10-Q: Badger Meter Q3 2026: Stable Revenue, Margin Gains Amidst Mixed Results

Badger Meter reported stable third-quarter net sales and improved gross margins, though nine-month results showed a decline in revenue and net earnings, impacted by project pacing and acquisitions.

Summary

• For the three months ended September 30, 2026, Badger Meter reported net sales of $235.9 million, a slight increase of 0.1% compared to $235.7 million in the prior year period.
• Net earnings for the third quarter were $35.9 million, or $1.24 per diluted share, an increase from $35.1 million, or $1.19 per diluted share, in the same period of 2025.
• For the nine months ended September 30, 2026, net sales decreased by 5.1% to $660.5 million from $696.0 million in the prior year period.
• Net earnings for the nine-month period decreased to $93.0 million, or $3.19 per diluted share, from $108.1 million, or $3.65 per diluted share, in the same period of 2025.
• Gross margin for the third quarter improved to 41.9% from 40.7% in the prior year, driven by favorable product mix including increased SaaS revenue and ultrasonic meter volume.
• The company acquired UDlive Limited for $94.4 million in May 2026, a provider of sewer line monitoring solutions, which contributed $7.7 million in revenue in the third quarter.
• Cash provided by operations for the first nine months of 2026 was $103.9 million, a decrease from $128.9 million in the same period of 2025.
• The company repurchased $119.0 million of its common stock for treasury stock during the nine-month period.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a mixed to slightly positive quarter. While revenue and net earnings saw a slight decline year-over-year for the nine-month period, the company demonstrated resilience with stable revenue in the third quarter and improved gross margins due to favorable product mix. Strategic acquisitions and ongoing investments in technology position the company for future growth, though supply chain and economic uncertainties remain.

Positives

• Third-quarter net sales remained stable at $235.9 million, showing resilience.
• Gross margin improved to 41.9% in Q3 2026 from 40.7% in Q3 2025, driven by a favorable product mix including higher SaaS revenue and ultrasonic meter volume.
• Diluted earnings per share increased to $1.24 in Q3 2026 from $1.19 in Q3 2025.
• The acquisition of UDlive Limited is expected to enhance the company's sewer line monitoring solutions.
• The company has a strong liquidity position with $154.5 million of unused credit lines available.
• The company's credit facility was amended and extended to July 8, 2031, providing long-term financial flexibility.

Negatives

• Nine-month net sales decreased by 5.1% to $660.5 million compared to $696.0 million in the prior year.
• Nine-month net earnings decreased to $93.0 million from $108.1 million in the prior year.
• Nine-month diluted earnings per share decreased to $3.19 from $3.65 in the prior year.
• Cash provided by operations decreased to $103.9 million for the first nine months of 2026 from $128.9 million in the same period of 2025.
• Inventories increased by $14.5 million due to strategic purchasing and timing of receipts.
• Selling, engineering, and administration expenses increased due to the inclusion of UDlive and higher personnel costs.

Risks

• The company relies on single suppliers for most brass castings and certain resin and electronic subassemblies, which could lead to higher costs or delivery delays if these suppliers are lost.
• Global investment in AI and data centers is increasing demand for electronic components, potentially leading to longer lead times, reduced availability, and increased procurement costs for critical components.
• Prolonged supply chain constraints could adversely affect future operating results.
• The company is subject to contingencies related to environmental laws and regulations, which could result in future material costs.
• The UDlive acquisition includes a potential earn-out of up to $50.0 million based on EBITDA targets, which represents a future financial obligation.
• The company's results are subject to the pacing of AMI projects and the adoption of new technologies.

Future Outlook

The company believes its operating cash flows, available borrowing capacity, and ability to raise capital provide adequate resources for ongoing operations, future capital expenditures, and new product development. The company is well-positioned to benefit from the adoption of smart water solutions and continuing conversion trends to AMI.

Management Comments

• "Sales into the utility water market were $208.9 million, a decrease of 0.1% from the prior years $209.2 million. Utility water sales continue to reflect uneven AMI project pacing partially offset by increased BEACON SaaS revenue, and $5.6 million of revenue associated with the acquisition of UDlive."
• "Sales of flow instrumentation products were $27.0 million compared to the prior year's $26.5 million, an increase of 2.1%, driven by strong demand across the water-focused end markets."
• "Gross margin improvement in the current year was driven by favorable product mix, including increased SaaS revenue and ultrasonic meter volume."
• "The increase in SEA expenses was mainly the result of the inclusion of UDlive, inclusive of the acquired intangible asset amortization, partially offset by lower incentive compensation and other appropriate cost controls."
• "The Company believes that its operating cash flows, available borrowing capacity, and its ability to raise capital provide adequate resources to fund ongoing operating requirements, future capital expenditures and the development of new products."

Industry Context

StockSavvy.ai notes that Badger Meter's performance aligns with broader industry trends favoring smart water solutions, data analytics, and recurring revenue models like SaaS. The company's strategic acquisitions, such as UDlive, demonstrate a commitment to expanding its portfolio in critical areas like sewer monitoring, addressing increasing regulatory and sustainability demands within the water management sector.

Comparison to Industry Standards

• The company estimates that approximately 40% of water meters installed in the United States have been converted to AMI systems, indicating a significant ongoing transition from manual to automated meter reading.
• The company's focus on SaaS revenue, such as BEACON, aligns with industry shifts towards recurring revenue models, which are generally viewed favorably by investors due to their predictability.
• The acquisition of UDlive for $94.4 million, with a potential earn-out of $50.0 million, reflects a common strategy in the water technology sector to acquire specialized capabilities in areas like IoT-enabled monitoring.
• The company's gross margin of 41.9% for Q3 2026 is a key metric to compare against competitors in the water technology and industrial instrumentation space, though specific comparable company data is not provided in this filing.

Legal Proceedings

• There are currently no material legal proceedings pending with respect to the Company.

Stakeholder Impact

• Shareholders: The mixed financial results, with a decline in nine-month earnings but stable Q3 revenue and improved margins, may lead to varied investor sentiment. Share repurchases indicate a return of capital to shareholders.
• Employees: Increased SEA expenses include personnel costs, suggesting potential investments in or growth of the workforce. Stock-based compensation is also noted.
• Customers: The company's focus on providing actionable data and insights through its BlueEdge solutions aims to optimize customer operations and contribute to sustainable resource management.
• Suppliers: Reliance on single suppliers for certain components presents a risk that could impact costs and delivery times for the company, potentially affecting its ability to serve customers.

Next Steps

• Continue to monitor and mitigate supply chain disruptions and cost pressures through vendor relationships, dual-sourcing, strategic inventory purchases, and pricing initiatives.
• Leverage the UDlive acquisition to enhance sewer line monitoring solutions and integrate its operations.
• Continue to benefit from the conversion trends to AMI and the adoption of smart water solutions.
• Manage the potential earn-out obligation for the UDlive acquisition based on EBITDA targets.

Key Dates

Recommendation

The company demonstrates resilience with stable Q3 revenue and improved margins, supported by strategic acquisitions and a strong liquidity position. However, the year-over-year decline in nine-month net sales and earnings, coupled with ongoing supply chain concerns and the integration of acquisitions, warrants a cautious 'hold' rating. Investors should monitor the successful integration of UDlive and the impact of supply chain improvements.

Keywords

water meter, smart water, utility water, SaaS, AMI, flow instrumentation, sewer monitoring, acquisitions