Q4 2021 Badger Meter Inc Earnings Call
Ladies and gentlemen, welcome to the fourth boards, that's when she spends you want my journey.
Speaker 1: Jason Jenseman, welcome to the fourth quarter 2021.
Speaker 1: My name is Gemma and I'll be the operator for today's call. If you'd like to register a question for the Q&A session, please press star for the by one.
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That was Investor relations corporate strategy and Treasurer. Please go ahead Ms Bauer. Thank you.
Speaker 1: of investor relations, corporate statutory and treasurer. Please go ahead, Miss Bauer. Thank you.
Good morning, and thank you for joining the Badger meter fourth quarter and full year 2021 earnings conference call on the call with me today are Ken bought of course, Chairman, President and Chief Executive Officer, and Bob Rockledge, Chief Financial Officer, the earnings release and related slide presentation are available on our website.
Speaker 2: Good morning, and thank you for joining the Badger Meter fourth quarter and full year 2021 earnings conference call. On the call with me today are Ken Bacchors, Chairman, President and Chief Executive Officer, and Bob Rockledge Chief Financial Officer.
Speaker 2: The earnings release and related slide presentation are available on our web.
Quickly I will cover the safe Harbor reminding you that any forward looking statements made during this call are subject to various risks and uncertainties. The most important of which are outlined in our press release and our SEC filings.
Speaker 2: Quickly, I'll cover the safe harbor, reminding you that any forward-looking statements made during this call are subject to various risks and uncertainties. The most important of which are outlined in our press release in SEC violence.
On today's call, we will refer to certain non-GAAP financial metrics, our earnings slides provide a reconciliation of the GAAP to non-GAAP financial metrics used finally during this call we will refer to core results for various financial metrics. For example, core utility water sales core means the designee.
Speaker 2: On today's call, we will refer to certain non-GAAP financial metrics. Our earning slides provide a reconciliation of the GAAP to non-GAAP financial metrics use.
Speaker 2: Finally, during this call, we will refer to core results for various financial metrics. For example, core utility water sales. Core means the designated financial metric excluding the year over year impact of the Uscan and ATI acquisitions. We believe this reference point is important for year over year comparability. With that, I'll turn the call over to Kent.
He did financial metric, excluding the year over year impact of the Afghan and a T. I acquisitions. We believe this reference point is important for year over year comparability with that I'll turn the call over to Ken.
Thanks, Karen and thank you for joining our fourth quarter earnings call. Our strong fourth quarter results capped off a record year for badger meter with sales surpassing $500 million for the first time in our history.
Speaker 3: Thanks, Karen, and thank you for joining our fourth quarter earnings call. Our strong fourth quarter results capped off a record year for Badger Meter with sales surpassing $500 million for the first time in our year.
We executed well on many fronts this past year, including successfully integrating two highly complementary water quality acquisitions.
Speaker 3: We executed well on many fronts this past year, including successfully integrating two highly complementary water quality acquisitions, a definitely managing ever changing supply chain challenges and the lingering impacts of the pandemic, and implementing value-based pricing and other actions to offset inflationary pressure.
Definitely managing ever changing supply chain challenges and the lingering impacts of the pandemic and implementing value based pricing and other actions to offset inflationary pressures I want to thank the badger meter team globally for their tremendous execution and focus on the customer.
Speaker 3: I want to thank the Badger Meter team globally for their tremendous execution and focus on the cuss.
I'll recap the year and talk about the current environment and our market outlook later in the call, but for now let me turn the call over to Bob to go through the details of the quarter.
Speaker 3: I'll recap the year and talk about the current environment in our market outlook later in the call. But for now, let me turn the call over to Bob to go through the details of the quarter.
Thanks, Ken and good morning, everyone.
Turning to slide four our total sales for the fourth quarter were $135 7 million, an increase of 28% over the $112 3 million in the same period last year.
Speaker 4: Turning to slide four are total sales for the fourth quarter, where $135.7 million. An increase of 20.8% over the 112.3 million in the same period last year.
Total utility water product line sales increased 23, 4%.
Speaker 4: Total utility water product buying sales increased 23.4%.
Acquisition related water quality sales totaled $11 1 million in the quarter compared to $2 4 million last year, which included only two months of Essakane results. As a reminder, as we move into 2022, we will anniversary the acquisitions in our reporting of results.
Speaker 4: Acquisition-related water quality sales totaled 11.1 million in the quarter, compared to 2.4 million last year, which included only two months of S-Can result.
Speaker 4: As a reminder, as we move into 2022, we will anniversary the acquisitions in our reporting of results.
Speaker 4: Including the year-over-year benefit of the water quality acquisitions, core utility water revenues increased 14.4 percent as continued strong order demand and recovering production output was modestly offset by intermittent supply chain disruptions that continued to restrict backlog converts.
Excluding the year over year benefit of the water quality acquisitions core utility water revenues increased 14, 4% as continued strong order demand and recovering production output was modestly offset by intermittent supply chain disruptions that continued to restrict backlog conversion.
Speaker 4: We experience growth in cellular radio and beacon software as a service fails. And we continue to realize the benefit from strategic and value-based pricing acts.
We experienced growth in cellular radio and Beacon software as a service sales and we continue to realize the benefit from strategic and value based pricing actions.
Strong order momentum continued in the fourth quarter of 2021, and we exited the year with yet another record high core backlog.
