Badger Meter Reports Third Quarter 2019 Results

Posted by Business Wire October 17, 2019

MILWAUKEE–(BUSINESS WIRE)–Badger Meter, Inc. (NYSE: BMI) today reported results for the third quarter ended September 30, 2019.

Third Quarter 2019 Highlights

  • Net sales for the third quarter of 2019 were $108.6 million compared to $110.6 million in the comparable prior year quarter; domestic water utility sales increased 2% year-over-year.
  • Gross profit margins remain strong at 38.4%.
  • GAAP net earnings and diluted earnings per share (EPS) were $12.7 million and $0.44, respectively, compared to $2.9 million and $0.10 in the comparable prior year period.
  • Excluding the impact of pension termination settlement and executive retirement charges in the prior year period, adjusted EPS was $0.44 compared to $0.46 for the third quarter of 2018. (See 2018 adjusted results in the attached GAAP to Non-GAAP reconciliation).
  • $20.2 million of cash provided by operations representing solid earnings conversion.

Third Quarter Operating Results

“We were pleased with the sequential improvement in sales, with growth in the domestic municipal water market against a difficult comparison, and continued interest in our new technology products. In the latter half of the quarter, we began shipping our new three and four-inch ultrasonic meters incorporating our D-Flow technology. ORION® LTE-M radio installations at early adopters and several key customers are ramping, while pilot testing at others continues. Our margins and cash flow results demonstrate the impact of our continuous improvement efforts. Overall, it was a solid quarter across a variety of operational and financial measures and I want to thank my Badger Meter colleagues across the globe for their efforts,” said Kenneth C. Bockhorst, President and Chief Executive Officer of Badger Meter.

Municipal water sales decreased 3% from the strong comparable prior year quarter; however, domestic municipal water sales grew by 2%. International municipal water utility sales declined as anticipated, as last year’s large Middle East order did not repeat. The domestic increase, despite a near-record comparable, was the result of solid market demand, the launch of the new three and four-inch commercial E-Series® Ultrasonic meters and initiation of recent key customer project wins. A variety of additional customers are undergoing pilot tests of newer technologies, most notably with ORION® Cellular LTE-M endpoints, a common practice that can result in order deferments. Sales of flow instrumentation products grew 1% year-over-year with modest increases across most industrial end markets.

Adjusted operating margins were 15.1% in the third quarter of 2019 compared to 16.1% in the comparable prior year period. Gross profit margins were strong at 38.4%, reflective of positive product and regional sales mix, as well as favorable, but moderating, price/cost dynamics. However, they declined year-over-year due entirely to the Company’s recording of a discrete warranty provision associated with a sourced system integration module for a previously installed solution sold only outside North America.

Selling, engineering and administration (“SEA”) expenses in the third quarter of 2019 totaled $25.2 million compared to an adjusted $26.1 million in the prior year. Adjusted SEA leverage improved 40 basis points to 23.2% from 23.6% in the prior year. The income tax rate of 22.1% was in line with the prior year’s adjusted 22.8%.

Cash from operations of $20.2 million increased 37% or $5.5 million year-over-year, primarily associated with improved working capital management.

Outlook

Bockhorst continued, “The municipal spending market remains healthy and we continue to be encouraged by the interest level, engagement and pilot testing of our leading technologies. As we have historically experienced, the introduction of innovative solutions in our markets can create order pauses and sales unevenness in the short-term. However, our customers contemplate the long-term in making their smart water investments and therefore, we continue to support technology and capabilities that offer improved performance and economics over that horizon.

Looking beyond demand trends, our profit margins continue to benefit from positive sales mix and continuous improvement activities across all aspects of our operations, and our balance sheet provides ample capacity to execute on disciplined, strategic acquisitions.” Bockhorst concluded, “We remain confident in our long term outlook as our broad range of proven smart-water solutions solve customer challenges and work to preserve the world’s most precious resource.”

Conference Call and Webcast Information

Badger Meter management will hold a conference call to discuss the company’s third quarter 2019 results today, Thursday October 17, 2019 at 10:00 AM CT / 11:00 AM ET. The call and related presentation can be accessed via webcast through the Investor section of our website or by dialing 1-877-823-9761 (US) or 1-647-689-5327 (Intl) and entering the passcode 6591119. The webcast will be archived on the company’s website until its next earnings release.

