Badger Meter, Inc. (BMI) Q4 2025 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for joining us, and welcome to the BMI Q4 and Full Year 2025 Earnings Call. [Operator Instructions] I will now hand the conference over to Barbara Noverini, Head of Investor Relations. Barbara, please go ahead.

Thank you for joining the Badger Meter Fourth Quarter and Full Year 2025 Earnings Conference Call. I'm here today with Ken Bockhorst, our Chairman, President and Chief Executive Officer; Bob Wrocklage, our new Executive Vice President of North America Municipal Utility; and Dan Weltzien, our recently appointed Chief Financial Officer. This morning, we made the earnings release and related slide presentation available on our website at investors.badgermeter.com. As a reminder, any forward-looking statements made on this call are subject to various risks and uncertainties, the most important of which are outlined in our news release and SEC filings. On today's call, we will refer to certain non-GAAP financial metrics, including certain base metrics. Use of the term base for these purposes is intended to refer to certain financial metrics, excluding the SmartCover acquisition. Our earnings presentation provides a reconciliation between the most directly comparable GAAP measure and any non-GAAP or base financial measures discussed. With that, I'll turn the call over to Ken.

Thanks, Barb, and thank you all for joining our call. Turning to Slide 3. We delivered solid financial results in the fourth quarter, capping off another full year of record sales, profitability and cash flow. We continue to see robust demand for our industry-leading cellular AMI solution and the recent addition of SmartCover to our BlueEdge suite of smart water management solutions positions us well for long-term growth across the water cycle. I'm thankful for the dedication and perseverance demonstrated by the entire Badger Meter team during a year marked by global trade uncertainty and exciting acquisition integration and many ongoing AMI projects in various stages of deployment. I'll be back to provide a recap of the year and discuss our outlook later in the call. But for now, I'll introduce you to Dan Weltzien. As announced in December, Dan became our new CFO on January 1, 2026, following 7 years as Vice President and Controller. Dan, welcome to the earnings call. Bob Wrocklage is also here today in his new capacity as Executive Vice President, North America Municipal Utility. Bob will join me later in the call to provide more detail about the significant AMI project for PRASA that we mentioned in today's press release. With that, I'd like to turn the call over to Dan to cover the numbers.

Thank you, Ken. I'm truly honored to serve as Badger Meter's Chief Financial Officer. I've benefited personally and professionally from the strong relationships I've had with both Ken and Bob for many years, and remain excited by the opportunity we have ahead of us to build upon our long track record of market leadership and success. So let's go ahead and start by reviewing another quarter of solid financial performance. Turning to Slide 4. Total sales of $221 million in the fourth quarter of 2025 represented an increase of 8% year-over-year or 2% base sales growth. Total utility water product line sales increased year-over-year by 9% or 2%, excluding SmartCover. As expected, fewer operating days in the fourth quarter and previously communicated project pacing effects resulted in a 6% sequential decline in utility water sales versus the third quarter of 2025. The term project pacing is intended to describe typical variation in activity driven by periodic changes in our active customer base and whether or not we act as prime contractor in what we refer to as turnkey projects. Simply put, the sequential quarterly sales decline between the third and fourth quarters of 2025 has everything to do with the calendar and quarter-specific customer and project mix and very little to do with other influences such as underlying market conditions, customer demand trends, utility budgets or the broader funding environment. On the last point, though not all that relevant to metering, recent congressional actions support funding of state revolving funds consistent with historic levels. This should allay some broader water industry funding reduction concerns. Sales for the flow instrumentation product line were flat year-over-year with modest growth in water-focused end markets, offsetting declines across the array of deemphasized applications. Turning to profitability. We were very pleased with the year-over-year operating earnings growth of 10%, which outpaced revenue growth. Operating profit margins increased 40 basis points from 19.1% to 19.5%. Base operating earnings increased 9% year-over-year, expanding base operating profit margins by 140 basis points to 20.5%. Gross margins expanded 180 basis points to 42.1% in the fourth quarter from 40.3% in the prior year quarter. Gross margin continued to benefit from structural mix driven by ultrasonic meters, cellular AMI, water quality and SmartCover sales, which were all above line average profitability. It's also important to mention that the same project pacing effects that impacted utility water sales also benefited margins in the fourth quarter. This is because when we act as prime contractor during certain turnkey projects, sales often include pass-through activities such as outsourced meter installation labor and ancillary meter pit supplies, which tend to have a lower margin profile. Separately, while we now have largely reached price cost parity on 2025 tariff and trade-related cost impacts and related price mitigation actions, we do expect global tariff and trade conditions to remain fluid in 2026. In addition, we expect elevated prices of copper and certain other components of our Bi-alloy ingot material cost to be a gross margin headwind in 2026. We factor all of these components, along with other puts and takes into our normalized gross margin range of 39% to 42% and into ongoing and routine price mitigation actions. SEA expenses in the fourth quarter were $49.9 million, with the $6.4 million year-over-year increase driven primarily by the SmartCover acquisition. When excluding SmartCover-related expenses, including $1.6 million of intangible asset amortization, base SEA expenses increased $1.3 million or 2.9% year-over-year. The year-over-year increase in base SEA expense was mainly driven by higher personnel costs to support normal course growth of the business. The income tax provision in the fourth quarter of 2025 was 24.8% versus the prior year's 27.1%. Consolidated EPS was $1.14 versus $1.04 in the prior year quarter, representing a 10% year-over-year increase. Primary working capital as a percentage of sales at December 31, 2025, was 20.9%, largely consistent with the comparable prior year period. Record quarterly free cash flow of $50.8 million increased by approximately $3.4 million year-over-year. With that, I'll turn the call back over to Ken.

