Q4 2023 Badger Meter Inc Earnings Call
Yes.
Ladies and gentlemen, welcome to the fourth.
When she twenty-three batch badger meter earnings conference call.
After the Speakers' remarks, there will be a question and answer session. You asked a question. Please press star followed by one telephone keypad to withdraw your question. Please press star followed by T. As a reminder, today's conference is being recorded.
My pleasure to hand, the conference over to Karen Bauer, Vice President of Investor Relations corporate strategy and Treasurer.
Yeah.
Good morning, and thank you for joining the Badger meter fourth quarter and full year 2023 earnings conference call on the call with me today are Ken <unk>, Chairman, President and Chief Executive Officer, and Bob Rockledge, Chief Financial Officer.
The earnings release and related slide presentation are available on our website quickly 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 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.
With that I'll turn the call over to Ken.
Thanks, Karen and thank you all for joining our call we capped off a record year with strong fourth quarter results across sales operating profit earnings per share and cash flow metrics.
Demand trends remain robust and our continued manufacturing conversion allowed us to again make modest headway into the order backlog.
Shortly after year end, we added to our suite of Smartwater offerings, acquiring <unk> and unity network monitoring assets as previously announced.
I want to thank all of our employees for their efforts in delivering another fantastic year for Badger meter I'll talk more about the acquisition provide a recap of the year and discuss our outlook later in the call for now I'll turn it over to Bob to go through the details of the quarter.
Thanks, Ken and good morning, everyone turning to slide four our total sales in the fourth quarter were in line with our expectations at $182 4 million up 24% compared to a $147 3 million in the same period last year.
This brought our full year 2023 sales to a new milestone exceeding $700 million, specifically $703 6 million or 24% above 2022 sales of $565 6 million.
Total utility water product line sales increased 28% year over year in the fourth quarter and the same percentage on a full year basis.
As we've noted all your demand for our suite of utility Smartwater solutions continued to benefit from underlying secular growth drivers coupled with the differentiated performance of our innovative offerings.
In the quarter, we delivered on continuing strong cellular Ams demand, which translated into higher sales of Orion cellular endpoints E series ultrasonic meters and Beacon software as a service revenue.
Additionally, water quality and pressure monitoring sales contributed to the top line growth.
There are a few highlights within the full year sales growth that I'd like to touch on.
First software as a service revenues exceeded $42 million in 2023 up 27% year over year.
Our international utility revenue grew more than 30% year over year, albeit from a small base.
<unk>, which we acquired at the beginning of 2023 delivered pro forma sales growth of approximately 60% also from a small base a sign of both broader market adoption and our early integration efforts.
Unnamed Host: Well, good morning, and thank you for joining the Badger Meter fourth quarter and full year 2023 Earnings Conference Call. On the call with me today are Ken Bockhorst, Chairman, President, and Chief Executive Officer, and Bob Wrocklage, Chief Financial Officer. The earnings release and related slide presentation are available on our website. 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 and SEC filings.
And while we again saw a slight increase in the penetration of ultrasonic meters as a percent of our metering units mechanical meters continuing to command a leading position in the north American utility market for customers of all sizes for a variety of fundamental reasons.
Turning to the flow instrumentation product line sales grew modestly in the quarter and were up 7% on a full year basis with solid demand experienced in water related markets, partially offset by lower sales associated with the deemphasize general industrial markets.
Looking at margin performance continued strong execution at both the gross margin in FCA lines contributed to the robust 230 basis point increase in operating margins in the fourth quarter, reaching a record 17, 6% versus 15, 3% in the comparable quarter last year.
Karen Bauer: 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. With that, I'll turn the call over to Ken.
Gross profit dollars increased $14 $5 million year over year and as a percent of sales increased 50 basis points to 39, 2% versus 38, 7% last year.
Thanks Karen, and thank you all for joining our call. We capped off a record year with strong fourth-quarter results across sales, operating profit, earnings per share, and cash flow metrics. Demand trends remained robust, and our continued manufacturing conversion allowed us to again make modest headway into the order backlog. Shortly after year-end, we added to our suite of smart water offerings by acquiring the TELOG and Unity Network Monitoring Assets as previously announced.
The combination of higher volumes and favorable product mix led to the solid year over year improvement.
We remain pleased with overall gross margins demonstrating the gradual yet durable structural mixed benefit inherent within our smartwater portfolio.
SCA expenses in the fourth quarter were $39 $4 million, an increase of $4 $9 million year over year, which included higher personnel related costs, such as head count salaries and annual bonus incentives. The addition of <unk> with its related intangible asset amortization also contributed to the dollar increase.
