Badger Meter, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; financial statements are unaudited. Badger Meter supplies water-flow measurement, metering, software and water-quality monitoring solutions. Approximately 90% of its products are used in water-related applications.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $132.4 million | $117.8 million | 12.4% increase |
| Gross margin | $50.7 million; 38.3% | $49.4 million; 41.9% | Margin down 3.6 percentage points |
| Operating earnings | $18.9 million; 14.2% of sales | $17.7 million; 15.1% of sales | 6.3% increase |
| Net earnings | $14.4 million | $13.8 million | 4.2% increase |
| Diluted EPS | $0.49 | $0.47 | Increase of $0.02 |
| Operating cash flow | $9.3 million | $30.6 million | Decrease of $21.3 million |
Sales growth was led by utility water, up 15.1% to $110.3 million, including higher ultrasonic meter, ORION Cellular endpoint and BEACON SaaS sales. Flow instrumentation sales were $22.1 million, up 0.4%. The effective tax rate was 23.7%, compared with 22.2%. Dividends declared per share were $0.20, compared with $0.18.
Gross margin contracted amid inflationary cost pressures and production volatility from component delays. Selling, engineering and administration expense was $31.9 million, or 24.1% of sales, versus $31.6 million, or 26.8%; management attributed improved expense leverage to spending controls and higher sales.
Liquidity, balance sheet and cash flow
- Cash and cash equivalents were $89.2 million at March 31, 2022, versus $87.2 million at year-end 2021. Total assets were $545.9 million and shareholders’ equity was $409.9 million.
- Current assets were $281.3 million and current liabilities were $88.5 million. Receivables were $78.1 million and inventories were $103.0 million.
- Operating cash flow was $9.3 million; capital expenditures were $1.1 million and dividends paid were $5.9 million. The cash-flow decline year over year primarily reflected higher working capital, shipment timing and management incentive payments.
- The company reported a $150 million multi-currency credit facility, supporting commercial paper of up to $100 million, and $156.9 million of unused credit lines. It was in compliance with all credit covenants. The filing does not provide a clear value for outstanding borrowings.
- Primary working capital was $128.7 million, or 24.8% of trailing-twelve-month sales, compared with $123.6 million, or 24.5%, at December 31, 2021.
Material changes, outlook and risks
- Record order backlog and strong customer order rates were constrained by shortages of electronics and other components and logistics disruptions, limiting manufacturing output and shipments. Management expected these disruptions to contribute to uneven sales patterns for the remainder of 2022.
- Input-cost inflation was becoming more pervasive; the company was pursuing pricing initiatives to offset cost pressures where possible. Management said it did not believe industry-wide lead times, inflation and pricing dynamics had negatively affected its competitive position.
- No specific full-year revenue or earnings guidance was provided. Management said the duration and impact of the pandemic, supply constraints, logistics disruptions and inflation remained difficult to estimate.
- Environmental matters could result in future costs that might be material, although compliance expenditures in 2021 and Q1 2022 were not material. No material legal proceedings were pending.
- The company relies on single suppliers for most brass castings and certain resin and electronic subassemblies. Losing a supplier could increase costs, delay deliveries and raise inventory or quality-control costs.
- ATi, acquired in January 2021, and s::can, acquired in November 2020, expanded the company’s water-quality monitoring capabilities. No material subsequent events were reported.
Important facts for investors to verify
- Whether component availability and logistics improve enough to convert the record backlog into shipments and revenue.
- Whether pricing actions and operating improvements can offset inflation and restore gross-margin performance.
- How receivables, inventories and working-capital needs affect operating cash flow and liquidity.
- Utilization and terms of the credit facility, including actual outstanding borrowings, which are not clearly stated in the filing text.
- Potential exposure to environmental contingencies and dependence on concentrated suppliers.