Core Insights - Badger Meter, Inc. reported record sales, profitability, and cash flow for the full year 2025, driven by sustained demand for smart water management solutions [2][11] - The acquisition of SmartCover in early 2025 expanded Badger Meter's capabilities in sewer monitoring and stormwater management, positioning the company for long-term growth [3][11] Fourth Quarter 2025 Highlights - Utility water sales increased by 9% year-over-year, or 2% excluding SmartCover, with growth driven by customer adoption of digital smart water solutions [5][9] - Operating earnings rose by 10% year-over-year to $43.0 million, with operating profit margins expanding to 19.5% [7][9] - Total sales reached $220.7 million, an 8% increase from $205.2 million in the prior year [9][10] Full Year 2025 Highlights - Record sales of $916.7 million, up 11% from $826.6 million in 2024, with base sales increasing by 6% year-over-year [9][11] - Operating earnings for the year increased by 16% to $183.4 million, with operating profit margins at 20.0% [9][11] - Diluted earnings per share (EPS) increased by 13% to $4.79, compared to $4.23 in 2024 [9][11] Strategic Initiatives - The company emphasized the importance of its BlueEdge suite of smart water management solutions, which addresses various challenges across the water cycle [12][13] - Badger Meter's selection for the Puerto Rico Aqueduct and Sewer Authority's AMI project highlights its capabilities in enhancing water system resiliency [14] Financial Performance - Gross margin improved to 42.1%, benefiting from a favorable sales mix and lower pass-through revenue [7][9] - Cash provided by operations reached $54.8 million in Q4 2025 and $183.7 million for the full year [9][11] Outlook - The company anticipates high single-digit sales growth and operating profit margin expansion over the next five years, driven by the adoption of cellular AMI solutions and international expansion opportunities [15][16]

Financial Data and Key Metrics Changes - The company reported a 13% quarterly sales growth, building on a challenging 24% increase in the prior year comparable quarter [6] - Consolidated EPS was $1.04 in Q4 2024, a 24% improvement from $0.84 in the prior year comparable quarter [10] - Operating margins expanded by 150 basis points to 19.1% in the quarter, with gross profit margins improving to 40.3% from 39.2% in the prior year [7][10] - Free cash flow reached a record $47.4 million, up 32% year over year [11] Business Line Data and Key Metrics Changes - Total utility water product line sales increased by 14% year over year, driven by strong demand for the Blue Edge suite of utility smart water solutions [6] - Sales for the flow instrumentation product line were up slightly by 1% in the quarter, as growth in core water-related applications offset declines in other areas [7] Market Data and Key Metrics Changes - The company achieved 18% sales growth in 2024, surpassing $800 million in revenue, with a five-year top-line CAGR of 14% [12] - Software revenue exceeded $56 million, representing 6.7% of sales and a 28% compound annual growth rate over the past five years [12] Company Strategy and Development Direction - The acquisition of Smart Cover was announced, aimed at enhancing the company's offerings in sewer and lift station monitoring [4][14] - The company plans to leverage existing cash for the acquisition, which was priced at $185 million, equating to about five times Smart Cover's 2024 sales of approximately $35 million [15] - The strategic focus remains on addressing macro water challenges and enhancing the Blue Edge suite of solutions [17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing positive tone of the business, with expectations for high single-digit growth in 2025 [27] - The company anticipates continued improvement in margins and working capital efficiency, despite potential macroeconomic uncertainties [18][19] Other Important Information - The company reclassified the current portion of deferred revenue from payables to other current liabilities, which does not affect cash from operations or free cash flow [70] - The next earnings call is tentatively scheduled for April 17, 2025, marking the last call for the current VP of Investor Relations [71] Q&A Session Summary Question: Can you clarify your Mexico manufacturing exposure and contingency plans for potential tariffs? - Management acknowledged the uncertainty surrounding tariffs but emphasized their limited sourcing from China and strong operational capabilities in North America [22][25] Question: What are the demand drivers for Smart Cover? - Demand is driven by regulatory compliance, labor availability, and the need for real-time monitoring due to extreme weather events [31][32] Question: How much of Smart Cover's revenue is recurring? - Approximately one-third of Smart Cover's $35 million in trailing revenue is classified as recurring, with an additional 20% from aftermarket product replacement services [35] Question: What enabled the improvement in working capital performance? - Continuous improvement efforts and a focus on inventory management contributed to the reduction in inventory levels [36][38] Question: What is the outlook for revenue cadence through 2024? - Management noted that revenue can be uneven from quarter to quarter, with expectations for high single-digit growth over the strategic planning horizon [44][45] Question: Why does Smart Cover have a significant market share in monitoring solutions? - Smart Cover has established a strong presence in the market, leveraging its expertise and existing relationships with utility customers [49][50] Question: Will the acquisition of Smart Cover be accretive or dilutive to earnings in the short term? - The acquisition is expected to be EPS dilutive in 2025 but accretive in the following year [67]