Itron Announces Second Quarter 2019 Financial Results and Increases Full-Year 2019 Guidance

Press Release

Itron Announces Second Quarter 2019 Financial Results and Increases Full-Year 2019 Guidance

LIBERTY LAKE, Wash.—(BUSINESS WIRE)—Aug. 5, 2019—Itron, Inc. (NASDAQ:ITRI) announced today financial results for its second quarter ended June 30, 2019. Key results for the quarter include (compared with the second quarter of 2018):
  • Revenue of $635 million, compared with $586 million;
  • Gross margin was flat at 30.1%;
  • GAAP net income of $19 million, compared with $3 million;
  • GAAP earnings per share of $0.49, compared with $0.07;
  • Non-GAAP diluted EPS of $0.87, compared with $0.51;
  • Adjusted EBITDA of $73 million, compared with $57 million; and
  • Total backlog was flat at $3.1 billion.
"Our second quarter financial performance contributed to a very strong first half of the year," said Philip Mezey, Itron's president and chief executive officer.

"Second quarter results were driven by strong customer demand, particularly in our Networked Solutions segment," continued Mezey. "We are very pleased with our performance in the first half of the year, which enabled us to raise our revenue and non-GAAP EPS guidance for full year 2019."

Summary of Second Quarter Consolidated Financial Results
(All comparisons made are against the prior year period unless otherwise noted)

Revenue
Total second quarter revenue increased 8% to $635 million, or 11%, excluding the impact of changes in foreign currency exchange rates.

Networked Solutions revenue increased 20%, and Outcomes revenue increased 15% driven by strong customer deliveries in North America. Device Solutions revenue decreased 8% due to lower revenue from Europe, Middle East and Africa (EMEA) region and the impact of changes in foreign currency exchange rates.

Gross Margin
Consolidated company gross margin of 30.1% was flat compared with the prior year as improved product mix was offset by higher component costs and other one-time items.

Operating Expenses and Operating Income
GAAP operating expenses of $148 million decreased $8 million from the prior year and non-GAAP operating expenses of $128 million decreased $4 million from the prior year. The decreases were primarily driven by benefits from restructuring and integration initiatives and the timing of product development spending.

GAAP operating income of $44 million and non-GAAP operating income of $63 million increased compared with the prior year due to higher gross profit and lower operating expenses.

Net Income (loss) and Earnings per Share
The net income attributable to Itron for the quarter was $19 million, or $0.49 per share, an increase from net income of $3 million, or $0.07 per share, in 2018. The increase was driven by higher operating income and a lower effective tax rate.

Non-GAAP net income, which excludes certain charges including restructuring, acquisition and integration related expenses, corporate transition cost, amortization of intangible assets, amortization of debt placement fees and the income tax effect of those adjustments, was $35 million, or $0.87 per diluted share, compared with $20 million, or $0.51 per diluted share, in 2018. The increase in non-GAAP EPS was due to higher non- GAAP operating income and a lower effective tax rate.

Cash Flow
Net cash provided by operating activities was $53 million in the second quarter compared with $41 million in the same quarter of 2018. Free cash flow was $38 million in the second quarter compared with $29 million in the prior year. Improved profitability was a major contributor to higher year over year cash flow.

Other Measures
Total backlog was $3.1 billion and 12-month backlog was $1.4 billion, which are both consistent with the prior year. Bookings in the quarter totaled $702 million.

Financial Guidance Update
Itron's guidance for the full year 2019 is as follows:
  • Revenue between $2.45 - $2.50 billion vs. previous guidance of $2.35 to $2.45 billion
  • Non-GAAP diluted EPS between $2.80 - $3.00 vs. previous guidance of $2.35 - $2.75
The guidance assumes a Euro to U.S. dollar foreign currency exchange rate of 1.12 on average in the second half of 2019, average fully diluted shares outstanding of approximately 40.2 million for the full year, non-GAAP effective tax rate for the full year of approximately 31% and total non-GAAP interest expense of approximately $50 million for the full year. 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 p.m. EDT on Aug. 5, 2019. 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 at investors.itron.com. A telephone replay of the conference call will be available through Aug. 10, 2019. To access the telephone replay, dial 888-203-1112 or 719-457-0820 and enter passcode 7922157.

Cautionary Note Regarding Forward Looking Statements
This release contains "forward-looking statements" within in the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical factors nor assurances of future performance. These statements relate to our expectations about, among others, revenues, operations, financial performance, earnings, earnings per share and cash flows. 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. Therefore, you should not rely on any of these forward-looking statements. 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 and other factors that are more fully described in our Annual Report on Form 10-K for the year ended Dec. 31, 2018 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 Q2 2019 Earnings Statement.

About Itron

Itron enables utilities and cities to safely, securely and reliably deliver critical infrastructure services to communities in more than 100 countries. Our portfolio of smart networks, software, services, meters and sensors helps our customers better manage electricity, gas and water resources for the people they serve. By working with our customers to ensure their success, we help improve the quality of life, ensure the safety and promote the well-being of millions of people around the globe. Itron is dedicated to creating a more resourceful world. Join us: www.itron.com.

Itron® and OpenWay® are registered trademarks 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.

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