Core Insights - Badger Meter reported record sales, profitability, and cash flow for fiscal 2025, driven by strong demand for its cellular AMI offerings and successful integration of the SmartCover acquisition into its BlueEdge smart water management portfolio [3][11] Sales Performance - Fourth-quarter 2025 sales reached $221 million, an 8% increase year over year, or 2% on a base basis excluding SmartCover [2] - Utility water product line sales rose 9% year over year, with a 6.6% sequential decline attributed to fewer operating days and project pacing [1][6] Profitability and Margins - The company achieved a full-year operating margin of approximately 20% and a fourth-quarter gross margin of 42.1%, reflecting a 180 basis point improvement from the previous year [6][7] - Operating earnings increased by 10% in the fourth quarter, with base operating margin expanding 140 basis points to 20.5% [7][12] Cash Flow and Capital Allocation - Badger Meter generated record quarterly free cash flow of $50.8 million, up about $3.4 million year over year, and ended the year with over $225 million in cash [10][12] - The company increased its dividend for the 33rd consecutive year and repurchased $15 million of shares in Q4, emphasizing a commitment to shareholder returns [4][13] SmartCover Integration and Future Expectations - The integration of SmartCover is progressing well, with the acquisition contributing $40 million in sales for 2025 and expected earnings accretion in 2026 [5][14] - Management anticipates uneven quarterly performance in 2026 due to the timing of AMI projects, with significant deployments expected to ramp in the second half of the year [16][21] Major Projects - Badger Meter secured a significant AMI project with the Puerto Rico Aqueduct and Sewer Authority (PRASA), involving approximately 1.6 million service connections [18][19] - The company will act as a supply-only partner for the PRASA project, with production taking place at its Racine facility [20] Software Revenue Growth - Software revenue, including SmartCover, exceeded $74 million, representing 8% of total sales and growing at a 28% compound annual growth rate over the past five years [11][12]

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]