Speaker 4: Strong order of momentum continued in the fourth quarter of 2021, and we exited the year with yet another record high core backlog.
Sales for the flow instrumentation product line increased eight 9% year over year as steady demand trends across the majority of global end markets and applications was partially offset by supply constraints, which limited production.
Speaker 4: Sales for the flow instrumentation product line increased 8.9% year over year. As steady demand trends across the majority of global end markets and applications was partially offset by supply constraints which limited production.
We were very pleased with the margin performance in the quarter in light of widespread inflation and the dynamic supply chain impact on our manufacturing operations.
Speaker 4: We were very pleased with the margin performance in the quarter in light of widespread inflation and the dynamic supply chain impact on our manufacturing operation.
Starting with gross margins, we increased we increased gross margin dollars by $10 $8 million year over year as.
Speaker 4: Starting with Gross margins, we increased Gross margin dollars by $10.8 million a year over year.
As a percent of sales gross margins improved 120 basis points to 44% from 39, 2% margins benefited from favorable acquisition mix as well as the higher volumes and positive product sales mix, namely higher radio and SaaS revenues.
Speaker 4: As a percent of sales, gross margins improved 120 basis points to 40.4% from 39.2%.
Speaker 4: Margin's benefited from favorable acquisition mix, as well as the higher volumes and positive product sales mix, namely higher radio and SaaS Revenants.
In addition, the prior year included a nonrecurring discrete network sunset provision.
Speaker 4: In addition, the prior year included a non-recurring discrete network sunset provision.
These factors combined more than offset the cost headwinds experienced across purchase components, including bras and electronics as well as increased freight and logistics costs year over year.
Speaker 4: These factors combined more than offset the cost headwinds experienced across purchase components, including brass and electronics, as well as increased freight and logistics costs year over year.
Looking forward, we anticipate continued inflation in 2022 that may constrain margins with some comparative easing as the year progresses, and as 2021 cost increases become anniversaried.
Speaker 4: Looking forward, we anticipate continued inflation in 2022 that may constrain margins with some comparative easing as the year progresses and as 2021 cost increases become anniversary.
SCA expenses in the fourth quarter were $32 million generally consistent with the quarterly absolute dollar spend throughout 2021.
Speaker 4: SEA expenses in the fourth quarter were $32 million, generally consistent with the quarterly absolute dollar spend throughout 2021.
As a percent of sales FCA was 23, 6% in the quarter, a 50 basis point improvement year over year, and a 110 basis point improvement sequentially due to the higher sales.
Speaker 4: As a percent of sales, SEA was 23.6% in the quarter, a 50 basis point improvement year over year, and a 110 basis point improvement sequentially, due to the higher sales.
We expect SBA spend in 2022 to increase as a result of inflation variable compensation and ongoing growth investments yet we continue to endeavor to improve SBA leverage as a percent of sales.
Speaker 4: We expect S.E.A. spend in 2022 to increase as a result of inflation, variable compensation, and ongoing growth investments. Yet we continue to endeavor to improve S.E.A. leverage as a percent of sales.
As a result of the above overall operating profit margin was 16, 8%, a 170 basis point improvement compared to 15, 1% in the prior year quarter.
Speaker 4: As a result of the above, overall operating profit margin was 16.8%, a 170 basis point improvement compared to 15.1% in the prior year quarter.
The income tax provision in the fourth quarter of 2021 was 24, 5% an increase over the prior year's 22, 6% and within our normalized rate in the mid 20% range.
Speaker 4: The income tax provision in the fourth quarter of 2021 was 24.5%, an increase over the prior years 22.6% and within our normalized rate in the mid 20% range.
In summary, EPS was <unk> 59 in the fourth quarter of 2021, an increase of 31% from the prior year's EPS of <unk> 45.
Speaker 4: In summary, EPS was 59 cents in the fourth quarter of 2021, an increase of 31 percent from the prior year's EPS of 45 cents.
Working capital as a percent of sales was 24, 5% a decrease of 110 basis points compared to the prior quarter and as expected. The temporary elevation in primary working capital we experienced last quarter did return to more normalized levels as we finished out the year.
Speaker 4: Working capital as a percent of sales was 24.5%, a decrease of 110 basis points compared to the prior quarter end. As expected, the temporary elevation in primary working capital we experienced last quarter did return to more normalized levels as we finished out the year.
Free cash flow of $26 2 million was higher than the prior year's $12 $7 million. The result of higher earnings and working capital recovery between years for the full year free cash flow was $80 8 million and free cash flow conversion of net earnings was 133%.
Speaker 4: Free cash flow of $26.2 million was higher than the prior year's $12.7 million, the result of higher earnings and working capital recovery between years.
Speaker 4: For the full year, free cash flow was $80.8 million, and free cash flow conversion of net earnings was 133 percent.
While moderated from the US unsustainably high levels of the past two years, which reflect the structural benefit of low hanging fruit efforts in the areas of primary working capital. This conversion rate exceeds our annual target of greater than 100% free cash flow conversion.
Speaker 4: While moderated from the unsustainably high levels of the past two years, which reflect the structural benefit of low-hanging fruit efforts in the areas of primary working capital, this conversion rate exceeds our annual target of greater than 100% free cash flow conversion. With that, I'll turn the call back over to you.
With that I'll turn the call back over to Ken.
Thanks, Bob turning to slide five I wanted to provide a year one assessment of our water quality acquisition integration efforts in short I am extremely pleased with our progress to date.
