BADGER METER, INC.
STANDARD INVESTOR PRESENTATION
January 2021
© 2021 Badger Meter, Inc. | 1 |
FORWARD LOOKING STATEMENTS
Certain statements contained in this presentation, as well as other information provided from time to time by Badger Meter, Inc. (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. Potential factors that could affect such forward-looking statements include the duration, severity and geographic spread of the COVID-19 pandemic, government actions to address or mitigate the impact of the COVID-19 pandemic, and the potential negative impacts of COVID-19 on the global economy, the company's operations and those of our customers and suppliers. In addition, the company's results are 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 Securities and Exchange Commission for further information regarding risk factors, which are incorporated herein by reference. 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.
In this presentation certain non-GAAP financial measures may be used. Please see the supplemental financial schedules at the end of this presentation for a reconciliation to the appropriate GAAP measure.
© 2021 Badger Meter, Inc. | 2 |
SMART WATER SOLUTIONS ENCOMPASSING FLOW MEASUREMENT, QUALITY AND OTHER PARAMETERS
- Integrated technology company providing a comprehensive suite of flow measurement, water quality and other parameters with software / analytics solutions
- Industry leader in North American smart water metering, with a strong global position in flow metering technologies
- Attractive, long-term growth fundamentals:
- Stable business model supported by replacement demand
- ASP runway for technology adoption (static metering, radio adoption, data/analytics)
- Strategic tuck-in acquisitions to expand offerings
Flow
Instrumentation
- Non-Water10%
90% WATER
RELATED
BUSINESS
Flow
Instrumentation
- Water 9%
Utility Water
Meters and
Systems
81%
- Culture of innovation and investment in R&D
- Premium financial profile and exceptional operational track record
Market Leader in the Best Smart Water Market in the World
© 2021 Badger Meter, Inc. | 3 |
FOURTH QUARTER FINANCIAL SNAPSHOT
(US$ in millions, except per share data) | Q4 2020 | Q4 2019 | Change |
Sales | $112.3 | $107.6 | 4.4% |
Gross Margin | 44.1 | 41.1 | 7.1% |
39.2% | 38.2% | 100 bps | |
SEA | 27.1 | 24.8 | 9.3% |
24.1% | 23.0% | 110 bps | |
Op Income | 17.0 | 16.3 | 3.8% |
15.1% | 15.2% | (10) bps | |
Income Tax Rate | 22.6% | 24.3% | |
EBITDA | 23.2 | 22.3 | 4.0% |
20.7% | 20.7% | - bps | |
EPS | 0.45 | 0.42 | 7.1% |
Free Cash Flow | $12.7 | $17.7 |
See appendix for reconciliation of GAAP to Non-GAAP measures
- Utility water sales increased 8%, with 5% organic growth reflecting higher meter, radio and software sales. 3% contribution from two months of s::can.
- Flow instrumentation sales declined 10%; weakness continued across majority of end markets.
- Gross margin expansion on higher volumes, pricing and favorable sales mix which more than offset network sunset provision and cost inflation.
- SEA includes s::can operations and related intangible amortization.
- Continued strong free cash flow generation.
© 2021 Badger Meter, Inc. | 4 |
WATER QUALITY MONITORING - S::CAN AND ATI
- Complementary offerings
- Product technology - robust and full portfolio of both electrochemical and optical sensors
- Geographies - ATi strong in the US and UK, while s::can has installed product in 50 countries, with concentration in W. Europe and SE Asia
- Scale - customer relationships, inside sales, rep networks, distributors, for greater ability to cross sell
- Coverage - combined solutions provide opportunities across all aspects of the water eco-system - including water utilities, wastewater treatment and industrial water applications
Macro Trends Driving Applications
Potable water monitoring; optimize water treatment and ensure safety of water supply
Increased reporting mandates for
wastewater discharge
- Long-termgrowth synergies
- Quantity plus quality data parameters - online, near real-time via ORION® Cellular radio
- BEACON® and EyeOnWater ® to store, integrate, analyze and visualize information providing holistic view of water network
- Expanded international footprint/customer relationships for smart metering
Heightened COVID-19 impact to vulnerable populations - hospitals, senior living, education
Corporate ESG reporting
requirements
Evolving to Smart Water Solutions Provider - On Demand / Real Time / Anywhere
© 2021 Badger Meter, Inc. | 5 |
RECAP / OUTLOOK
- Strong performance in 2020 despite backdrop of pandemic's health and economic implications
- Build on leading market position with comprehensive and tailorable solutions across our differentiated flow measurement, temperature, pressure and water quality monitoring products, communication and data analytics offerings
- Continue to organically invest in software solutions that operationalize real- time data to enhance operational efficiency
- Balance sheet flexibility and strong cash flow to enable strategic, tuck-in acquisitions to expand offerings
- Further advance sustainability efforts in our products/solutions and within our operations, helping to conserve the world's most precious resource
Optimistic About Opportunities for Growth in 2021 and Beyond
Full Year 2020
4% Utility
Water Sales
Growth
90 BPS
EBITDA
Margin
Expansion
163% Free
Cash Flow
Conversion
5% EPS
Growth
TCIR 0.59 ↓ 35%
© 2021 Badger Meter, Inc. | 6 |
CAPITAL ALLOCATION PRIORITIES
Internal Investment to support organic
growth and sustain core business
Grow the dividend annually in line with earnings
Accelerate acquisitions that align to strategy and return targets
- No outstanding debt obligations and $73M of cash at December 31, 2020 (~$44M used for ATI)
- Strong free cash flow, working capital management - 163% conversion of net earnings in 2020
- $125M untapped revolver
- August 2020 marked 28th consecutive year of dividend increases.
