Q3 2023 Badger Meter Inc Earnings Call
Speaker 1: Ladies and gentlemen, welcome to the third quarter 2023, Badger Meter earnings...
Welcome to the third quarter 2023 Badger meter earnings conference Coke, If you would like to ask a question during the Q&A portion of today's call. Please press star followed by one on your telephone keypad. As a reminder, today's conference is being recorded it is now.
Speaker 1: If you would like to ask a question during the Q&A portion of today's call, please press star followed by one on your telephone keypad. As a reminder, today's conference is being recorded.
Speaker 1: now my pleasure to turn the conference over to Karen Bauer, Vice President of Investor Relations Corporate Strategy….
My pleasure to turn the conference if it's Karen Bauer, Vice President of Investor Relations corporate strategy and Treasurer.
Speaker 2: Good morning and thank you for joining the Badger Meter third quarter 2023 earnings conference.
Good morning, and thank you for joining the Badger meter third quarter 2023 earnings conference call on the call with me today are Ken backwards, Chairman, President and Chief Executive Officer, and Bob Rutledge, Chief Financial Officer.
Speaker 2: On the call with me today are Ken Bockhorst, 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 webinar.
The earnings release and related slide presentation are available on our website 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 SEC filings.
Speaker 2: 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 SEC filings. On today's call, we will refer
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.
Speaker 2: Our earnings slides provide a reconciliation of the GAAP to non-GAAP financial metrics views. With that, I'll turn the call over to Ken.
With that I'll turn the call over to Ken.
Speaker 3: Thanks, Karen, and thank you for joining our third quarter earnings call. The Badger Meter team delivered another record quarter with continued strong sales, operating profit and EPS growth year over year.
Thanks, Karen and thank you for joining our third quarter earnings call. The Badger meter team delivered another record quarter with continued strong sales operating profit and EPS growth year over year.
Demand for our differentiated and Tailorable digital Smartwater solutions remains robust and improving supply chain dynamics allowed us to make modest headway into the elevated backlog.
Speaker 3: Demand for our differentiated and tailorable digital smart water solutions remains robust. And improving supply chain dynamics allowed us to make modest headway into the elevated back...
Speaker 3: I want to thank all of our employees for their focused efforts in serving our customers.
I want to thank all of our employees for their focused efforts in serving our customers.
Speaker 3: I'll provide an update on the macro environment and market outlook later in the call. For now, I'll turn it over to Bob to go through the details of the court.
I'll provide an update on the macro environment and market outlook later in the call for now I'll turn it over to Bob to go through the details of the court.
Thanks, Ken and good morning, everyone.
Turning to slide four our total sales in the third quarter reached yet another record at $186 $2 million, an increase of 26% compared to $148 million in the same period last year.
Speaker 4: Turning to slide four, our total sales in the third quarter reached yet another record at $186.2 million. An increase of 26% compared to $148 million in the same period last year.
Speaker 4: This increase was on top of 15% year over year growth in Q3 last year and 13% the prior.
This increase was on top of 15% year over year growth in Q3 last year and 13% the prior year.
Speaker 4: to put our multi-year organic sales trend line into perspective. Third quarter, 2023 sales are more than 60% above pre-COVID-19, 2019 levels, which equates to about 13% compounded annual growth on an organic base.
To put our multiyear organic sales trend line into perspective third quarter 2023 sales are more than 60% above pre COVID-19, 2019 levels, which equates to about 13% compounded annual growth on an organic basis.
Total utility water product line sales increased 31% year over year with broad based growth across the portfolio of utilities Smartwater solution offerings.
Speaker 4: Total utility water product line sales increased 31% year over year with broad base growth across the portfolio of utility smart water solution off.
Speaker 4: continued robust order demand and normalization of supply chain conditions resulted in strong manufacturing out.
Continued robust order demand and normalization of supply chain conditions resulted in strong manufacturing output.
Similar to last quarter, we delivered on meaningfully higher cellular AMRI demand, including Orion cellular endpoints E series ultrasonic meters and Beacon software as a service revenues.
Speaker 4: Similar to last quarter, we delivered on meaningfully higher cellular AMI demand, including Orion cellular endpoints, e-series ultrasonic meters, and beacon software as a service rep.
Speaker 4: Additionally, water quality and pressure monitoring sales contributed to the top line growth.
Additionally, water quality and pressure monitoring sales contributed to the top line growth.
Sales for the flow instrumentation product line increased 2% year over year with solid demand and water related markets, partially offset by modestly lower sales associated with deemphasize general industrial applications.
Speaker 4: Sales for the flow instrumentation product line increased 2% year over year, with solid demand and water-related markets partially offset by modestly lower sales associated with de-emphasized general industrial F.
Operator: Jonesman, welcome to the third quarter, 2023 Badger Meter earnings conference call. If you would like to ask a question during the Q&A portion of today's call, please press staff by one on your telephone keypad. As a reminder, today's conference is being recorded.
Turning to margins solid execution at both the gross margin in FCA lines contributed to the 80 basis point increase in operating margins in the quarter, reaching 16, 9% versus 16, 1% last year.
Speaker 4: Turning to margins, solid execution at both the gross margin and SEA lines contributed to the 80 basis point increase in operating margins in the quarter, reaching 16.9% versus 16.1% last.
Karen Bauer: It is now my pleasure to turn the conference over to Karen Bauer, vice-president of the best of relations, corporate strategy and treasurer. Good morning, and thank you for joining the Badger Meter third quarter, 2023 earnings conference call.
Speaker 4: Gross profit dollars increased 15.2 million year over year. And as a percent of sales, increased 20 basis points to 39.1% versus 38.9% last year, with higher volumes and favorable product mix contributing to the improved.
Gross profit dollars increased $15 $2 million year over year and as a percent of sales increased 20 basis points to 39, 1% versus 38, 9% last year with higher volumes and favorable product mix contributing to the improvement.
Karen Bauer: On the call with me today, our Ken Bockhorst chairman, president and chief executive officer and Bob Rocklage chief financial officer. The earnings release and related slide presentation are available on our website. 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 SEC filing. On today's call, we will refer to certain non-gap financial metrics. Our earnings slides provide a reconciliation of the gap to non-gap financial metrics use.
