Badger Meter, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Badger Meter supplies water-flow measurement, metering, analytics and water-quality monitoring products and services. All amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $122.9 | $91.1 | $240.7 | $199.6 |
| Gross margin | $50.1; 40.8% | $35.9; 39.3% | $99.5; 41.3% | $79.2; 39.7% |
| Operating earnings | $18.7; 15.2% | $12.7; 13.9% | $36.4; 15.1% | $28.7; 14.4% |
| Net earnings | $14.0 | $9.5 | $27.8 | $21.4 |
| Diluted EPS | $0.48 | $0.33 | $0.95 | $0.73 |
| Cash provided by operations | Not stated for quarter | Not stated for quarter | $45.1 | $52.3 |
- Q2 sales rose 34.8% year over year; first-half sales rose 20.6%. Q2 net earnings increased 46.6%; first-half net earnings increased 29.8%.
- First-half capital expenditures were $4.4 million, versus $3.6 million. Operating cash flow less capital expenditures was approximately $40.7 million, compared with $48.7 million.
- Cash and cash equivalents were $57.4 million at June 30, down from $72.3 million at year-end 2020. Current assets were $219.3 million and current liabilities $72.3 million.
- The balance sheet presents no borrowings as a separate debt line; the filing does not provide a clear total-debt figure. At June 30, $133.3 million of existing credit lines was unused. A new $150 million multi-currency facility, supporting up to $100 million of commercial paper, was entered into on July 8, 2021.
Material changes and business drivers
- Utility-water sales were $100.1 million in Q2, up 38.3%; acquisitions contributed about $12.2 million. Excluding acquisitions, utility sales increased 21.5%, supported by BEACON SaaS growth, AMR and ORION Cellular demand, and pricing.
- Flow-instrumentation sales were $22.8 million, up 21.5%, reflecting recovering activity and favorable comparisons. For the first half, utility-water sales rose 23.9% and flow-instrumentation sales rose 7.9%.
- Q2 gross-margin improvement reflected acquisition and product mix, higher SaaS revenue and pricing, partly offset by higher brass and other input costs. First-half pricing more than offset input-cost inflation. Selling, engineering and administration expense rose to $31.4 million in Q2 and $63.0 million for the half, including acquisition-related expenses and intangible amortization.
- ATi, a water-quality monitoring provider, was acquired effective January 1, 2021 for $44 million net of cash acquired. The company’s preliminary purchase-price allocation included $16.2 million of goodwill; valuation work was incomplete at quarter-end. The 2020 s::can acquisition also contributed to results; its preliminary allocation remained incomplete.
Outlook, risks and contingencies
- No quantified earnings or sales guidance is provided. Management reported that orders exceeded sales and backlog reached record levels, as electronics and other component shortages and logistics constraints limited output. These disruptions may make sales patterns uneven through the rest of 2021 and potentially beyond.
- Management said customer order rates had improved and that supply-chain constraints were affecting competitors similarly. It noted that the duration and severity of COVID-19 impacts remained difficult to estimate.
- Other identified risks include reliance on single suppliers for many brass castings and certain resin and electronic components; possible higher costs, delays and quality-control burdens if suppliers are lost; foreign-currency, regulatory, competitive, cybersecurity, labor/input-cost and acquisition-integration risks.
- No material legal proceedings were pending. Environmental matters could result in material future costs if circumstances change, although compliance expenditures in 2020 and the first half of 2021 were not material. The company reported compliance with credit covenants at June 30.
Important facts for investors to verify
- Whether component availability and logistics improve enough to convert record backlog into sales, and whether demand remains strong.
- How margins respond to input-cost inflation, pricing, product mix and acquisition-related amortization.
- ATi and s::can purchase accounting, integration, and their contribution to recurring growth and cash flow.
- Cash conversion and working-capital needs: inventories increased to $90.8 million from $81.6 million at year-end, partly due to safety stock, shortages and ATi.
- Terms and utilization of the July 2021 credit facility, and any subsequent developments in environmental or supplier-related exposures.