Badger Meter Reports Second Quarter 2018 Results

Badger Meter, Inc. (NYSE: BMI) today reported second quarter results for
the quarter ended June 30, 2018.

Second Quarter 2018 Highlights

• Net sales were a record $113,648,000 for the second quarter of 2018, a
  9.1% increase from sales of $104,176,000 for the second quarter of
  2017.
• Net earnings were $6,154,000 for the second quarter of 2018, a
  decrease of 42.0% from net earnings of $10,614,000 for the second
  quarter of 2017. Excluding the non-cash pension settlement charge
  discussed below, adjusted net earnings were a record $12,288,000 for
  the second quarter of 2018, a 15.8% increase from net earnings of
  $10,614,000 for the second quarter of 2017.
• Diluted earnings per share were $0.21 for the second quarter of 2018,
  a 41.7% decrease from diluted earnings per share of $0.36 for the
  second quarter of 2017. Excluding the non-cash pension settlement
  charge, adjusted diluted net earnings per share were $0.42 for the
  second quarter of 2018, a 16.7% increase from diluted earnings per
  share of $0.36 in the second quarter of 2017.
• The quarter’s results include the impact of a non-cash pension
  settlement charge of $8,200,000 ($6,134,000 or $0.21 per share
  after-tax) as the company continues to terminate its pension plan.

First Half 2018 Highlights

• Net sales were $218,689,000 for the first half of 2018, a 6.3%
  increase from sales of $205,782,000 for the first half of 2017.
• Net earnings for the first half of 2018 were $13,700,000, a decrease
  of 29.2% from net earnings of $19,363,000 in the first half of 2017.
  Excluding the non-cash pension settlement charge, adjusted net
  earnings were $19,834,000 for first half of 2018, a 2.4% increase from
  net earnings of $19,363,000 for the first half of 2017.
• Diluted earnings per share were $0.47 for the first half of 2018, a
  29.9% decrease from diluted net earnings per share of $0.67 for the
  first half of 2017. Excluding the non-cash pension settlement charge,
  adjusted diluted earnings per share were $0.68 for the first half of
  2018, a 1.5% increase from diluted earnings per share of $0.67 in the
  first half of 2017.
• The first half results include the impact of a non-cash pension
  settlement charge of $8,200,000 ($6,134,000 or $0.21 per share after
  tax) as the company continues to terminate its pension plan.

Operations Review

“In the second quarter, we achieved both record net sales and record
adjusted net earnings, driven by higher domestic municipal sales of our
flagship products, as well as increased international sales, most
notably in the Middle East,” said Richard A. Meeusen, chairman and chief
executive officer of Badger Meter. “As previously announced, the company
made the decision to terminate its pension plan in 2017. The second
quarter and first half 2018 results include the initial impact of
non-cash pension settlement charges in connection with that termination,
which we expect to be fully completed by the end of the third quarter.”

“Sales of our E-Series^® Ultrasonic water meters and ORION^®
Cellular endpoint radios grew significantly in the second quarter as
customers continue moving towards AMI fixed network systems,” said
Meeusen. “We recently expanded our municipal water product line with the
launch of our next-generation E-Series Ultrasonic meters for commercial
applications, offering our customers the first commercial water meter
with pressure and temperature data and a modular design that allows for
replaceable electronics. We continue to be at the forefront of new
technologies that conserve and measure water and are proud to offer our
customers this proven technology for commercial applications.”

Meeusen said domestic sales of flow instrumentation products also
increased in the second quarter in its target markets, driven by
continued improvements in the oil and gas, petrochemical and water and
wastewater industries.

Gross profit margin was 36.5% in the second quarter of 2018 compared to
39.4% in the second quarter of 2017. Higher healthcare expenses and
brass costs continued to provide some headwinds. In addition, the second
quarter included a greater mix of lower margin international water meter
sales.

Selling, engineering and administration expenses were higher in the
second quarter, primarily due to higher healthcare expenses, higher
selling costs and continued investments in research and development.

“We remain optimistic about the remainder of the year for a number of
reasons, including a sizable backlog, continued interest in our flagship
products and the recent moderating of copper prices,” said Kenneth C.
Bockhorst, president of Badger Meter. “Our confidence extends into 2019,
as we expect many of the strategic initiatives from 2018 to contribute
to our performance going forward.”

“Our opportunities for 2019 and beyond include Phyn, a joint venture
between Belkin International, Inc. and Uponor Corporation, which
utilizes our D-Flow^® ultrasonic technology in a smart water
monitoring system for residential use. Our ORION Cellular products will
be ready with LTE-M chips in the first quarter of 2019. These are the
next generation chips for business-to-business cellular communications,
allowing us to provide additional features for our customers while also
improving our cost position. And our inclusion in AT&T’s Smart City
Alliance will allow us to explore new ways our smart water solutions can
join forces with their industry-leading cellular networks to help water
utilities better benefit from smart water metering solutions,” said
Bockhorst. “We believe the ongoing acceptance of our products, continued
operational efficiencies and an unrelenting eye on innovation bodes well
for our future.”