Speaker 3: Thanks, Bob. Turning to slide five, I wanted to provide a year one assessment of our water quality acquisition integration efforts. In short, I'm extremely pleased with our progress.
As a reminder, the strategic rationale for these tuck in acquisitions was to add real time water quality parameters to badger meters core flow measurement pressure and temperature sensing capabilities and to enhance the scope of actionable data for utilities to improve operating efficiency and resiliency and for industrial customers to monitor both process and discharge.
Speaker 3: As a reminder, the strategic rationale for these tuck-in acquisitions was to add real-time water quality parameters to BadgerMeter's core flow measurement, pressure, and temperature sensing capabilities.
Speaker 3: and to enhance the scope of actionable data for utilities to improve operating efficiency and resiliency, and for industrial customers to monitor both process and discharge water.
<unk> water.
From a financial performance standpoint at acquisition. The combined acquired annual sales of Essakane and API were approximately $37 million with EBITDA margins in the mid teens we.
Speaker 3: From a financial performance standpoint, at acquisition, the combined acquired annual sales of SCAN and ATI were approximately $37 million, with EBITDA margins in the mid-teens.
We finished 2021 with a combined $43 million in sales, representing a pro forma increase of 16%.
Speaker 3: We finish 2021 with a combined $43 million in sales, representing a pro forma increase of 16%.
EBITDA margins expanded modestly in working capital as a percent of sales improved.
Speaker 3: EBITDA margins expanded modestly and working capital as a percent of sales improved.
Most importantly from an integration standpoint customer discussions confirm the growing need and acceptance of online low maintenance and reagent free solutions for real time water quality monitoring.
Speaker 3: Most importantly, from an integration standpoint, customer discussions confirm the growing need and acceptance of online low maintenance and reagent-free solutions for real-time water quality monitoring.
These distributed solutions will be transformational for utilities' wastewater and industrial customers.
Speaker 3: These distributed solutions will be transformational for utilities, wastewater, and industrial customers.
We're executing on multiple avenues to drive growth synergies for example, optimizing the complementary product offerings at both the electrochemical and optical sensors across water quality parameters levered.
Speaker 3: We're executing on multiple avenues to drive growth synergies, for example, optimizing the complementary product offerings of both electrochemical and optical sensors across water quality parameters.
Speaker 3: leveraging geographic strengths. For example, the ATI relationships with UK water utilities.
Leveraging geographic strengths for example, the ATI relationships with UK water utilities.
We've cross trained and educated sales personnel to effectively sell throughout the water ecosystem, including water utilities' wastewater treatment and industrial water applications.
Speaker 3: cross-trained and educated sales personnel to effectively sell throughout the water ecosystem, including water utilities, wastewater treatment, and industrial water applications.
We're actively working to advance our radio communications to capture the additional data parameters and augmenting our beacon and I on water solutions to provide the digital holistic view of the water network.
Speaker 3: We're actively working to advance our radio communications to capture the additional data parameters and augmenting our beacon and ion water solutions to provide the digital, holistic view of the water network.
I am thrilled with the quality and collaboration of the Essakane and ATI teams, who share our values commitment to innovation and passion for sustainability.
Speaker 3: We're thrilled with the quality and collaboration of the S-Can and ATI teams who share our values, commitment to innovation and passion for sustainability.
Creating a tailorable scalable digital solutions will take time and investment, but we're well positioned to realize the long term growth synergies we anticipated.
In summary here on slide six our performance through the pandemic in 2020 and widespread supply and inflationary challenges in 2021 demonstrates the resilience of our business model and our global team.
Speaker 3: In summary, here on slide 6, our performance through the pandemic in 2020 and widespread supply and inflationary challenges in 2021 demonstrates the resilience of our business model and our global
We delivered core utility water revenue growth of 9000, and 2021 building on the 4% growth in 2020, we.
Speaker 3: We delivered core utility water revenue growth of 9,000 in 2021, building on the 4% growth in 2020.
We further expanded our SaaS revenue as a percent of consolidated sales to over 5%, even with a significant increase in instrument sales.
Speaker 3: We further expanded our SAS revenue as a percent of consolidated sales to over 5%, even with a significant increase in instrument sales.
Our strong execution served to build on our track record of improved margins and cash flow.
Speaker 3: Our strong execution served to build on our track record of improved margins and cash
Speaker 3: And as I just discussed, we successfully executed and integrated two strategic acquisitions.
And as I, just discussed we successfully executed and integrated two strategic acquisitions.
As we begin fiscal 2022, we're optimistic about our opportunities for growth strong order momentum continued throughout the fourth quarter and even with recovering production levels. Our backlog again reached another record high which bodes well for our expectations moving forward.
Speaker 3: As we begin fiscal 2022, we're optimistic about our opportunities for growth. Strong order momentum continued throughout the fourth quarter, and even with recovering production levels, our backlog again reached another record high, which bodes well for our expectations moving forward.
As always we could experience variability in the cadence of sales throughout the year.
Speaker 3: As always, we could experience variability in the cadence of sales throughout the year.
Our robust order activity is evidence of our strong execution and the structural underlying demand for digital water solutions to monitor manage and support operational efficiencies and sustainability throughout the water distribution system.
Speaker 3: A robust order activity is evidence of our strong execution in the structural underlying demand for digital water solutions to monitor, manage, and support operational efficiencies and sustainability throughout the water distribution system.
