Itron Announces First Quarter 2013 Financial Results

  Itron Announces First Quarter 2013 Financial Results

Business Wire

LIBERTY LAKE, Wash. -- April 26, 2013

Itron, Inc. (NASDAQ:ITRI) announced today financial results for its first
quarter ended March 31, 2013. Highlights include:

  *Quarterly revenues of $448 million;
  *Quarterly GAAP diluted net earnings per share of 6 cents;
  *Quarterly non-GAAP diluted net earnings per share of 31 cents;
  *Quarterly adjusted EBITDA of $27 million;
  *Twelve-month backlog of $565 million and total backlog of $1 billion; and
  *Quarterly bookings of $447 million.

“First quarter revenues were down compared to last year, as expected. Core
electricity and water revenues increased, offset by the successful completion
of several large OpenWay deployments in North America in 2012,” said Philip
Mezey, Itron’s president and chief executive officer. “Overall, lower volumes
pressured our gross margin in the quarter while sales, marketing, and general
and administrative expenses declined compared with last year. As Itron invests
in innovation for the long-term to support smart metering projects around the
world, our near-term focus is to improve operating performance through
efficiencies. I remain confident about our industry’s future growth prospects
and confident in Itron’s ability to lead the transformation to smarter grids
and smarter cities.”

Financial Results

Revenues for the quarter were $448 million compared with $572 million in the
same period in 2012. Excluding an unfavorable impact of $5 million from
changes in foreign currency exchange rates, revenues for the quarter decreased
$119 million compared with the prior year period. This decrease was driven by
$118 million of lower revenue in the Energy segment related to the completion
of several OpenWay projects in North America. The company’s other electricity
revenues grew by 10 percent, water revenues grew by 1.5 percent, and other gas
revenues declined by 12 percent on a constant currency basis.

Gross margin for the quarter was 31 percent compared with the prior year
period margin of 32 percent, driven primary by lower volumes. Gross margin for
the Energy segment decreased slightly over the prior year as benefits from
efficiencies and lower warranty costs were offset by lower volumes. The gross
margin for the Water segment decreased 320 basis points due to an increase in
professional services which have lower margins.

GAAP operating expenses were $138 million in the quarter compared with $143
million in the same period last year. The decrease was due to a favorable
impact from changes in foreign currency exchange rates of $1 million,
decreased corporate general and administrative costs, lower sales and
marketing costs in both the Energy and Water segments, and lower intangible
asset amortization costs. GAAP operating income for the quarter was $2.3
million compared with $39.6 million in the respective 2012 period. The
decrease was attributable to lower gross profit and higher operating expenses
as a percent of revenue, driven by the company’s investment in product
development, sales and marketing for future global smart metering projects.

GAAP net income and diluted earnings per share (EPS) for the quarter was $2.6
million, or 6 cents per share, compared with net income of $25 million, or 63
cents per share, during the same period in 2012. The decrease in 2013 net
income for the quarter was driven by lower gross profit primarily from lower
revenues, partially offset by a tax benefit due to the recognition of a $4
million research and development credit related to 2012.

Non-GAAP operating expenses for the quarter, which excludes amortization of
intangibles, restructuring charges and acquisition related expenses, decreased
$3 million over prior year. The decrease was driven by lower global sales and
marketing and corporate general and administrative costs. Non-GAAP operating
income was $14.7 million compared with $54.3 million in the same period in
2012. The decrease was attributable to lower gross profit and higher operating
expenses as a percent of revenue, driven by the company’s investment in
product development, sales and marketing for future global smart metering
projects. Non-GAAP net income and diluted EPS for the quarter was $12 million,
or 31 cents per share, compared with $36 million, or 91 cents per share, for
the same period in 2012. The decrease in non-GAAP net income for the quarter
was due to lower gross profit, driven primarily from lower revenues partially
offset by the impact of a tax benefit due to the recognition of the 2012
research and development credit.

Free cash flow for the quarter was negative $14 million compared with a
positive $42 million in the first quarter of 2012. The decrease over the prior
year was due to lower earnings coupled with an increase in trade working
capital primarily related to accounts receivables and higher inventory levels
intended to be used in future quarters.