Thanks, Dan. For those of you who followed our story and interacted with Bob over the years, you've certainly experienced the passion and knowledge he has for our business, extending well beyond the traditional CFO focus. Badger Meter will benefit greatly from Bob's business acumen, customer focus and growth mindset as the leader of our largest line of business. I'm now going to hand it over to Bob, so he can talk specifically about the Puerto Rico Sewer Aqueduct Authority (sic) [ Puerto Rico Aqueduct and Sewer Authority ] or PRASA AMI project.

Thanks, Ken. From the CFO's chair, it's been gratifying to be part of more than doubling our top line revenue over the past 7 years. In my new role, I'm excited about further expanding our market leadership as cellular AMI technology continues to increasingly be adopted by North American water utilities as the industry standard for AMI. Consistent with our Choice Matters BlueEdge portfolio, we continue to enable our customers to walk up the technology curve at a pace that's right for them. Our blueprint for growth begins with cellular AMI as the foundation to real-time insights and analytics and expands through the BlueEdge suite of smart water management solutions, enabling visibility and efficiency throughout the entire water cycle. A very recent example of our success with cellular AMI is the announced award for the PRASA AMI project, which will be one of the largest deployments in the world. An overview of the project is provided on Slide 5. This transformative multiyear project will include E-Series ultrasonic meters, ORION Cellular AMI radios and BEACON SaaS across the island of Puerto Rico, representing approximately 1.6 million service connections. Badger Meter's role in the project will be supply only, and we will not assume any prime contractor or installation or ancillary product supply responsibilities. Those activities will be handled by others. We will be utilizing our Racine, Wisconsin facility for production. Over the past year, investors have understandably focused on assessing the installed base of AMI and the remaining AMI adoption potential in North America, along with the underlying customer demand drivers and typical time horizons for AMI projects. To provide color on these factors, let's use the PRASA award as an example of a large project. PRASA's planning for the project began over 5 years ago. That planning materialized into a technology pilot and RFP, which Badger Meter, along with its partners, first participated in beginning in 2021. The pilot deployment began in 2023 and the project award occurred in 2025. We expect the PRASA project to translate into product shipments in 2026 with an initial ramp earlier in the year and more meaningful revenue contributions in the second half of 2026 when project deployment begins -- is expected to begin in earnest. To be clear, project awards of this nature, PRASA or otherwise, underpin our long-term high single-digit outlook over the next 5 years, and the PRASA project specifically is not additive to that either in a single year or over the long-term horizon. While we don't regularly share customer-specific wins and project awards, we're highlighting PRASA due to its scope and scale, to illustrate the drivers behind the uneven project nature of our business and to acknowledge that even today, there are many PRASA project variables known and unknown that will influence near-term 2026 revenue contributions, the year-to-year project pacing thereafter and the duration of the project deployment. Explicitly stated, for these reasons, we will not be sizing the revenue impact of this project on 2026 or more broadly. On that note, I'll pass it over to Ken for his closing remarks.