I want to thank all of our employees for their efforts in delivering another fantastic year for BadgerMeter. I'll talk more about the acquisition, provide a recap of the year, and discuss our outlook later in the call. For now, I'll turn it over to Bob to go through the details of the quarter. Thanks, Ken, and good morning.
Yet as we have demonstrated all year, even with the higher spend levels to support growth SGA as a percent of sales declined 180 180 basis points to 21, 6% in the fourth quarter from 23, 4% in the comparable prior year period.
Turning to slide four, our total sales in the fourth quarter were in line with our expectations at $182.4 million, up 24% compared to $147.3 million in the same period last year. This brought our full-year 2023 sales to a new milestone exceeding 700 million, specifically 703.6 million, or 24% above 2022 sales of 565.6 million. Total utility water product line sales increased 28% year-over-year in the fourth quarter and the same percentage on a full year-over-year basis. As we have noted, all your demand for our suite of utility smart water solutions continued to benefit from underlying secular growth drivers, coupled with the differentiated performance of our innovative offer. In the quarter, we delivered on continuing strong cellular AMI demand, which translated into higher sales of Orion cellular endpoints, E-series ultrasonic meters, and Beacon software as a service revenue. Additionally, water quality and pressure monitoring sales contributed to the top line growth. There were a few highlights within the full year sales growth that I'd like to touch on. First, software-as-a-service revenues exceeded $42 million in 2023, up 27% year-over-year. Our international utility revenue grew more than 30% year-over-year, albeit from a small base.
Our effective income tax rate for the fourth quarter was a bit higher than the full year average at 26, 1%.
Incorporating that effective tax rate as well as interest income on our cash balances, we delivered EPS of <unk> 84, compared to <unk> 60 in the prior quarter, representing a 40% improvement.
Working capital as a percent of sales was 22, 1% consistent with the prior year end.
While overall working capital increased in total dollars to support growth. We were pleased with the overall working capital efficiency, recognizing we have improvement opportunities in inventory as we move forward.
Free cash flow for the fourth quarter was a record $35 9 million and improved from a year ago, primarily on the higher earnings for the full year free cash flow was a record at $98 $1 million with free cash flow conversion of net earnings at 106%.
With that I'll turn the call back over to Ken.
Thanks, Bob turning to slide five I want to spend a few minutes on our recently announced tuck in acquisition.
The <unk> brand of remote telemetry units, our RT use along with the unity monitoring software bring additional capabilities to our smartwater offerings in the form of remote monitoring access across utility wastewater and storm water and source water applications.
Sirenix, which we acquired at the beginning of 2023, delivered pro forma sales growth of approximately 60%, also from a small base, a sign of both broader market adoption and our early integration efforts. And while we again saw a slight increase in the penetration of ultrasonic meters as a percent of our metering units, mechanical meters continue to command a leading position in the North American utility market for customers of all sizes for a variety of fundamental reasons. Turning to the flow instrumentation product line, sales grew modestly in the quarter and were up 7% on a full-year basis, with solid demand experienced in water-related markets partially offset by lower Looking at margin performance, continued strong execution at both the gross margin and SEA lines contributed to the robust 230 basis point increase in operating margins in the fourth quarter, reaching a record 17.6% versus 15.3% in the comparable quarter last year.
It also brings talent with the expertise to assist our customers in applying these capabilities.
For example, the acquired hardware portfolio add certain complementary products, such as hydrant mounted pressure devices and flexible are to use for external sensor integrations.
These products are cellular enabled and add flexibility and edge computing for real time monitoring.
The devices connect seamlessly to a secure cloud software platform with Gis centric interface robust device management flexible dashboards and our suite of analytical tools that enable data driven decision making.
Application examples range from the monitoring of water depth at an aquifer or well in a water stressed region utilizing a single sensor to a full suite of instruments at a pumping station to monitor flow level pump health water quality pressure and more.
While overall modest in size with sales and purchase price in the mid single digit range and millions. We believe these added solutions bolster our growing capabilities in full network monitoring and continue to competitively differentiate badger meters suite of offerings in the market.
Gross profit dollars increased $14.5 million year over year, and as a percent of sales, it increased 50 basis points, so 39.2% versus 38.7% last year. The combination of higher volumes and favorable product mix led to the solid year-over-year improvement. We remain pleased with overall gross margins, demonstrating the gradual, yet durable, structural mixed benefit inherent within our smart water portfolio. SEA expenses in the fourth quarter were $39.4 million, an increase of $4.9 million year-over-year, which included higher personnel-related costs such as headcount, salaries, and annual bonuses. The addition of Cyrenax with its related intangible asset amortization also contributed to the dollar increase.
Moving on to slide six finishing out 2023 represents a bit of a milestone for me five years as CEO of badge as the CEO of Badger meter.
During that time, the badger meter team has done a tremendous job of evolving and advancing what was already a good business into a great one through developing and executing on our growth strategy.