Earnings Conference Call:

Itron will host a conference call to discuss the financial results contained
in this release at 8:30 a.m. Eastern Time (ET) on April 26, 2013. The call
will be webcast in a listen-only mode. The webcast and conference call
materials will be made available 15 minutes before the start of the call and
are accessible on Itron’s website at http://investors.itron.com/events.cfm.
The webcast replay will be available within 90 minutes of the conclusion of
the live call and will be available for two weeks. A telephone replay of the
conference call will be available at 1:30 p.m. ET on April 26, 2013 through
1:30 p.m. ET on May 1, 2013. To access the telephone replay dial 888-203-1112
or 719-457-0820 and enter pass code 4066711.

About Itron

Itron is a global technology company. We build solutions that help utilities
measure, monitor and manage energy and water. Our broad product portfolio
includes electricity, gas, water and thermal energy measurement and control
technology; communications systems; software; and professional services. With
thousands of employees supporting nearly 8,000 utilities in more than one
hundred countries, Itron empowers utilities to responsibly and efficiently
manage energy and water resources. Join us in creating a more resourceful
world, start here: www.itron.com.

Non-GAAP Financial Information:

To supplement our consolidated financial statements presented in accordance
with GAAP, we use certain non-GAAP financial measures, including non-GAAP
operating expense, non-GAAP operating income, non-GAAP net income, non-GAAP
diluted EPS, adjusted EBITDA and free cash flow. We provide these non-GAAP
financial measures because we believe they provide greater transparency and
represent supplemental information used by management in its financial and
operational decision making. Specifically, these non-GAAP financial measures
are provided to enhance investors’ overall understanding of our current
financial performance and our future anticipated performance by excluding
infrequent or non-cash costs, particularly those associated with acquisitions.
We exclude certain costs in our non-GAAP financial measures as we believe the
net result is a measure of our core business. Non-GAAP performance measures
should be considered in addition to, and not as a substitute for, results
prepared in accordance with GAAP. Our non-GAAP financial measures may be
different from those reported by other companies. A more detailed discussion
of why we use non-GAAP financial measures, the limitations of using such
measures, and reconciliations between non-GAAP and the nearest GAAP financial
measures are included in this press release.

Statements of operations, segment information, balance sheets, cash flow
statements and reconciliations of non-GAAP financial measures to the most
directly comparable GAAP financial measures follow.

ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
                                                           
(Unaudited, in thousands, except per share
data)
                                                  Three Months Ended March 31,
                                                  2013             2012
Revenues                                          $  447,536       $ 571,640
Cost of revenues                                    307,413       388,535 
Gross profit                                         140,123         183,105
                                                                   
Operating expenses
   Sales and marketing                               48,216          49,856
   Product development                               44,208          44,356
   General and administrative                        33,595          36,570
   Amortization of intangible assets                 10,744          11,913
   Restructuring expense                            1,013         789     
           Total operating expenses                 137,776       143,484 
                                                                   
Operating income                                     2,347           39,621
Other income (expense)
   Interest income                                   1,061           193
   Interest expense                                  (2,338  )       (2,437  )
   Other income (expense), net                      (817    )      (2,176  )
           Total other income (expense)             (2,094  )      (4,420  )
                                                                   
Income before income taxes                           253             35,201
Income tax benefit (provision)                      3,243         (9,629  )
Net income                                           3,496           25,572
   Net income attributable to                       926           219     
   non-controlling interests
Net income attributable to Itron, Inc.            $  2,570        $ 25,353  
                                                                   
                                                                   
Earnings per common share - Basic                 $  0.07         $ 0.64    
Earnings per common share - Diluted               $  0.06         $ 0.63    
                                                                   
                                                                   
Weighted average common shares outstanding           39,420          39,913
- Basic
Weighted average common shares outstanding           39,770          40,216
- Diluted
                                                                   

ITRON, INC.
SEGMENT INFORMATION
                                                
(Unaudited, in thousands)
                                        Three Months Ended March 31,
                                        2013             2012
Revenues
      Energy
           Electricity                  $  175,763       $ 284,460
           Gas                            136,915       153,287 
                  Total Energy             312,678         437,747
      Water                               134,858       133,893 
           Total Company                $  447,536      $ 571,640 
                                                         
Gross profit
      Energy                            $  95,554        $ 134,603
      Water                               44,569        48,502  
           Total Company                $  140,123      $ 183,105 
                                                         
Operating income (loss)
      Energy                            $  480           $ 38,164
      Water                                12,575          15,937
      Corporate unallocated               (10,708 )      (14,480 )
           Total Company                $  2,347        $ 39,621  
                                                         