Ample Liquidity to Fund Growth Priorities
© 2021 Badger Meter, Inc. | 7 |
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
- Estimate our products save >5B gallons of water annually, equating to >11.5M kWh of energy (7,850 tons of CO2 ) avoided to heat, pump and treat that water
- Biennial Sustainability Report issued in August 2020
- Meaningful improvement across a variety of environmental and social metrics reported
- Diversity and inclusion
- 40% of executive officers diverse (30% female, 10% Latino)
- 40% of employee population is female
- Implemented and completed a pay equity study, taking action to make adjustments where warranted
- Formalized human rights policy to affirm commitment to respect and support internationally recognized human rights and freedoms
- Governance actions
- Shareholder engagement to inform priorities
- Board gender diversity of 25%
Metric | 2018 | 2019 | 2020 |
TCIR/Safety | 1.30 | 0.98 | 0.59 |
Employee | 9.9% | 7.6% | 4.3% |
Turnover | |||
© 2021 Badger Meter, Inc. | 8 |
BACKGROUND INFORMATION
© 2021 Badger Meter, Inc. | 9 |
COMPETITIVE ADVANTAGES - WHY BADGER
METER WINS
Broadest Range of Offerings | • | Brass and polymer |
- Choice Matters | • | Mechanical and static (ultrasonic) |
• Drive by, fixed and cellular radio technology | ||
Technology Leadership | • | Well established E-Series Ultrasonic expertise - maintains accuracy |
and lower cost circuit boards | ||
• ORION Cellular - leverages existing infrastructure, coverage | ||
• BEACON/EyeOnWater - actionable data for utility and homeowner | ||
Innovation | • | D-Flow technology for performance enhancement, cost reduction and |
larger sizes | ||
• Remote actuating flow restriction valve | ||
High Service Levels and | • | Strong brand preference - long term relationships / loyalty |
Customer Support | • | Channel coverage - regional service center and local distribution to |
cover smaller utilities | ||
• Highly trained Solution Architect, customer care and field technology | ||
support | ||
Low Lifecycle Costs | • | Highly accurate and quality products / low warranty |
• | Exceptional battery life | |
• | Leverage existing cellular technology network | |
>50K Water Utilities
in US
Utility Size and their Share of
Meter connections
Large 400
45%
Mid 4,000
35%
Small
45,000+
20%
Strong Market Position in North American Oligopoly; Significant Customer Diversity
© 2021 Badger Meter, Inc. | 10 |
CELLULAR COMMUNICATION VS. FIXED NETWORK
• Easy
• Flexible
• Resilient
• Savings
• Standard
LTE-M Cellular Communication Technology - Example of Innovation Leadership
© 2021 Badger Meter, Inc. | 11 |
SMART WATER ACCELERATION
The Business Case | The Solutions |
Why are utilities willing to pay more?
- Reduce non-revenue water (NRW)
- Mechanical meters lose some accuracy over time
- Leak detection
- Lower operating cost / improve efficiencies
- Move out reads / billings
- Flow shut-off/restriction technology - labor to turn off and on water services
- Encourage conservation
- Manage what you measure
- Leak avoidance / fix
How our leading technologies deliver
- Meters
- Static (E-series ultrasonic) holds accuracy over lifetime; commercial sizes
- Radio
- Safety- remote reads
- Data and analytics - more data, more often
- Cellular - infrastructure-free for utilities; enables efficiencies for remote flow restriction, move-outs, installation pacing
- Software
- Leak identification / detection
- EyeOnWater App for consumer awareness
Overall Served Available Market Value Continues to Trend Higher
© 2021 Badger Meter, Inc. | 12 |
UTILITY WATER-INTEGRATED SOLUTION OFFERING
Mechanical Meters 1 | Static Meters 1 |
Recordall® Disc | E-Series® Ultrasonic |
2 | 2 | |
Cellular | Fixed Network | |
Endpoint | Endpoint | |
2 | 2 | |
ORION® Network | ||
Cellular Network | 3 | |
Gateway Transceiver |
BEACON®
Cloud-Based
Solution
3 | 3 |
1
METERS
2
RADIOS
3
SOFTWARE
- Broadest product offering - both mechanical and static meters in both metal and polymer
- Next generation E-Series Ultrasonic Meter with D-Flow technology
- Complete line of connectivity solutions, including drive-by, fixed network and cellular radios
- Leading edge ORION Cellular radio, including LTE-M technology. Infrastructure free.
