Badger Meter(BMI) - 2023 Q2 - Quarterly Report

Part I. Financial Information This section presents the unaudited consolidated financial statements and management's discussion and analysis Item 1. Financial Statements (unaudited) The unaudited consolidated financial statements present the company's financial position, operations, and cash flows Consolidated Condensed Balance Sheets Consolidated Condensed Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $659,252 | $603,047 | | Cash and cash equivalents | $141,805 | $138,052 | | Total inventories | $144,749 | $119,856 | | Goodwill | $113,797 | $101,261 | | Total Liabilities | $183,660 | $160,625 | | Total current liabilities | $118,914 | $110,312 | | Total Shareholders' Equity | $475,592 | $442,422 | Consolidated Condensed Statements of Operations Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $175,858 | $137,833 | $334,959 | $270,235 | | Gross Margin | $69,434 | $54,760 | $132,250 | $105,483 | | Operating Earnings | $29,502 | $22,088 | $54,548 | $40,950 | | Net Earnings | $22,493 | $16,664 | $41,908 | $31,024 | | Diluted EPS | $0.76 | $0.57 | $1.42 | $1.06 | Consolidated Condensed Statements of Comprehensive Income Comprehensive Income Summary (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Earnings | $22,493 | $16,664 | $41,908 | $31,024 | | Other Comprehensive Loss | $(55) | $(5,365) | $1,780 | $(7,680) | | Comprehensive Income | $22,548 | $11,299 | $43,688 | $23,344 | Consolidated Condensed Statements of Cash Flows Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operations | $40,739 | $28,912 | | Net cash used for investing activities | $(24,062) | $(2,773) | | Net cash used for financing activities | $(13,159) | $(12,139) | | Increase in cash and cash equivalents | $3,753 | $13,036 | | Cash and cash equivalents – end of period | $141,805 | $100,210 | Consolidated Condensed Statements of Shareholders' Equity - Total shareholders' equity increased from $442.4 million at December 31, 2022, to $475.6 million at June 30, 2023, primarily driven by net earnings of $41.9 million, partially offset by cash dividends of $13.2 million[52] Notes to Unaudited Consolidated Condensed Financial Statements - Effective January 1, 2023, the Company acquired 100% of Syrinix Ltd. for a total purchase consideration of $17.1 million, net of cash acquired, with $12.0 million allocated to Goodwill and $7.7 million to Intangible assets[60][40] Revenue by Geographic Area - Six Months Ended June 30 (in thousands) | Region | 2023 | 2022 | | :--- | :--- | :--- | | United States | $296,449 | $233,577 | | Europe | $18,144 | $15,353 | | Asia | $6,561 | $7,128 | | Canada | $6,506 | $5,908 | | Middle East | $4,700 | $3,783 | | Other | $2,599 | $4,486 | | Total | $334,959 | $270,235 | - For the six months ended June 30, 2023, 93.8% of revenue was recognized at a point in time (primarily product sales), while 6.2% was recognized over time (primarily BEACON® AMA software as a service)[93] - As of June 30, 2023, the company had $53.0 million in unsatisfied performance obligations, primarily related to contract liabilities, which are expected to be recognized as revenue in future periods[69] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, liquidity, and capital resources BUSINESS DESCRIPTION AND OVERVIEW - The company operates in two main product lines: 'utility water' and 'flow instrumentation', with over 90% of products used in water-related applications[101] - The utility water product line, the company's largest, primarily serves the North American market, including mechanical and ultrasonic static meters, radio technologies, and the BEACON® software suite[73][75] - The flow instrumentation line serves diverse industrial markets, offering brands such as Recordall®, Hedland®, and Dynasonics®[78][102] Long-Term Business Trends - A key industry trend is the conversion from manual-read meters to radio-based solutions, with an estimated 70% of U.S. water meters converted, presenting an upgrade opportunity to AMI[76][110] - There is a growing conversion from mechanical to static (ultrasonic) meters, with the company's D-Flow ultrasonic technology being a key competitive differentiator[81] - The company is positioned to benefit from the 'Smart Water' trend, leveraging its ORION® Cellular AMI solution and BEACON® digital solutions for data analytics[111][113] Results of Operations Q2 2023 vs Q2 2022 Performance | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $175.9M | $137.8M | +27.6% | | - Utility Water Sales | $150.9M | $114.2M | +32.1% | | - Flow Instrumentation Sales | $25.0M | $23.6M | +5.6% | | Operating Earnings | $29.5M | $22.1M | +33.5% | | Operating Margin | 16.8% | 16.0% | +0.8 ppt | | Diluted EPS | $0.76 | $0.57 | +33.3% | H1 2023 vs H1 2022 Performance | Metric | H1 2023 | H1 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $335.0M | $270.2M | +24.0% | | - Utility Water Sales | $283.1M | $224.5M | +26.1% | | - Flow Instrumentation Sales | $51.9M | $45.7M | +13.4% | | Operating Earnings | $54.5M | $40.9M | +33.3% | | Operating Margin | 16.3% | 15.2% | +1.1 ppt | | Diluted EPS | $1.42 | $1.06 | +34.0% | LIQUIDITY AND CAPITAL RESOURCES - Cash provided by operations in H1 2023 was $40.7 million, up from $28.9 million in H1 2022, due to higher net earnings partially offset by increased working capital[144] - Primary Working Capital (PWC) increased by $22.6 million from year-end 2022, driven by a $24.9 million increase in inventories and a $7.4 million increase in receivables due to higher sales activity[143] - The company maintains a $150.0 million multi-currency credit facility and was in compliance with all covenants as of June 30, 2023, with $156.8 million of unused credit lines available[121] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's market risk disclosures remain consistent with its Annual Report on Form 10-K for the year ended December 31, 2022 - The company's quantitative and qualitative disclosures about market risk have not materially changed since its 2022 Annual Report on Form 10-K was filed[155] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2023 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the quarter ended June 30, 2023[156] - No changes occurred in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[124] Part II. Other Information This section provides additional information including risk factors, equity sales, and exhibits Item 1A. Risk Factors No material changes to risk factors have occurred since the company's 2022 Annual Report on Form 10-K - There have been no material changes from the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022[150] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock during the quarter, with a share repurchase program remaining active - The Company did not make any purchases of its equity securities under its repurchase program during the quarter ended June 30, 2023[158] - As of June 30, 2023, the maximum number of shares that may yet be purchased under the publicly announced program is 200,000[151] Item 5. Other Information No directors or executive officers adopted or terminated trading arrangements during the second quarter of 2023 - During the second quarter of 2023, none of the company's directors or executive officers adopted or terminated any "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement"[159] Item 6. Exhibits The report includes filed exhibits such as certifications and financial data in iXBRL format - Exhibits filed with the report include CEO/CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act and financial statements in iXBRL format[128][152][153] Signatures This section contains the official signatures of the company's key executives, certifying the report's accuracy - The report was duly signed on July 25, 2023, by Kenneth C. Bockhorst (CEO), Robert A. Wrocklage (CFO), and Daniel R. Weltzien (Controller)[163]