Speaker 4: We were pleased with overall gross margins, again in the upper half of our normalize.
We were pleased with overall gross margins again in the upper half of our normalized range.
Speaker 4: SEA expenses in the third quarter were $41.3 million, an increase of $7.6 million year over year, which included higher personnel related costs, such as headcount, salaries, and variable compensation, as well as R&DX.
SCA expenses in the third quarter were $41 3 million, an increase of $7 $6 million year over year, which included higher personnel related costs, such as head count salaries and variable compensation as well as R&D expenses.
Speaker 4: The addition of CERA next with its related intangible asset amortization also contributed to the dollar in
The addition of <unk> with its related intangible asset amortization also contributed to the dollar increase.
Kenneth Bockhorst: With that, I'll turn the call over to Ken. Thanks, Karen, and thank you for joining our third quarter earnings call. The Badger Meter team delivered another record quarter with continued strong sales, operating profit and EPS growth year over year. Demand for our differentiated and tailorable digital smart water solutions remains robust and improving supply chain dynamics allowed us to make modest headway into the elevated backlog. I want to thank all of our employees for their focused efforts in serving our customers.
Speaker 4: Despite the higher spend levels to support growth, SEA is a percentage sales decline 50 basis points to 22.2% from 22.7% in the comparable prior year court.
Despite the higher spend levels to support growth SDA as a percentage of sales declined 50 basis points to 22, 2% from 22, 7% in the comparable prior year quarter.
Speaker 4: While operating income grew 31%, we increased EPS an exceptional 44% to 88 cents in the third quarter compared to 61 cents in the prior year quarter. The Delta includes the benefit from interest income earned on our increasing cash balance.
While operating income grew 31%, we increased EPS, an exceptional 44% to 88 in the third quarter compared to <unk> 61 in the prior year quarter.
The Delta includes the benefit from interest income earned on our increasing cash balance and in addition, the quarter is 23% income tax rate benefited from discrete equity compensation transactions occurring in the quarter.
Kenneth Bockhorst: I'll provide an update on the macro environment and market outlook later in the call.
Speaker 4: And in addition, the quarters 20.3% income tax rate benefited from discrete equity compensation transactions occurring in the quarters.
Bob Rocklage: For now, I'll turn it over to Bob to go through the details of the court. Thanks, Ken, and good morning, everyone. Turning to slide four, our total sales in the third quarter reached yet another record at $186.2 million. An increase of 26% compared to $148 million in the same period last year. This increase was on top of 15% year over year growth in Q3 last year and 13% the prior year. To put our multi-year organic sales trend line into perspective, third quarter 2023 sales are more than 60% above pre-COVID-19 2019 levels, which equates to about 13% compounded annual growth on an organic basis.
Speaker 4: We continue to expect our normalized effective income tax rate to be plus or minus 25.
We continue to expect our normalized effective income tax rate to be plus or minus 25%.
Working capital as a percent of sales was 22, 7% compared sequentially to 23, 4% last quarter end.
Speaker 4: Working capital as a percent of sales was 22.7%. Compared sequentially to 23.4% last quarter F.
Speaker 4: While overall working capital, including inventory, has increased in total dollars to support growth, we did see an improvement in inventory as a percent of sales, and continue to expect modest inventory reductions as we move forward.
While overall working capital, including inventory has increased in total dollars to support growth. We did see an improvement in inventory as a percent of sales and continue to expect modest inventory reductions as we move forward.
Speaker 4: Free cash flow of $28.4 million improved from a year ago, primarily on higher earners.
Free cash flow of $28 4 million improved from a year ago, primarily on higher earnings we remain on track for 100% plus free cash flow conversion of net earnings for the full year.
Speaker 4: We remain on track for 100% plus recache low conversion of net earnings for the full year. But that all turns.
Bob Rocklage: Total utility water product line sales increased 31% year over year with broad base growth across the portfolio of utility smart water solution offerings. Continued robust order demand and normalization of supply chain conditions resulted in strong manufacturing output. Similar to last quarter, we delivered on meaningfully higher cellular AMI demand, including Orion cellular endpoints, e-series ultrasonic meters, and beacon software as a service revenues. Additionally, water quality and pressure monitoring sales contributed to the top line growth.
With that I'll turn the call back over to Ken.
Speaker 3: Thanks Bob. Turning to slide five, as Bob mentioned earlier, we've delivered meaningful growth over the past several years, leveraging our expanding portfolio of digital water, digital smart water solution to solve our customers evolving water.
Thanks, Bob.
Turning to slide five as Bob mentioned earlier, we have delivered meaningful growth over the past several years, leveraging our expanding portfolio of digital water.
Digital Smartwater solution to <unk>.
All of our customers evolving water challenges.
Speaker 3: While the word meter is a part of the badger meter name and remains a prominent element of our offering, the growth that we've had and will continue to deliver goes far beyond the meter.
While the word meter as a part of the Badger meter name and remains a prominent element of our offering the growth that we've had and will continue to deliver it goes far beyond the meter.
Speaker 3: As the macro challenges of labor shortages, aging infrastructure, water conservation, and climate events continue to drive much needed investment into critical waters.
As the macro challenges of labor shortages aging infrastructure water conservation and climate events continue to drive much needed investment into critical water systems Badger.
Bob Rocklage: Sales for the flow instrumentation product line increased 2% year over year with solid demand and water related markets partially offset by modestly lower sales associated with de-emphasized general industrial applications. Turning to margins, solid execution at both the gross margin and SEA lines contributed to the 80 basis point increase in operating margins in the quarter reaching 16.9% versus 16.1% last year, last year. Gross profit dollars increased 15.2 million year over year, and as a percent of sales increased 20 basis points to 39.1% versus 38.9% last year, with higher volumes and favorable product mix contributing to the improvement.
Speaker 3: Badger meters broad portfolio of customizable solutions spanning metering sensors instruments communication software and support offerings is uniquely positioned to serve the evolving needs of our utility and other customers.
