BMI - Earnings call transcript Q3 2021

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Operator

Ladies and gentlemen, welcome to the Third Quarter 2021 Badger Meter Earnings Conference Call. My name is Charlie and I will be the coordinator for today’s call.

You’ll have the opportunity to ask a question at the end of the presentation. [Operator Instructions] As a reminder, today’s conference is being recorded. It is now my pleasure to turn the conference over to, Karen Bauer, Vice President of Investor Relations, Corporate Strategy and Treasurer. Ms. ahead, go Please Bauer.

Karen Bauer

thank earnings joining conference and Third Badger Quarter XXXX call. you morning the for Meter Good

press On the Wrocklage, call presentation will Chairman, The President cover with release are me made today Chief earnings the release harbor, website. Officer; subject are to outlined available and uncertainties, most Executive you today’s the of will are on and in Quickly, related safe SEC Bob call, and that various Chief refer non-GAAP our and call our Officer. any filings. On to and during Financial slide this Ken I forward-looking financial are Bockhorst, reminding important statements which we risks metrics. certain

slides provide reconciliation earnings GAAP a used. to the Our metrics of non-GAAP financial

to refer core will we results various metrics. call, this during financial for Finally,

water is means, acquisitions. comparability. and for s::can financial For a the impact point sales. ATi With the to I’ll example, the Core reference designated important of this core call excluding metric over turn Ken. recent that, year-over-year We believe utility

Ken Bockhorst

Thanks, third I over it’s not all quarter quarterly or to referenced cycle for the are term month, the next record. going time earnings joining imagine chain inflation supply during our Karen, how often I’m to sure earnings call. can be an you only the but and thank going challenges be

teams outlook supply their diligence logistics comments for faced their While agility earnings components provide actions collaboration our and class across for deliver the added already details their customers through product world allowed and expectations later for in by turn priorities, introductory tactical to These environment for tremendous deliveries want and record to recognizing on management, over go and us sales and quarter. for let and unrelenting quarter, I on talk the to dialogue customers. Badger globally effectively our flexibility manage me call build redesigning the this my about our we constructive supplier our the and while focus their the now, the But Meter to trust, and of greater record certain clearly to of functions fair the team share to to challenges, of strategic proactive we to our I’ll backlog. current those call. Bob with execution to and our maximize sources,

Bob Wrocklage

good Thanks, Ken, and morning, everyone.

to quarter were million, increased an slide water for sales the third of last million utility line Total Turning increase period XX.X% our total X, the in product the sales $XXX.X same over year. XX.X%. $XXX.X

great utility the challenges. Excluding chain revenues s::can approximately increased water from current and core X.X% difficult acquisitions, and year year-over-year. both $XX of the supply million ATi year sales prior A result comparison considering

the prepared the recovering we during As sizeable sales COVID therefore after third the in lower our operations on reminded initial remarks you quarter July production backlog manufacturing our the and recovery were SEA lockdowns, profits costs. and call, a reflected year, of last pandemic impacted our earnings benefit and

exited Software-as-a-Service BEACON of to from continued Strong record-high in the continued actions. backlog. cellular radio levels. and And value-based logistics to challenges. supplier meter, comparison, In our certain electronics with experience shortages mechanical components other limited in output the third strategic And realize pricing the XXXX. and the benefit of orders we another be quarter We continued difficult we current quarter addition to by along quarter in did with growth the manufacturing

and in margin as end increase well and line to escape by did easier the dynamic light across percent year-over-year. impact comparisons increased higher pricing to were as chain impacted factors well cost on other sales yet XX challenges the on pleased and the the dollars along we not supply from Our basis, acquisition as more SaaS inflation, a sales as million quality instrumentation majority and with purchase applications production freight but from across and mix limitations XX.X% well chain product impact of improved $X.X The our solution of trends markets modest in in positive global delivered Margins demand manufacturing results brass, volumes widespread gross the favorable sales by logistics. very from gross were the product components with increasing margins higher Improved more expectations. and mix, flow supply including We value-based quarter offset a Starting the headwinds water a delivered with combined comparison with of These sales. also in increase revenues an basis favorable benefited than profit higher gross operations. year-over-year component difficult namely still points as as XX.X% realization. line resin XX.X%. of as margins, led shortages, strong performance materials

As to our mechanisms existing pricing margins executed thus in well offset demonstrate, increases. we far implementing proactively have cost

