BMI Q4 2025: Software Revenue Hits $74M, Accelerating Recurring Growth Amid Project Cycle Shifts

2026-01-28 | By EarningsIQ Research

BMI’s Q4 capped another record year, with software revenue up sharply and gross margins expanding despite pronounced project pacing volatility. The company’s visibility into awarded but not-yet-executed projects, including the landmark PRASA AMI deployment, underpins management’s high single-digit growth conviction—even as near-term growth moderates. Investors should focus on the mix shift toward recurring software, the durability of replacement demand, and the execution cadence of major municipal projects in 2026.

Summary

• Software Expansion: Recurring software revenue now represents a material share of the business, growing faster than core hardware.
• Project Timing Volatility: Sequential sales and margin swings reflect the uneven nature of large AMI project cycles.
• 2026 Growth Inflection: Management expects a back-half acceleration as major deployments ramp and awarded projects convert to revenue.

Performance Analysis

BMI delivered another record quarter, closing out 2025 with total sales of $221 million in Q4, up 8% year-over-year, though base sales growth (excluding SmartCover, sewer line monitoring business) was a modest 2%. The utility water product line grew 9% YoY (2% base), while flow instrumentation remained flat as water-focused end markets offset declines in legacy applications. Sequentially, utility water sales fell 6% due to fewer operating days and project pacing, a recurring theme that management emphasized as intrinsic to the business model rather than demand-driven.

Profitability outpaced revenue, with operating earnings up 10% YoY and operating margins expanding 40 basis points to 19.5%. Notably, base operating margins jumped 140 basis points to 20.5%. Gross margin improvement was driven by a favorable mix—ultrasonic meters, cellular AMI (Advanced Metering Infrastructure, real-time smart metering), and software solutions all contributed above-average profitability. Record free cash flow of $50.8 million and disciplined working capital management further reinforced financial flexibility.

• Mix-Driven Margin Expansion: Higher sales of software and advanced metering products lifted gross margin to 42.1%, up 180 basis points YoY.
• SmartCover Integration: The acquisition contributed $40 million in 2025 sales and is now accretive, with manufacturing successfully transitioned to Racine, Wisconsin.
• Project Pacing Impact: Margins benefited from fewer low-margin turnkey projects in Q4, but management flagged copper and component cost headwinds for 2026.

Overall, the business remains structurally healthy, but the cadence of growth and margin will be dictated by the timing of large project deployments and commodity cost trends in 2026.

Executive Commentary

Strategic Positioning

1. Recurring Software Revenue as a Growth Engine

Software revenue, now $74 million and 8% of total sales, has grown at a 28% CAGR over five years, outpacing hardware and reflecting a deliberate pivot toward higher-margin, recurring business. The BlueEdge platform and SmartCover acquisition have expanded BMI’s presence across the water management cycle, embedding analytics and monitoring into customer workflows.

2. Project Pacing and AMI Adoption Dynamics

Project pacing remains the primary driver of quarterly volatility. The company’s win of the PRASA AMI project—1.6 million connections, one of the world’s largest—highlights BMI’s competitive edge in cellular AMI. However, management stresses that such projects are multi-year, lumpy, and not immediately additive to annual growth rates. The installed base and replacement cycle (85% of annual U.S. meter demand) provide a durable revenue floor, while new deployments offer upside.

3. Margin Management Amid Input Cost Volatility

Gross margin tailwinds from mix are counterbalanced by commodity risk, particularly copper and tariff exposure. Management has reached price-cost parity on 2025 tariffs but expects ongoing volatility in 2026. The company’s ability to pass through costs and optimize manufacturing (including U.S. content requirements for FEMA-funded projects) will be critical to sustaining margin within the 39–42% normalized range.

4. Capital Allocation and M&A Discipline

BMI’s clean balance sheet and $225 million cash position underpin a disciplined approach to capital allocation: organic investment, targeted M&A, regular dividend increases (33 consecutive years), and opportunistic buybacks. The SmartCover acquisition is now fully integrated and accretive, and management maintains an active M&A funnel to support future growth.

Key Considerations

This quarter’s results reflect both the strengths and inherent volatility of BMI’s business model. Investors should weigh the following:

• Recurring Revenue Momentum: The shift toward software and analytics is accelerating, offering margin resilience and stickier customer relationships.
• Project Cycle Visibility: Management’s confidence in second-half 2026 growth is anchored in a robust pipeline of awarded but not-yet-executed projects.
• Commodity and Tariff Exposure: Elevated copper and material costs, along with tariff fluidity, could pressure margins if not offset by pricing actions.
• Replacement Demand Stability: The core replacement cycle insulates the business from broader funding swings, as 85% of meter demand is non-discretionary.
• Capital Deployment Optionality: Ample cash allows for continued investment, M&A, and shareholder returns without sacrificing strategic flexibility.

Risks

Project timing remains the most significant operational risk, as the conversion of awarded contracts to revenue is subject to customer readiness, funding cycles, and logistical variables. Commodity price volatility and tariffs could erode margin if price increases lag cost inflation. Regulatory or funding delays in major municipal projects (such as FEMA-backed initiatives) could shift revenue recognition. Management’s long-term outlook relies on a stable replacement market and successful execution of large-scale deployments.

Forward Outlook

For the first half of 2026, BMI expects:

• Lower growth rates relative to the 2025 first half, with sequential improvement anticipated in the back half as major projects ramp.
• Gross margins to remain within the 39–42% normalized range, though potentially at the lower end due to commodity headwinds and project mix.

For full-year 2026, management reiterated its conviction in:

• High single-digit sales growth over a five-year horizon, with annual variation driven by project pacing.
• Operating margin expansion and free cash flow conversion in excess of net earnings.

Management highlighted several factors that support this outlook:

• Visibility into a robust pipeline of awarded but not-yet-started projects, including PRASA.
• Secular tailwinds in smart water management and infrastructure resiliency.

Takeaways

BMI’s core strengths—recurring software, a resilient replacement cycle, and disciplined capital allocation—position it for sustainable value creation, even as near-term growth moderates due to project timing.

• Recurring Software as a Growth Lever: The BlueEdge and SmartCover platforms are transforming BMI’s revenue mix, supporting higher margins and long-term stickiness.
• Project Timing Drives Volatility, Not Demand: Quarterly swings are driven by deployment schedules, not underlying market weakness; the PRASA win illustrates BMI’s strategic positioning in large-scale AMI.
• Watch for Execution on Major Deployments: The cadence of 2026 revenue and margin will hinge on the pace at which awarded projects convert to shipments and the company’s ability to manage input costs.

Conclusion

BMI’s Q4 and full-year 2025 results reinforce the company’s long-term thesis: a shift toward recurring software, robust replacement demand, and a strong balance sheet. While project timing will drive near-term volatility, management’s visibility and strategic positioning support sustained growth and margin expansion.

Industry Read-Through

BMI’s results highlight the increasing importance of software and analytics in the water infrastructure sector, with recurring revenue now a critical differentiator. The lumpy nature of project-driven businesses remains a challenge for all AMI and smart infrastructure players, but those with strong replacement cycles and a growing installed base are best positioned to weather funding and timing uncertainties. Input cost volatility and Buy American requirements will remain key themes for the industry in 2026, particularly for companies supplying large, federally funded projects. Peer companies should watch for shifts in municipal procurement patterns and the pace of smart infrastructure adoption as leading indicators.

BMI Industrials Water Infrastructure Recurring Revenue Software Smart Metering Capital Allocation Project Pacing