Badger meters broad portfolio of customizable solutions spanning metering sensors instruments communication software and support offerings is uniquely positioned to serve the evolving needs of our utility and other customers.
Speaker 3: The total available market globally is valued at approximately $20 billion, giving Badger Meter ample opportunity to continue to grow and expand these offerings in the US and other select regional markets.
The total available market globally is valued at approximately $20 billion, giving badger meter ample opportunity to continue to grow and expand these offerings in the U S and other select regional markets.
Speaker 3: It also gives us ample opportunity to add to our portfolio solutions and other sensors and hardware enabled software the organic and disciplined M&A and this.
It also gives us ample opportunity to add to our portfolio of solutions and other sensors and hardware enabled software via organic and disciplined M&A investments.
Speaker 3: We demonstrated our ability to capitalize on these growth opportunities, and we remain well positioned to further build on our track record of value creation.
We've demonstrated our ability to capitalize on these growth opportunities and we remain well positioned to further build on our track record of value creation.
Bob Rocklage: We were pleased with overall gross margins, again in the upper half of our normalized range. SEA expenses in the third quarter were 41.3 million dollars, an increase of 7.6 million year over year, which included higher personnel related costs such as headcounts, salaries and variable compensation as well as R&D expenses. The addition of CERANIX with its related intangible asset amortization also contributed to the dollar increase. Despite the spire higher spend levels to support growth, SEA as a percent of sales declined 50 basis points to 22.2% from 22.7% in the comparable prior year quarter.
Looking ahead, we have a constructive outlook for the remainder of the year and see a solid foundation for profitable growth in 2020 for.
Speaker 3: Looking ahead, we have the constructive outlook for the remainder of the year and see a solid foundation for profitable growth in 2024.
Speaker 3: As noted in the release, as we close out 2023, we continue to expect solid year-over-year sales growth, taking into account the fewer operating days in the fourth quarter with US Hollins.
As noted in the release as we closeout 2023, we continue to expect solid year over year sales growth taking into account that fewer operating days in the fourth quarter with U S holidays.
Speaker 3: As supply chain dynamics improved, we've been able to begin improving lead.
Our supply chain dynamics improved we've been able to begin improving lead times.
Speaker 3: These improving dynamics have also aided manufacturing efficiencies, benefiting the gradual margin expansion we've consistently discussed.
These improving dynamics have also aided manufacturing efficiencies benefiting the gradual margin expansion we've consistently discussed.
Speaker 3: One additional item to note. We're monitoring the evolving conflict in the Middle East and its potential impact related to partners in the region.
One additional item to note.
Bob Rocklage: While operating income grew 31%, we increased EPS in exceptional 44% to 88 cents in the third quarter compared to 61 cents in the prior year quarter. The Delta includes the benefit from interest income earned on our increase in cash balance. And in addition, the quarter's 20.3% income tax rate benefited from discrete equity compensation transactions occurring in the quarter. We continue to expect our normalized effective income tax rate to be plus or minus 25%.
<unk> the evolving conflict in the middle East and its potential impact related to partners in the region.
Speaker 3: Awards, orders and bid funnel activity remain strong. Supported by the well-understood macro driver spacing the water in.
Awards orders and bid funnel activity remains strong supported by the well understood macro drivers facing the water industry.
Speaker 3: The replacement driven underlying demand activity, as well as our ability to leverage our water-related hardware and communication offerings to accelerate software and data analytics across the water ecosystem, position us well for future growth. With that operator, please open the line for questions.
The replacement driven underlying demand activity as well as our ability to leverage our water related hardware and communication offerings to accelerate software and data analytics across the water ecosystem position us well for future growth.
Operator, please open the line for questions.
Bob Rocklage: Working capital as a percent of sales was 22.7%, compared sequentially to 23.4% last quarter end. While overall working capital, including inventory has increased in total dollars to support growth, we did see an improvement in inventory as a percent of sales and continue to expect modest inventory reductions as we move forward. Free cash flow of $28.4 million improved from a year ago, primarily on higher earnings. We remain on track for 100% plus free cash flow conversion of net earnings for the full year.
Speaker 1: Thank you. Now that we're on the other side, if you'd like to ask a question today, please press star full at 1 on your telephone. Keep at now to the queue. If you have a parent ask your question, please.
As a reminder, if you'd like to ask a question today. Please press star followed by one on your telephone keypad now to enter the queue.
Ask your question. Please ensure your mute locally.
Our first question today comes from Rob Mason from Baird. Please go ahead. Your line is open.
Speaker 1: That's the first question today. Come to Rob Mason from Bad. Rob, please go ahead, you're all I know.
Hi, Yes, good morning, everyone.
Speaker 5: Yes, good morning everyone. It sounded like
It sounded like.
Yeah.
Speaker 5: You may become, you were able to work back log down a little bit, but your characterizes are still elevated. I'm just curious within that higher backlog, is there any portion of that that you would think is in the delinquent category or there's an accelerated need to work the backlog down?
You may be comment.
You were able to work backlog down a little bit, but you characterize is it still elevated I'm just curious within that.
Backlog is there any portion of that that you would think is in.
Kenneth Bockhorst: With that, I'll turn the call back over to Ken. Thanks, Bob. Turning to slide five, as Bob mentioned earlier, we've delivered meaningful growth over the past several years, leveraging our expanding portfolio of digital water, digital smart water solution to solve our customers evolving water challenges. While the word meter is a part of the badger meter name and remains a prominent element of our offering, the growth that we've had and will continue to deliver goes far beyond the meter.
In the delinquent category or there's an accelerated need.
To work the backlog down.
Speaker 3: Yeah, so Rob is, as we've discussed before, so when we talk about backlog, what we're talking about is what we have POs for that customers are interested in getting right now. So in our backlog, we don't talk about the two, three, five year longer term AMI deployments that we've booked. So as we think about backlog,
Yes, so Rob is as we've discussed before so when we talk about backlog, while we're talking about is what we have for that customers are interested in getting right now so in our backlog. We don't talk about that 235 year longer term Ami deployments that we book so.