Thanks, Bob. I'd like to take a moment to review our full year 2025 performance against the 5-year trend line. Please turn to Slide 6. In 2025, we delivered 11% sales growth, surpassing $900 million in revenue. This reflects a 17% compounded annual growth rate over the past 5 years. Our software revenue, which includes SmartCover, now exceeds $74 million and represents 8% of sales. Software revenues, largely driven by cellular AMI have grown at a 28% compounded annual growth rate over the past 5 years. In 2025, operating profit margins expanded 90 basis points to 20% despite the initially dilutive impact of the SmartCover acquisition. Base operating profit margins increased 200 basis points year-over-year. Over the last 5 years, both gross margin improvement and SEA leverage contributed to 470 basis points of operating margin expansion. And finally, we continue to manage our working capital intensity and again generated free cash flow in excess of 100% of net earnings. Our clean balance sheet with more than $225 million of cash on hand continues to provide significant financial flexibility to reinvest in our business, both organically and inorganically. In the third quarter, we increased our dividend for the 33rd consecutive year. And in the fourth quarter, we opportunistically repurchased $15 million in shares when the market price implied an attractive long-term return on capital. Turning to Slide 7. I'm proud of what we accomplished in just 11 short months as we integrated SmartCover into the Badger Meter organization. SmartCover delivered $40 million of sales in 2025 or 25% on an annualized basis. Over this time, SmartCover's profitability improved, driven by both higher sales volumes and focused cost management. We successfully transferred SmartCover's manufacturing operations to our facility in Racine, Wisconsin, and we're on track for earnings accretion in 2026 as expected. And finally, I'll conclude with some thoughts on both our near-term and long-term outlook. As we mentioned in our press release this morning, the second half of 2025 included a concentrated mix of concluding AMI turnkey projects, resulting in base revenue growth of 6%, which was lower than our 5-year forward outlook. We expect this project pacing dynamic to extend throughout the first half of 2026 until several awarded projects, including PRASA, begin multiyear turnkey deployments. We'd like to remind investors that it is not unusual to experience certain quarters or even whole years that are above or below our expectation of high single-digit sales growth over a 5-year forward period. Quarter-to-quarter variation in project pacing is typical in our industry and attempting to precisely time it can cause those who follow us to miss the big picture. Our products and solutions support critical elements of the water infrastructure and the long-term secular trends impacting the water industry will continue to influence our customers to plan for better resiliency. We are actively involved in enabling that change. For example, we created the market for cellular AMI against an incumbent technology and have since demonstrated success at gaining share. Via acquisition and internal development, we've expanded our opportunity set to include solutions across the entire water cycle. Long enduring secular trends support demand for smart water management solutions. When speaking directly with our customers, we have not seen meaningful evidence that real or perceived federal funding constraints will impact our ability to generate high single-digit sales growth, operating profit margin expansion and free cash flow conversion in excess of earnings over a 5-year forward time horizon. In summary, I'm proud of our performance in 2025, look forward to what's ahead in 2026 and see great opportunity for the execution of our long-term strategy to compound value for both our customers and shareholders. With that, operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Robert Mason with Baird.

Congratulations, Bob and Dan, on your new roles. Ken, just to touch on the topic around the timing of projects, understandable that it's not going to be always an even flow there. But I'm just curious, did we see the full impact of the conclusion of those projects in 4Q? Just trying to think about maybe we normally see a sequential rise in the number of operating days in the first quarter, how that dynamic may play into the first part of 2026.

