UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,March 31, 20222023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 001-06706
BADGER METER, INC.
(Exact name of registrant as specified in its charter)
Wisconsin | 39-0143280 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
4545 W. Brown Deer Road Milwaukee, Wisconsin | 53233 | |
(Address of principal executive offices) | (Zip code) |
(414) 355-0400 | ||
(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock | BMI | New York Stock Exchange | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filer | ☒ | Smaller reporting company | ☐ | |
Accelerated filer | ☐ | Emerging growth company | ☐ | |
Non‑accelerated filer | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 11, 2022April 10, 2023 there were 29,269,14929,314,828 shares of Common stock outstanding with a par value of $1 per share.
BADGER METER, INC.
Quarterly Report on Form 10-Q for the Period Ended September 30, 2022March 31, 2023
Index
Page No. | ||
Item 1 | 4 | |
Consolidated Condensed Balance Sheets - | 4 | |
5 | ||
6 | ||
7 | ||
8 | ||
Notes to Unaudited Consolidated Condensed Financial Statements | 9 | |
Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 14 |
Item 3 |
| |
Item 4 |
| |
Item 1A |
| |
Item 2 |
| |
Item 6 |
| |
| ||
2
Special Note Regarding Forward Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q, as well as other information provided from time to time by Badger Meter, Inc. (the “Company” or "Badger Meter") or its employees, may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those statements. The words “anticipate,” “believe,” “estimate,” “expect,” “think,” “should,” “could” and “objective” or similar expressions are intended to identify forward looking statements. All such forward looking statements are based on the Company’sCompany's then current views and assumptions and involve risks and uncertainties. See Item 1A "Risk Factors" of the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 20212022 for further information regarding risks and uncertainties that could cause actual results to differ materially from those expressed or implied in forward looking statements. The Company disclaims any obligation to publicly update or revise any forward-looking statements as a result of new information, future events or any other reason.
3
Part I – Financial Information
Item 1 Financial Statements
BADGER METER, INC.
Consolidated Condensed Balance Sheets
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| (Unaudited) |
|
|
|
|
| (Unaudited) |
|
|
|
| ||||
|
| (In thousands) |
|
| (In thousands) |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
| ||||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 114,787 |
|
| $ | 87,174 |
|
| $ | 128,361 |
|
| $ | 138,052 |
|
Receivables |
|
| 83,491 |
|
|
| 65,866 |
|
|
| 84,246 |
|
|
| 76,651 |
|
Inventories: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Finished goods |
|
| 23,783 |
|
|
| 25,991 |
|
|
| 28,427 |
|
|
| 31,350 |
|
Work in process |
|
| 25,970 |
|
|
| 24,747 |
|
|
| 27,920 |
|
|
| 23,577 |
|
Raw materials |
|
| 63,855 |
|
|
| 48,873 |
|
|
| 75,997 |
|
|
| 64,929 |
|
Total inventories |
|
| 113,608 |
|
|
| 99,611 |
|
|
| 132,344 |
|
|
| 119,856 |
|
Prepaid expenses and other current assets |
|
| 13,742 |
|
|
| 8,709 |
|
|
| 15,892 |
|
|
| 13,273 |
|
Total current assets |
|
| 325,628 |
|
|
| 261,360 |
|
|
| 360,843 |
|
|
| 347,832 |
|
Property, plant and equipment, at cost |
|
| 216,159 |
|
|
| 216,796 |
|
|
| 224,916 |
|
|
| 220,945 |
|
Less accumulated depreciation |
|
| (143,790 | ) |
|
| (138,746 | ) |
|
| (150,391 | ) |
|
| (147,403 | ) |
Net property, plant and equipment |
|
| 72,369 |
|
|
| 78,050 |
|
|
| 74,525 |
|
|
| 73,542 |
|
Intangible assets, at cost less accumulated amortization |
|
| 54,314 |
|
|
| 64,176 |
|
|
| 59,511 |
|
|
| 53,607 |
|
Other assets |
|
| 15,450 |
|
|
| 15,390 |
|
|
| 11,927 |
|
|
| 14,048 |
|
Deferred income taxes |
|
| 7,512 |
|
|
| 7,529 |
|
|
| 12,829 |
|
|
| 12,757 |
|
Goodwill |
|
| 99,100 |
|
|
| 104,313 |
|
|
| 113,768 |
|
|
| 101,261 |
|
Total assets |
| $ | 574,373 |
|
| $ | 530,818 |
|
| $ | 633,403 |
|
| $ | 603,047 |
|
Liabilities and shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Payables |
| $ | 65,462 |
|
| $ | 41,859 |
|
| $ | 79,549 |
|
| $ | 71,440 |
|
Accrued compensation and employee benefits |
|
| 17,734 |
|
|
| 20,644 |
|
|
| 11,984 |
|
|
| 20,513 |
|
Warranty and after-sale costs |
|
| 10,369 |
|
|
| 12,868 |
|
|
| 9,569 |
|
|
| 9,606 |
|
Other current liabilities |
|
| 8,220 |
|
|
| 6,775 |
|
|
| 14,684 |
|
|
| 8,753 |
|
Total current liabilities |
|
| 101,785 |
|
|
| 82,146 |
|
|
| 115,786 |
|
|
| 110,312 |
|
Other long-term liabilities |
|
| 36,540 |
|
|
| 29,804 |
|
|
| 44,687 |
|
|
| 37,808 |
|
Deferred income taxes |
|
| 4,575 |
|
|
| 5,385 |
|
|
| 6,744 |
|
|
| 4,648 |
|
Accrued non-pension postretirement benefits |
|
| 5,072 |
|
|
| 5,214 |
|
|
| 3,859 |
|
|
| 3,917 |
|
Other accrued employee benefits |
|
| 3,542 |
|
|
| 5,199 |
|
|
| 4,290 |
|
|
| 3,940 |
|
Commitments and contingencies (Note 5) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common stock |
|
| 37,221 |
|
|
| 37,221 |
|
|
| 37,221 |
|
|
| 37,221 |
|
Capital in excess of par value |
|
| 51,780 |
|
|
| 49,224 |
|
|
| 54,245 |
|
|
| 53,282 |
|
Reinvested earnings |
|
| 384,207 |
|
|
| 353,535 |
|
|
| 407,979 |
|
|
| 395,155 |
|
Accumulated other comprehensive (loss) income |
|
| (12,984 | ) |
|
| 136 |
| ||||||||
Accumulated other comprehensive loss |
|
| (4,258 | ) |
|
| (5,983 | ) | ||||||||
Less: Treasury stock, at cost |
|
| (37,365 | ) |
|
| (37,046 | ) |
|
| (37,150 | ) |
|
| (37,253 | ) |
Total shareholders’ equity |
|
| 422,859 |
|
|
| 403,070 |
|
|
| 458,037 |
|
|
| 442,422 |
|
Total liabilities and shareholders’ equity |
| $ | 574,373 |
|
| $ | 530,818 |
|
| $ | 633,403 |
|
| $ | 603,047 |
|
See accompanying notes to unaudited consolidated condensed financial statements.
4
BADGER METER, INC.
Consolidated Condensed Statements of Operations
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
|
| |||||||||||||||
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
|
| |||||||||||||||
|
| (In thousands except share and per share amounts) |
|
| (In thousands except share and per share amounts) | ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Net sales |
| $ | 148,009 |
|
| $ | 128,738 |
|
| $ | 418,244 |
|
| $ | 369,449 |
|
| $ | 159,101 |
|
| $ | 132,402 |
|
|
Cost of sales |
|
| 90,487 |
|
|
| 77,554 |
|
|
| 255,239 |
|
|
| 218,801 |
|
|
| 96,285 |
|
|
| 81,679 |
|
|
Gross margin |
|
| 57,522 |
|
|
| 51,184 |
|
|
| 163,005 |
|
|
| 150,648 |
|
|
| 62,816 |
|
|
| 50,723 |
|
|
Selling, engineering and administration |
|
| 33,651 |
|
|
| 31,744 |
|
|
| 98,184 |
|
|
| 94,786 |
|
|
| 37,770 |
|
|
| 31,861 |
|
|
Operating earnings |
|
| 23,871 |
|
|
| 19,440 |
|
|
| 64,821 |
|
|
| 55,862 |
|
|
| 25,046 |
|
|
| 18,862 |
|
|
Interest (income) expense, net |
|
| (108 | ) |
|
| 14 |
|
|
| (86 | ) |
|
| 28 |
|
|
| (622 | ) |
|
| 13 |
|
|
Other pension and postretirement costs |
|
| 32 |
|
|
| 30 |
|
|
| 97 |
|
|
| 90 |
|
|
| 32 |
|
|
| 32 |
|
|
Earnings before income taxes |
|
| 23,947 |
|
|
| 19,396 |
|
|
| 64,810 |
|
|
| 55,744 |
|
|
| 25,636 |
|
|
| 18,817 |
|
|
Provision for income taxes |
|
| 6,014 |
|
|
| 3,541 |
|
|
| 15,853 |
|
|
| 12,136 |
|
|
| 6,221 |
|
|
| 4,457 |
|
|
Net earnings |
| $ | 17,933 |
|
| $ | 15,855 |
|
| $ | 48,957 |
|
| $ | 43,608 |
|
| $ | 19,415 |
|
| $ | 14,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic |
| $ | 0.61 |
|
| $ | 0.54 |
|
| $ | 1.68 |
|
| $ | 1.50 |
|
| $ | 0.66 |
|
| $ | 0.49 |
|
|
Diluted |
| $ | 0.61 |
|
| $ | 0.54 |
|
| $ | 1.67 |
|
| $ | 1.49 |
|
| $ | 0.66 |
|
| $ | 0.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Dividends declared per common share |
| $ | 0.23 |
|
| $ | 0.20 |
|
| $ | 0.63 |
|
| $ | 0.56 |
|
| $ | 0.23 |
|
| $ | 0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Shares used in computation of earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Basic |
|
| 29,215,982 |
|
|
| 29,157,628 |
|
|
| 29,211,488 |
|
|
| 29,124,491 |
|
|
| 29,255,184 |
|
|
| 29,198,888 |
|
|
Impact of dilutive securities |
|
| 156,482 |
|
|
| 184,204 |
|
|
| 151,609 |
|
|
| 200,043 |
|
|
| 165,770 |
|
|
| 164,438 |
|
|
Diluted |
|
| 29,372,464 |
|
|
| 29,341,832 |
|
|
| 29,363,097 |
|
|
| 29,324,534 |
|
|
| 29,420,954 |
|
|
| 29,363,326 |
|
|
See accompanying notes to unaudited consolidated condensed financial statements.