Kenneth Bockhorst: As the macro challenges of labor shortages, aging infrastructure, water conservation, and climate events continue to drive much needed investment into critical water systems, badger meters broad portfolio of customizable solutions spanning metering, sensors, instruments, communication, software and support offerings is uniquely positioned to serve the evolving needs of our utility and other customers. The total available market globally is valued at approximately $20 billion, giving badger meter ample opportunity to continue to grow and expand these offerings in the US and other select regional markets. It also gives us ample opportunity to add to our portfolio of solutions and other sensors and hardware enabled software via organic and disciplined M&A investments.
So as we think about backlog.
Speaker 3: You know, I don't think about it in the past, too. I just think about it as these are things that customers are looking for us to provide. So as we start to improve lead times and eat into that actionable right in front of us today backlog, that's actually a good thing for customers. And if we continue to improve lead times and...
I don't think about it in past due I just think about this these are things that customers are looking for us to provide so as we as we start to improve lead times in and eat into that actionable right in front of us today backlog.
That's actually a good thing for customers and if we continue to improve lead times.
Speaker 3: and eat that down a bit. I would feel happy about that. Overall, we're extremely excited about order rates. So that optimism has not changed on that.
And eat that down a bit.
I would feel happy about that overall, we are extremely excited about order rates. So so that that optimism has not changed on that front.
Speaker 5: understood, understood. The, can you just characterize what the, you know, the pricing environment looks like now that, you know, some of the supply chain, at when that had been out there, and commodity costs as well, have settled down.
Understood understood.
Could you just characterize what the.
The pricing environment looks like now that some of the supply chain.
Headwinds that had been out there in commodity costs as well have settled down.
Kenneth Bockhorst: We've demonstrated our ability to capitalize on these growth opportunities and we remain well positioned to further build on our track record and value Looking ahead, we have a constructive outlook for the remainder of the year and see a solid foundation for profitable growth in 2024. As noted in the release, as we close out 2023, we continue to expect solid year-over-year sales growth taking into account the fewer operating days in the fourth quarter with U.S, holidays. As supply chain dynamics improved, we've been able to begin improving lead times. These improving dynamics have also aided manufacturing efficiencies, benefiting the gradual margin expansion we've consistently discussed.
Just give us maybe a framework for what you are seeing either a list prices or in particular, just how the RFP and bidding.
Speaker 5: just give it maybe a framework for what you're seeing. Either on list prices or in particular just how the RP and bidding process is.
Process.
Playing out with respect to pricing.
Speaker 3: Yeah, it's remaining largely unchanged from what we've talked about in the other quarters. While some things are moderating, inflation is still real. There are parts of the economy that still certainly aren't great as we talked about inflation and interest rates and other things that are out there.
Yes, it's <unk>.
Remaining largely unchanged from what we've talked about in the other quarters. While some things are moderating inflation is still real there are parts of the economy that's still.
And certainly arent, great as we talked about inflation and interest rates and other things that are out there but.
Speaker 3: But for the most part, the work that we did three years ago and really embarking on a value creation Value pricing model Is it certainly paid dividends for us throughout throughout a difficult operating environment, but largely pricing dynamics haven't changed
But for the most part the work that we did three years ago, and really embarking on our value creation.
<unk> pricing model.
Kenneth Bockhorst: One additional item to note, we're monitoring the evolving conflict in the Middle East and its potential impact related to partners in the region. Awards, orders, and bid funnel activity remain strong, supported by the well-understood macro drivers facing the water industry. The replacement driven underlying demand activity, as well as our ability to leverage our water-related hardware and communication offerings to accelerate software and data analytics across the water ecosystem, position us well for future growth.
As certainly paid dividends for us throughout throughout a difficult operating environment, but largely pricing dynamics haven't changed.
Speaker 5: If I could sneak one last one in, this was just a comment on the slide presentation, which is certainly appreciated. I did notice in the slide deck, where you reference.
If I could sneak one last one and this was just to comment on the slide presentation.
Which is certainly appreciate it I did notice in the slide deck, where you reference.
Speaker 5: ESPs around some of your solutions, broad ASPs understand, but just on the main wall, meter side, around $70 pricing, they come, nothing's taken that way.
Asps around some of your solutions brought Asps I understand but just on the manual.
Operator: Would that operator please open the line for questions? Thank you. Hello, Amanda.
Meter side around $70 pricing, if I'm not mistaken that was.
Operator: If you'd like to ask a question today, please press starful and vote one on your telephone keypad now to enter the queue. If a parent asks you a question, please ensure you are unmuted locally.
Speaker 5: you know, back in January , that was at, you know, 50 to 60 dollar range. You just speak to, you know, what the dynamic is pushing that up, whether that's all price or, you know, does that include some?
Back in January that was at a $50 $60 range.
Just speak to what the dynamic is pushing that up whether that's all price or does that include some.
Robert Mason: And our first question today comes from Rob Mason from Bad. Rob, please go ahead. Your line is open. Yes, good morning, everyone. It sounded like you made the comment you were able to work backlogged down a little bit, but your characterizes it's still elevated. I'm just curious within that higher backlog, is there any portion of that that you would think is in the delinquent category where there's an accelerated need to work the backlog down?
Speaker 5: Some blended mix between mechanical and emulators are just kind of the underlying movement in that number.
Some blended mix.
Between mechanical and E meters, or just kind of the underlying movement in that number.
Yes, so I would say again I don't know how great. We are keeping those numbers correct, but.
Speaker 4: Yeah, so I would say again, I don't know how great we are keeping those numbers current, but there's probably a bit of price increase that's good curve over multiple time frames between those being updated. I think also likewise you've got kind of core meter, bare meter plus registration being included in that. So...
There's probably a bit of a price increase thats occurred over multi multiple time frames between those being updated I think also likewise <unk> got kind of core meter bear meter plus registration being included in that so.
Speaker 4: I think that's your specific question. That reflects whatever was in the market at that point in time.
I think if that's your specific question that reflects kind of whatever whatever it was in the market at that point in time.
