Business context and reporting period
Badger Meter, Inc. (NYSE: BMI) filed its Form 10-K for the fiscal year ended December 31, 2021. The company makes flow measurement, water-quality monitoring, communications and software solutions; it reports one operating segment. More than 90% of its products are used in water-related applications.
Financial performance
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Net sales | $505.2 million | $425.5 million |
| Gross margin | $205.5 million; 40.7% of sales | $168.2 million; 39.5% |
| Operating earnings | $78.7 million; 15.6% of sales | $65.2 million; 15.3% |
| Net earnings | $60.9 million | $49.3 million |
| Diluted EPS | $2.08 | $1.69 |
| Cash provided by operations | $87.5 million | $89.6 million |
FY 2021 net margin was approximately 12.1%. Net sales increased 18.7%; utility-water sales rose 20.6% to $415.3 million, and flow-instrumentation sales rose 10.7% to $89.9 million. Acquisitions contributed $40.7 million to sales growth; higher sales of meters, radio and software products contributed the remaining increase.
Cash and cash equivalents were $87.2 million at year-end, versus $72.3 million in 2020. The company had no short-term borrowings and reported a net cash position of $87.2 million. It had $157.1 million of unused credit lines under a $150 million multi-currency facility that supports up to $100 million of commercial paper. Current assets were $261.4 million and current liabilities were $82.1 million. Capital expenditures were $6.7 million; dividends paid were $22.2 million. Inventory increased to $99.6 million from $81.6 million.
Material changes and unusual items
In January 2021, Badger Meter acquired water-quality monitoring provider ATi for $44.0 million, net of cash acquired. The acquisition added $21.0 million of intangible assets and $16.4 million of goodwill. The 2020 comparison includes s::can, acquired in November 2020, for $30.5 million, net of cash acquired.
Gross margin improved with higher volume, product mix, acquisitions and pricing actions. Selling, engineering and administration expense increased to $126.8 million, or 25.1% of sales, from $103.1 million, or 24.2%; acquired businesses accounted for $16.9 million of the increase. Operating cash flow declined by $2.1 million, primarily reflecting higher working-capital needs. The warranty and after-sale costs reserve was $12.9 million, compared with $11.6 million a year earlier.
Fourth-quarter 2021 sales were $135.7 million and net earnings were $17.3 million, compared with $112.3 million and $13.1 million, respectively, in fourth-quarter 2020. Diluted EPS was $0.59 versus $0.45.
Outlook, management commentary and risks
Management reported record backlog in 2021 as component shortages and logistics constraints limited production despite improved customer order rates. These disruptions and inflationary costs were expected to continue affecting operations; management cautioned that sales patterns could be uneven in 2022. The filing does not provide a revenue or earnings forecast. Capital expenditures for fiscal 2022 were expected to be $9 million to $11 million.
Key risks include ongoing electronics and component shortages, supplier concentration, raw-material and labor-cost inflation, COVID-19-related disruption, competition, technology and network changes, cybersecurity and software risks, and potential environmental liabilities. Management said pricing initiatives were being pursued to offset inflation where possible and that the company remained in compliance with credit-facility covenants. No material legal proceedings were pending; environmental contingencies could result in future costs, potentially material, although recent compliance expenditures were not material. The company reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions.
Important facts for investors to verify
- Whether supply-chain constraints, backlog conversion and inflation affected 2022 sales, delivery performance and margins as anticipated.
- How much of sales and earnings growth was organic versus contributed by ATi and s::can, and whether acquired businesses meet expectations.
- Whether inventory growth and working-capital demands normalize, and how operating cash flow tracks earnings.
- Whether pricing actions offset input-cost inflation without materially affecting demand or competitiveness.
- Developments in warranty costs, supplier concentration, environmental contingencies and cybersecurity or network-related exposures.