Itron, Inc. (NASDAQ:ITRI) announced today financial results for
its first quarter ended March 31, 2015. Highlights include:
- Quarterly revenues of $448 million,
inclusive of an unfavorable foreign currency impact of $44
million;
- Quarterly GAAP net earnings per share
of 13 cents;
- Quarterly non-GAAP diluted earnings per
share of 20 cents;
- Quarterly adjusted EBITDA of $29
million;
- Twelve-month backlog of $779 million
and total backlog of $1.4 billion; and
- Quarterly bookings of $424
million.
“I was encouraged by our results for the quarter, particularly
the revenue growth and improved operational performance in the
Electricity segment, along with the sequential improvement in the
Gas segment’s gross margin,” said Philip Mezey, Itron’s president
and chief executive officer. “The improvement in Electricity offset
lower margins in the Water and Gas segments compared with last
year. Progress on operating efficiency initiatives and growth in
our 12-month backlog reinforces our confidence in our outlook for
the remainder of the year.”
Financial Results
Revenues were $448 million for the quarter compared with $475
million in the same period in 2014. Changes in foreign currency
exchange rates unfavorably impacted revenues by approximately $44
million for the quarter. Excluding the impact from foreign
currency, revenues increased $17 million, or 4 percent, compared
with the prior year quarter. This increase was driven by growth in
the Electricity segment, which offset a decrease in the Gas
segment. The Water segment was consistent with the prior year
period.
Gross margin for the quarter was 30.8 percent compared with the
prior year period margin of 32.5 percent. The decrease in gross
margin was primarily due to unfavorable product mix and increased
warranty expense in both the Gas and Water segments, which was
partially offset by improved performance in the Electricity
segment.
GAAP operating expenses were $125 million in the quarter
compared with $150 million in the same period last year. The
decrease was primarily driven by lower restructuring expense and a
favorable impact of $15 million from changes in foreign currency
exchange rates.
GAAP operating income for the quarter was $14 million compared
with $5 million in the same period of 2014. The increase was driven
primarily by decreased operating expenses. GAAP net income for the
quarter was $5 million, or 13 cents per diluted share, compared
with a net loss of $254,000, or 1 cent per share in the 2014
period. The increase in GAAP net income was driven by higher
operating income and a decrease in other expenses related to
foreign currency exchange gains and losses, partially offset by a
higher tax rate driven primarily by a valuation allowance for
certain deferred tax assets.
Non-GAAP operating expenses, which exclude amortization of
intangibles, restructuring charges, acquisition related expenses
and goodwill impairment, were $120 million for the quarter compared
with $132 million in the prior year quarter. The decrease was
primarily driven by changes in foreign currency exchange rates.
Non-GAAP operating income was $18 million for the quarter
compared with $23 million in the same period in 2014. The decrease
in non-GAAP operating income was primarily driven by lower gross
profit. Non-GAAP net income and diluted earnings for the quarter
were $8 million, or 20 cents per share, compared with $12 million,
or 31 cents per share in the prior year quarter. The decrease in
non-GAAP net income was driven by lower gross profit and a higher
tax rate driven primarily by a valuation allowance on certain
deferred tax assets. This decrease was partially offset by lower
other expenses related to foreign currency exchange gains and
losses. Currency translation unfavorably impacted non-GAAP earnings
by 3 cents per diluted share compared with prior year.
Free cash flow for the quarter was negative $13 million compared
with a positive $58 million in the first quarter of 2014. Free cash
flow in the quarter was impacted by a number of significant cash
payments scheduled during the quarter, including tax payments,
settlement of a legal matter, variable compensation disbursements
and restructuring payments.
In January, the company repurchased 335,251 shares of common
stock at an average price of $39.62, which fully utilized the $50
million authorized under the 2014 share repurchase plan. On a
cumulative basis, the company repurchased approximately 1.2 million
shares under this plan. In February 2015, the Board authorized a
new plan to repurchase up to $50 million of Itron common stock
during a 12-month period. During the quarter, the company
repurchased 84,000 shares of common stock at an average price of
$36.41 per share under the 2015 plan.