However, breadth inflationary pressures increasing. as publicized, has of been well is and the pace

percent a normalized SEA in pricing water such with increased first XX.X%. and these circumstances, acquisitions, leading dynamic as well of with million as third expenses consistent impacted sales monitor improved actively recognizing impacts the dollar as this there’ll travel. be sequentially $X.X basis to year-over-year pandemic in quality with inclusion more the leverage of in as SEA lagging quarters a the expenses to on were expenses environment. continue of million, will $XX.X light two the We quarter

due The overall mid-XX% tax operating XX.X% of transactions. provision benefit in quarter record discrete above, As third year’s XXXX to income the the of XX.X%, quarter. to profit was year the in result related margin a prior normalized of an of points compensation a in quarter-end. byproducts temporary summary, accounts prior current compared our was increase income $X.XX inventory in XX.X% year’s as the a XXXX, from an of equity XX.X%, chain Working XX.X% of and tax X% below EPS favorable was sales the environment. percent prior the the increase supply range, to the XXX in The capital to modest and of third was In basis the compared quarter EPS prior of receivable $X.XX. are elevation a rate

For and example, certain on inventory are higher work-in-process, levels strategically spot capitalizing capacity. components we maintaining of and availability

deferring believe On are of payment to Ken. the of partial is earnings cash on call With the transitory these the customers understandably In addition, back a that, conversion environment. of prior this I’ll current than higher working Free lower basis year-to-date We capital. year, shipments. net was of flow are cash result repercussions million $XX.X certain free the flow over turn XXX%.

Ken Bockhorst

Thanks, Bob.

sales demand, highlights from The chain uneven of result acquisitions, growth varied headwinds to supply excluding comparison the core by quarter, updated X, the was slide prior experienced top-line was we the muted and driving water key difficult quarterly the trends. which year-over-year this challenges the Turning factors chart, we’ve which utility strong year customer rate comparisons.

backlog chain is of we fourth of and with of disruption. continued quarterly at XXXX, look As level the growth, quarter quite frankly sales the supportive level supply our sales dependent enter on

has we to sales not While our and recognize for analytics shifting our and is enable about that sustainable been throughout it significantly thus our changer to quality low-maintenance to impacts market the and as data, execute the be These acquisitions and confirm for distributed to we about water competitive to canceled of being cadence will despite growth, and in and ecosystem. One, a order shortage the including supply pandemic. The presented utilities, optimistic work underway, components, important underlying discussions strategy. this and of but our chain or by real-time electronics sales, customer strong monitoring. confirms solutions disruption the acutely our well markets. things perform reagent-free which be variability lead challenged for two delivering performance regard and with tailorable good communications on believe supply could current X, backlog growing But orders of need accelerating momentum as our simply as integration We are further alike. to of future awards and water quality industrial customers tandem, very efficient, that position wastewater the inflation, on is the well solutions, combine that postponed, solutions supporting remain are challenges potential feel from our customers demand acceptance and in environment; global slide to game into We for In drivers the our the the continue growth two, effective the water other solutions prospects the summary, here continue to future. broad-based and aware far the the underlying more total to we our online, execution. and

addressing industry, not margin what pressures. the the our challenges we’ve not playbook The rates and greater new. unique headwinds have impact them is experienced challenges top-line increasing breadth ability Meter to the even of for Badger these these ongoing than but is While growth or previously, are to

challenges to all working aspects solutions the As opening within deliver and in I control team the we’re the our best with my our for remarks, discussed customers. of playbook sustainable mitigate

mention AT&T with our on Finally, Initiative Connected I work want the launched August. they in to Climate

We with free associated LTE-M AMI water technology impact solutions. efficient one ORION our our partners our Using that smart deliver via energy reduce solutions savings resilient, climate AT&T several and sustainable our cellular more are the efforts of for water to water highlighted the of radio and offerings. infrastructure change in enables

presentation. on Smart the by weather Badger You operator, that, With a can on line the as learn please the AMI the events AT&T more today’s resiliency in solutions the the highlighted of Meter well as extreme for slide wake about initiative, links Show of cellular in open clicking recent questions. Water

Operator

first Stifel. [Operator Your now Nathan, line Jones Instructions] is of comes Nathan Our question from open.

Nathan Jones

Good morning, everyone.

Ken Bockhorst

Nathan. Hi,

Nathan Jones

guess, about going that. up, that was I to but I the something inflation, brought you talk else, ask about we’ll thing supply and chain Ken,

Ken Bockhorst

up didn’t I come think would that today.