5
BADGER METER, INC.
Consolidated Condensed Statements of Comprehensive Income
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
|
| |||||||||||||||
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
|
| |||||||||||||||
|
| (In thousands) |
|
| (In thousands) |
|
| ||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| ||||||
Net earnings |
| $ | 17,933 |
|
| $ | 15,855 |
|
| $ | 48,957 |
|
| $ | 43,608 |
|
| $ | 19,415 |
|
| $ | 14,360 |
|
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Foreign currency translation adjustments |
|
| (5,424 | ) |
|
| (2,248 | ) |
|
| (13,104 | ) |
|
| (155 | ) |
|
| 1,758 |
|
|
| (2,315 | ) |
|
Pension and postretirement benefits, net of tax |
|
| (16 | ) |
|
| 4 |
|
|
| (16 | ) |
|
| 9 |
|
|
| (33 | ) |
|
| - |
|
|
Comprehensive income |
| $ | 12,493 |
|
| $ | 13,611 |
|
| $ | 35,837 |
|
| $ | 43,462 |
|
| $ | 21,140 |
|
| $ | 12,045 |
|
|
See accompanying notes to unaudited consolidated condensed financial statements.
6
BADGER METER, INC.
Consolidated Condensed Statements of Cash Flows
|
| Nine Months Ended September 30, |
|
| Three Months Ended March 31, |
| ||||||||||
|
| (Unaudited) |
|
| (Unaudited) |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Operating activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Net earnings |
| $ | 48,957 |
|
| $ | 43,608 |
|
| $ | 19,415 |
|
| $ | 14,360 |
|
Adjustments to reconcile net earnings to net cash provided by operations: |
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation |
|
| 8,413 |
|
|
| 8,619 |
|
|
| 2,663 |
|
|
| 2,760 |
|
Amortization |
|
| 11,748 |
|
|
| 12,358 |
|
|
| 4,284 |
|
|
| 4,016 |
|
Deferred income taxes |
|
| 24 |
|
|
| 11 |
|
|
| (10 | ) |
|
| (34 | ) |
Noncurrent employee benefits |
|
| (138 | ) |
|
| 232 |
|
|
| (37 | ) |
|
| (112 | ) |
Stock-based compensation expense |
|
| 2,170 |
|
|
| 1,537 |
|
|
| 1,006 |
|
|
| 615 |
|
Changes in: |
|
|
|
|
|
|
|
|
|
| ||||||
Receivables |
|
| (18,860 | ) |
|
| (8,985 | ) |
|
| (6,843 | ) |
|
| (12,509 | ) |
Inventories |
|
| (16,207 | ) |
|
| (5,685 | ) |
|
| (11,439 | ) |
|
| (3,763 | ) |
Payables |
|
| 23,870 |
|
|
| 7,420 |
|
|
| 6,959 |
|
|
| 10,749 |
|
Prepaid expenses and other assets |
|
| (9,405 | ) |
|
| (11,648 | ) |
|
| (2,133 | ) |
|
| (2,904 | ) |
Other liabilities |
|
| 2,171 |
|
|
| 12,967 |
|
|
| 4,105 |
|
|
| (3,928 | ) |
Total adjustments |
|
| 3,786 |
|
|
| 16,826 |
|
|
| (1,445 | ) |
|
| (5,110 | ) |
Net cash provided by operations |
|
| 52,743 |
|
|
| 60,434 |
|
|
| 17,970 |
|
|
| 9,250 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Property, plant and equipment expenditures |
|
| (4,690 | ) |
|
| (5,843 | ) |
|
| (4,271 | ) |
|
| (1,141 | ) |
Proceeds from company owned life insurance plans |
|
| - |
|
|
| 596 |
| ||||||||
Acquisitions, net of cash acquired |
|
| - |
|
|
| (45,273 | ) |
|
| (17,052 | ) |
|
| - |
|
Net cash used for investing activities |
|
| (4,690 | ) |
|
| (50,520 | ) |
|
| (21,323 | ) |
|
| (1,141 | ) |
Financing activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Dividends paid |
|
| (18,292 | ) |
|
| (16,318 | ) |
|
| (6,626 | ) |
|
| (5,869 | ) |
Proceeds from exercise of stock options |
|
| 61 |
|
|
| 2,037 |
|
|
| 58 |
|
|
| - |
|
Repurchase of treasury stock |
|
| (427 | ) |
|
| (460 | ) | ||||||||
Issuance of treasury stock |
|
| - |
|
|
| 72 |
| ||||||||
Net cash used for financing activities |
|
| (18,658 | ) |
|
| (14,669 | ) |
|
| (6,568 | ) |
|
| (5,869 | ) |
Effect of foreign exchange rates on cash |
|
| (1,782 | ) |
|
| (480 | ) |
|
| 230 |
|
|
| (195 | ) |
Increase (Decrease) in cash and cash equivalents |
|
| 27,613 |
|
|
| (5,235 | ) | ||||||||
(Decrease) increase in cash and cash equivalents |
|
| (9,691 | ) |
|
| 2,045 |
| ||||||||
Cash and cash equivalents – beginning of period |
|
| 87,174 |
|
|
| 72,273 |
|
|
| 138,052 |
|
|
| 87,174 |
|
Cash and cash equivalents – end of period |
| $ | 114,787 |
|
| $ | 67,038 |
|
| $ | 128,361 |
|
| $ | 89,219 |
|
See accompanying notes to unaudited consolidated condensed financial statements.
7
BADGER METER, INC.
