Badger Meter, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. Badger Meter provides water management solutions, including meters, communications, software and monitoring systems. Nearly 95% of net sales are from water-related applications.
Financial results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net sales | $196.3 million | $159.1 million |
| Gross margin | $77.2 million; 39.3% | $62.8 million; 39.5% |
| Operating earnings | $36.6 million; 18.6% of sales | $25.0 million; 15.7% of sales |
| Net earnings | $29.1 million | $19.4 million |
| Diluted EPS | $0.99 | $0.66 |
| Operating cash flow | $21.5 million | $18.0 million |
| Capital expenditures | $2.7 million | $4.3 million |
Sales grew 23.4%; net earnings increased approximately 50%. Gross margin percentage declined 0.2 percentage points. Selling, engineering and administration expense was $40.6 million, or 20.7% of sales, versus $37.8 million, or 23.7%. The effective tax rate was 23.5%, compared with 24.3%.
Revenue and operating trends
- Utility water sales increased 28.7% to $170.1 million, driven by ultrasonic meters, ORION Cellular endpoints and BEACON SaaS revenue.
- Flow instrumentation sales declined 2.7% to $26.2 million, largely because the prior-year period benefited from backlog conversion and improved supply availability.
- Management attributed higher gross profit dollars to volume and favorable mix, partly offset by inflationary costs. Higher sales and spending controls reduced SEA expense as a percentage of sales, despite growth-related hiring and R&D investment.
Cash, liquidity and capital
Cash and cash equivalents were $199.3 million at March 31, 2024, up from $191.8 million at year-end. Operating cash flow increased year over year, reflecting higher earnings, partly offset by higher incentive compensation payments. The company spent $3.0 million on the Telog/Unity asset acquisition and paid $7.9 million in dividends during the quarter.
The filing reports a $150.0 million multi-currency credit facility supporting commercial paper of up to $100.0 million, and $154.3 million of unused credit lines. Badger Meter reported compliance with all credit covenants. No borrowings or debt balance are presented on the balance sheet. Current assets were $470.6 million and current liabilities $135.1 million at quarter-end.
Primary working capital was $162.1 million, or 21.9% of trailing-twelve-month sales, versus $155.4 million, or 22.1%, at December 31, 2023. Receivables and inventory increased with sales activity; inventory also reflected inflation and higher safety-stock levels.
Outlook, risks and notable items
- The filing provides no specific full-year earnings or revenue guidance. Management described continued industry adoption of AMI, ultrasonic meters and data-driven water monitoring as long-term growth opportunities; it estimates about one-third of U.S. water meters are connected to AMI systems.
- On January 1, 2024, the company acquired selected Telog remote-monitoring hardware and Unity software assets for $3.0 million cash. Purchase-price allocation remained preliminary at quarter-end. The acquisition was not material to the consolidated financial statements.
- Warranty and after-sale reserves rose to $12.4 million from $11.1 million at year-end; net additions charged to earnings were $3.2 million, compared with $1.4 million in Q1 2023.
- The company relies on single suppliers for most brass castings and certain resin and electronic subassemblies. Supplier loss could increase costs, delay deliveries and raise inventory or quality-control needs.
- Environmental matters could result in material future costs if circumstances change, although compliance expenditures in 2023 and Q1 2024 were not material. No material legal proceedings were pending; the filing reported no material changes to previously disclosed risk factors.
- Foreign-currency translation reduced other comprehensive income by $3.6 million in Q1 2024. The company noted that new climate-related disclosure rules may apply prospectively beginning with fiscal years starting on or after January 1, 2025, subject to regulatory or judicial developments.
Important facts for investors to verify
- Whether utility-water growth, including BEACON SaaS and ORION Cellular adoption, continues and how product mix affects gross margin.
- Whether inflation, supplier concentration and inventory levels affect costs, delivery performance or working capital.
- The final fair-value allocation and integration results for the Telog/Unity assets, and realization of revenue from $65.7 million of contract liabilities and unsatisfied performance obligations.
- Available borrowing capacity and covenant compliance, particularly given the filing’s reported unused credit lines relative to the stated facility size.
- Potential exposure from environmental contingencies and the impact of future climate-related disclosure requirements.