First and foremost I'd callout, our evolution to a smart water management company effectively leveraging our innovation leadership and targeted acquisitions to build on the suite of Tailorable solutions ready to address the persistent macro challenges facing the water industry.
Yet, as we have demonstrated all year, even with the higher spend levels to support growth, SEA as a percent of sales declined 180 basis points, to 21.6% in the fourth quarter from 23.4% in the comparable prior year. Our effective income tax rate for the fourth quarter was a bit higher than the full-year average at 26.1%.
We've executed the multiyear transition to more direct sales efforts building out our team of experts across smart metering advanced communication technologies water quality full water network monitoring and software.
We've built on the trust earned over our nearly 119 years, becoming an even more valued partner to our customer base.
Incorporating that effective tax rate as well as interest income on our cash balance, we delivered EPS of $0.84 compared to $0.60 in the prior quarter, representing a 40% improvement. Working capital as a percent of sales was 22.1%, consistent with the prior year end. While overall working capital increased in total dollars to support growth, we were pleased with the overall working capital efficiency. Recognizing we have improvement opportunities in inventory as we move forward, free cash flow for the fourth quarter was a record $35.9 million and improved from a year ago primarily on higher earnings. For the full year, free cash flow was a record at $98.1 million, with free cash flow conversion of net earnings at 106%.
We've advanced the culture of continuous improvement across not just operations, but working capital management pricing excellence talent management and development and <unk>.
Sustainability really across all of our enterprise business processes, which have enabled our record results.
The tangible outcome of these efforts are displayed here on slide seven.
We've distinguished out performance by executing our strategy is exceptionally well in the face of a multitude of macro challenges for example in the past five years, we've delivered over a 13% compounded annual growth rate in total sales now exceeding the $700 million milestone revenue run rate.
We've grown our software revenues at a 28% CAGR to over $42 million, we've improved our margins, reaching 16% operating profit as a percent of sales in 2023 with 220 basis points of improvement over pre COVID-19 levels, despite inflation and supply chain challenges.
With that, I'll turn the call back over to Ken. Thanks, Bob. Turning to slide five, I want to spend a few minutes on our recently announced tuck-in acquisition. The TELOG brand of Remote Telemetry Units, or RTUs, along with the Unity monitoring software bring additional capabilities to our smart water offerings in the form of remote monitoring access across utility, wastewater, stormwater, and source water applications.
We've reduced our working capital intensity and consistently generated free cash flow in excess of 100% of net earnings enabling our ability to continue as the innovation leader in our market return cash to shareholders in the form of dividends achieving dividend aristocrat status with a track record of 31 years of consecutive annual dividend increase.
It also brings talent with the expertise to assist our customers in applying these capabilities. For example, the acquired hardware portfolio adds certain complementary products such as hydrant-mounted pressure devices and flexible RTUs for external sensor integration. These products are cellular-enabled and add flexibility and edge computing for real-time monitoring. The devices connect seamlessly to a secure cloud software platform with a GIS-centric interface, robust device management, flexible dashboards, and a suite of analytical tools that enable data-driven decision making. Application examples range from the monitoring of water depth at an aquifer or well in a water-stressed region utilizing a single sensor to a full suite of instruments at a pumping station to monitor flow, level, pump health, water quality, pressure, and more.
<unk>.
And to execute value accretive acquisitions to further enhance our portfolio of Smartwater solutions I couldnt be more proud of the global teams achievements over the past five years.
Finally, turning to our outlook I'm, even more excited about the next five years as I've been about the past five at a macro level. Our solutions continue to see growing adoption as we address the variety of persistent macro water challenges customers face, enabling them to be more efficient resilient and sustainable what their water systems.
Our durable business model is underpinned by replacement driven demand secular Ami adoption drivers, an expanding need for real time water quality information and a growing proportion of recurring SaaS revenues.
Our strong backlog, along with constructive customer budgets and inventory levels are supportive of future sales growth.
While overall modest in size, with sales and purchase price in the mid-single-digit range in millions, we believe these added solutions bolster our growing capabilities in full network monitoring and continue to competitively differentiate BadgerMeter's suite of offerings in the market. Moving on to slide six, finishing out 2023 represents a bit of a milestone for me, five years as CEO of Badger as the CEO of Badger Meter. During that time, the Badger Meter team has done a tremendous job evolving and advancing what was already a good business into a great one through developing and executing on our growth strategy. First and foremost, I'd call out our evolution to a smart water management company, effectively leveraging our innovation leadership and targeted acquisitions to build on the suite of tailorable solutions ready to address the persistent macro challenges facing the water industry.
Although as we've consistently communicated the rate of top line growth is expected to moderate from recent levels and will not be linear and delivery.
