Itron Announces Third Quarter 2017 Financial Results
LIBERTY LAKE, Wash.—(BUSINESS WIRE)—Nov. 1, 2017—Itron, Inc. (NASDAQ:ITRI) announced today financial results for its third quarter ended Sept. 30, 2017. Key financial metrics for the quarter include:
"The internal transformation projects underway align with our strategy and provide long-term benefits of increased profitability and scalability for growth. Another important growth driver is customer adoption of our OpenWay RivaTM IoT solution, which is increasing. Our customers are excited about the possibilities OpenWay Riva brings and the value-proposition of a unified IoT platform for smart grids and smart cities. We are focused on delivering business outcomes with this solution and are investing in field deployment capacity to meet the needs of our growing customer base.
Mezey continued, "Also, on September 18, we announced an agreement to acquire Silver Spring Networks. This acquisition advances Itron's strategy of delivering highly secure, value-generating solutions for the critical infrastructure within utilities, smart cities and the broader industrial IoT sector. The timetable to close the transaction is late 2017 or early 2018, subject to customary closing conditions."
Summary of Third Quarter Consolidated Financial Results
(All comparisons made are against the prior year period unless otherwise noted)
Revenue
Total revenue of $487 million declined $20 million compared with the third quarter of 2016. The company experienced a delay in revenues due to temporary operational issues primarily in North America as well as continued delays of Water projects in our Europe, Middle East and Africa (EMEA) and North American regions, partially offset by $14 million of Distributed Energy Management revenues (DEM) realized through our acquisition of Comverge on June 1, 2017.
By segment, Electricity revenue decreased 1 percent due to the operational issues in North America, partially offset by strong smart solution volumes in the EMEA and Asia Pacific regions and DEM revenues. Gas revenue decreased 9 percent related to the operational issues in North America and lower EMEA Gas project revenue, compared with record communication module deliveries in the prior year. Water revenue decreased 4 percent due to lower revenue in North America and EMEA regions, partially offset by growth in Latin America and Asia Pacific.
Gross Margin
Consolidated company gross margin of 34.0 percent increased 30 basis points compared with the third quarter of 2016. The gross margin improvement was driven by higher Electricity and Water segment margins resulting from favorable product mix and lower warranty costs.
Operating Expenses
Operating expenses for the quarter were $128 million compared with $164 million in the third quarter of 2016. The reduction was driven by lower restructuring, professional services and variable compensation expenses, which were partially offset by acquisition and integration related expenses, as well as higher product development and sales and marketing costs mostly attributable to the addition of DEM solutions.
Non-GAAP operating expenses were $116 million compared with $119 million in 2016. The reduction was driven by lower professional services fees, variable compensation and reduced general and administrative headcount, partially offset by higher product development and sales and marketing expenses.
Operating Income, Net Income and Earnings per Share
GAAP operating income increased to $37 million compared with $6 million in the third quarter of 2016. Net income attributable to Itron for the quarter was $26 million, or 65 cents per diluted share, compared with a net loss of $10 million, or 26 cents per diluted share, in 2016. The higher operating income and net income were driven by lower operating expenses. Net income also benefited from a lower effective tax rate resulting from timing and mix of taxable income by jurisdiction.
Non-GAAP operating income was $50 million compared with $52 million in 2016. Non-GAAP net income for the quarter was $31 million, or 77 cents per diluted share, compared with $30 million, or 77 cents per diluted share, in 2016. The decrease in non-GAAP operating income was driven by the impact of lower revenue, partially offset by lower non-GAAP operating expenses, which exclude restructuring and acquisition and integration related costs and amortization of intangibles. Non-GAAP net income reflects the lower non-GAAP operating income offset by a lower non-GAAP effective tax rate resulting from timing and mix of taxable income by jurisdiction.
Cash Flow
Net cash provided by operating activities was $21 million in the third quarter of 2017 compared with $31 million in the same quarter of 2016. Free cash flow was $9 million for the third quarter compared with $20 million in the prior year. The decreases were primarily driven by changes in working capital due to timing of accounts payables and larger tax payments compared with the prior year.
Other Measures
Total backlog was $1.5 billion and 12-month backlog was $847 million at the end of the quarter, compared with $1.5 billion and $731 million, respectively, in the prior year quarter. Bookings in the quarter totaled $343 million.
Financial Guidance Update
The company anticipates full year 2017 non-GAAP EPS will be at or above the low end of the prior guidance range of $2.95 to $3.15, on revenues expected to be at or modestly below the low end of the prior guidance range of $2.03 billion to $2.06 billion, assuming current foreign currency rates, average fully diluted shares outstanding of approximately 39.5 million for the year and a non-GAAP effective tax rate for the year of approximately 35 percent.