- BEACON AMA, (Advanced Metering Analytics) software suite -analytics tools, dashboards and integration with utility billing systems
- EyeOnWater® Consumer Application
Consumer Smart | Utility | |
Utility Co. | Client | |
Portal Phone | Computers |
© 2021 Badger Meter, Inc. | 13 |
GLOBAL MANUFACTURING AND INNOVATION
LULEA SWEDEN | ||||
BERN, | BRNO, CZECH REPUBLIC | |||
MILWAUKEE | MILWAUKEE - HQ | SWITERLAND | VIENNA AUSTRIA | |
| | |||
RACINE, WI | | VIENNA | ||
LOS GATOS, CA | COLLEGEVILLE PA | NUEFFEN, | ||
TULSA, OK | GERMANY | |||
NOGALES
MEXICO
-
Manufacturing Facilities Innovation / R&D Centers
Also operate four US distribution centers and a variety of global sales offices
© 2021 Badger Meter, Inc. | 14 |
FLOW MEASUREMENT METHODS
Badger Meter Offering
Positive Displacement
Turbine
Ultrasonic
Magnetic
Diff Pressure
Coriolis
Vortex
Variable Area
Thermal/Mass
Single/MultiJet
($ in billions)
- Badger Meter offers eight of the ten common flow technologies
- North American water meter market primarily uses nutating disc meters, a type of positive displacement technology
- Global water meter markets are starting to shift from mechanical to static meters, such as magnetic and ultrasonic
- Rest of world water meter market primarily uses single/multi-jet, turbine or piston (also positive displacement) meters
$0.0 | $0.5 | $1.0 | $1.5 | ||
Source: IHS Research and Company Estimates | Water | Flow | |||
© 2021 Badger Meter, Inc. | 15 | ||||
SMART WATER KEY GROWTH STRATEGIES
- Maintain leading position in the North American smart water market through continued development of leading-edge offerings
- Penetrate and grow select international markets (e.g. Middle East) with fit-for-market solutions
- Leverage addition of real-time water quality monitoring, and other system health parameters into actionable data to improve utility operations
- Augment software, including consumer engagement technology, for optimized customer solution
© 2021 Badger Meter, Inc. | 16 |
RADIO CONNECTIVITY - PENETRATION
CONVERSION TO CONTINUE
- Badger Meter was the first US company to offer radios on water meters (1988)
- Radio connectivity allows for automated metering and integration of real-time data with analytics software
- Radio connectivity reduces utility costs, improves billing accuracy, aids in leak detection and encourages conservation
- Approximately 60-65% of the U.S. market has been converted (per IHS) - every 1% additional conversion represents increased sales opportunity for Badger Meter
Installed base - meter units in millions
140
120
100
80
60
40
20
0
MANUAL READ | METERS WITH RADIOS |
$40-$50 price | $150-$250 price per |
per meter | system |
North American water meter market
projected conversion to radio connectivity
Low | Growing 1-2% | |
59% | per year | |
60's% | ||
2017 | 2020 | 2025+ | ||
Manual Read Meters | Meters with Connectivity | |||
Source: IHS Research, 2017
© 2021 Badger Meter, Inc. | 17 |
SMART CITY ALLIANCE
- One of 11 companies aligned with AT&T to drive initiatives
- Initiative includes
improving utilization of limited budget resources
- Efficient city operations
- Deployment of resources
• Service and delivery
- Smart water metering increases utility revenue and drives conservation and sustainability
© 2021 Badger Meter, Inc. | 18 |
FLOW INSTRUMENTATION KEY GROWTH STRATEGIES
- Expand niche share by targeting water-related applications, predominately
- Building Automation/HVAC/Sustainability
- Water and Wastewater treatment and distribution
- Leverage addition of real-time water quality monitoring for industrial process and discharge water
- Penetrate international markets where both smart water and industrial applications exist
© 2021 Badger Meter, Inc. | 19 |
STRATEGIC ACQUISITIONS
- Technology solutions that can be leveraged across both utility and flow instrumentation markets
- Water quality monitoring
- Leak detection, conservation
- Software enhancements - SaaS