This rate of growth moderation is simply law of larger numbers math.
Finally, while not anticipated to be meaningful incremental opportunities associated with infrastructure funding could provide modest potential upside and we're well positioned to capitalize on them.
Yeah.
The continuation of positive structural sales mix and SBA leverage drivers demonstrated in our business are expected to provide gradual margin improvement year over year.
Finally, our cash flow generation and debt free balance sheet provide us with ample capacity to execute our capital allocation priorities, including an attractive funnel of organic and inorganic strategic growth investments.
I want to again, thank the entire badger meter team for their tremendous efforts and accomplishments in 2023 and I look forward to executing on the many opportunities ahead with that operator. Please open the line for questions.
We've executed the multi-year transition to more direct sales efforts, building out our team of experts across smart metering, advanced communication technologies, water quality, full water network monitoring, and software. We've built on the trust earned over our nearly 119 years, becoming an even more valued partner to our customer base. We've advanced a culture of continuous improvement across not just operations but working capital management, pricing excellence, talent management and development, and sustainability, really across all of our enterprise business processes, which have enabled our record results. The tangible outcome of these efforts is displayed here on slide 7.
Yeah.
Thank you we will now start today's Q&A session.
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Followed by one on your telephone keypad now.
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Last question today comes from Nathan Jones from Stifel. Your line is now open. Please go ahead.
Good morning, everyone.
Good morning Nathan.
I guess I'll just start off with a couple of questions on the outlook.
I mean, you guys had said long time, the business you'd probably be in that mid single to high single digit organic growth rate.
We've distinguished our performance by executing our strategies exceptionally well in the face of a multitude of macro challenges. For example, in the past five years, we've delivered over 13% compounded annual growth rate and total sales, now exceeding the $700 million milestone revenue run rate. We've grown our software revenues at a 28% CAGR to over $42 million.
Clearly been running significantly ahead of that over the last few years is that part of the range that we should expect for 2024 are there anything that you see in 2024 that would meaningfully deviate from from the long term.
Average outlook.
Yeah. Thanks, Nathan so so we.
We've improved our margins, reaching 16% operating profit as a percent of sales in 2023, with 220 basis points of improvement over pre-COVID levels, despite inflation and supply chain challenges. We've reduced our working capital intensity and consistently generated free cash flow in excess of 100% of net earnings, enabling our ability to continue as the innovation leader in our market, return cash to shareholders in the form of dividends, achieve dividend aristocrat status with a track record of 31 years of consecutive annual dividend increases, and execute value-accretive acquisitions to further enhance our portfolio of smart water solutions. I couldn't be more proud of the global team's achievements over the past five years.
As you pointed out we used to say.
Few years back that we were in that mid single digits throughout the strategic cycle. As you know, we don't provide guidance for quarters or years, we tuck in strategic cycles.
For the past year, or so we've been talking pretty openly about being confident to be in the high single digits through the strategic mode and we feel.
Certainly reinforcing that today that our outlook is something that we're excited about we still come into the year with a tremendous amount of positivity and <unk>.
I know everyone likes to talk about backlog and we don't we don't provide guidance on that either but.
An interesting point would be that coming into 2024, our backlog is still higher than it was coming into 2023. So.
Optimism still remains strong going forward.
I guess the question a follow up question to that is the strategic cycle then.
Finally, turning to our outlook, I'm even more excited about the next five years as I was about the past five. At a macro level, our solutions continue to see growing adoption as we address the variety of persistent macro water challenges customers face, enabling them to be more efficient, resilient, and sustainable with their water system. Our durable business model is underpinned by replacement-driven demand, secular AMI adoption drivers, an expanding need for real-time water quality information, and a growing proportion of recurring SAS revenue.
Can we stop that from kind of 2023.
Say your expectation is maybe high single digits over the next five years, because I mean, if I looked at it for say 2021, and then it would be different.
Kind of outlook, because you considerably outperformed data loss.
Yes, yes, Nathan that is safe to say, we are talking about going forward not including the double digit performances over the past couple of years.
Okay.
Great.
That's helpful. Maybe on incremental margins, maybe just one for Bob.
Our strong backlog, along with constructive customer budgets and inventory levels, are supportive of future sales growth. However, as we've consistently communicated, the rate of top line growth is expected to moderate from recent levels and will not be linear in delivery. This rate of growth moderation is simply the law of larger numbers math.
Kind of expectations as we go into 2024 over the next strategic cycle out there.
Increased incremental investments you need to make to support growth or anything like that that might impact the long term outlook for incremental margins, then where does that sit today.
Yes, I would say real real no change from our historic position, we think about ourselves.