Earnings Conference Call:
Itron will host a conference call to discuss the financial
results contained in this release at 5 p.m. Eastern Daylight Time
(EDT) on May 4, 2015. The call will be webcast in a listen-only
mode. Webcast information and conference call materials will be
made available 10 minutes before the start of the call and are
accessible on Itron’s website at
http://investors.itron.com/events.cfm. A replay of the audio
webcast will be available within 90 minutes of the conclusion of
the live call and available for one year at
http://investors.itron.com/events.cfm. A telephone replay of the
conference call will be available through May 9, 2015. To access
the telephone replay, dial 888-203-1112 (Domestic) or 719-457-0820
(International) and enter passcode 7661917.
About Itron
Itron is a world-leading technology and services company
dedicated to the resourceful use of energy and water. We provide
comprehensive solutions that measure, manage and analyze energy and
water. Our broad product portfolio includes electricity, gas, water
and thermal energy measurement devices and control technology;
communications systems; software; as well as managed and consulting
services. With thousands of employees supporting nearly 8,000
customers in more than 100 countries, Itron applies knowledge and
technology to better manage energy and water resources. Together,
we can create a more resourceful world. Join us: www.itron.com.
Forward-Looking Statements:
This release contains forward-looking statements concerning our
expectations about operations, financial performance, sales,
earnings and cash flows. These statements reflect our current plans
and expectations and are based on information currently available.
The statements rely on a number of assumptions and estimates, which
could be inaccurate, and which are subject to risks and
uncertainties that could cause our actual results to vary
materially from those anticipated. Risks and uncertainties include
the rate and timing of customer demand for our products,
rescheduling of current customer orders, changes in estimated
liabilities for product warranties, changes in laws and
regulations, our dependence on new product development and
intellectual property, future acquisitions, changes in estimates
for stock-based and bonus compensation, increasing volatility in
foreign exchange rates, international business risks and other
factors that are more fully described in our Annual Report on Form
10-K for the year ended December 31, 2014 and other reports on file
with the Securities and Exchange Commission. Itron undertakes no
obligation to update publicly or revise any forward-looking
statements, including our business outlook.
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, 2015 2014 Revenues $
448,247 $ 474,795 Cost of revenues 310,048
320,260 Gross profit 138,199 154,535
Operating expenses Sales and marketing 41,027 47,609 Product
development 41,522 44,409 General and administrative 39,585 40,407
Amortization of business acquisition-related intangible assets
7,973 11,070 Restructuring expense (5,447 ) 5,524 Goodwill
impairment - 977 Total
operating expenses 124,660
149,996 Operating income 13,539 4,539 Other income
(expense) Interest income 47 97 Interest expense (2,682 ) (2,909 )
Other income (expense), net 24
(2,498 ) Total other income (expense) (2,611 )
(5,310 ) Income (loss) before income taxes 10,928
(771 ) Income tax benefit (provision) (5,563 )
653 Net income (loss) 5,365 (118 ) Net income
attributable to non-controlling interests 455
136 Net income (loss) attributable to Itron,
Inc. $ 4,910 $ (254 ) Earnings
(loss) per common share - Basic $ 0.13 $ (0.01
) Earnings (loss) per common share - Diluted $ 0.13
$ (0.01 ) Weighted average common shares
outstanding - Basic 38,442 39,235 Weighted average common shares
outstanding - Diluted 38,758 39,235
ITRON,
INC. SEGMENT INFORMATION (Unaudited, in
thousands)
Three Months Ended
March 31, 2015 2014 Revenues
Electricity $ 193,852 $ 180,218 Gas 125,089 146,109 Water
129,306 148,468 Total Company $
448,247 $ 474,795
Gross
profit Electricity $ 55,120 $ 42,740 Gas 43,516 58,406 Water
39,563 53,389 Total
Company $ 138,199 $ 154,535