We're uniquely positioned with a full line of smartwater offerings, including market, leading cellular communications and software.
Speaker 3: We're uniquely positioned with a full line of smart water offerings, including market-leading cellular communications and software. In addition, despite the array of macro challenges, we are winning through innovation and exceptional support of our customers.
In addition, despite the array of macro challenges, we are winning through innovation and exceptional support of our customers.
We do anticipate that shortages will persist for a variety of components and that we will continue to see inflationary cost pressures as well as lingering effects from the pandemic.
Speaker 3: We do anticipate that shortages will persist for a variety of components and that we will continue to see inflationary cost pressures as well as lingering effects from the pandemic.
While we worked to mitigate the impact of these near term challenges our priorities will be focused on executing our growth strategies and delivering value for shareholders.
Speaker 3: While we work to mitigate the impact of these near-term challenges, our priorities will be focused on executing our growth strategies and delivering value for shareholders.
We were proud to be named for the first time as one of Newsweek's most responsible companies.
Speaker 3: We were proud to be named for the first time as one of Newsweek's most responsible companies. In 2022, we will release our biennial sustainability report covering 2020 and 2021 activities, highlighting our progress across the most material ESG risks and opportunities, including employee engagement, safety, reducing greenhouse gas emissions, fostering our culture of inclusion, and of course, promoting water conservation and quality.
In 2022, we will release, our biennial sustainability report covering 2020, and 21 activities highlighting our progress across the most material ESG risks and opportunities, including employee engagement safety, reducing greenhouse gas emissions fostering a culture of inclusion and of course promoting water conservation.
<unk> and quality.
To close out our prepared remarks, I want to again recognize our team for their commitment to serving customers and for working to preserve and protect the world's most precious resource with that operator. Please open the line for questions.
Speaker 3: To close out our prepared remarks, I want to again recognize our team for their commitment to serving customers and for working to preserve and protect the world's most precious resource. With that, Operator, please
Thank you very much.
Speaker 1: Thank you very much. If you'd like to ask a question, please press star followed by one in a telephone keypad. And if you change your mind, please press star followed by two
I'll ask a question. Please press star followed by one year.
And if you change your mind, Please press star followed by Chase.
Our first question on the line comes from Andrew Buscaglia of Devon by capital market.
Speaker 1: Our first question on the line comes in from Andrew Beskærlja of Berrenberg Capital Market. Andrew, your line is open. Please go ahead with your question. Thank you very much.
Your line is open. Please go ahead with your question. Thank you very much.
Good morning, guys.
Speaker 5: Morning, guys. So you put together a pretty good year-end quarter, especially around margins.
You put together a pretty good year.
Year end quarter, especially around margins.
And.
Speaker 5: And, you know, you presumably may have been through the worst.
You, presumably it may have been through the worst.
I'm curious what your thoughts are on.
Speaker 5: Curious what your thoughts are on that comment, if things have gotten worse since Q3 for you guys. I'm clearly here navigating it.
On that comment if things have gotten worse in Q3 for you guys I'm failure.
We're getting it well but.
With your visibility into next year at this point with record backlog.
Speaker 5: You know, with your visibility into next year at this point with record backlog, how do you see those margins evolving? Because if you're out through the worst and you guys are clearly handling them, oh, this is why two challenges in place and very well, then you must have some confidence that the gross margin levels are sustainable from here at these higher levels.
Do you see those margins evolving because it's.
If you are through the worst thing you guys are clearly handling them. All this budget challenges inflation very well then.
You must have some confidence that.
These gross margin levels are sustainable from here at these higher levels.
Hey, Andrew This is Ken yes, yes. Thanks for thanks for the question, Yes, obviously, we're really proud of how the quarter and the year turned out both from a growth and a margin point of view.
Speaker 3: Andrew, this is Ken. Yeah, thanks for the question. Yeah, we're obviously we're really proud of how the quarter and the year turned out, both from a growth and a margin point of view. Clearly the inflationary environment has been difficult and it continues to be somewhat uncertain, but what we are confident.
Clearly the inflationary environment has been difficult and it continues to be somewhat uncertain, but what we are confident in.
Is that the solutions that we're providing to our customers are valued by them.
Speaker 3: that the solutions that we're providing to our customers are valued by them.
And we have a great process in place to continue to manage throughout.
Speaker 3: and we have a great process in place to continue to manage throughout.
This this period with what we view as really strong performance in terms of how we see that playing out and I'll, let Bob talk about.
Speaker 3: period with what we view as really strong performance. In terms of how we see that playing out, I'll let Bob talk about.
What he thinks from an inflationary point of view, but extremely confident that we'll be able to continue to monitor.
Speaker 3: you know, what he thinks from an inflationary point of view, but extremely confident that we'll be able to continue to monitor or perform very well regardless of what
<unk> performed very well regardless of what comes.
Yeah, Andrew I think the only thing I'd add to that.
Speaker 4: Andrew, I think the only thing I'd add to that, you know, clearly 2021 was a tale of two halves as it relates to price cost dynamics. Clearly, we started the first part of the year with more favorable.
Clearly 2021 was a tale of two halves as it relates to price cost dynamics clearly we started the first part of the year with more favorable price cost.
Dynamics as we implemented some value based pricing actions in late <unk>.
Speaker 4: dynamics as we had implemented some value-based pricing actions in late 2020, arriving into 2020.
2020 rising into 2021 copper at the same time, we are still rising in the first half of 2021, and albeit capped out sort of mid year and stayed relatively steady thereafter.
