Badger Meter, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This annual filing also reports fourth-quarter results; it is not a standalone quarterly filing.
Business context
Badger Meter provides flow measurement, water-quality monitoring, control and related software solutions. Its two product lines are utility water and flow instrumentation; the company estimates that more than 90% of products serve water-related applications. Utility water is the larger product line. The company operates as one reportable segment.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net sales | $565.6 million | $505.2 million | Up 11.9% |
| Gross margin | $220.0 million; 38.9% | $205.5 million; 40.7% | Margin down 1.8 percentage points |
| Operating earnings | $87.3 million; 15.4% of sales | $78.7 million; 15.6% of sales | Up 10.9%; margin down 0.2 points |
| Net earnings | $66.5 million | $60.9 million | Up 9.2% |
| Diluted EPS | $2.26 | $2.08 | Up 8.7% |
| Cash from operations | $82.5 million | $87.5 million | Down $5.1 million |
| Capital expenditures | $5.9 million | $6.7 million |
Utility-water sales rose 13.6% to $471.8 million, supported by demand and adoption of cellular AMI, ORION Cellular endpoints, BEACON SaaS and ultrasonic meters. Flow-instrumentation sales increased 4.3% to $93.8 million; excluding foreign-exchange effects, they rose 7.1%. The strong U.S. dollar reduced reported growth.
Fourth-quarter 2022 sales were $147.3 million versus $135.7 million in Q4 2021; net earnings were $17.5 million versus $17.3 million, and diluted EPS was $0.60 versus $0.59.
Liquidity, debt and capital
Year-end cash was $138.1 million, with no short-term borrowings and a reported net cash position of $138.1 million. The company had $156.6 million of unused credit lines and reported compliance with credit covenants. Current assets were $347.8 million and current liabilities were $110.3 million. Operating cash flow funded capital expenditures and $24.9 million of dividends. Working capital needs increased, including higher inventory associated with component-cost inflation and safety stock.
Primary working capital was $125.1 million, or 22.1% of sales, versus $123.6 million, or 24.5%, at the prior year-end. The board approved a new authorization to repurchase up to 200,000 shares through February 10, 2026; the company made no program purchases in Q4 2022.
Changes, outlook and risks
Sales, operating earnings and net earnings increased year over year, but gross margin percentage declined as inflationary costs and intermittent component delays affected production. The company cited higher personnel, incentive compensation, research and development, and travel costs. Cash from operations declined as working-capital requirements rose.
Management expects FY2023 capital expenditures of $10–12 million, subject to project timing and other factors. No revenue or earnings guidance is provided in the supplied filing text. Management described continued opportunities in AMI conversion, static metering, SaaS, water-quality monitoring and smart-water applications.
Key risks include supply-chain constraints and reliance on certain single suppliers; material and labor inflation; customer or municipal budget delays; competition and technology transitions; foreign-exchange exposure; cybersecurity and cloud-software disruptions; product quality and warranty claims; and environmental, regulatory and geopolitical uncertainties. The company reported no material pending legal proceedings. Environmental contingencies could result in future costs, potentially material, although compliance expenditures were not material in 2022.
The $9.6 million warranty and after-sale reserve was down from $12.9 million at year-end 2021; warranty estimation was identified as a critical audit matter. Goodwill and intangible-asset impairment testing found no impairment. Subsequent to year-end, the company acquired Syrinix on January 1, 2023, for approximately $18.0 million net of cash acquired; management did not expect a material financial-statement impact.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification priorities
- Assess whether reported sales growth and demand trends are sustainable, particularly in cellular AMI, BEACON SaaS and ultrasonic meters.
- Track recovery in gross margin as inflation and component availability evolve, and verify the extent of foreign-exchange impacts.
- Review inventory levels, receivables, payables and operating cash conversion as working-capital needs change.
- Examine warranty claims and reserve assumptions, including developments in product performance and after-sale costs.
- Confirm FY2023 capital spending, the Syrinix acquisition’s integration and results, and any material environmental or supply-chain developments.