Yes. So first off, Rob, there are several projects that can be at play at any given time, some large, some medium, some small. So it's hard to really nail down exactly that point. But if I could take just a little look back to some of the earlier calls, if you recall, in Q2 of the year, we talked about project pacing and timing and some of those issues that we thought we might see in the second half. And then additionally, we talked about the fewer working days that you start to see in Q4. So it isn't unexpected to us that the second half of the year was a lower growth than the first half. So nothing specific on any individual project, but just the nature of the business that can be uneven from time to time.

But -- Okay. Fair enough. I guess just did we -- I guess, did more of those conclude in the third quarter versus the fourth quarter or if we're looking at another step down as those have now fully concluded?

Yes. So what I would think about, if you look at 2025 and how it played out in 2026 and how we see it happening, the first half started out with a higher growth rate, the second half of the year with a lower growth rate. I think the way we see '26 is a lower growth rate in the first half and a higher growth rate in the second half. And that's something that is driven by the confidence that we have in projects that are in flight, awarded projects that haven't yet started. So we have visibility to some of those projects, and we do see how they're layering out in the year.

Your next question comes from the line of Nathan Jones with Stifel.

I guess I'll start. I know you don't want to talk about the size of this Puerto Rico project. So maybe I'll ask another question that you have answered previously. I think, Ken, you've said over the years that the size of the U.S. market is about 6 million meters per year and Badger's share is roughly about 30%. Are those numbers still accurate for what the size of the overall U.S. market is?

Yes, give or take, 85% of the market every year is replacement, and it's roughly in that space, yes.

Okay. So Badger ships give or take 2 million meters a year. So Badger ships about, give or take, 2 million meters a year is the rough way that would break down for what the overall U.S. market is.

Yes. I mean it's not far off. Again, the indicated general volume that you alluded to flexes year-to-year. It's probably a little bit higher than 6 million. That reference figure is dated. But at the same time, the share element that you mentioned is still relevant.

Got it. I'm just trying to give people a general sense for how big a project 1.6 million connections is for Badger Meter even over a 3- to 5-year period. Again...

And Nathan, one thing is the reason we mentioned PRASA is because, as you know, we don't get into the habit of announcing projects because there's so many. But obviously, this one is pretty meaningful in size, as you point out. And to just give it some reference and the reason we're talking about it more publicly, is we never announced the win in the project that we did recently complete in Orlando. So everyone is aware, Orlando is a pretty large city. To put it in scope and scale, the PRASA award is the equivalent to 8 Orlandos.

That's extremely helpful. My next question is going to be around gross margins. Obviously, gross margins very strong. There's probably a few headwinds as we go through the year. I mean second half of '26, you're talking about some more turnkey projects, which will be headwinds to gross margins. You've obviously seen a big spike in copper prices that will come through your business on a delay. But the first half is, as you said, is going to have an absence of some of these turnkey projects, which is a tailwind for margins. Any help you can give us with how we should think about first half versus second half gross margins in terms of that mix or how we should think about the full year for gross margins given you're at the very high end of the gross margin target range in 2025?

Yes, Nathan, this is Dan. I think a couple of things to point out. I think as we think about it quarter-to-quarter, there's nothing that we would specifically point to say there's going to be variability from quarter-to-quarter. But I think you're thinking about the right topics being we continue to see structural mix impacting margins in a positive way in 2026. And I think you highlighted a couple of the areas that we're continuing to watch, which are the commodity input costs into our ingot recipe. And then certainly, tariffs is something that we continue to monitor. We've gotten to price cost parity on tariffs in 2025, and we'll continue to manage whatever comes our way in 2026 from that perspective.

Your next question comes from the line of Jeff Reive with RBC Capital Markets.

I had another one on the Puerto Rico project. I mean this is a really sizable win. Can you walk us through the typical timing and phasing of a large AMI project like this? How do the deployments ramp? Are they smoother, chunky? How much is in year 1, 2 versus 3, 4, 5 just over the life?

Andrew, that's a fantastic question. And I would say you're a straight man for why we don't provide guidance from quarter-to-quarter. The project ramp-ups, oftentimes, there's a plan. There's so much that goes into an AMI project in terms of going through all the budget cycling and then having to align all the resources because you need people out on the street doing installations. And then you might have weather factors from quarter-to-quarter. So it's not as smooth as people might think that it would be to do a large deployment, whether that's something the size of Puerto Rico or something the size of a medium town anywhere in the United States. So typically, people look at these things and they expect them to be done over a 5-year period. If everything goes really smoothly, it could potentially go faster. If you have issues, it could go longer. But there's no real blueprint, but generally, we're thinking of this over a 5-year horizon for PRASA.

