Core Insights - The company experienced a 6% sequential decline in utility water sales in Q4 2025, attributed to fewer operating days and project pacing effects rather than market conditions or customer demand [1] - Total sales for Q4 2025 reached $221 million, marking an 8% year-over-year increase, with utility water product line sales rising by 9% [2] - The company reported a year-over-year operating earnings growth of 10%, with operating profit margins increasing from 19.1% to 19.5% [5][6] Financial Performance - Gross margins expanded to 42.1% in Q4 2025, up from 40.3% in the prior year, benefiting from a favorable product mix [6] - The company generated record quarterly free cash flow of $50.8 million, an increase of approximately $3.4 million year-over-year [9] - Consolidated EPS for Q4 2025 was $1.14, a 10% increase from $1.04 in the prior year [8] Project Developments - The Puerto Rico Aqueduct and Sewer Authority (PRASA) AMI project is one of the largest deployments globally, involving approximately 1.6 million service connections [12] - The PRASA project is expected to begin product shipments in 2026, with significant revenue contributions anticipated in the second half of the year [14] - The company emphasized that project pacing dynamics will influence revenue growth in 2026, with expectations of lower growth in the first half and higher growth in the second half [20][56] Market Outlook - The company projects a high single-digit sales growth outlook over the next five years, supported by awarded but not yet executed projects [41][49] - The software revenue, including SmartCover, has grown significantly, now exceeding $74 million and representing 8% of total sales [16] - The company remains confident in its ability to manage project cycles and maintain growth despite potential market fluctuations [22][45]

Financial Data and Key Metrics Changes - Total sales for Q4 2025 reached $221 million, an 8% year-over-year increase, with base sales growth of 2% [6] - Operating earnings grew by 10% year-over-year, with operating profit margins increasing by 40 basis points to 19.5% [9] - Consolidated EPS was $1.14, a 10% increase from $1.04 in the prior year quarter [12] - Record quarterly free cash flow of $50.8 million, up approximately $3.4 million year-over-year [12] Business Line Data and Key Metrics Changes - Utility water product line sales increased by 9% year-over-year, or 2% excluding SmartCover [6] - Flow instrumentation product line sales were flat year-over-year, with modest growth in water-focused end markets [9] - SmartCover generated $40 million in sales for 2025, representing a 25% annualized growth [21] Market Data and Key Metrics Changes - The U.S. market for meters is approximately 6 million units per year, with Badger Meter holding about 30% market share [35] - 85% of the U.S. market is replacement-driven, indicating a stable demand for Badger Meter's products [63] Company Strategy and Development Direction - The company aims to leverage its cellular AMI technology as a foundation for real-time insights and analytics, expanding through the Blue Edge suite of smart water management solutions [14] - The PRASA AMI project is expected to be one of the largest deployments globally, with a focus on E-Series ultrasonic meters and ORION cellular AMI radios [15] - The company is committed to maintaining a clean balance sheet with over $225 million in cash, allowing for organic and inorganic growth investments [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving high single-digit sales growth over the next five years, despite potential project pacing dynamics in 2026 [24] - The company does not foresee significant impacts from federal funding constraints on its growth trajectory [23] - Management highlighted the importance of long-term trends in the water industry, which support demand for smart water management solutions [22] Other Important Information - The company successfully integrated SmartCover into its operations, with expectations for earnings accretion in 2026 [21] - SG&A expenses in Q4 were $49.9 million, with a year-over-year increase primarily due to the SmartCover acquisition [11] Q&A Session Summary Question: Did the company see the full impact of project conclusions in Q4? - Management noted that project pacing can vary, and the second half of the year was expected to show lower growth due to fewer working days and project completions [27][28] Question: What is the expected growth rate for 2026? - Management anticipates a lower growth rate in the first half of 2026, with a higher growth rate expected in the second half due to awarded projects [30][31] Question: How does the company view the U.S. market size and its share? - Management confirmed that the U.S. market size is around 6 million meters per year, with Badger Meter's share remaining approximately 30% [35][38] Question: What is the expected impact of the PRASA project on revenue? - Management refrained from sizing the revenue impact of the PRASA project, emphasizing the variability in project deployment timelines [18][19] Question: How does the company manage pricing in relation to tariffs? - Management indicated that pricing adjustments have primarily been through list price increases, without temporary tariff add-ons, maintaining a clean pricing strategy [56][57]