Robert Mason: Yeah, so Rob, as we've discussed before, so when we talk about backlog, what we're talking about is what we have POs for that customers are interested in getting right now. So in our backlog, we don't talk about the two, three, five year longer term AMI deployments that we put. So as we think about backlog, I don't think about it in past two, I just think about these are things that customers are looking for us to provide.
Very good.
Thank you.
Sure.
The next question comes from Nathan Jones from Stifel. Nathan Your line is open. Please go ahead.
Speaker 1: Nathan Yperform inclination now He's here to
Good morning, This is Adam Farley on for Nathan.
Speaker 6: I have a quick one on. Hey, good morning. Quick one on the fewer selling days and 4Q. Do we be expecting a sequential decline and 4Q revenue?
Hi, everyone.
Robert Mason: So as we start to improve lead times and eat into that actionable right in front of us today backlog, that's actually a good thing for customers. And if we continue to improve lead times and eat that down a bit, I would feel happy about that. Overall, we're extremely excited about order rates, so that optimism has not changed on that. Understood, understood.
Hey, good morning, a quick one on the fewer selling days in <unk>.
Should we be expecting a sequential sequential decline in <unk> revenue.
Yes, so we don't give guidance, but I think youre walking away with an obvious takeaway, which is with fewer working days likelihood that.
Speaker 4: So we don't give guidance, but I think you're walking away with an obvious takeaway, which is with fewer working days, likelihood that that's a potential. That's I think effectively what we're saying.
That's a potential that's I think effectively what were saying.
Speaker 6: All right, okay, fair enough. And then, Shook and Dears, could you talk about strategic investments and how we should think about that driving revenue growth?
Alright, Okay fair enough.
Robert Mason: Can you just characterize what the pricing environment looks like now that some of the supply chain. Edwin that had been out there in commodity costs as well have settled down. It just gives us, you know, maybe a framework for what you're seeing, either on list prices or in particular, just how the RP and bidding process is playing out with respect to pricing. Yeah, it's remaining largely unchanged from what we've talked about in the other quarters.
And then shifting gears could.
Could you talk about strategic investments and.
And how we should think about that driving revenue growth.
Yes, So I think if you just look at our history in totality of the strategic investments are what has brought us to the point that we're at whether that was being.
Speaker 3: Yeah, so I think if you just look at our history and totality of the strategic investments, our what have brought us to the point that we're at, whether that was being...
Speaker 3: you know, first in our market with ultrasonic meters or first in our market with cellular radios or bringing the water quality portfolio and developing our own software.
First in our market with ultrasonic meters are first in our market with cellular radios are bringing the water quality portfolio and developing our own software.
Speaker 3: In many cases it's continuing to invest in keeping and advancing our lead in cellular.
In many cases, it's continuing to invest in keeping in advancing our lead in cellular.
Robert Mason: While some things are moderating, inflation is still real. There are parts of the economy that still certainly aren't great as we talked about inflation and interest rates and other things that are out there. But for the most part, the work that we did three years ago and really embarking on a value creation, value pricing model is certainly paid dividends for us throughout a difficult operating environment, but largely pricing dynamics haven't changed.
Speaker 3: keeping or advancing our lead in software as a service or software offering.
Keeping our advancing our lead in software as a service or software offering continuing to integrate water quality and <unk> into the broader portfolio and cross selling so.
Speaker 3: continuing to integrate water quality and serenix into the broader portfolio and cross-selling so
Speaker 3: The long answer is yes, the short answer is yes. I mean we continue to follow our capital allocation priorities of...
The long answer is yes. The short answer is yes, I mean, we continue to.
Follow our capital allocation priorities.
Number one R&D investment and priding ourselves in keeping our innovation leader status.
Speaker 3: Number one, R&D investment and and providing ourselves and keeping our innovation leaders status.
Speaker 3: increasing dividends annually in line with earnings and disciplined M&A. So that hasn't changed. That's the same as
Increasing dividends annually in line with earnings and disciplined Emma.
Robert Mason: Thank you. If I could sneak one last one in. This is just a comment on the slide presentation, which is certainly appreciated. I did notice in the slide that, you know, were you reference ASPs around some of your solutions, broad ASPs, I understand, but just on the main goal, meter side, around $70 pricing. I'm not mistaken, that was back in January, that was at a, you know, $50 to $60 range. You just speak to, you know, what the dynamic is pushing that up, whether that's all price, or, you know, does that include some blended mix between mechanical and e-meters, or just kind of the underlying movement in that number.
M&A.
So that Hasnt changed Thats the same as it's been I think I would just augment kind of that first capital allocation priority of organic investment in the business everyone always thinks of innovation is being R&D, but equally think of innovation in the space of operational.
Speaker 4: I think I just, I don't know, kind of that first capital allocation priority of organic investment in the business. Everyone always thinks of innovation as being our indeed, but we fully think of innovation in the space of
Speaker 4: operational efficiency and capacity expansion. And so, you know, we've been investing over the last several years to be able to drive higher capacity and output, which of course allows us to then deliver on those higher order rates and higher growth numbers that you're asking about. So it's equal parts, not the equal parts, but it's contributory from innovation as well as operational efficiency focus and capital investment to support capacity.
Efficiency and capacity expansion and so we've been investing over the last several years to be able to drive higher capacity and output which of course allows us to then deliver on that.
Those higher order rates and higher higher growth numbers that you are asking about so it's equal parts and no particular parts, but it's contributory from innovation as well as operational efficiency focus and capital investment to support capacity.
Great. Thank you for taking my questions.
Youre welcome.
Robert Mason: Yeah, so I would say, again, I don't know how great we are keeping those numbers current, but there's probably a bit of price increase that's occurred over multiple time frames between those being updated. I think also likewise, you've got kind of core meter, bear meter, plus registration being included in that. So I think that's your specific question. You know, that reflects kind of whatever, whatever was in the market at that point in time. Very good. Thank you. Sure.
The next question comes from Andrew <unk> from Deutsche Bank, Andrew Your line is open. Please go ahead.