Got it. And I think you said in the prepared remarks, the meters are being manufactured in Racine, not your Mexico facility. Is there a margin differential happening there?

Yes. I mean I think you can just -- you can imply just from labor cost differential, there'd be a potential margin impact. Of course, that was all contemplated in the contracting stage. And so ultimately, the location of manufacture is being driven by U.S.-made manufacturing requirements. So that's part of the reason why we made an investment in that facility and continue to invest there. That's what dictates where it's made, and we understand that cost footprint, and we're able to engage and embed that, if you will, into the RFP process.

Yes. And I'm sure I'm jumping the route here on anticipating the margin question on the project, which, of course, which we won't disclose. But since we're not -- since it's not full turnkey and there's a whole lot of different factors in here, but this is one where I think we've struck a really good value proposition where PRASA sees the value in what we're offering and they're happy to buy it, and we're happy to sell it at the margin it's going for.

Your next question comes from the line of Andrew Krill with Deutsche Bank.

I want to go back to the outlook for sales. One of your competitors yesterday suggested their revenue could be slightly to modestly down year-over-year. I think you used the word growth rate for this year. So I just wanted to confirm, I think that would -- do you feel pretty confident sales should grow this year even if they're below that high single-digit through the cycle target?

Yes. So real quick, I know people really enjoy the read-throughs and trying to do the comparisons and see how things will work. First of all, there could be inherent unevenness in their business that's different than the mix of customers that we have that is hard to do just to begin with industry-wide. Secondly, the particular competitor you're talking about, I think we have several differences that have been built over the last several years. We have an industry-leading AMI offering that has several in-flight projects and awarded not started projects informing our view. We've got a really exciting software business at 8% of our revenue now that's 100% recurring. We're really excited about what's happening with sewer line monitoring and water quality monitoring and network monitoring. And these are things that I believe the competitor you're talking about doesn't have. So the read-through that people are getting, I would say, isn't the same. So when we look at all those factors that we're talking about, again, I would think you should view '26 as the inverse effect of '25 like I talked about before. But we feel confident given what we're seeing. Our conviction on high single digits through the 5-year horizon is as strong today as it was yesterday as it was 3 months, 6 months or 12 months ago based on all the same factors we use to think about that 5-year horizon. But some years -- and one thing, not to follow it all up here on this question, but everyone who's talked to us before, we've never pegged and said every single year is going to be 8%. We've said some years might be 12%, some years might be 5%. We just came off of 6% that I'm pretty proud of. And I think this next year is going to be exciting, and our 5-year conviction is as strong as it's ever been.

Great. Very helpful. And then a quick one on pricing, and I know you don't disclose that exactly. But just can you remind us, has it been primarily or all list price increases thus far to deal with tariffs mostly? Or have you been using surcharges as well? And in the event tariffs were ruled illegal, like do you expect you can hold on to this price looking forward? And any conversations with customers looking for kind of some discounts at this point?

Yes. So in our pricing, keeping in mind, 75% of our revenue is sold direct. And so when we're in a constant state of doing project pricing based on real-time output, so that helps us in some ways. Two, yes, we do list price increases. What we didn't do was temporary tariff add-ons or tariff issues that could be challenged in court or could be reversed once a customer says tariffs are gone or could be demanded back because tariffs have been rolled back. So ours is pretty clean, I think, compared to how other people have handled the pricing aspects of tariffs.

Your next question comes from the line of James Ko with Jefferies.

I guess I wanted to kind of follow up on the project pacing dynamic here. So was this like dynamic kind of extending into first half 2026 expected? Or is this something new kind of developed? And kind of how much confidence do you have in kind of project converting into revenue in second half 2026?