Safe Harbor Statement

Certain statements contained in this news release, as well as other information provided from time to time by Badger Meter (the “company”) 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 company’s results are also subject to general economic conditions, variation in demand from customers, continued market acceptance of new products, the successful integration of acquisitions, competitive pricing and operating efficiencies, supply chain risk, material and labor cost increases, tax reform and foreign currency risk. See the company’s Form 10-K filed with the SEC for further information regarding risk factors. Badger Meter disclaims any obligation to publicly update or revise any forward-looking statements as a result of new information, future events or any other reason.

About Badger Meter

Badger Meter is an innovator in flow measurement, control and communications solutions, serving water utilities, municipalities, and commercial and industrial customers worldwide. The company’s products measure water, oil, chemicals, and other fluids, and are known for accuracy, long-lasting durability and for providing valuable and timely measurement data. For more information, visit badgermeter.com.

 

BADGER METER, INC.

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and earnings per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

 

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 
Net sales

$

108,646

$

110,630

$

317,069

$

329,319

 
Cost of sales

 

66,976

 

66,684

 

194,666

 

207,121

 
Gross margin

 

41,670

 

43,946

 

122,403

 

122,198

 
Selling, engineering and administration

 

25,225

 

28,212

 

76,598

 

80,139

 
Operating earnings

 

16,445

 

15,734

 

45,805

 

42,059

 
Interest expense, net

 

66

 

295

 

280

 

994

Other pension and postretirement costs

 

41

 

11,787

 

123

 

19,799

 
Earnings before income taxes

 

16,338

 

3,652

 

45,402

 

21,266

 
Provision for income taxes

 

3,617

 

801

 

10,499

 

4,715

 
Net earnings

$

12,721

$

2,851

$

34,903

$

16,551

 
Earnings per share:
 
Basic

$

0.44

$

0.10

$

1.20

$

0.57

 
Diluted

$

0.44

$

0.10

$

1.19

$

0.57

 
Shares used in computation of earnings per share:
 
Basic

 

29,013,573

 

28,989,205

 

29,022,080

 

28,983,115

 
Diluted

 

29,193,338

 

29,197,160

 

29,215,192

 

29,181,543

 

BADGER METER, INC.

 

RECONCILIATION OF NON-GAAP PERFORMANCE MEASURES TO GAAP PERFORMANCE MEASURES

(in thousands, except share and earnings per share data)

 
 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

 

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 
Selling, engineering and administration (GAAP measure)

$

25,225

$

28,212

$

76,598

$

80,139

 
Executive retirement charges

 

–

 

2,098

 

–

 

2,098

 
Adjusted selling, engineering and administration

$

25,225

$

26,114

$

76,598

$

78,041

 
 
Operating earnings (GAAP measure)

$

16,445

$

15,734

$

45,805

$

42,059

 
Executive retirement charges

 

–

 

2,098

 

–

 

2,098

 
Adjusted operating earnings

$

16,445

$

17,832

$

45,805

$

44,157

 
 
Net earnings (GAAP measure)

$

12,721

$

2,851

$

34,903

$

16,551

 
Executive retirement charge, net of tax

 

–

 

1,998

 

–

 

1,998

 
Pension termination settlement charge, net of tax

 

–

 

8,652

 

–

 

14,786

 
Adjusted net earnings

$

12,721

$

13,501

$

34,903

$

33,335

 
 
Diluted earnings per share (GAAP measure)

$

0.44

$

0.10

$

1.19

$

0.57

 
Executive retirement charge, net of tax

 

–

 

0.07

 

–

 

0.07

 
Pension termination settlement charge, net of tax

 

–

 

0.29

 

–

 

0.50

 
Adjusted diluted earnings per share

$

0.44

$

0.46

$

1.19

$

1.14

 

BADGER METER, INC.