Speaker 1: Question comes from Andrew Crowe from Deutsche Bank. Andrew, your line is open, please go ahead.
Speaker 7: Hey, thanks. Good morning, everyone. So that's first I just have sales have been very strong for several quarters in a row. And I think you're on track for strong double digit growth in 2023. And that's on top of basically double digit growth prior to year. So just wondering, you know, is the kind of historical like mid-high single digit growth rate for this industry? Is that, you know, do you think it's structurally moved higher or should we kind of go back towards, you know, that's...
Hey, Thanks, good morning, everyone.
So I asked first time sales have been very strong for several quarters in a row now youre on track for strong double digit growth in 2023, and that's on top of it.
It's growing double digit growth in prior two years. So I'm. Just wondering is the kind of historical like mid to high single digit growth rate for this industry is that do you think it's structurally moved higher or should we expect to kind of go back towards that range again.
Adam Farley: The next question comes from Nathan Jones from Stephen. Nathan, your line is open. Please go ahead.
Adam Farley: Good morning. This is Adam Farley on for Nathan. Hi. Good morning. Quick one on the fewer selling days and 4Q. Do we be expecting a sequential decline in 4Q revenue? Yeah, so we don't give guidance, but I think, you know, you're walking away with an obvious takeaway, which is with fewer working days, likelihood that, you know, that that's a potential. That's, I think, effectively what we're saying.
Speaker 3: Yeah, so, you know, if you went, if you rewound a couple of years ago, we used to refer to it as mid-single digit. So we have changed into that high-single digit mode.
Yes so.
If you rewound a couple of years ago, we used to refer to it as mid single digit. So we have changed into that high single digit mode.
Speaker 3: And as you know, we don't provide guidance in the quarter or the annual basis.
As you know, we don't provide guidance in the quarter or the.
The annual basis things can tend to be.
Speaker 4: things can tend to be uneven at times, but for the most part, through the strategic cycle, we're really comfortable thinking in the high single digit range year over year. So when we say high single digit over the strategic cycle, we're talking five or 10 year cycles.
Uneven at times, but for the most part through the strategic cycle, we're really comfortable thinking in the high single digit range year over year, and so when we say high single digit over the strategic cycle, we're talking five or 10 year cycles. So to get a compounded annual growth rate of high single digits. There may be years that are up 15% to 16 and there may be years that are only up five.
Kenneth Bockhorst: All right. Okay, fair enough. And then in certain years, if you talk about strategic investments and how we should think about that driving revenue growth. Yeah, so I think if you just look at our history and totality of the strategic investments, our what have brought us to the point that we're at, whether that was being, you know, first in our market with ultrasonic meters or first in our market with cellular radios or bringing the water quality portfolio and developing our own software.
Speaker 4: to get a compounded annual growth rate of 5 single digits. There may be years that are up 15, 16, and there may be years that are only up five.
Speaker 4: So we're simply talking about that friend line over a over a kager style. So
Dave.
So we're simply talking about that trend line over a corporate CAGR style. So.
Kenneth Bockhorst: In many cases, it's continuing to invest in keeping and advancing our lead in cellular, keeping or advancing our lead in software as a service, our software offering, continuing to integrate water quality and serenix into the broader portfolio and cross selling. So the long answer is yes, the short answer is yes. I mean, we continue to follow our capital allocation priorities of, you know, number one, R&D investment and and providing ourselves and keeping our innovation leaders status, increasing dividends annually in line with earnings and disciplined M&A.
Speaker 4: I do think, you know, again, we don't guide, obviously, but I think the ability to sustain double-digit growth, even in this market, it's not doable, repeatable every year annually over there.
I do think again, we don't guide, obviously, but I think the ability to sustain double digit growth even in this market.
It's not doable repeatable every year annually over that strategic cycle.
Okay makes sense.
Speaker 7: makes sense. And there's something like capital allocation, any update on how you're thinking about your approach there, just as your cash balance continues to grow. And maybe an update on the deal pipeline, anything you're looking at. Thanks.
And next just sounding like capital allocation.
Any update on how Youre thinking about your approach there just as your cash balance continues to grow and maybe an update on like the deal pipeline or anything you're looking at thanks.
Speaker 3: Sure, yeah. So the deal pipeline remains strong. We have, as we've always maintained over the last several years, a really healthy target rich environment of
Sure, Yes, so deal pipeline remains strong we have as we've always maintained over the last several years of really healthy.
Target rich environment.
No.
Speaker 3: Companies that are in this water quality space would be certainly interested in building that out more software side, anything that has global footprints in the select regional markets that we're looking at. Similar to what ATIS and CERANIX have brought to us. So good funnel, we remain disciplined. We think we have a really good idea of where value does get driven within our industry and that's where we'll continue to continue to look for value creation efforts.
Companies that are in this water quality space would be certainly interested in building that out more <unk>.
Kenneth Bockhorst: So that hasn't changed as same as it's been. I think I just, I'd augment kind of that first capital allocation priority of organic investment in the business. Everyone always thinks of innovation as being R&D, but we fully think of innovation in the space of operational efficiency and capacity expansion. And so, you know, we've been investing over the last several years to be able to drive higher capacity and output, which of course allows us to then deliver on those higher order rates and higher growth numbers that you're asking about. So it's equal parts, not the equal parts, but it's contributory from innovation as well as operational efficiency focus and capital investment to support.
Operator: University.
Software side anything that has global footprint and the.
Select regional markets that we're looking at.
Similar to what <unk> and <unk> have brought to us. So good funnel, we remain disciplined we.
We think we have a really good idea of where value does get driven within our industry and that's where we'll continue to.
We continue to look for for value creation opportunities in M&A.
Okay, great and if I could sneak one last quick one I think last quarter.
Speaker 7: Great, and if I can sneak one last quick one, I think last quarter, you noted that both to Bill was over one. And can you give him an update on that for their quarter?
You noted that book to Bill was over one can you get it.
Adam Farley: Great, thank you for taking my questions.
On that front or our quarter.
Well, yes, so as I talked about with that.