Yes, there can always be some variability. So in full disclosure, some of the projects that are starting in the second half, we thought would have started in the first half. So things can slide sometimes from a quarter or 2 out. And this is why we talk so much about the 5-year horizon. I'm absolutely confident all those things are going to happen within the 5-year. I'm confident what's going to happen in the year, but trying to peg it from quarter-to-quarter can be difficult.

I just want to clarify, too, that when Ken says project slides to the right, for example, it's not related to funding. Each one of these projects is different. Every customer is different. There's contracting phases. There's initial deployment areas. There's full rollout. So there's multiple steps to these projects and everyone is different, and that's the largest impact to the timing of them.

I think the point that I would like to maybe emphasize here is that these aren't hoping for backlog increases. These aren't hoping for things to happen. These are known awarded, not started projects that even if they have some variability in where they move, they're in our pocket.

Got it. And I guess similar questions, you kind of reiterated high single-digit kind of organic growth over the 4- to 5-year horizon. So like how much of that outlook is kind of supported by awarded but not executed projects versus kind of broader just few new opportunities?

Well, so it's a great question. I mean this is how we -- when we think about our 5-year view and what we've talked about in several meetings is we're looking at several segmentations of how many people are looking -- working with consultants and working on budget, which are items that turn into revenue 3, 4 and 5 years out. We've got the whole bucket of things that are in RFP today that become revenue in the next year to 2. Then we've got in-flight projects. We've got awarded, not started projects. So it's this whole funnel of activity that we look at. And -- but what underpins it all that's really helpful for us is we're confident that no matter what happens with these project cycles, 85% of what we're going to take orders and ship for every year are replacement by nature in terms of meters and radios. So the project stuff is all very interesting, but the bottom line is very strong. And then, of course, the software continues to grow the last 5 years at a 28% CAGR. So it's a multivariable equation and one that we feel good about how those come together.

Your next question comes from the line of Bobby Zolper with Raymond James.

It looks like there's about $1 billion of metering projects in the ARPA data, which all needs to be spent by the end of 2026. How have you reflected that in your 2026 commentary?

So we haven't. I mean, so when we sit here and we talk about what's fueled our growth for the last 5 or 6 years, it's really informed by the buckets I just walked you through. And when we look at who's planning for projects, who's actually doing RFPs for projects, what we have in known projects, there's so many ways that funding is done, especially around the AMI side, whether that be SRFs, WIFIA loans, rate base increases, municipal bonds. That is one factor, you're right, but it certainly is not an outsized consideration for us at all when we think about our forecast.

I'd also be cautious about taking something that's listed in an ARPA database with reference to the word metering and assuming that, that whole total of money is related to metering. It's oftentimes considerably larger than the actual metering spend. So a headline grabbing number or a question like that is not necessarily indicative of the true metering content on those line items.

All right. I appreciate it. And then I have a 2-part question on the PRASA project. I guess, one, how is PRASA funding that project? And then secondarily, what is the legal status of that project?

The first part of that question shouldn't surprise anyone. Part of the project purpose and intent is in response to Hurricane Maria, which took place in 2017, so over 8 years ago. And so the funding of that project in part is coming from FEMA dollars. And so that is a FEMA-funded project, which ultimately drives the Buy American requirement, I mentioned earlier, which then drives our location of manufacture. In our -- to the second part of your question, in our -- first of all, we don't comment certainly on litigation of ourselves or and/or the legal status, if you will, of even our customers or potential customers. But in the direct sense in our commentary, we mentioned there's a lot of variables related to this project. And certainly, those variables could impact the pace at which that project gets deployed, whether it be here in the immediate term of 2026 or thereafter. And so I'm not making that statement generally, not specific to your legal question. But ultimately, there are a lot of variables at play. But what is known is the award and our participation in that award.

Your next question comes from the line of Scott Graham with Seaport Research Partners.

I want to understand a little bit more, Ken, about some of your statements in the press release and then followed up on the call here about first half versus second half. It seemed in the press release to suggest that your second half growth was slower than your high single-digit long term and that, that decrement was either because of the roll-off projects, as you've discussed and the days in the fourth quarter, and that the first half of this year will essentially be the same, the roll-off of the projects. Does that suggest, Ken, that the organic growth that you're expecting in the first half of the year will be the same amount lower on a percent basis as the second half was versus the high single?

