Badger Meter Reports Fourth Quarter and Full Year 2019 Results

MILWAUKEE--(BUSINESS WIRE)--February 5, 2020--Badger Meter, Inc. (NYSE: BMI) today reported results for the fourth quarter ended December 31, 2019.

Fourth Quarter 2019 Highlights

• Net sales for the fourth quarter of 2019 were $107.6 million, an increase of 3% compared to $104.4 million in the comparable prior year quarter; municipal water sales increased 8% year-over-year.
• GAAP net earnings and diluted earnings per share (EPS) were $12.3 million and $0.42, respectively, compared to $11.2 million and $0.39 in the comparable prior year period.
• Excluding the impact of executive retirement charges in 2018, EPS of $0.42 in the fourth quarter of 2019 increased 5% from adjusted EPS of $0.40 in the fourth quarter of 2018. (See 2018 adjusted results in the attached GAAP to Non-GAAP reconciliation).

Full Year 2019 Highlights

• Net sales in 2019 totaled $424.6 million compared to $433.7 million in the comparable prior year. Domestic municipal water sales increased 1% on a full year basis.
• Gross profit margin for the year of 38.5%, an increase of 110 basis points year-over-year.
• GAAP net earnings and EPS were $47.2 million and $1.61, respectively, compared to $27.8 million and $0.95 in the comparable prior year period.
• Excluding the impact of pension termination settlement and executive retirement charges in the prior year, EPS of $1.61 increased 5% from the prior year’s adjusted EPS of $1.54. (See 2018 adjusted results in the attached GAAP to Non-GAAP reconciliation).
• Record cash provided by operations of $80.7 million.

Fourth Quarter Operating Results

“We are very pleased with the strong growth in our domestic municipal water revenue and continued interest in our newer technology products. Flow instrumentation demand was tepid, as global industrial activity was soft in the quarter. Our operating margins improved year-over-year and cash flow remains strong. Overall, it was a solid finish to the year and I want to express my appreciation to all of our Badger Meter colleagues across the globe for the progress made this year,” said Kenneth C. Bockhorst, Chairman, President and Chief Executive Officer of Badger Meter.

Municipal water sales increased 8% year-over-year with robust demand for the new three and four-inch ultrasonic meters incorporating our D-Flow technology, as well as ORION^® Cellular LTE-M radio installations including those at key customer projects announced earlier in the year. Customer feedback on implementation has been very positive. Sales of flow instrumentation products declined 11% year-over-year across the array of industrial end markets served globally due to sluggish market demand.

Operating margins were 15.2% in the fourth quarter of 2019 compared to an adjusted 14.6% in the comparable prior year period. Gross profit margins were strong at 38.2%, reflective of positive product sales mix, most notably commercial ultrasonic meters and cellular radio solutions.

Selling, engineering and administration (“SEA”) expenses in the fourth quarter of 2019 totaled $24.8 million compared to an adjusted $24.9 million in the prior year. Adjusted SEA leverage improved 80 basis points to 23.0% from 23.8% in the prior year comparable quarter. The income tax rate of 24.3% was modestly higher than the prior year’s adjusted 23.0%.

Full Year Recap and Outlook

Bockhorst continued, “As I reflect on our 2019 results and look ahead to 2020, a number of accomplishments stand out. We launched multiple, successful new products in 2019. Despite the innovation pause that it created mid-year, we grew domestic municipal sales for the full year and exited the year with momentum. We made significant progress improving gross margins, consistently delivering in the upper half of our normalized range. Our SEA was well managed, and we launched a number of processes to strengthen our working capital management, leading to outstanding cash flow and earnings conversion for the year.”

“As we move into 2020, municipal water spending remains healthy and we continue to experience favorable feedback from installation and pilot testing of our leading technologies. We have several new products that will be launching, including the next generation of our residential ultrasonic meters and our flow restriction meter. While we expect a modest potential headwind from higher brass costs, our profit margins should continue to benefit from positive product and software sales mix and continuous improvement activities across all aspects of our operations. We have extensive available capital to deploy on internal research and development and disciplined, strategic acquisitions with an active funnel of opportunities.” Bockhorst concluded, “As we embark on our 115^th year in business, we believe that our comprehensive portfolio of smart water solutions and commitment to innovation will continue to solve customer challenges and 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 fourth quarter 2019 results today, Wednesday, February 5, 2020 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 4995411. 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							Twelve Months Ended
					December 31,				December 31,			December 31,			December 31,
						2019				2018			2019			2018
					(Unaudited)				(Unaudited)			(Unaudited)
Net sales					$	107,556			$	104,413		$	424,625		$	433,732
Cost of sales						66,431				64,262			261,097			271,383
Gross margin						41,125				40,151			163,528			162,349
Selling, engineering and administration						24,782				25,341			101,380			105,480
Operating earnings						16,343				14,810			62,148			56,869
Interest (income) expense, net						(27	)			163			253			1,157
Other pension and postretirement costs						165				61			288			19,860
Earnings before income taxes						16,205				14,586			61,607			35,852
Provision for income taxes						3,931				3,347			14,430			8,062
Net earnings					$	12,274			$	11,239		$	47,177		$	27,790
Earnings per share:
	Basic				$	0.42			$	0.39		$	1.63		$	0.96
	Diluted				$	0.42			$	0.39		$	1.61		$	0.95
Shares used in computation of earnings per share:
	Basic					29,039,296				28,989,523			29,028,204			28,993,074
	Diluted					29,227,804				29,178,969			29,220,165			29,189,257

