Badger Meter (BMI) Q3 2026 earnings review
Badger Meter profit margins recover, while utility shipments gain speed
Badger Meter's utility water rollouts started lifting sales from the second quarter while tight cost controls restored its profit margins. Sales from businesses owned before May rose 5% from the second quarter to $230 million, though they still sat 2% below last year's record third quarter. Chief executive Kenneth C. Bockhorst forecast another sequential and year-over-year gain in the fourth quarter, but the release dropped earlier language calling for flat full-year underlying sales.
| Sales from businesses owned before May | $230.3M -2.3% from a year ago; +4.5% from Q2 |
|---|---|
| Total revenue | $235.9M +0.1% from a year ago (includes $5.6M from UDlive) |
| Operating margin, excluding UDlive | 20.9% +1.3 percentage points from a year ago |
| Q4 underlying sales outlook | Higher than Q3 implies at least +4.4% from a year ago |
⚖️ Verdict: 🟢 Bullish
The story got better because the promised second-half shipment ramp is now visible in sequential revenue and operating margin jumped back above 20%. Lower overhead spending and software mix lifted core operating margin to 20.9%, while a $12 million inventory reduction got cash generation back on track. One caution: matching last year's full-year sales would require a 20% fourth-quarter jump by our math, and management quietly stopped repeating that full-year goal.
The question now is how steep the fourth-quarter project ramp will be. Either large utility deployments like Puerto Rico's push fourth-quarter sales toward $260 million to keep the full year flat, or underlying sales grow closer to 5% and push the main volume into 2027. Management's full-year commentary on the call and fourth-quarter shipments will settle it.
🐂 Bull Case
Cost Controls Lifted Operating Margin Above 20%
Badger Meter kept its promise that profit margins would recover once third-quarter sales stepped up. Operating margin excluding UDlive, the UK sewer monitoring business acquired in May, rose 1.3 percentage points from a year ago to 20.9%, up from 18.4% in the second quarter. Total operating margin reached 20.2%, up 0.6 percentage points.
- Gross margin: 41.9%, up 1.2 percentage points from a year ago on higher software and product mix
- Selling, engineering and administrative costs excluding UDlive: $48.8 million, down 2% from a year ago
- Total selling, engineering and administrative costs: 21.7% of revenue, up 0.6 percentage points because UDlive added $2.3 million
The water meter maker cited "the benefit of appropriate spending controls and lower incentive compensation" for the overhead drop. Because gross margin sat at the top of the company's 39% to 42% target range and core overhead fell, operating profit grew 4% even though underlying sales shrank.
What to watch: fourth-quarter operating margin excluding UDlive. Holding above 20% during a seasonally shorter quarter would show that software mix and cost discipline can protect earnings even before large utility projects reach peak volume.
Core Sales Rose From Q2 as Projects Shipped
Chief executive Kenneth C. Bockhorst said "third quarter sales reflected the ongoing ramp of awarded utility water projects as well as solid underlying demand trends". Sales from businesses owned before May reached $230.3 million, rising 4.5% from the second quarter. In both 2024 and 2025, third-quarter sales fell from the second quarter, so this quarter broke the seasonal dip.
Underlying utility water sales grew 5% from the second quarter, though they still fell 3% from last year's record third quarter because of "uneven AMI project pacing partially offset by higher software revenue". Advanced Metering Infrastructure (AMI) pairs digital water meters with cellular radios and management software. Badger Meter also launched OneNetwork, its "real-time network monitoring and analysis software platform" under the BlueEdge suite of water management tools.
What to watch: whether fourth-quarter sales from businesses owned before May exceed $230.3 million. Delivering sequential growth in the holiday-shortened fourth quarter would confirm that multi-year utility rollouts are now driving the top line.
Buybacks Accelerated to $55 Million in Q3
After slowing share buybacks to $25.3 million in the second quarter while paying for UDlive, Badger Meter more than doubled its repurchases to $55.5 million in the third quarter. That brought nine-month buybacks to $119.0 million and reduced the diluted share count by 2.4% from a year ago, to 28.9 million shares.
The lower share count and a one-point drop in the effective tax rate to 25.1% lifted diluted earnings per share by 4.2% to $1.24, even though net earnings rose only 2.4%. The board also raised the annual dividend by 10% to $1.76 per share, marking 34 straight years of increases.
What to watch: fourth-quarter share repurchases on the cash flow statement. With cash down to $67.9 million, another large buyback would require either strong fourth-quarter cash flow or drawing on the $150 million credit line.
🐻 Bear Case
Release Dropped the Full-Year Flat Sales Target
In the first and second quarters, Badger Meter said full-year 2026 sales excluding UDlive would finish roughly even with 2025's $916.7 million. In the third-quarter release, Bockhorst said the company continues to "anticipate both sequential and year-over-year Base revenue improvement" in the fourth quarter, but he did not repeat the full-year flat target.