- Utility operations
- Consumer portals
- Smart City / Internet of Things
- International penetration
Potential | Criteria | |||||
Steps in Process | Acquisition Targets | |||||
Ideation List of Potential Targets | • | Companies | ||||
previously tracked | ||||||
• | Water quality monitoring | • | New targets added | |||
• | Sensors / Instruments | 175+ | as a result of | |||
• | Software, AI and analytics | strategic review | ||||
• | Geographic expansion | • | Searches among | |||
trade groups and | ||||||
various databases |
• | Eliminate | |
Assess Size and | companies due to | |
~75 | size, ownership, | |
Ownership | ||
and unattractive | ||
business | ||
• | Apply strategic | |
Refined | In Process | considerations |
Assessment | and assess | |
specific | ||
attributes | ||
Opportunities | ||
• | Opportunities for | |
In Process | further review |
Disciplined Capital Allocation - accretive, growth synergies, leverage globally
© 2021 Badger Meter, Inc. | 20 |
ACQUISITION HISTORY
Year | Company | Type | Location | Price | |
Water Utility Instrumentation and Connectivity: | |||||
2021 | Analytical Technology, Inc | Water quality monitoring | USA / UK | $44M | |
2020 | s::can | Water quality monitoring | Vienna, Austria | $31M | |
2018 | Innovative Metering | Distributor | Tampa, FL | $8M | |
Solutions | |||||
2017 | Carolina Meter | Distributor | Wilmington, NC | $6M | |
2017 | D-Flow | Ultrasonic Technology/R&D | Lulea, Sweden | $23M | |
2015 | United Utilities | Distributor | Smyrna, TN | $3M | |
2014 | National Meter | Distributor | Denver, CO | $23M | |
2013 | Aquacue | Software/cellular technology/R&D | Los Gatos, CA | $14M | |
Flow and Industrial Instrumentation: | |||||
2012 | Racine Federated | Technology/Manufacturing | Racine, WI | $57M | |
2011 | Remag | Technology/Manufacturing | Bern, Switzerland | $5M | |
2010 | Cox Instruments | Technology/Manufacturing | Scottsdale, AZ | $8M | |
© 2021 Badger Meter, Inc. | 21 |
ANNUAL FINANCIAL TRENDS
(US$ in millions, except per share data)
2017 | 2018 | 2019 | 2020 | |
Sales | $402.4 | $433.7 | $424.6 | $425.5 |
Adj Oper Earnings | 56.6 | 59.4 | 62.2 | 65.2 |
14.1% | 13.7% | 14.6% | 15.3% | |
Adj EBITDA | 80.0 | 83.8 | 86.0 | 90.2 |
19.9% | 19.3% | 20.3% | 21.2% | |
Adj EPS | 1.19 | 1.54 | 1.61 | 1.69 |
Free Cash Flow | $34.7 | $51.7 | $73.2 | $80.5 |
FCF Conversion | 100% | 115% | 155% | 163% |
- Sales growth driven primarily by smart water solution penetration
- Radios and SaaS
- Margins driven predominately by favorable sales mix, volume and price/cost
- SEA expense control with leverage improvement
- Robust cash flow generation with working capital management; conversion above 100%
- Ample balance sheet flexibility
Note: Adjusted figures in 2018 which exclude pension termination settlement and executive retirement charges.
See Annual Report for GAAP to Non-GAAP reconciliations.
© 2021 Badger Meter, Inc. | 22 |
GAAP TO NON-GAAP RECONCILIATIONS | |
EBITDA | Free Cash Flow |
(US$ in millions) | (US$ in millions) | |||||||
Q4 2020 | Q4 2019 | 2020 | 2019 | Q4 2020 | Q4 2019 | |||
Net Earnings (GAAP) | $13.1 | $12.3 | $49.3 | $47.2 | Cash from Ops (GAAP) | $15.9 | $19.6 | |
Interest expense | 0.0 | 0.0 | 0.0 | 0.2 | Capital Expenditures | (3.2) | (1.9) | |
Income tax provision | 3.8 | 3.9 | 15.6 | 14.4 | Free Cash Flow | $12.7 | $17.7 | |
Depreciation | 3.1 | 2.9 | 12.3 | 11.6 | ||||
Amortization | 3.2 | 3.2 | 13.0 | 12.6 | 2020 | 2019 | ||
EBITDA | $23.2 | $22.3 | $90.2 | $86.0 | Cash from Ops (GAAP) | $89.6 | $80.7 | |
Capital Expenditures | (9.1) | (7.5) | ||||||
Free Cash Flow | $80.5 | $73.2 | ||||||
Net Earnings (GAAP) | $49.3 | $47.2 | ||||||
FCF Conversion | 163% | 155% | ||||||
© 2021 Badger Meter, Inc. | 23 |
Attachments
- Original document
- Permalink
Disclaimer
Badger Meter Inc. published this content on 29 January 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 January 2021 15:43:01 UTC.