Operating income (loss) Electricity $ 2,396 $ (22,969 ) Gas
13,592 25,724 Water 8,097 20,643 Corporate unallocated
(10,546 ) (18,859 ) Total Company $ 13,539
$ 4,539
METER AND
MODULE SUMMARY (Units in thousands)
Three Months
Ended March 31, 2015 2014 Meters Standard
4,740 4,850 Advanced and Smart 1,540
1,520 Total meters 6,280
6,370
Stand-alone communication modules
Advanced and Smart 1,310 1,350
ITRON, INC. CONSOLIDATED BALANCE
SHEETS (Unaudited, in
thousands)
March 31, 2015 December 31,
2014 ASSETS Current assets Cash and cash equivalents $
118,084 $ 112,371 Accounts receivable, net 324,706 348,389
Inventories 168,161 154,504 Deferred tax assets current, net 37,700
39,115 Other current assets 109,768
104,307 Total current assets 758,419 758,686
Property, plant, and equipment, net 192,781 207,789 Deferred tax
assets noncurrent, net 76,479 74,598 Other long-term assets 26,390
28,503 Intangible assets, net 122,431 139,909 Goodwill
462,718 500,820 Total assets $
1,639,218 $ 1,710,305
LIABILITIES AND EQUITY Current liabilities Accounts payable
$ 196,117 $ 184,132 Other current liabilities 78,683 100,945 Wages
and benefits payable 79,443 95,248 Taxes payable 18,740 21,951
Current portion of debt 30,000 30,000 Current portion of warranty
22,256 21,063 Unearned revenue 53,472
43,436 Total current liabilities 478,711 496,775
Long-term debt 331,310 293,969 Long-term warranty 14,809
15,403 Pension plan benefit liability 91,652 101,432 Deferred tax
liabilities noncurrent, net 3,289 3,808 Other long-term obligations
72,550 84,437 Total
liabilities 992,321 995,824 Commitments and contingencies
Equity Preferred stock - - Common stock 1,257,796 1,270,045
Accumulated other comprehensive loss, net (197,214 ) (136,514 )
Accumulated deficit (431,681 ) (436,591
) Total Itron, Inc. shareholders' equity 628,901 696,940
Non-controlling interests 17,996
17,541 Total equity 646,897
714,481 Total liabilities and equity $ 1,639,218
$ 1,710,305
ITRON,
INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months
Ended March 31, 2015 2014 Operating
activities Net income (loss) $ 5,365 $ (118 ) Adjustments to
reconcile net income (loss) to net cash provided by (used in)
operating activities: Depreciation and amortization 19,339 25,592
Stock-based compensation 4,108 4,584 Amortization of prepaid debt
fees 390 404 Deferred taxes, net (4,790 ) (3,915 ) Goodwill
impairment - 977 Restructuring expense, non-cash 267 - Other
adjustments, net 337 32 Changes in operating assets and
liabilities: Accounts receivable 2,028 15,392 Inventories (23,480 )
(15,827 ) Other current assets (9,395 ) (1,547 ) Other long-term
assets (54 ) 892 Accounts payable, other current liabilities, and
taxes payable 3,774 25,303 Wages and benefits payable (10,343 ) 272
Unearned revenue 11,032 16,441 Warranty 2,457 675 Other operating,
net (4,990 ) (2,396 ) Net cash provided
by (used in) operating activities (3,955 ) 66,761 Investing
activities Acquisitions of property, plant, and equipment (9,472 )
(8,564 ) Other investing, net (118 )
167 Net cash used in investing activities (9,590 ) (8,397 )
Financing activities Proceeds from borrowings 63,000 -
Payments on debt (22,373 ) (30,625 ) Issuance of common stock 451
310 Repurchase of common stock (16,341 ) (2,948 ) Other financing,
net 1,186 (2,244 ) Net cash
provided by (used in) financing activities 25,923 (35,507 )
Effect of foreign exchange rate changes on cash and cash
equivalents (6,665 ) (1,335 ) Increase
in cash and cash equivalents 5,713 21,522 Cash and cash equivalents
at beginning of period 112,371
124,805 Cash and cash equivalents at end of period $ 118,084
$ 146,327
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 the 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 acquired through a business acquisition
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 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
acquired through a business acquisition, restructuring,
acquisitions and goodwill impairment. We define non-GAAP operating
income as operating income excluding the expenses related to the
amortization of intangible assets acquired through a business
acquisition, restructuring, acquisitions and goodwill impairment.