Speaker 4: Copper at the same time was still rising in the first half of 2021 and albeit capped out sort of mid-year and stayed relatively steady thereafter. I would just say our price cost dynamics became more neutral to negative in the back half of the year. And I think when you contemplate that record backlog, while we've made pricing actions here in the very recent past, actually in the fourth quarter, we implemented a list price increase, which will take some time.
I would just say our price cost dynamics became more neutral to negative in the back half of the year and I think when you contemplate that record backlog.
While we've made pricing actions here in the very recent past actually in the fourth quarter, we implemented a list price increase which will take some time.
Speaker 4: to work its way into the P&L. We do have this elevated backlog that, you know, still is not subject to those price increases. And so there's a bit of needing to lap that and needing to lap the cost increases in 2021. That will impact sort of the year over year.
To work its way into the P&L.
We do have this elevated backlog that still is not subject to those price increases and so theres a bit of needing to lap that and needing to lap the cost increases in 2021.
It will impact sort of a year over year comparisons.
Speaker 4: You know, we've talked historically in the past about a tightening of our gross margin performance from historically 36 to 40% than a tighter band to 38 to 40. I think we're more comfortable with a even tighter band than that. I think the hesitation of migrating that figure north is just those current short-term items that I just discussed.
We've talked historically in the past about a tightening of our gross margin performance from historically, 36% to 40% then a tighter band of 38% to 40, I think we're more comfortable with even tighter band than that I think the hesitation of migrating that figure North is just those current short term items that I just discussed.
Okay very helpful.
Speaker 5: Okay, very helpful. And another question I have, specifically on water utility, sales side, really impressive organic growth there, this quarter and for the year in general. You know, and if you're heading into the year with some record backlog, so how do we think about...
Another question I have.
Specifically on the water utility sales side.
Really impressive organic growth there this quarter and for the year in general.
And if youre heading into the into the year with some record backlog so how.
How do we think about.
Concerns around this sort of a pull forward grab.
Speaker 5: you know, the concerns around, was this sort of a pulse forward grab? And this is sort of like a, maybe you got over earned for a period of time and then things are gonna re-burks in the mean, or in that record backlog, do you?
And this is sort of like maybe <unk>, maybe you got over earned for a period of time and things are going to revert to the mean or you know.
In that record backlog do you is.
Speaker 5: Because there's something that gives you confidence. You can grow it higher than historical growth rate before the foreseeable future.
Is there something that gives you confidence you can grow at a higher than historical growth rate maybe for the foreseeable future.
Yeah, So so first off.
Speaker 3: Yeah, so first off, you know, as we think about the macro drivers for the utility space and particularly AMI, digital solutions, the macro drivers were strong going into COVID. And in 2020, we drew the utility sales for-
As we think about the macro drivers for the utility space and particularly <unk> digital solutions. The macro drivers were strong going into Covid and in 2020, we drew the grew the utility sales 4%. This year. We grew sales 9% could have been more without some of the supply.
Speaker 3: This year we grew sales 9%, could have been more without some of the supply chain dining.
Dynamics, and we absolutely feel confident that the <unk>.
Speaker 3: And we absolutely feel confident that those macro drivers, now with aging or frankly even very difficult or non-existent workforce is even a stronger driver now than it was before, aging infrastructure didn't get any younger, so that's still an issue, replacement business. So we feel very confident about the direction of the market and our position to capture at least our fair share of a really strong market.
Macro drivers now with aging or frankly, even very difficult or nonexistent workforces as even a stronger driver now than it was before aging infrastructure didn't get any younger so that's still an issue replacement business. So we feel very confident about the direction of the market and are positioned to capture at least.
Our fair share of a really strong market.
Thank you.
The next question on the line comes from Nathan Jones of Stifel. Nathan. Your line is open. Please go ahead.
Speaker 1: The next question on the line comes from Nathan Jones of Steve Foll. Nathan, your line is open. Please go ahead.
Good morning, everyone.
Good morning Nathan.
I wanted to just start I'll take the question on the backlog.
Speaker 6: I wanted to just start off with the question on the backlog.
Yes, you guys have been historically reported backlog I know you have been reporting it because.
Speaker 6: You guys haven't historically reported backlog, and you've been reporting it because it's elevated due to the supply chain challenge.
It is elevated due to the supply chain challenges.
Speaker 6: What is your current view for the time frame for you to be able to work that backlog back down to a more normal level? Like other supply chain challenges likely to continue to see that backlog build. Do you think that you're at a position now where you know either you've learned to deal with it well enough that it can stay flat or you can begin to start working it down? Just how you're thinking about getting that back into a more normalised level.
What is your current view for the timeframe for you to be able to work that backlog back down to a more normal level.
The supply chain challenges likely to continue to see that backlog build.
Think that Youre in a position now where you would you like to deal with it well enough that it can stay flat or you can begin to start working it down just to how youre thinking about getting that back into a more normalized level.
Yes.
Speaker 3: Yeah, it's interesting. As you pointed out, we haven't talked about it before. And frankly, I didn't expect to be talking about it still, but we just still find it relevant to point it out. We won't always talk about backlog.
Yes, it's interesting.
As you pointed out we haven't talked about it before and frankly I didn't expect to be talking about it still but we still find it relevant to pointed out we won't always talk about backlog.