I ahead So, I was it. thought of getting

Nathan Jones

to I say anybody could going about It unlikely was any ask that. that. questions No, was

of you those morning, mitigate more actions and think of the you these to in delays. color other on give they’ll in challenges? help a component strategic ongoing are? you just And electronic release strategic some what took press noted how the Can variety You actions face us of this some

Ken Bockhorst

Yes.

is one of tightly think, engineering hearing as teams. probably been has supply other I our engaged that most about talk you’re really impactful that team chain our well So, the companies with ones

challenges identifying these alternate to sources perhaps little and of components really are a we’ve of that or some reengineering out a for dual and So, done finding going replacements lasting, some effective more supply. as impactful longer be we’re job

in terms So, the really tactical not response nimble been of communication. but maybe so just there, as of think strategically I proud

were recall, I industry. talking in upcoming the before challenges about we may think others You

customers group. And had it, work. strategic be more through communication actions line we’ve our strong how both managed we’ve a of tactical in couldn’t proud just between So, really and our I and in

Nathan Jones

that, the business, ex up utility revenue water Okay. the Follow-up was on X.X. acquisitions,

the impacts about, units? up schedule you it productivity be Can tell a and bit. chain and going to from are don’t and We’re it’s what’s environment, they’re this hearing difficult us production? volume was scheduling getting? you late sure So, that probably just What kind little production things you’re losing I more of much creating down which efficiency of than that to is think know about supply in to that makes lower implies late price kind you what me how kinds challenges things? of on, having productivity these I’m until probably

Ken Bockhorst

widget that, our the pricing, Well, it’s last I component availability, not that inefficiencies, it’s it’s couldn’t for price it logistics, been a down and point bring has quite to more. again, on isn’t for overcome able year sell good but as a proud to because factor. up challenge of the has we about it comes team inefficiency certainly And year simple that we something being you it also to it as a When certainly sold you. about this get be more that an just

different talked get our programs be that could mix with more as and pricing. or we selling this ultrasonic about of sophisticated radios pricing mechanical solutions why the we software, AMI As of value-based is versus meters

great really really I we executing least win And like the share more deserve, strong on all making provide of solutions it at aspects we’re sure market. in that and customers, get We’re for value all than that growing a we or on we that. that focused we that feel fair to our

Nathan Jones

that color because losing all you’re around or of disruption? you range can think what give of us productivity do kind this supply you any there Is kind chain of of

Ken Bockhorst

that impacting, First I and know me shortages let a of off, people first just take talking that lot are so off. about labor

We’re great knocking workforce labor challenges. labor out. doing things not a here And our having job, is related

working don’t I’m In I quantify I that haven’t Bob. terms that haven’t. to know, But, we’re disruption quantifying, of know I looking it. frankly just I there’s But, at thought there through.

Bob Wrocklage

Yes.

has dog I more to So, occur surface -- the necessarily rejuxtapose necessarily think it I paddling it would production, but of more of of more as not reorder lost would the -- prioritization. to under that and not think production sort

simple surface, we’re alluded best that impacts the two-dimensional But So, can. question navigating the we I obviously, you as underneath as there’s as yes, to. think not it’s them but

Operator

comes Morgan from Lynagh [Operator line Instructions] question open. your of Connor now Our next Stanley. is Connor,

Connor Lynagh

of what’s evolution of near term the better? through the and that suppose degree sit seen sort the chain. getting points? as be I Thanks. Are the stick here here? I some just the could earnings you the of expectation supply you but anticipated. And we -- that and supply to pinch we’ll they Yes. chain as getting of the curious most if quantify with as guess, quantify you’ve word, curious And wrong topic, within that points major worse? might we’ve in I’m today, moved they quarter mostly tension of Are I’m visibility what your the on

Ken Bockhorst

interesting an yes. Yes, That’s question.

seen there’s the work about all a one or I radio today, we’ve really general there’s while tomorrow. -- -- an talk that. And this a is it it And than it’s I ultrasonic you evolve. the several more we semiconductors, you through challenge news, be know is bit largest there’s in So, a It’s And the but into could might components electronics would quite go one broad-based read be this. chasing say, when that different making meter. as

secure availability. just the really working general, supply Because there or gotten of freeze, you and resins, have electronics inflationary It’s just deep with year. both would say, of I So, the and throughout challenges matter a challenges making in sure worse. can better through haven’t been the your

starting there. I we’re real starting but availability is think see side, is the is on better what to resin there to still get inflation

just the the as on bigger previously. are Some I of logistics, challenges mentioned

then sudden, a think might got for You of maybe a they up today don’t days. you’ve components all showing few and

and it. example guy that supply the whack-a-mole, is could to refers probably So, our chain I it as that best to describe use

Connor Lynagh

to guys certainly very incremental backfilling like. peers the have can’t? or other me strikes opportunity to that out described you share, it into well be relatively take that It translated I industry rational contract oligopoly an helpful. others some know That’s where you been there. and on as Has relative just any doing an