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						Twelve Months Ended
					December 31,			December 31,			December 31,			December 31,
					2019			2018			2019			2018
					(Unaudited)			(Unaudited)			(Unaudited)
Selling, engineering and administration (GAAP measure)					$	24,782		$	25,341		$	101,380		$	105,480
Executive retirement charges						-			477			-			2,575
Adjusted selling, engineering and administration					$	24,782		$	24,864		$	101,380		$	102,905
Operating earnings (GAAP measure)					$	16,343		$	14,810		$	62,148		$	56,869
Executive retirement charges						-			477			-			2,575
Adjusted operating earnings					$	16,343		$	15,287		$	62,148		$	59,444
Net earnings (GAAP measure)					$	12,274		$	11,239		$	47,177		$	27,790
Executive retirement charges, net of tax						-			359			-			2,357
Pension termination settlement charge, net of tax						-			-			-			14,786
Adjusted net earnings					$	12,274		$	11,598		$	47,177		$	44,933
Diluted earnings per share (GAAP measure)					$	0.42		$	0.39		$	1.61		$	0.95
Executive retirement charges, net of tax						-			0.01			-			0.09
Pension termination settlement charge, net of tax						-			-			-			0.50
Adjusted diluted earnings per share					$	0.42		$	0.40		$	1.61		$	1.54

BADGER METER, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
Assets						December 31,			December 31,
						2019			2018
						(Unaudited)
Cash						$	48,871		$	13,086
Receivables							61,365			66,300
Inventories							81,948			80,804
Other current assets							7,910			4,469
Total current assets							200,094			164,659
Net property, plant and equipment							85,761			90,321
Intangible assets, at cost less accumulated amortization							48,163			55,418
Other long-term assets							16,617			11,035
Goodwill							71,258			71,258
Total assets						$	421,893		$	392,691
Liabilities and Shareholders' Equity
Short-term debt						$	4,480		$	18,060
Payables							31,523			22,469
Accrued compensation and employee benefits							12,754			13,768
Other current liabilities							8,490			5,718
Total current liabilities							57,247			60,015
Deferred income taxes							876			3,332
Long-term employee benefits and other							32,702			25,841
Shareholders' equity							331,068			303,503
Total liabilities and shareholders' equity						$	421,893		$	392,691

BADGER METER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
					Three Months Ended								Twelve Months Ended
					December 31,				December 31,				December 31,				December 31,
					2019				2018				2019				2018
					(Unaudited)				(Unaudited)				(Unaudited)
Operating activities:
Net earnings					$	12,274			$	11,239			$	47,177			$	27,790
Adjustments to reconcile net earnings to net cash provided by operations:
Depreciation						2,881				2,558				11,569				11,354
Amortization						3,254				3,286				12,577				12,961
Deferred income taxes						(1,542	)			(5,401	)			(1,524	)			(5,269	)
Noncurrent employee benefits						110				203				(40	)			464
Pension termination settlement charges						-				-				-				19,900
Contribution to pension plan						-				-				-				(2,860	)
Stock-based compensation expense						332				800				1,214				4,174
Changes in:
Receivables						896				3,463				5,451				(7,999	)
Inventories						3,039				3,450				(1,220	)			4,859
Payables						757				(7,400	)			11,642				(9,868	)
Prepaid expenses and other current assets						(1,926	)			511				(7,732	)			(5,062	)
Other current liabilities						(500	)			7,710				1,600				9,906
Total adjustments						7,301				9,180				33,537				32,560
Net cash provided by operations						19,575				20,419				80,714				60,350
Investing activities:
Property, plant and equipment expenditures						(1,907	)			(1,424	)			(7,496	)			(8,643	)
Acquisitions, net of cash acquired and future payments						-				-				-				(8,048	)
Net cash used for investing activities						(1,907	)			(1,424	)			(7,496	)			(16,691	)
Financing activities:
Net decrease short-term debt						-				(12,579	)			(13,500	)			(21,012	)
Payment of contingent acquisition consideration						(905	)			-				(2,555	)			(2,034	)
Dividends paid						(4,943	)			(4,370	)			(18,595	)			(16,265	)
Proceeds from exercise of stock options						998				510				1,961				1,443
Repurchase of treasury stock						(1,848	)			(344	)			(5,207	)			(4,795	)
Issuance of treasury stock						44				42				187				523
Net cash used for financing activities						(6,654	)			(16,741	)			(37,709	)			(42,140	)
Effect of foreign exchange rates on cash						129				203				276				403
Increase in cash						11,143				2,457				35,785				1,922
Cash - beginning of period						37,728				10,629				13,086				11,164
Cash - end of period					$	48,871			$	13,086			$	48,871			$	13,086