Consolidated Condensed Statements of Shareholders’ Equity
|
| Quarter and year-to-date ended September 30, |
|
| Quarter ended March 31, |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Common |
|
| Capital in |
|
| Reinvested |
|
| Accumulated |
|
| Treasury |
|
| Total |
|
| Common |
|
| Capital in |
|
| Reinvested |
|
| Accumulated |
|
| Treasury |
|
| Total |
| ||||||||||||
|
| (Unaudited) |
|
| (Unaudited) |
| ||||||||||||||||||||||||||||||||||||||||||
|
| (In thousands except share and per share amounts) |
|
| (In thousands except share and per share amounts) |
| ||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 |
| $ | 37,221 |
|
| $ | 46,500 |
|
| $ | 332,104 |
|
| $ | 3,411 |
|
| $ | (37,389 | ) |
| $ | 381,847 |
| ||||||||||||||||||||||||
Balance, December 31, 2021 |
| $ | 37,221 |
|
| $ | 49,224 |
|
| $ | 353,535 |
|
| $ | 136 |
|
| $ | (37,046 | ) |
| $ | 403,070 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 15,855 |
|
|
| - |
|
|
| - |
|
|
| 15,855 |
|
|
| - |
|
|
| - |
|
|
| 14,360 |
|
|
| - |
|
|
| - |
|
|
| 14,360 |
|
Pension and postretirement benefits |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4 |
|
|
| - |
|
|
| 4 |
| ||||||||||||||||||||||||
Foreign currency translation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,248 | ) |
|
| - |
|
|
| (2,248 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,315 | ) |
|
| - |
|
|
| (2,315 | ) |
Cash dividends of $0.20 per share |
|
| - |
|
|
| - |
|
|
| (5,909 | ) |
|
| - |
|
|
| - |
|
|
| (5,909 | ) |
|
| - |
|
|
| - |
|
|
| (5,849 | ) |
|
| - |
|
|
| - |
|
|
| (5,849 | ) |
Stock options exercised |
|
| - |
|
|
| 1,342 |
|
|
| - |
|
|
| - |
|
|
| 343 |
|
|
| 1,685 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| - |
|
|
| 590 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 590 |
|
|
| - |
|
|
| 615 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 615 |
|
Balance, September 30, 2021 |
| $ | 37,221 |
|
| $ | 48,432 |
|
| $ | 342,050 |
|
| $ | 1,167 |
|
| $ | (37,046 | ) |
| $ | 391,824 |
| ||||||||||||||||||||||||
Issuance of treasury stock (21 shares) |
|
| - |
|
|
| (81 | ) |
|
| - |
|
|
| - |
|
|
| 81 |
|
|
| - |
| ||||||||||||||||||||||||
Balance, March 31, 2022 |
| $ | 37,221 |
|
| $ | 49,758 |
|
| $ | 362,046 |
|
| $ | (2,179 | ) |
| $ | (36,965 | ) |
| $ | 409,881 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Balance, December 31, 2020 |
| $ | 37,221 |
|
| $ | 44,964 |
|
| $ | 314,850 |
|
| $ | 1,313 |
|
| $ | (37,089 | ) |
| $ | 361,259 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Balance, December 31, 2022 |
| $ | 37,221 |
|
| $ | 53,282 |
|
| $ | 395,155 |
|
| $ | (5,983 | ) |
| $ | (37,253 | ) |
| $ | 442,422 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 43,608 |
|
|
| - |
|
|
| - |
|
|
| 43,608 |
|
|
| - |
|
|
| - |
|
|
| 19,415 |
|
|
| - |
|
|
| - |
|
|
| 19,415 |
|
Pension and postretirement benefits |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 9 |
|
|
| - |
|
|
| 9 |
| ||||||||||||||||||||||||
Foreign currency translation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (155 | ) |
|
| - |
|
|
| (155 | ) | ||||||||||||||||||||||||
Cash dividends of $0.56 per share |
|
| - |
|
|
| - |
|
|
| (16,408 | ) |
|
| - |
|
|
| - |
|
|
| (16,408 | ) | ||||||||||||||||||||||||
Stock options exercised |
|
| - |
|
|
| 1,623 |
|
|
| - |
|
|
| - |
|
|
| 414 |
|
|
| 2,037 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| - |
|
|
| 1,537 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,537 |
| ||||||||||||||||||||||||
Purchase of common stock for treasury stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (460 | ) |
|
| (460 | ) | ||||||||||||||||||||||||
Issuance of treasury stock (46 shares) |
|
| - |
|
|
| 308 |
|
|
| - |
|
|
| - |
|
|
| 89 |
|
|
| 397 |
| ||||||||||||||||||||||||
Balance, September 30, 2021 |
| $ | 37,221 |
|
| $ | 48,432 |
|
| $ | 342,050 |
|
| $ | 1,167 |
|
| $ | (37,046 | ) |
| $ | 391,824 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Balance, June 30, 2022 |
| $ | 37,221 |
|
| $ | 51,015 |
|
| $ | 372,856 |
|
| $ | (7,544 | ) |
| $ | (37,365 | ) |
| $ | 416,183 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 17,933 |
|
|
| - |
|
|
| - |
|
|
| 17,933 |
| ||||||||||||||||||||||||
Pension and postretirement benefits |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (16 | ) |
|
| - |
|
|
| (16 | ) | ||||||||||||||||||||||||
Pension and postretirement benefits |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (33 | ) |
|
| - |
|
|
| (33 | ) | ||||||||||||||||||||||||
Foreign currency translation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,424 | ) |
|
| - |
|
|
| (5,424 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,758 |
|
|
| - |
|
|
| 1,758 |
|
Cash dividends of $0.23 per share |
|
| - |
|
|
| - |
|
|
| (6,582 | ) |
|
| - |
|
|
| - |
|
|
| (6,582 | ) |
|
| - |
|
|
| - |
|
|
| (6,591 | ) |
|
| - |
|
|
| - |
|
|
| (6,591 | ) |
Stock options exercised |
|
| - |
|
|
| 50 |
|
|
| - |
|
|
| - |
|
|
| 11 |
|
|
| 61 |
|
|
| - |
|
|
| 50 |
|
|
| - |
|
|
| - |
|
|
| 8 |
|
|
| 58 |
|
Stock-based compensation |
|
| - |
|
|
| 704 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 704 |
|
|
| - |
|
|
| 1,006 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,006 |
|
Issuance of treasury stock (2 shares) |
|
| - |
|
|
| 11 |
|
|
| - |
|
|
| - |
|
|
| (11 | ) |
|
| - |
| ||||||||||||||||||||||||
Balance, September 30, 2022 |
| $ | 37,221 |
|
| $ | 51,780 |
|
| $ | 384,207 |
|
| $ | (12,984 | ) |
| $ | (37,365 | ) |
| $ | 422,859 |
| ||||||||||||||||||||||||
Issuance of treasury stock (20 shares) |
|
| - |
|
|
| (93 | ) |
|
| - |
|
|
| - |
|
|
| 95 |
|
|
| 2 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance, December 31, 2021 |
| $ | 37,221 |
|
| $ | 49,224 |
|
| $ | 353,535 |
|
| $ | 136 |
|
| $ | (37,046 | ) |
| $ | 403,070 |
| ||||||||||||||||||||||||
Net earnings |
|
| - |
|
|
| - |
|
|
| 48,957 |
|
|
| - |
|
|
| - |
|
|
| 48,957 |
| ||||||||||||||||||||||||
Pension and postretirement benefits |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (16 | ) |
|
| - |
|
|
| (16 | ) | ||||||||||||||||||||||||
Foreign currency translation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (13,104 | ) |
|
| - |
|
|
| (13,104 | ) | ||||||||||||||||||||||||
Cash dividends of $0.63 per share |
|
| - |
|
|
| - |
|
|
| (18,285 | ) |
|
| - |
|
|
| - |
|
|
| (18,285 | ) | ||||||||||||||||||||||||
Stock options exercised |
|
| - |
|
|
| 50 |
|
|
| - |
|
|
| - |
|
|
| 11 |
|
|
| 61 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| - |
|
|
| 2,170 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,170 |
| ||||||||||||||||||||||||
Purchase of common stock for treasury stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (427 | ) |
|
| (427 | ) | ||||||||||||||||||||||||
Issuance of treasury stock (28 shares) |
|
| - |
|
|
| 336 |
|
|
| - |
|
|
| - |
|
|
| 97 |
|
|
| 433 |
| ||||||||||||||||||||||||
Balance, September 30, 2022 |
| $ | 37,221 |
|
| $ | 51,780 |
|
| $ | 384,207 |
|
| $ | (12,984 | ) |
| $ | (37,365 | ) |
| $ | 422,859 |
| ||||||||||||||||||||||||
Balance, March 31, 2023 |
| $ | 37,221 |
|
| $ | 54,245 |
|
| $ | 407,979 |
|
| $ | (4,258 | ) |
| $ | (37,150 | ) |
| $ | 458,037 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
* Each common share of stock equals $1 par value; therefore, the number of common shares is the same as the dollar value.
See accompanying notes to unaudited consolidated condensed financial statements.
8
BADGER METER, INC.
Notes to Unaudited Consolidated Condensed Financial Statements
Note 1 Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated condensed financial statements of Badger Meter contain all adjustments (consisting only of normal recurring accruals except as otherwise discussed) necessary to present fairly the Company’sCompany's consolidated condensed financial position at September 30, 2022March 31, 2023 and December 31, 2021,2022, results of operations, comprehensive income, cash flows and statements of shareholders’ equity for the three and nine-monththree-month periods ended September 30, 2022March 31, 2023 and 2021, and cash flows for the nine-month period ended September 30, 2022 and 2021.2022. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to current year presentation.
Note 2 Additional Financial Information Disclosures
The consolidated condensed balance sheet at December 31, 20212022 was derived from amounts included in the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 20212022. Refer to the notes to consolidated financial statements included in that report for a description of the Company’sCompany's accounting policies and for additional details of the Company’sCompany's financial condition. The details in those notes have not changed except as discussed below and as a result of normal adjustments in the interim.
Cash Equivalents
The Company considers all highly liquid investments with original maturities of ninety days or less to be cash equivalents.