Conference Call and Webcast

Badger Meter management will hold a conference call to discuss the
company’s second quarter 2018 results on Thursday, July 19, at 10:00 AM
Central/11:00 AM Eastern time.

Interested parties can listen to the call live on the Internet through
the company’s website: www.badgermeter.com or
by dialing 1-844-281-9843 and entering the passcode 7994507. Listeners
should dial in to the call at least 5-10 minutes prior to the start of
the call or should go to the website at least 15 minutes prior to the
call to download and install any necessary audio software.

A telephone replay of the conference call will be available
through Thursday, July 26, 2018, by dialing 1-855-859-2056 and entering
the passcode 7994507. The webcast will be archived on the company’s
website until its next earnings release.

About Badger Meter

Badger Meter is an innovator in flow measurement, control and
communications solutions, serving water utilities, municipalities, and
commercial and industrial customers worldwide. The Company’s products
measure water, oil, chemicals, and other fluids, and are known for
accuracy, long-lasting durability and for providing valuable and timely
measurement data. For more information, visit www.badgermeter.com.

Forward Looking Statements

Certain statements contained in this news release, as well as other
information provided from time to time by Badger Meter, Inc. (the
“Company”) or its employees, may contain forward looking statements that
involve risks and uncertainties that could cause actual results to
differ materially from those in the forward looking statements. The
words “anticipate,” “believe,” “estimate,” “expect,” “think,” “should,”
“could” and “objective” or similar expressions are intended to identify
forward looking statements. All such forward looking statements
are based on the Company’s then current views and assumptions and
involve risks and uncertainties. Some risks and uncertainties
that could cause actual results to differ materially from those
expressed or implied in forward looking statements include those
described in Item 1A of the Company’s Annual Report on Form 10-K for the
year ended December 31, 2017 that include, among other things:

• the continued shift in the Company’s business from lower cost,
  manually read meters toward more expensive, value-added automatic
  meter reading (AMR) systems, advanced metering infrastructure (AMI)
  systems and advanced metering analytics (AMA) systems that offer more
  comprehensive solutions to customers’ metering needs;
• the success or failure of newer Company products;
• changes in competitive pricing and bids in both the domestic and
  foreign marketplaces, and particularly in continued intense price
  competition on government bid contracts for lower cost, manually read
  meters;
• the actions (or lack thereof) of the Company’s competitors;
• changes in the Company’s relationships with its alliance partners,
  primarily its alliance partners that provide radio solutions, and
  particularly those that sell products that do or may compete with the
  Company’s products;
• changes in the general health of the United States and foreign
  economies, including to some extent such things as the length and
  severity of global economic downturns, international or civil
  conflicts that affect international trade, the ability of municipal
  water utility customers to authorize and finance purchases of the
  Company’s products, the Company’s ability to obtain financing, housing
  starts in the United States, and overall industrial activity;
• unusual weather, weather patterns or other natural phenomena,
  including related economic and other ancillary effects of any such
  events;
• economic policy changes, including but not limited to, trade policy
  and corporate taxation;
• the timing and impact of government funding programs that stimulate
  national and global economies, as well as the impact of government
  budget cuts or partial shutdowns of governmental operations;
• changes in the cost and/or availability of needed raw materials and
  parts, such as volatility in the cost of brass castings as a result of
  fluctuations in commodity prices, particularly for copper and scrap
  metal at the supplier level, foreign-sourced electronic components as
  a result of currency exchange fluctuations, tariffs, duties and/or
  lead times, and plastic resin as a result of changes in petroleum and
  natural gas prices;
• the Company’s ability to successfully integrate acquired businesses
  or products;
• changes in foreign economic conditions, particularly currency
  fluctuations in the United States dollar, the Euro and the Mexican
  peso;
• the inability to develop technologically advanced products;
• the failure of the Company’s products to operate as intended;
• the inability to protect the Company’s proprietary rights to its
  products;
• the Company’s expanded role as a prime contractor for providing
  complete technology systems to governmental entities, which brings
  with it added risks, including but not limited to, the Company’s
  responsibility for subcontractor performance, additional costs and
  expenses if the Company and its subcontractors fail to meet the
  timetable agreed to with the governmental entity, and the Company’s
  expanded warranty and performance obligations;
• disruptions and other damages to information technology, other
  networks, operations and property (Company or third party) due to
  breaches in data security or any other cybersecurity attack;
• transportation delays or interruptions;
• violations or alleged violations of the U.S. Foreign Corrupt
  Practices Act (FCPA) or other anti-corruption laws and the Foreign
  Account Tax Compliance provisions of the Hiring Incentives to Restore
  Employment Act (referred to as FATCA);
• the loss of or disruption in certain single-source suppliers; and
• changes in laws and regulations, particularly laws dealing with the
  content or handling of materials used in the Company's products.