A reconciliation of forward-looking non-GAAP diluted EPS to the GAAP diluted EPS has not been provided because we are unable to predict with reasonable certainty the potential amount or timing of restructuring and acquisition and integration related expenses and their related tax effects without unreasonable effort. These items are uncertain, depend on various factors and could have a material impact on GAAP results for the guidance period.
Earnings Conference Call
Itron will host a conference call to discuss the financial results and guidance contained in this release at 5:00 p.m. EDT on Nov. 1, 2017. 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 will be accessible on Itron's website at investors.itron.com. A replay of the audio webcast will be made available investors.itron.com. A telephone replay of the conference call will be available through Nov. 6, 2017. To access the telephone replay, dial (888) 203-1112 (Domestic) or (719) 457-0820 (International) and enter passcode 9357766.
Forward Looking Statements
This release contains forward-looking statements within in the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our expectations about revenues, operations, financial performance, earnings, earnings per share and cash flows, as well as the expected timing of the completion of our previously announced pending acquisition of Silver Spring Technologies, Inc. Although we believe the estimates and assumptions upon which these forward-looking statements are based are reasonable, any of these estimates or assumptions could prove to be inaccurate and the forward-looking statements based on these estimates and assumptions could be incorrect. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Actual results and trends in the future may differ materially from those suggested or implied by the forward-looking statements depending on a variety of factors. Some of the factors that we believe could affect our results include our ability to achieve estimated cost savings, the rate and timing of customer demand for our products, rescheduling of current customer orders, changes in estimated liabilities for product warranties, adverse impacts of litigation, 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, failure to satisfy conditions to the completion of the acquisition of Silver Spring Technologies, Inc. and other factors that are more fully described in our Annual Report on Form 10-K for the year ended December 31, 2016 and other reports on file with the Securities and Exchange Commission. Itron undertakes no obligation to update or revise any information in this press release.
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, adjusted EBITDA margin, constant currency 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. We exclude certain costs in our non-GAAP financial measures as we believe the net result is a measure of our core business. The company believes these measures facilitate operating performance comparisons from period to period by eliminating potential differences caused by the existence and timing of certain expense items that would not otherwise be apparent on a GAAP basis. 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.
Related Documents
Itron Q3 2017 Earnings Statement.
- Revenue of $487 million, compared with $507 million in the third quarter of 2016;
- Gross margin of 34.0 percent, compared with 33.7 percent in the third quarter of 2016;
- GAAP diluted earnings per share of 65 cents, compared with a loss of 26 cents per share in the third quarter of 2016; and
- Non-GAAP diluted earnings per share of 77 cents, which is flat compared with the third quarter of 2016.
"The internal transformation projects underway align with our strategy and provide long-term benefits of increased profitability and scalability for growth. Another important growth driver is customer adoption of our OpenWay RivaTM IoT solution, which is increasing. Our customers are excited about the possibilities OpenWay Riva brings and the value-proposition of a unified IoT platform for smart grids and smart cities. We are focused on delivering business outcomes with this solution and are investing in field deployment capacity to meet the needs of our growing customer base.
Mezey continued, "Also, on September 18, we announced an agreement to acquire Silver Spring Networks. This acquisition advances Itron's strategy of delivering highly secure, value-generating solutions for the critical infrastructure within utilities, smart cities and the broader industrial IoT sector. The timetable to close the transaction is late 2017 or early 2018, subject to customary closing conditions."
Summary of Third Quarter Consolidated Financial Results
(All comparisons made are against the prior year period unless otherwise noted)
Revenue
Total revenue of $487 million declined $20 million compared with the third quarter of 2016. The company experienced a delay in revenues due to temporary operational issues primarily in North America as well as continued delays of Water projects in our Europe, Middle East and Africa (EMEA) and North American regions, partially offset by $14 million of Distributed Energy Management revenues (DEM) realized through our acquisition of Comverge on June 1, 2017.
By segment, Electricity revenue decreased 1 percent due to the operational issues in North America, partially offset by strong smart solution volumes in the EMEA and Asia Pacific regions and DEM revenues. Gas revenue decreased 9 percent related to the operational issues in North America and lower EMEA Gas project revenue, compared with record communication module deliveries in the prior year. Water revenue decreased 4 percent due to lower revenue in North America and EMEA regions, partially offset by growth in Latin America and Asia Pacific.
Gross Margin
Consolidated company gross margin of 34.0 percent increased 30 basis points compared with the third quarter of 2016. The gross margin improvement was driven by higher Electricity and Water segment margins resulting from favorable product mix and lower warranty costs.
Operating Expenses
Operating expenses for the quarter were $128 million compared with $164 million in the third quarter of 2016. The reduction was driven by lower restructuring, professional services and variable compensation expenses, which were partially offset by acquisition and integration related expenses, as well as higher product development and sales and marketing costs mostly attributable to the addition of DEM solutions.