Finally, while not anticipated to be meaningful, incremental opportunities associated with infrastructure funding could provide modest potential upside, and we're well positioned to capitalize on them. The continuation of positive structural sales mix and SEA leverage drivers demonstrated in our business is expected to provide gradual margin improvement year over year. Finally, our cash flow generation and debt-free balance sheet provide us with ample capacity to execute our capital allocation priorities, including an attractive funnel of organic and inorganic strategic growth investments. I want to again thank the entire Badger Meter team for their tremendous efforts and accomplishments in 2023, and I look forward to executing on the many opportunities ahead. With that, Operator, please open the line for questions. Good morning, everyone. Morning, Nathan.
Both the op and EBIT EBITDA line as being 25% Incrementals. Just so happened that this Q4 that were talking about was modestly ahead of that but if you look at the full year.
Pretty much right in that zone, so no real change moving forward.
Awesome. Thank you very much for taking the questions I'll pass it on.
Yeah.
Our next question today comes from Andrew <unk> from Deutsche Bank. Your line is now open. Please go ahead.
Hey, Thanks, Good morning, everyone kind of wanted to follow up on that.
Incremental question.
Related to that.
Costs.
Sales dropped a lot year over year, which was impressive I just wanted to add any other color you can provide on kind of what.
Do you drive therefore simply holding costs steady while you grew your sales impressively and do you think you can.
And kind of that low 22% of sales going forward.
Yes, so I mean.
Any case, a single quarter doesn't make a year and a year does not make a strategic plan I think the way I would think about it is yes, clearly Q4 had a lower rate of SGA as a percent of sales. If you look at 2023 as a whole our FCA as a percent of sales was 22, 5%. That's about 100 basis point improvement over 2022, I would say we often.
I guess I'll just start off with a couple questions on the outlook. You guys have said long-term the business should kind of be in that mid-single to high single-digit organic growth rate, and it has clearly been running significantly ahead of that over the last few years. Is that kind of the range that we should expect for 2024? Are there any things that you see in 2024 that would meaningfully deviate you from the long-term kind of average outlook? Yeah, thanks, Nathan.
Talk about C, 8% as a opportunity for leverage and has an opportunity to drive.
EBITDA and operating profit expansion year over year, where continuous improvement based business and so I would continue to expect us to be able to accrete that but sizing that is not something we will do but.
So we, you know, if, as you pointed out, we used to say, you know, a few years back that we were in the mid single digits throughout the strategic cycle. As you know, we don't provide guidance for quarters or years; we talk in strategic cycles. And for the past year or so, we've been talking, you know, pretty openly about being confident to be in the high single digits through the strategic mode. And we feel certainly reinforcing that today that our outlook is something that we're excited about. We still come into the year with a tremendous amount of positivity and tailwinds.
Again, 21, 21, 6% is an outlier that helped us to get to 'twenty, two and a half for the year and I think as as we would say with many aspects of our business, we strive to make those improvements year over year.
Okay, Great and then next I noticed in the press release, there is some new tax about water quality and pressure monitoring contributing to your growth. So just can you size that market internationalizing. It.
Those businesses are.
Yes.
So youre kind of growth rates going forward.
I know everyone likes to talk about backlog, and you know, we don't. We don't provide guidance on that either, but an interesting point would be that, coming into 2024, our backlog is still higher than it was coming into 2023. So optimism still remains strong going forward. I guess the question, a follow-up question to that is, the strategic cycle then, can we start that from kind of 2023 and say your expectation, maybe high single digits over the next five years? Because, I mean, if I looked at it from the perspective of anyone else, then it would be a different kind of outlook because you considerably outperformed that overall. Yeah, yeah, Nathan, that is safe to say we are talking about going forward Great, I think that's helpful.
So we won't size them I mean traditionally we talk about those businesses for the first year after acquisition and then they sort of fold into the base. If you will I think the purpose in that specific comment as to say, yes. They are growing.
You think about our high single digit growth that Ken spoke to and again all of those businesses are reported as part of the utility water line of business. If we were to take that high single digit growth over the strategic cycle. We do think about those pieces, maybe growing faster than high single digits, but again they are starting from a much smaller base.
Our base that we wound size.
Yeah, Okay, great. Thanks, a lot.
Our next question today comes from.
Your line is now.
Speaker Change: Yes, good morning.
Speaker Change: Can you maybe just framing the outlook.
Single digits.
Speaker Change: As well as you go forward you did make a comment around so it won't always be linear which.
Maybe on incremental margins. Bob, what kind of expectations as we go into 2024 or beyond? So, what's the outlook for the next cycle? Are there any increased incremental investments you need to make to support growth or anything like that that might impact the long-term outlook for incremental margins, and where does that fit today? So I would say there is really no change from our historic position. We think about ourselves at both the OP and EBITDA line as being 25% incremental. It just so happened that this Q4 that we're talking about was modestly ahead of that, but if you look at the full year, pretty much right in that zone.