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, in certain periods expenses related to amortization of
intangible assets may decrease, which would improve 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 acquired through a business
acquisition, restructuring, acquisitions, goodwill impairment 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 business acquisition related intangible asset
expenses, restructuring expense, acquisition related expense,
goodwill impairment 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. We compensate for these limitations 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
adjusted EBITDA 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 table has 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)
TOTAL COMPANY
RECONCILIATIONS Three Months Ended
March 31, 2015 2014 NON-GAAP NET
INCOME & DILUTED EPS GAAP net income (loss) $ 4,910 $ (254
) Amortization of intangible assets 7,973 11,070 Amortization of
debt placement fees 365 379 Restructuring expense (5,447 ) 5,524
Acquisition related expenses 2,324 489 Goodwill impairment - 977
Income tax effect of non-GAAP adjustments (2,314 )
(5,942 ) Non-GAAP net income $ 7,811
$ 12,243 Non-GAAP diluted
EPS $ 0.20 $ 0.31 Weighted
average common shares outstanding - Diluted 38,758
39,512
ADJUSTED EBITDA
GAAP net income (loss) $ 4,910 $ (254 ) Interest income (47 ) (97 )
Interest expense 2,682 2,909 Income tax provision (benefit) 5,563
(653 ) Depreciation and amortization 19,339 25,592 Restructuring
expense (5,447 ) 5,524 Acquisition related expenses 2,324 489
Goodwill impairment - 977
Adjusted EBITDA $ 29,324 $ 34,487
FREE CASH FLOW Net cash provided by (used in)
operating activities $ (3,955 ) $ 66,761 Acquisitions of property,
plant, and equipment (9,472 ) (8,564 )
Free Cash Flow $ (13,427 ) $ 58,197
NON-GAAP OPERATING INCOME GAAP operating income $ 13,539 $
4,539 Amortization of intangible assets 7,973 11,070 Restructuring
expense (5,447 ) 5,524 Acquisition related expenses 2,324 489
Goodwill impairment - 977
Non-GAAP operating income $ 18,389 $ 22,599
NON-GAAP OPERATING EXPENSE GAAP operating
expense $ 124,660 $ 149,996 Amortization of intangible assets
(7,973 ) (11,070 ) Restructuring expense 5,447 (5,524 ) Acquisition
related expenses (2,324 ) (489 ) Goodwill impairment -
(977 ) Non-GAAP operating expense $
119,810 $ 131,936
SEGMENT
RECONCILIATIONS Three Months Ended
March 31,
2015 2014 NON-GAAP OPERATING INCOME
- ELECTRICITY Electricity - GAAP operating income (loss) $
2,396 $ (22,969 ) Amortization of intangible assets 4,455 6,155
Restructuring expense (3,127 ) (530 ) Acquisition related expenses
2,324 442 Goodwill impairment -
977 Electricity - Non-GAAP operating income (loss) $ 6,048
$ (15,925 )
NON-GAAP OPERATING
INCOME - GAS Gas - GAAP operating income $ 13,592 $ 25,724
Amortization of intangible assets 1,970 2,689 Restructuring expense
502 (303 ) Gas - Non-GAAP
operating income $ 16,064 $ 28,110
NON-GAAP OPERATING INCOME - WATER Water - GAAP
operating income $ 8,097 $ 20,643 Amortization of intangible assets
1,548 2,226 Restructuring expense 117
557 Water - Non-GAAP operating income $ 9,762
$ 23,426
NON-GAAP OPERATING INCOME -
CORPORATE UNALLOCATED Corporate unallocated - GAAP operating
loss $ (10,546 ) $ (18,859 ) Restructuring expense (2,939 ) 5,800
Acquisition related expenses -
47 Corporate unallocated - Non-GAAP operating loss $ (13,485
) $ (13,012 )
Itron, Inc.Barbara Doyle, 509-891-3443Vice President,
Investor RelationsorMarni Pilcher, 509-891-3847Director, Investor
Relations
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