But it's got a long tail on it our customers were working very closely with them on making sure that we're filling all the most important demands there may be some aspect of pull forward to Andrew's question before but that really isn't the main driver in the backlog being elevated.
Speaker 3: But it's got a long tail on it. Our customers were working very closely with them on making sure that we're filling all the most important demands. There may be some aspect of pull forward to Andrew's question before, but that really isn't the main driver in the backlog being elevated. But I expect that it will be elevated for quite some time. We'll manage through it effectively, but.
But I expect that it will be elevated for quite some time will.
We will manage through it effectively but.
Speaker 3: This isn't going to be a situation where we're back to a normalized backlog in Q1 or 2 or maybe even 3.
This isn't going to be a situation, where we're back to a normalized backlog in Q1 or two or maybe even three.
But we won't talk about it forever because at some point.
Speaker 3: But we won't talk about it forever because at some point, the way that we see supply playing out this year is, there's still going to be challenges in the first half of the year. We're certainly better off today than we were six months ago. But the first half of the year, we view will be more challenging than the second half. So probably see more recovery in the second half.
Supply.
That we see supply playing out this year is there still going to be challenges in the first half of the year, we're certainly better off today than we were six months ago.
But the first half of the year, we view will be more challenging than the second half so probably see more recovery in the second half of the year than the first.
Okay. That's helpful. Thanks, The second one I wanted to go on we've got balance.
Speaker 6: That's helpful, thanks. The second one I wanted to go on was balance sheet capital deployment. You know, you've got 87 million in cash, no debt. You could probably comfortably deflow 250 million in capital today and cash generated after dividends, about $50 million annually. Can you just talk about the plans to put that capital to work to generate value for shareholders and what the most likely outlets to get a reasonable amount of leverage on the balance?
Balance sheet capital deployment.
$87 million of cash no debt.
Probably comfortably deploy $250 million of capital today.
And cash generated off the dividend about $50 million annually.
Can you just talk about the plans to put that capital to work to generate value for shareholders and what what.
The most likely outlets.
Did you get a reasonable amount of leverage on the balance sheet.
Yeah sure. So so our capital allocation priorities will remain the same so first is continuing to invest in in our core R&D services, including software I talked during the prepared remarks about continuing to invest in software initiatives to bring more water quality parameters.
Speaker 3: Yeah, sure. So our capital allocation priorities will remain the same. So first is continuing to invest in our core R&D services, including software. You know, I talked during the prepared remarks.
Speaker 3: about continuing to invest in software initiatives to bring more water quality parameters and more use cases to our utilities and their end users.
And more use cases to our utilities and their end users.
Speaker 3: investing in new product development. So that's still number one. Number two, we've increased dividends now for 29 consecutive years, and we fully expect to continue to increase dividends annually. And then the third one is to do more acquisitions like S, Canon, and ATI.
Investing in new product development, so that that's still number one number two we've increased dividends now for 29 consecutive years and we fully expect to continue to increase dividends annually and then the third one is to do more acquisitions like Essakane and ATI.
We are definitely looking.
Speaker 3: We are definitely looking constantly for strategic, tuck-in technology deals. The further advance are our strategies around being smart means.
Constantly for strategic tuck in technology deals that further advance our our strategies around being smart metering water quality and software so.
Speaker 3: water quality and software. So we have a very interesting funnel of targets that we're always looking at. We just have a very disciplined approach to doing it.
We haven't we have a very interesting funnel of targets that we're always looking at and we just have a very disciplined approach to doing it. So thrilled about the capacity that we've now built and expecting the bind more quality companies like ATI ATI and essakane in the future.
Speaker 3: thrilled about the capacity that we've now built and expecting to find more quality companies like ATINists.
Are there enough out there to do that I mean internal investments in new product development need great dividends.
Speaker 6: Are there enough out there to do that? I mean, internally investments in your product development and increasing the dividends is not going to be sufficient to put capital to work to the level that you have available on the balance sheet. And you would have to do quite a fair number of S-Canon, ATI kind of invests.
To be sufficient to put capital to work to the level that you have available on the balance sheet.
And you would have to do quite a fair number of Essakane and <unk>.
I kind of investments.
Speaker 6: to move that capital off the balance sheet and put it to work for shareholders. Are there enough out there for you to do on that front?
<unk> moved.
Move that capital off the balance sheet and put it to what shareholders are there enough out there for you to do on that front.
It sounds like you're implying that we've created a first class problem. So yes, that's a very high class problem.
Speaker 3: Sounds like you're implying that we've created the first class problem. So yeah, that's very... It's a very high-class problem.
Speaker 3: Yeah, so there's definitely a lot of targets out there. There's a lot of things that we're working at, but you accurately point out a challenge that we do see. There's not an over abundance of targets available, but we continue to work diligently and we feel confident in our ability to do this, maybe not at the pace that some would expect, but we have a discipline process we follow and we'll be successful when we do it. there's lots of Beer. green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green.OOM. Green. Green. Green. Green. Green. Green. Green Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green life. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green. Green
Yes, so so there's definitely a lot of targets out there theres a lot of things that we're working on it but you are.
Accurately point out a challenge that we do see there's not an overabundance of of targets available but.
But we continue to work diligently and we feel confident in our ability to do this maybe not at the pace that.
That some would expect but but we have a disciplined process, we follow and we will be successful when we do it.
Okay. Thanks for taking my questions guys.
Sure.
Well Nathan from that you have the next question. Please go ahead with your question.