I understand as well and I suppose we saw that in the fourth quarter with.
Speaker Change: Fewer shipping days that you've called out as well.
Speaker Change: I'm just curious as we go forward is there anything to think about here in the first quarter.
Anomalous like that or.
Speaker Change: Just maybe.
Speaker Change: How we should think about it from a linearity standpoint start to year.
Yes, so I would think over the long term I think everybody appreciates the nonlinearity piece the only piece I'd highlight about the first quarter is obviously during 2022 as we delivered the roughly $704 million of sales. There was a ramp Q1 to Q2 to Q3 and so the only thing I would call about about Q1 2024 is against an easier.
So, no real change moving forward. Awesome. Thanks very much.
Speaker Change: Comp.
Speaker Change: But that's one quarter with Infor.
Operator: If you have any questions, I'll pass them on. Our next question today comes from Andrew Creel. Hey, thanks. Good morning, everyone.
Speaker Change: Yes, Okay fair enough.
Speaker Change: Also for the year, you finished up with capital spending.
Speaker Change: It was up year over year like you had thought but at a level that was.
Kind of wanted to follow up on a mental question and related to that the SCA cost failure. Robert Snowden, kind of at the low set of sales going forward. Yeah, so I mean, as in any case, a single quarter doesn't make a year, and a year does not make a strategic plan. I think the way I would think about it is, yes, clearly, Q4 had a lower rate of SEA as a percent of sales. If you look at 2023, as a whole, our SEA as a percent of sales was 22 and a half percent. That's about a 100 basis points of improvement over 2022. I would say, you know, we often talk about SEA percent as an opportunity for leverage and as an opportunity to drive EBITDA and operating profits, and expansion year over year. We're a continuous improvement-based business. And so I would continue to expect us to be able to accommodate that, but sizing that is not something we will do.
Speaker Change: It was a good bit above recent history I'm just curious.
Speaker Change: How we should think about.
Speaker Change: Our level of investment as we enter.
Speaker Change: 24 around that number would go down.
Speaker Change: Sustained at that level.
Speaker Change: Yes, so rabat, while the number is up on a year over year basis, its still pretty small I think if you compare it to anyone else in the industry or just in general industry. So I think we're at a period, where we've had significant growth and we've had to make some investments in capacity in certain product lines that.
Speaker Change: I would suspect will continue at about the rate that we're at but we're not certainly not looking at any significant increases from from where we from where we are today.
Okay.
Speaker Change: And just last question.
Speaker Change: Ken you touched on the new.
Speaker Change: Asset did you bring in from.
Speaker Change: From Trimble could you speak about the go to market capabilities, there that come with that what you are maybe able to overlay.
But, you know, again, 21, 21.6% is an outlier. That helped us to get to 22 and a half for the year. And I think as we would say, in many aspects of our business, we strive to make those improvements year over year. Okay, great. And then next, just, I noticed in the press release, there was some new text about water quality and pressure monitoring contributing to your growth. So just can you size or kind of dimensionalize, you know, how big those businesses are next? So those are additives to your kind of growth rates going forward. So we won't size them.
Speaker Change: With that and just trying to think about opportunities for sales leverage.
Speaker Change: Sales synergies with this business with you.
Ken: Yes, sure so again as I pointed out it's relatively small.
Speaker Change: Having said that it's really powerful. So this is just a really nice extension of how we built out the water quality and then as Bob mentioned before we integrate that into our utility business and our sales channels.
Speaker Change: We followed that with <unk> with the pressure monitoring and pressure loggers and more software and now how long is just another example, where our to use have been on our strategic <unk>.
Speaker Change: Roadmap here for a couple of years. So we're really excited to bring in the RT use to add more collection points throughout the distribution system or wastewater facility. So the ability to integrate this won't be that.
I mean, traditionally, we talk about those businesses for the first year after acquisition, and then they sort of fold into the base, if you will. I think the purpose of that specific comment is to say, "Yes, they're growing." If you think about our high single-digit growth that Ken spoke about, and again, all those businesses are reported as part of the utility water line of business, if we were to take that high single-digit growth over the strategic cycle, we do think about those pieces maybe growing faster than high single digits. But again, they're starting from a much smaller base, a base that we won't size. Okay, great. Thanks so much. And our next question today comes from Shane and Bob. Yes, good morning.
Speaker Change: It won't be that difficult so we've already begun.
Speaker Change: Working through at our distribution partners, our sales team really understands what it takes to make this part of the business. We've been extremely happy with how we've integrated water quality and <unk> I think we have a model to do this and I think we'll hit the ground running quickly with Delek.
Speaker Change: Very good thank you.
Sure.
Sure.