So Scott, as you, I'm sure, expect, we're not going to get that granular with you. But when I had mentioned previously that I think you'll see 2026 play out in a similar fashion, except the inverse of how 2025 did. I would just expect a lower growth rate in the first half of the year and a higher growth rate in the second half of the year.

I had to try. Okay. So the stock is obviously, seems to not be reflecting what you're saying in this call. And I'm just wondering, you've been buying back some stock last couple of quarters. Is the plan here with that the stock where it is, is there an opportunity to maybe restrain some costs in the first half of the year to boost earnings? Or will we continue to see share repurchases to boost earnings or both?

Yes. So a couple of things. So first off, obviously, with our great balance sheet, we still feel 100% positive about our capital allocation priorities. So we're going to continue to invest organically and inorganically in the business. So what that means is we'll do the right things to continue to drive long-term strategy and growth. So we would never do any shortsighted cost-cutting type things to try to short circuit a result. So we're going to continue to invest in the business. Two, returning cash to shareholders. That's traditionally for us been 33rd consecutive year of increased dividends. We did buy some shares back in Q4, as we talked about. And certainly, we have the authorization to purchase more. And if we thought it was attractive in Q4, I'm not forecasting anything for you, but I would think you'd think -- we think it's attractive now, too, to repurchase shares. And then on the M&A funnel, we're really, really thrilled with the deals that we've done over the last 5 years, and we continue to have a really exciting funnel. So the capital allocation priorities are still going to be aligned to support growth, return value to shareholders and do more M&A.

Your next question comes from the line of Michael Fairbanks with JPMorgan.

My first question is on SmartCover. So it was up 25% annualized and profitable in 4Q. I guess now that the integration is 12 months in, can you just give us an update on what you now see as the potential in that business? And how we should think about the growth algorithm there going forward?

Yes. You cut out there a little bit, but I think what you asked was we saw a 25% growth in SmartCover and you're asking how we see the future of sewer line monitoring growth rate. So the thing that we were excited about SmartCover to begin with is that before we acquired it, it was growing at a 20% CAGR for multiple years. So that's the first point. Second point is we're still so early in adoption of sewer line monitoring that there's still so much more room to grow, which is why we really want to get into that space. And acquiring a known brand like SmartCover, the leader in North America was really important to us. So we fully, fully expect to continue to grow our sewer line monitoring at a higher rate than average.

Great. And then on PRASA, can you maybe just talk about how you could use potentially an AMI deployment like that to expand the reach of the other offerings in the portfolio, just in the BlueEdge portfolio broadly?

Yes. In fact, the answer doesn't even need to be PRASA specific. I think we have multiple examples where AMI adoption by a utility ultimately serves as the catalyst to the extension of other beyond the meter technologies. Essentially, AMI becomes an implementation that, in many cases, a utility grows into having data availability and the insights and analytics to influence how they run primarily their meter billing operations, but then having cascading effects into the remainder of the utility. And once that kind of capability or core discipline is in place, it then becomes very clear that marrying up that meter and flow data with other pressure management and/or water quality data becomes a very valuable value proposition, if you will. And so whether it's PRASA or any other AMI customers of ours, that's oftentimes the foundation or the springboard to the broader beyond the meter technologies. We often talk about Galveston. We've talked about Galveston historically over time. But that is the exact scenario that played out there. AMI was the first technology adoption and then other use cases followed in short order as data and analytics became a primary point of emphasis with the utility.

There are no further questions at this time. I will now pass the call back to Barbara for closing remarks.

Thank you, operator. Badger Meter's First Quarter 2026 earnings release is tentatively scheduled for April 16, 2026. In addition, please save the date for Badger Meter's inaugural Investor Day, which will be held on May 21 in New York City. During the event, we will provide greater color and tangible examples of the evolution of our BlueEdge portfolio, along with the discussion of the key drivers enabling growth of our comprehensive suite of smart water management solutions. Information about how to attend and what more to expect will be available in early March. Thanks for your interest in Badger Meter, and have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.