                                                         
METER AND MODULE SUMMARY
                                                         
(Units in thousands)
                                        Three Months Ended March 31,
                                        2013             2012
Meters
      Standard                             4,440           4,880
      Advanced and Smart                  1,630         2,250   
           Total meters                   6,070         7,130   
                                                         
Stand-alone communication modules
           Advanced and Smart             1,340         1,590   
                                                         

ITRON, INC.
CONSOLIDATED BALANCE SHEETS
                                                     
(Unaudited, in thousands)
                                          March 31, 2013     December 31, 2012
ASSETS
Current assets
  Cash and cash equivalents               $  101,561         $   136,411
  Accounts receivable, net                   356,228             375,326
  Inventories                                182,454             170,719
  Deferred tax assets current, net           33,152              33,536
  Other current assets                      111,015           104,958    
      Total current assets                   784,410             820,950
                                                             
Property, plant, and equipment, net          248,612             255,212
Deferred tax assets noncurrent, net          53,673              44,584
Other long-term assets                       30,468              28,908
Intangible assets, net                       221,147             238,771
Goodwill                                    683,215           701,016    
      Total assets                        $  2,021,525      $   2,089,441  
                                                             
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
  Accounts payable                        $  197,759         $   227,739
  Other current liabilities                  51,946              49,950
  Wages and benefits payable                 83,567              91,802
  Taxes payable                              13,697              9,305
  Current portion of debt                    20,625              18,750
  Current portion of warranty                25,150              27,115
  Unearned revenue                          56,174            42,712     
      Total current liabilities              448,918             467,373
                                                             
Long-term debt                               378,125             398,750
Long-term warranty                           25,604              26,490
Pension plan benefit liability               87,805              90,533
Deferred tax liabilities                     14,156              16,682
noncurrent, net
Other long-term obligations                 80,263            80,100     
      Total liabilities                      1,034,871           1,079,928
                                                             
Commitments and contingencies
                                                             
Equity
  Preferred stock                            -                   -
  Common stock                               1,299,611           1,294,213
  Accumulated other comprehensive            (66,132   )         (34,384    )
  loss, net
  Accumulated deficit                       (264,292  )        (266,862   )
      Total Itron, Inc.                      969,187             992,967
      shareholders' equity
  Non-controlling interests                 17,467            16,546     
      Total equity                          986,654           1,009,513  
      Total liabilities and equity        $  2,021,525      $   2,089,441  
                                                             

ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           
(Unaudited, in thousands)
                                                  Three Months Ended March 31,
                                                  2013             2012
Operating activities
   Net income                                     $  3,496         $ 25,572
   Adjustments to reconcile net income to
   net cash provided by operating
   activities:
           Depreciation and amortization             24,757          27,227
           Stock-based compensation                  5,096           4,198
           Amortization of prepaid debt              414             348
           fees
           Deferred taxes, net                       (9,227  )       (69     )
           Restructuring expense, non-cash           26              -
           Other adjustments, net                    196             863
Changes in operating assets and
liabilities, net of acquisition:
   Accounts receivable                               8,362           20,825
   Inventories                                       (15,944 )       (10,994 )
   Other current assets                              (6,867  )       (7,261  )
   Other long-term assets                            3,549           1,308
   Accounts payables, other current                  (14,629 )       2,953
   liabilities, and taxes payable
   Wages and benefits payable                        (6,546  )       (13,358 )
   Unearned revenue                                  13,474          9,740
   Warranty                                          (2,098  )       (3,357  )
   Other operating, net                             (3,464  )      (3,992  )
           Net cash provided by operating            595             54,003
           activities
                                                                   
Investing activities
   Acquisitions of property, plant, and              (14,765 )       (12,043 )
   equipment
   Business acquisitions, net of cash                (860    )       (860    )
   equivalents acquired
   Other investing, net                             56            283     
           Net cash used in investing                (15,569 )       (12,620 )
           activities
                                                                   
Financing activities
   Payments on debt                                  (18,750 )       (13,750 )
   Issuance of common stock                          1,073           978
   Repurchase of common stock                        (200    )       (10,594 )
   Other financing, net                             634           140     
           Net cash used in financing                (17,243 )       (23,226 )
           activities
                                                                   
Effect of foreign exchange rate changes on          (2,633  )      3,195   
cash and cash equivalents
Increase (decrease) in cash and cash                 (34,850 )       21,352
equivalents
Cash and cash equivalents at beginning of           136,411       133,086 
period
Cash and cash equivalents at end of period        $  101,561      $ 154,438 
                                                                   

                                 Itron, Inc.