Warranty and After-Sale Costs
The Company estimates and records provisions for warranties and other after-sale costs in the period in which the sale is recorded, based on a lag factor and historical warranty claim experience. After-sale costs represent a variety of activities outside of the written warranty policy, such as investigation of unanticipated problems after the customer has installed the product, or analysis of water quality issues. Changes in the Company’sCompany's warranty and after-sale costs reserve are as follows:
|
| Three months ended |
|
| Nine months ended |
|
| Three months ended |
| |||||||||||||||
|
| September 30, |
|
| September 30, |
|
| March 31, |
| |||||||||||||||
(In thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||
Balance at beginning of period |
| $ | 10,859 |
|
| $ | 12,965 |
|
| $ | 12,868 |
|
| $ | 11,617 |
|
| $ | 9,606 |
|
| $ | 12,868 |
|
Net additions charged to earnings |
|
| 1,312 |
|
|
| 935 |
|
|
| 3,564 |
|
|
| 3,667 |
|
|
| 1,411 |
|
|
| 1,100 |
|
Costs incurred |
|
| (1,802 | ) |
|
| (1,014 | ) |
|
| (6,063 | ) |
|
| (2,398 | ) |
|
| (1,448 | ) |
|
| (1,559 | ) |
Balance at end of period |
| $ | 10,369 |
|
| $ | 12,886 |
|
| $ | 10,369 |
|
| $ | 12,886 |
|
| $ | 9,569 |
|
| $ | 12,409 |
|
Note 3 Accumulated Other Comprehensive (Loss) Income
Components of and changes in accumulated other comprehensive loss at September 30, 2022March 31, 2023 are as follows:
(In thousands) |
| Unrecognized |
|
| Foreign currency |
|
| Total |
|
| Unrecognized |
|
| Foreign currency |
|
| Total |
| ||||||
Balance at beginning of period |
| $ | 394 |
|
| $ | (258 | ) |
| $ | 136 |
|
| $ | 994 |
|
| $ | (6,977 | ) |
| $ | (5,983 | ) |
Other comprehensive loss before reclassifications |
|
| - |
|
|
| (13,104 | ) |
|
| (13,104 | ) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax of ($5) |
|
| (16 | ) |
|
| - |
|
|
| (16 | ) | ||||||||||||
Net current period other comprehensive loss, net of tax |
|
| (16 | ) |
|
| (13,104 | ) |
|
| (13,120 | ) | ||||||||||||
Other comprehensive income before reclassifications |
|
| - |
|
|
| 1,758 |
|
|
| 1,758 |
| ||||||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax of $10 |
|
| (33 | ) |
|
| - |
|
|
| (33 | ) | ||||||||||||
Net current period other comprehensive income, net of tax |
|
| (33 | ) |
|
| 1,758 |
|
|
| 1,725 |
| ||||||||||||
Accumulated other comprehensive loss |
| $ | 378 |
|
| $ | (13,362 | ) |
| $ | (12,984 | ) |
| $ | 961 |
|
| $ | (5,219 | ) |
| $ | (4,258 | ) |
9
Components of and changes in accumulated other comprehensive incomeloss at September 30, 2021March 31, 2022 are as follows:
(In thousands) |
| Unrecognized |
|
| Foreign currency |
|
| Total |
|
| Unrecognized |
|
| Foreign currency |
|
| Total |
| ||||||
Balance at beginning of period |
| $ | 55 |
|
| $ | 1,258 |
|
| $ | 1,313 |
|
| $ | 394 |
|
| $ | (258 | ) |
| $ | 136 |
|
Other comprehensive loss before reclassifications |
|
| - |
|
|
| (155 | ) |
|
| (155 | ) |
|
| - |
|
|
| (2,315 | ) |
|
| (2,315 | ) |
Amounts reclassified from accumulated other comprehensive income, net of tax of ($2) |
|
| 9 |
|
|
| - |
|
|
| 9 |
| ||||||||||||
Net current period other comprehensive loss, net of tax |
|
| 9 |
|
|
| (155 | ) |
|
| (146 | ) | ||||||||||||
Accumulated other comprehensive income |
| $ | 64 |
|
| $ | 1,103 |
|
| $ | 1,167 |
| ||||||||||||
Accumulated other comprehensive loss |
| $ | 394 |
|
| $ | (2,573 | ) |
| $ | (2,179 | ) | ||||||||||||
Details of reclassifications out of accumulated other comprehensive incomeloss during the ninethree months ended September 30, 2022 and 2021March 31, 2023 are immaterial.
Note 4 Acquisitions
Acquisitions are accounted for under the purchase method, and accordingly, the results of operations were included in the Company's financial statements from the date of acquisition. The acquisitionacquisitions did not have a material impact on the Company's consolidated financial statements or the notes thereto.
Effective January 1, 20212023, the Company acquired 100% of the outstanding stock of Analytical Technology, LLC (“ATi”Syrinix Ltd. ("Syrinix"), headquartered in Collegeville, Pennsylvania,the United Kingdom, a provider of water qualityhigh-frequency pressure monitoring systems.and leak detection solutions.
The total purchase consideration for ATi,Syrinix, net of cash acquired, was $44.017.1 million. The Company's allocation of the purchase price at DecemberMarch 31, 20212023 included $3.90.6 million of receivables,Receivables, $3.90.7 million of inventory,Inventories, $2.50.4 million of otherOther assets, $21.07.7 million of intangiblesIntangible assets and $16.411.9 million of goodwill that is deductible for tax purposes.Goodwill. The intangible assets acquired are primarily developed technology, customer relationships developed technology and trademarks with estimated average useful lives of 1213 to 15 years. years. The Company also assumed $1.41.9 million of accounts payable,Payables, $0.61.9 million of deferred tax liabilitiesDeferred income taxes and $1.70.4 million of otherOther liabilities as part of the acquisition.
The preliminary allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of acquisition. As of DecemberMarch 31, 2021,2023, the Company hadhas not completed its analysis for estimating the fair value of the assets acquired with no additional adjustments.acquired.
Note 5 Contingencies, Litigation and Commitments
In the normal course of business, the Company is named in legal proceedings. There are currently no material legal proceedings pending with respect to the Company.
The Company is subject to contingencies related to environmental laws and regulations. A future change in circumstances with respect to specific matters or with respect to sites formerly or currently owned or operated by the Company, off-site disposal locations used by the Company, and property owned by third parties that is near such sites, could result in future costs to the Company and such amounts could be material. Expenditures for compliance with environmental control provisions and regulations during 20212022 and the first nine monthsquarter of 20222023 were not material.
The Company relies on single suppliers for most brass castings and certain resin and electronic subassemblies in several of its product lines. The Company believes these items would be available from other sources, but that the loss of certain suppliers could result in a higher cost of materials, delivery delays, short-term increases in inventory and higher quality control costs in the short term. The Company attempts to mitigate these risks by working closely with key suppliers, purchasing minimal amounts from alternative suppliers and by purchasing business interruption insurance where appropriate.
The Company reevaluates its exposures on a periodic basis and makes adjustments to reserves as appropriate.
Note 6 Income Taxes
The Company is subject to income taxes in the United States and numerous foreign jurisdictions. The Company’sCompany's income tax positions are based on interpretations of income tax laws and rulings in each of the jurisdictions that the Company operates. Significant judgment is required in determining the worldwide provision for income taxes and recording the related deferred tax assets and liabilities. The Company’sCompany's deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income for the years in which the assets or liabilities are expected to be realized or settled.
10
Interim provisions are tied to an estimate of the overall annual rate which can vary due to the relationship of foreign and domestic earnings, state taxes and available deductions, credits and discrete items.
10
The Company’sCompany's earnings before incomes taxes, provision for income taxes, and effective income tax rate are as follows:
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
|
| Three months ended March 31, |
| |||||||||||||||
(In thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||
Earnings before income taxes |
| $ | 23,947 |
|
| $ | 19,396 |
|
| $ | 64,810 |
|
| $ | 55,744 |
|
| $ | 25,636 |
|
| $ | 18,817 |
|
Provision for income taxes |
|
| 6,014 |
|
|
| 3,541 |
|
|
| 15,853 |
|
|
| 12,136 |
|
|
| 6,221 |
|
|
| 4,457 |
|
Effective income tax rate |
|
| 25.1 | % |
|
| 18.3 | % |
|
| 24.5 | % |
|
| 21.8 | % |
|
| 24.3 | % |
|
| 23.7 | % |
Note 7 Fair Value Measurements of Financial Instruments
The Company applies the accounting standards for fair value measurements and disclosures for its financial assets and financial liabilities. The carrying amounts of cashCash, Receivables and cash equivalents, receivables and payablesPayables in the financial statements approximate their fair values due to the short-term nature of these financial instruments. Included in other assets are insurance policies on various individuals who were previously employed by the Company. The carrying amounts of these insurance policies approximate their fair value.
Note 8 Subsequent Events
The Company evaluates subsequent events at the date of the balance sheet as well as conditions that arise after the balance sheet date but before the financial statements are issued. The effects of conditions that existed at the balance sheet date are recognized in the financial statements. Events and conditions arising after the balance sheet date but before the financial statements are issued are evaluated to determine if disclosure is required to keep the financial statements from being misleading. To the extent such events and conditions exist, if any, disclosures are made regarding the nature of events and the estimated financial effects for those events and conditions. For purposes of preparing the accompanying consolidated financial statements and the notes to these financial statements, the Company evaluated subsequent events through the date that the accompanying financial statements were issued, and has determined that no material subsequent events exist through the date of this filing.
Note 9 Revenue Recognition
Revenue for sales of products and services is derived from contracts with customers. The products and services promised in contracts include the sale of utility water and flow instrumentation products, such as flow meters and radios, quality sensing equipment, software access and other ancillary services. Contracts generally state the terms of sale, including the description, quantity and price of each product or service. Since the customer typically agrees to a stated rate and price in the contract that does not vary over the life of the contract, the majority of the Company's contracts do not contain variable consideration. The Company establishes a provision for estimated warranty and returns as well as certain after sale costs as discussed in Note 2 "Additional Financial Information Disclosures" in the Notes to Unaudited Consolidated Condensed Financial Statements.