Non-GAAP operating expenses were $116 million compared with $119 million in 2016. The reduction was driven by lower professional services fees, variable compensation and reduced general and administrative headcount, partially offset by higher product development and sales and marketing expenses.
Operating Income, Net Income and Earnings per Share
GAAP operating income increased to $37 million compared with $6 million in the third quarter of 2016. Net income attributable to Itron for the quarter was $26 million, or 65 cents per diluted share, compared with a net loss of $10 million, or 26 cents per diluted share, in 2016. The higher operating income and net income were driven by lower operating expenses. Net income also benefited from a lower effective tax rate resulting from timing and mix of taxable income by jurisdiction.
Non-GAAP operating income was $50 million compared with $52 million in 2016. Non-GAAP net income for the quarter was $31 million, or 77 cents per diluted share, compared with $30 million, or 77 cents per diluted share, in 2016. The decrease in non-GAAP operating income was driven by the impact of lower revenue, partially offset by lower non-GAAP operating expenses, which exclude restructuring and acquisition and integration related costs and amortization of intangibles. Non-GAAP net income reflects the lower non-GAAP operating income offset by a lower non-GAAP effective tax rate resulting from timing and mix of taxable income by jurisdiction.
Cash Flow
Net cash provided by operating activities was $21 million in the third quarter of 2017 compared with $31 million in the same quarter of 2016. Free cash flow was $9 million for the third quarter compared with $20 million in the prior year. The decreases were primarily driven by changes in working capital due to timing of accounts payables and larger tax payments compared with the prior year.
Other Measures
Total backlog was $1.5 billion and 12-month backlog was $847 million at the end of the quarter, compared with $1.5 billion and $731 million, respectively, in the prior year quarter. Bookings in the quarter totaled $343 million.
Financial Guidance Update
The company anticipates full year 2017 non-GAAP EPS will be at or above the low end of the prior guidance range of $2.95 to $3.15, on revenues expected to be at or modestly below the low end of the prior guidance range of $2.03 billion to $2.06 billion, assuming current foreign currency rates, average fully diluted shares outstanding of approximately 39.5 million for the year and a non-GAAP effective tax rate for the year of approximately 35 percent.
A reconciliation of forward-looking non-GAAP diluted EPS to the GAAP diluted EPS has not been provided because we are unable to predict with reasonable certainty the potential amount or timing of restructuring and acquisition and integration related expenses and their related tax effects without unreasonable effort. These items are uncertain, depend on various factors and could have a material impact on GAAP results for the guidance period.
Earnings Conference Call
Itron will host a conference call to discuss the financial results and guidance contained in this release at 5:00 p.m. EDT on Nov. 1, 2017. 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 will be accessible on Itron's website at investors.itron.com. A replay of the audio webcast will be made available investors.itron.com. A telephone replay of the conference call will be available through Nov. 6, 2017. To access the telephone replay, dial (888) 203-1112 (Domestic) or (719) 457-0820 (International) and enter passcode 9357766.
Forward Looking Statements
This release contains forward-looking statements within in the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our expectations about revenues, operations, financial performance, earnings, earnings per share and cash flows, as well as the expected timing of the completion of our previously announced pending acquisition of Silver Spring Technologies, Inc. Although we believe the estimates and assumptions upon which these forward-looking statements are based are reasonable, any of these estimates or assumptions could prove to be inaccurate and the forward-looking statements based on these estimates and assumptions could be incorrect. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Actual results and trends in the future may differ materially from those suggested or implied by the forward-looking statements depending on a variety of factors. Some of the factors that we believe could affect our results include our ability to achieve estimated cost savings, the rate and timing of customer demand for our products, rescheduling of current customer orders, changes in estimated liabilities for product warranties, adverse impacts of litigation, 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, failure to satisfy conditions to the completion of the acquisition of Silver Spring Technologies, Inc. and other factors that are more fully described in our Annual Report on Form 10-K for the year ended December 31, 2016 and other reports on file with the Securities and Exchange Commission. Itron undertakes no obligation to update or revise any information in this press release.
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, adjusted EBITDA margin, constant currency 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. We exclude certain costs in our non-GAAP financial measures as we believe the net result is a measure of our core business. The company believes these measures facilitate operating performance comparisons from period to period by eliminating potential differences caused by the existence and timing of certain expense items that would not otherwise be apparent on a GAAP basis. 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.
Related Documents
Itron Q3 2017 Earnings Statement.
About Itron
Itron is a proven global leader in energy, water, smart city, IIoT and intelligent infrastructure services. For utilities, cities and society, we build innovative systems, create new efficiencies, connect communities, encourage conservation and increase resourcefulness. By safeguarding our invaluable natural resources today and tomorrow, we improve the quality of life for people around the world. Join us: www.itron.com.
Itron® is a registered trademark of Itron, Inc. All third-party trademarks are property of their respective owners and any usage herein does not suggest or imply any relationship between Itron and the third party unless expressly stated.