                      About Non-GAAP Financial Measures

The accompanying press release contains non-GAAP financial measures. To
supplement our consolidated financial statements, which are prepared and
presented in accordance with GAAP, we use certain non-GAAP financial measures,
including non-GAAP operating expense, non-GAAP operating income, non-GAAP net
income, non-GAAP diluted EPS, adjusted EBITDA and free cash flow. The
presentation of this financial information is not intended to be considered in
isolation or as a substitute for, or superior to, the financial information
prepared and presented in accordance with GAAP. For more information on these
non-GAAP financial measures please see the table captioned “Reconciliations of
Non-GAAP Financial Measures to Most Directly Comparable GAAP Financial
Measures.”

We use these non-GAAP financial measures for financial and operational
decision making and as a means for determining executive compensation.
Management believes that these non-GAAP financial measures provide meaningful
supplemental information regarding our performance and ability to service debt
by excluding certain expenses that may not be indicative of our recurring core
operating results. These non-GAAP financial measures facilitate management’s
internal comparisons to our historical performance as well as comparisons to
our competitors’ operating results. Our executive compensation plans exclude
non-cash charges related to amortization of intangibles and non-recurring
discrete cash and non-cash charges that are infrequent in nature such as
purchase accounting adjustments, restructuring charges or goodwill impairment
charges. We believe that both management and investors benefit from referring
to these non-GAAP financial measures in assessing our performance and when
planning, forecasting and analyzing future periods. We believe these non-GAAP
financial measures are useful to investors because they provide greater
transparency with respect to key metrics used by management in its financial
and operational decision making and because they are used by our institutional
investors and the analyst community to help them analyze the health of our
business.

Non-GAAP operating expense and non-GAAP operating income – We define non-GAAP
operating expense as operating expense excluding certain expenses related to
the amortization of intangible assets, restructuring and acquisitions. We
define non-GAAP operating income as operating income excluding the expenses
related to the amortization of intangible assets, restructuring and
acquisitions. We consider these non-GAAP financial measures to be useful
metrics for management and investors because they exclude the effect of
expenses that are related to previous acquisitions and restructurings. By
excluding these expenses, we believe that it is easier for management and
investors to compare our financial results over multiple periods and analyze
trends in our operations. For example, expenses related to amortization of
intangible assets are now decreasing, which is improving GAAP operating
margins, yet the improvement in GAAP operating margins due to this lower
expense is not necessarily reflective of an improvement in our core business.
There are some limitations related to the use of non-GAAP operating expense
and non-GAAP operating income versus operating expense and operating income
calculated in accordance with GAAP. Non-GAAP operating expense and non-GAAP
operating income exclude some costs that are recurring. Additionally, the
expenses that we exclude in our calculation of non-GAAP operating expense and
non-GAAP operating income may differ from the expenses that our peer companies
exclude when they report the results of their operations. We compensate for
these limitations by providing specific information about the GAAP amounts we
have excluded from our non-GAAP operating expense and non-GAAP operating
income and evaluating non-GAAP operating expense and non-GAAP operating income
together with GAAP operating expense and GAAP operating income.

Non-GAAP net income and non-GAAP diluted EPS – We define non-GAAP net income
as net income excluding the expenses associated with amortization of
intangible assets, restructuring, acquisitions and amortization of debt
placement fees. We define non-GAAP diluted EPS as non-GAAP net income divided
by the weighted average shares, on a diluted basis, outstanding during each
period. We consider these financial measures to be useful metrics for
management and investors for the same reasons that we use non-GAAP operating
income. The same limitations described above regarding our use of non-GAAP
operating income apply to our use of non-GAAP net income and non-GAAP diluted
EPS. We compensate for these limitations by providing specific information
regarding the GAAP amounts excluded from these non-GAAP measures and
evaluating non-GAAP net income and non-GAAP diluted EPS together with GAAP net
income and GAAP diluted EPS.

Adjusted EBITDA – We define adjusted EBITDA as net income (a) minus interest
income, (b) plus interest expense, depreciation and amortization of intangible
asset expenses and restructuring expense, and (c) exclude the tax expense or
benefit. We believe that providing this financial measure is important for
management and investors to understand our ability to service our debt as it
is a measure of the cash generated by our core business. Management uses
adjusted EBITDA as a performance measure for executive compensation. A
limitation to using adjusted EBITDA is that it does not represent the total
increase or decrease in the cash balance for the period and the measure
includes some non-cash items and excludes other non-cash items. Additionally,
the items that we exclude in our calculation of adjusted EBITDA may differ
from the items that our peer companies exclude when they report their results.
Management compensates for this limitation by providing a reconciliation of
this measure to GAAP net income.