So, curious seeing that’s altering or not dynamic really if competitive if at you’re all that. the really

Ken Bockhorst

I this Well, it think I would characterize way.

able information a our loyal. brass, the of with or Customers matters of a strong. the talk very that still sometimes are sticky with and mechanical variations to But, end radios, or they choice composite all at day, right, orders. that we radio. helped know any solution to additional still that static we’ve like this. problem. in is additional produce think, have, the some both portfolio do ways, got oligopoly orders. about And meters I enough on our portfolio some in very through is need ultrasonic that say, helping up and into side, don’t Will translate of that would being I meter, And the So, market us like we’re the different we the just for our meters, -- think share know, keep? has I I pick that but I opportunistically, know offering us many picked we I feel a up to we’ve

Bob Wrocklage

Think conversions. of necessarily that wholesale the on fringes, as not

Operator

Our your Instructions] Baird. now Rob, from Mason is open. next Rob [Operator line question comes of

Rob Mason

know, Good morning. Ken… wanted I to Yes.

Ken Bockhorst

Rob. Hi,

Rob Mason

short if cadence side, that know, to side. wanted seasonality supply customers be from backlog have buck historically, just But -- I Ken, the your would demand in. in And available? thinking the kind comes demand will elevated the is just morning. know Good of the about what by that term may dictated is that some how given seasonality here from from there you’ll the you’re dictated or seasonality I you the supply side. be

Ken Bockhorst

So, a on couple that. of things

only become think areas. continue the We radios over less weather-related people years, the sell don’t south in software issue and few idea an we the part past for portfolio. sell the work. a the has more of to in us I seasonality as of becomes and west of Obviously, bigger

we if to think, we recall, another naturally QX QX being about muting you record, record in the with being a seasonality it talked we backlog, QX. it here again our anyway. So, I now, now about added talked in And than has been and in

a QX. think, to to supply -- wouldn’t But situation chain. be less I would really So, think to about expect, I us, seasonality it’s expect what the issue about you difficult talk an of given I to as for continue

Rob Mason

way might quarter, there gross the margin bucket, how quantify the on in a what Bob, inflationary the Okay. the is impacted that gross -- margin overall quarter? have in your to cost

Bob Wrocklage

Yes.

just get diagnose variety dynamics got that year-over-year If we taking of certainly, comparative, granular. of don’t kind you’ve I a So place. typically, the

We mix we that have every structural quarter. the talk about

radios selling selling us heard software year-over-year. You year-over-year mention more and more

pricing And the course, year, XXXX favorable that buoy past with with argue margins inflationary in up. then, that talked I the and price we the costs basis. would on crept first a cost of that’s pressures because in gross to talk great initiatives. outpaced contributor would and started say, So, Naturally, mix And pressures of our cost acquisition pricing, think have narrowed in of that move, third out the about strategic margins. on the world. gap inflationary given a just for a half we’ve we being I I a year-over-year quarter, And to

minuses. you’ve So, together, you some the And pluses really when that’s in quarter. that outcome and driving got mold all the

that inflation tone talked can from the you with continuing. our tell and we’ve I script about think, from

expect As the quarter. be pressure we that look fourth a in to forward, would I

Rob Mason

business. some elements you as you started to still To around was of give that approach need of you some address point that recall, on that these you value-based inflation? that still pour the pockets last September give I of the tactical flexibility into it Does the -- your to pricing, year

Bob Wrocklage

Yes, absolutely.

the effort a share while that of ago, or So, was we’re then done. lion’s point a in year the isn’t and time so

month, we’ll forward. revisiting every we continue that and as to We’re and each continually move do that

there’s still So, opportunity.

we’ve price of cost dynamics. of So, -- times in talked times three leading the and quarters be the there’ll about lagging in past

so, move be And we to pull we’re as will levers, still those forward. able and we

Operator

[Operator questions. time, we have this no currently further Instructions] At

Bauer back for So, to Ms. over hand I’ll closing.

Karen Bauer

topic I I reach to to any of free feel let we that of the report. Great. on me or website, our read want today please a that Board to our you. addressing diversity. out posted did of to from Board you report to the section the comments Investors know And Thank encourage questions report. you Directors, with

Finally, fourth for Thanks our XXXX is questions you Have today. any tentatively day weekend. everyone great for I’ll quarter take your year-end call have. for planning call earnings joining January XX, our all purposes, might be around scheduled a follow-up to XXXX.

Operator

Ladies for you and joining. gentlemen, thank all

may lines. You disconnect your now

Badger Meter (BMI) 15 Oct 212021 Q3 Earnings call transcript