Speaker 3: Well, yeah, so as I talked about with that, you know, improving lead time situation, we had a really, really strong order period that we're really proud of. We just had an exceptionally strong shipment period that was slightly better. And I do mean slightly.
Andrew Krill: Next question comes from Andrew Krill from Deutsche Bank. Andrew, your line is open. Please go ahead. Hey, thanks. Good morning, everyone. Last first, I just have sales have been very strong for several quarters in a row.
Improving lead time situation.
We had a really.
Really strong order period that we're really proud of we just had an exceptionally strong shipment period that was slightly better and I do mean slightly.
Kenneth Bockhorst: I think you're on track for strong double-digit growth in 2023, and that's on top of basically double-digit growth in prior two years, so I'm just wondering, is the historical mid-high single-digit growth rate for this industry, do you think it's structurally moved higher or should we expect to go back towards that range again? Yeah, so if you rewound a couple of years ago, we used to refer to it as mid-single-digit, so we have changed into that high-single-digit mode, and as you know, we don't provide guidance in the quarter or the annual basis.
Okay, great. Thank you.
Youre welcome.
As a reminder, that stuff Phillip I wanted to ask a question today.
Speaker 1: As a reminder, that's Starfall of Bo1, so ask a question today. The next question comes in tape Sullivan from Maxim Group. Taste your lives open, please go ahead.
Question comes and Tate Sullivan from Maxim Group.
Please go ahead.
Speaker 8: Great, thank you. A couple couple things on morning. I mean, impressive expense control. I mean, your revenue growth exceeded my expectations, but expenses were under. Can you just talk about maybe the composition and selling and administration expenses as R and D at higher levels than historically to enter more water quality real water quality market?
Great. Thank you a couple a couple of things.
Impressive expense control I mean, you can get revenue growth exceeded my expectations of expenses were under can you just talk about maybe the composition and selling and administration expenses.
R&D at higher levels than historically to enter more water quality real water quality market.
Kenneth Bockhorst: Things can tend to be uneven at times, but for the most part, through the strategic cycle, we're really comfortable thinking in the high-single-digit range year over year. And so when we say high-single-digit over the strategic cycle, we're talking five or ten-year cycles. So to get a compounded annual growth rate of high-single digits, there may be years that are up 15, 16, and there may be years that are only up five. So we're simply talking about that trend line over a keger style. So I do think, again, we don't guide, obviously, but I think the ability to sustain double-digit growth, even in this market, is not doable repeatable every year annually over that strategic cycle.
Speaker 8: any integration expenses. I mean, it's just I continue to expect you to have more of chances, but it seems like you manage it.
Any integration expenses.
Just I continue to expect you'd have more expenses, but it seems like you've managed that quite well.
Yes, I, certainly wont dissect the $41 million of SBA, but I think the way to think about that Teva is exactly what we've been saying for the last four years is that SBA leverage because of our I'm going to say a term I hate to say growth algorithm because of our growth algorithm.
Speaker 4: Yeah, so I certainly won't dissect the $41 million of S.E.A. But I think the way to think about that Tate is exactly what we've been saying for the last four years is that S.E.A. leverage because of our, I'm going to say a term I hate to say, growth algorithm. Because of our growth algorithm, we believe while still being an innovator and doing the things that you talked about, R.N.D.
Andrew Krill: Okay. Makes sense.
We believe well still being an innovator and doing the things that you talked about R&D.
Speaker 4: Integrating new businesses that we've acquired, et cetera.
Integrating new businesses that we've acquired et cetera.
Speaker 4: We can still do all those great things, but grow S.E.A. at a rate, slower than sales, and that creates automatic...
We can still do all those great things, but grow at a rate slower than sales and that creates automatic.
Speaker 4: S.E.A. leverage. I mean we're not more than three years removed from the time when we were running at 25-26% S.E.A. as a percent of sales.
Leverage I mean, we're not more than three years removed from the time, when we were running at $25, 26% FCA as a percent of sales.
Kenneth Bockhorst: And there's some capital allocation, any update on how you're thinking about your approach there, just as your cash balance continues to grow. And maybe an update on the deal pipeline, anything you're looking at. Thanks. Sure. Yeah. So the deal pipeline remains strong. You know, we have, as we've always maintained over the last several years, a really healthy target-rich environment of companies that are in this water quality space would be certainly interested in building that out more software side, anything that has global footprints in the, in the select regional markets that we're looking at.
Speaker 4: We just put the quarter at 22.2% and I think for the full year, we're in that kind of high 22 range. So the story of SEA leverage is real improvement over the last three years and we believe to continue that while being steadfast and being invested in organic investment as our capital allocation priority number one, we continue to gain that.
We just closed the quarter at 22, 2% and I think for the full year, we're in that and that kind of high 22 range. So.
The story of SCA Leverages real improvement over the last three years and we believed continue that while being steadfast in being invested in organic investment is our capital allocation priority number. One we continue to can continue to gain that leverage as a point of operating and EBITDA margin expansion. So theres nothing unique in the third quarter, it's more of that.
Speaker 4: as a point of operating and EBITDA margin expansion. So there's nothing unique in the third quarter. It's more the continuation of that trend that we've been talking about over the last three.
A continuation of that trend that we've been talking about over the last three years.
Great. Thank you and then the addressable market slide thank you for including Us.
Speaker 8: Thank you. And then the addressable market slide, thank you for including it. I mean, and then understand the meter market part of that. I mean, I would, if it's fair to categorize mostly the replacement market, how much of the 20 billion remaining 20 billion market? I mean, I thought maybe you're creating, so to speak. I mean, are you creating some of the real-time water quality markets and the software markets? Are you are you replacing existing solutions? Can you talk more about the pie chart?
And then I don't understand the meter market part of that.
Kenneth Bockhorst: Similar to what ATIS and CERAN X have brought to us. So good funnel. We remain disciplined. You know, we, we think we have a really good idea of where value does get driven within our industry, and that's where we'll continue to continue to look for, for value creation opportunities in M&A.
Is it fair to categorize mostly the replacement market how much of the $20 billion remaining 20 billion market.