Speaker 1: For Abnaissance from Bed, you have the next question. Please go ahead to your question.
Yes.
Hi, Yes, good morning, and thank you.
Speaker 7: Yes, good morning and I finished her the year.
Finish through the year.
Ken.
Speaker 7: Can a question regarding a comment you made in your press release, you talked about, just speaking about the industry, you talked about customer requirements to enhance operational efficiency, security, and awareness. And I'm just curious, over the last year, has there been anything that has changed on the requirements side?
Question regarding a comment you made in your press release.
You talked about just speaking about the industry, you talked about customer requirements to enhance operational efficiency security and awareness.
And I'm just curious over the last year has there been anything that has changed on the requirement side.
Hesitant to say mandate, but there were some security events we've seen.
Speaker 7: has been to say mandate but you know there were some security events we've seen uh... i'm just curious if there's anything that's evolved over the last twelve months that you point to
I'm just curious if theres anything thats evolved over the last 12 months that you can point to.
Oh, that's right.
I would say nothing has evolved from a regulatory point of view, but just from a practicality point of view from an efficiency point fewer labors and.
Speaker 3: I would say nothing is evolved from a regulatory point of view, but just from a practicality point of view, from an efficiency point, fewer laborers, and employees are costing more than they did before, so that's only pronounced in terms of cybersecurity and awareness.
And employees are costing more than they did before so that's only pronounced in terms of cyber security and awareness.
Can't.
Speaker 3: can't read any story online without hearing people being concerned about that and the water industry. So definitely a growing drum beat of interest in some of these other digital aspects of the business that makes us so excited about our software offering and what we can continue to build to fill those gaps because they certainly are trends that are going to pick up.
Read any story online without hearing people being concerned about that and the water industry. So definitely a growing drumbeat of interest in some of these other <unk>.
Digital aspects of the business that makes us so excited about our software offering and what we can continue to build to fill those gaps because they certainly are trends.
We're going to pick up steam.
I see okay.
Speaker 7: I see. Okay. Just also, you know, a question in referencing the
Just also.
Question and <unk>.
Referencing.
Fourth quarter performance revenue performance I know that you have.
Speaker 7: fourth quarter performance, revenue performance. I know that you have been downplaying the significance of seasonality in your business has become more muted over time.
Been downplaying the significance.
Seasonality in your business has become more muted over time.
Speaker 7: But I'm just curious if you think as you think about the supply chain as it is and your backlog is
But I'm just curious if you think as you think about the supply chain as it is in your backlog.
As the fourth quarter.
Speaker 7: The fourth quarter, is that a representative jumping off point as we go into 2022 in terms of what can be delivered? I'm not sure if there was anything unusual in there. You mentioned growth in radio, cellular radios and beacon. I didn't hear anything about mechanical meter growth, but just some thoughts there in terms of how we flow into 2022 off.
Is that a representative jumping off point as we go into 2022.
In terms of what can be delivered I'm not sure. If there was anything unusual in there you mentioned growth in re cellular radios and beacon I didn't hear anything about mechanical meter growth.
But just some thoughts there in terms of how we flow into.
2022.
The fourth quarter.
Yes, I would say I know theres been some historic perspective on seasonality as you mentioned, we've downplayed that over the last several several years. So I don't see market change quarter to quarter or Q3 to Q4 Q4 to Q1, so well I'll stop short of saying take Q4 and make that you're.
Speaker 4: Yeah, I would say I know there's been some historic perspective on seasonality. As you mentioned, we've downplayed that over the last several years. So I don't see market change, you know, quarter to quarter or Q3, Q4, Q4, Q1. So while I'll stop short of saying take Q4 and make that your number for Q1, I just I don't think there's a high degree of seasonality to count and play. There's no real outlier.
Number for Q1, I, just I don't think Theres, a high degree of seasonality to contemplate Theres no real outliers.
Yeah.
Is there.
Speaker 7: Is there, you talked about logistical challenges last quarter. Has those abated any?
Bob you talked about logistical challenges last quarter.
As those abated any.
Yes, so a lot of times when we get into these questions on relative feel of whether it would be supply chain or logistical concerns.
Speaker 4: Yeah, so a lot of times when we get into these questions on relative feel of whether they be supply chain or logistical concerns, it's a bit like the frog in the boiling water. So any answer we give you is going to be relative to recency bias. So finally, that's kind of alluded to some of the pressures we felt.
A bit like the frog in the boiling water. So any answer we give you is going to be relative to recency bias and so certainly as Ken alluded to some of the pressures we felt feel like they're they were easing in Q4, but that's relative to the peak and not necessarily relative to normal so while while easing sequentially, we're not back to normal nor do we expect.
Speaker 4: feel like they were easing in Q4, but that's relative to the peak, and not necessarily relative to normal. So while easing sequentially, we're not back to normal, nor do we expect either supply chain, whether that's component availability or logistics to be all of a sudden magically back to normal anytime soon in 2022. While we do think there's some easing of those pressures as the calendar progresses, they're not,
Either supply chain, whether that's component availability or logistics to be all of a sudden magically back to normal anytime soon in 2022, while we do think theres some easing of those pressures as the calendar progresses.
They're not going away anytime soon.
Sure Okay understood.
Speaker 8: Okay, understand. I'll pass it along. Thank you.
I'll pass it along thank you.
Our next question comes from Tate Sullivan of Maxim Group.
Your line is open. Please go ahead with your question.