Speaker Change: Just a reminder, if you would like to ask a question. Please press star followed by one on your telephone.
Speaker Change: Pat.
Speaker Change: Please press star followed by Cade.
Speaker Change: Our next question today comes from Brian Connors from Northcoast Research. Your line is now open.
Speaker Change: Sure.
Ryan Michael Connors: Great. Thanks for taking my question.
Ryan Michael Connors: First off I wanted to congratulate you on your on your clean numbers again, its really appreciated that you guys don't resort to.
Ken, you may, just in framing the outlook, high single digits. As well, as you go forward, you did make a comment around, you know, some things it won't always be linear, which, Yeah, I understand as well. And I suppose we saw that in the fourth quarter with the fewer shipping days you've called out as well. I'm just curious, as we go forward, is there anything to think about here in the first quarter that's anomalous like that, or just maybe how we should think about it from a linearity standpoint.
Ryan Michael Connors: The non-GAAP stuff and I think your numbers are particularly impressive when you consider a lot of your peers are trying to adjust their way to success. So it's good to see the way you report cleanly, but.
Ryan Michael Connors: Couple of questions first off on regard to going back to the prior question on kind of channels to market has your approach to channel channel to market changed at all Ken I know that.
Ryan Michael Connors: A few years ago Badger was very aggressive on buying forward and vertically integrating down into the channel and.
Ryan Michael Connors: We've heard some some talk recently that the company is actually going back to third party distribution in certain targeted territories are those just one off things or has your perspective, there changed and Youre looking to go back to to a broader <unk>.
Ryan Michael Connors: Third party footprint.
Speaker Change: Yes, Ryan one of the things I think you've come to know about US is we talk a lot about continuous improvement and regular cycles, where we review the business and we tweak as required our strategy Hasnt changed at all there are certain areas of the country, where perhaps a picking up a distributor for particular region might make sense there.
Yeah, so I would think over the long term, I think everybody appreciates the non-linearity piece. The only thing I'd highlight about the first quarter is, you know, obviously during 2022, as we delivered the roughly $704 million in sales, there was a ramp from Q1 to Q2 to Q3. And so the only thing I'd call about Q1 2024 is it's against an easier comp. But that's one quarter within
Speaker Change: In other cases, where we take things direct because it makes more sense. So.
Speaker Change: Our overall mix of how much is sold direct versus how much is sold through distribution Hasnt changed at all these are just minor tweaks.
Yeah. Okay, fair enough. Also, for the year, you finished up with capital spending. It was up year over year, like you had thought, but at a level that's a good bit below recent history. I'm just curious how we should think about, you know, your level of investment as we enter. If we enter 24 around that number, would it go down?
Ryan: Got it Okay and then my other question was just on the competitive environment and obviously, it's been a very noisy time for the industry I think badger meter performed exceptionally well in terms of your supply chain management relative to some of your peers, but now that now that's that whole situations normalize.
Ryan: I know there is some some saying well maybe some of those peers will be.
staying at that level. Yeah, so Rob, while the number is up on a year-over-year basis, it's still pretty small, I think, if you compare it to anyone else in the industry or just in the general industry. So I think we're in a period where we've had significant growth and we've had to make some investments in capacity and certain product lines that, you know, I would suspect will continue at about the rate that we're at, but we're certainly not looking at any significant increases from where we are today. Just one last question.
Ryan: Tougher competitors going forward than they had been for a while when they were really struggling with that aspect of things I Wonder if you can comment on.
Ryan: On that in terms of the competitive environment and also.
Ryan: In terms of the new entry I know camp strip has been getting a lot of press.
Ryan: Out there and a lot of the Tradeshows, making noise about what theyre doing and I'm curious whether you had any comment on just the competitive landscape and how it's evolving.
Ryan: So two things.
Ryan: Again, I am sure you know and expect we spend a lot of time understanding every single competitor there or how they're doing what they offer how that compares to us and the one thing we've always been confident in is that we offer the most unique broadest and best portfolio for our customers whether that be mechanical meters plus.
Ken, you touched on the new assets that you're bringing in from Trimble. Could you speak about the go-to-market capabilities there that come with that, what you're maybe able to overlay with that, and just in trying to think about, you know, opportunities for sales leverage or sales synergies with this. Yeah, yeah, sure. So while it, you know, again, as I pointed out, it's relatively small. Having said that, it's really powerful.
Ryan: Ultrasonic, whether that's drive by radio plus.
Ryan: The lead in cellular for a decade, whether thats the best in class software to tie the whole thing together front to back we absolutely have a portfolio advantage that we can and will continue to defend.
