Badger Meter, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; selected fourth-quarter results are included below. Badger Meter provides flow measurement, water quality, communications and software solutions. Nearly 95% of sales are water-related; utility water represented about 85% of 2023 sales and flow instrumentation about 15%.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $703.6 million | $565.6 million |
| Gross margin | $276.4 million; 39.3% | $220.0 million; 38.9% |
| Operating earnings | $118.0 million; 16.8% of sales | $87.3 million; 15.4% of sales |
| Net earnings | $92.6 million | $66.5 million |
| Diluted EPS | $3.14 | $2.26 |
| Cash from operations | $110.1 million | $82.5 million |
| Capital expenditures | $12.0 million | $5.9 million |
- Sales rose 24.4%. Utility water sales increased 27.8% to $603.1 million; flow instrumentation sales increased 7.2% to $100.5 million.
- Fourth-quarter sales were $182.4 million versus $147.3 million in Q4 2022; net earnings were $24.7 million versus $17.5 million, and diluted EPS was $0.84 versus $0.60.
- Cash and cash equivalents were $191.8 million at year-end, with no short-term borrowings and a reported net cash position of $191.8 million. Unused credit lines were $154.4 million; the $150 million revolving facility matures July 2026. The company reported compliance with its covenants.
- Inventory rose to $153.7 million from $119.9 million, attributed to component cost inflation, higher safety stock and increased sales activity. Primary working capital was $155.4 million, or 22.1% of sales, unchanged as a percentage of sales.
- Operating cash flow funded the Syrinix acquisition ($17.1 million, net of cash acquired), capital expenditures and $29.1 million of dividends. FY2023 dividends were $0.99 per share. No shares were repurchased during Q4 under the authorization.
Material changes and business developments
- Growth was driven by smart water solutions, particularly ORION Cellular endpoints, BEACON software-as-a-service revenue and E-Series ultrasonic meter volumes. Management cited higher volumes and favorable product mix in the gross-margin improvement.
- Selling, engineering and administration expenses increased to $158.4 million from $132.7 million, reflecting personnel and incentive costs, the Syrinix acquisition and related amortization. Expenses declined as a share of sales.
- On January 1, 2023, the company acquired UK-based Syrinix, a pressure-monitoring and leak-detection provider, for $17.1 million net of cash acquired. The purchase allocation included $10.3 million of goodwill and $7.7 million of intangible assets.
Outlook, risks and unusual items
- Management expects FY2024 capital expenditures of $14–18 million. The filing provides no earnings or revenue guidance and says capex could vary with project timing, growth opportunities and asset purchases.
- Management sees ongoing opportunity in AMI conversion, static metering and connected water-quality and pressure-monitoring solutions. It estimates about one-third of U.S. water-meter connections have converted to AMI.
- Key risks include utility customers delaying or reducing capital spending; competition and adoption of static meters; dependence on certain single-source suppliers; commodity, inflation and supply-chain pressures; foreign exchange and geopolitical events; cybersecurity and software availability; and product quality or warranty claims.
- The product warranty and after-sale reserve increased to $11.1 million from $9.6 million; estimation of this reserve was identified as a critical audit matter. Goodwill and intangible-asset impairment testing found no impairment in 2023.
- No material legal proceedings were pending. Environmental-law contingencies could result in future costs that may be material, although compliance expenditures in 2023 were not material. The company reported no material cybersecurity breach and no material impact from cyber threats.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Investor verification priorities
- Confirm whether strong utility-water demand, ORION Cellular adoption and BEACON SaaS growth continue, and how much growth reflects volumes, pricing and mix.
- Track inventory levels and cash conversion after the $33.8 million year-over-year inventory increase.
- Assess the returns and integration progress from Syrinix, including the acquired goodwill and intangible assets.
- Monitor supplier concentration, warranty and after-sale claims, and any developments in environmental contingencies.
- Compare actual FY2024 capital spending with the $14–18 million estimate and review subsequent disclosures for updated outlook.