Badger Meter Inc. (NYSE:BMI) Q1 2018 Earnings Conference Call - Preliminary Transcript

Apr 18, 2018 • 11:00 am ET

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Badger Meter Inc. (NYSE:BMI) Q1 2018 Earnings Conference Call - Preliminary Transcript

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Presentation
Executive
Richard Johnson

residential and commercial meters and radios than the first quarter of last year. As Rich mentioned, we attribute the decrease in lower domestic volumes to timing of orders as well as to a slower start at the beginning of the year. We also believe weather played a role in the timing of orders, particularly in the northern regions.

Flow Instrumentation products represented 23.3% of sales for the first three months of 2018 compared to 22.7% during the same period in 2017. These sales increased $1.4 million or 6% to $24.5 million from $23.1 million in the same period last year. The increase is due to the continuing rebound of the oil and gas markets as well as strengthening of our distribution channels for the industrial markets we serve.

Gross margin as a percent of sales was 35% in the first quarter compared to 38% in the first quarter of last year. The lower volumes of products sold had a significant impact on the margin. Also contributing to the lower margin were higher brass costs and expenses associated with the shutdown of Badge Meter's Scottsdale, Arizona location. That project was completed by March 31, and all Scottsdale products are now being made at our Racine, Wisconsin facility. Helping margins somewhat were price increases on products sold, although we have yet to see the full impact of those January 1 price increases.

Selling, engineering and administration expenses for the first three months of this year increased $1.7 million or 6.7% to $26.8 million from $25.1 million in the first quarter of last year. The primary reasons for this increase are normal inflation increases and the additional expenses associated with the acquisitions that we completed after the first quarter of last year, namely D-Flow and Carolina Meter. Just a reminder that the primary reason for the D-Flow acquisition was not their book of business but their Ultrasonic expertise, the expenses at D-Flow are currently focused on developing the next-generation of E-series meters. Ken will comment on this in a moment.

The provision for income taxes as a percent of earnings before income taxes in the first quarter was 22.2% compared to 34.2% in the first quarter of last year. Almost all of the decrease was due to the lower federal tax rate, which went from 35% to 21%. This quarter also contains some nominal amounts of discrete credits to tax expense.

Net earnings then for the three months ended March 31 were $7.5 million or $0.26 per diluted share compared to $8.7 million or $0.30 per diluted share for the same period in 2017.

Our balance sheet remains solid. Cash provided by operations declined to $6.8 million for the first three months of this year from $12.4 million last year. Last year, we saw a drop in inventories from year-end until the end of the first quarter, which did not recur this year. That fact, along with lower earnings, accounts for the lower amount of cash generated from operations. Before me move on,