Badger Meter, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Badger Meter supplies water flow measurement, water quality monitoring, and related software and services. Results are unaudited.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $148.0 million | $128.7 million | $418.2 million | $369.4 million |
| Gross margin | $57.5 million; 38.9% | $51.2 million; 39.8% | $163.0 million; 39.0% | $150.6 million; 40.8% |
| Operating earnings | $23.9 million; 16.1% of sales | $19.4 million; 15.1% of sales | $64.8 million; 15.5% of sales | $55.9 million; 15.1% of sales |
| Net earnings | $17.9 million | $15.9 million | $49.0 million | $43.6 million |
| Diluted EPS | $0.61 | $0.54 | $1.67 | $1.49 |
Q3 sales rose 15.0% year over year (16.6% excluding the stronger U.S. dollar); nine-month sales rose 13.2% (14.5% excluding currency impact). Utility water sales increased 17.1% in Q3 and 15.5% year to date; flow instrumentation sales increased 5.3% and 3.2%, respectively. Growth reflected ultrasonic meters, ORION Cellular endpoints, BEACON SaaS, and price realization.
Q3 gross margin percentage declined 0.9 percentage points, while the nine-month rate declined 1.8 points, amid inflation and production volatility from component delays. Operating margin improved as selling, engineering and administration expense fell as a share of sales. Effective tax rates were 25.1% in Q3 and 24.5% year to date, versus 18.3% and 21.8%; the prior-year quarter benefited from discrete tax items related to stock compensation.
Cash, liquidity and balance sheet
- Cash and cash equivalents were $114.8 million at September 30, 2022, versus $87.2 million at December 31, 2021. The filing does not state a separate outstanding debt balance.
- Cash from operations was $52.7 million for the first nine months, compared with $60.4 million in the cash flow statement for 2021. The MD&A instead cites $62.8 million for the prior-year period; this discrepancy should be verified.
- Capital expenditures were $4.7 million; dividends paid were $18.3 million. Inventory was $113.6 million, receivables $83.5 million, and payables $65.5 million at quarter-end.
- The company reported $156.1 million of unused credit lines and compliance with credit agreement covenants. The facility provides a $150 million multicurrency line supporting commercial paper of up to $100 million.
- Primary working capital was $131.6 million, or 23.8% of trailing-twelve-month sales, compared with $123.6 million, or 24.5%, at year-end 2021.
Material changes, outlook and risks
Management reported strong customer order rates, modestly improving logistics, and record backlog, but said component shortages and supply-chain constraints continued to limit fulfillment and could make sales uneven through the remainder of 2022 and 2023. Inflation affected materials and other costs; pricing actions partly offset these pressures. Management said the duration and severity of these effects remained difficult to estimate. The filing provides no specific earnings or revenue guidance.
Foreign currency translation reduced comprehensive income by $13.1 million year to date and contributed to accumulated other comprehensive loss of $13.0 million. The company relies on single suppliers for most brass castings and certain resin and electronic subassemblies; supplier loss could raise costs, delay deliveries, and increase inventory or quality-control costs. Environmental matters could result in material future costs, although compliance spending in 2021 and the first nine months of 2022 was not material. No material legal proceedings or material subsequent events were reported. The filing reported no material changes to previously disclosed risk factors.
Key facts for investors to verify
- Reconcile the prior-year operating cash flow comparison: $60.4 million in the cash flow statement versus $62.8 million in MD&A.
- Track whether record backlog converts to sales as component availability and logistics change, and whether pricing continues to offset inflation.
- Monitor gross margin recovery, working-capital needs, and cash generation amid elevated inventory and receivables.
- Assess the effect of foreign-exchange movements and the potential exposure from environmental matters and concentrated suppliers.