Free cash flow – We define free cash flow as net cash provided by operating
activities less cash used for acquisitions of property, plant and equipment.
We believe free cash flow provides investors with a relevant measure of
liquidity and a useful basis for assessing our ability to fund our operations
and repay our debt. The same limitations described above regarding our use of
non-GAAP operating income apply to our use of free cash flow. We compensate
for these limitations by providing specific information regarding the GAAP
amounts and reconciling to free cash flow.

The accompanying tables have more detail on the GAAP financial measures that
are most directly comparable to the non-GAAP financial measures and the
related reconciliations between these financial measures.

ITRON, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO THE MOST DIRECTLY COMPARABLE GAAP FINANCIAL MEASURES
                                                           
(Unaudited, in thousands, except per share
data)
                                                  Three Months Ended March 31,
                                                  2013             2012
NON-GAAP OPERATING INCOME - ENERGY
   Energy - GAAP operating income                 $  480           $ 38,164
      Amortization of intangible assets              7,838           8,632
      Restructuring expense                          (1,150  )       603
      Acquisition related expenses                  624           -       
   Energy - Non-GAAP operating income             $  7,792        $ 47,399  
                                                                   
NON-GAAP OPERATING INCOME - WATER
   Water - GAAP operating income                  $  12,575        $ 15,937
      Amortization of intangible assets              2,906           3,281
      Restructuring expense                         609           18      
   Water - Non-GAAP operating income              $  16,090       $ 19,236  
                                                                   
NON-GAAP OPERATING LOSS - CORPORATE
UNALLOCATED
   Corporate unallocated - GAAP operating         $  (10,708 )     $ (14,480 )
   loss
      Restructuring expense                          1,554           168
      Acquisition related expenses                  4             2,021   
   Corporate unallocated - Non-GAAP               $  (9,150  )     $ (12,291 )
   operating loss
                                                                   
NON-GAAP OPERATING INCOME
   GAAP operating income                          $  2,347         $ 39,621
      Amortization of intangible assets              10,744          11,913
      Restructuring expense                          1,013           789
      Acquisition related expenses                  628           2,021   
   Non-GAAP operating income                      $  14,732       $ 54,344  
                                                                   
NON-GAAP OPERATING EXPENSE
   Total Company - GAAP operating expense         $  137,776       $ 143,484
      Amortization of intangible assets              (10,744 )       (11,913 )
      Restructuring expense                          (1,013  )       (789    )
      Acquisition related expenses                  (628    )      (2,021  )
   Total Company - Non-GAAP operating             $  125,391      $ 128,761 
   expense
                                                                   
NON-GAAP NET INCOME & DILUTED EPS
   GAAP net income                                $  2,570         $ 25,353
      Amortization of intangible assets              10,744          11,913
      Amortization of debt placement fees            389             348
      Restructuring expense                          1,013           789
      Acquisition related expenses                   628             2,021
      Income tax effect of non-GAAP                 (2,856  )      (4,005  )
      adjustments
   Non-GAAP net income                            $  12,488       $ 36,419  
                                                                  
   Non-GAAP diluted EPS                           $  0.31         $ 0.91    
                                                                   
   Weighted average common shares                   39,770        40,216  
   outstanding - Diluted
                                                                   
ADJUSTED EBITDA
   GAAP net income (loss)                         $  2,570         $ 25,353
      Interest income                                (1,061  )       (193    )
      Interest expense                               2,338           2,437
      Income tax (benefit) provision                 (3,243  )       9,629
      Depreciation and amortization                  24,757          27,227
      Restructuring expense                          1,013           789
      Acquisition related expenses                  628           2,021   
   Adjusted EBITDA                                $  27,002       $ 67,263  
                                                                   
FREE CASH FLOW
      Net cash provided by operating              $  595           $ 54,003
      activities
      Acquisitions of property, plant, and          (14,765 )      (12,043 )
      equipment
   Free Cash Flow                                 $  (14,170 )     $ 41,960  

Contact:

Itron, Inc.
Barbara Doyle, 509-891-3443
Vice President, Investor Relations
or
Marni Pilcher, 509-891-3847
Director, Investor Relations
 
Press spacebar to pause and continue. Press esc to stop.