Water control and measure company Badger Meter (NYSE: BMI) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 13.1% year on year to $235.7 million. Its GAAP profit of $1.19 per share was 8.9% above analysts’ consensus estimates.

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StockStory’s Take

Badger Meter’s third quarter results saw revenue and profit exceed Wall Street expectations, but the market responded negatively, with shares declining after the announcement. Management attributed the sales growth to continued demand for its cellular AMI (Advanced Metering Infrastructure) solutions and the BlueEdge modular smart water management suite. CEO Kenneth Bockhorst noted that the company managed ongoing tariff and trade-related cost pressures effectively, maintaining gross margins above historical norms. The team highlighted higher ultrasonic meter volumes, growth in software-as-a-service offerings, and contributions from the Smart Cover acquisition as important factors in the quarter.

Looking ahead, Badger Meter’s management believes that durable industry trends—such as the need for technology adoption by utilities, ongoing labor shortages, and the push for water conservation—will support steady growth. Bockhorst emphasized the company’s confidence in maintaining a high single-digit average top-line growth rate over the next five years, citing strong customer engagement and a robust pipeline. However, he acknowledged that quarterly results may be uneven due to project timing and utility budget cycles. CFO Robert Wrocklage stated, “We remain confident in our structural mix benefits and our ability to offset tariff-related impacts with targeted pricing actions.”

Key Insights from Management’s Remarks

Management credited third quarter outperformance to product mix improvements, robust recurring revenue from software, and successful integration of Smart Cover, while ongoing tariff and labor dynamics influenced both costs and customer behavior.

• Product mix shift: Management noted that increased sales of higher-margin products like Orion cellular radios and e-Series meters contributed to structural mix improvements, supporting gross margin expansion above the company’s historical range.
• Software-as-a-Service traction: The company highlighted strong growth in its BEACON software platform, with management explaining that recurring revenue from software is directly tied to device sales, resulting in a 28% compound annual growth rate (CAGR) for software revenue in recent years.
• Smart Cover integration: The Smart Cover acquisition continued to deliver outsized growth, with management describing the market for manhole monitoring as underpenetrated and ripe for digital adoption. While Smart Cover is currently less profitable due to ongoing investment, management expects it to become earnings accretive by year two post-acquisition.
• Tariff and cost management: Targeted price increases were implemented to counteract tariff-related pressures, with CFO Robert Wrocklage stating that pricing actions are expected to reach parity with costs in upcoming quarters, reducing the lag effect seen earlier in the year.
• Utility customer dynamics: Despite external noise about federal funding and economic uncertainty, utilities are prioritizing technology upgrades and continuing to allocate budgets for advanced metering projects. Management reported healthy activity across all stages of its project pipeline, from planning to deployment.

Drivers of Future Performance

Management’s outlook centers on ongoing technology adoption by utilities, sustained product mix benefits, and the company’s ability to manage tariff-related cost pressures through pricing and efficiency initiatives.

• Technology adoption by utilities: The company expects continued growth in demand for AMI and smart water solutions, underpinned by utility labor shortages and the need to modernize infrastructure for efficiency and resilience. Management reiterated that secular trends make technology upgrades inevitable for most customers.
• Structural mix and margin expansion: Management believes that the growing share of higher-margin products and recurring software revenue will support operating margins within the new normalized range of 39% to 42%. This mix shift is expected to provide long-term margin resilience, even as traditional hardware segments mature.
• Tariff and cost headwinds: The team acknowledged that the trade environment remains fluid, with tariffs and commodity costs presenting ongoing risks. However, they expect targeted pricing actions and supply chain agility to offset these pressures over time, maintaining profitability despite external uncertainties.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace of adoption and customer feedback for BlueEdge and Smart Cover solutions, (2) the company’s ability to sustain its margin profile amid evolving tariff and cost pressures, and (3) the conversion of project pipeline activity into new deployments and recurring software revenue. Additionally, developments in federal funding and utility budget cycles will be important to track for indications of demand stability.

Badger Meter currently trades at $180, down from $187.53 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

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