The Company disaggregates revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred. The Company determined that disaggregating revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors.
11
Information regarding revenues disaggregated by geographic area is as follows:
| Three months ended |
|
| Nine months ended |
| ||||||||||
| September 30, |
|
| September 30, |
| ||||||||||
(In thousands) | 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
| ||||
United States | $ | 128,434 |
|
| $ | 111,281 |
|
| $ | 362,012 |
|
| $ | 313,326 |
|
Foreign: |
|
|
|
|
|
|
|
|
|
|
| ||||
Asia |
| 4,257 |
|
|
| 3,927 |
|
|
| 11,384 |
|
|
| 12,402 |
|
Canada |
| 3,761 |
|
|
| 3,021 |
|
|
| 9,669 |
|
|
| 9,086 |
|
Europe |
| 7,489 |
|
|
| 7,044 |
|
|
| 22,842 |
|
|
| 23,396 |
|
Mexico |
| 1,034 |
|
|
| 948 |
|
|
| 2,419 |
|
|
| 4,025 |
|
Middle East |
| 2,475 |
|
|
| 1,996 |
|
|
| 6,258 |
|
|
| 5,757 |
|
Other |
| 559 |
|
|
| 521 |
|
|
| 3,660 |
|
|
| 1,457 |
|
Total | $ | 148,009 |
|
| $ | 128,738 |
|
| $ | 418,244 |
|
| $ | 369,449 |
|
| Three months ended |
|
| |||||
| March 31, |
|
| |||||
(In thousands) | 2023 |
|
| 2022 |
|
| ||
Revenues: |
|
|
|
|
|
| ||
United States | $ | 138,586 |
|
| $ | 112,755 |
|
|
Foreign: |
|
|
|
|
|
| ||
Asia |
| 3,192 |
|
|
| 4,197 |
|
|
Canada |
| 3,482 |
|
|
| 2,963 |
|
|
Europe |
| 9,532 |
|
|
| 8,232 |
|
|
Mexico |
| 1,035 |
|
|
| 576 |
|
|
Middle East |
| 2,678 |
|
|
| 1,659 |
|
|
Other |
| 596 |
|
|
| 2,020 |
|
|
Total | $ | 159,101 |
|
| $ | 132,402 |
|
|
11
Information regarding revenues disaggregated by the timing of when goods and services are transferred is as follows:
|
| Three months ended |
| Nine months ended |
| Three months ended |
| ||||||||||||||||||||||||
|
| September 30, |
| September 30, |
| March 31, |
| ||||||||||||||||||||||||
(In thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2023 |
| 2022 |
| ||||||||||||||||||
Revenue recognized over time |
| $ | 9,324 |
| 6.3% |
| $ | 7,427 |
| 5.8% |
| $ | 25,554 |
| 6.1% |
| $ | 21,006 |
| 5.7% |
| $ | 9,738 |
| 6.1% |
| $ | 7,708 |
| 5.8% |
|
Revenue recognized at a point in time |
|
| 138,685 |
| 93.7% |
|
| 121,311 |
| 94.2% |
|
| 392,690 |
| 93.9% |
|
| 348,443 |
| 94.3% |
|
| 149,363 |
| 93.9% |
|
| 124,694 |
| 94.2% |
|
Total |
| $ | 148,009 |
| 100.0% |
| $ | 128,738 |
| 100.0% |
| $ | 418,244 |
| 100.0% |
| $ | 369,449 |
| 100.0% |
| $ | 159,101 |
| 100.0% |
| $ | 132,402 |
| 100.0% |
|
The majority of the Company's revenue that is recognized over time relates to the BEACON® AMA software as a service, but also includes training, certain installation and other revenues. The majority of the Company's revenue recognized at a point in time is for the sale of utility and flow instrumentation products. Revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product which generally coincides with title transfer during shipping.
The Company performs its obligations under a contract by shipping products or performing services in exchange for consideration. The Company typically invoices its customers as soon as control of an asset is transferred and a receivable to the Company is established. The Company, however, recognizes a contract liability when a customer prepays for goods or services and the Company has not transferred control of the goods or services.
The closing balances of the Company's receivables and contract liabilities are as follows:
|
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Receivables |
| $ | 83,491 |
|
| $ | 65,866 |
|
| $ | 84,246 |
|
| $ | 76,651 |
|
Contract liabilities |
|
| 37,205 |
|
|
| 30,194 |
|
|
| 49,053 |
|
|
| 40,700 |
|
Contract liabilities are included in Payables and Other long-term liabilities on the Company’sCompany's Consolidated Condensed Balance Sheets. The balance of contract assets was immaterial as the Company did not have a significant amount of uninvoiced receivables in the nine-monththree-month period ended September 30, 2022March 31, 2023 and twelve-month period ended December 31, 2021.2022.
A performance obligation is a promise to transfer a distinct good or service to the customer. At contract inception, the Company assesses the products and services promised in its contracts with customers. The Company then identifies performance obligations to transfer distinct products or services to the customer. In order to identify performance obligations, the Company considers all of the products or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices.
The Company's performance obligations are satisfied at a point in time or over time as work progresses. The majority of the Company's revenue recognized at a point in time is for the sale of utility and flow instrumentation products. Revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product which generally coincides with title transfer during the shipping process. The majority of the Company's revenue that is recognized over time relates to the BEACON AMA software as a service.
12
As of September 30, 2022,March 31, 2023, the Company had certain contracts with unsatisfied performance obligations. For contracts recorded as contract liabilities, $37.249.1 million was the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of the end of the reporting period. The Company estimates that revenue recognized from satisfying those performance obligations will be approximately $3.1 million in 2022, $6.39.0 million in 2023, $4.85.3 million in 2024, $4.04.7 million in 2025, $3.74.3 million in 2026, $3.33.9 million in 2027, $3.3 million in 2028 and $12.018.6 million thereafter.
Note 10 Leases
The Company rents facilities, equipment and vehicles under operating leases, some of which contain renewal options. Upon inception of a rent agreement, the Company determines whether the arrangement contains a lease based on the unique conditions present. Leases that have a term over a year are recognized on the balance sheet as right-of-use assets and lease liabilities. Right-of-use assets are included in Other assets on the Company’sCompany's Consolidated Condensed Balance Sheets. Lease
12
liabilities are included in Other current liabilities and Other long-term liabilities on the Company’sCompany's Consolidated Condensed Balance Sheets. Information regarding the Company's right-of-use assets and the corresponding lease liabilities are as follows:
|
| September 30, |
|
| December 31, |
| ||
(In thousands) |
|
|
|
|
|
| ||
Right-of-use assets |
| $ | 6,907 |
|
| $ | 5,877 |
|
Lease liabilities |
|
| 7,163 |
|
|
| 6,177 |
|
|
| March 31, |
|
| December 31, |
| ||
(In thousands) |
|
|
|
|
|
| ||
Right-of-use assets |
| $ | 6,190 |
|
| $ | 6,533 |
|
Lease liabilities |
|
| 6,434 |
|
|
| 6,792 |
|
The Company’sCompany's operating lease agreements have lease and non-lease components that require payments for common area maintenance, property taxes and insurance. The Company has elected to account for both lease and non-lease components as one lease component. The fixed and in-substance fixed consideration in the Company’sCompany's rent agreements constitute operating lease expense that is included in the capitalized right-of-use assets and lease liabilities. The variable and short-term lease expense payments are not included in the present value of the right-of use-assets and lease liabilities on the Consolidated Condensed Balance Sheets. The Company’sCompany's rent expense is as follows:
| Three months ended |
|
| Nine months ended |
| ||||||||||
| September 30, |
|
| September 30, |
| ||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
| ||||
Operating lease expense | $ | 819 |
|
| $ | 768 |
|
| $ | 2,517 |
|
| $ | 2,420 |
|
Variable and short-term lease expense |
| 37 |
|
|
| 38 |
|
|
| 140 |
|
|
| 115 |
|
Rent expense | $ | 856 |
|
| $ | 806 |
|
| $ | 2,657 |
|
| $ | 2,535 |
|
| Three months ended |
|
| |||||
| March 31, |
|
| |||||
| 2023 |
|
| 2022 |
|
| ||
(In thousands) |
|
|
|
|
|
| ||
Operating lease expense | $ | 833 |
|
| $ | 862 |
|
|
Variable and short-term lease expense |
| 45 |
|
|
| 46 |
|
|
Rent expense | $ | 878 |
|
| $ | 908 |
|
|
The Company records right-of-use assets and lease liabilities based upon the present value of lease payments over the expected lease term. The Company’sCompany's lease agreements typically do not have implicit interest rates that are readily determinable. As a result, the Company utilizes an incremental borrowing rate that would be incurred to borrow on a collateralized basis over a similar term in a comparable economic environment. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, the remaining lease term on the Company’sCompany's leases was 5.2 years and 5.3 years.years, respectively. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, the discount rate was 5.0%. The future minimum lease payments to be paid under operating leases are as follows:
|
| September 30, |
| |
(In thousands) |
|
|
| |
2022 (remaining three months) |
| $ | 592 |
|
2023 |
|
| 2,341 |
|
2024 |
|
| 1,978 |
|
2025 |
|
| 1,795 |
|
2026 |
|
| 714 |
|
Thereafter |
|
| 801 |
|
Total future lease payments |
|
| 8,221 |
|
Present value adjustment |
|
| (1,058 | ) |
Present value of future lease payments |
| $ | 7,163 |
|
|
| March 31, |
| |
(In thousands) |
|
|
| |
2023 (remaining nine months) |
| $ | 1,846 |
|
2024 |
|
| 2,088 |
|
2025 |
|
| 1,843 |
|
2026 |
|
| 726 |
|
2027 |
|
| 114 |
|
Thereafter |
|
| 763 |
|
Total future lease payments |
|
| 7,380 |
|
Present value adjustment |
|
| (946 | ) |
Present value of future lease payments |
| $ | 6,434 |
|
13
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
BUSINESS DESCRIPTION AND OVERVIEW
With more than a century of water technology innovation, Badger Meter is a global provider of industry leading water solutions encompassing flow measurement, quality and other system parameters. These offerings provide customers with the data and analytics essential to optimize their operations and contribute to the sustainable use and protection of the world’s most precious resource. The Company’sCompany's flow measurement products measure water and other fluids and are known for accuracy, long-lasting durability and for providing valuable and timely measurement data through various methods. The Company’sCompany's water quality monitoring solutions include optical sensing and electrochemical instruments that provide real-time, on-demand data parameters. The Company’s product linesCompany's products fall into two categories:product lines: sales of water meters, radios, software and related technologies, and water quality monitoring solutions to water utilities (utility water) and sales of meters and other sensing instruments, valves, software and other solutions for industrial applications in water, wastewater, and other industries (flow instrumentation). The Company estimates that over 90% of its products are used in water related applications.
