Badger Meter Q3 Earnings Call Highlights

Key Points

• Third-quarter sales were flat at $235.9 million, while operating profit rose 4% and diluted EPS increased 4% to $1.24. Margin gains were driven by a favorable mix toward ultrasonic meters, software growth and cost controls.
• Management expects sequential and year-over-year base-sales growth in the fourth quarter, although full-year organic sales are still projected to decline in the low single digits. Utility project activity is improving, and flow-instrumentation demand remains broad-based, including emerging data-center applications.
• Badger Meter launched its OneNetwork platform for real-time utility monitoring and continued shareholder returns by repurchasing about $55 million of shares and raising its dividend 10%, its 34th consecutive annual increase.

Badger Meter NYSE: BMI reported third-quarter 2026 sales that were unchanged from the prior-year period, while operating profit and earnings per share increased as the company benefited from product mix, software revenue growth and cost controls.

Total third-quarter sales were $235.9 million, in line with the third quarter of 2025. Excluding $5.6 million of revenue from the UDlive acquisition, base sales declined 2% year over year but increased 5% sequentially from the second quarter.

Chairman, President and Chief Executive Officer Ken Bockhorst said the sequential improvement reflected the continued ramp-up of previously announced utility projects and solid underlying market demand. He said the company expects both sequential and year-over-year base-sales growth in the fourth quarter, despite fewer operating days related to the holiday calendar.

Profitability Improves Despite Component Pressures

Operating earnings increased 4% year over year, while operating margin rose 60 basis points to 20.2%. Excluding UDlive, base operating margin was 20.9%, up 130 basis points from the prior-year quarter.

Gross margin reached 41.9%, an increase of 120 basis points. Chief Financial Officer and Treasurer Dan Weltzien said the improvement was driven primarily by a structural shift toward ultrasonic meters and continued growth in software-as-a-service revenue. The results were partly offset by amortization of UDlive inventory fair-value step-up adjustments.

Excluding UDlive, gross margin was 42.1%, at the upper end of Badger Meter’s normalized range. Management said it continues to target a 39% to 42% gross-margin range over time.

The company said electronic component costs and availability remain under pressure amid demand tied to artificial intelligence and data-center construction. Weltzien said Badger Meter has so far managed those pressures through pricing, sourcing and operational actions, though the challenges have continued to escalate.

Selling, engineering and administrative expenses were $51.1 million, up $1.3 million from a year earlier. The increase included $2.3 million associated with UDlive, including intangible asset amortization, partially offset by lower incentive compensation and cost controls. Management expects annual UDlive intangible amortization of about $5 million.

Diluted earnings per share rose 4% to $1.24 from $1.19 a year earlier. The effective tax rate was 25.1%, compared with 26.1% in the prior-year quarter.

Utility Sales and Flow Instrumentation Trends

Utility water sales were flat year over year. Excluding UDlive, utility sales declined 3%, reflecting the pacing of large projects, including lower AMI-related product sales that were partly offset by higher software revenue. Base utility sales increased 5% sequentially.

Sales in the flow instrumentation product line increased 2% from a year earlier, against what Weltzien described as the company’s most difficult comparison of 2025. The company cited broad-based demand in water applications and said it is seeing increased demand for flow instrumentation in data-center applications, though from a relatively small revenue base.

During the question-and-answer session, Bockhorst said the company views the second and third quarters as “perfectly normal” following an unusually weak first quarter for shorter-cycle demand. He added that the broader pipeline of utilities working with consultants, conducting requests for proposals or progressing through active projects remains as robust as it has been in recent years.

Badger Meter also said it has begun shipping products for the Puerto Rico Aqueduct and Sewer Authority, or PRASA, project. The utility is preparing for installations to begin in the fourth quarter after hiring installation contractors, according to Bockhorst. He cautioned that project timing can remain uneven from quarter to quarter because of factors including labor availability and weather.

OneNetwork Launch and Growth Outlook

Executive Vice President of North America Municipal Utility Bob Wrocklage said Badger Meter formally launched OneNetwork at the WEFTEC water-industry conference in New Orleans. The platform combines AMI, network-monitoring and water-quality data into a real-time operating view for water and wastewater utilities.

Wrocklage said the product is designed to help utilities identify and respond to pressure events, water-quality changes and non-revenue-water spikes through alerts, analytics and workflows. He said customer and consultant interest at WEFTEC was high.

Looking ahead, Bockhorst said the company expects modest sequential growth in the fourth quarter and year-over-year growth in quarterly base sales. For the full year, he said Badger Meter expects an organic sales decline in the low single digits. Management did not provide a specific 2027 forecast but said it remains confident in its ability to sustain growth momentum into next year and return to its strategic high-single-digit growth outlook.

Cash Flow and Capital Allocation

Free cash flow was $40.3 million in the third quarter, compared with $48.2 million a year earlier. Primary working capital represented 23.6% of sales, up from 22.9% at the end of the prior quarter. The company said it expects to reduce elevated inventory levels as revenue pacing improves and electronic safety-stock needs normalize.

Badger Meter repurchased 423,000 shares for approximately $55 million during the quarter and had about $35 million remaining under its current repurchase authorization. Bockhorst also noted that the company raised its annual dividend rate by 10% in August, marking its 34th consecutive year of dividend increases.

About Badger Meter (NYSE:BMI)

Badger Meter, Inc is a water technology company that develops and manufactures flow measurement, control and communications solutions. Its products are used to measure and manage water across municipal, commercial and industrial applications, helping customers improve operational efficiency, monitor usage and support water conservation.

The company's offerings include mechanical, ultrasonic and electromagnetic flow meters; valves and related flow-control equipment; and smart water technologies.

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