All of these factors are beyond the Company's control to varying
degrees. Shareholders, potential investors and other readers are
urged to consider these factors carefully in evaluating the forward
looking statements contained in this news release and are cautioned not
to place undue reliance on such forward looking statements. The
forward looking statements made in this document are made only as of the
date of this document and the Company assumes no obligation, and
disclaims any obligation, to update any such forward looking statements
to reflect subsequent events or circumstances.

Non-GAAP Financial Measures

This press release includes financial measures that have not been
calculated in accordance with U.S. generally accepted accounting
principles (“GAAP”) and are therefore referred to as non-GAAP financial
measures. The non-GAAP measures detailed below should be considered by
users as supplemental information to the equivalent GAAP measures,
intended to assist investors in better understanding the Company's
financial results. These non-GAAP measures should not be considered as a
substitute for, or superior to, measures of financial performance
prepared in accordance with GAAP. These non-GAAP measures may not be the
same as similarly titled measures used by other companies due to
possible differences in methodology and circumstances.

The non-GAAP measures included in this press release are adjusted net
earnings and adjusted diluted net earnings per share, each of which was
calculated based on net income excluding a pension termination
settlement charge, which is also a non-GAAP measure. The pension
termination settlement charge is considered by the Company to be unique
as the charge was not related to the period that it was recognized. The
Company believes that these non-GAAP measures provide a beneficial
perspective on the underlying business results and therefore are a means
of assessing period-over-period results. This press release
includes a reconciliation of these non-GAAP measures to the comparable
GAAP measures.

Badger Meter company news is available 24 hours a day, online at: http://www.badgermeter.com.

BADGER METER, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except share and earnings per share data)
					Three Months Ended				Six Months Ended
					June 30,		June 30,		June 30,		June 30,
					2018		2017		2018		2017
					(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Net sales					$113,648		$104,176		$218,689		$205,782
Cost of sales					72,144		63,122		140,437		126,078
Gross margin					41,504		41,054		78,252		79,704
Selling, engineering and administration					25,153		24,214		51,927		49,299
Operating earnings					16,351		16,840		26,325		30,405
Interest expense, net					409		147		699		325
Other pension and postretirement costs					8,031		249		8,012		345
Earnings before income taxes					7,911		16,444		17,614		29,735
Provision for income taxes					1,757		5,830		3,914		10,372
Net earnings					$6,154		$10,614		$13,700		$19,363
Earnings per share:
	Basic				$0.21		$0.37		$0.47		$0.67
	Diluted				$0.21		$0.36		$0.47		$0.67
Shares used in computation of earnings per share:
	Basic				28,963,373		28,938,451		28,965,735		28,938,851
	Diluted				29,133,443		29,097,820		29,159,400		29,109,675
BADGER METER, INC.
RECONCILIATION OF NON-GAAP PERFORMANCE MEASURES TO GAAP PERFORMANCE MEASURES
(in thousands, except share and earnings per share data)
					Three Months Ended				Six Months Ended
					June 30,		June 30,		June 30,		June 30,
					2018		2017		2018		2017
					(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Net earnings (GAAP measure)					$6,154		$10,614		$13,700		$19,363
Pension termination settlement charge, net of tax					6,134		-		6,134		-
Adjusted net earnings					$12,288		$10,614		$19,834		$19,363
Diluted earnings per share (GAAP measure)					$0.21		$0.36		$0.47		$0.67
Pension termination settlement charge, net of tax					0.21		-		0.21		-
Adjusted diluted earnings per share					$0.42		$0.36		$0.68		$0.67

BADGER METER, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
Assets						June 30,			December 31,
						2018			2017
						(Unaudited)
Cash					$	12,125		$	11,164
Receivables						65,303			58,210
Inventories						85,656			85,172
Other current assets						5,070			4,077
Total current assets						168,154			158,623
Net property, plant and equipment						92,675			93,601
Intangible assets, at cost less accumulated amortization						59,113			59,326
Other long-term assets						10,056			12,753
Goodwill						71,109			67,424
Total assets					$	401,107		$	391,727
Liabilities and Shareholders' Equity
Short-term debt					$	42,430		$	44,550
Payables						28,092			28,601
Accrued compensation and employee benefits						9,632			15,509
Other liabilities						5,473			4,449
Total current liabilities						85,627			93,109
Deferred income taxes						1,294			3,434
Long-term employee benefits and other						25,716			17,732
Shareholders' equity						288,470			277,452
Total liabilities and shareholders' equity					$	401,107		$	391,727

View source version on businesswire.com: https://www.businesswire.com/news/home/20180718005846/en/

Source: Business Wire
(July 18, 2018 - 4:15 PM EDT)

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