Utility water, the largest sales category,product line, is comprised of either mechanical or static (ultrasonic) water meters along with the related radio and software technologies and services used by water utilities as the basis for generating their water and wastewater revenues, enabling operating efficiencies and engaging with their end consumers. It further comprises other sensor technology used in the water distribution system to ensure the safe and efficient delivery of clean water. These sensors are used to detect pressure anomalies or leaks in the distribution piping system and to monitor various water quality parameters throughout the distribution system. The largest geographic market for the Company’sCompany's utility water products is North America, primarily the United States, because most of the Company's meters are designed and manufactured to conform to standards promulgated by the American Water Works Association. The majority of water meters sold by the Company continue to be mechanical in nature; however, static meters are an increasing percentage of the water meters sold by the Company and in the industry, due to a variety of factors,attributes, including their ability to maintain measurement accuracy over their useful life. Providing ultrasonic water meter technology, combined with advanced radio technology, provides the Company with the opportunity to sell into other geographical markets, for example the Middle East, Europe and Southeast Asia.
The flow instrumentation product line primarily serves water applications throughout the broader industrial markets. This product line includes meters, valves and other sensing instruments sold worldwide to measure and control the quantity of fluids going through a pipe or pipeline including water, air, steam, and other liquids and gases. These products are used in a variety of industries and applications, with the Company’sCompany's primary market focus being water/wastewater, heating, ventilating and air conditioning (HVAC) and corporate sustainability. Flow instrumentation products are generally sold to original equipment manufacturers as the primary flow measurement device within a product or system, as well as through manufacturers’ representatives.
Utility water meters (both residential and commercial) are generally classified as either manually read meters or remotely read meters via radio technology. A manually read meter consists of a water meter and a register that provides a visual totalized meter reading. Meters equipped with radio technology (endpoints) receive flow measurement data from battery-powered encoder registers attached to the water meter, which is encrypted and transmitted via radio frequency to a receiver that collects and formats the data appropriately for water utility usage and billing systems. These remotely read systems are classified as either automatic meter reading (AMR) systems, where a vehicle equipped for meter reading purposes, including a radio receiver, computer and reading software, collects the data from the utilities’ meters; or advanced metering infrastructure (AMI) systems, where data is gathered utilizing a network (either fixed or cellular) of data collectors or gateway receivers that are able to receive radio data transmission from the utilities’ meters. AMI systems eliminate the need for utility personnel to drive through service territories to collect data from the meters. These systems provide utilities with more frequent and diverse data from their meters at specified intervals.
The ORION® branded family of radio endpoints provides water utilities with a range of industry-leading options for meter reading. These include ORION (ME) for migratable AMR meter reading, ORION (SE) for traditional fixed network applications, and ORION Cellular for an infrastructure-free meter readingAMI solution. ORION Migratable makesME is the migration to fixed network easiersolution best suited for utilities that prefer to start with mobile reading and later adopt fixed network communications, allowing utilities to choose a solution for their current needs and be positioned for their future operational changes.reading. ORION Cellular eliminates the need for utility-owned fixed network infrastructure, allows for gradual or full deployment, and decreases ongoing maintenance.
Information and analytics are critical to the smart water metering ecosystem. The Company’sCompany's BEACON® software suite improves utility visibility to their water and water usage. BEACON is a secure, cloud-hosted software suite that includes a customizable dashboard and has the ability to establish alerts for specific conditions. It also allows for consumer engagement tools that permit end water users (such as homeowners) to view and manage their water usage activity. Benefits to the utility
14
include improved customer service, increased visibility through faster leak detection, the ability to promote and quantify the effects of its water conservation efforts, and easier compliance reporting.
14
Water meter replacement and the adoption and deployment of new technology comprise the majority of smart water meter product sales, including radio products. To a much lesser extent, housing starts also contribute to the new product sales base. ThereThe industry continues to beundergo a growing trend in the conversion from manually read water meters to meters with radio technology, and for AMR systems to be upgraded to AMI. The Company estimates that approximately 70% of water meters installed in the United States have been converted to some form of radio solution technology.
In addition to our water utility flow measurement solutions, the Company provides various water quality monitoring solutions utilizing optical sensors and electrochemical instruments that measure a variety of parameters including turbidity, pH, chlorine, nitrates and approximately 40 others. Utilizing these solutions, water quality can be monitored continually or periodically throughout the network from its original source to the point in which it is recycled and returned. Real-time water quality parameters enhance the scope of actionable data for water utilities to improve operational security, awareness and efficiency.
The Company’sCompany's net sales and corresponding net earnings depend on unit volume and product mix, with the Company generally earning higher average selling prices and margins on meters equippedcoupled with radio technology, and higher margins on ultrasonic compared to mechanical meters. The Company also sells registers and endpoints separately to customers who wish to upgrade their existing meters in the field.
Flow instrumentation products are used in flow measurement and control applications across a broad industrial spectrum, occasionally leveraging the same technologies used in the municipal water category.utility water. Specialized communication protocols that control the entire flow measurement process and mandatory certifications drive these markets. The Company provides both standard and customized flow instrumentation solutions.
The industries served by the Company’sCompany's flow instrumentation products face accelerating demands to contain costs, reduce product variability, and meet ever-changing safety, regulatory and sustainability requirements. To address these challenges, customers must reap more value from every component in their systems. This system-wide scrutiny has heightened the focus on flow instrumentation in industrial process, manufacturing, commercial fluid, building automation and precision engineering applications where flow measurement and control are critical.
A leader in both mechanical and static flow metering technologies for industrial markets, the Company offers one of the broadest flow measurement, control and communication portfolios in the market. This portfolio carries respected brand names including Recordall®, Hedland®, Dynasonics®, Blancett®, ModMag®, and Research Control®, and includes eight of the ten major flow meter technologies.. Customers rely on the Company for application-specific solutions that deliver accurate, timely and dependable flow data and control essential for product quality, cost control, safer operations, regulatory compliance and more sustainable operations.
In addition, the Company provides various water quality monitoring solutions utilizing optical sensors and electrochemical instruments that measure a variety of parameters providing industrial customers with both process and discharge water quality monitoring capabilities. It also provides pressure monitoring and acoustic leak detection sensors and related software.
The Company's products are sold throughout the world through employees, resellers and representatives. Depending on the customer mix, there can be a moderate seasonal impact on sales, primarily relating to higher sales of certain utility water products during the spring and summer months. No single customer accounts for more than 10% of the Company's sales.
Long-TermLong Term Business Trends
Across the globe, increasing regulations and a focus on climate-change and sustainability are driving companies and utilities to better manage critical resources like water. Some customers measure fluids to identify leaks and/or misappropriation for cost control or add measurement points to help automate manufacturing. Other customers employ measurement to comply with government mandates and laws including those associated with process and discharge water quality monitoring. The Company provides flow measurement technology to primarily measure water, but also other fluids, gases and steams.steam. This technology is critical to provide baseline usage data and to quantify reductions as customers attempt to reduce consumption. For example, once water usage metrics are better understood, a strategy for water-use reduction can be developed with specific water-reduction initiatives targeted to those areas where it is most viable. With the Company’sCompany's technology, customers have found costly leaks, pinpointed equipment in need of repair, and identified areas for process improvements.