 

CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands)

 
 

Assets

September 30,

December 31,

 

2019

 

2018

(Unaudited)

 
Cash

$

37,728

$

13,086

Receivables

 

61,406

 

66,300

Inventories

 

84,835

 

80,804

Other current assets

 

7,572

 

4,469

Total current assets

 

191,541

 

164,659

 
Net property, plant and equipment

 

86,657

 

90,321

Intangible assets, at cost less accumulated amortization

 

49,934

 

55,418

Other long-term assets

 

18,100

 

11,035

Goodwill

 

71,258

 

71,258

Total assets

$

417,490

$

392,691

 
 

Liabilities and Shareholders’ Equity

 
Short-term debt

$

4,360

$

18,060

Payables

 

32,363

 

22,469

Accrued compensation and employee benefits

 

12,814

 

13,768

Other current liabilities

 

9,308

 

5,718

Total current liabilities

 

58,845

 

60,015

 
Deferred income taxes

 

3,077

 

3,332

Long-term employee benefits and other

 

31,929

 

25,841

Shareholders’ equity

 

323,639

 

303,503

Total liabilities and shareholders’ equity

$

417,490

$

392,691

 

BADGER METER, INC.

 

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

 
 

Three Months Ended

Nine Months Ended

September 30,

September 30,

September 30,

September 30,

 

2019

 

 

2018

 

 

2019

 

 

2018

 

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Operating activities:
Net earnings

$

12,721

 

$

2,851

 

$

34,903

 

$

16,551

 

 
Adjustments to reconcile net earnings to net cash provided by operations:
 
Depreciation

 

2,625

 

 

2,902

 

 

8,688

 

 

8,796

 

Amortization

 

3,026

 

 

3,132

 

 

9,323

 

 

9,675

 

Deferred income taxes

 

33

 

 

73

 

 

18

 

 

132

 

Noncurrent employee benefits

 

117

 

 

177

 

 

(150

)

 

261

 

Pension termination settlement charges

 

–

 

 

11,732

 

 

–

 

 

19,900

 

Contribution to pension plan

 

–

 

 

(1,260

)

 

–

 

 

(2,860

)

Stock-based compensation expense

 

328

 

 

2,430

 

 

882

 

 

3,374

 

Changes in:
Receivables

 

(1,473

)

 

(4,697

)

 

4,555

 

 

(11,462

)

Inventories

 

(1,694

)

 

1,242

 

 

(4,259

)

 

1,409

 

Payables

 

1,744

 

 

(1,213

)

 

10,885

 

 

(2,468

)

Prepaid expenses and other assets

 

(1,860

)

 

(2,474

)

 

(5,806

)

 

(5,573

)

Other liabilities

 

4,669

 

 

(213

)

 

2,100

 

 

2,148

 

Total adjustments

 

7,515

 

 

11,831

 

 

26,236

 

 

23,332

 

Net cash provided by operations

 

20,236

 

 

14,682

 

 

61,139

 

 

39,883

 

 
Investing activities:
Property, plant and equipment expenditures

 

(1,123

)

 

(1,977

)

 

(5,589

)

 

(7,219

)

Acquisitions, net of cash acquired and future payments

 

–

 

 

–

 

 

–

 

 

(8,048

)

Net cash used for investing activities

 

(1,123

)

 

(1,977

)

 

(5,589

)

 

(15,267

)

 
Financing activities:
Net decrease short-term debt

 

–

 

 

(6,433

)

 

(13,500

)

 

(8,433

)

Payment of contingent acquisition consideration

 

–

 

 

(2,034

)

 

(1,650

)

 

(2,034

)

Dividends paid

 

(4,936

)

 

(4,351

)

 

(13,652

)

 

(11,895

)

Proceeds from exercise of stock options

 

215

 

 

702

 

 

963

 

 

933

 

Repurchase of treasury stock

 

(522

)

 

(2,462

)

 

(3,359

)

 

(4,451

)

Issuance of treasury stock

 

46

 

 

98

 

 

143

 

 

529

 

Net cash used for financing activities

 

(5,197

)

 

(14,480

)

 

(31,055

)

 

(25,351

)

Effect of foreign exchange rates on cash

 

(82

)

 

279

 

 

147

 

 

200

 

 
Increase (decrease) in cash

 

13,834

 

 

(1,496

)

 

24,642

 

 

(535

)

Cash – beginning of period

 

23,894

 

 

12,125

 

 

13,086

 

 

11,164

 

 
Cash – end of period

$

37,728

 

$

10,629

 

$

37,728

 

$

10,629

 

 

Contacts

Karen Bauer at (414) 371-7276

kbauer@badgermeter.com

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