Alright, Thank you all.
Speaker 5: Hi, thank you all. Is your focusing on the water quality monitoring details that you gave earlier in slide five? You mentioned some time and investment for the opportunity. Can you expand on that a little bit? Is it expanding the capacity, product introductions? You mentioned possibly for more acquisitions, but can you elaborate a bit farther?
Focusing on the water quality monitoring details that you gave earlier on slide five.
You mentioned some timing of investment for the opportunity can you can you expand on that a little bit is it expanding the capacity product introductions.
You mentioned, possibly for more acquisitions, but can you elaborate a bit further.
And so the investments are primarily twofold. So one is in aligning and training and getting synergies throughout the sales force, which we're well down well down the path on that and then the second piece is.
Speaker 3: So the investments are primarily twofold. So one is in aligning and training and getting synergy throughout the Salesforce, which we're well down the path on that. And then the second piece is bringing all of the...
Bringing all of the.
Excellent data that we get from the instrument sales in water quality up to 60 different water quality parameters.
Speaker 3: excellent data that we get from the the instrument sales and water quality up to 60 different water quality parameters.
Getting that investing in the ability to bring that through our cellular communications and back through software to further enhance the value for end users is where the primary investment is.
Speaker 3: Getting that, you know, investing in the ability to bring that through our cellular communications and back through software to further enhance the value for end users is where the primary investment is. We're working on that already, you know, sometimes in the water industry. As we've talked about many times, it moves somewhat slowly, but, you know, in our model, we're going to continue to build out software. And we'll see that play out over the next couple of years.
We're working on that already sometimes in the water industry as we've talked about many times.
It moves somewhat slowly but.
In our model, we're going to continue to build out software and we will see that play out over the next couple of years.
Related to that in the end.
Speaker 5: related to that and the water meter business is fair to say there will be more of a technology component to the water quality monitoring.
Water meter business is it fair to say there will be more of a technology component to the water quality monitoring business didn't water meters.
Yeah, absolutely I mean, the trend that we saw and why we were so excited about essakane and ATI in what continues to be reinforced is this.
Speaker 3: Yeah, absolutely. I mean, the trend that we saw, and why we were so excited about SKN and ATI, and what continues to be reinforced, is this on-demand real-time from anywhere information for water quality, which is really part of the AMI revolution in metering. So we feel like we got in at the right time with the right product offerings to really take advantage.
On demand real time from anywhere information for water quality, which is really part of the <unk> Revolution and metering. So we feel like we got in at the right time with the right product offerings to really take advantage of that.
And maybe it's unfair comparing to your water meter business, but is water the water quality opportunity more global at this point in the water meter business based on the different dynamics in the gas to different countries for the water meters. Okay.
Speaker 5: And maybe it's unfair comparing to your water meter business, but is water, the water quality opportunity more global at this point than the water meter business is on the different dynamics in the country, different countries for the water meter.
Well you know the thing about water quality and what's so great about it is everybody in the world is affected by it. So it certainly has tremendous global growth opportunities.
Speaker 3: well you know that the thing about water quality and what's so great about is everybody in the world is affected by it so it certainly has a tremendous global growth opportunities that if uh... if you recall when we bought a t i and ask and these are both companies
If you recall when we bought ATI and <unk>. These are both companies' proven technologies existed both of them for more than 20 years with an installed base of equipment and more than 50 countries. So, albeit small companies. They have a really wide reach that that has been really helpful. As I pointed out.
Speaker 3: proven technologies existed, both of them for more than 20 years, with an installed base of equipment in more than 50 countries.
Speaker 3: albeit small companies they they they have a really wide reach that uh... that has been really helpful as i pointed out already leveraging some relationships in the uk where badger meter hasn't necessarily been strong but eight i has tremendous um... loyal relationships with the utilities there so definitely uh... you know we were excited about our global growth opportunities for for both product lines but water quality for sure has uh... very well to have that intent click click click click and go down ahead create that totally increase connections, could more miserability occur if needed
Already leveraging some relationships in the UK, where badger meter hasnt necessarily been strong, but ATI has tremendous.
Loyal relationships with the utilities there so definitely.
We're excited about our global growth opportunities for both product lines, but water quality for sure has a great global opportunities.
Okay. Thank you.
Okay.
Okay.
As a reminder, if you would like to ask a question. Please press star followed by one in your telephone keypad.
Speaker 1: As a reminder, if you would like to ask a question, please press star followed by one in his phone error and redTV cover.
We currently have no further questions registered at this time, so I'll hand back over to the management team. Thank you.
Speaker 1: We currently have no further questions registered at this time, so I'll hand back over to the management team. Thanks.
Thank you all for joining our call today for your planning purposes, our first quarter 2022 call is tentatively scheduled for April 19th.
Speaker 2: Thank you all for joining our call today where your planning purposes are first quarter 2022 call is tentatively scheduled for April 9th.
I'll be around all day to take any follow up questions you might have have a great day and a great weekend.
Speaker 2: I'll be around all day to take any follow up questions you might have. Have a great day and a great week.
Thank you very much for joining us today, ladies and gentlemen, you may now disconnect your lines.
Speaker 1: Thank you very much for joining us today, ladies and gentlemen. You may now disconnect your lines. This concludes today's.
Concludes today's call.
Okay.
Speaker 9: video.
Yes.
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Yeah.
Yeah.
Yes.
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Okay.
Okay.
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