Increasingly, customers in the utility water market are interested in more frequent and diverse data collection and the use of water metering, pressure and quality analytics to evaluate water distribution activity. Specifically, AMI technology enables water
15
utilities to capture readings from each meter at more frequent and variable intervals. There are more than 50,000 water utilities in the United States and the Company estimates that approximately 70% of their respective connections have converted to a radio solution.solution, of which the Company estimates approximately half still utilize AMR technology. The Company
15
believes it is well positioned to meet thisthe continuing conversion trendtrends to AMI with its comprehensive radio and software solutions.
In addition, certain water utilities are converting from mechanical to static meters. Ultrasonic water metering maintains a high level of measurement accuracy over the life of the meter, reducing a utility’s non-revenue water. The Company has over a decade of proven reliability in the market with its ultrasonic meters and has recently launched its next generation of ultrasonic metering with its D-Flow technology, which the Company believes increases its competitive differentiation.
For over 117118 years, the Company has offered innovative flow metering and control solutions for smart water management, smart buildings and smart industrial processes. The acquisition of s::canRecent acquisitions have broadened and ATi, leading providers of water quality monitoring solutions, adds real-time water quality parameters to the Company's capabilities and enhancesenhanced the scope of actionable data for our customers to help measure, conserve and protect water. This includes real-time water quality monitoring solutions and high frequency pressure monitoring and acoustic leak detection capabilities. The combined solutions from Badger Meter s::canoffer hardware-enabled software solutions that improve efficiency, resiliency and ATi offer technology that measures bothsustainability across the quantity and quality of water.water eco-system.
Finally, the concept of “Smart Cities” is one avenue to affect efficient city operations, conserve resources and improve service and delivery. Smart water solutions (“Smart Water”) are those that provide actionable information through data analytics from an interconnected and interoperable network of sensors and devices that help people and organizations efficiently use and conserve water. Badger Meter is well positioned to benefit from the advancement of Smart Water applications. Cities have a keen interest in Smart Water as it provides both a revenue base, quality monitoring and conservation outcome. With its strong relationship with AT&T, among others, Badger Meter stays abreast of emerging cellular technology changes which the Company believes is the premier infrastructure-free AMI solution.
Current Business Trends
During the first nine months of 2022, customer order rates have remained strong and modestly improving logistics constraints and effective supply chain execution have led to sustained year-over-year sales growth. However, the Company’s ability to fully satisfy the increase in demand for certain products continues to be challenged due to varying component availability and supply chain issues. In addition, cost inflation of materials and other expenses are pervasive. In response, the Company has continued to pursue pricing initiatives to offset inflationary cost pressures where possible. The Company believes the broader market, including its primary competitors, also have experienced lead time extensions, inflation, and pricing dynamics, and therefore does not believe its competitive position has been negatively impacted. While the Company is navigating this dynamic and fluid environment through operational agility to support customers, these disruptions increased the Company’s backlog to record levels and have the potential to increase the unevenness of sales patterns for the remainder of 2022 and 2023.
It remains difficult to estimate the severity and duration of the impact of the ongoing effects of supply chain disruptions and the current inflationary environment on the Company’s business, financial position or results of operations. The magnitude of the impact will be determined by any operational disruptions, including those resulting from delivery interruptions due to component supply availability or global logistics constraints and the overall impact of the economic environment on the Company's business.
Acquisitions
Effective January 1, 2021,2023, the Company acquired 100% of the outstanding stock of ATi,Syrinix Ltd. ("Syrinix"), headquartered in Collegeville, Pennsylvania,the United Kingdom, a provider of water qualityhigh-frequency pressure monitoring systems.and leak detection solutions.
The total purchase consideration for Syrinix, net of cash acquired, was $44.0$17.1 million. The Company's preliminary allocation of the purchase price at DecemberMarch 31, 20212023 included $3.9$0.6 million of receivables, $3.9Receivables, $0.7 million of inventory, $2.5Inventories, $0.4 million of otherOther assets, $21.0$7.7 million of intangiblesIntangible assets and $16.4$11.9 million of goodwill that is deductible for tax purposes.Goodwill. The intangible assets acquired are primarily developed technology, customer relationships developed technology and trademarks with estimated average useful lives of 1213 to 15 years. The Company also assumed $1.4$1.9 million of accounts payable, $0.6Payables, $1.9 million of deferred tax liabilitiesDeferred income taxes and $1.7$0.4 million of otherOther liabilities as part of the acquisition.
The preliminary allocation of the purchase price to the assets acquired was based upon the estimated fair values at the date of acquisition.
As of DecemberMarch 31, 2021,2023, the Company hadhas not completed its analysis for estimating the fair value of the assets acquired with no additional adjustments. This acquisition is further described in Note 4 “Acquisitions” in the Notes to Consolidated Financial Statements.acquired.
16
Revenue and Product Mix
As the industry continues to evolve, the Company has been at the forefront of innovation across metering, radio and software technologies in order to meet its customers’ increasing expectations for accurate and actionable data. As technologies such as ORION Cellular and BEACON digital solutions have become more readily adopted, the Company’sCompany's revenue from Software as a Service (SaaS) has increased significantly, albeit from a small base, and is margin accretive.
In addition, the Company has expanded its smart water offering with the addition of online water quality monitoring solutions, adding real-time water quality parameters to augment the scope of actionable data for water utility and industrial customers to optimize their operations.operations, as well as pressure monitoring and leak detection capabilities.
The Company also seeks opportunities for additional revenue enhancement. For instance, the Company has made inroads into the Middle East market with its ultrasonic meter technology and is pursuing other geographic expansion opportunities. Additionally, the Company is periodically asked to oversee and perform field installation of its products for certain customers. In these cases, the Company assumes the role of general contractor and either performs the installation ortypically hires installation subcontractors and supervises their work.
16
Results of Operations - Three Months Ended September 30, 2022March 31, 2023
Net Sales
The Company’sCompany's net sales for the three months ended September 30, 2022March 31, 2023 were $148.0$159.1 million an increase of 15.0% compared to $128.7$132.4 million during the same period in 2021. Excluding the impact of a stronger US dollar, sales increased 16.6%.2022. Sales into the utility water market were $123.1$132.2 million, an increase of 17.1%19.8% from the prior year’s $105.1$110.3 million. The Company’sUtility water net sales grew as a result of increased ultrasonic meter and ORION® Cellular endpoint and BEACON® SaaS revenues,sales as well as ongoing price realization.increased BEACON® SaaS revenue. Sales of products into the global flow instrumentation end markets were $24.9$26.9 million compared to the prior year’s $23.6$22.1 million, an increase of 5.3%. Flow instrumentation sales21.8%, due to increased as a result of strong order demand partially offset bywithin water-focused end markets and improved supply chain constraints which limited production.availability.
Earnings
Total operating earnings for the three months ended September 30, 2022March 31, 2023 were $23.9$25.0 million, or 16.1%15.7% of sales, compared to $19.4$18.9 million, or 15.1%14.2% of sales, in the comparable prior year quarter. Gross margin dollars increased $6.3$12.1 million, with gross margin as a percent of sales of 38.9%increasing from 38.3% to 39.5%, a decrease from 39.8% ofdriven by higher sales in the prior year comparable quarter. The year-over-year increase in inflationaryvolumes, favorable product sales mix, growth within BEACON SaaS revenue, and value-based pricing actions to offset ongoing input cost pressures, coupled with production volatility caused by intermittent component delays, tempered gross margins in the current year.pressures. Selling, engineering and administration (“SEA”) expenses were $33.7$37.8 million or 22.7%23.7% of sales compared to $31.7$31.9 million or 24.7%24.1% of sales in the comparable prior year quarter. The year-over-year improvement in SEA expense leverageas a percent of sales is the result of effective spending controls and higher sales.
The provision for income taxes as a percentage of earnings before income taxes for the quarter ended September 30, 2022March 31, 2023 was 25.1%24.3% compared to 18.3% for the comparable prior year period. The prior year quarter effective tax rate included a discrete income tax benefit related to stock option exercises and restricted stock vesting transactions. Interim provisions are based on an estimate of the overall annual rate that can vary due to state taxes, the relationship of foreign and domestic earnings, and other credits and allowances.
As a result of the above-mentioned items, net earnings for the three months ended September 30, 2022 were $17.9 million, or $0.61 per diluted share, compared to $15.9 million, or $0.54 per diluted share, for the same period in 2021.
17
Results of Operations - Nine Months Ended September 30, 2022
Net Sales
The Company’s net sales for the nine months ended September 30, 2022 were $418.2 million, an increase of 13.2%, compared to $369.4 million during the same period in 2021. Excluding the impact of a strong US dollar, sales increased 14.5%. Sales into the utility water market were $347.6 million, an increase of 15.5% from the prior year’s $301.0 million. The Company’s net sales grew as a result of increased ultrasonic meter, ORION® Cellular endpoint and BEACON® SaaS revenues, as well as ongoing price realization. Sales of products into the global flow instrumentation end markets were $70.6 million compared to the prior year’s $68.4 million, an increase of 3.2%. Flow instrumentation sales increased due to strong demand across the majority of end-markets and applications, offset by supply chain constraints.