So this is just a really nice extension of how we built out water quality. And then, as Bob mentioned, before we integrated that into our utility business and our sales channels, we followed that with Cyrenex with the pressure monitoring and pressure loggers and more software. And now, Tellog is just another example where RTUs have been on our strategic roadmap here for a couple of years. So we're really excited to bring in the RTUs to add more collection points throughout a distribution system or a wastewater facility. So the ability to integrate this won't be that difficult.
Ryan: And even as others continue to.
Ryan: Maybe get better what their supply chains.
Ryan: <unk> never slowed down and it's in a continued position to keep going.
Ryan: Then when you add to that our growing portfolio of being able to bundle solutions with water quality pressure monitoring are to us.
Other people have tried to come in and they just can't match, our portfolio and our 119 years of selling in the region. So we respect every competitor. We respect every entrant we feel uniquely positioned to continue to outperform.
Speaker Change: Yeah, well, it's evident in the results. So congrats on a great 23, the best of luck.
Speaker Change: Thank you.
Yeah.
Speaker Change: That concludes the Q&A portion of today's call I will now hand over to.
Karen Bauer for any final remarks.
So we've already begun working through it. Our distribution partners, and our sales team really understand what it takes to make this part of the business. We've been extremely happy with how we've integrated water quality into Cyrenex. I think we have a model to do this, and I think we'll hit the ground running quickly with Tellog.
Karen Bauer: Great. Thank you thanks to everyone for joining our call for your planning purposes. Our first quarter 2024 call is tentatively scheduled for April 18th I'll be around all day to take any follow up questions you might have have a great weekend.
Karen Bauer: Very good. Thank you. Sure. Just a reminder, if you would like to ask a question followed by one, our first question today comes from Ryan. Your line is now open, please go on.
Speaker Change: Thank you for joining today's Biogen meet that key for 2023 earnings call. You may now disconnect your lines.
Great, thanks for taking my question. First off, I wanted to congratulate you on your clean numbers again. It's really appreciated that you guys don't resort to a lot of the non-GAAP stuff. And I think your numbers are particularly impressive when you consider a lot of your peers are trying to adjust their way to success. So it's good to see the way you report cleanly.
Speaker Change: Thank you for joining today's Biogen meet that Keith with 2023.
But my couple of questions were, first off, on regard to going back to the prior question on the kind of channels to market, has your approach to the channel to market changed at all, Ken? I know that a few years ago, Badger was very aggressive on buying forward and vertically integrating down into the channel. I've heard some talk recently that the company is actually going back to third-party distribution in certain targeted territories. Are those just one-off things, or has your perspective there changed, and you're looking to go back?
Yeah, you know, Ryan, one of the things I think you've come to know about us is that we talk a lot about continuous improvement and regular cycles where we review the business, and we tweak as required. Our strategy hasn't changed at all. There are certain areas of the country where perhaps picking up a distributor for a particular region might make sense. There are other cases where we take things direct because it makes more sense. So our overall mix of how much is sold directly versus how much is sold through distribution hasn't changed at all. These are just minor tweaks.
Got it. Okay. And then my other question was just about the competitive environment. And obviously, it's been a very noisy time. For the industry, I think BadgerMeter performed exceptionally well in terms of your supply chain management relative to some of your peers. But now that that whole situation is normalized, I know there's something.
Well, maybe some of those peers will be tougher competitors going forward than they have been for a while when they were really struggling with that aspect of things. I wonder if you can comment on that in terms of the competitive environment and also in terms of the new entry. I know Camstrup's been getting a lot of press, out there at a lot of trade shows making noise about what they're doing, and I'm curious whether you could make any comment on just the competitive landscape and how it's evolved. So two things, as I'm sure you know and expect.
We spend a lot of time understanding every single competitor, how they're doing, what they offer, and how that compares to us. And the one thing we've always been confident in is that we offer the most unique, broadest, and best portfolio for our customers, whether that be mechanical meters plus ultrasonic, whether that's drive-by radios plus the lead-in cellular for a decade, whether that's the best-in-class software to tie the whole thing together front to back. We absolutely have a portfolio advantage that we can and will continue to defend. And even as others continue to maybe get better with their supply chains, ours never slowed down, and it's in a constant position to keep going. Then when you add to that our growing portfolio of being able to bundle solutions with water quality, pressure monitoring, RTUs, other people that try to come in, they just can't match our portfolio and our 119 years of selling in the region.
So we respect every competitor. We respect every entrant. We feel uniquely positioned to continue to outperform. Yep, it's evident in the results, so congrats on a grade of 23, best of luck.
Karen Bauer: Thank you. The Q&A portion of today's call I'll now hand back over to Karen Bauer. Great. Thank you. Thanks to everyone for joining our call. For your planning purposes, our first quarter 2024 call is tentatively scheduled for April 18. I'll be around all day to take any follow-up questions you might have. Have a great weekend, today's badge.