The omission matters because the arithmetic is steep. Nine-month sales excluding UDlive sit at $652.9 million, down 6.2% from a year ago. By our math, matching 2025's full-year total would require $263.8 million of underlying sales in the fourth quarter — a 19.5% jump from a year ago and $28 million above the highest quarter the company has ever reported. Beating the third quarter's $230.3 million only requires 4.4% growth from a year ago.
What to watch: management's exact words on full-year 2026 underlying sales during the conference call. Replacing the flat full-year goal with a fourth-quarter growth goal would lower the bar by up to $33 million.
Electronics Supply Chain Pressures Persist Into Year-End
Badger Meter relies on electronic components for its ultrasonic meters, ORION cellular radios and sewer monitoring sensors. In the outlook, Bockhorst said the company is "effectively addressing ongoing material cost pressures related to broad electronics supply chain dynamics". That keeps electronics inflation front and center as utility shipments accelerate.
So far, software growth and product mix have outrun those input costs, lifting third-quarter gross margin to 41.9%. However, large utility water rollouts carry a higher share of hardware than the first nine months did. If component prices keep rising while hardware shipments step up, gross margin could move back toward the middle of the 39% to 42% target range.
What to watch: fourth-quarter gross margin and any call commentary on component pricing contracts. A drop below 40.5% would show that hardware volume and electronics costs are starting to dilute the software mix benefit.
UDlive Acquisition Still Posted an Operating Loss
Badger Meter bought UK-based UDlive on May 1 for $94.4 million in cash plus a potential $50 million earn-out, and said at the announcement that the deal would add to earnings per share in its first year. In the third quarter — its first full quarter of ownership — UDlive brought in $5.6 million of sales and an operating loss of $276 thousand.
Accounting charges drove the loss: UDlive recorded $1.2 million of intangible asset amortization in overhead and $0.5 million of inventory step-up amortization in cost of sales. Before those two non-cash charges, UDlive earned about $1.4 million, or 25% of sales, by our math. Still, the GAAP drag reduced total operating margin by 0.7 percentage points this quarter.
What to watch: UDlive's operating profit line in the fourth-quarter reconciliation table. Once the inventory step-up charge finishes, UDlive needs to turn profitable on a reported basis to meet the year-one earnings promise.
Risks this quarter didn't answer
Four standing concerns from prior quarters received no new numbers in the third-quarter earnings release.
- Puerto Rico Aqueduct and Sewer Authority (PRASA) contract: no update on shipment volumes or the June procurement inquiry for the 1.6-million-connection award.
- Awarded project cohort progress: no connection shipment counts or revenue figures for the nine major utility projects ramping in the second half.
- Short-cycle utility order rates: no quantitative measure of day-to-day replacement orders versus multi-year project shipments.
- Deferred revenue and contract backlog: disaggregated recurring software revenue and unsatisfied performance obligations await the third-quarter 10-Q filing.
💲 Other KPIs
Inventories fell by $11.7 million from June 30, reversing part of the first-half build as utility projects began shipping. That drawdown generated $10.7 million of operating cash, helping Badger Meter turn 112% of third-quarter profit into free cash flow ($40.3 million) and lifting nine-month cash conversion to 99%.
Cash dropped by $27.8 million during the quarter and is down from $226.0 million at year-end. Over the first nine months, the meter maker spent $119.0 million on share buybacks, $94.4 million on the UDlive acquisition and $35.9 million on dividends, while keeping zero debt on its balance sheet.
Sales of flow meters for industrial and water applications grew 2% from a year ago, slowing from 6% growth in the second quarter after a 4% decline in the first. The US company cited steady water-market demand against a tough prior-year comparison.
🔮 Guidance
Unchanged on fourth-quarter direction, silent on the full year. Bockhorst expects fourth-quarter underlying sales to beat both the third quarter's $230.3 million (at least +4.4% from a year ago) and last year's $220.7 million, despite fewer holiday working days. By our math, hitting the prior flat full-year target would require $263.8 million (+19.5% from a year ago), which looks out of reach without a record jump.
❓ Key Questions
Is the flat full-year core sales target still intact?
Nine-month sales excluding UDlive are $652.9 million. Reaching 2025's $916.7 million requires $263.8 million in the fourth quarter, or 19.5% growth. Does management still stand behind a flat full year, or only sequential fourth-quarter growth?
How much did contract liabilities grow without UDlive?
The third-quarter release does not include the footnote table for contract liabilities and over-time software revenue. Excluding the $10 million assumed with UDlive, did the organic software backlog grow in the third quarter?
How many connections shipped to Puerto Rico in Q3?
The 1.6-million-connection PRASA contract makes up about half of Badger Meter's awarded project funnel. How much did PRASA contribute to the third quarter's $10 million sequential core sales gain?
When does UDlive inventory step-up amortization end?
UDlive took a $0.5 million inventory step-up charge in the third quarter ($0.7 million since May) and posted a $276 thousand operating loss. Will that inventory charge finish in the fourth quarter so UDlive turns profitable?