Earnings
Total operating earnings for the nine months ended September 30, 2022 were $64.8 million, or 15.5% of sales, compared to $55.9 million, or 15.1% of sales, in the comparable prior year period. Gross margin dollars increased $12.4 million, with gross margin as a percent of sales of 39.0%, a decrease from 40.8% of sales in the prior year comparable period. As expected, inflationary pressures were seen across nearly all elements of the cost structure, which was partially offset by successful pricing actions and increased production volumes. SEA expenses were $98.2 million or 23.5% of sales compared to $94.8 million or 25.7% of sales in the comparable prior year period. The year-over-year improvement in SEA expense leverage is the result of effective spending controls and higher sales.
The provision for income taxes as a percentage of earnings before income taxes for the nine months ended September 30, 2022 was 24.5% compared to 21.8%23.7% for the comparable prior year period. Interim provisions are based on an estimate of the overall annual rate that can vary due to state taxes, the relationship of foreign and domestic earnings, and other credits, allowances and allowances.discrete items.
As a result of the above-mentioned items, net earnings for the ninethree months ended September 30, 2022March 31, 2023 were $49.0$19.4 million, or $1.67$0.66 per diluted share, compared to $43.6$14.4 million, or $1.49$0.49 per diluted share, for the same period in 2021.2022.
LIQUIDITY AND CAPITAL RESOURCES
The main sources of liquidity for the Company are cash from operations and borrowing capacity. In addition, depending on market conditions, the Company may access the capital markets to strengthen its capital position and to provide additional liquidity for general corporate purposes.
Primary Working Capital
The Company uses primary working capital (“PWC”) as a percentage of sales as a key metric for working capital efficiency. The Company defines this metric as the sum of Receivables and Inventories less Payables, divided by trailing twelve-month nettwelve month Net sales. The following table shows the components of our PWC:
|
| September 30, 2022 |
| December 31, 2021 |
| March 31, 2023 |
| December 31, 2022 | ||||||||||||||||
(In thousands) |
| $ |
|
| PWC% |
| $ |
|
| PWC% |
| $ |
|
| PWC% |
| $ |
|
| PWC% | ||||
Receivables |
| $ | 83,491 |
|
| 15.1% |
| $ | 65,866 |
|
| 13.1% |
| $ | 84,246 |
|
| 14.2% |
| $ | 76,651 |
|
| 13.5% |
Inventories |
|
| 113,608 |
|
| 20.5% |
|
| 99,611 |
|
| 19.7% |
|
| 132,344 |
|
| 22.3% |
|
| 119,856 |
|
| 21.2% |
Payables |
|
| (65,462 | ) |
| -11.8% |
|
| (41,859 | ) |
| -8.3% |
|
| (79,549 | ) |
| -13.4% |
|
| (71,440 | ) |
| -12.6% |
Primary Working Capital |
| $ | 131,637 |
|
| 23.8% |
| $ | 123,618 |
|
| 24.5% |
| $ | 137,041 |
|
| 23.1% |
| $ | 125,067 |
|
| 22.1% |
Overall, PWC increased $8.0$12.0 million compared to the previous year-end. Receivables at September 30, 2022March 31, 2023 increased $17.6$7.6 million due to higher sales activity and shipment pacing in the quarter.first quarter of 2023. Inventories increased $14.0$12.5 million due to component cost inflation and higher safety stock levels associated with varied ongoing component shortages. Payables at September 30, 2022as of March 31, 2023 were $23.6$8.1 million higher than the prior year-end due to inflationary increases, the increased inventory balance and the timing of payments relative to quarter end.and increased inventory levels.
Cash Provided by Operations
Cash provided by operations in the first ninethree months of 20222023 was $52.7$18.0 million compared to $62.8$9.3 million in the same period of 2021. Strong2022. Higher net earnings, drove solid cash generation in both years. The year-over-year decline in operating cash flow was due primarily to higheroffset by increased working capital to support increased order activity, and the impact of ongoing supply chain
18
challengesbalances, contributed to the timing of shipments between years. Additionally, management incentive payouts negatively impactedincrease in cash fromprovided by operations between years.compared to the same quarter in 2022.
Property, plant and equipment expenditures for the first ninethree months of 20222023 were $4.7$4.3 million compared to $5.8$1.1 million in the comparable prior year period.
17
Cash and cash equivalents increaseddecreased to $114.8$128.4 million from $87.2$138.1 million at December 31, 2021,2022, the result of the $18.0 million of cash provided by operations, offset by $17.1 million (net of cash acquired) deployed to acquire Syrinix and payment of the quarterly dividend payments.dividend.
In July 2021, the Company entered into a newThe Company's credit agreement, replacing its prior facility. The credit agreementfacility includes a $150.0 million multi-currency line of credit that supports commercial paper (up to $100.0 million). The facility includes several features that enhance the Company’sCompany's financial flexibility including an increase feature, acquisition holiday, and favorable financial covenants. The Company was in compliance with all covenants as of September 30, 2022.March 31, 2023. The Company believes that its operating cash flows, available borrowing capacity, and its ability to raise capital provide adequate resources to fund ongoing operating requirements, future capital expenditures and the development of new products. The Company had $156.1$156.7 million of unused credit lines available at September 30, 2022.March 31, 2023.
Other Matters
The Company is subject to contingencies related to environmental laws and regulations. A future change in circumstances with respect to these specific matters or with respect to sites formerly or currently owned or operated by the Company, off-site disposal locations used by the Company, and property owned by third parties that is near such sites, could result in future costs to the Company and such amounts could be material. Expenditures for compliance with environmental control provisions and regulations during 20212022 and the first three quartersquarter of 20222023 were not material.
See the “Special Note Regarding Forward Looking Statements” at the front of this Quarterly Report on Form 10-Q and Part I, Item 1A “Risk Factors” in the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 20212022and Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q for a discussion of risks and uncertainties that could impact the Company’sCompany's financial performance and results of operations.
Off-Balance Sheet Arrangements and Contractual Obligations
The Company’sCompany's off-balance sheet arrangements and contractual obligations are discussed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headingheadings “Off-Balance Sheet Arrangements” and “Contractual Obligations” in the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 20212022 and have not materially changed since that report was filed unless otherwise indicated in this Quarterly Report on Form 10-Q.
Item 3 Quantitative and Qualitative Disclosures about Market Risk
The Company’sCompany's quantitative and qualitative disclosures about market risk are included in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Market Risks” in the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 20212022 and have not materially changed since that report was filed.
Item 4 Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), the Company’sCompany's management evaluated, with the participation of the Company’sCompany's Chairman, President and Chief Executive Officer and the Company’sCompany's Senior Vice President - Chief Financial Officer, the effectiveness of the design and operation of the Company’sCompany's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the quarter ended September 30, 2022.March 31, 2023. Based upon their evaluation of these disclosure controls and procedures, the Company’sCompany's Chairman, President and Chief Executive Officer and the Company’sCompany's Senior Vice President – Chief Financial Officer concluded that, as of the date of such evaluation, the Company’sCompany's disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There was no change in the Company’sCompany's internal control over financial reporting that occurred during the quarter ended September 30, 2022March 31, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting.
1918
Part II – Other Information
Item 1A Risk Factors
There have been no material changes from the risk factors disclosed in the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 20212022.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
In February 2020, the Board of Directors authorized the repurchase of up to an additional 400,000 shares of the Company’sCompany's Common Stock. Upon program expiration in February 2023, the Board of Directors authorized the repurchase of up to 200,000 shares of the Company's Common Stock through February 2023.2026. The following table provides information aboutCompany did not make any purchases of equity securities under the Company's purchasesrepurchase program during the quarter ended September 30, 2022 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act.March 31, 2023.
Total number | Average price | Total number | Maximum | ||||||||||||||||
| - | $ | - | - | 339,678 | ||||||||||||||
| - | $ | - | - |
| 200,000 | |||||||||||||
| - | $ | - | - |
| 200,000 | |||||||||||||
Total as of | - | - |
| 200,000 | |||||||||||||||
Item 6 Exhibits
EXHIBIT INDEX
Exhibit No. | Description | |
31.1 | ||
31.2 | ||
32 | ||
101 | The following materials from the | |
104 | Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101). |
2019
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BADGER METER, INC. | ||||
Dated: | By | /s/ Kenneth C. Bockhorst | ||
Kenneth C. Bockhorst | ||||
Chairman, President and Chief Executive Officer | ||||
By | /s/ Robert A. Wrocklage | |||
Robert A. Wrocklage | ||||
Senior Vice President – Chief Financial Officer | ||||
By | /s/ Daniel R. Weltzien | |||
Daniel R. Weltzien | ||||
Vice President – Controller | ||||
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