Andrew Krill: Okay. Great.
I thought maybe you are creating so to speak I mean are you, creating some of the real time water quality markets in the software markets are you are you, replacing existing solutions can you talk more about that.
The Pie chart in there.
Kenneth Bockhorst: And if I can sneak one last quick one, I think last quarter, you noted that both to Bill was over one. Can you give them, you know, an update on that for their quarter? Well, yeah. So as I talked about with that, you know, improving lead time situation, we had a really, really strong order period that we're really proud of. We just had an exceptionally strong shipment period that was slightly better. And I do mean flight.
Speaker 3: Yeah, what's exciting to us, and I know sometimes the acquisitions that we've done can appear small, but given our brand name, our 118-year history things we've done in the water market, when we add these companies like ATIS, Cranix, it opens up these much larger markets to us. And as we continue to integrate and develop software, it opens up these other markets to us.
Yes, what's exciting to us and I know, sometimes the acquisitions that we've done can appear small, but given our brand name our 118 year history things we've done in the water market. When we add these companies like ATI as <unk>. It opens up these much larger markets to us and as we continue to integrate and develop software and open.
Operator: Okay, great. Thank you. You're welcome. As a reminder, that staff will have one to ask a question today.
Ends up these other markets to us.
Speaker 3: We do tend to enjoy and look for niche opportunities within these spaces. We're not looking to follow some of the giants and some of these spaces that have established.
Do tend to enjoy and look for niche opportunities within these spaces, we're not looking to follow.
Some of the Giants and some of these spaces that have established.
Speaker 3: markets that are more difficult to get into, we're, you know, for example, water quality.
Markets that are more difficult to get into where we're at for.
For example in water quality.
<unk> is a really strong great business and theirs, but theres room for several other technologies and everyone to be successful in a wonderfully large growth market.
Speaker 3: HAC is a really strong, great business, but there's room for several other technologies in everyone to be successful in a wonderfully large growth market.
Tate Sullivan: The next question comes in, Tate Sullivan, from Maxim Group. Tate to allow us open. Please go ahead. Great. Thank you. A couple of things more in the eye. I mean, impressive expense control. I mean, you're revenue growth exceeded my expectations of expenses were under. Can you just talk about maybe the composition and in selling and in the administration expenses? I mean, as R&D at higher levels than historically to enter more water quality, real water quality markets and any integration expenses. I mean, it's just, I continue to expect you to have more expenses, but it seems like you manage it quite well.
Okay alright, thank you.
Welcome.
Speaker 1: As a reminder, that's star followed by one on your telephone keypad to ask a question today.
As a reminder, that staff politically one on your telephone keypad to ask a question today.
As we have no further questions. So I'll hand, the coupon to kind of a barrel for any concluding remarks.
Speaker 1: We have no further questions, so hand the call back to the camera barrel so that any concluding remarks.
Thank you operator, and thanks, everyone for joining our call today for your planning purposes. Our year end call is tentatively scheduled for January 26, 2024, and I'll be around all day to take any follow up questions have a great day.
Speaker 2: Thank you operator. Thanks everyone for joining our call today for your planning purposes. Our year-on call is tentatively scheduled for January 26th, 2024. I'll be around all day to take any follow-up questions you have. Have a great day.
Bob Rocklage: Yeah, so I certainly won't dissect the $41 million of S.E.A., but I think the way to think about that, Tate, is exactly what we've been saying for the last four years is that S.E.A, leverage because of our, I'm going to say a term I hate to say, growth algorithm, because of our growth algorithm, we believe while still being an innovator and doing the things that you talked about, R&D, integrating new businesses that we've acquired, et cetera. We can still do all those great things, but grow S.E.A, at a rate, slower than sales, and that creates automatic S.E.A, leverage.
Speaker 1: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lives.
This concludes today's call. Thank you very much for your attendance you may now disconnect your lines.
[music].
Speaker 9: No.
Bob Rocklage: I mean, we're not more than three years removed from the time when we were running at 25, 26 percent S.E.A, as a percent of sales, and we just put it the quarter at 22.2 percent, and I think for the full year, we're in that kind of high 22 range. So the story of S.E.A, leverage is real improvement over the last three years, and we believe to continue that while being steadfast and being invested in organic investment as our capital allocation priority number one, we continue to gain that leverage as a point of operating and EBITDA margin expansion.
Bob Rocklage: So there's nothing unique in the third quarter. It's more the continuation of that trend that we've been talking about over the last three years. Great. Thank you. And then the addressable market slide. Thank you for including it. I mean, I don't understand the meter market part of that. I mean, I would, if it's fair to categorize mostly the replacement market, how much are the 20 billion remaining 20 billion market? I mean, I thought maybe you're creating, so to speak. I mean, are you creating some of the real-time water quality markets and the software markets? Are you replacing existing solutions? Can you talk more about the pie chart in there?
Kenneth Bockhorst: Yeah, what's exciting to us? I know sometimes the acquisitions that we've done can appear small, but given our brand name, our 118-year history things we've done in the water market, when we add these companies like ATIS, Cancer and X, it opens up these much larger markets to us. And as we continue to integrate and develop software, it opens up these other markets to us. We do tend to enjoy and look for niche opportunities within these spaces.
Kenneth Bockhorst: We're not looking to follow some of the giants and some of these spaces that have established markets that are more difficult to get into. We're, for example, water quality. You know, Hock is a really strong, great business, but there's room for several other technologies and everyone to be successful in a wonderfully large growth. Market. All right. Thank you. Welcome.
Operator: I have to remind her that staff are loaded by one on your telephone keypad to ask a question today.
Karen Bauer: As we have no further questions, we'll hand the call back to Karen Bauer for any concluding remarks. Thank you, Operator. Thanks everyone for joining our call today.
Karen Bauer: For your planning purposes, our year on call is tentatively scheduled for January 26, 2024. I'll be around all day to take any follow-up questions you have. Have a great day.
Operator: This concludes today's call. Thank you very much for your attendance.
Operator: You may now disconnect your lines.