Badger Meter, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Badger Meter supplies water and flow measurement, metering, software, and water-quality monitoring solutions. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Net sales | $117.8 | $108.5; up 8.6% |
| Gross margin | $49.4; 41.9% | $43.3; 39.9% |
| Operating earnings | $17.7; 15.1% of sales | $16.0; 14.8% of sales |
| Net earnings | $13.8 | $11.9; up 16.3% |
| Diluted EPS | $0.47 | $0.41 |
| Cash provided by operations | $30.6 | $30.5 |
| Cash and cash equivalents | $51.4 at March 31 | $72.3 at December 31, 2020 |
Gross margin improved on acquisition and product mix, including higher SaaS revenue, and pricing that more than offset brass-cost inflation. Selling, engineering and administration expense rose to $31.6 million from $27.3 million, reflecting the acquisitions and related amortization. The effective tax rate declined to 22.2% from 25.6%. Capital expenditures were $1.8 million. The company paid $5.2 million in dividends and spent $44.6 million, net of cash acquired, on acquisitions.
At quarter-end, current assets were $204.1 million and current liabilities were $71.8 million. The balance sheet does not show borrowings. The company reported $133.1 million of unused credit lines, including a $125 million credit facility supporting commercial paper; it was in compliance with facility covenants. The facility was scheduled to expire in September 2021.
Material changes and business developments
- Utility-water sales increased 11.8% to $95.8 million, including approximately $10 million from the ATi and s::can acquisitions; excluding acquisitions, utility sales were essentially flat.
- Flow-instrumentation sales decreased 3.4% to $22.0 million amid continued sluggish activity in served markets.
- Orders exceeded sales, but a global electronics shortage and logistics challenges interrupted manufacturing and constrained output.
- On January 1, 2021, Badger Meter acquired water-quality monitoring provider ATi for $44 million, net of cash acquired. Purchase-price allocation remained preliminary. The 2020 s::can acquisition also had a preliminary allocation at quarter-end.
- Primary working capital was $105.9 million, or 24.3% of trailing-twelve-month sales, compared with $108.4 million, or 25.5%, at year-end 2020.
Outlook, risks and contingencies
The filing provides no quantified earnings or revenue guidance. Management said customer orders had returned to pre-pandemic levels or higher in some cases, but supply disruptions were likely to make sales patterns uneven for the remainder of 2021. It said the duration and severity of COVID-19 impacts remained difficult to estimate.
Key risks include electronics availability and other supply-chain disruptions, reliance on single suppliers for many brass castings and certain resin and electronic subassemblies, inflation in materials and labor, competition, cybersecurity and IT disruptions, foreign-currency exposure, and the uncertain effects of COVID-19. Environmental matters could result in future costs that may be material, although compliance expenditures in 2020 and Q1 2021 were not material. The company reported no material pending legal proceedings and no material subsequent events. No material risk-factor changes from the 2020 Form 10-K were reported.
Investor facts to verify
- Whether electronics and logistics constraints continued to limit production and convert the order backlog into sales.
- Organic growth and profitability trends after separating the contributions of ATi and s::can.
- Integration progress and final purchase-price allocations for both acquisitions.
- Credit-facility renewal or replacement, given its September 2021 scheduled expiration.
- Whether working capital, cash generation, and supplier concentration changed materially after quarter-end.