cash Flow ($M)N/A~$40.6 ~$48.2
    Cash & Equivalents ($M, end)$131.4 $165.2 $201.7

Notes: Free cash flow shown where disclosed on calls (Operating CF minus capex) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Normalized Gross Margin RangeOngoing38–40% 39–42% Raised
Seasonality / Operating DaysQ4 2025Reminder of fewer operating days “Q4 usually has ~5% fewer operating days” Maintained commentary
Long-term Revenue Outlook5-year viewHigh-single-digit avg growth reiterated Reiterated high-single-digit avg growth Maintained
Dividend2025—Annual dividend rate increased 18% to $1.60 Raised
Share Repurchase AuthorizationThrough Nov 30, 2028Prior authorization (Feb 2023–Feb 2026)New $75M authorization; replaces prior New/Expanded

Management does not provide quarterly/annual revenue or EPS guidance; qualitative framework and margin range are emphasized .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1–Q2 2025)Current Period (Q3 2025)Trend
Tariffs and PricingQ1: tariff impacts de minimis; kept range 38–40% . Q2: implemented targeted price increases; kept range due to uncertainty .Price increases partially mitigated tariffs; confidence raised normalized gross margin to 39–42% .Improving margin confidence
BlueEdge and SaaSQ1: strong adoption across meters, ORION cellular, BEACON SaaS . Q2: BlueEdge highlighted at ACE; introduced field app and Cobalt ML; SaaS 28% CAGR (deck) .Continued adoption; pipeline healthy across planning→deployment; modular rollouts emphasized .Expanding platform
SmartCover IntegrationQ2: first full quarter (~$10M sales), year-1 EPS dilutive; focus on commercial synergies .Growth strong; above-line incrementals; expect EPS accretive in year 2 .On track; growth-led
Product MixQ2: structural mix lifts margins; sequential GM normalized from Q1 outlier .Ultrasonic volumes notably strong; flow instrumentation up 4% YoY, GDP-like longer term .Positive mix tailwind
Funding/MacroQ2: utilities have multiple funding avenues; resilient demand .ARPA minimal for metering; long-term secular drivers intact .Stable
Operations/Supply ChainQ2: footprint/tariff exposure managed; level playing field .Pricing processes and cost visibility support nimble response .Stable

Management Commentary

  • “We are raising our normalized gross margin range from our historical 38–40% to a new range of 39–42% … scenario planning related to all currently known trade and tariff conditions” — CFO Bob Wrocklage .
  • “Demand is strong for our industry-leading cellular AMI and BlueEdge smart water management solutions … expect secular drivers … will support durable revenue growth” — CEO Ken Bockhorst .
  • “Record free cash flow … well-positioned to invest in innovation and fund strategic, disciplined and value-added acquisitions … on-track to deliver SmartCover synergies” — CEO .
  • “Another quarter of above-target level [gross margin] performance is … endorsement of the structural mix benefit” — CFO, on raising the margin range .

Q&A Highlights

  • Gross margin framework: Lack of new negative tariff news and sustained structural mix allowed raising normalized GM range to 39–42%; intent is for the range to be “enduring for a number of years,” not quarter-to-quarter .
  • Sequential cadence and Q4 seasonality: Q3 not expected to stack above Q2 due to project timing; Q4 typically ~5% fewer operating days for utilities, limiting absolute volumes .
  • SmartCover trajectory and profitability: Focus on growth and commercial synergies; above-line incrementals expected; year-1 EPS dilutive, turning accretive in year 2 .
  • Pricing vs tariffs: Targeted price actions (contract and PO-to-PO) partially mitigated tariff-related costs; parity expected as actions flow through, though cost environment remains fluid .
  • Funding: ARPA has had very little impact on metering; utilities have multiple funding levers (SRF, WIFIA/loans, rates, muni bonds), supporting ongoing AMI activity .

Estimates Context

  • Q3 2025: Revenue $235.7M vs $231.9M consensus (+1.6% beat); EPS $1.19 vs $1.14 consensus (+4.6% beat). Nine estimates for EPS and revenue .
  • Trend vs prior quarters (actual vs S&P Global consensus):
    • Q2 2025: Revenue in-line ($238.1M vs $238.1M), EPS miss ($1.17 vs $1.25) .
    • Q1 2025: Revenue beat ($222.2M vs $220.8M), EPS beat ($1.30 vs $1.05) .

Consensus values marked with asterisk are from S&P Global:

  • Q3 2025 EPS $1.1374*, Revenue $231.883M*, # of estimates = 9*
  • Q2 2025 EPS $1.2539*, Revenue $238.085M*
  • Q1 2025 EPS $1.0546*, Revenue $220.764M*
    Values retrieved from S&P Global.

Key Takeaways for Investors

  • Structural profitability step-up: Management lifted normalized GM range to 39–42%, underpinned by richer mix (ultrasonic meters, cellular AMI, SaaS, water quality) and targeted pricing; monitor tariff developments but mix/pricing should sustain margins near the upper 30s/low 40s .
  • Durable demand narrative: Utility water growth (+14% YoY) and pipeline commentary suggest steady AMI and beyond-the-meter adoption despite macro/policy noise; Q4 operating-day headwind is transitory .
  • Cash generation enabling capital returns and reinvestment: Record FCF and strong cash balance back dividend increases and new $75M buyback, while preserving dry powder for M&A and R&D .
  • SmartCover is a growth engine: Expect outsized top-line growth with high software attachment and above-line incrementals; EPS accretion targeted in year two — a medium-term accretive lever .
  • Near-term trading lens: Expect typical Q4 seasonality; focus on margin durability around the new 39–42% range and on order/award flow into early 2026 to gauge growth trajectory .
  • Estimate revisions: Post-beat, models may shift higher on gross margin and EPS for out-quarters given the raised GM range and pricing traction; watch SEA trajectory as integration and growth investments continue .

References:

  • Q3 2025 press release and financial statements .
  • Q3 2025 earnings call transcript (prepared remarks and Q&A) .
  • Q2 2025 press release and call transcript .
  • Q1 2025 press release .
  • Dividend and buyback press release (Nov 7, 2025) .
  • 8-K Item 2.02 (press release furnished as Exhibit 99.1) .